UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
Form 10-K
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 2011
or
¨ 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)
(503) 684-7000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
(Title of Each Class) | (Name of Each Exchange on Which Registered) | |||
Common Stock without par value | New York Stock Exchange | |||
Securities registered pursuant to Section 12(g) of the Act: | ||||
None |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No X
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Act. Yes No X
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer Accelerated filer X Non-accelerated filer Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X
Aggregate market value of the Registrants Common Stock held by non-affiliates as of February 28, 2011 (based on the closing price of such shares on such date) was $564,931,943.
The number of shares outstanding of the Registrants Common Stock on October 24, 2011 was 25,186,200, without par value.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrants definitive Proxy Statement dated November 23, 2011 prepared in connection with the Annual Meeting of Stockholders to be held on January 6, 2012 are incorporated by reference into Parts II and III of this Report.
The Greenbrier Companies, Inc.
Form 10-K
The Greenbrier Companies 2011 Annual Report |
From time to time, The Greenbrier Companies, Inc. and its subsidiaries (Greenbrier or the Company) or their representatives have made or may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements as to expectations, beliefs and strategies regarding the future. Such forward-looking statements may be included in, but not limited to, press releases, oral statements made with the approval of an authorized executive officer or in various filings made by us with the Securities and Exchange Commission, including this filing on Form 10-K and in the Companys Presidents letter to stockholders that is typically distributed to the stockholders in conjunction with this Form 10-K and the Companys Proxy Statement. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These forward-looking statements rely on a number of assumptions concerning future events and include statements relating to:
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availability of financing sources and borrowing base for working capital, other business development activities, capital spending and leased railcars for syndication (sale of railcars with lease attached); |
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ability to renew, maintain or obtain sufficient credit facilities and financial guarantees on acceptable terms; |
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ability to utilize beneficial tax strategies; |
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ability to grow our businesses; |
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ability to obtain sales contracts which provide adequate protection against increased costs of materials and components; |
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ability to obtain adequate insurance coverage at acceptable rates; |
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ability to obtain adequate certification and licensing of products; and |
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short- and long-term revenue and earnings effects of the above items. |
The following factors, among others, could cause actual results or outcomes to differ materially from the forward-looking statements:
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fluctuations in demand for newly manufactured railcars or marine barges; |
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fluctuations in demand for wheel services, refurbishment and parts; |
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delays in receipt of orders, risks that contracts may be canceled during their term or not renewed and that customers may not purchase the amount of products or services under the contracts as anticipated; |
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ability to maintain sufficient availability of credit facilities and to maintain compliance with or to obtain appropriate amendments to covenants under various credit agreements; |
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domestic and global economic conditions including such matters as embargoes or quotas; |
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U.S., Mexican and other global political or security conditions including such matters as terrorism, war, civil disruption and crime; |
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growth or reduction in the surface transportation industry; |
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ability to maintain good relationships with third party labor providers or collective bargaining units; |
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steel and specialty component price fluctuations and availability, scrap surcharges, steel scrap prices and other commodity price fluctuations and availability and their impact on product demand and margin; |
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delay or failure of acquired businesses, assets, start-up operations, or new products or services to compete successfully; |
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changes in product mix and the mix of revenue levels among reporting segments; |
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labor disputes, energy shortages or operating difficulties that might disrupt operations or the flow of cargo; |
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production difficulties and product delivery delays as a result of, among other matters, inefficiencies associated with the start-up of production lines or increased production rates, changing technologies or non-performance of alliance partners, subcontractors or suppliers; |
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ability to renew or replace expiring customer contracts on satisfactory terms; |
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ability to obtain and execute suitable contracts for leased railcars for syndication; |
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lower than anticipated lease renewal rates, earnings on utilization based leases or residual values for leased equipment; |
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discovery of defects in railcars resulting in increased warranty costs or litigation; |
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resolution or outcome of pending or future litigation and investigations; |
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natural disasters or severe weather patterns that may affect either us, our suppliers or our customers; |
The Greenbrier Companies 2011 Annual Report | 1 |
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loss of business from, or a decline in the financial condition of, any of the principal customers that represent a significant portion of our total revenues; |
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competitive factors, including introduction of competitive products, new entrants into certain of our markets, price pressures, limited customer base, and competitiveness of our manufacturing facilities and products; |
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industry overcapacity and our manufacturing capacity utilization; |
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decreases or write-downs in carrying value of inventory, goodwill, intangibles or other assets due to impairment; |
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severance or other costs or charges associated with lay-offs, shutdowns, or reducing the size and scope of operations; |
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changes in future maintenance or warranty requirements; |
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ability to adjust to the cyclical nature of the industries in which we operate; |
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changes in interest rates and financial impacts from interest rates; |
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ability and cost to maintain and renew operating permits; |
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actions by various regulatory agencies; |
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changes in fuel and/or energy prices; |
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risks associated with our intellectual property rights or those of third parties, including infringement, maintenance, protection, validity, enforcement and continued use of such rights; |
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expansion of warranty and product support terms beyond those which have traditionally prevailed in the rail supply industry; |
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availability of a trained work force and availability and/or price of essential raw materials, specialties or components, including steel castings, to permit manufacture of units on order; |
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failure to successfully integrate acquired businesses; |
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discovery of previously unknown liabilities associated with acquired businesses; |
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failure of or delay in implementing and using new software or other technologies; |
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ability to replace maturing lease and management services revenue and earnings with revenue and earnings from new commercial transactions, including new railcar leases, additions to the lease fleet and new management services contracts; |
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credit limitations upon our ability to maintain effective hedging programs; and |
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financial impacts from currency fluctuations and currency hedging activities in our worldwide operations. |
Any forward-looking statements should be considered in light of these factors. Words such as anticipates, believes, forecast, potential, goal, contemplates, expects, intends, plans, projects, hopes, seeks, estimates, could, would, will, may, can, designed to, foreseeable future and similar expressions identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements. Many of the important factors that will determine these results and values are beyond our ability to control or predict. You are cautioned not to put undue reliance on any forward-looking statements. Except as otherwise required by law, we do not assume any obligation to update any forward-looking statements.
In assessing forward-looking statements contained herein, readers are urged to read carefully all cautionary statements contained in this Form 10-K, including, without limitation, those contained under the heading, Risk Factors, contained in Part I, Item 1A of this Form 10-K.
All references to years refer to the fiscal years ended August 31 st unless otherwise noted.
The Greenbrier Companies is a registered trademark of The Greenbrier Companies, Inc. Gunderson, Maxi-Stack, Auto-Max and YSD are registered trademarks of Gunderson LLC.
2 | The Greenbrier Companies 2011 Annual Report |
PART I
Item 1. | B USINESS |
Introduction
We are one of the leading designers, manufacturers and marketers of railroad freight car equipment in North America and Europe, a manufacturer and marketer of ocean-going marine barges in North America and a leading provider of wheel services, railcar refurbishment and parts, leasing and other services to the railroad and related transportation industries in North America.
We operate an integrated business model in North America that combines wheel services, repair and refurbishment, component parts reconditioning, freight car manufacturing, leasing and fleet management services. Our model is designed to provide customers with a comprehensive set of freight car solutions utilizing our substantial engineering, mechanical and technical capabilities as well as our experienced commercial personnel. This model allows us to develop cross-selling opportunities and synergies among our various business segments and to enhance our margins. We believe our integrated model is difficult to duplicate and provides greater value for our customers.
We operate in three primary business segments: Manufacturing; Wheel Services, Refurbishment & Parts; and Leasing & Services. Financial information about our business segments for the years ended August 31, 2011, 2010 and 2009 is located in Note 22 Segment Information to our Consolidated Financial Statements.
The Greenbrier Companies, Inc., which was incorporated in Delaware in 1981, consummated a merger on February 28, 2006 with its affiliate, Greenbrier Oregon, Inc., an Oregon corporation, for the sole purpose of changing its state of incorporation from Delaware to Oregon. Greenbrier Oregon survived the merger and assumed the name, The Greenbrier Companies, Inc. Our principal executive offices are located at One Centerpointe Drive, Suite 200, Lake Oswego, Oregon 97035, our telephone number is (503) 684-7000 and our Internet web site is located at http://www.gbrx.com .
Products and Services
Manufacturing
North American Railcar Manufacturing - We manufacture a broad array of railcar types in North America and have demonstrated an ability to capture high market shares in many of the car types we produce. We are the leading North American manufacturer of intermodal railcars with an average market share of approximately 64% over the last five years. In addition to our strength in intermodal railcars, we have commanded an average market share of approximately 56% in boxcars, 30% in flat cars and 18% in covered hoppers over the last five years. We delivered our first tank car in 2009 and achieved an 11% market share during the last year. The primary products we produce for the North American market are:
Intermodal Railcars - We manufacture a comprehensive range of intermodal railcars. Our most important intermodal product is our articulated double-stack railcar. The double-stack railcar is designed to transport containers stacked two-high on a single platform. An articulated double-stack railcar is comprised of up to five platforms each of which is linked by a common set of wheels and axles. Our comprehensive line of articulated and non-articulated double-stack intermodal railcars offers varying load capacities and configurations. The double-stack railcar provides significant operating and capital savings over other types of intermodal railcars.
Conventional Railcars - We produce a wide range of boxcars, which are used in forest products, automotive, perishables, general merchandise applications and the transport of commodities. We also produce a variety of covered hopper cars for the grain and cement industries as well as gondolas for the steel and metals markets and various other conventional railcar types, including our proprietary Auto-Max car. Our flat car products include center partition cars for the forest products industry, bulkhead flat cars, flat cars for automotive transportation and solid waste service flat cars.
The Greenbrier Companies 2011 Annual Report | 3 |
Tank Cars - We produce a line of tank car products for the North American market. We produce 30,000-gallon non-coiled, non-insulated tank cars, which are used to transport ethanol, methanol and more than 60 other commodities. We also produce 16,500 gallon coiled, insulated tank cars for use in caustic soda service, and 25,500 gallon and/or 23,500 gallon coiled, insulated tank cars for use to transport a variety of commodities such as vegetable oils and bio-diesel.
European Railcar Manufacturing - Our European manufacturing operation produces a variety of railcar (wagon) types, including a comprehensive line of pressurized tank cars for liquid petroleum gas and ammonia and non-pressurized tank cars for light oil, chemicals and other products. In addition, we produce flat cars, coil cars for the steel and metals market, coal cars for both the continental European and United Kingdom markets, gondolas, sliding wall cars and automobile transporter cars. Although no formal statistics are available for the European market, we believe we are one of the leading new freight car manufacturers with an estimated market share of 10-15%.
Marine Vessel Fabrication - Our Portland, Oregon manufacturing facility, located on a deep-water port on the Willamette River, includes marine vessel fabrication capabilities. The marine facilities also increase utilization of steel plate burning and fabrication capacity providing flexibility for railcar production. We manufacture a broad range of ocean-going barges including conventional deck barges, double-hull tank barges, railcar/deck barges, barges for aggregates and other heavy industrial products and dump barges. Our primary focus is on the larger ocean-going vessels although the facility has the capability to compete in other marine related products.
Wheel Services, Refurbishment & Parts
Wheel Services, Railcar Repair, Refurbishment and Component Parts Manufacturing - We believe we operate the largest independent wheel services, repair, refurbishment and component parts networks in North America, operating in 38 locations. Our wheel shops, operating in 12 locations, provide complete wheel services including reconditioning of wheels, axles and roller bearings in addition to new axle machining and finishing and axle downsizing. Our network of railcar repair and refurbishment shops, operating in 22 locations, performs heavy railcar repair and refurbishment, as well as routine railcar maintenance. We are actively engaged in the repair and refurbishment of railcars for third parties, as well as of our own leased and managed fleet. Our component parts facilities, operating in 4 locations, recondition railcar cushioning units, couplers, yokes, side frames, bolsters and various other parts. We also produce roofs, doors and associated parts for boxcars.
Leasing & Services
Leasing - Our relationships with financial institutions, combined with our ownership of a lease fleet of approximately 9,000 railcars, enables us to offer flexible financing programs including traditional direct finance leases, operating leases and by the mile leases to our customers. As an equipment owner, we participate principally in the operating lease segment of the market. The majority of our leases are full service leases whereby we are responsible for maintenance and administration. Maintenance of the fleet is provided, in part, through our own facilities and engineering and technical staff. Assets from our owned lease fleet are periodically sold to take advantage of market conditions, manage risk and maintain liquidity.
4 | The Greenbrier Companies 2011 Annual Report |
Management Services - Our management services business offers a broad array of software and services that include railcar maintenance management, railcar accounting services (such as billing and revenue collection, car hire receivable and payable administration), total fleet management (including railcar tracking using proprietary software), administration and railcar remarketing. Frequently, we originate leases of railcars, which are either newly built or refurbished by us, with railroads or shippers, and sell the railcars and attached leases to financial institutions and subsequently provide management services under multi-year agreements. We currently own or provide management services for a fleet of approximately 225,000 railcars for railroads, shippers, carriers, institutional investors and other leasing and transportation companies in North America.
Fleet Profile
(1)
As of August 31, 2011 |
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Owned Units (2) |
Managed Units |
Total Units |
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Customer Profile: |
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Class I Railroads |
3,426 | 91,270 | 94,696 | |||||||||
Leasing Companies |
313 | 93,178 | 93,491 | |||||||||
Non-Class I Railroads |
1,488 | 18,164 | 19,652 | |||||||||
Shipping Companies |
3,063 | 13,076 | 16,139 | |||||||||
Off-lease |
375 | 147 | 522 | |||||||||
En route to Customer Location |
19 | 8 | 27 | |||||||||
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Total Units |
8,684 | 215,843 | 224,527 | |||||||||
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(1) |
Each platform of a railcar is treated as a separate unit. |
(2) |
Percent of owned units on lease is 95.7% with an average remaining lease term of 2.1 years. The average age of owned units is 16 years. |
Backlog
The following table depicts our reported third party railcar backlog in number of railcars and estimated future revenue value attributable to such backlog, at the dates shown:
August 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
New railcar backlog units (1) |
15,400 | 5,300 | 13,400 | |||||||||
Estimated future revenue value (in millions) (2) |
$ | 1,230 | $ | 420 | $ | 1,160 |
(1) |
Each platform of a railcar is treated as a separate unit. |
(2) |
Subject to change based on finalization of product mix. |
The rail and marine industries are cyclical in nature. We are continuing to see recovery in the freight car markets in which we operate. Demand for our marine barge products remains soft. Customer orders may be subject to cancellations and contain terms and conditions customary in the industry. Historically, little variation has been experienced between the quantity ordered and the quantity actually delivered. Our railcar and marine backlogs are not necessarily indicative of future results of operations.
Multi-year supply agreements are a part of rail industry practice. Our total manufacturing backlog of railcars as of August 31, 2011 was approximately 15,400 units with an estimated value of $1.23 billion, compared to 5,300 units valued at $420 million as of August 31, 2010. Based on current production plans, approximately 14,500 units in the August 31, 2011 backlog are scheduled for delivery in 2012. The balance of the production is scheduled for delivery through 2013. A portion of the orders included in backlog reflects an assumed product mix. Under terms of the orders, the exact mix will be determined in the future which may impact the dollar amount of backlog.
We currently have no marine backlog compared to approximately $10 million as of August 31, 2010.
The Greenbrier Companies 2011 Annual Report | 5 |
Customers
Our railcar customers in North America include Class I railroads, regional and short-line railroads, leasing companies, shippers, carriers and transportation companies. We have strong, long-term relationships with many of our customers. We believe that our customers preference for high quality products, our technological leadership in developing innovative products and competitive pricing of our railcars have helped us maintain our long-standing relationships with our customers.
In 2011, revenue from four customers together, TTX Company (TTX), Union Pacific Railroad (UP), BNSF Railway Company (BNSF), and General Electric Railcar Services Corporation (GE) accounted for approximately 56% of total revenue, 18% of Leasing & Services revenue, 52% of Wheel Services, Refurbishment & Parts revenue and 62% of Manufacturing revenue. No other customers accounted for more than 10% of total revenue.
Raw Materials and Components
Our products require a supply of materials including steel and specialty components such as brakes, wheels and axles. Specialty components purchased from third parties represent a significant amount of the cost of most freight cars. Our customers often specify particular components and suppliers of such components. Although the number of alternative suppliers of certain specialty components has declined in recent years, there are at least two suppliers for most such components.
Certain materials and components are periodically in short supply which could potentially impact production at our new railcar and refurbishment facilities. In an effort to mitigate shortages and reduce supply chain costs, we have entered into strategic alliances for the global sourcing of certain components, increased our replacement parts business and continue to pursue strategic opportunities to protect and enhance our supply chain.
We periodically make advance purchases to avoid possible shortages of material due to capacity limitations of component suppliers and possible price increases. We do not typically enter into binding long-term contracts with suppliers because we rely on established relationships with major suppliers to ensure the availability of raw materials. We do have certain long-term agreements for specialty items to insure their availability.
Competition
There are currently six major railcar manufacturers competing in North America. One of these builds railcars principally for its own fleet and the others compete with us principally in the general railcar market. We compete on the basis of quality, price, reliability of delivery, reputation and customer service and support.
Competition in the marine industry is dependent on the type of product produced. There are two principal competitors, located in the Gulf States, which build product types similar to ours. We compete on the basis of experienced labor, launch ways capacity, quality, price and reliability of delivery. United States (U.S.) coastwise law, commonly referred to as the Jones Act, requires all commercial vessels transporting merchandise between ports in the U.S. to be built, owned, operated and manned by U.S. citizens and to be registered under the U.S. flag.
We believe that we are among the top five European railcar manufacturers, which maintain a combined market share of over 80%. European freight car manufacturers are largely located in central and eastern Europe where labor rates are lower and work rules are more flexible.
Competition in the wheel services, refurbishment and parts business is dependent on the type of product or service provided. There are many competitors in the railcar repair and refurbishment business and fewer competitors in the wheel services and other parts businesses; recently there have been new entrants in the wheel services business. We believe we are the largest non-railroad provider of wheel services and refurbishment services. We compete primarily on the basis of quality, timeliness of delivery, customer service, price and engineering expertise.
6 | The Greenbrier Companies 2011 Annual Report |
There are at least twenty institutions that provide railcar leasing and services similar to ours. Many of them are also customers that buy new railcars from our manufacturing facilities and used railcars from our lease fleet, as well as utilize our management services. More than half of these institutions have greater resources than we do. We compete primarily on the basis of quality, price, delivery, reputation, service offerings and deal structuring ability. We believe our strong servicing capability and our ability to sell railcars with a lease attached (syndicate railcars), integrated with our manufacturing, repair shops, railcar specialization and expertise in particular lease structures provide a strong competitive position.
Marketing and Product Development
In North America, we utilize an integrated marketing and sales effort to coordinate relationships in our various segments. We provide our customers with a diverse range of equipment and financing alternatives designed to satisfy each customers unique needs, whether the customer is buying new equipment, refurbishing existing equipment or seeking to outsource the maintenance or management of equipment. These custom programs may involve a combination of railcar products, leasing, refurbishing and remarketing services. In addition, we provide customized maintenance management, equipment management, accounting services and proprietary software solutions.
In Europe, we maintain relationships with customers through a network of country-specific sales representatives. Our engineering and technical staff works closely with their customer counterparts on the design and certification of railcars. Many European railroads are state-owned and are subject to European Union regulations covering the tender of government contracts.
Through our customer relationships, insights are derived into the potential need for new products and services. Marketing and engineering personnel collaborate to evaluate opportunities and identify and develop new products. Research and development costs incurred for new product development during the years ended August 31, 2011, 2010 and 2009 were $3.0 million, $2.6 million and $1.7 million.
Patents and Trademarks
We have a number of U.S. and non-U.S. patents of varying duration, and pending patent applications, registered trademarks, copyrights and trade names that are important to our products and product development efforts. The protection of our intellectual property is important to our business and we have a proactive program aimed at protecting our intellectual property and the results from our research and development.
Environmental Matters
We are subject to national, state and local environmental laws and regulations concerning, among other matters, air emissions, wastewater discharge, solid and hazardous waste disposal and employee health and safety. Prior to acquiring facilities, we usually conduct investigations to evaluate the environmental condition of subject properties and may negotiate contractual terms for allocation of environmental exposure arising from prior uses. We operate our facilities in a manner designed to maintain compliance with applicable environmental laws and regulations.
Environmental studies have been conducted on certain of the Companys owned and leased properties that indicate additional investigation and some remediation on certain properties may be necessary. The Companys Portland, Oregon manufacturing facility is located adjacent to the Willamette River. The U.S. Environmental Protection Agency (EPA) has classified portions of the river bed, including the portion fronting Greenbriers facility, as a federal National Priority List or Superfund site due to sediment contamination (the Portland Harbor Site). Greenbrier and more than 140 other parties have received a General Notice of potential liability from the EPA relating to the Portland Harbor Site. The letter advised the Company that it may be liable for the costs of investigation and remediation (which liability may be joint and several with other potentially responsible parties) as well as for natural resource damages resulting from releases of hazardous substances to the site. At this time, ten private and public entities, including the Company, have signed an Administrative Order on Consent (AOC) to perform a remedial investigation/feasibility study (RI/FS) of the Portland Harbor Site under
The Greenbrier Companies 2011 Annual Report | 7 |
EPA oversight, and several additional entities have not signed such consent, but are nevertheless contributing money to the effort. A draft of the RI study was submitted on October 27, 2009. The Feasibility Study is being developed and is expected to be submitted in the first calendar quarter of 2012. Eighty-three parties, including the State of Oregon and the federal government, have entered into a non-judicial mediation process to try to allocate costs associated with the Portland Harbor site. Approximately 110 additional parties have signed tolling agreements related to such allocations. On April 23, 2009, the Company and the other AOC signatories filed suit against 69 other parties due to a possible limitations period for some such claims; Arkema Inc. et al v. A & C Foundry Products, Inc.et al, US District Court, District of Oregon, Case #3:09-cv-453-PK. All but 12 of these parties elected to sign tolling agreements and be dismissed without prejudice, and the case has now been stayed by the court, pending completion of the RI/FS. In addition, the Company has entered into a Voluntary Clean-Up Agreement with the Oregon Department of Environmental Quality in which the Company agreed to conduct an investigation of whether, and to what extent, past or present operations at the Portland property may have released hazardous substances to the environment. The Company is also conducting groundwater remediation relating to a historical spill on the property which antedates its ownership.
Because these environmental investigations are still underway, the Company is unable to determine the amount of ultimate liability relating to these matters. Based on the results of the pending investigations and future assessments of natural resource damages, Greenbrier may be required to incur costs associated with additional phases of investigation or remedial action, and may be liable for damages to natural resources. In addition, the Company may be required to perform periodic maintenance dredging in order to continue to launch vessels from its launch ways in Portland, Oregon, on the Willamette River, and the rivers classification as a Superfund site could result in some limitations on future dredging and launch activities. Any of these matters could adversely affect the Companys business and Consolidated Financial Statements, or the value of its Portland property.
Regulation
The Federal Railroad Administration in the U.S. and Transport Canada in Canada administer and enforce laws and regulations relating to railroad safety. These regulations govern equipment and safety appliance standards for freight cars and other rail equipment used in interstate commerce. The Association of American Railroads (AAR) promulgates a wide variety of rules and regulations governing the safety and design of equipment, relationships among railroads and other railcar owners with respect to railcars in interchange, and other matters. The AAR also certifies railcar builders and component manufacturers that provide equipment for use on North American railroads. These regulations require us to maintain our certifications with the AAR as a railcar builder and component manufacturer, and products sold and leased by us in North America must meet AAR, Transport Canada, and Federal Railroad Administration standards.
The primary regulatory and industry authorities involved in the regulation of the ocean-going barge industry are the U.S. Coast Guard, the Maritime Administration of the U.S. Department of Transportation, and private industry organizations such as the American Bureau of Shipping.
The regulatory environment in Europe consists of a combination of European Union (EU) regulations and country specific regulations, including a harmonized set of Technical Standards for Interoperability of freight wagons throughout the EU.
Employees
As of August 31, 2011, we had 6,032 full-time employees, consisting of 4,462 employees in Manufacturing, 1,424 in Wheel Services, Refurbishment & Parts and 146 employees in Leasing & Services and corporate. In Poland, 372 employees are represented by unions. At our Frontera, Mexico joint venture manufacturing facility, 1,076 employees are represented by a union. At our Sahagun, Mexico facility, 587 employees are represented by a union. In addition to our own employees, 1,163 union employees work at our Sahagun, Mexico railcar manufacturing facility under our services agreement with Bombardier Transportation. At our Wheel Services, Refurbishment & Parts locations, 72 employees, in Mexico, are represented by unions. We believe that our relations with our employees are generally good.
8 | The Greenbrier Companies 2011 Annual Report |
Additional Information
We are a reporting company and file annual, quarterly, current and special reports, proxy statements and other information with the Securities and Exchange Committee (SEC). Through a link on the Investor Relations section of our website, http://www.gbrx.com , we make available the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. All such filings are available free of charge. Copies of our Audit Committee Charter, Compensation Committee Charter, Nominating/Corporate Governance Committee Charter and the Companys Corporate Governance Guidelines are also available on our web site at http://www.gbrx.com . In addition, each of the reports and documents listed above are available free of charge by contacting our Investor Relations Department at The Greenbrier Companies, Inc., One Centerpointe Drive, Suite 200, Lake Oswego, Oregon 97035.
Item 1a. | RISK FACTORS |
In addition to the risks outlined in this annual report under the heading Forward-Looking Statements, as well as other comments included herein regarding risks and uncertainties, the following risk factors should be carefully considered when evaluating our company. Our business, financial condition or financial results could be materially and adversely affected by any of these risks.
The ongoing uncertainty and volatility in the financial markets related to the U.S. budget deficit, the European sovereign debt crisis and the state of the U.S. economic recovery may adversely affect our operating results.
Global financial markets continue to experience disruptions, including increased volatility, and diminished liquidity and credit availability. In particular, developments in Europe have created uncertainty with respect to the ability of certain European countries to continue to service their sovereign debt obligations. This debt crisis and related European financial restructuring efforts may cause the value of the Euro to deteriorate, reducing the purchasing power of our European customers and reducing the translated amounts of U.S. dollar revenues. In addition, the European crisis is contributing to instability in global credit markets. If global economic and market conditions, or economic conditions in Europe, the U.S. or other key markets, remain uncertain, persist, or deteriorate further, our customers may respond by suspending, delaying or reducing their capital expenditures and equipment maintenance budgets, which may adversely affect our cash flows and results of operations.
During economic downturns or a rising interest rate environment, the cyclical nature of our business results in lower demand for our products and services and reduced revenue.
Our business is cyclical. Overall economic conditions and the purchasing practices of buyers have a significant effect upon our railcar repair, refurbishment and component parts, marine manufacturing, railcar manufacturing and leasing and fleet management services businesses due to the impact on demand for new, refurbished, used and leased products and services. As a result, during downturns, we could operate with a lower level of backlog and may temporarily slow down or halt production at some or all of our facilities. Economic conditions that result in higher interest rates increase the cost of new leasing arrangements, which could cause some of our leasing customers to lease fewer of our railcars or demand shorter lease terms. An economic downturn or increase in interest rates may reduce demand for our products and services, resulting in lower sales volumes, lower prices, lower lease utilization rates and decreased profits.
We face aggressive competition by a concentrated group of competitors and a number of factors may influence our performance and our results of operations.
We face aggressive competition by a concentrated group of competitors in all geographic markets and in each area of our business. The railcar manufacturing and repair industry is intensely competitive and we expect it to
The Greenbrier Companies 2011 Annual Report | 9 |
remain so in the foreseeable future. A number of other factors may influence our performance, including without limitation: fluctuations in the demand for newly manufactured railcars or marine barges; fluctuations in demand for wheel services, refurbishment and parts; our ability to adjust to the cyclical nature of the industries in which we operate; delays in receipt of orders, risks that contracts may be canceled during their term or not renewed and that customers may not purchase the amount of products or services under the contracts as anticipated; domestic and global economic conditions including such matters as embargoes or quotas; growth or reduction in the surface transportation industry; steel and specialty component price fluctuations and availability, scrap surcharges, steel scrap prices and other commodity price fluctuations and their impact on product demand and margin; loss of business from, or a decline in the financial condition of, any of the principal customers that represent a significant portion of our total revenues; competitive factors, including introduction of competitive products, new entrants into certain of our markets, price pressures, limited customer base and competitiveness of our manufacturing facilities and products; industry overcapacity and our manufacturing capacity utilization; and other risks, uncertainties and factors. If we do not compete successfully or if we are affected by any of these factors, our market share, margin and results of operation may be adversely affected.
A change in our product mix, a failure to design or manufacture products or technologies or achieve certification or market acceptance of new products or technologies or introduction of products by our competitors could have an adverse effect on our profitability and competitive position.
We manufacture and repair a variety of railcars. The demand for specific types of these railcars and mix of refurbishment work varies from time to time. These shifts in demand could affect our margins and could have an adverse effect on our profitability. Currently a large portion of our backlog includes a concentrated product mix of covered hoppers and tank cars used in hydraulic fracturing operations for the extraction of fossil fuels. A sudden change in this market could have an adverse effect on our profitability.
We continue to introduce new railcar products and technologies and periodically accept orders prior to receipt of railcar certification or proof of ability to manufacture a quality product that meets customer standards. We could be unable to successfully design or manufacture these new railcar products and technologies. Our inability to develop and manufacture such new products and technologies in a timely and profitable manner, to obtain certification, and achieve market acceptance or the existence of quality problems in our new products could have a material adverse effect on our revenue and results of operations and subject us to penalties, cancellation of orders and/or other damages.
In addition, new technologies, changes in product mix or the introduction of new railcars and product offerings by our competitors could render our products obsolete or less competitive. As a result, our ability to compete effectively could be harmed.
A prolonged decline in performance of the rail freight industry would have an adverse effect on our financial condition and results of operations.
Our future success depends in part upon the performance of the rail freight industry, which in turn depends on the health of the economy. If railcar loadings, railcar and railcar components replacement rates or refurbishment rates or industry demand for our railcar products weaken or otherwise do not materialize, our financial condition and results of operations would be adversely affected.
Our backlog is not necessarily indicative of the level of our future revenues.
Our manufacturing backlog represents future production for which we have written orders from our customers in various periods, and estimated potential revenue attributable to those orders. Some of this backlog is subject to our fulfillment of certain competitive conditions. Our reported backlog may not be converted to revenue in any particular period and some of our contracts permit cancellations without financial penalties or with limited compensation that would not replace lost revenue or margins. Actual revenue from such contracts may not equal our backlog revenues, and therefore, our backlog is not necessarily indicative of the level of our future revenues.
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We derive a significant amount of our revenue from a limited number of customers, the loss of or reduction of business from one or more of which could have an adverse effect on our business. A significant portion of our revenue and backlog is generated from a few major customers. We cannot be assured that our customers will continue to use our products or services or that they will continue to do so at historical levels. A reduction in the purchase or leasing of our products or a termination of our services by one or more of our major customers could have an adverse effect on our business and operating results.
We derive a significant amount of our revenue from a limited number of customers, the loss of or reduction of business from one or more of which could have an adverse effect on our business.
A significant portion of our revenue and backlog is generated from a few major customers such as TTX, BNSF, UP and GE. Although we have some long-term contractual relationships with our major customers, we cannot be assured that our customers will continue to use our products or services or that they will continue to do so at historical levels. A reduction in the purchase or leasing of our products or a termination of our services by one or more of our major customers could have an adverse effect on our business and operating results.
Fluctuations in the availability and price of energy, steel and other raw materials, and our fixed price contracts could have an adverse effect on our ability to manufacture and sell our products on a cost-effective basis and could adversely affect our margins and revenue of our manufacturing and wheel services, refurbishment and parts businesses.
A significant portion of our business depends upon the adequate supply of steel, components and other raw materials at competitive prices and a small number of suppliers provide a substantial amount of our requirements. The cost of steel and all other materials used in the production of our railcars represents more than half of our direct manufacturing costs per railcar and in the production of our marine barges represents more than 30% of our direct manufacturing costs per marine barge.
Our businesses also depend upon the adequate supply of energy at competitive prices. When the price of energy increases it adversely impacts our operating costs and could have an adverse effect upon our ability to conduct our businesses on a cost-effective basis. We cannot be assured that we will continue to have access to supplies of energy or necessary components for manufacturing railcars and marine barges. Our ability to meet demand for our products could be adversely affected by the loss of access to any of these supplies, the inability to arrange alternative access to any materials, or suppliers limiting allocation of materials to us.
In some instances, we have fixed price contracts which anticipate material price increases and surcharges, or contracts that contain actual or formulaic pass through of material price increases and surcharges. However, if the price of steel or other raw materials were to fluctuate in excess of anticipated increases on which we have based our fixed price contracts, or if we were unable to adjust our selling prices or have adequate protection in our contracts against changes in material prices, or if we are unable to reduce operating costs to offset any price increases, our margins would be adversely affected. The loss of suppliers or their inability to meet our price, quality, quantity and delivery requirements could have an adverse effect on our ability to manufacture and sell our products on a cost-effective basis.
Decreases in the price of scrap adversely impact our Wheel Services, Refurbishment & Parts margin and revenue. A portion of our Wheel Services, Refurbishment & Parts business involves scrapping steel parts and the resulting revenue from such scrap steel increases our margins and revenues. When the price of scrap steel declines, our margins and revenues in such business therefore decrease.
If we are not able to procure specialty components on commercially reasonable terms or on a timely basis, our business, financial condition and results of operations would be adversely impacted. We rely on limited suppliers for certain components needed in our production.
Our manufacturing operations depend in part on our ability to obtain timely deliveries of materials and components in acceptable quantities and quality from our suppliers. Certain components of our products,
The Greenbrier Companies 2011 Annual Report | 11 |
particularly specialized components like castings, bolsters and trucks, are currently available from only a limited number of suppliers. Recent increases in the number of railcars manufactured have increased the demand for such components and continued strong demand has caused temporary shortages and may cause industry-wide shortages if suppliers are in the process of ramping up production or reach capacity production. Our dependence on a limited number of suppliers involves risks, including limited control over pricing, availability and delivery schedules. If any one or more of our suppliers cease to provide us with sufficient quantities of our components in a timely manner or on terms acceptable to us, or cease to manufacture components of acceptable quality, we could incur disruptions or be limited in our production of our products and we could have to seek alternative sources for these components. We could also incur delays while we attempt to locate and engage alternative qualified suppliers and we might be unable to engage acceptable alternative suppliers on favorable terms, if at all. Any such disruption in our supply of specialized components or increased costs in those components could harm our business and adversely impact our results of operations.
Changes in the credit markets and the financial services industry could negatively impact our business, results of operations, financial condition or liquidity.
The credit markets and the financial services industry continue to experience a period of unprecedented turmoil, resulting in tighter availability of credit on more restrictive terms. This could have a negative impact on our liquidity and financial condition if our ability to borrow money to finance operations, obtain credit from trade creditors, offer leasing products to our customers or sell railcar assets to other lessors were to be impaired. In addition, if economic conditions remain depressed it could also adversely impact our customers ability to purchase or pay for products from us or our suppliers ability to provide us with product, either of which could negatively impact our business and results of operations.
If we or our joint ventures fail to complete capital expenditure projects on time and within budget, or if these projects, once completed, fail to operate as anticipated, such failure could adversely affect our business, financial condition and results of operations.
From time-to-time, we, or our joint ventures, undertake strategic capital projects in order to enhance, expand and/or upgrade facilities and operational capabilities. For instance, we have undertaken an expansion of our wheels services business near North Platte, Nebraska and commenced construction of a new advanced automated wheel facility. In addition, our facility in Sahagun, Mexico is currently building a new railcar production line to replace a temporary line currently in use. Our ability, and our joint ventures ability, to complete these projects on time and within budget, and for us to realize the anticipated increased revenues or otherwise realize acceptable returns on these investments or other strategic capital projects that may be undertaken is subject to a number of risks, many of which are beyond our control, including a variety of market, operational, permitting, and labor related factors. In addition, the cost to implement any given strategic capital project ultimately may prove to be greater than originally anticipated. If we, or our joint ventures, are not able to achieve the anticipated results from the implementation of any of these strategic capital projects, or if unanticipated implementation costs are incurred, our business, financial condition and results of operations may be adversely affected.
The timing of our asset sales and related revenue recognition could cause significant differences in our quarterly results and liquidity.
We may build railcars or marine barges in anticipation of a customer order, or that are leased to a customer and ultimately planned to be sold to a third-party. The difference in timing of production and the ultimate sale is subject to risk and could cause a fluctuation in our quarterly results and liquidity. In addition, we periodically sell railcars from our own lease fleet and the timing and volume of such sales is difficult to predict. As a result, comparisons of our quarterly gain on disposition of equipment, income and liquidity between quarterly periods within one year and between comparable periods in different years may not be meaningful and should not be relied upon as indicators of our future performance.
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We could be unable to remarket leased railcars on favorable terms upon lease termination or realize the expected residual values, which could reduce our revenue and decrease our overall return.
We re-lease or sell railcars we own upon the expiration of existing lease terms. The total rental payments we receive under our operating leases do not fully amortize the acquisition costs of the leased equipment, which exposes us to risks associated with remarketing the railcars. Our ability to remarket leased railcars profitably is dependent upon several factors, including, but not limited to, market and industry conditions, cost of and demand for newer models, costs associated with the refurbishment of the railcars and interest rates. Our inability to re-lease or sell leased railcars on favorable terms could result in reduced revenues and margins or gain on disposition of equipment and decrease our overall returns.
Risks related to our operations outside of the U.S. could adversely impact our operating results.
Our operations outside of the U.S. are subject to the risks associated with cross-border business transactions and activities. Political, legal, trade or economic changes or instability could limit or curtail our foreign business activities and operations. Some foreign countries in which we operate have regulatory authorities that regulate railroad safety, railcar design and railcar component part design, performance and manufacturing. If we fail to obtain and maintain certifications of our railcars and railcar parts within the various foreign countries where we operate, we may be unable to market and sell our railcars in those countries. In addition, unexpected changes in regulatory requirements, tariffs and other trade barriers, more stringent rules relating to labor or the environment, adverse tax consequences, currency and price exchange controls could limit operations and make the manufacture and distribution of our products difficult. The uncertainty of the legal environment or geo-political risks in these and other areas could limit our ability to enforce our rights effectively. Because we have operations outside the U.S., we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-corruption laws. We operate in parts of the world that have experienced governmental corruption to some degree, and in certain circumstances, strict compliance with anti-corruption laws may conflict with local customs and practices. The failure to comply with laws governing international business practices may result in substantial penalties and fines. Any international expansion or acquisition that we undertake could amplify these risks related to operating outside of the U.S.
We depend on our senior management team and other key employees, and significant attrition within our management team or unsuccessful succession planning could adversely affect our business.
Our success depends in part on our ability to attract, retain and motivate senior management and other key employees. Achieving this objective may be difficult due to many factors, including fluctuations in global economic and industry conditions, competitors hiring practices, cost reduction activities, and the effectiveness of our compensation programs. Competition for qualified personnel can be very intense. We must continue to recruit, retain and motivate senior management and other key employees sufficient to maintain our current business and support our future projects. We are vulnerable to attrition among our current senior management team and other key employees. A loss of any such personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial condition and results of operations. In addition, several key members of our senior management team are at or nearing retirement age. If we are unsuccessful in our succession planning efforts, the continuity of our business and results of operations could be adversely impacted.
Some of our employees belong to labor unions and strikes or work stoppages could adversely affect our operations.
We are a party to collective bargaining agreements with various labor unions at some of our operations. Disputes with regard to the terms of these agreements or our potential inability to negotiate acceptable contracts with these unions in the future could result in, among other things, strikes, work stoppages or other slowdowns by the affected workers. We cannot be assured that our relations with our workforce will remain positive or that union organizers will not be successful in future attempts to organize at some of our other facilities. If our workers were
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to engage in a strike, work stoppage or other slowdown, or other employees were to become unionized or the terms and conditions in future labor agreements were renegotiated, we could experience a significant disruption of our operations and higher ongoing labor costs. In addition, we could face higher labor costs in the future as a result of severance or other charges associated with lay-offs, shutdowns or reductions in the size and scope of our operations or due to the difficulties of restarting our operations that have been temporarily shuttered.
Shortages of skilled labor could adversely impact our operations.
We depend on skilled labor in the manufacture of railcars and marine barges, repair and refurbishment of railcars and provision of wheel services and supply of parts. Some of our facilities are located in areas where demand for skilled laborers often exceeds supply. Shortages of some types of skilled laborers such as welders could restrict our ability to maintain or increase production rates and could increase our labor costs.
Our operations in Mexico are dependent on a number of factors, including factors outside of our control. If we experience an interruption of our manufacturing operations in Mexico, our results of operations may be adversely affected.
In Sahagun, Mexico, we depend on a third party to provide us with most of the labor services for our operations under a services agreement. All of the labor provided by the third party is subject to collective bargaining agreements, over which we have no control. If the third party fails to provide us with the services required by our agreement for any reason, including labor stoppages or strikes or a sale of facilities owned by the third party, our operations could be adversely effected. Additionally, we could incur substantial expense and interruption if we are unable to renew our Sahagun, Mexico manufacturing facilitys lease on acceptable terms, or at all, or if such lease was terminated early. The current lease agreement expires in November 2014. Any interruption of our manufacturing operations in Mexico could adversely affect our results of operations.
Our relationships with our joint venture and alliance partners could be unsuccessful, which could adversely affect our business.
We have entered into several joint venture agreements and other alliances with other companies to increase our sourcing alternatives, reduce costs, and to produce new railcars for the North American marketplace. We may seek to expand our relationships or enter into new agreements with other companies. If our joint venture alliance partners are unable to fulfill their contractual obligations or if these relationships are otherwise not successful in the future, our manufacturing costs could increase, we could encounter production disruptions, growth opportunities could fail to materialize, or we could be required to fund such joint venture alliances in amounts significantly greater than initially anticipated, any of which could adversely affect our business.
Our product and repair service warranties could expose us to potentially significant claims.
We offer our customers limited warranties for many of our products and services. Accordingly, we may be subject to significant warranty claims in the future, such as multiple claims based on one defect repeated throughout our production or servicing process or claims for which the cost of repairing the defective part is highly disproportionate to the original cost of the part. These types of warranty claims could result in costly product recalls, customers seeking monetary damages, significant repair costs and damage to our reputation.
If warranty claims attributable to actions of third party component manufacturers are not recoverable from such parties due to their poor financial condition or other reasons, we could be liable for warranty claims and other risks for using these materials on our products.
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Our financial performance and market value could cause future write-downs of goodwill or intangibles in future periods.
We are required to perform an annual impairment review of goodwill and indefinite lived assets which could result in impairment write-downs. We perform a goodwill impairment test annually during our third fiscal quarter. Goodwill is also tested more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists. When changes in circumstances indicate the carrying amount of certain long-lived assets may not be recoverable, the assets are evaluated for impairment. If the carrying value of the asset is in excess of the fair value, the carrying value will be adjusted to fair value through an impairment charge. As of August 31, 2011, we had $137.1 million of goodwill in our Wheel Services, Refurbishment & Parts segment. Our stock price can impact the results of the impairment review of goodwill and intangibles. Future write-downs of goodwill and intangibles could affect certain of the financial covenants under debt instruments and could restrict our financial flexibility. In the event of goodwill impairment, we may have to test other intangible assets for impairment. Impairment charges to our goodwill or our indefinite lived assets could impact our results of operations.
A prolonged decline in demand for our barge products would have an adverse effect on our financial condition and results of operations.
In the marine market, current weak economic conditions may continue to have an adverse effect on our results of operations by reducing demand for our marine barges. This could reduce our revenues and margins, limit our ability to grow, increase pricing pressure on our products, and otherwise adversely affect our financial results.
Fluctuations in foreign currency exchange rates could lead to increased costs and lower profitability.
Outside of the U.S., we operate in Mexico, Germany and Poland, and our non-U.S. businesses conduct their operations in local currencies and other regional currencies. We also source materials worldwide. Fluctuations in exchange rates may affect demand for our products in foreign markets or our cost competitiveness and may adversely affect our profitability. Although we attempt to mitigate a portion of our exposure to changes in currency rates through currency rate hedge contracts and other activities, these efforts cannot fully eliminate the risks associated with the foreign currencies. In addition, some of our borrowings are in foreign currency, giving rise to risk from fluctuations in exchange rates. A material or adverse change in exchange rates could result in significant deterioration of profits or in losses for us.
We have potential exposure to environmental liabilities, which could increase costs or have an adverse effect on results of operations.
We are subject to extensive national, state, provincial and local environmental laws and regulations concerning, among other things, air emissions, water discharge, solid waste and hazardous substances handling and disposal and employee health and safety. These laws and regulations are complex and frequently change. We could incur unexpected costs, penalties and other civil and criminal liability if we fail to comply with environmental laws or permits issued to us pursuant to those laws. We also could incur costs or liabilities related to off-site waste disposal or remediating soil or groundwater contamination at our properties. In addition, future environmental laws and regulations may require significant capital expenditures or changes to our operations.
In addition to environmental, health and safety laws, the transportation of commodities by railcar raises potential risks in the event of a derailment or other accident. Generally, liability under existing law in the U.S. for accidents such as derailments depends on the negligence of the party. However, for certain hazardous commodities being shipped, strict liability concepts may apply.
Environmental studies have been conducted on certain of our owned and leased properties that have indicated a need for additional investigation and some remediation. Some of these projects are ongoing. Our Portland,
The Greenbrier Companies 2011 Annual Report | 15 |
Oregon manufacturing facility is located adjacent to the Willamette River. The U.S. Environmental Protection Agency (EPA) has classified portions of the river bed, including the portion fronting our Portland, Oregon facility, as a federal National Priority List or Superfund site due to sediment contamination (the Portland Harbor Site). We 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 that we may be liable for the costs of investigation and remediation (which liability may be joint and several with other potentially responsible parties) as well as for natural resource damages resulting from releases of hazardous substances to the site. At this time, ten private and public entities, including us, have signed an Administrative Order on Consent (AOC) to perform a remedial investigation/feasibility study (RI/FS) of the Portland Harbor Site under EPA oversight, and several additional entities have not signed such consent, but are nevertheless contributing money to the effort. A draft of the RI study was submitted on October 27, 2009. The Feasibility Study is being developed and is expected to be submitted in the first calendar quarter of 2012. Eighty-three parties, including the State of Oregon and the federal government, have entered into a non-judicial mediation process to try to allocate costs associated with the Portland Harbor site. Approximately 110 additional parties have signed tolling agreements related to such allocations. On April 23, 2009, we and the other AOC signatories filed suit against 69 other parties due to a possible limitations period for some such claims; Arkema Inc. et al v. A & C Foundry Products, Inc., et al, US District Court, District of Oregon, Case #3:09-cv-453-PK. All but 12 of these parties elected to sign tolling agreements and be dismissed without prejudice, and the case has now been stayed by the court, pending completion of the RI/FS. In addition, we have entered into a Voluntary Clean-Up Agreement with the Oregon Department of Environmental Quality in which we agreed to conduct an investigation of whether, and to what extent, past or present operations at the Portland property may have released hazardous substances to the environment. We are also conducting groundwater remediation relating to a historical spill on the property which antedates our ownership.
Because these environmental investigations are still underway, we are unable to determine the amount of ultimate liability relating to these matters. Based on the results of the pending investigations and future assessments of natural resource damages, we 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, we may be required to perform periodic maintenance dredging in order to continue to launch vessels from our launch ways on the Willamette River, in Portland, Oregon, and the rivers classification as a Superfund site could result in some limitations on future dredging and launch activities. Any of these matters could adversely affect our business and results of operations, or the value of our Portland property.
Our implementation of new enterprise resource planning (ERP) systems could result in problems that could negatively impact our business.
We continue to work on the design and implementation of ERP and related systems that support substantially all of our operating and financial functions. We could experience problems in connection with such implementations, including compatibility issues, training requirements, higher than expected implementation costs and other integration challenges and delays. A significant implementation problem, if encountered, could negatively impact our business by disrupting our operations. Additionally, a significant problem with the implementation, integration with other systems or ongoing management of ERP and related systems could have an adverse effect on our ability to generate and interpret accurate management and financial reports and other information on a timely basis, which could have a material adverse effect on our financial reporting system and internal controls and adversely affect our ability to manage our business.
We could have difficulty integrating the operations of any companies that we acquire, which could adversely affect our results of operations.
The success of our acquisition strategy depends upon our ability to successfully complete acquisitions and integrate any businesses that we acquire into our existing business. The integration of acquired business operations could disrupt our business by causing unforeseen operating difficulties, diverting managements attention from day-to-day operations and requiring significant financial resources that would otherwise be used
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for the ongoing development of our business. The difficulties of integration could be increased by the necessity of coordinating geographically dispersed organizations, integrating personnel with disparate business backgrounds and combining different corporate cultures. In addition, we could be unable to retain key employees or customers of the combined businesses. We could face integration issues pertaining to the internal controls and operational functions of the acquired companies and we also could fail to realize cost efficiencies or synergies that we anticipated when selecting our acquisition candidates. Any of these items could adversely affect our results of operations.
An adverse outcome in any pending or future litigation could negatively impact our business and results of operations.
We are a defendant in several pending cases in various jurisdictions. If we are unsuccessful in resolving these claims, our business and results of operations could be adversely affected. In addition, future claims that may arise relating to any pending or new matters, whether brought against us or initiated by us against third parties, could distract managements attention from business operations and increase our legal and related costs, which could also negatively impact our business and results of operations.
We could be liable for physical damage or product liability claims that exceed our insurance coverage.
The nature of our business subjects us to physical damage and product liability claims, especially in connection with the repair and manufacture of products that carry hazardous or volatile materials. Although we maintain liability insurance coverage at commercially reasonable levels compared to similarly-sized heavy equipment manufacturers, an unusually large physical damage or product liability claim or a series of claims based on a failure repeated throughout our production process could exceed our insurance coverage or result in damage to our reputation.
We could be unable to procure adequate insurance on a cost-effective basis in the future.
The ability to insure our businesses, facilities and rail assets is an important aspect of our ability to manage risk. As there are only limited providers of this insurance to the railcar industry, there is no guarantee that such insurance will be available on a cost-effective basis in the future. In addition, due to recent extraordinary economic events that have significantly weakened many major insurance underwriters, we cannot assure that our insurance carriers will be able to pay current or future claims.
Any failure by us to comply with regulations imposed by federal and foreign agencies could negatively affect our financial results.
Our operations and the industry we serve, including our customers, are subject to extensive regulation by governmental, regulatory and industry authorities and by federal and foreign agencies. These organizations establish rules and regulations for the railcar industry, including construction specifications and standards for the design and manufacture of railcars; mechanical, maintenance and related standards; and railroad safety. New regulatory rulings and regulations from these entities could impact our financial results, demand for our products and the economic value of our assets. In addition, if we fail to comply with the requirements and regulations of these entities, we could face sanctions and penalties that could negatively affect our financial results.
Changes in accounting standards, including accounting for leases, or inaccurate estimates or assumptions in the application of accounting policies, could adversely affect our financial results.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Some of these policies require use of estimates and assumptions that may affect the reported value of our assets or liabilities and financial results and are critical because they require management to
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make difficult, subjective, and complex judgments about matters that are inherently uncertain. Accounting standard setters and those who interpret the accounting standards (such as the Financial Accounting Standards Board, the SEC, and our independent registered public accounting firm) may amend or even reverse their previous interpretations or positions on how these standards should be applied. In some cases, we could be required to apply a new or revised standard retrospectively, resulting in the restatement of prior period financial statements. In addition, the SEC may soon decide that issuers in the U.S. should be required to prepare financial statements in accordance with International Financial Reporting Standards, a comprehensive set of accounting standards promulgated by the International Accounting Standards Board, instead of U.S. Generally Accepted Accounting Principles and current proposals could potentially require us to report under the new standards beginning as early as 2015 or 2016. Changes in accounting standards can be hard to predict and can materially impact how we record and report our financial condition and results of operations.
From time to time we may take tax positions that the Internal Revenue Service may contest.
We have in the past and may in the future take tax positions that the Internal Revenue Service (IRS) may contest. Effective with fiscal year 2011, we are required by a new IRS regulation to disclose particular tax positions, taken after the effective date, to the IRS as part of our tax returns for that year and future years. If the IRS successfully contests a tax position that we take, we may be required to pay additional taxes or fines that may adversely affect our results of operation and financial position.
Natural disasters or severe weather conditions could disrupt our business and result in loss of revenue or higher expenses.
Any serious disruption at any of our facilities due to hurricane, earthquake, flood, or any other natural disaster could impair our ability to use our facilities and have a material adverse impact on our revenues and increase our costs and expenses. If there is a natural disaster or other serious disruption at any of our facilities, particularly any of our Mexican facilities, it could impair our ability to adequately supply our customers, cause a significant disruption to our operations, cause us to incur significant costs to relocate or reestablish these functions and negatively impact our operating results. While we insure against certain business interruption risks, such insurance may not adequately compensate us for any losses incurred as a result of natural or other disasters.
Item 1b. | UNRESOLVED STAFF COMMENTS |
None.
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Item 2. | PROPERTIES |
We operate at the following primary facilities as of August 31, 2011:
We believe that our facilities are in good condition and that the facilities, together with anticipated capital improvements and additions, are adequate to meet our operating needs for the foreseeable future. We continually evaluate the need for expansion and upgrading of our Manufacturing and Wheel Services, Refurbishment & Parts facilities in order to remain competitive and to take advantage of market opportunities.
Item 3. | LEGAL PROCEEDINGS |
There is hereby incorporated by reference the information disclosed in Note 25 to Consolidated Financial Statements, Part II, Item 8 of this Form 10-K.
Item 4. | REMOVED AND RESERVED |
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PART II
Item 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our common stock has been traded on the New York Stock Exchange under the symbol GBX since July 14, 1994. There were approximately 461 holders of record of common stock as of October 24, 2011. The following table shows the reported high and low sales prices of our common stock on the New York Stock Exchange for the fiscal periods indicated.
High | Low | |||||||
2011 |
||||||||
Fourth quarter |
$ | 26.16 | $ | 11.78 | ||||
Third quarter |
$ | 30.38 | $ | 23.15 | ||||
Second quarter |
$ | 26.48 | $ | 18.96 | ||||
First quarter |
$ | 20.18 | $ | 11.72 | ||||
2010 |
||||||||
Fourth quarter |
$ | 15.45 | $ | 9.10 | ||||
Third quarter |
$ | 18.00 | $ | 9.23 | ||||
Second quarter |
$ | 12.32 | $ | 7.42 | ||||
First quarter |
$ | 14.05 | $ | 8.51 |
Quarterly dividends were suspended as of the third quarter 2009. There is no assurance as to the payment of future dividends as they are dependent upon future earnings, capital requirements and our financial condition.
20 | The Greenbrier Companies 2011 Annual Report |
Performance Graph
The following graph demonstrates a comparison of cumulative total returns for the Companys Common Stock, the Dow Jones US Industrial Transportation Index and the Standard & Poors (S&P) 500 Index. The graph assumes an investment of $100 on August 31, 2006 in each of the Companys Common Stock and the stocks comprising the indices. Each of the indices assumes that all dividends were reinvested and that the investment was maintained to and including August 31, 2011, the end of the Companys 2011 fiscal year.
The comparisons in this table are required by the SEC, and therefore, are not intended to forecast or be indicative of possible future performance of our Common Stock.
Equity Compensation Plan Information
Equity Compensation Plan Information is hereby incorporated by reference to the Equity Compensation Plan Information table in Registrants definitive Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrants year ended August 31, 2011.
The Greenbrier Companies 2011 Annual Report | 21 |
Item 6. | SELECTED FINANCIAL DATA |
YEARS ENDED AUGUST 31,
(In thousands, except per share data) | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||
Statement of Operations Data |
||||||||||||||||||||
Revenue: |
||||||||||||||||||||
Manufacturing |
$ | 721,102 | $ | 295,566 | $ | 462,496 | $ | 665,093 | $ | 738,424 | ||||||||||
Wheel Services, Refurbishment & Parts |
452,865 | 388,434 | 475,397 | 527,466 | 381,670 | |||||||||||||||
Leasing & Services |
69,323 | 72,280 | 78,298 | 89,510 | 90,334 | |||||||||||||||
|
||||||||||||||||||||
$ | 1,243,290 | $ | 756,280 | (1) | $ | 1,016,191 | (1) | $ | 1,282,069 | (1) | $ | 1,210,428 | (1) | |||||||
|
||||||||||||||||||||
Earnings (loss) from operations |
$ | 67,574 | $ | 52,107 | $ | (28,303 | ) | $ | 74,808 | $ | 74,120 | |||||||||
|
||||||||||||||||||||
Net earnings (loss) attributable to Greenbrier |
$ | 6,466 | (3) | $ | 4,277 | (2) (3) | $ | (56,391 | ) ( 2 ) (3) | $ | 17,383 | ( 2 ) | $ | 20,007 | ( 2 ) (3) | |||||
|
||||||||||||||||||||
Basic earnings (loss) per common share attributable to Greenbrier: |
$ | 0.27 | $ | 0.23 | $ | (3.35 | ) | $ | 1.06 | $ | 1.25 | |||||||||
Diluted earnings (loss) per common share attributable to Greenbrier: |
$ | 0.24 | $ | 0.21 | $ | (3.35 | ) | $ | 1.06 | $ | 1.24 | |||||||||
Weighted average common shares outstanding: |
||||||||||||||||||||
Basic |
24,100 | 18,585 | 16,815 | 16,395 | 16,056 | |||||||||||||||
Diluted |
26,501 | 20,213 | 16,815 | 16,417 | 16,094 | |||||||||||||||
Cash dividends paid per share |
$ | .00 | $ | .00 | $ | .12 | $ | .32 | $ | .32 | ||||||||||
Balance Sheet Data |
||||||||||||||||||||
Total assets |
$ | 1,301,655 | $ | 1,072,888 | $ | 1,048,291 | $ | 1,256,960 | $ | 1,072,749 | ||||||||||
Revolving notes and notes payable |
$ | 519,479 | $ | 501,330 | $ | 541,190 | $ | 580,954 | $ | 476,071 | ||||||||||
Total equity |
$ | 375,901 | $ | 297,407 | $ | 232,450 | $ | 281,838 | $ | 263,588 | ||||||||||
Other Operating Data |
||||||||||||||||||||
New railcar units delivered |
9,400 | 2,500 | 3,700 | 7,300 | 8,600 | |||||||||||||||
New railcar units backlog |
15,400 | 5,300 | 13,400 | ( 4 ) | 16,200 | ( 4 ) | 12,100 | ( 4 ) | ||||||||||||
Lease fleet: |
||||||||||||||||||||
Units managed |
215,843 | 225,223 | 217,403 | 137,697 | 136,558 | |||||||||||||||
Units owned |
8,684 | 8,156 | 8,713 | 8,631 | 8,663 | |||||||||||||||
Cash Flow Data |
||||||||||||||||||||
Capital expenditures: |
||||||||||||||||||||
Manufacturing |
$ | 20,016 | $ | 8,715 | $ | 9,109 | $ | 24,113 | $ | 20,361 | ||||||||||
Wheel Services, Refurbishment & Parts |
20,087 | 12,215 | 6,599 | 7,651 | 5,009 | |||||||||||||||
Leasing & Services |
44,199 | 18,059 | 23,139 | 45,880 | 111,924 | |||||||||||||||
|
||||||||||||||||||||
$ | 84,302 | $ | 38,989 | $ | 38,847 | $ | 77,644 | $ | 137,294 | |||||||||||
|
||||||||||||||||||||
Proceeds from sale of equipment |
$ | 18,730 | $ | 22,978 | $ | 15,555 | $ | 14,598 | $ | 119,695 | ||||||||||
|
||||||||||||||||||||
Depreciation and amortization: |
||||||||||||||||||||
Manufacturing |
$ | 9,853 | $ | 11,061 | $ | 11,471 | $ | 11,267 | $ | 10,762 | ||||||||||
Wheel Services, Refurbishment & Parts |
11,853 | 11,435 | 11,885 | 10,338 | 9,042 | |||||||||||||||
Leasing & Services |
16,587 | 15,015 | 14,313 | 13,481 | 13,022 | |||||||||||||||
|
||||||||||||||||||||
$ | 38,293 | $ | 37,511 | $ | 37,669 | $ | 35,086 | $ | 32,826 | |||||||||||
|
(1) |
Historically, the Company has reported Gain on disposition of leased equipment as a net amount in Revenue. The Company has changed its financial statement presentation to now report these amounts as a separate line item captioned Gain on disposition of equipment, which is a component of operating income below margin. This change in presentation resulted in a decrease in Revenue and corresponding increase in Gain on disposition of equipment of $8.2 million, $1.9 million, $8.0 million and $13.4 million for 2010, 2009, 2008 and 2007. Such change in presentation did not result in any change to Net earnings (loss) attributable to Greenbrier. |
(2) |
2010 includes income of $11.9 million net of tax for a special item related to the release of the liability associated with the 2008 de-consolidation of our former Canadian subsidiary. 2009 includes goodwill impairment of $51.0 million, net of tax. 2008 includes special charges net of tax of $2.3 million related to the closure of our Canadian subsidiary. 2007 includes special charges net of tax of $13.7 million related to the impairment and closure of our Canadian subsidiary. |
(3) |
2011 includes a loss on extinguishment of debt of $9.4 million net of tax for the write-off of unamortized debt issuance costs, prepayment premiums, debt discount and other costs associated with the repayment of senior unsecured notes and certain term loans. 2010 includes a gain on extinguishment of debt of $1.3 million net of tax for the gain associated with the early retirement of a portion of the convertible senior notes, partially offset by the write-off of loan fees and debt discount. 2009 includes a loss on extinguishment of debt of $0.8 million net of tax for the interest rate swap breakage fees associated with the voluntary prepayment of certain term loans and the acceleration of loan fees associated with the reduction in size of the North American credit facility. 2007 includes a loss on extinguishment of debt of $0.7 million net of tax due to the write-off of loan origination costs on the North American revolving credit facility due to entering into a new credit facility. |
(4) |
2009, 2008 and 2007 backlog includes 8,500 units, 8,500 units and 3,500 units subject to fulfillment of certain competitive and contractual conditions. 2007 through 2009 backlog all include 400 units subject to certain cancellation provisions. |
22 | The Greenbrier Companies 2011 Annual Report |
Item 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Executive Summary
We operate in three primary business segments: Manufacturing; Wheel Services, Refurbishment & Parts; and Leasing & Services. These three business segments are operationally integrated. The Manufacturing segment, operating from facilities in the United States (U.S.), Mexico and Poland, produces double-stack intermodal railcars, conventional railcars, tank cars and marine vessels. The Wheel Services, Refurbishment & Parts segment performs railcar repair, refurbishment and maintenance activities in the U.S., Mexico and Canada as well as wheel, axle and bearing servicing, and production and reconditioning of a variety of parts for the railroad industry. The Leasing & Services segment owns approximately 9,000 railcars and provides management services for approximately 216,000 railcars for railroads, shippers, carriers, institutional investors and other leasing and transportation companies in North America. Management evaluates segment performance based on margins. We also produce rail castings through an unconsolidated joint venture.
The rail and marine industries are cyclical in nature. We are continuing to see recovery in the freight car markets in which we operate. Demand for our marine barge products remains soft. Customer orders may be subject to cancellations and contain terms and conditions customary in the industry. Historically, little variation has been experienced between the quantity ordered and the quantity actually delivered. Our railcar and marine backlogs are not necessarily indicative of future results of operations.
Multi-year supply agreements are a part of rail industry practice. Our total manufacturing backlog of railcars as of August 31, 2011 was approximately 15,400 units with an estimated value of $1.23 billion compared to 5,300 units with an estimated value of $420 million as of August 31, 2010. Based on current production plans, approximately 14,500 units in the August 31, 2011 backlog are scheduled for delivery in 2012. The balance of the production is scheduled for delivery through 2013. A portion of the orders included in backlog reflects an assumed product mix. Under terms of the orders, the exact mix will be determined in the future which may impact the dollar amount of backlog.
We currently have no marine backlog compared to approximately $10 million as of August 31, 2010. As a result of current softness in the marine market, we continue to shift marine workers to support new railcar production.
The recent global strengthening of freight car markets may at times limit the availability of certain components of our products that we source from external suppliers, particularly specialized components such as castings, bolsters and trucks, and this may cause an interruption in production. Prices for steel, a primary component of railcars and barges, and related surcharges have fluctuated significantly and remain volatile. In addition, the price of certain railcar components, which are a product of steel, are affected by steel price fluctuations. New railcar and marine backlog generally either includes fixed price contracts which anticipate material price increases and surcharges, or contracts that contain actual or formulaic pass through of material price increases and surcharges. We are aggressively working to mitigate these exposures. The Companys integrated business model has helped offset some of the effects of fluctuating steel and scrap steel prices, as a portion of our business segments benefit from rising steel scrap prices while other segments benefit from lower steel and scrap steel prices through enhanced margins.
On June 30, 2011, we entered into a five-year $245 million revolving line of credit, maturing June 30, 2016. On November 2, 2011 the revolving line of credit was increased by $15 million to a total of $260 million under the existing provisions of the credit agreement. The Amended Credit Facility is secured by substantially all of the assets of Greenbrier and its material U.S. subsidiaries, excluding the stock and assets of certain foreign subsidiaries and assets pledged as security for existing term loans. This new facility replaces a $100 million revolving line of credit that would have matured in November 2011. In connection with the entry into this facility, on June 30, 2011 we repaid all obligations outstanding under the term loan due June 2012, among us, and affiliates of WL Ross & Co. LLC (the WLR Term Loan). Immediately prior to its repayment and termination, there were outstanding borrowings of $71.8 million under the WLR Term Loan. There was a one-time charge recorded in Loss on extinguishment of debt in association with the early repayment of the WLR
The Greenbrier Companies 2011 Annual Report | 23 |
Term Loan of $5.6 million for the write-off of unamortized debt acquisition costs and the debt discount. The line of credit is available to provide working capital and interim financing of equipment, principally for the U.S. and Mexican operations. Advances under this revolving credit facility bear interest at variable rates that depend on the type of borrowing and the defined ratio of debt to total capitalization. The new facility contains customary representations, warranties, and covenants, including specified restrictions on indebtedness, dispositions, restricted payments, transactions with affiliates, liens, fundamental changes, sale and leaseback transactions and other restrictions.
On March 30, 2011, we entered into a purchase agreement (the Purchase Agreement) with Merrill Lynch, Pierce, Fenner & Smith, Incorporated and Goldman, Sachs & Co. (the Initial Purchasers). Pursuant to the Purchase Agreement, we sold to the Initial Purchasers $230 million aggregate principal amount of our 3.5% Senior Convertible Notes due 2018 (the Convertible Notes), which included $15 million principal amount of Convertible Notes subject to the over-allotment option granted to the Initial Purchasers. The over-allotment option was exercised in full and the sale of $230 million aggregate principal amount of the Convertible Notes closed on April 5, 2011. In connection with the closing, on April 5, 2011, we entered into the indenture (the Convertible Notes Indenture) governing the Convertible Notes. The Convertible Notes Indenture contains terms, conditions and events of default customary for transactions of this nature.
The Convertible Notes bear interest at an annual rate of 3.5%, payable in cash semiannually in arrears on April 1 and October 1 of each year, beginning on October 1, 2011. The Convertible Notes will mature on April 1, 2018, unless earlier repurchased by us or converted in accordance with their terms prior to such date. The Convertible Notes are senior unsecured obligations and rank equally with our other senior unsecured debt. The Convertible Notes are convertible into shares of our common stock at an initial conversion rate of 26.2838 shares per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $38.05 per share. The initial conversion rate and conversion price are subject to adjustment upon the occurrence of certain events, such as distributions, dividends or stock splits.
The net proceeds from the sale of the Convertible Notes, together with additional cash on hand, were used to repurchase any and all of our outstanding $235 million aggregate principal amount of 8 3 / 8 % senior notes due 2015 (the 2015 Notes). There was a one-time charge recorded in Loss on extinguishment of debt in association with the early retirement of the 2015 Notes of $10.1 million for the write-off of unamortized debt acquisition costs, prepayment premiums and other costs.
In April 2010, we filed a registration statement on Form S-3 with the SEC, using a shelf registration process. The registration statement was declared effective on April 14, 2010 and pursuant to the prospectus filed as part of the registration statement, we may sell from time to time any combination of securities in one or more offerings up to an aggregate amount of $300.0 million. The securities described in the prospectus include common stock, preferred stock, debt securities, guarantees, rights, and units. We may also offer common stock or preferred stock upon conversion of debt securities, common stock upon conversion of preferred stock, or common stock, preferred stock or debt securities upon the exercise of warrants or rights. Each time we sell securities under the shelf, we will provide a prospectus supplement that will contain specific information about the terms of the securities being offered and of the offering. Proceeds from the sale of these securities may be used for general corporate purposes including, among other things, working capital, financings, possible acquisitions, the repayment of obligations that have matured, and reducing or refinancing indebtedness that may be outstanding at the time of any offering. In May 2010, we issued 4,500,000 shares of our common stock resulting in net proceeds of $52.7 million. In December 2010, we issued 3,000,000 shares of our common stock resulting in net proceeds of $62.8 million.
In December 2010, we agreed with our joint venture partner to modify, with retroactive effect to September 1, 2010, various agreements concerning the Greenbrier-GIMSA LLC (GIMSA) joint venture. We agreed to increase revenue based fees to each of the partners for services provided to GIMSA, and to extend the initial term of the joint venture to 2019 (after which the agreement is automatically renewed for successive three year terms unless a party elects not to renew). We also agreed to forego our option to increase our ownership percentage of GIMSA from fifty percent to sixty-six & two thirds percent, and GIMSA agreed to forego the right to share, in an equitable manner, the net benefits received from the modification of the long-term new railcar contract with General Electric Railcar Services Corporation.
24 | The Greenbrier Companies 2011 Annual Report |
Results of Operations
Overview
Total revenue was $1.2 billion, $0.8 billion and $1.0 billion for the years ended August 31, 2011, 2010 and 2009. Net earnings attributable to Greenbrier for the year ended August 31, 2011 were $6.5 million or $0.24 per diluted common share which included $9.4 million in loss on extinguishment of debt, net of tax or $0.35 per diluted common share. Net earnings attributable to Greenbrier for the year ended August 31, 2010 were $4.3 million or $0.21 per diluted common share which included income of $13.1 million in special items and gain on extinguishment of debt, net of tax or $0.65 per diluted common share. Net loss attributable to Greenbrier for the year ended August 31, 2009 was $56.4 million or $3.35 per diluted common share which included goodwill impairment and loss on extinguishment of debt aggregating $51.8 million, net of tax or $3.08 per diluted common share.
(In thousands) | 2011 | 2010 | 2009 | |||||||||
Revenue: |
||||||||||||
Manufacturing |
$ | 721,102 | $ | 295,566 | $ | 462,496 | ||||||
Wheel Services, Refurbishment & Parts |
452,865 | 388,434 | 475,397 | |||||||||
Leasing & Services |
69,323 | 72,280 | 78,298 | |||||||||
|
||||||||||||
1,243,290 | 756,280 | 1,016,191 | ||||||||||
Margin: |
||||||||||||
Manufacturing |
$ | 59,975 | $ | 27,171 | $ | 3,763 | ||||||
Wheel Services, Refurbishment & Parts |
47,416 | 43,912 | 55,103 | |||||||||
Leasing & Services |
32,140 | 30,915 | 32,307 | |||||||||
|
||||||||||||
Segment margin total |
139,531 | 101,998 | 91,173 | |||||||||
Less unallocated items: |
||||||||||||
Selling and administrative |
80,326 | 69,931 | 65,743 | |||||||||
Gain on disposition of equipment |
(8,369 | ) | (8,170 | ) | (1,934 | ) | ||||||
Goodwill impairment |
| | 55,667 | |||||||||
Special items |
| (11,870 | ) | | ||||||||
Interest and foreign exchange |
36,992 | 45,204 | 44,612 | |||||||||
Loss (gain) on extinguishment of debt |
15,657 | (2,070 | ) | 1,300 | ||||||||
|
||||||||||||
Earnings (loss) before income tax and loss from unconsolidated affiliates |
$ | 14,925 | $ | 8,973 | $ | (74,215 | ) | |||||
|
Greenbrier operates in three reportable segments: Manufacturing; Wheel Services, Refurbishment & Parts; and Leasing & Services. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Performance is evaluated based on margin. The Companys integrated business model results in selling and administrative costs being intertwined among the segments. Any allocation of these costs would be subjective and not meaningful and as a result, Greenbriers management does not allocate these costs for either external or internal reporting purposes.
Manufacturing Segment
Manufacturing revenue includes new railcar and marine production. New railcar delivery and backlog information discussed below includes all facilities.
Manufacturing revenue was $721.1 million, $295.6 million and $462.5 million for the years ended August 31, 2011, 2010 and 2009. Railcar deliveries, which are the primary source of manufacturing revenue, were 9,400 units in 2011 compared to 2,500 units in 2010 and 3,700 units in 2009. Manufacturing revenue increased $425.5 million, or 144.0%, in 2011 compared to 2010 primarily due to higher railcar deliveries partially offset by a decline in marine barge activity and a change in railcar product mix with lower per unit sales prices. Manufacturing revenue decreased $166.9 million, or 36.1%, in 2010 compared to 2009 primarily due to a decline in marine barge production, lower railcar deliveries and a change in railcar product mix with lower per unit sales prices. 2009 revenue was reduced by an $11.6 million obligation of guaranteed minimum earnings under a certain contract.
The Greenbrier Companies 2011 Annual Report | 25 |
Manufacturing margin as a percentage of revenue was 8.3% in 2011, 9.2% in 2010 and 0.8% in 2009. The decrease in the current period was primarily the result of a less favorable product mix and learning curve costs associated with start-up of railcar production lines, partially offset by operating at higher production rates. Manufacturing margin as a percentage of revenue was 9.2% in 2010 compared to 0.8% in 2009. The increase was primarily the result of a more favorable product mix and improved production efficiencies at our Mexican joint venture. 2010 was positively impacted by the re-marketing of railcars that were subject to guaranteed minimum earnings under a certain contract in the prior year. 2009 margin was reduced by an $11.6 million obligation of guaranteed minimum earnings under a certain contract.
Wheel Services, Refurbishment & Parts Segment
Wheel Services, Refurbishment & Parts revenue was $452.9 million, $388.4 million and $475.4 million for the years ended August 31, 2011, 2010 and 2009. The $64.5 million increase in revenue from 2010 to 2011 was primarily the result of higher sales volumes in wheels and repair and metal scrapping programs that were in effect for only a portion of the prior comparable year. The $87.0 million decrease in revenue from 2009 to 2010 was primarily due to lower sales volumes of wheels and reduced volumes of railcar repair and refurbishment work. This was offset slightly by improvement in the price for scrap metal.
Wheel Services, Refurbishment & Parts margin as a percentage of revenue was 10.5% for 2011, 11.3% for 2010 and 11.6% for 2009. The decrease in the current period was primarily the result of a change in product mix which generates higher revenues with no corresponding increase in margin dollars, an increasingly competitive market place and higher freight costs. These decreases were partially offset by higher scrap metal prices, improved efficiencies for repair due to higher activity levels and metal scrapping programs that were in effect for only a portion of the prior year. The decrease in 2010 compared to 2009 margins was primarily due to less favorable mix of repair and refurbishment work partially offset by higher scrap metal prices.
Leasing & Services Segment
Leasing & Services revenue was $69.3 million, $72.3 million and $78.3 million for the years ended August 31, 2011, 2010 and 2009. The $3.0 million decrease in revenue in 2011 compared to 2010 was primarily the result of discontinuation of a certain management services contract which was partially offset by higher rents earned on leased railcars for syndication and improved lease rates and increased utilization. The $6.0 million decrease in revenue from 2010 compared to 2009 was primarily the result of lower rent generated from the lease fleet due to lower lease rates and utilization.
Leasing & Services margin as a percentage of revenue was 46.4% in 2011 compared to 42.8% in 2010 and 41.3% in 2009. The increase in 2011 compared to 2010 was primarily the result of increased rents earned on leased railcars for syndication, improved margins due to higher lease rates and increased lease fleet utilization and lower operating costs on railcars in the lease fleet. The increase in 2010 compared to 2009 was primarily the result of increased lease fleet utilization and improved margins from management services mainly due to lower maintenance expense.
The percentage of owned units on lease as of August 31, 2011 was 95.7% compared to 94.4% at August 31, 2010 and 88.3% at August 31, 2009.
Selling and Administrative
Selling and administrative expense was $80.3 million, or 6.5% of revenue, $69.9 million, or 9.2% of revenue, and $65.7 million, or 6.5% of revenue, for the years ended August 31, 2011, 2010 and 2009. The $10.4 million increase in 2011 compared to 2010 is primarily due to increased employee related costs including restoration of salary reductions taken during the down turn and increases in incentive compensation, increased consulting expense, higher depreciation expense associated with our on-going ERP implementation and increased revenue based administrative fees paid to our joint venture partner in Mexico. The $4.2 million increase from 2009 to 2010 is primarily due to higher depreciation expense associated with our on-going ERP improvement projects, higher consulting and travel expenses and increased costs at our Mexican joint venture due to higher activity levels. These were partially offset by lower employee costs.
26 | The Greenbrier Companies 2011 Annual Report |
Gain on Disposition of Equipment
Gain on disposition of equipment was $8.4 million, $8.2 million and $1.9 million for the years ended August 31, 2011, 2010 and 2009. The current year included a $5.1 million gain that was realized on the disposition of leased assets and a gain of $3.3 million of insurance proceeds related to the January 2009 fire at one of our Wheel Services, Refurbishment & Parts facilities. The year ended August 31, 2010 included a $6.5 million gain that was realized on the disposition of leased assets and a gain of $1.7 million of insurance proceeds related to the January 2009 fire. The year ended August 31, 2009 included a $1.2 million gain that was realized on the disposition of leased assets and a gain of $0.7 million of insurance proceeds related to the January 2009 fire. Assets from Greenbriers lease fleet are periodically sold in the normal course of business in order to take advantage of market conditions, manage risk and maintain liquidity.
Goodwill Impairment
Charges of $55.7 million were recorded in May 2009 associated with the impairment of goodwill. These charges consist of $1.3 million in the Manufacturing segment, $3.1 million in the Leasing & Services segment and $51.3 million in the Wheel Services, Refurbishment & Parts segment.
Special Items
In April 2007, our board of directors approved the permanent closure of our then Canadian railcar manufacturing subsidiary, TrentonWorks Ltd (Trenton Works). In March 2008, TrentonWorks filed for bankruptcy. In the fourth quarter of 2010, the bankruptcy was resolved upon liquidation of substantially all remaining assets. The resolution of the bankruptcy resulted in income of $11.9 million which was recorded in Special items.
Other Costs
Interest and foreign exchange expense was $37.0 million and $45.2 million for the years ended August 31, 2011 and 2010.
Years ended August 31, |
Increase (Decrease) |
|||||||||||
(In thousands) | 2011 | 2010 | ||||||||||
Interest and foreign exchange: |
||||||||||||
Interest and other expense |
$ | 30,155 | $ | 36,214 | $ | (6,059 | ) | |||||
Accretion of term loan debt discount |
3,564 | 4,377 | (813 | ) | ||||||||
Accretion of discount on convertible debt due 2026 |
3,021 | 3,771 | (750 | ) | ||||||||
Foreign exchange loss |
252 | 842 | (590 | ) | ||||||||
|
||||||||||||
$ | 36,992 | $ | 45,204 | $ | (8,212 | ) | ||||||
|
Interest and other expense decreased due to lower average debt levels and lower interest rates. During the third quarter, we repaid $235.0 million of senior unsecured loans at 8 3 / 8 % and replaced it with $230.0 million of convertible debt at 3.5%. The decrease in the accretion of term loan debt discount was due to the June 2011 early repayment of $71.8 million of term debt. The decrease in the accretion of the convertible debt discount was due to the proportionate write-off of the debt discount in the previous year associated with the partial retirement of the convertible senior notes.
The Greenbrier Companies 2011 Annual Report | 27 |
Interest and foreign exchange expense was $45.2 million and $44.6 million for the years ended August 31, 2010 and 2009.
Years ended August 31, |
Increase (decrease) |
|||||||||||
(In thousands) | 2010 | 2009 | ||||||||||
Interest and foreign exchange: |
||||||||||||
Interest and other expense |
$ | 36,214 | $ | 35,669 | $ | 545 | ||||||
Accretion of term loan debt discount |
4,377 | 1,117 | 3,260 | |||||||||
Accretion of discount on convertible debt due 2026 |
3,771 | 3,831 | (60 | ) | ||||||||
Foreign exchange loss |
842 | 3,995 | (3,153 | ) | ||||||||
|
||||||||||||
$ | 45,204 | $ | 44,612 | $ | 592 | |||||||
|
The increase in term loan debt discount accretion, associated with the term loan issued in June 2009, was due to a full year of accretion in 2010 compared to only a partial year in 2009.
Loss (gain) on extinguishment of debt was a loss of $15.7 million, a gain of $2.1 million and a loss of $1.3 million for the years ended August 31, 2011, 2010 and 2009. The current period includes a $10.1 million loss on extinguishment of debt associated with the write-off of unamortized debt issuance costs of $2.9 million and prepayment premiums and other costs of $7.2 million due to the full retirement of the $235.0 million senior unsecured notes. In addition, we recorded a loss on extinguishment of debt of $5.6 million consisting of the write-off of unamortized loan fees of $1.7 million and debt discount of $3.9 million due to the full retirement of the $71.8 million in term debt. The year ended August 31, 2010 included a $3.2 million gain associated with the early retirement of $32.3 million of convertible senior notes (due 2026), which was offset by $1.1 million for the proportionate write-off of loan fees and debt discount due to early repayments on the convertible note and certain term loans. The year ended August 31, 2009 included $0.9 million acceleration of loan fee amortization associated with the reduction in size of the North American revolving credit facility and $0.4 million to break interest rate swaps associated with the voluntary prepayment of approximately $6.1 million of certain term debt.
Income Tax
In 2011 we recorded tax expense of $3.6 million on $14.9 million of earnings with an effective tax rate of 23.9%. The fluctuation from the statutory tax rate was due to the geographical mix of pre-tax earnings and losses, minimum tax requirements in certain local jurisdictions and operating results for certain operations with no related tax effect. In addition, an income tax liability was not recorded on the noncontrolling interest earnings of $1.9 million from a consolidated subsidiary that is a flow through entity for tax purposes. Earnings from flow through entities are only taxed at the owners level.
In 2010 we recorded a tax benefit of $1.0 million on $9.0 million of earnings for the year. 2010 included income of $11.9 million from a Special item associated with the resolution of the bankruptcy of our then Canadian railcar manufacturing subsidiary, TrentonWorks, which was not taxable. In addition, an income tax liability was not recorded on the noncontrolling interest earnings of $4.1 million from a consolidated subsidiary that is a flow through entity for tax purposes. Earnings from flow through entities are only taxed at the owners level. Excluding these items the effective tax rate would have been 13.8%.
Our effective tax rate was 22.8% for the year ended August 31, 2009. In 2009 a goodwill impairment charge for which a tax benefit was recorded at 8%, as a portion of the impairment charge was not deductible for tax purposes. In addition, 2009 included a reversal of $1.4 million of liabilities for uncertain tax positions for which we are no longer subject to examination by the tax authorities, a tax benefit of $2.5 million related to the deemed liquidation of our German operation for U.S. tax purposes and a tax benefit of $4.3 million related to the reversal of a deferred tax liability associated with a foreign subsidiary. Excluding these items the effective tax rate would have been 21.5%.
28 | The Greenbrier Companies 2011 Annual Report |
Loss from Unconsolidated Affiliates
Losses from unconsolidated affiliates were $3.0 million in 2011, $1.6 million in 2010 and $0.6 million in 2009. 2011 includes losses from our castings joint venture due to the temporary idling of the operation during the economic downturn and losses from WLRGreenbrier Rail Inc. (WLR-GBX) as the result of the acquisition of railcar assets on a highly leveraged basis. 2010 includes losses from our castings joint venture and from WLR-GBX. The WLR-GBX loss in 2010 was primarily the result of a mark to market on an interest rate swap. Losses from unconsolidated affiliates in 2009 consist entirely of results from our castings joint venture.
Noncontrolling Interest
Noncontrolling interest includes earnings of $1.9 million, $4.1 million and loss of $1.5 million for the years ended August 31, 2011, 2010 and 2009 and primarily represents our joint venture partners share in the earnings (losses) of our Mexican railcar manufacturing joint venture that began production in 2007.
Liquidity and Capital Resources
We have been financed through cash generated from operations, borrowings and stock issuance. At August 31, 2011 cash and cash equivalents was $50.2 million, a decrease of $48.7 million from $98.9 million at the prior year end.
Cash used in operations was $34.3 million for the year ended August 31, 2011 compared to cash provided by operating activities for the years ended August 31, 2010 and 2009 of $42.6 million and $120.5 million. The decrease was primarily due to a change in working capital needs as we ramp up production levels and an increase in leased railcars for syndication due to higher activity levels. The decrease in 2010 was primarily due to change in working capital needs based on operating activity levels.
Cash used in investing activities for the year ended August 31, 2011 was $69.3 million compared to $24.2 million in 2010 and $23.0 million in 2009. 2011, 2010 and 2009 cash utilization was primarily due to capital expenditures.
Capital expenditures totaled $84.3 million, $39.0 million and $38.8 million for the years ended August 31, 2011, 2010 and 2009. Of these capital expenditures, approximately $44.2 million, $18.1 million and $23.1 million for the years ended August 31, 2011, 2010 and 2009 were attributable to Leasing & Services operations. Leasing & Services capital expenditures for 2012, net of proceeds from sales of equipment, are expected to be approximately $40.0 million. We regularly sell assets from our lease fleet, some of which may have been purchased within the current year and included in capital expenditures. Proceeds from the sale of equipment were approximately $18.7 million, $23.0 million and $15.6 million for the years ended August 31, 2011, 2010 and 2009.
Approximately $20.0 million, $8.7 million and $9.1 million of capital expenditures for the years ended August 31, 2011, 2010 and 2009 were attributable to Manufacturing operations. Capital expenditures for Manufacturing are expected to be approximately $25.0 million in 2012 and primarily relate to enhancements to existing manufacturing facilities and a production line at our Sahagun, Mexico facility and potential future expansion.
Wheel Services, Refurbishment & Parts capital expenditures for the years ended August 31, 2011, 2010 and 2009 were $20.1 million, $12.2 million and $6.6 million and are expected to be approximately $17.0 million in 2012 for maintenance and improvement of existing facilities and some growth.
Cash provided by financing activities was $58.0 million and $4.6 million for the years ended August 31, 2011 and 2010 compared to cash used in financing activities of $24.5 million for the year ended August 31 2009. During 2011, we received net proceeds of $219.8 million from convertible notes and term loans, $86.8 million in net revolving notes and $62.8 million in net proceeds from an equity offering. We repaid $311.4 million in senior notes and term debt. During 2010, we received $52.7 million in net proceeds from an equity offering and $2.0
The Greenbrier Companies 2011 Annual Report | 29 |
million in net proceeds from term loan borrowings. We repaid $11.9 million in net revolving credit lines and $38.3 million in term loans and convertible notes. During 2009, we repaid $81.3 million in net revolving credit lines and $16.4 million in term debt and paid dividends of $2.0 million. We received $69.8 million in net proceeds from term loan borrowings.
As of August 31, 2011 senior secured credit facilities, consisting of three components, aggregated $285.9 million. A $245.0 million revolving line of credit, maturing June 2016, is secured by substantially all of our assets in the U.S. not otherwise pledged as security for term loans. The facility is available to provide working capital and interim financing of equipment, principally for the U.S. and Mexican operations. Advances under this revolving credit facility bear interest at variable rates that depend on the type of borrowing and the defined ratio of debt to total capitalization. In addition, current lines of credit totaling $20.9 million secured by certain of our European assets, with various variable rates, are available for working capital needs of the European manufacturing operation. European credit facilities are continually being renewed. Currently these European credit facilities have maturities that range from April 2012 through December 2012. In addition, the Mexican joint venture line of credit for up to $20.0 million is secured by certain of the joint ventures accounts receivable and inventory. Advances under this facility bear interest at LIBOR plus 2.5% and are due 180 days after the date of borrowing. Currently the Mexican joint venture can borrow on this facility through July 2012. As of August 31, 2011 outstanding borrowings under our facilities consists of $60.0 million in revolving notes and $4.3 million in letters of credit outstanding under the North American credit facility, $15.2 million outstanding under the European credit facilities and $15.1 million outstanding under the Mexican joint venture credit facility.
The revolving and operating lines of credit, along with notes payable, contain covenants with respect to the Company and various subsidiaries, the most restrictive of which, among other things, limit our ability to: incur additional indebtedness or guarantees; pay dividends or repurchase stock; enter into sale leaseback transactions; create liens; sell assets; engage in transactions with affiliates, including joint ventures and non U.S. subsidiaries, including but not limited to loans, advances, equity investments and guarantees; enter into mergers, consolidations or sales of substantially all the Companys 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.
Available borrowings under our credit facilities are generally based on defined levels of inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and fixed charge coverage ratios which, as of August 31, 2011 would allow for maximum additional borrowing of $442.7 million. The Company has an aggregate of $191.2 million available to draw down under the committed credit facilities as of August 31, 2011. This amount consists of $180.7 million available on the North American credit facility, $5.7 million on the European credit facilities and $4.8 million on the Mexican joint venture credit facility.
We may from time to time seek to repurchase or otherwise retire or exchange securities, including outstanding 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 repurchases or exchanges, 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.
We have operations in Mexico and Poland that conduct business in their local currencies as well as other regional 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 the margin on a portion of forecast foreign currency sales.
Foreign operations give rise to risks from changes in foreign currency exchange rates. We utilize foreign currency forward exchange contracts with established financial institutions to hedge a portion of that risk. No provision has been made for credit loss due to counterparty non-performance.
30 | The Greenbrier Companies 2011 Annual Report |
In addition to the third party financing, Greenbrier has provided financing for a portion of the working capital needs of our Mexican joint venture through a secured, interest bearing loan. The balance of the loan was $20.3 million as of August 31, 2011. As of August 31, 2011, the Mexican joint venture had $16.2 million of third party debt, of which we have guaranteed 50% or approximately $8.1 million.
In accordance with customary business practices in Europe, we have $6.2 million in bank and third party warranty guarantee facilities, all of which have been utilized as of August 31, 2011. To date no amounts have been drawn under these guarantees.
We have $0.5 million in long-term advances to an unconsolidated affiliate which are secured by accounts receivable and inventory. The facility was temporarily idled during the economic downturn, but was re-opened during the third quarter of 2011. We, along with our partners, have made additional equity investments during 2011, of which our share was $2.3 million. Additional investments will likely be required as production increases.
Quarterly dividends were suspended as of the third quarter 2009.
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 working capital needs, planned capital expenditures and expected debt repayments for the next twelve months.
The following table shows our estimated future contractual cash obligations as of August 31, 2011:
Years Ending August 31, | ||||||||||||||||||||||||||||
(In thousands) | Total | 2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | |||||||||||||||||||||
Notes payable |
$ | 434,854 | $ | 4,570 | $ | 73,469 | $ | 84,710 | $ | 41,933 | $ | 172 | $ | 230,000 | ||||||||||||||
Interest |
70,960 | 13,782 | 13,717 | 10,683 | 8,561 | 8,072 | 16,145 | |||||||||||||||||||||
Revolving notes |
90,339 | 90,339 | | | | | | |||||||||||||||||||||
Purchase commitments |
85,285 | 20,745 | 16,135 | 16,135 | 16,135 | 16,135 | | |||||||||||||||||||||
Operating leases |
25,363 | 8,956 | 6,144 | 4,932 | 2,747 | 1,738 | 846 | |||||||||||||||||||||
Railcar leases |
10,851 | 6,129 | 1,604 | 1,604 | 1,177 | 337 | | |||||||||||||||||||||
Other |
1,171 | 507 | 485 | 173 | 2 | 3 | 1 | |||||||||||||||||||||
|
||||||||||||||||||||||||||||
$ | 718,823 | $ | 145,028 | $ | 111,554 | $ | 118,237 | $ | 70,555 | $ | 26,457 | $ | 246,992 | |||||||||||||||
|
Due to uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits at August 31, 2011, we are unable to estimate the period of cash settlement with the respective taxing authority. Therefore, approximately $3.1 million in uncertain tax positions have been excluded from the contractual table above. See Note 21 to the Consolidated Financial Statements for a discussion on income taxes.
Off Balance Sheet Arrangements
We do not currently have off balance sheet arrangements that have or are likely to have a material current or future effect on our Consolidated Financial Statements.
Critical Accounting Policies 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 - For financial reporting purposes, income tax expense is estimated based on planned tax return filings. The amounts anticipated to be reported in those filings may change between the time the financial statements are prepared and the time the tax returns are filed. Further, because tax filings are subject to review by taxing authorities, there is also the risk that a position taken in preparation of a tax return may be challenged by a
The Greenbrier Companies 2011 Annual Report | 31 |
taxing authority. If the taxing authority is successful in asserting a position different than that taken by us, differences in tax expense or between current and deferred tax items may arise in future periods. Such differences, which could have a material impact on our financial statements, would be reflected in the financial statements when management considers them probable of occurring and the amount reasonably estimable. Valuation allowances reduce deferred tax assets to an amount that will more likely than not be realized. Our estimates of the realization of deferred tax assets is based on the information available at the time the financial statements are prepared and may include estimates of future income and other assumptions that are inherently uncertain.
Maintenance obligations - We are responsible for maintenance on a portion of the managed and owned lease fleet under the terms of maintenance obligations defined in the underlying lease or management agreement. The estimated maintenance liability is based on maintenance histories for each type and age of railcar. These estimates involve judgment as to the future costs of repairs and the types and timing of repairs required over the lease term. As we cannot predict with certainty the prices, timing and volume of maintenance needed in the future on railcars under long-term leases, this estimate is uncertain and could be materially different from maintenance requirements. The liability is periodically reviewed and updated based on maintenance trends and known future repair or refurbishment requirements. These adjustments could be material due to the inherent uncertainty in predicting future maintenance requirements.
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.
Revenue recognition - Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectibility is reasonably assured.
Railcars are generally manufactured, repaired or refurbished and wheel services and parts produced under firm orders from third parties. Revenue is recognized when these products or services are completed, accepted by an unaffiliated customer and contractual contingencies removed. Certain leases are operated under car hire arrangements whereby revenue is earned based on utilization, car hire rates and terms specified in the lease agreement. Car hire revenue is reported from a third party source two months in arrears; however, such revenue is accrued in the month earned based on estimates of use from historical activity and is adjusted to actual as reported. These estimates are inherently uncertain as they involve judgment as to the estimated use of each railcar. Adjustments to actual have historically not been significant. Revenues from construction of marine barges are either recognized on the percentage of completion method during the construction period or on the completed contract method based on the terms of the contract. Under the percentage of completion method, judgment is used to determine a definitive threshold against which progress towards completion can be measured to determine timing of revenue recognition.
Impairment of long-lived assets - When changes in circumstances indicate the carrying amount of certain long-lived assets may not be recoverable, the assets are evaluated for impairment. If the forecast undiscounted future cash flows are less than the carrying amount of the assets, an impairment charge to reduce the carrying value of the assets to fair value is recognized in the current period. These estimates are based on the best information available at the time of the impairment and could be materially different if circumstances change. If the forecast undiscounted future cash flows exceeded the carrying amount of the assets it would indicate that the assets were not impaired.
32 | The Greenbrier Companies 2011 Annual Report |
Goodwill and acquired intangible assets - The Company periodically acquires businesses in purchase transactions in which the allocation of the purchase price may result in the recognition of goodwill and other intangible assets. The determination of the value of such intangible assets requires management to make estimates and assumptions. These estimates affect the amount of future period amortization and possible impairment charges.
Goodwill and indefinite-lived intangible assets are tested for impairment annually during the third quarter. Goodwill is also tested more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists. The provisions of Accounting Standards Codification (ASC) 350, Intangibles Goodwill and Other , require that we perform a two-step impairment test on goodwill. In the first step, we compare the fair value of each reporting unit with its carrying value. We determine the fair value of our reporting units based on a weighting of income and market approaches. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, we estimate the fair value based on observed market multiples for comparable businesses. The second step of the goodwill impairment test is required only in situations where the carrying value of the reporting unit exceeds its fair value as determined in the first step. In the second step we would compare the implied fair value of goodwill to its carrying value. The implied fair value of goodwill is determined by allocating the fair value of a reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recorded to the extent that the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill. The goodwill balance as of August 31, 2011 of $137.1 million relates to the Wheel Services, Refurbishment & Parts segment. Goodwill was tested during the third quarter and the Company concluded that goodwill was not impaired.
New Accounting Pronouncements
See Note 2 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Item 7a. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Foreign Currency Exchange Risk
We have operations in Mexico, Germany and Poland that conduct business in their local currencies as well as other regional 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 the margin on a portion of forecast foreign currency sales. At August 31, 2011, $90.8 million of forecast sales in Europe were hedged by foreign exchange contracts. Because of the variety of currencies in which purchases and sales are transacted and the interaction between currency rates, it is not possible to predict the impact a movement in a single foreign currency exchange rate would have on future operating results. We believe the exposure to foreign exchange risk is not material.
In addition to exposure to transaction gains or losses, we are also exposed to foreign currency exchange risk related to the net asset position of our foreign subsidiaries. At August 31, 2011, net assets of foreign subsidiaries aggregated $27.6 million and a 10% strengthening of the U.S. dollar relative to the foreign currencies would result in a decrease in equity of $2.8 million, or 0.8% 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 $44.3 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 August 31, 2011, 65% of our outstanding debt has fixed rates and 35% has variable rates. At August 31, 2011, a uniform 10% increase in interest rates would result in approximately $0.6 million of additional annual interest expense.
The Greenbrier Companies 2011 Annual Report | 33 |
Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Consolidated Balance Sheets
YEARS ENDED AUGUST 31,
(In thousands) | 2011 | 2010 | ||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 50,222 | $ | 98,864 | ||||
Restricted cash |
2,113 | 2,525 | ||||||
Accounts receivable, net |
188,443 | 89,252 | ||||||
Inventories |
323,512 | 204,626 | ||||||
Leased railcars for syndication |
30,690 | 12,804 | ||||||
Equipment on operating leases, net |
321,141 | 302,663 | ||||||
Property, plant and equipment, net |
161,200 | 132,614 | ||||||
Goodwill |
137,066 | 137,066 | ||||||
Intangibles and other assets, net |
87,268 | 92,474 | ||||||
|
||||||||
$ | 1,301,655 | $ | 1,072,888 | |||||
|
||||||||
Liabilities and Equity |
||||||||
Revolving notes |
$ | 90,339 | $ | 2,630 | ||||
Accounts payable and accrued liabilities |
316,536 | 181,638 | ||||||
Deferred income taxes |
83,839 | 81,136 | ||||||
Deferred revenue |
5,900 | 11,377 | ||||||
Notes payable |
429,140 | 498,700 | ||||||
Commitments and contingencies (Notes 24 & 25) |
||||||||
Equity: Greenbrier |
||||||||
Preferred stock - without par value; 25,000 shares authorized; none outstanding |
| | ||||||
Common stock - without par value; 50,000 shares authorized; 25,186 and 21,875 outstanding at August 31, 2011 and 2010 |
| | ||||||
Additional paid-in capital |
242,286 | 172,426 | ||||||
Retained earnings |
127,182 | 120,716 | ||||||
Accumulated other comprehensive loss |
(7,895 | ) | (7,204 | ) | ||||
|
||||||||
Total equity Greenbrier |
361,573 | 285,938 | ||||||
Noncontrolling interest |
14,328 | 11,469 | ||||||
|
||||||||
Total equity |
375,901 | 297,407 | ||||||
|
||||||||
$ | 1,301,655 | $ | 1,072,888 | |||||
|
The accompanying notes are an integral part of these financial statements.
34 | The Greenbrier Companies 2011 Annual Report |
Consolidated Statements of Operations
YEARS ENDED AUGUST 31,
(In thousands, except per share amounts) | 2011 | 2010 | 2009 | |||||||||
Revenue |
||||||||||||
Manufacturing |
$ | 721,102 | $ | 295,566 | $ | 462,496 | ||||||
Wheel Services, Refurbishment & Parts |
452,865 | 388,434 | 475,397 | |||||||||
Leasing & Services |
69,323 | 72,280 | 78,298 | |||||||||
|
||||||||||||
1,243,290 | 756,280 | 1,016,191 | ||||||||||
Cost of revenue |
||||||||||||
Manufacturing |
661,127 | 268,395 | 458,733 | |||||||||
Wheel Services, Refurbishment & Parts |
405,449 | 344,522 | 420,294 | |||||||||
Leasing & Services |
37,183 | 41,365 | 45,991 | |||||||||
|
||||||||||||
1,103,759 | 654,282 | 925,018 | ||||||||||
Margin |
139,531 | 101,998 | 91,173 | |||||||||
Selling and administrative |
80,326 | 69,931 | 65,743 | |||||||||
Gain on disposition of equipment |
(8,369 | ) | (8,170 | ) | (1,934 | ) | ||||||
Goodwill impairment |
| | 55,667 | |||||||||
Special items |
| (11,870 | ) | | ||||||||
|
||||||||||||
Earnings (loss) from operations |
67,574 | 52,107 | (28,303 | ) | ||||||||
Other costs |
||||||||||||
Interest and foreign exchange |
36,992 | 45,204 | 44,612 | |||||||||
Loss (gain) on extinguishment of debt |
15,657 | (2,070 | ) | 1,300 | ||||||||
|
||||||||||||
Earnings (loss) before income tax and loss from unconsolidated affiliates |
14,925 | 8,973 | (74,215 | ) | ||||||||
Income tax benefit (expense) |
(3,564 | ) | 959 | 16,917 | ||||||||
|
||||||||||||
Earnings (loss) before loss from unconsolidated affiliates |
11,361 | 9,932 | (57,298 | ) | ||||||||
Loss from unconsolidated affiliates |
(2,974 | ) | (1,601 | ) | (565 | ) | ||||||
|
||||||||||||
Net earnings (loss) |
8,387 | 8,331 | (57,863 | ) | ||||||||
Net (earnings) loss attributable to noncontrolling interest |
(1,921 | ) | (4,054 | ) | 1,472 | |||||||
|
||||||||||||
Net earnings (loss) attributable to Greenbrier |
$ | 6,466 | $ | 4,277 | $ | (56,391 | ) | |||||
|
||||||||||||
Basic earnings (loss) per common share: |
$ | 0.27 | $ | 0.23 | $ | (3.35 | ) | |||||
|
||||||||||||
Diluted earnings (loss) per common share: |
$ | 0.24 | $ | 0.21 | $ | (3.35 | ) | |||||
|
||||||||||||
Weighted average common shares: |
||||||||||||
Basic |
24,100 | 18,585 | 16,815 | |||||||||
Diluted |
26,501 | 20,213 | 16,815 |
The accompanying notes are an integral part of these financial statements.
The Greenbrier Companies 2011 Annual Report | 35 |
Consolidated Statements of Equity
and Comprehensive Income (Loss)
Attributable to Greenbrier | ||||||||||||||||||||||||||||
(In thousands, except for per share amounts) |
Common
Stock Shares |
Additional
Paid-in Capital |
Retained
Earnings |
Accumulated
Other Comprehensive Income (Loss) |
Total
Attributable to Greenbrier |
Attributable to
Noncontrolling Interest |
Total
Equity |
|||||||||||||||||||||
Balance September 1, 2008 |
16,606 | $ | 99,694 | $ | 174,831 | $ | (1,305 | ) | $ | 273,220 | $ | 8,618 | $ | 281,838 | ||||||||||||||
Net loss |
| | (56,391 | ) | | (56,391 | ) | (1,472 | ) | (57,863 | ) | |||||||||||||||||
Translation adjustment (net of tax effect) |
| | | (5,527 | ) | (5,527 | ) | | (5,527 | ) | ||||||||||||||||||
Reclassification of derivative financial instruments recognized in net loss (net of tax effect) |
| | | (612 | ) | (612 | ) | | (612 | ) | ||||||||||||||||||
Unrealized loss on derivative financial instruments (net of tax effect) |
| | | (2,465 | ) | (2,465 | ) | | (2,465 | ) | ||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||
Comprehensive loss |
(64,995 | ) | (1,472 | ) | (66,467 | ) | ||||||||||||||||||||||
Investment by joint venture partner |
| | | | | 1,400 | 1,400 | |||||||||||||||||||||
Noncontrolling interest adjustments |
| | | | | 178 | 178 | |||||||||||||||||||||
Pension adjustment (net of tax effect) |
| 119 | 119 | | 119 | |||||||||||||||||||||||
Cash dividends ($0.12 per share) |
| | (2,001 | ) | | (2,001 | ) | | (2,001 | ) | ||||||||||||||||||
Warrants |
| 13,410 | | | 13,410 | | 13,410 | |||||||||||||||||||||
Restricted stock awards (net of cancellations) |
485 | 1,252 | | | 1,252 | | 1,252 | |||||||||||||||||||||
Unamortized restricted stock |
| (1,252 | ) | | | (1,252 | ) | | (1,252 | ) | ||||||||||||||||||
Restricted stock amortization |
| 5,062 | | | 5,062 | | 5,062 | |||||||||||||||||||||
Stock options exercised |
3 | 23 | | | 23 | | 23 | |||||||||||||||||||||
Excess tax expense of stock options exercised |
| (1,112 | ) | | | (1,112 | ) | | (1,112 | ) | ||||||||||||||||||
|
||||||||||||||||||||||||||||
Balance August 31, 2009 |
17,094 | 117,077 | 116,439 | (9,790 | ) | 223,726 | 8,724 | 232,450 | ||||||||||||||||||||
Net earnings |
| | 4,277 | | 4,277 | 4,054 | 8,331 | |||||||||||||||||||||
Translation adjustment (net of tax effect) |
| | | (3,831 | ) | (3,831 | ) | | (3,831 | ) | ||||||||||||||||||
Pension adjustment (net of tax effect) |
| 6,810 | 6,810 | | 6,810 | |||||||||||||||||||||||
Reclassification of derivative financial instruments recognized in net earnings (net of tax effect) |
| | | (878 | ) | (878 | ) | | (878 | ) | ||||||||||||||||||
Unrealized gain on derivative financial instruments (net of tax effect) |
| | | 485 | 485 | | 485 | |||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||
Comprehensive income |
6,863 | 4,054 | 10,917 | |||||||||||||||||||||||||
Noncontrolling interest adjustments |
| | | | | (1,309 | ) | (1,309 | ) | |||||||||||||||||||
ASC 470-20 adjustment for partial convertible note retirement (net of tax) |
| (2,535 | ) | | | (2,535 | ) | | (2,535 | ) | ||||||||||||||||||
Net proceeds from equity offering |
4,500 | 52,708 | | | 52,708 | | 52,708 | |||||||||||||||||||||
Restricted stock awards (net of cancellations) |
274 | 3,210 | | | 3,210 | | 3,210 | |||||||||||||||||||||
Unamortized restricted stock |
| (3,210 | ) | | | (3,210 | ) | | (3,210 | ) | ||||||||||||||||||
Restricted stock amortization |
| 5,825 | | | 5,825 | | 5,825 | |||||||||||||||||||||
Stock options exercised |
7 | 29 | | | 29 | | 29 | |||||||||||||||||||||
Excess tax expense of stock options exercised |
| (678 | ) | | | (678 | ) | | (678 | ) | ||||||||||||||||||
|
||||||||||||||||||||||||||||
Balance August 31, 2010 |
21,875 | 172,426 | 120,716 | (7,204 | ) | 285,938 | 11,469 | 297,407 | ||||||||||||||||||||
Net earnings |
| | 6,466 | | 6,466 | 1,921 | 8,387 | |||||||||||||||||||||
Translation adjustment |
| | | 2,205 | 2,205 | | 2,205 | |||||||||||||||||||||
Pension adjustment (net of tax effect) |
| (6 | ) | (6 | ) | | (6 | ) | ||||||||||||||||||||
Reclassification of derivative financial instruments recognized in net earnings (net of tax effect) |
| | | (1,029 | ) | (1,029 | ) | | (1,029 | ) | ||||||||||||||||||
Unrealized loss on derivative financial instruments (net of tax effect) |
| | | (1,861 | ) | (1,861 | ) | | (1,861 | ) | ||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||
Comprehensive income |
5,775 | 1,921 | 7,696 | |||||||||||||||||||||||||
Noncontrolling interest adjustments |
| | | | | 938 | 938 | |||||||||||||||||||||
Net proceeds from equity offering |
3,000 | 62,760 | | | 62,760 | | 62,760 | |||||||||||||||||||||
Restricted stock awards (net of cancellations) |
306 | 7,197 | | | 7,197 | | 7,197 | |||||||||||||||||||||
Unamortized restricted stock |
| (7,197 | ) | | | (7,197 | ) | | (7,197 | ) | ||||||||||||||||||
Restricted stock amortization |
| 7,073 | | | 7,073 | | 7,073 | |||||||||||||||||||||
Stock options exercised |
5 | 27 | | | 27 | | 27 | |||||||||||||||||||||
|
||||||||||||||||||||||||||||
Balance August 31, 2011 |
25,186 | $ | 242,286 | $ | 127,182 | $ | (7,895 | ) | $ | 361,573 | $ | 14,328 | $ | 375,901 | ||||||||||||||
|
The accompanying notes are an integral part of these financial statements.
36 | The Greenbrier Companies 2011 Annual Report |
Consolidated Statements of Cash Flows
YEARS ENDED AUGUST 31,
(In thousands) | 2011 | 2010 | 2009 | |||||||||
Cash flows from operating activities: |
||||||||||||
Net earnings (loss) |
$ | 8,387 | $ | 8,331 | $ | (57,863 | ) | |||||
Adjustments to reconcile net earnings (loss) to net cash (used in) provided by operating activities: |
||||||||||||
Deferred income taxes |
2,399 | 15,052 | (13,299 | ) | ||||||||
Depreciation and amortization |
38,293 | 37,511 | 37,669 | |||||||||
Gain on sales of leased equipment |
(5,121 | ) | (6,543 | ) | (1,167 | ) | ||||||
Accretion of debt discount |
6,583 | 8,149 | 4,948 | |||||||||
Goodwill impairment |
| | 55,667 | |||||||||
Special items |
| (11,870 | ) | | ||||||||
Loss (gain) on extinguishment of debt (non-cash portion) |
8,453 | (2,070 | ) | 915 | ||||||||
Other |
6,762 | 4,237 | 3,583 | |||||||||
Decrease (increase) in assets: |
||||||||||||
Accounts receivable |
(96,552 | ) | 22,430 | 58,521 | ||||||||
Inventories |
(116,866 | ) | (45,212 | ) | 109,469 | |||||||
Leased railcars for syndication |
(20,839 | ) | 759 | 11,123 | ||||||||
Other |
8,863 | 6,455 | 242 | |||||||||
Increase (decrease) in liabilities: |
||||||||||||
Accounts payable and accrued liabilities |
130,673 | 12,777 | (86,514 | ) | ||||||||
Deferred revenue |
(5,287 | ) | (7,445 | ) | (2,829 | ) | ||||||
|
||||||||||||
Net cash (used in) provided by operating activities |
(34,252 | ) | 42,561 | 120,465 | ||||||||
|
||||||||||||
Cash flows from investing activities: |
||||||||||||
Proceeds from sales of equipment |
18,730 | 22,978 | 15,555 | |||||||||
Investment in and advances (to) from unconsolidated affiliates |
(2,330 | ) | (927 | ) | | |||||||
Contract placement fee |
| (6,050 | ) | | ||||||||
Decrease (increase) in restricted cash |
412 | (1,442 | ) | (109 | ) | |||||||
Capital expenditures |
(84,302 | ) | (38,989 | ) | (38,847 | ) | ||||||
Other |
(1,774 | ) | 260 | 429 | ||||||||
|
||||||||||||
Net cash used in investing activities |
(69,264 | ) | (24,170 | ) | (22,972 | ) | ||||||
|
||||||||||||
Cash flows from financing activities: |
||||||||||||
Net changes in revolving notes with maturities of 90 days or less |
71,625 | (11,934 | ) | (81,251 | ) | |||||||
Proceeds from revolving notes with maturities longer than 90 days |
25,159 | 5,698 | | |||||||||
Repayments of revolving notes with maturities longer than 90 days |
(10,000 | ) | (5,698 | ) | | |||||||
Proceeds from issuance of notes payable |
231,250 | 2,149 | 75,000 | |||||||||
Debt issuance costs |
(11,469 | ) | (109 | ) | (5,232 | ) | ||||||
Repayments of notes payable |
(311,360 | ) | (38,267 | ) | (16,436 | ) | ||||||
Proceeds from equity offering |
63,180 | 56,250 | | |||||||||
Expenses from equity offering |
(420 | ) | (3,542 | ) | | |||||||
Investment by joint venture partner |
| | 1,400 | |||||||||
Dividends paid |
| | (2,001 | ) | ||||||||
Other |
26 | 29 | 3,973 | |||||||||
|
||||||||||||
Net cash provided by (used in) financing activities |
57,991 | 4,576 | (24,547 | ) | ||||||||
|
||||||||||||
Effect of exchange rate changes |
(3,117 | ) | (290 | ) | (2,716 | ) | ||||||
Increase (decrease) in cash and cash equivalents |
(48,642 | ) | 22,677 | 70,230 | ||||||||
Cash and cash equivalents |
||||||||||||
Beginning of period |
98,864 | 76,187 | 5,957 | |||||||||
|
||||||||||||
End of period |
$ | 50,222 | $ | 98,864 | $ | 76,187 | ||||||
|
||||||||||||
Cash paid during the period for: |
||||||||||||
Interest |
$ | 27,872 | $ | 29,409 | $ | 31,967 | ||||||
Income taxes paid (refunded) |
$ | 677 | $ | (14,953 | ) | $ | 592 | |||||
Non-cash activity |
||||||||||||
Transfer of leased railcars for syndication to equipment on operating leases |
$ | | $ | | $ | 4,830 | ||||||
Transfer of other assets to property, plant and equipment |
| 708 | | |||||||||
Adjustment to tax reserve |
| | 7,415 | |||||||||
Warrant valuation |
| | 13,410 |
The accompanying notes are an integral part of these financial statements.
The Greenbrier Companies 2011 Annual Report | 37 |
Notes to Consolidated Financial Statements
Note 1 - Nature of Operations
The Greenbrier Companies, Inc. and its subsidiaries (Greenbrier or the Company) currently operate in three primary business segments: Manufacturing; Wheel Services, Refurbishment & Parts; and Leasing & Services. The three business segments are operationally integrated. With operations in the United States (U.S.), Mexico and Poland, the Manufacturing segment produces double-stack intermodal railcars, conventional railcars, tank cars and marine vessels. The Wheel Services, Refurbishment & Parts segment performs railcar repair, refurbishment and maintenance activities in North America as well as wheel and axle servicing and production of a variety of parts for the railroad industry. The Leasing & Services segment owns approximately 9,000 railcars and provides management services for approximately 216,000 railcars for railroads, shippers, carriers, institutional investors and other leasing and transportation companies in North America. Greenbrier also produces railcar castings through an unconsolidated joint venture.
Note 2 - Summary of Significant Accounting Policies
Principles of consolidation - The financial statements include the accounts of the Company and its subsidiaries in which it has a controlling interest. All intercompany transactions and balances are eliminated upon consolidation.
Unclassified Balance Sheet - The balance sheets of the Company are presented in an unclassified format as a result of significant leasing activities for which the current or non-current distinction is not relevant. In addition, the activities of the Manufacturing; Wheel Services, Refurbishment & Parts and Leasing & Services segments are so intertwined that in the opinion of management, any attempt to separate the respective balance sheet categories would not be meaningful and may lead to the development of misleading conclusions by the reader.
Foreign currency translation - Certain operations outside the U.S., primarily in Poland and Germany, prepare financial statements in currencies other than the U.S. dollar. Revenues and expenses are translated at average exchange rates for the year, while assets and liabilities are translated at year-end exchange rates. Translation adjustments are accumulated as a separate component of equity in other comprehensive income (loss). The foreign currency translation adjustment balances were $1.9 million, $4.1 million and $0.3 million as of August 31, 2011, 2010 and 2009.
Cash and cash equivalents - Cash is temporarily invested primarily in money market funds. All highly-liquid investments with a maturity of three months or less at the date of acquisition are considered cash equivalents.
Restricted cash - Restricted cash is a pass through account for activity related to management services provided for certain third party customers.
Accounts receivable - Accounts receivable are stated net of allowance for doubtful accounts of $3.9 million as of August 31, 2011 and 2010.
Years ended August 31, | ||||||||||||
(In thousands) | 2011 | 2010 | 2009 | |||||||||
Allowance for doubtful accounts |
||||||||||||
Balance at beginning of period |
$ | 3,931 | $ | 5,612 | $ | 5,557 | ||||||
Additions, net of reversals |
351 | (385 | ) | 641 | ||||||||
Usage |
(673 | ) | (991 | ) | (560 | ) | ||||||
Currency translation effect |
304 | (305 | ) | (26 | ) | |||||||
|
||||||||||||
Balance at end of period |
$ | 3,913 | $ | 3,931 | $ | 5,612 | ||||||
|
Inventories - Inventories are valued at the lower of cost (first-in, first-out) or market. Work-in-process includes material, labor and overhead.
Leased railcars for syndication - Leased railcars for syndication consist of newly-built railcars, manufactured at one of the Companys facilities, which have been placed on lease to a customer and which the Company intends
38 | The Greenbrier Companies 2011 Annual Report |
to sell to an investor with the lease attached. These railcars are not depreciated and are anticipated to be sold within six months of delivery of the last railcar on the underlying lease. The Company does not believe any economic value of a railcar is lost in the first six months; therefore the Company does not depreciate these assets. In the event the railcars are not sold, the railcars are transferred to Equipment on operating leases and depreciated.
Equipment on operating leases, net - Equipment on operating leases is stated net of accumulated depreciation. Depreciation to estimated salvage value is provided on the straight-line method over the estimated useful lives of up to thirty-five years.
Property, plant and equipment - Property, plant and equipment is stated net of accumulated depreciation. Depreciation is provided on the straight-line method over estimated useful lives which are as follows:
Depreciable Life | ||||
Buildings and improvements |
10-25 years | |||
Machinery and equipment |
3-15 years | |||
Other |
3-7 years |
Goodwill - Goodwill is recorded when the purchase price of an acquisition exceeds the fair market value of the net assets acquired. Goodwill is not amortized and is tested for impairment at least annually and more frequently if material changes in events or circumstances arise. This testing compares carrying values to fair values and if the carrying value of these assets is in excess of fair value, the carrying value is reduced to fair value.
Intangible and other assets, net - Intangible assets are recorded when a portion of the purchase price of an acquisition is allocated to assets such as customer contracts and relationships, trade names, certifications and backlog. Intangible assets with finite lives are amortized using the straight line method over their estimated useful lives and include the following: trade names, 5 years; and long-term customer agreements, 5 to 20 years. Other assets include loan fees and debt acquisition costs which are capitalized and amortized as interest expense over the life of the related borrowings.
Impairment of long-lived assets - When changes in circumstances indicate the carrying amount of certain long-lived assets may not be recoverable, the assets are evaluated for impairment. If the forecast undiscounted future cash flows are less than the carrying amount of the assets, an impairment charge to reduce the carrying value of the assets to estimated realizable value is recognized in the current period. No impairment was recorded in the current fiscal year.
Maintenance obligations - The Company is responsible for maintenance on a portion of the managed and owned lease fleet under the terms of maintenance obligations defined in the underlying lease or management agreement. The estimated liability is based on maintenance histories for each type and age of railcar. The liability, included in Accounts payable and accrued liabilities, is reviewed periodically and updated based on maintenance trends and known future repair or refurbishment requirements.
Warranty accruals - Warranty costs are estimated and charged to operations to cover a defined warranty period. The estimated warranty cost is based on history of warranty claims for each particular product type. For new product types without a warranty history, preliminary estimates are based on historical information for similar product types. The warranty accruals, included in Accounts payable and accrued liabilities, are reviewed periodically and updated based on warranty trends.
Contingent rental assistance - The Company has entered into contingent rental assistance agreements on certain railcars, subject to leases, that have been sold to third parties. These agreements guarantee the purchasers a minimum lease rental, subject to a maximum defined rental assistance amount, over remaining periods of up to five years. A liability is established when management believes that it is probable that a rental shortfall will occur and the amount can be estimated.
Income taxes - The liability method is used to account for income taxes. Deferred income taxes are provided for the temporary effects of differences between assets and liabilities recognized for financial statement and income
The Greenbrier Companies 2011 Annual Report | 39 |
tax reporting purposes. Valuation allowances reduce deferred tax assets to an amount that will more likely than not be realized. As a result, 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 determine the probability of various possible outcomes. The Company reevaluates these uncertain tax positions on a quarterly basis. Changes in assumptions may result in the recognition of a tax benefit or an additional charge to the tax provision.
Noncontrolling interest - In October 2006, the Company formed a joint venture with Grupo Industrial Monclova, S.A. (GIMSA) to manufacture new railroad freight cars for the North American marketplace at GIMSAs existing manufacturing facility located in Frontera, Mexico. Each party owns a 50% interest in the joint venture. Production began late in the Companys third quarter of 2007. The financial results of this operation are consolidated for financial reporting purposes as the Company maintains a controlling interest as evidenced by the right to appoint the majority of the board of directors, control over accounting, financing, marketing and engineering, and approval and design of products. The noncontrolling interest reflected in the Companys consolidated financial statements primarily represents the joint venture partners equity in this venture.
Accumulated other comprehensive income (loss) - Accumulated other comprehensive income (loss), net of tax as appropriate, consisted of the following:
(In thousands) |
Unrealized
Losses on Derivative Financial Instruments |
Pension
Adjustment |
Foreign
Currency Translation Adjustment |
Accumulated
Other Comprehensive Income (Loss) |
||||||||||||
Balance August 31, 2010 |
$ | (2,899 | ) | $ | (189 | ) | $ | (4,116 | ) | $ | (7,204 | ) | ||||
2011 activity |
(2,890 | ) | (6 | ) | 2,205 | (691 | ) | |||||||||
|
||||||||||||||||
Balance, August 31, 2011 |
$ | (5,789 | ) | $ | (195 | ) | $ | (1,911 | ) | $ | (7,895 | ) | ||||
|
Revenue recognition - Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectibility is reasonably assured.
Railcars are generally manufactured, repaired or refurbished under firm orders from third parties. Revenue is recognized when new, refurbished or repaired railcars are completed, accepted by an unaffiliated customer and contractual contingencies removed. Marine revenues are either recognized on the percentage of completion method during the construction period or on the completed contract method based on the terms of the contract. Cash payments received prior to meeting revenue recognition criteria are accounted for in Deferred revenue. Operating lease revenue is recognized as earned under the lease terms. Certain leases are operated under car hire arrangements whereby revenue is earned based on utilization, car hire rates and terms specified in the lease agreement.
Interest and foreign exchange - Includes foreign exchange gains and losses, amortization of loan fee expense, accretion of debt discounts and external interest expense.
Years ended August 31, | ||||||||||||
(In thousands) | 2011 | 2010 | 2009 | |||||||||
Interest and foreign exchange: |
||||||||||||
Interest and other expense |
$ | 30,155 | $ | 36,214 | $ | 35,669 | ||||||
Accretion of term loan debt discount |
3,564 | 4,377 | 1,117 | |||||||||
Accretion of discount on convertible debt due 2026 |
3,021 | 3,771 | 3,831 | |||||||||
Foreign exchange loss |
252 | 842 | 3,995 | |||||||||
|
||||||||||||
$ | 36,992 | $ | 45,204 | $ | 44,612 | |||||||
|
40 | The Greenbrier Companies 2011 Annual Report |
Research and development - Research and development costs are expensed as incurred. Research and development costs incurred for new product development during the years ended August 31, 2011, 2010 and 2009 were $3.0 million, $2.6 million and $1.7 million.
Forward exchange contracts - Foreign operations give rise to risks from changes in foreign currency exchange rates. Forward exchange contracts with established financial institutions are utilized to hedge a portion of such risk. Realized and unrealized gains and losses are deferred in other comprehensive income (loss) and recognized in earnings concurrent with the hedged transaction or when the occurrence of the hedged transaction is no longer considered probable. Ineffectiveness is measured and any gain or loss is recognized in foreign exchange gain or loss. Even though forward exchange contracts are entered into to mitigate the impact of currency fluctuations, certain exposure remains, which may affect operating results. In addition, there is risk for counterparty non-performance.
Interest rate instruments - Interest rate swap agreements are utilized to reduce the impact of changes in interest rates on certain debt. The net cash amounts paid or received under the agreements are accrued and recognized as an adjustment to interest expense.
Net earnings per share - Basic earnings per common share (EPS) excludes the potential dilution that would occur if additional shares were issued upon exercise of outstanding warrants or conversion of bonds. Diluted EPS is calculated using the most dilutive of two approaches. The first approach includes only the dilutive effect of outstanding warrants in the share count using the treasury stock method. The second approach supplements the first by including the if converted effect of the 2018 Convertible notes. Under the if converted method debt issuance and interest costs associated with the convertible notes are added back to net earnings and the share count is increased by the shares underlying the convertible notes. The 2026 Convertible notes would only be included in the calculation of both approaches if the current stock price is greater than the initial conversion price using the treasury stock method.
Stock-based compensation - The value, at the date of grant, of stock awarded under restricted stock grants is amortized as compensation expense over the lesser of the vesting period of one to five years or to the recipients eligible retirement date. Compensation expense recognized related to restricted stock grants for the years ended August 31, 2011, 2010 and 2009 was $7.1 million, $5.8 million and $5.1 million.
Management 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.
Reclassifications - Certain reclassifications have been made to the accompanying prior period Consolidated Financial Statements to conform to the 2011 presentation. The effect of such reclassifications on the Consolidated Balance Sheet as of August 31, 2010 was to increase Inventories by $19.0 million (from $185.6 million as previously reported to $204.6 million) and to reduce Assets held for sale by $19.0 million (from $31.8 million as previously reported to $12.8 million). The Assets held for sale caption, after such reclassification, has been re-titled Leased railcars for syndication. For the Consolidated Statements of Operations, the loss (gain) on extinguishment of debt (a gain of $2.1 million for the year ended August 31, 2010 and a loss of $1.3 million for the year ended August 31, 2009) previously included within the line item Interest and foreign exchange has been reclassified to a separate line item captioned Loss (gain) on extinguishment of debt.
Change in Presentation to Prior Year Financial Statements - Historically, the Company has reported Gain on disposition of equipment as a net amount in Revenue. The Company has changed its financial statement presentation to now report these amounts as a separate line item captioned Gain on disposition of equipment, which is a component of operating income below margin. This change in presentation resulted in a decrease in Revenue and corresponding increase in Gain on disposition of equipment of $8.2 million for the year ended
The Greenbrier Companies 2011 Annual Report | 41 |
August 31, 2010 and $1.9 million for the year ended August 31, 2009 Such change in presentation did not result in any change to Net earnings (loss) attributable to Greenbrier.
Initial Adoption of Accounting Policies - In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 167, Amendments to FASB Interpretation No. 46(R) which provides guidance with respect to consolidation of variable interest entities . This statement retains the scope of Interpretation 46(R) with the addition of entities previously considered qualifying special-purpose entities, as the concept of these entities was eliminated in SFAS No. 166, Accounting for Transfers of Financial Assets . This statement replaces the quantitative-based risks and rewards calculation for determining the primary beneficiary of a variable interest entity. The approach focuses on identifying which enterprise has the power to direct activities that most significantly impact the entitys economic performance and the obligation to absorb the losses or receive the benefits from the entity. It is possible that application of this revised guidance will change an enterprises assessment of involvement with variable interest entities. This statement, which has been codified within Accounting Standards Codification (ASC) 810, Consolidations, was effective for the Company as of September 1, 2010. The initial adoption did not have an effect on the Companys Consolidated Financial Statements.
Prospective Accounting Changes - In June 2011, an accounting standard update was issued regarding the presentation of other comprehensive income in the financial statements. The standard eliminated the option of presenting other comprehensive income as part of the statement of changes in equity and instead requires the Company to present other comprehensive income as either a single statement of comprehensive income combined with net income or as two separate but continuous statements. This amendment will be effective for the Company as of September 1, 2012. The Company currently reports other comprehensive income in the Consolidated Statement of Equity and Comprehensive Income (Loss) and will be required to change the presentation of comprehensive income to be in compliance with the new standard.
In September 2011, an accounting standard update was issued regarding the annual goodwill impairment testing. This amendment is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a qualitative assessment to determine whether further impairment testing is necessary. This amendment will be effective for the Company as of September 1, 2013. However, early adoption is permitted if an entitys financial statements for the most recent annual or interim period have not yet been issued. This amendment impacts testing steps only, and therefore adoption will not have an effect on the Companys Consolidated Financial Statements.
Note 3 - Special Items
In April 2007, the Companys board of directors approved the permanent closure of the Companys then Canadian railcar manufacturing subsidiary, TrentonWorks Ltd. (TrentonWorks). In March 2008, Trenton Works filed for bankruptcy with the Office of the Superintendent of Bankruptcy Canada whereby the assets of TrentonWorks were administered and liquidated by an appointed trustee. Under generally accepted accounting principles, consolidation is generally required for investments of more than 50% ownership, except when control is not held by the majority owner. Under these principles, bankruptcy represents a condition which may preclude consolidation in instances where control rests with the bankruptcy court and trustee, rather than the majority owner. As a result, the Company discontinued consolidating TrentonWorks financial statements beginning on March 13, 2008 and reported its investment in TrentonWorks using the cost method. Under the cost method, the investment was reflected as a single amount on the Companys Consolidated Balance Sheet. De-consolidation resulted in a negative investment in the subsidiary of $15.3 million which was included as a liability on the Companys Consolidated Balance Sheet titled Losses in excess of investment in de-consolidated subsidiary. In addition, a $3.4 million loss was included in Accumulated other comprehensive loss. In the fourth quarter of 2010, the bankruptcy was resolved upon liquidation of substantially all remaining assets of TrentonWorks by the bankruptcy trustee. The resolution of the bankruptcy and associated release of obligations resulted in the recognition of $11.9 million of income in 2010, consisting of the reversal of the $15.3 million liability, net of the $3.4 million other comprehensive loss. This income was recorded in Special items on the Consolidated Statement of Operations.
42 | The Greenbrier Companies 2011 Annual Report |
Note 4 - Loss (Gain) on Extinguishment of Debt
The results of operations for the year ended August 31, 2011 include a loss on extinguishment of debt of $15.7 million. During the third quarter the Company recorded a $10.1 million loss on extinguishment of debt associated with the write-off of unamortized debt issuance costs of $2.9 million and prepayment premiums and other costs of $7.2 million due to the full retirement of the $235.0 million senior unsecured notes. During the fourth quarter the Company recorded a loss on extinguishment of debt of $5.6 million consisting of the write-off of unamortized loan fees of $1.7 million and a debt discount of $3.9 million due to the full retirement of a $71.8 million term loan.
The results of operations for the year ended August 31, 2010 include a gain on extinguishment of debt of $2.1 million. This includes a $3.2 million gain associated with the early retirement of $32.3 million of convertible senior notes, partially offset by $1.1 million for the proportionate write-off of loan fees and debt discount related to the early repayments on the convertible note and a certain term loan.
The results from operations for the year ended August 31, 2009 include a loss on extinguishment of debt of $1.3 million. This includes $0.9 million acceleration of loan fee amortization associated with the reduction in size of the North American revolving credit facility and $0.4 million to break interest rate swaps associated with the voluntary prepayment of approximately $6.1 million of certain term loans.
Note 5 - Inventories
Years ended August 31, | ||||||||
(In thousands) | 2011 | 2010 | ||||||
Manufacturing supplies and raw materials |
$ | 231,798 | $ | 119,306 | ||||
Work-in-process |
78,709 | 70,394 | ||||||
Finished goods |
17,455 | 19,022 | ||||||
Excess and obsolete adjustment |
(4,450 | ) | (4,096 | ) | ||||
|
||||||||
$ | 323,512 | $ | 204,626 | |||||
|
Years ended August 31, | ||||||||||||
(In thousands) | 2011 | 2010 | 2009 | |||||||||
Excess and obsolete adjustment |
||||||||||||
Balance at beginning of period |
$ | 4,096 | $ | 4,882 | $ | 4,999 | ||||||
Charge to cost of revenue |
1,202 | 1,698 | 2,340 | |||||||||
Disposition of inventory |
(995 | ) | (2,249 | ) | (1,896 | ) | ||||||
Currency translation effect |
147 | (235 | ) | (561 | ) | |||||||
|
||||||||||||
Balance at end of period |
$ | 4,450 | $ | 4,096 | $ | 4,882 | ||||||
|
Note 6 - Leased Railcars for Syndication
Leased railcars for syndication consist of newly-built railcars, manufactured at one of the Companys facilities, which have been placed on lease to a customer and which the Company intends to sell to an investor with the lease attached. These railcars are not depreciated and are anticipated to be sold within six months of delivery of the last railcar on the underlying lease. The Company does not believe any economic value of a railcar is lost in the first six months; therefore the Company does not depreciate these assets. In the event the railcars are not sold, the railcars are transferred to Equipment on operating leases and depreciated. As of August 31, 2011 Leased railcars for syndication were $30.7 million compared to $12.8 million as of August 31, 2010.
Note 7 - Equipment on Operating Leases, net
Equipment on operating leases is reported net of accumulated depreciation of $94.8 million and $85.0 million as of August 31, 2011 and 2010. Depreciation expense was $12.9 million, $12.4 million and $12.3 million as of August 31, 2011, 2010 and 2009. In addition, certain railcar equipment leased-in by the Company on operating
The Greenbrier Companies 2011 Annual Report | 43 |
leases (see Note 24 Lease Commitments) is subleased to customers under non- cancelable operating leases. Aggregate minimum future amounts receivable under all non-cancelable operating leases and subleases are as follows:
(In thousands) | ||||
Year ending August 31, |
||||
2012 |
$ | 25,396 | ||
2013 |
14,600 | |||
2014 |
12,331 | |||
2015 |
9,141 | |||
2016 |
5,081 | |||
Thereafter |
9,872 | |||
|
||||
$ | 76,421 | |||
|
Certain equipment is also operated under daily, monthly or car hire utilization arrangements. Associated revenue amounted to $18.7 million, $18.4 million and $22.8 million for the years ended August 31, 2011, 2010 and 2009.
Note 8 - Property, Plant and Equipment, net
Years ended August 31, | ||||||||
(In thousands) | 2011 | 2010 | ||||||
Land and improvements |
$ | 31,682 | $ | 25,539 | ||||
Machinery and equipment |
181,161 | 163,351 | ||||||
Buildings and improvements |
82,668 | 72,727 | ||||||
Other |
59,136 | 42,893 | ||||||
|
||||||||
354,647 | 304,510 | |||||||
Accumulated depreciation |
(193,447 | ) | (171,896 | ) | ||||
|
||||||||
$ | 161,200 | $ | 132,614 | |||||
|
Depreciation expense was $20.7 million, $20.5 million and $20.7 million as of August 31, 2011, 2010 and 2009.
Note 9 - Goodwill
The Company performs a goodwill impairment test annually during the third quarter. Goodwill is also tested more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists. The provisions of ASC 350, Intangibles Goodwill and Other , require the Company to perform a two-step impairment test on goodwill. In the first step, the Company compares the fair value of each reporting unit with its carrying value. The Company determines the fair value of the reporting units based on a weighting of income and market approaches. Under the income approach, the Company calculates the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, the Company estimates the fair value based on observed market multiples for comparable businesses. The second step of the goodwill impairment test is required only in situations where the carrying value of the reporting unit exceeds its fair value as determined in the first step. In the second step the Company would compare the implied fair value of goodwill to its carrying value. The implied fair value of goodwill is determined by allocating the fair value of a reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recorded to the extent that the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill. The goodwill balance, net of cumulative write-downs of $55.7 million, as of August 31, 2011 and 2010 was $137.1 million and relates to the Wheel Services, Refurbishment & Parts segment. Goodwill was tested during the third quarter of 2011 and the Company concluded that goodwill was not impaired.
44 | The Greenbrier Companies 2011 Annual Report |
In May 2009, the Company recorded charges of $55.7 million associated with the impairment of goodwill. These charges consist of $1.3 million in the Manufacturing segment, $3.1 million in the Leasing & Services segment and $51.3 million in the Wheel Services, Refurbishment & Parts segment.
Note 10 - 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 Companys identifiable intangible and other assets balance:
Years ended August 31, | ||||||||
(In thousands) | 2011 | 2010 | ||||||
Intangible assets subject to amortization: |
||||||||
Customer relationships |
$ | 66,825 | $ | 66,825 | ||||
Accumulated amortization |
(17,854 | ) | (13,701 | ) | ||||
Other intangibles |
5,185 | 5,003 | ||||||
Accumulated amortization |
(3,475 | ) | (2,845 | ) | ||||
|
||||||||
50,681 | 55,282 | |||||||
|
||||||||
Intangible assets not subject to amortization |
912 | 912 | ||||||
Prepaid and other assets |
8,692 | 7,965 | ||||||
Debt issuance costs |
12,516 | 9,975 | ||||||
Nonqualified savings plan investments |
6,326 | 6,489 | ||||||
Investment in unconsolidated affiliates |
5,769 | 5,300 | ||||||
Contract placement fee |
2,259 | 4,756 | ||||||
Investment in direct finance leases |
113 | 1,795 | ||||||
|
||||||||
$ | 87,268 | $ | 92,474 | |||||
|
Amortization expense for the year ended August 31, 2011 was $4.7 million and $4.8 million for each of the years ended August 31, 2010 and 2009. Amortization expense for the years ending August 31, 2012, 2013, 2014, 2015 and 2016 is expected to be $4.6 million, $4.4 million, $4.3 million, $4.3 million and $4.3 million.
Note 11 - Investment in Unconsolidated Affiliates
In April 2010, WLRGreenbrier Rail Inc. (WLR-GBX) was formed and acquired a lease fleet of nearly 4,000 railcars valued at approximately $256.0 million. WLR-GBX is wholly owned by affiliates of WL Ross & Co., LLC (WL Ross). The Company paid a $6.1 million contract placement fee to WLR-GBX for the right to perform certain management and advisory services and in exchange will receive management and other fee income and incentive compensation tied to the performance of WLR-GBX. The contract placement fee is accounted for under the equity method and is recorded in Intangibles and other assets on the Consolidated Balance Sheet. The contract placement fee balance as of August 31, 2011 was $2.3 million. While the Company acts as asset manager to WLR-GBX, it is not the primary beneficiary. The Company has no authority to make decisions regarding key business activities that most significantly impact the entitys economic performance, such as asset re-marketing and disposition activities, which requires the approval of affiliates of WL Ross.
Summarized financial data for WLR-GBX:
Years ended August 31, | ||||||||
(In thousands) | 2011 | 2010 | ||||||
Current assets |
$ | 7,073 | $ | 2,939 | ||||
Total assets |
$ | 253,365 | $ | 255,889 | ||||
Current liabilities |
$ | 5,067 | $ | 2,839 | ||||
Equity |
$ | 10,821 | $ | 18,573 |
The Greenbrier Companies 2011 Annual Report | 45 |
Years ended August 31, | ||||||||||||
(In thousands) | 2011 | 2010 | 2009 | |||||||||
Revenue |
$ | 17,943 | $ | 5,629 | $ | | ||||||
Net loss |
$ | (5,997 | ) | $ | (3,494 | ) | $ | |
In June 2003, the Company acquired a 33% minority ownership interest in Ohio Castings LLC, a joint venture which produces castings for freight cars. This joint venture is accounted for under the equity method and the investment is included in Intangibles and other assets on the Consolidated Balance Sheets. The investment balance as of August 31, 2011 was $5.8 million. The facility was temporarily idled during the economic downturn, but was re-opened during the third quarter of 2011. The Company, along with the other partners, made additional investments during 2011, of which the Companys share was $2.3 million. Additional investments will likely be required as production increases.
Summarized financial data for the castings joint venture is as follows:
Years ended August 31, | ||||||||
(In thousands) | 2011 | 2010 | ||||||
Current assets |
$ | 7,887 | $ | 2,455 | ||||
Total assets |
$ | 18,532 | $ | 14,205 | ||||
Current liabilities |
$ | 5,104 | $ | 1,535 | ||||
Equity |
$ | 12,934 | $ | 11,682 |
Years ended August 31, | ||||||||||||
(In thousands) | 2011 | 2010 | 2009 | |||||||||
Revenue |
$ | 5,813 | $ | | $ | 34,028 | ||||||
Net loss |
$ | (5,648 | ) | $ | (2,897 | ) | $ | (2,827 | ) |
Note 12 - Revolving Notes
As of August 31, 2011 senior secured credit facilities, consisting of three components, aggregated $285.9 million. As of August 31, 2011 a $245.0 million revolving line of credit secured by substantially all the Companys assets in the U.S. not otherwise pledged as security for term loans, maturing June 2016, was available to provide working capital and interim financing of equipment, principally for the U.S. and Mexican operations. Advances under this facility bear interest at variable rates that depend on the type of borrowing and the defined ratio of debt to total capitalization. Available borrowings under the credit facility are generally based on defined levels of inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and fixed charges coverage ratios. In addition, as of August 31, 2011, lines of credit totaling $20.9 million secured by certain of the Companys European assets, with various variable rates, were available for working capital needs of the European manufacturing operation. European credit facilities are continually being renewed. Currently these European credit facilities have maturities that range from April 2012 through December 2012. In addition, the Companys Mexican joint venture has a line of credit of up to $20.0 million secured by certain of the joint ventures accounts receivable and inventory. Advances under this facility bear interest at LIBOR plus 2.5% and are due 180 days after the date of borrowing. The outstanding advances as of August 31, 2011 have maturities that range from October 2011 to February 2012. The Mexican joint venture will be able to draw against the facility through July 2012.
As of August 31, 2011 outstanding borrowings under these facilities consists of $4.3 million in letters of credit and $60.0 million in revolving notes outstanding under the North American credit facility, $15.2 million outstanding under the European credit facilities and $15.1 million outstanding under the Mexican joint venture credit facility.
On November 2, 2011 the North American revolving line of credit was increased by $15 million to a total of $260 million under the existing provisions of the credit agreement.
46 | The Greenbrier Companies 2011 Annual Report |
Note 13 - Accounts Payable and Accrued Liabilities
Years ended August 31, | ||||||||
(In thousands) | 2011 | 2010 | ||||||
Trade payables and other accrued liabilities |
$ | 267,683 | $ | 141,767 | ||||
Accrued payroll and related liabilities |
26,757 | 19,025 | ||||||
Accrued maintenance |
10,865 | 12,460 | ||||||
Accrued warranty |
8,645 | 6,304 | ||||||
Other |
2,586 | 2,082 | ||||||
|
||||||||
$ | 316,536 | $ | 181,638 | |||||
|
Note 14 - Maintenance and Warranty Accruals
Years ended August 31, | ||||||||||||
(In thousands) | 2011 | 2010 | 2009 | |||||||||
Accrued maintenance |
||||||||||||
Balance at beginning of period |
$ | 12,460 | $ | 16,206 | $ | 17,067 | ||||||
Charged to cost of revenue |
12,034 | 13,581 | 17,005 | |||||||||
Payments |
(13,629 | ) | (17,327 | ) | (17,866 | ) | ||||||
|
||||||||||||
Balance at end of period |
$ | 10,865 | $ | 12,460 | $ | 16,206 | ||||||
|
||||||||||||
Accrued warranty |
||||||||||||
Balance at beginning of period |
$ | 6,304 | $ | 8,184 | $ | 11,873 | ||||||
Charged to cost of revenue |
3,856 | 425 | 32 | |||||||||
Payments |
(1,547 | ) | (2,252 | ) | (3,193 | ) | ||||||
Currency translation effect |
32 | (53 | ) | (528 | ) | |||||||
|
||||||||||||
Balance at end of period |
$ | 8,645 | $ | 6,304 | $ | 8,184 | ||||||
|
Note 15 - Notes Payable
Years ended August 31, | ||||||||
(In thousands) | 2011 | 2010 | ||||||
Convertible senior notes, due 2018 |
$ | 230,000 | $ | | ||||
Convertible senior notes, due 2026 |
67,724 | 67,724 | ||||||
Term loans |
137,040 | 212,019 | ||||||
Senior unsecured notes |
| 235,000 | ||||||
Other notes payable |
90 | 176 | ||||||
|
||||||||
434,854 | 514,919 | |||||||
Debt discount on convertible senior notes due 2026, net of accretion |
(5,714 | ) | (8,735 | ) | ||||
Debt discount on warrants, net of accretion |
| (7,484 | ) | |||||
|
||||||||
$ | 429,140 | $ | 498,700 | |||||
|
Convertible senior notes, due 2018, bear interest at a fixed rate of 3.5%, paid semi-annually in arrears on April 1 st and October 1 st . The convertible notes will mature on April 1, 2018, unless earlier repurchased by Greenbrier or converted in accordance with their terms. The convertible notes are senior unsecured obligations and rank equally with other senior unsecured debt. The convertible notes are convertible into shares of the Companys common stock, at an initial conversion rate of 26.2838 shares per $1,000 principal amount of the notes (which is equal to an initial conversion price of $38.05 per share). The initial conversion rate and conversion price are subject to adjustment upon the occurrence of certain events, such as distributions, dividends or stock splits. There were $7.9 million in debt issuance costs, included in Intangibles and other assets on the Consolidated Balance Sheets, which will be amortized using the effective interest method. The amortization expense is being included in Interest and foreign exchange on the Consolidated Statements of Operations.
The Greenbrier Companies 2011 Annual Report | 47 |
Convertible senior notes, due 2026, bear interest at a fixed rate of 2 3 / 8 %, paid semi-annually in arrears on May 15 th and November 15 th . The Company will also pay contingent interest of 3 / 8 % on the notes in certain circumstances commencing with the six-month period beginning May 15, 2013. On or after May 15, 2013, Greenbrier may redeem all or a portion of the notes at a redemption price equal to 100% of the principal amount of the notes plus accrued and unpaid interest. On May 15, 2013, May 15, 2016 and May 15, 2021 or in the event of certain fundamental changes, holders can require the Company to repurchase all or a portion of their notes at a price equal to 100% of the principal amount of the notes plus accrued and unpaid interest. Payment on the convertible notes is guaranteed by substantially all of the Companys material domestic subsidiaries. The convertible senior notes are convertible upon the occurrence of specified events into cash and shares, if any, of Greenbriers common stock at an initial conversion rate of 20.8125 shares per $1,000 principal amount of the notes (which is equal to an initial conversion price of $48.05 per share). The initial conversion rate is subject to adjustment upon the occurrence of certain events, as defined. The value of the equity component was $14.9 million as of August 31, 2011 and 2010. The debt discount associated with the convertible senior notes is being accreted using the effective interest rate method through May 2013 and the accretion expense is being included in Interest and foreign exchange on the Consolidated Statements of Operations. The pre-tax accretion of the debt discount was $3.0 million for the year ended August 31, 2011 and $3.8 million for the years ended August 31, 2010 and 2009. The accretion is expected to be approximately $3.3 million for the year ending August 31, 2012 and $2.5 million for the year ending August 31, 2013.
Term loans are primarily comprised of:
|
A senior term note with an initial balance of $100.0 million, secured by a pool of leased railcars, maturing in March 2014. The note bears a floating interest rate of LIBOR plus 1% with principal of $0.7 million paid quarterly in arrears and a balloon payment of $81.8 million due at maturity. The principal balance as of August 31, 2011 was $88.5 million. An interest rate swap agreement was entered into, on fifty percent of the initial balance, to swap the floating interest rate of LIBOR plus 1% to a fixed rate of 4.24%. At August 31, 2011, the notional amount of the agreement was $44.3 million and matures in March 2014. |
|
A senior term note with an initial balance of $50.0 million, secured by a pool of leased railcars, maturing in May 2015. The note bears a floating interest rate of LIBOR plus 1% with principal of $0.3 million paid quarterly in arrears and a balloon payment of $41.2 million due at maturity. The principal balance as of August 31, 2011 was $46.0 million. |
|
A term loan with an initial balance of $75.0 million was repaid in full during the fourth quarter of 2011. The balance at the time of repayment was $71.8 million. In connection with the loan, the Company issued warrants to purchase 3.401 million shares of its common stock at $5.96 per share, both subject to adjustment in certain circumstances. The warrants have a five-year term which expires June 2014. The warrants were valued at $13.4 million, and recorded as a debt discount (reducing Notes payable) and Additional paid-in capital (increasing Total equity Greenbrier) on the Consolidated Balance Sheet. This debt discount was amortized and recorded as Interest and foreign exchange in the Statements of Operations until repayment of the loan. The amortization of the debt discount was $3.6 million, $4.8 million and $1.1 million for the years ended August 31, 2011, 2010 and 2009. In conjunction with the repayment of the loan, the remaining debt discount of $3.9 million and $1.7 million for the write-off of unamortized debt issuance costs were charged to Loss (gain) on extinguishment of debt. |
|
Other term loans consist of: |
|
A term loan with an initial balance of $1.8 million maturing in October 2013. The note bears a floating interest rate of LIBOR plus 2.5% with principal of $0.2 million paid semi-annually in arrears. The balance as of August 31, 2011 was $1.0 million. |
|
A term loan with an initial balance of $1.2 million maturing in December 2012. The note bears a floating interest rate of LIBOR plus 4% with a balloon payment due at maturity. The balance as of August 31, 2011 was $1.2 million. |
|
A term loan with an initial balance of $0.3 million maturing in November 2015. The note is interest free with principal of $3 thousand paid monthly in arrears and a balloon payment of $0.2 million. The balance as of August 31, 2011 was $0.3 million. |
During the third quarter of 2011, the Company retired the full $235.0 million of 8 3 / 8 % senior unsecured notes and recorded $10.1 million as Loss on extinguishment of debt comprised of $2.9 million for the write-off of unamortized debt issuance costs and $7.2 million for prepayment premiums.
48 | The Greenbrier Companies 2011 Annual Report |
The notes payable, along with the revolving and operating lines of credit, contain certain covenants with respect to the Company and various subsidiaries, the most restrictive of which, among other things, limit the ability to: incur additional indebtedness or guarantees; pay dividends or repurchase stock; enter into sale leaseback transactions; create liens; sell assets; engage in transactions with affiliates, including joint ventures and non U.S. subsidiaries, including but not limited to loans, advances, equity investments and guarantees; enter into mergers, consolidations or sales of substantially all the Companys assets; and enter into new lines of business. The covenants also require certain maximum ratios of debt to total capitalization and minimum levels of fixed charges (interest and rent) coverage.
Principal payments on the notes payable are expected as follows:
(In thousands) | Year ending August 31, | |||
2012 |
$ | 4,570 | ||
2013 (1) |
73,469 | |||
2014 |
84,710 | |||
2015 |
41,933 | |||
2016 |
172 | |||
Thereafter |
230,000 | |||
$ | 434,854 | |||
(1) |
The repayment of the $67.7 million of Convertible senior notes due 2026 is assumed to occur in 2013, which is the first date holders can require the Company to repurchase all or a portion of the notes. |
Note 16 - Derivative Instruments
Foreign operations give rise to market risks from changes in foreign currency exchange rates. Foreign currency forward exchange contracts with established financial institutions are utilized to hedge a portion of that risk in Euro. Interest rate swap agreements are utilized to reduce the impact of changes in interest rates on certain debt. The Companys foreign currency forward exchange contracts and interest rate swap agreements are designated as cash flow hedges, and therefore the effective portion of unrealized gains and losses are recorded in accumulated other comprehensive loss.
At August 31, 2011 exchange rates, forward exchange contracts for the purchase of Polish Zloty and the sale of Euro aggregated $90.8 million. Adjusting the foreign currency exchange contracts to the fair value of the cash flow hedges at August 31, 2011 resulted in an unrealized pre-tax loss of $3.1 million that was recorded in accumulated other comprehensive loss. The fair value of the contracts is included in Accounts payable and accrued liabilities when there is a loss, or Accounts receivable when there is a gain, on the Consolidated Balance Sheets. As the contracts mature at various dates through September 2012, any such gain or loss remaining will be recognized in manufacturing revenue along with the related transactions. In the event that the underlying sales transaction does not occur or does not occur in the period designated at the inception of the hedge, the amount classified in accumulated other comprehensive loss would be reclassified to the current years results of operations in Interest and foreign exchange.
At August 31, 2011, an interest rate swap agreement had a notional amount of $44.3 million and matures March 2014. The fair value of this cash flow hedge at August 31, 2011 resulted in an unrealized pre-tax loss of $4.4 million. The loss is included in Accumulated other comprehensive loss and the fair value of the contract is included in Accounts payable and accrued liabilities on the Consolidated Balance Sheet. As interest expense on the underlying debt is recognized, amounts corresponding to the interest rate swap are reclassified from accumulated other comprehensive loss and charged or credited to interest expense. At August 31, 2011 interest rates, approximately $1.3 million would be reclassified to interest expense in the next 12 months.
The Greenbrier Companies 2011 Annual Report | 49 |
Fair Values of Derivative Instruments
Asset Derivatives | Liability Derivatives | |||||||||||||||||||
August 31, | August 31, | |||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||
(In thousands) |
Balance Sheet Location |
Fair
Value |
Fair
Value |
Balance Sheet Location |
Fair
Value |
Fair
Value |
||||||||||||||
Derivatives designated as hedging instruments |
|
|||||||||||||||||||
Foreign forward exchange contracts |
Accounts receivable | $ | | $ | 573 |
Accounts payable and accrued liabilities |
$ | 2,848 | $ | 215 | ||||||||||
Interest rate swap contracts |
Other assets | | |
Accounts payable and accrued liabilities |
4,386 | 5,141 | ||||||||||||||
|
||||||||||||||||||||
$ | | $ | 573 | $ | 7,234 | $ | 5,356 | |||||||||||||
|
||||||||||||||||||||
Derivatives not designated as hedging instruments |
|
|||||||||||||||||||
Foreign forward exchange contracts |
Accounts receivable | $ | | $ | 111 |
Accounts payable and accrued liabilities |
$ | 525 | $ | 14 |
The Effect of Derivative Instruments on the Statement of Operations
Derivatives in Cash Flow Hedging Relationships |
Location of Loss Recognized in Income on Derivative |
Loss Recognized in
Income on Derivative Twelve Months Ended August 31, |
||||||||
2011 | 2010 | |||||||||
Foreign forward exchange contract |
Interest and foreign exchange | $ | (626 | ) | $ | (354 | ) |
Derivatives in Cash Flow Hedging Relationships |
Gain (loss)
Recognized in OCI on
Twelve Months Ended August 31, |
Location of
Gain (loss)
From Accumulated OCI into Income |
Gain (loss)
Reclassified From
Twelve Months Ended August 31, |
Location of Loss
in Income on
(Ineffective
Amount
Excluded
from
Testing) |
Loss Recognized on
Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) Twelve Months Ended August 31, |
|||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||
Foreign forward exchange contracts |
$ | (3,302 | ) | $ | 736 |
Revenue |
$ | 71 | $ | 231 | Interest and foreign exchange | $ | | $ | | |||||||||||||
Interest rate swap contracts |
(2,563 | ) | (1,523 | ) | Interest and foreign exchange | (1,808 | ) | (1,829 | ) | Interest and foreign exchange | | | ||||||||||||||||
|
||||||||||||||||||||||||||||
$ | (5,865 | ) | $ | (797 | ) | $ | (1,737 | ) | $ | (1,598 | ) | $ | | $ | | |||||||||||||
|
Note 17 - Equity
On December 16, 2010, the Company issued 3,000,000 shares of its common stock in an underwritten at-the-market public offering at $21.06 per share, less expenses resulting in net proceeds of $62.8 million.
On May 12, 2010, the Company issued 4,000,000 shares of its common stock at a price of $12.50 per share, less underwriting commissions, discounts and expenses. On May 19, 2010, an additional 500,000 shares were issued pursuant to the 30-day over-allotment option exercised by the underwriters. The combined issuance resulted in net proceeds of $52.7 million.
50 | The Greenbrier Companies 2011 Annual Report |
In January 2011, the stockholders approved the 2010 Amended and Restated Stock Incentive Plan (formerly known as the 2005 Stock Incentive Plan as amended). The plan provides for the grant of incentive stock options, non-statutory stock options, restricted shares, stock units and stock appreciation rights. The maximum aggregate number of the Companys common shares authorized for issuance is 2,825,000. During the years ended August 31, 2011, 2010 and 2009, the Company awarded restricted stock grants totaling 309,380, 302,326 and 696,134 shares. During the year ended August 31, 2009, the Company accepted voluntarily cancellation and surrender of performance based stock grants covering 205,250 shares.
The following table summarizes restricted stock grant transactions for shares, both vested and unvested, under the 2010 Amended and Restated Stock Incentive Plan:
Shares | ||||
Balance at September 1, 2008 |
1,039,663 | |||
Granted |
696,134 | |||
Forfeited |
(210,650 | ) | ||
|
||||
Balance at August 31, 2009 |
1,525,147 | |||
Granted |
302,326 | |||
Forfeited |
(27,900 | ) | ||
|
||||
Balance at August 31, 2010 |
1,799,573 | |||
Granted |
309,380 | |||
Forfeited |
(4,000 | ) | ||
|
||||
Balance at August 31, 2011 |
2,104,953 | |||
|
The unvested restricted stock grants were 1,230,739 as of August 31, 2011.
The fair value of awards granted was $7.2 million for 2011, $3.5 million for 2010, and $5.8 million for 2009.
The following table summarizes stock option transactions for shares under option and the related weighted average option price:
Shares |
Weighted
Price |
|||||||
Balance at September 1, 2008 |
31,660 | $ | 7.42 | |||||
Exercised |
(2,500 | ) | $ | 9.19 | ||||
Forfeited |
(17,000 | ) | $ | 9.19 | ||||
|
||||||||
Balance at August 31, 2009 |
12,160 | $ | 4.59 | |||||
Exercised |
(6,660 | ) | $ | 4.47 | ||||
|
||||||||
Balance at August 31, 2010 |
5,500 | $ | 4.74 | |||||
Exercised |
(5,500 | ) | $ | 4.74 | ||||
|
||||||||
Balance at August 31, 2011 |
| $ | | |||||
|
At August 31, 2011 there were no options outstanding. On August 31, 2011 there were 720,047 shares available for grant compared to 25,427 and 299,853 shares available for grant as of the years ended August 31, 2010 and 2009. Restricted stock grants are considered outstanding shares of common stock at the time they are issued. The holders of the unvested restricted stock grants are entitled to voting rights and participation in dividends. The dividends are not forfeitable if the awards are later forfeited prior to vesting.
The value, at the date of grant, of stock awarded under restricted stock grants is amortized as compensation expense over the lesser of the vesting period of one to five years or to the recipients eligible retirement date. Compensation expense recognized related to restricted stock grants for the years ended August 31, 2011, 2010 and 2009 was $7.1 million, $5.8 million and $5.1 million. Unamortized compensation cost related to restricted stock grants were $9.3 million as of August 31, 2011.
The Greenbrier Companies 2011 Annual Report | 51 |
Note 18 - Earnings per Share
The shares used in the computation of the Companys basic and diluted earnings per common share are reconciled as follows:
Years ended August 31, | ||||||||||||
(In thousands) | 2011 | 2010 | 2009 | |||||||||
Weighted average basic common shares outstanding (1) |
24,100 | 18,585 | 16,815 | |||||||||
Dilutive effect of employee stock options (2) |
| 6 | | |||||||||
Dilutive effect of warrants (2) |
2,401 | 1,622 | | |||||||||
Dilutive effect of convertible notes (3) |
| | | |||||||||
|
||||||||||||
Weighted average diluted common shares outstanding |
26,501 | 20,213 | 16,815 | |||||||||
|
(1) |
Restricted stock grants are treated as outstanding when issued and are included in weighted average basic common shares outstanding when the Company is in an earnings position. |
(2) |
The dilutive effect of options is excluded from the share calculation for the year ended August 31, 2009 due to net loss. The dilutive effect of warrants to purchase 3.4 million shares was excluded from the share calculation for the year ended August 31, 2009 due to net loss. |
(3) |
In 2011, the dilutive effect of the 2.5 million weighted average shares underlying the 2018 Convertible Notes was excluded from the share calculation as it was the less dilutive of two approaches. See Note 2 Summary of Significant Accounting Policies for a description of the Companys net earnings per share calculations. The dilutive effect of the 2026 Convertible Notes was excluded from share calculations for the years ended August 31, 2011, 2010 and 2009 as the stock price for each date presented was less than the initial conversion price and therefore considered anti-dilutive. |
Weighted average diluted common shares outstanding include the incremental shares that would be issued upon the assumed exercise of stock options and warrants. No options or warrants were anti-dilutive for the years ended August 31, 2011 and 2010.
Note 19 - Related Party Transactions
The Company follows a policy that all proposed transactions with directors, officers, five percent shareholders and their affiliates will be entered into only if such transactions are on terms no less favorable to the Company than could be obtained from unaffiliated parties, are reasonably expected to benefit the Company and are reviewed and approved or ratified by a majority of the disinterested, independent members of the Board of Directors.
On June 10, 2009, the Company entered into a transaction with affiliates of WL Ross & Co., LLC (WL Ross) which provided for a $75.0 million secured term loan, which has subsequently been repaid. In connection with the loan, the Company also entered into a warrant agreement pursuant to which the Company issued warrants to WL Ross and its affiliates to purchase a current total of 3,401,095 shares of the Companys Common Stock with a current exercise price of $5.96 per share. The warrants have a five-year term which expires June 2014. The warrants are unexercised and outstanding as of August 31, 2011. In connection with Victoria McManus 3% participation in the WL Ross transaction, WL Ross and its affiliates transferred the right to purchase 101,337 shares of Common Stock under the warrant agreement to Ms. McManus, a director of the Company.
Wilbur L. Ross, Jr., founder, Chairman and Chief Executive Officer at WL Ross, and Wendy Teramoto, Senior Vice President at WL Ross, are directors of the Company.
In April 2010, WLRGreenbrier Rail Inc. (WLR-GBX) was formed and acquired a lease fleet of nearly 4,000 railcars valued at approximately $256.0 million. WLR-GBX is wholly owned by affiliates of WL Ross. The Company paid a $6.1 million contract placement fee to WLR-GBX for the right to perform certain management and advisory services and in exchange will receive management and other fee income and incentive compensation tied to the performance of WLR-GBX. The Company has also paid certain incidental fees and agreed to indemnify WLR-GBX and its affiliates against certain liabilities in connection with such advisory services. Under the management agreement the Company has received $0.8 million and $0.2 million in fees for the years ended August 31, 2011 and 2010. The contract placement fee is accounted for under the equity method and is recorded in Intangibles and other assets on the Consolidated Balance Sheet. The Company also leases-in a small portion of the WLR-GBX lease fleet. The Company has paid $2.8 million in lease expense for the year ended August 31, 2011.
52 | The Greenbrier Companies 2011 Annual Report |
Aircraft Usage Policy . William Furman, Director, President and Chief Executive Officer of the Company, is a part owner of private aircraft managed by a private independent management company. From time to time, the Companys business requires charter use of privately-owned aircraft. In such instances, it is possible that charters may be placed with the company that manages Mr. Furmans aircraft. In such event, any such use will be subject to the Companys travel and entertainment policy and the fees paid to the management company will be no less favorable than would have been available to the Company for similar services provided by unrelated parties. During 2011, the Company placed charters with the company that manages Mr. Furmans aircraft aggregating $10 thousand.
Note 20 - Employee Benefit Plans
A defined contribution plan is available to substantially all U.S. employees. Contributions are based on a percentage of employee contributions and amounted to $2.1 million, $2.0 million and $1.6 million for the years ended August 31, 2011, 2010 and 2009.
Nonqualified deferred benefit plans exist for certain employees. There were no contributions for the year ended August 31, 2011. Expenses resulting from contributions to the plans were insignificant for the years ended August 31, 2010 and 2009.
Note 21 - Income Taxes
Components of income tax expense (benefit) of continuing operations are as follows:
Years ended August 31, | ||||||||||||
(In thousands) | 2011 | 2010 | 2009 | |||||||||
Current |
||||||||||||
Federal |
$ | (683 | ) | $ | (9,471 | ) | $ | (4,555 | ) | |||
State |
620 | (2,191 | ) | 470 | ||||||||
Foreign |
333 | 712 | 532 | |||||||||
|
||||||||||||
270 | (10,950 | ) | (3,553 | ) | ||||||||
Deferred |
||||||||||||
Federal |
2,956 | 10,059 | (11,016 | ) | ||||||||
State |
351 | 1,745 | (1,024 | ) | ||||||||
Foreign |
239 | (933 | ) | 723 | ||||||||
|
||||||||||||
3,546 | 10,871 | (11,317 | ) | |||||||||
|
||||||||||||
Change in valuation allowance |
(252 | ) | (880 | ) | (2,047 | ) | ||||||
|
||||||||||||
$ | 3,564 | $ | (959 | ) | $ | (16,917 | ) | |||||
|
Income tax expense is computed at rates different than statutory rates. The reconciliation between effective and statutory tax rates on continuing operations is as follows:
Years ended August 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Federal statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
State income taxes, net of federal benefit |
4.1 | 10.7 | 3.5 | |||||||||
Impact of foreign operations |
(2.1 | ) | (0.1 | ) | 0.4 | |||||||
Release of obligations in the bankruptcy of the de-consolidated subsidiary |
| (51.8 | ) | | ||||||||
Change in valuation allowance related to deferred tax asset |
(1.7 | ) | (9.8 | ) | 2.8 | |||||||
Change in income tax reserve for uncertain tax positions |
(0.8 | ) | 4.1 | 1.8 | ||||||||
Reversal of net deferred tax liability on the basis difference in a foreign subsidiary |
| | 2.4 | |||||||||
Noncontrolling interest in flow through entity |
(5.1 | ) | (17.7 | ) | | |||||||
Non-deductible goodwill write-off |
| | (23.1 | ) | ||||||||
Permanent differences |
(7.1 | ) | 9.4 | (2.1 | ) | |||||||
Other |
1.6 | 9.5 | (2.1 | ) | ||||||||
|
||||||||||||
23.9 | % | (10.7 | )% | 22.8 | % | |||||||
|
The Greenbrier Companies 2011 Annual Report | 53 |
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows:
Years ended August 31, | ||||||||
(In thousands) | 2011 | 2010 | ||||||
Deferred tax assets: |
||||||||
Contract placement |
$ | 1,407 | $ | 526 | ||||
Maintenance and warranty accruals |
6,885 | 6,352 | ||||||
Accrued payroll and related liabilities |
10,342 | 7,062 | ||||||
Deferred revenue |
4,104 | 6,712 | ||||||
Inventories and other |
7,075 | 3,878 | ||||||
Derivative instruments and translation adjustment |
1,702 | 2,068 | ||||||
Investment and asset tax credits |
794 | 884 | ||||||
Net operating loss |
24,516 | 10,460 | ||||||
|
||||||||
56,825 | 37,942 | |||||||
Deferred tax liabilities: |
||||||||
Fixed assets |
107,591 | 89,341 | ||||||
Original issue discount |
11,410 | 8,707 | ||||||
Intangibles |
9,927 | 9,954 | ||||||
Debt conversion option |
| | ||||||
Deferred gain on redemption of debt |
4,532 | 4,512 | ||||||
Other |
161 | 156 | ||||||
|
||||||||
133,621 | 112,670 | |||||||
|
||||||||
Valuation allowance |
7,043 | 6,408 | ||||||
|
||||||||
Net deferred tax liability |
$ | 83,839 | $ | 81,136 | ||||
|
As of August 31, 2011 the Company has Federal net operating loss (NOL) carryforwards of $55.4 million, which if not used will expire in 2030 and 2031.
NOL carryforwards created in fiscal 2011 by excess tax benefits of $0.6 million generated from vested restricted stock grants are not recorded as deferred tax assets. To the extent they are utilized, the Company will increase stockholders equity. The Company uses tax law ordering for purposes of determining when excess tax benefits have been realized.
The Company also had NOL carryforwards of approximately $14.3 million for foreign income tax purposes. The ultimate realization of the deferred tax assets resulting from NOLs is dependent upon the generation of future taxable income before these carryforwards expire. NOLs in Poland of $6.8 million expire between 2012 and 2013. NOLs in Mexico of $7.5 million expire between 2017 and 2021.
The cumulative net increase in the valuation allowance for the year ended August 31, 2011 was approximately $0.6 million. The increase in the valuation allowance is mainly due to purchase accounting for the deferred tax assets of an acquired subsidiary in Poland.
54 | The Greenbrier Companies 2011 Annual Report |
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the years presented:
(In thousands) | 2011 | 2010 | 2009 | |||||||||
Unrecognized Tax Benefit Opening Balance |
$ | 3,526 | $ | 2,959 | $ | 12,832 | ||||||
Gross increases tax positions in prior period |
| 200 | 533 | |||||||||
Gross decreases tax positions in prior period |
(233 | ) | | | ||||||||
Gross increases tax positions in current period |
| | | |||||||||
Settlements |
(193 | ) | | | ||||||||
Restoration of statute of limitations due to 5 year NOL carry back |
1,809 | | ||||||||||
Lapse of statute of limitations |
(47 | ) | (1,442 | ) | (10,406 | ) | ||||||
|
||||||||||||
Unrecognized Tax Benefit Ending Balance |
$ | 3,053 | $ | 3,526 | $ | 2,959 | ||||||
|
The Company is subject to taxation in the U.S., various states and foreign jurisdictions. The Companies tax returns for 2004 through 2011 are subject to examination by the tax authorities. The Company is no longer subject to U.S. Federal, State, Local or Foreign examinations by tax authorities for years before 2004. Included in the balance of unrecognized tax benefits at August 31, 2011 and 2010 are $2.1 million and $2.3 million, respectively, of tax benefits which, if recognized, would affect the effective tax rate.
The Company recorded an interest benefit of $0.3 million and interest expense of $0.2 million relating to reserves for uncertain tax provisions during the years ended August 31, 2011 and 2010, respectively. As of August 31, 2011 and 2010 the Company had accrued $0.9 million and $1.2 million of interest related to uncertain tax positions. The decrease in the interest accrual was due to the settlement of a foreign income tax audit, the lapse of the statute of limitations for state income tax filings and a change in the methodology of calculating interest expense relating to the uncertain tax positions. The Company has not accrued for any penalties as of August 31, 2011 and 2010. Interest and penalties related to income taxes are not classified as a component of income tax expense. When unrecognized tax benefits are realized, the benefit related to deductible differences attributable to ordinary operations will be recognized as a reduction of income tax expense. Within the next 12 months, the Company does not expect any significant changes in the reserves for uncertain tax positions, but expects an increase in interest expense of $0.1 million.
No provision has been made for U.S. income taxes on approximately $5.8 million of cumulative undistributed earnings of certain foreign subsidiaries as Greenbrier plans to reinvest these earnings indefinitely in operations outside the U.S. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability related to investments in foreign subsidiaries.
Note 22 - Segment Information
Greenbrier operates in three reportable segments: Manufacturing; Wheel Services, Refurbishment & Parts and Leasing & Services. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Performance is evaluated based on margin. The Companys integrated business model results in selling and administrative costs being intertwined among the segments. Any allocation of these costs would be subjective and not meaningful and as a result, Greenbriers management does not allocate these costs for either external or internal reporting purposes. Intersegment sales and transfers are valued as if the sales or transfers were to third parties. Related revenue and margin is eliminated in consolidation and therefore are not included in consolidated results in the Companys Consolidated Financial Statements.
The Greenbrier Companies 2011 Annual Report | 55 |
The information in the following table is derived directly from the segments internal financial reports used for corporate management purposes.
Years ended August 31, | ||||||||||||
(In thousands) | 2011 | 2010 | 2009 | |||||||||
Revenue: |
||||||||||||
Manufacturing |
$ | 770,596 | $ | 305,333 | $ | 470,834 | ||||||
Wheel Services, Refurbishment & Parts |
492,355 | 402,694 | 479,658 | |||||||||
Leasing & Services |
70,498 | 73,190 | 78,517 | |||||||||
Intersegment eliminations |
(90,159 | ) | (24,937 | ) | (12,818 | ) | ||||||
|
||||||||||||
$ | 1,243,290 | $ | 756,280 | $ | 1,016,191 | |||||||
|
||||||||||||
Margin: |
||||||||||||
Manufacturing |
$ | 59,975 | $ | 27,171 | $ | 3,763 | ||||||
Wheel Services, Refurbishment & Parts |
47,416 | 43,912 | 55,103 | |||||||||
Leasing & Services |
32,140 | 30,915 | 32,307 | |||||||||
|
||||||||||||
$ | 139,531 | $ | 101,998 | $ | 91,173 | |||||||
|
||||||||||||
Assets: |
||||||||||||
Manufacturing |
$ | 423,295 | $ | 205,863 | $ | 197,603 | ||||||
Wheel services, Refurbishment & Parts |
400,643 | 387,356 | 386,260 | |||||||||
Leasing & Services |
424,839 | 377,761 | 386,659 | |||||||||
Unallocated |
52,878 | 101,908 | 77,769 | |||||||||
|
||||||||||||
$ | 1,301,655 | $ | 1,072,888 | $ | 1,048,291 | |||||||
|
||||||||||||
Depreciation and amortization: |
||||||||||||
Manufacturing |
$ | 9,853 | $ | 11,061 | $ | 11,471 | ||||||
Wheel Services, Refurbishment & Parts |
11,853 | 11,435 | 11,885 | |||||||||
Leasing & Services |
16,587 | 15,015 | 14,313 | |||||||||
|
||||||||||||
$ | 38,293 | $ | 37,511 | $ | 37,669 | |||||||
|
||||||||||||
Capital expenditures: |
||||||||||||
Manufacturing |
$ | 20,016 | $ | 8,715 | $ | 9,109 | ||||||
Wheel Services, Refurbishment & Parts |
20,087 | 12,215 | 6,599 | |||||||||
Leasing & Services |
44,199 | 18,059 | 23,139 | |||||||||
|
||||||||||||
$ | 84,302 | $ | 38,989 | $ | 38,847 | |||||||
|
The following table summarizes selected geographic information.
Years ended August 31, | ||||||||||||
(In thousands) | 2011 | 2010 | 2009 | |||||||||
Revenue: |
||||||||||||
U.S. |
$ | 1,103,423 | $ | 659,697 | $ | 849,516 | ||||||
Foreign |
139,867 | 96,583 | 166,675 | |||||||||
|
||||||||||||
$ | 1,243,290 | $ | 756,280 | $ | 1,016,191 | |||||||
|
||||||||||||
Identifiable assets: |
||||||||||||
U.S. |
$ | 1,000,249 | $ | 918,553 | $ | 897,111 | ||||||
Mexico |
228,406 | 115,721 | 95,149 | |||||||||
Europe |
73,000 | 38,614 | 56,031 | |||||||||
|
||||||||||||
$ | 1,301,655 | $ | 1,072,888 | $ | 1,048,291 | |||||||
|
56 | The Greenbrier Companies 2011 Annual Report |
Reconciliation of segment margin to earnings (loss) before income tax loss from unconsolidated affiliates:
Years ended August 31, | ||||||||||||
(In thousands) | 2011 | 2010 | 2009 | |||||||||
Segment margin |
$ | 139,531 | $ | 101,998 | $ | 91,173 | ||||||
Less unallocated items: |
||||||||||||
Selling and administrative |
80,326 | 69,931 | 65,743 | |||||||||
Gain on disposition of equipment |
(8,369 | ) | (8,170 | ) | (1,934 | ) | ||||||
Goodwill impairment |
| | 55,667 | |||||||||
Special items |
| (11,870 | ) | | ||||||||
Interest and foreign exchange |
36,992 | 45,204 | 44,612 | |||||||||
Loss (gain) on extinguishment of debt |
15,657 | (2,070 | ) | 1,300 | ||||||||
|
||||||||||||
Earnings (loss) before income tax and loss from
|
$ | 14,925 | $ | 8,973 | $ | (74,215 | ) | |||||
|
Note 23 - Customer Concentration
In 2011, revenue from four customers represented 19%, 14%, 12% and 11% of total revenue. Revenue from three customers represented 16%, 15% and 11% of total revenue for the year ending August 31, 2010 and revenue from two customers each represented 14% of total revenue for the year ending August 31, 2009. No other customers accounted for more than 10% of total revenues for the years ended August 31, 2011, 2010, or 2009. Two customers had balances that individually equaled or exceeded 10% of accounts receivable and in total represented 30% of the consolidated accounts receivable balance at August 31, 2011. Only one customer had a balance that equaled or exceeded 10% of accounts receivable and in total represented 12% of the consolidated accounts receivable balance at August 31, 2010.
Note 24 - Lease Commitments
Lease expense for railcar equipment leased-in under non-cancelable leases was $6.5 million, $8.2 million and $10.3 million for the years ended August 31, 2011, 2010 and 2009. Aggregate minimum future amounts payable under these non-cancelable railcar equipment leases are as follows:
(In thousands) | ||||
Year ending August 31, |
||||
2012 |
$ | 6,129 | ||
2013 |
1,604 | |||
2014 |
1,604 | |||
2015 |
1,177 | |||
2016 |
337 | |||
Thereafter |
| |||
|
||||
$ | 10,851 | |||
|
Operating leases for domestic railcar repair facilities, office space and certain manufacturing and office equipment expire at various dates through February 2018. Rental expense for facilities, office space and equipment was $12.2 million, $12.4 million and $12.5 million for the years ended August 31, 2011, 2010 and 2009. Aggregate minimum future amounts payable under these non-cancelable operating leases are as follows:
(In thousands) | ||||
Year ending August 31, |
||||
2012 |
$ | 8,956 | ||
2013 |
6,144 | |||
2014 |
4,932 | |||
2015 |
2,747 | |||
2016 |
1,738 | |||
Thereafter |
846 | |||
|
||||
$ | 25,363 | |||
|
The Greenbrier Companies 2011 Annual Report | 57 |
Note 25 - Commitments and Contingencies
Environmental studies have been conducted on certain of the Companys owned and leased properties that indicate additional investigation and some remediation on certain properties may be necessary. The Companys Portland, Oregon manufacturing facility is located adjacent to the Willamette River. The U.S. Environmental Protection Agency (EPA) has classified portions of the river bed, including the portion fronting Greenbriers facility, as a federal National Priority List or Superfund site due to sediment contamination (the Portland Harbor Site). Greenbrier and more than 140 other parties have received a General Notice of potential liability from the EPA relating to the Portland Harbor Site. The letter advised the Company that it may be liable for the costs of investigation and remediation (which liability may be joint and several with other potentially responsible parties) as well as for natural resource damages resulting from releases of hazardous substances to the site. At this time, ten private and public entities, including the Company, have signed an Administrative Order on Consent (AOC) to perform a remedial investigation/feasibility study (RI/FS) of the Portland Harbor Site under EPA oversight, and several additional entities have not signed such consent, but are nevertheless contributing money to the effort. A draft of the RI study was submitted on October 27, 2009. The Feasibility Study is being developed and is expected to be submitted in the first calendar quarter of 2012. Eighty-three parties, including the State of Oregon and the federal government, have entered into a non-judicial mediation process to try to allocate costs associated with the Portland Harbor site. Approximately 110 additional parties have signed tolling agreements related to such allocations. On April 23, 2009, the Company and the other AOC signatories filed suit against 69 other parties due to a possible limitations period for some such claims; Arkema Inc. et al v. A & C Foundry Products, Inc.et al, US District Court, District of Oregon, Case #3:09-cv-453-PK. All but 12 of these parties elected to sign tolling agreements and be dismissed without prejudice, and the case has now been stayed by the court, pending completion of the RI/FS. In addition, the Company has entered into a Voluntary Clean-Up Agreement with the Oregon Department of Environmental Quality in which the Company agreed to conduct an investigation of whether, and to what extent, past or present operations at the Portland property may have released hazardous substances to the environment. The Company is also conducting groundwater remediation relating to a historical spill on the property which antedates its ownership.
Because these environmental investigations are still underway, the Company is unable to determine the amount of ultimate liability relating to these matters. Based on the results of the pending investigations and future assessments of natural resource damages, Greenbrier may be required to incur costs associated with additional phases of investigation or remedial action, and may be liable for damages to natural resources. In addition, the Company may be required to perform periodic maintenance dredging in order to continue to launch vessels from its launch ways in Portland, Oregon, on the Willamette River, and the rivers classification as a Superfund site could result in some limitations on future dredging and launch activities. Any of these matters could adversely affect the Companys business and Consolidated Financial Statements, or the value of its Portland property.
From time to time, Greenbrier is involved as a defendant in litigation in the ordinary course of business, the outcome of which cannot be predicted with certainty. The most significant litigation is as follows:
Greenbriers customer, SEB Finans AB (SEB), has raised performance concerns related to a component that the Company installed on 372 railcar units with an aggregate sales value of approximately $20.0 million produced under a contract with SEB. On December 9, 2005, SEB filed a Statement of Claim in an arbitration proceeding in Stockholm, Sweden, against Greenbrier alleging that the railcars were defective and could not be used for their intended purpose. A settlement agreement was entered into effective February 28, 2007 pursuant to which the railcar units previously delivered were to be repaired and the remaining units completed and delivered to SEB. Greenbrier is proceeding with repairs of the railcars in accordance with terms of the original settlement agreement, though SEB has made multiple additional warranty claims, including claims with respect to railcars that have been repaired pursuant to the original settlement agreement. Greenbrier is evaluating SEBs latest warranty claim. Current estimates of potential costs of such repairs do not exceed amounts accrued.
When the Company acquired the assets of the Freight Wagon Division of DaimlerChrysler in January 2000, it acquired a contract to build 201 freight cars for Okombi GmbH, a subsidiary of Rail Cargo Austria AG. Subsequently, Okombi made breach of warranty and late delivery claims against the Company which grew out of design and certification problems. All of these issues were settled as of March 2004. Additional allegations have been made, the most serious of which involve cracks to the structure of the freight cars. Okombi has been
58 | The Greenbrier Companies 2011 Annual Report |
required to remove all 201 freight cars from service, and a formal claim has been made against the Company. Legal, technical and commercial evaluations are on-going to determine what obligations the Company might have, if any, to remedy the alleged defects, though resolution of such issues has not been reached due to delays by Okombi.
Management intends to vigorously defend its position in each of the open foregoing cases. While the ultimate outcome of such legal proceedings cannot be determined at this time, management believes that the resolution of these actions will not have a material adverse effect on the Companys Consolidated Financial Statements.
The Company is involved as a defendant in other litigation initiated in the ordinary course of business. While the ultimate outcome of such legal proceedings cannot be determined at this time, management believes that the resolution of these actions will not have a material adverse effect on the Companys Consolidated Financial Statements.
The Company delivered 500 railcar units during 2009 for which the Company has an obligation to guarantee the purchaser minimum earnings. The obligation expires December 31, 2011. The maximum potential obligation totaled $13.1 million and in certain defined instances the obligation may be reduced due to early termination. Upon delivery of the railcar units, the entire purchase price was recorded as revenue and paid in full. The minimum earnings due to the purchaser were considered a reduction of revenue and were recorded as deferred revenue. The purchaser has agreed to utilize the railcars on a preferential basis, and the Company is entitled to re-market the railcar units when they are not being utilized by the purchaser during the obligation period. Any earnings generated from the railcar units offset the obligation and is recognized as revenue and margin as earned. As of August 31, 2011, the Company has $4.6 million of the potential obligation remaining in deferred revenue.
In accordance with customary business practices in Europe, the Company has $6.2 million in bank and third party warranty guarantee facilities, all of which have been utilized as of August 31, 2011. To date no amounts have been drawn under these guarantee facilities.
At August 31, 2011, the Mexican joint venture had $16.2 million of third party debt, for which the Company has guaranteed 50% or approximately $8.1 million.
As of August 31, 2011 the Company has outstanding letters of credit aggregating $4.3 million associated with facility leases and workers compensation insurance.
Note 26 - Fair Value of Financial Instruments
The estimated fair values of financial instruments and the methods and assumptions used to estimate such fair values are as follows:
(In thousands) |
Carrying
Amount |
Estimated Fair Value |
||||||
Notes payable as of August 31, 2011 |
$ | 429,140 | $ | 355,341 | ||||
Notes payable as of August 31, 2010 |
$ | 498,700 | $ | 482,589 |
The carrying amount of cash and cash equivalents, accounts and notes receivable, revolving notes, accounts payable and accrued liabilities, foreign currency forward contracts and interest rate swaps is a reasonable estimate of fair value of these financial instruments. Estimated rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of notes payable.
The Greenbrier Companies 2011 Annual Report | 59 |
Note 27 - Fair Value Measures
Certain assets and liabilities are reported at fair value on either a recurring or nonrecurring basis. Fair value, for this disclosure, is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy which prioritizes the inputs used in measuring a fair value as follows:
Level 1 - | observable inputs such as unadjusted quoted prices in active markets for identical instruments; |
Level 2 - | inputs, other than the quoted market prices in active markets for similar instruments, which are observable, either directly or indirectly; and |
Level 3 - | unobservable inputs for which there is little or no market data available, which require the reporting entity to develop its own assumptions. |
Assets and liabilities measured at fair value on a recurring basis as of August 31, 2011 are:
(In thousands) | Total | Level 1 | Level 2 (1) | Level 3 | ||||||||||||
Assets: |
||||||||||||||||
Derivative financial instruments |
$ | | $ | | $ | | $ | | ||||||||
Nonqualified savings plan investments |
6,326 | 6,326 | | | ||||||||||||
Cash equivalents |
4,561 | 4,561 | | | ||||||||||||
|
||||||||||||||||
$ | 10,887 | $ | 10,887 | $ | | $ | | |||||||||
|
||||||||||||||||
Liabilities: |
||||||||||||||||
Derivative financial instruments |
$ | 7,759 | $ | | $ | 7,759 | $ | |
(1) |
Level 2 assets include derivative financial instruments which are valued based on significant observable inputs. See Note 16 Derivative Instruments for further discussion. |
Assets or liabilities measured at fair value on a nonrecurring basis as of August 31, 2011 are:
(In thousands) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets: |
||||||||||||||||
Goodwill |
$ | 137,066 | $ | | $ | | $ | 137,066 |
Note 28 - Guarantor/Non Guarantor
The convertible senior notes due 2026 (the Notes) issued on May 22, 2006 are fully and unconditionally and jointly and severally guaranteed by substantially all of Greenbriers material 100% owned U.S. subsidiaries: Autostack Company LLC, Greenbrier-Concarril, LLC, Greenbrier Leasing Company LLC, Greenbrier Leasing Limited Partner, LLC, Greenbrier Management Services, LLC, Greenbrier Leasing, L.P., Greenbrier Railcar LLC, Gunderson LLC, Gunderson Marine LLC, Gunderson Rail Services LLC, Meridian Rail Holding Corp., Meridian Rail Acquisition Corp., Meridian Rail Mexico City Corp., Brandon Railroad LLC, Gunderson Specialty Products, LLC and Greenbrier Railcar Leasing, Inc. No other subsidiaries guarantee the Notes including Greenbrier Leasing Limited, Greenbrier Europe B.V., Greenbrier Germany GmbH, WagonySwidnica S.A., Zaklad Naprawczy Taboru Kolejowego Olawa sp. z o.o. , Gunderson-Concarril, S.A. de C.V., Mexico Meridianrail Services, S.A. de C.V., Greenbrier Railcar Services Tierra Blanca S.A. de C.V., YSD Doors, S.A. de C.V., Greenbrier-Gimsa, LLC and Gunderson-Gimsa S. de R.L. de C.V.
The following represents the supplemental consolidating condensed financial information of Greenbrier and its guarantor and non guarantor subsidiaries, as of August 31, 2011 and 2010 and for the years ended August 31, 2011, 2010 and 2009. The information is presented on the basis of Greenbrier accounting for its ownership of its wholly owned subsidiaries using the equity method of accounting. The equity method investment for each subsidiary is recorded by the parent in intangibles and other assets. Intercompany transactions of goods and services between the guarantor and non guarantor subsidiaries are presented as if the sales or transfers were at fair value to third parties and eliminated in consolidation.
60 | The Greenbrier Companies 2011 Annual Report |
The Greenbrier Companies, Inc.
Condensed Consolidating Balance Sheet
For the year ended August 31, 2011
(In thousands) | Parent |
Combined
Guarantor Subsidiaries |
Combined
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 33,368 | $ | 529 | $ | 16,325 | $ | | $ | 50,222 | ||||||||||
Restricted cash |
| 2,113 | | | 2,113 | |||||||||||||||
Accounts receivable, net |
86,701 | 90,442 | 11,276 | 24 | 188,443 | |||||||||||||||
Inventories |
| 141,631 | 182,185 | (304 | ) | 323,512 | ||||||||||||||
Leased railcars for syndication |
| 30,690 | | | 30,690 | |||||||||||||||
Equipment on operating leases, net |
| 323,139 | | (1,998 | ) | 321,141 | ||||||||||||||
Property, plant and equipment, net |
6,006 | 101,284 | 53,910 | | 161,200 | |||||||||||||||
Goodwill |
| 137,066 | | | 137,066 | |||||||||||||||
Intangibles and other assets, net |
584,892 | 96,444 | 2,628 | (596,696 | ) | 87,268 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
$ | 710,967 | $ | 923,338 | $ | 266,324 | $ | (598,974 | ) | $ | 1,301,655 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Liabilities and Equity |
||||||||||||||||||||
Revolving notes |
$ | 60,000 | $ | | $ | 30,339 | $ | | $ | 90,339 | ||||||||||
Accounts payable and accrued liabilities |
11,571 | 148,788 | 156,153 | 24 | 316,536 | |||||||||||||||
Deferred income taxes |
(14,652 | ) | 104,142 | (5,071 | ) | (580 | ) | 83,839 | ||||||||||||
Deferred revenue |
465 | 5,242 | 193 | | 5,900 | |||||||||||||||
Notes payable |
292,010 | 134,868 | 2,262 | | 429,140 | |||||||||||||||
Total equity Greenbrier |
361,573 | 530,298 | 68,120 | (598,418 | ) | 361,573 | ||||||||||||||
Noncontrolling interest |
| | 14,328 | | 14,328 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total equity |
361,573 | 530,298 | 82,448 | (598,418 | ) | 375,901 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
$ | 710,967 | $ | 923,338 | $ | 266,324 | $ | (598,974 | ) | $ | 1,301,655 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
The Greenbrier Companies 2011 Annual Report | 61 |
The Greenbrier Companies, Inc.
Condensed Consolidating Statement of Operations
For the year ended August 31, 2011
(In thousands) | Parent |
Combined
Guarantor Subsidiaries |
Combined
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Revenue |
||||||||||||||||||||
Manufacturing |
$ | 1,429 | $ | 413,608 | $ | 532,444 | $ | (226,379 | ) | $ | 721,102 | |||||||||
Wheel Services, Refurbishment & Parts |
| 467,544 | | (14,679 | ) | 452,865 | ||||||||||||||
Leasing & Services |
1,833 | 68,646 | | (1,156 | ) | 69,323 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
3,262 | 949,798 | 532,444 | (242,214 | ) | 1,243,290 | |||||||||||||||
Cost of revenue |
||||||||||||||||||||
Manufacturing |
| 394,638 | 492,855 | (226,366 | ) | 661,127 | ||||||||||||||
Wheels Services, Refurbishment & Parts |
| 419,824 | | (14,375 | ) | 405,449 | ||||||||||||||
Leasing & Services |
| 37,253 | | (70 | ) | 37,183 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
| 851,715 | 492,855 | (240,811 | ) | 1,103,759 | |||||||||||||||
Margin |
3,262 | 98,083 | 39,589 | (1,403 | ) | 139,531 | ||||||||||||||
Selling and administrative |
37,450 | 22,256 | 20,620 | | 80,326 | |||||||||||||||
Gain on disposition of equipment |
| (8,227 | ) | | (142 | ) | (8,369 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Earnings (loss) from operations |
(34,188 | ) | 84,054 | 18,969 | (1,261 | ) | 67,574 | |||||||||||||
Other costs |
||||||||||||||||||||
Interest and foreign exchange |
32,002 | 4,022 | 2,134 | (1,166 | ) | 36,992 | ||||||||||||||
Loss on extinguishment of debt |
15,657 | | | | 15,657 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Earnings (loss) before income taxes and earnings (loss) from unconsolidated affiliates |
(81,847 | ) | 80,032 | 16,835 | (95 | ) | 14,925 | |||||||||||||
Income tax (expense) benefit |
30,940 | (32,953 | ) | (1,642 | ) | 91 | (3,564 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(50,907 | ) | 47,079 | 15,193 | (4 | ) | 11,361 | ||||||||||||||
Earnings (loss) from unconsolidated affiliates |
57,373 | 4,196 | | (64,543 | ) | (2,974 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net earnings (loss) |
6,466 | 51,275 | 15,193 | (64,547 | ) | 8,387 | ||||||||||||||
Net loss (earnings) attributable to noncontrolling interest |
| | (1,923 | ) | 2 | (1,921 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net earnings (loss) attributable to Greenbrier |
$ | 6,466 | $ | 51,275 | $ | 13,270 | $ | (64,545 | ) | $ | 6,466 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
62 | The Greenbrier Companies 2011 Annual Report |
The Greenbrier Companies, Inc.
Condensed Consolidating Statement of Cash Flows
For the year ended August 31, 2011
(In thousands) | Parent |
Combined
Guarantor Subsidiaries |
Combined
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net earnings (loss) |
$ | 6,466 | $ | 51,275 | $ | 15,193 | $ | (64,547 | ) | $ | 8,387 | |||||||||
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: |
||||||||||||||||||||
Deferred income taxes |
(15,380 | ) | 16,560 | 1,311 | (92 | ) | 2,399 | |||||||||||||
Depreciation and amortization |
2,701 | 29,413 | 6,250 | (71 | ) | 38,293 | ||||||||||||||
Gain on sales of leased equipment |
| (4,979 | ) | | (142 | ) | (5,121 | ) | ||||||||||||
Accretion of debt discount |
6,583 | | | | 6,583 | |||||||||||||||
Loss on extinguishment of debt (non-cash portion) |
8,453 | | | | 8,453 | |||||||||||||||
Other |
7,073 | 151 | (465 | ) | 3 | 6,762 | ||||||||||||||
Decrease (increase) in assets: |
||||||||||||||||||||
Accounts receivable |
3,033 | (97,572 | ) | (1,992 | ) | (21 | ) | (96,552 | ) | |||||||||||
Inventories |
| (3,503 | ) | (113,667 | ) | 304 | (116,866 | ) | ||||||||||||
Leased railcars for syndication |
| (21,857 | ) | 1,018 | | (20,839 | ) | |||||||||||||
Other |
4,265 | 3,181 | 338 | 1,079 | 8,863 | |||||||||||||||
Increase (decrease) in liabilities: |
||||||||||||||||||||
Accounts payable and accrued liabilities |
394 | 36,161 | 94,096 | 22 | 130,673 | |||||||||||||||
Deferred revenue |
(155 | ) | (4,154 | ) | (978 | ) | | (5,287 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net cash provided by (used in) operating activities |
23,433 | 4,676 | 1,104 | (63,465 | ) | (34,252 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Proceeds from sales of equipment |
| 18,730 | | | 18,730 | |||||||||||||||
Investment in and net advances to unconsolidated affiliates |
(57,373 | ) | (8,420 | ) | | 63,463 | (2,330 | ) | ||||||||||||
Intercompany advances |
(1,334 | ) | | | 1,334 | | ||||||||||||||
Decrease (increase) in restricted cash |
| 412 | | | 412 | |||||||||||||||
Capital expenditures |
(1,996 | ) | (65,140 | ) | (17,168 | ) | 2 | (84,302 | ) | |||||||||||
Other |
| 61 | (1,835 | ) | | (1,774 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net cash provided by (used in) investing activities |
(60,703 | ) | (54,357 | ) | (19,003 | ) | 64,799 | (69,264 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Net changes in revolving notes with maturities of 90 days or less |
60,000 | | 11,625 | | 71,625 | |||||||||||||||
Proceeds from revolving notes with maturities longer than 90 days |
| | 25,159 | | 25,159 | |||||||||||||||
Repayment of revolving notes with maturities longer than 90 days |
| | (10,000 | ) | | (10,000 | ) | |||||||||||||
Intercompany advances |
(55,401 | ) | 52,806 | 3,929 | (1,334 | ) | | |||||||||||||
Proceeds from issuance of notes payable |
230,000 | | 1,250 | | 231,250 | |||||||||||||||
Debt issuance costs |
(11,469 | ) | | | (11,469 | ) | ||||||||||||||
Repayments of notes payable |
(306,750 | ) | (4,206 | ) | (404 | ) | | (311,360 | ) | |||||||||||
Proceeds from equity offering |
63,180 | | | | 63,180 | |||||||||||||||
Expenses from equity offering |
(420 | ) | | | | (420 | ) | |||||||||||||
Other |
26 | | | | 26 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net cash provided by (used in) financing activities |
(20,834 | ) | 48,600 | 31,559 | (1,334 | ) | 57,991 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Effect of exchange rate changes |
| 751 | (3,868 | ) | | (3,117 | ) | |||||||||||||
Increase (decrease) in cash and cash equivalents |
(58,104 | ) | (330 | ) | 9,792 | | (48,642 | ) | ||||||||||||
Cash and cash equivalents |
||||||||||||||||||||
Beginning of period |
91,472 | 859 | 6,533 | | 98,864 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
End of period |
$ | 33,368 | $ | 529 | $ | 16,325 | $ | | $ | 50,222 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
The Greenbrier Companies 2011 Annual Report | 63 |
The Greenbrier Companies, Inc.
Condensed Consolidating Balance Sheet
For the year ended August 31, 2010
(In thousands) | Parent |
Combined
Guarantor Subsidiaries |
Combined
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 91,472 | $ | 859 | $ | 6,533 | $ | | $ | 98,864 | ||||||||||
Restricted cash |
| 2,525 | | | 2,525 | |||||||||||||||
Accounts receivable, net |
33,001 | 45,154 | 11,094 | 3 | 89,252 | |||||||||||||||
Inventories |
| 138,128 | 66,498 | | 204,626 | |||||||||||||||
Leased railcars for syndication |
| 11,786 | 1,018 | | 12,804 | |||||||||||||||
Equipment on operating leases, net |
| 304,872 | | (2,209 | ) | 302,663 | ||||||||||||||
Property, plant and equipment, net |
6,710 | 89,246 | 36,658 | | 132,614 | |||||||||||||||
Goodwill |
| 137,066 | | | 137,066 | |||||||||||||||
Intangibles and other assets, net |
525,539 | 98,475 | 2,384 | (533,924 | ) | 92,474 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
$ | 656,722 | $ | 828,111 | $ | 124,185 | $ | (536,130 | ) | $ | 1,072,888 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Liabilities and Equity |
||||||||||||||||||||
Revolving notes |
$ | | $ | | $ | 2,630 | $ | | $ | 2,630 | ||||||||||
Accounts payable and accrued liabilities |
11,180 | 112,454 | 58,001 | 3 | 181,638 | |||||||||||||||
Deferred income taxes |
728 | 87,582 | (6,685 | ) | (489 | ) | 81,136 | |||||||||||||
Deferred revenue |
621 | 9,693 | 1,063 | | 11,377 | |||||||||||||||
Notes payable |
358,255 | 139,029 | 1,416 | | 498,700 | |||||||||||||||
Total equity Greenbrier |
285,938 | 479,353 | 56,291 | (535,644 | ) | 285,938 | ||||||||||||||
Noncontrolling interest |
| | 11,469 | | 11,469 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total equity |
285,938 | 479,353 | 67,760 | (535,644 | ) | 297,407 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
$ | 656,722 | $ | 828,111 | $ | 124,185 | $ | (536,130 | ) | $ | 1,072,888 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
64 | The Greenbrier Companies 2011 Annual Report |
The Greenbrier Companies, Inc.
Condensed Consolidating Statement of Operations
For the year ended August 31, 2010
(In thousands) | Parent |
Combined
Guarantor Subsidiaries |
Combined
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Revenue |
||||||||||||||||||||
Manufacturing |
$ | | $ | 74,526 | $ | 242,771 | $ | (21,731 | ) | $ | 295,566 | |||||||||
Wheel Services, Refurbishment & Parts |
| 395,053 | 1,584 | (8,203 | ) | 388,434 | ||||||||||||||
Leasing & Services |
1,803 | 72,013 | | (1,536 | ) | 72,280 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
1,803 | 541,592 | 244,355 | (31,470 | ) | 756,280 | |||||||||||||||
Cost of revenue |
||||||||||||||||||||
Manufacturing |
| 69,872 | 218,890 | (20,367 | ) | 268,395 | ||||||||||||||
Wheels Services, Refurbishment & Parts |
| 351,565 | 1,160 | (8,203 | ) | 344,522 | ||||||||||||||
Leasing & Services |
| 41,438 | | (73 | ) | 41,365 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
| 462,875 | 220,050 | (28,643 | ) | 654,282 | |||||||||||||||
Margin |
1,803 | 78,717 | 24,305 | (2,827 | ) | 101,998 | ||||||||||||||
Selling and administrative |
33,441 | 21,263 | 15,227 | | 69,931 | |||||||||||||||
Gain on disposition of equipment |
| (8,170 | ) | | | (8,170 | ) | |||||||||||||
Special items |
(11,870 | ) | | | | (11,870 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Earnings (loss) from operations |
(19,768 | ) | 65,624 | 9,078 | (2,827 | ) | 52,107 | |||||||||||||
Other costs |
||||||||||||||||||||
Interest and foreign exchange |
38,866 | 4,191 | 3,687 | (1,540 | ) | 45,204 | ||||||||||||||
Gain on extinguishment of debt |
(2,070 | ) | | | | (2,070 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Earnings (loss) before income taxes and earnings (loss) from unconsolidated affiliates |
(56,564 | ) | 61,433 | 5,391 | (1,287 | ) | 8,973 | |||||||||||||
Income tax (expense) benefit |
24,143 | (25,144 | ) | 1,710 | 250 | 959 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(32,421 | ) | 36,289 | 7,101 | (1,037 | ) | 9,932 | ||||||||||||||
Earnings (loss) from unconsolidated affiliates |
36,698 | (6,179 | ) | | (32,120 | ) | (1,601 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net earnings (loss) |
4,277 | 30,110 | 7,101 | (33,157 | ) | 8,331 | ||||||||||||||
Net loss (earnings) attributable to noncontrolling interest |
| | (4,734 | ) | 680 | (4,054 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net earnings (loss) attributable to Greenbrier |
$ | 4,277 | $ | 30,110 | $ | 2,367 | $ | (32,477 | ) | $ | 4,277 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
The Greenbrier Companies 2011 Annual Report | 65 |
The Greenbrier Companies, Inc.
Condensed Consolidating Statement of Cash Flows
For the year ended August 31, 2010
(In thousands) | Parent |
Combined
Guarantor Subsidiaries |
Combined
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net earnings (loss) |
$ | 4,277 | $ | 30,110 | $ | 7,101 | $ | (33,157 | ) | $ | 8,331 | |||||||||
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: |
||||||||||||||||||||
Deferred income taxes |
5,898 | 10,045 | 427 | (1,318 | ) | 15,052 | ||||||||||||||
Depreciation and amortization |
2,063 | 28,241 | 7,280 | (73 | ) | 37,511 | ||||||||||||||
Gain on sales of leased equipment |
| (6,543 | ) | | | (6,543 | ) | |||||||||||||
Accretion of debt discount |
8,149 | | | | 8,149 | |||||||||||||||
Stock based compensation |
5,825 | 5,825 | ||||||||||||||||||
Special items |
(11,870 | ) | | | | (11,870 | ) | |||||||||||||
Gain on extinguishment of debt (non-cash portion) |
(2,070 | ) | | | | (2,070 | ) | |||||||||||||
Other |
5,175 | 354 | (1,972 | ) | 680 | 4,237 | ||||||||||||||
Decrease (increase) in assets: |
||||||||||||||||||||
Accounts receivable |
(9,292 | ) | 17,743 | 12,914 | 1,065 | 22,430 | ||||||||||||||
Inventories |
| (19,135 | ) | (26,077 | ) | | (45,212 | ) | ||||||||||||
Leased railcars for syndication |
| 1,778 | (1,019 | ) | | 759 | ||||||||||||||
Other |
648 | 6,773 | (966 | ) | | 6,455 | ||||||||||||||
Increase (decrease) in liabilities: |
||||||||||||||||||||
Accounts payable and accrued liabilities |
3,143 | (9,134 | ) | 18,765 | 3 | 12,777 | ||||||||||||||
Deferred revenue |
(155 | ) | (8,353 | ) | 1,063 | | (7,445 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net cash provided by (used in) operating activities |
5,966 | 51,879 | 17,516 | (32,800 | ) | 42,561 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Proceeds from sales of equipment |
| 22,978 | | | 22,978 | |||||||||||||||
Investment in and net advances to unconsolidated affiliates |
(36,697 | ) | 3,650 | | 32,120 | (927 | ) | |||||||||||||
Intercompany advances |
7,866 | | | (7,866 | ) | | ||||||||||||||
Contract placement fee |
| (6,050 | ) | | | (6,050 | ) | |||||||||||||
Decrease (increase) in restricted cash |
| (1,442 | ) | | | (1,442 | ) | |||||||||||||
Capital expenditures |
(3,645 | ) | (30,430 | ) | (5,594 | ) | 680 | (38,989 | ) | |||||||||||
Other |
| 260 | 260 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net cash provided by (used in) investing activities |
(32,476 | ) | (11,034 | ) | (5,594 | ) | 24,934 | (24,170 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Net changes in revolving notes with maturities of 90 days or less |
| | (11,934 | ) | | (11,934 | ) | |||||||||||||
Proceeds from revolving notes with maturities longer than 90 days |
| | 5,698 | | 5,698 | |||||||||||||||
Repayment of revolving notes with maturities longer than 90 days |
| | (5,698 | ) | | (5,698 | ) | |||||||||||||
Intercompany advances |
33,850 | (34,061 | ) | (7,655 | ) | 7,866 | | |||||||||||||
Proceeds from issuance of notes payable |
| 328 | 1,821 | | 2,149 | |||||||||||||||
Debt issuance costs |
| | (109 | ) | (109 | ) | ||||||||||||||
Repayments of notes payable |
(32,090 | ) | (5,772 | ) | (405 | ) | | (38,267 | ) | |||||||||||
Proceeds from equity offering |
56,250 | | | | 56,250 | |||||||||||||||
Expenses from equity offering |
(3,542 | ) | | | | (3,542 | ) | |||||||||||||
Other |
29 | | | | 29 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net cash provided by (used in) financing activities |
54,497 | (39,505 | ) | (18,282 | ) | 7,866 | 4,576 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Effect of exchange rate changes |
| (902 | ) | 612 | | (290 | ) | |||||||||||||
Increase (decrease) in cash and cash equivalents |
27,987 | 438 | (5,748 | ) | | 22,677 | ||||||||||||||
Cash and cash equivalents |
||||||||||||||||||||
Beginning of period |
63,485 | 421 | 12,281 | | 76,187 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
End of period |
$ | 91,472 | $ | 859 | $ | 6,533 | $ | | $ | 98,864 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
66 | The Greenbrier Companies 2011 Annual Report |
The Greenbrier Companies, Inc.
Condensed Consolidating Statement of Operations
For the year ended August 31, 2009
(In thousands) | Parent |
Combined
Guarantor Subsidiaries |
Combined
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Revenue |
||||||||||||||||||||
Manufacturing |
$ | 547 | $ | 227,404 | $ | 336,399 | $ | (101,854 | ) | $ | 462,496 | |||||||||
Wheels Service, Refurbishment & Parts |
| 475,366 | 31 | | 475,397 | |||||||||||||||
Leasing & Services |
1,314 | 78,207 | | (1,223 | ) | 78,298 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
1,861 | 780,977 | 336,430 | (103,077 | ) | 1,016,191 | |||||||||||||||
Cost of revenue |
||||||||||||||||||||
Manufacturing |
124 | 230,848 | 328,761 | (101,000 | ) | 458,733 | ||||||||||||||
Wheel Services, Refurbishment & Parts |
| 420,261 | 33 | | 420,294 | |||||||||||||||
Leasing & Services |
| 46,056 | | (65 | ) | 45,991 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
124 | 697,165 | 328,794 | (101,065 | ) | 925,018 | |||||||||||||||
Margin |
1,737 | 83,812 | 7,636 | (2,012 | ) | 91,173 | ||||||||||||||
Selling and administrative |
31,169 | 24,729 | 9,845 | | 65,743 | |||||||||||||||
Gain on disposition of equipment |
| (1,459 | ) | | (475 | ) | (1,934 | ) | ||||||||||||
Goodwill impairment |
| 55,531 | | 136 | 55,667 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Earnings (loss) from operations |
(29,432 | ) | 5,011 | (2,209 | ) | (1,673 | ) | (28,303 | ) | |||||||||||
Other costs |
||||||||||||||||||||
Interest and foreign exchange |
32,859 | 5,316 | 8,010 | (1,573 | ) | 44,612 | ||||||||||||||
Loss on extinguishment of debt |
1,154 | | 146 | | 1,300 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Loss before income taxes and earnings (loss) from unconsolidated affiliates |
(63,445 | ) | (305 | ) | (10,365 | ) | (100 | ) | (74,215 | ) | ||||||||||
Income tax (expense) benefit |
29,821 | (16,573 | ) | 2,606 | 1,063 | 16,917 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(33,624 | ) | (16,878 | ) | (7,759 | ) | 963 | (57,298 | ) | ||||||||||||
Earnings (loss) from unconsolidated affiliates |
(22,767 | ) | (7,150 | ) | | 29,352 | (565 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net earnings (loss) |
(56,391 | ) | (24,028 | ) | (7,759 | ) | 30,315 | (57,863 | ) | |||||||||||
Net loss attributable to noncontrolling interest |
| | 2,202 | (730 | ) | 1,472 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net earnings (loss) attributable to Greenbrier |
$ | (56,391 | ) | $ | (24,028 | ) | $ | (5,557 | ) | $ | 29,585 | $ | (56,391 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
The Greenbrier Companies 2011 Annual Report | 67 |
The Greenbrier Companies, Inc.
Condensed Consolidating Statement of Cash Flows
For the year ended August 31, 2009
(In thousands) | Parent |
Combined
Guarantor Subsidiaries |
Combined
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net earnings (loss) |
$ | (56,391 | ) | $ | (24,028 | ) | $ | (7,759 | ) | $ | 30,315 | $ | (57,863 | ) | ||||||
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: |
||||||||||||||||||||
Deferred income taxes |
(16,609 | ) | 5,820 | (2,800 | ) | 290 | (13,299 | ) | ||||||||||||
Depreciation and amortization |
1,544 | 28,797 | 7,393 | (65 | ) | 37,669 | ||||||||||||||
Gain on sales of leased equipment |
| (692 | ) | | (475 | ) | (1,167 | ) | ||||||||||||
Accretion of debt discount |
4,948 | | | | 4,948 | |||||||||||||||
Goodwill impairment |
| 55,531 | | 136 | 55,667 | |||||||||||||||
Loss on extinguishment of debt (non-cash portion) |
915 | | | | 915 | |||||||||||||||
Other |
| 3,402 | 2,111 | (1,930 | ) | 3,583 | ||||||||||||||
Decrease (increase) in assets: |
||||||||||||||||||||
Accounts receivable |
(6,940 | ) | 75,691 | (9,163 | ) | (1,067 | ) | 58,521 | ||||||||||||
Inventories |
| 46,579 | 62,890 | | 109,469 | |||||||||||||||
Leased railcars for syndication |
| 10,752 | 371 | | 11,123 | |||||||||||||||
Other |
(1,192 | ) | 1,614 | 6,028 | (6,208 | ) | 242 | |||||||||||||
Increase (decrease) in liabilities: |
||||||||||||||||||||
Accounts payable and accrued liabilities |
15,522 | (58,533 | ) | (44,199 | ) | 696 | (86,514 | ) | ||||||||||||
Deferred revenue |
(155 | ) | 1,202 | (3,876 | ) | | (2,829 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net cash provided by (used in) operating activities |
(58,358 | ) | 146,135 | 10,996 | 21,692 | 120,465 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Proceeds from sales of equipment |
| 15,555 | | | 15,555 | |||||||||||||||
Investment in and net advances to unconsolidated affiliates |
15,359 | 6,585 | | (21,944 | ) | | ||||||||||||||
Intercompany advances |
(26,958 | ) | | | 26,958 | | ||||||||||||||
Decrease (increase) in restricted cash |
| (1,083 | ) | 974 | | (109 | ) | |||||||||||||
Capital expenditures |
(2,699 | ) | (30,642 | ) | (5,758 | ) | 252 | (38,847 | ) | |||||||||||
Other |
| 429 | | | 429 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net cash provided by (used in) investing activities |
(14,298 | ) | (9,156 | ) | (4,784 | ) | 5,266 | (22,972 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Net changes in revolving notes with maturities of 90 days or less |
(65,000 | ) | | (16,251 | ) | | (81,251 | ) | ||||||||||||
Intercompany advances |
133,592 | (126,496 | ) | 19,862 | (26,958 | ) | | |||||||||||||
Proceeds from issuance of notes payable |
75,000 | | | | 75,000 | |||||||||||||||
Debt issuance costs |
(5,232 | ) | | | | (5,232 | ) | |||||||||||||
Repayments of notes payable |
(4,339 | ) | (8,183 | ) | (3,914 | ) | | (16,436 | ) | |||||||||||
Investment by joint venture partner |
| | 1,400 | | 1,400 | |||||||||||||||
Dividends paid |
(2,001 | ) | | | | (2,001 | ) | |||||||||||||
Other |
3,973 | | | | 3,973 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net cash provided by (used in) financing activities |
135,993 | (134,679 | ) | 1,097 | (26,958 | ) | (24,547 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Effect of exchange rate changes |
148 | (3,472 | ) | 608 | | (2,716 | ) | |||||||||||||
Increase (decrease) in cash and cash equivalents |
63,485 | (1,172 | ) | 7,917 | | 70,230 | ||||||||||||||
Cash and cash equivalents |
||||||||||||||||||||
Beginning of period |
| 1,593 | 4,364 | | 5,957 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
End of period |
$ | 63,485 | $ | 421 | $ | 12,281 | $ | | $ | 76,187 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
68 | The Greenbrier Companies 2011 Annual Report |
Quarterly Results of Operations (Unaudited)
Operating results by quarter for 2011 are as follows:
(In thousands, except per share amount) | First | Second | Third | Fourth | Total | |||||||||||||||
2011 |
||||||||||||||||||||
Revenue |
||||||||||||||||||||
Manufacturing |
$ | 85,440 | $ | 156,621 | $ | 173,487 | $ | 305,554 | $ | 721,102 | ||||||||||
Wheel Services, Refurbishment & Parts |
95,268 | 112,015 | 126,317 | 119,265 | 452,865 | |||||||||||||||
Leasing & Services |
18,226 | 15,704 | 17,476 | 17,917 | 69,323 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
198,934 | 284,340 | 317,280 | 442,736 | 1,243,290 | ||||||||||||||||
Cost of revenue |
||||||||||||||||||||
Manufacturing |
79,747 | 147,552 | 158,674 | 275,154 | 661,127 | |||||||||||||||
Wheel Services, Refurbishment & Parts |
86,411 | 101,413 | 111,202 | 106,423 | 405,449 | |||||||||||||||
Leasing & Services |
9,120 | 8,725 | 9,254 | 10,084 | 37,183 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
175,278 | 257,690 | 279,130 | 391,661 | 1,103,759 | ||||||||||||||||
Margin |
23,656 | 26,650 | 38,150 | 51,075 | 139,531 | |||||||||||||||
Selling and administrative |
17,938 | 17,693 | 22,580 | 22,115 | 80,326 | |||||||||||||||
Gain on disposition of equipment |
(2,510 | ) | (1,961 | ) | (1,678 | ) | (2,220 | ) | (8,369 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Earnings from operations |
8,228 | 10,918 | 17,248 | 31,180 | 67, 574 | |||||||||||||||
Other costs |
||||||||||||||||||||
Interest and foreign exchange |
10,304 | 10,536 | 9,807 | 6,345 | 36,992 | |||||||||||||||
Loss on extinguishment of debt |
| | 10,007 | 5,650 | 15,657 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Earnings before income tax and loss from unconsolidated affiliates |
(2,076 | ) | 382 | (2,566 | ) | 19,185 | 14,925 | |||||||||||||
Income tax benefit (expense) |
611 | (100 | ) | 301 | (4,376 | ) | (3,564 | ) | ||||||||||||
Loss from unconsolidated affiliates |
(587 | ) | (575 | ) | (539 | ) | (1,273 | ) | (2,974 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net earnings (loss) |
(2,052 | ) | (293 | ) | (2,804 | ) | 13,536 | 8,387 | ||||||||||||
Net earnings attributable to Noncontrolling interest |
(252 | ) | (257 | ) | (510 | ) | (902 | ) | (1,921 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net earnings (loss) attributable to Greenbrier |
$ | (2,304 | ) | $ | (550 | ) | $ | (3,314 | ) | $ | 12,634 | $ | 6,466 | |||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic earnings (loss) per common share: |
$ | (0.11 | ) | $ | (0.02 | ) | $ | (0.14 | ) | $ | 0.50 | $ | 0.27 | (1) | ||||||
Diluted earnings (loss) per common share: |
$ | (0.11 | ) | $ | (0.02 | ) | $ | (0.14 | ) | $ | 0.42 | $ | 0.24 | (2) |
(1) |
Quarterly amounts do not total to the year to date amount as each period is calculated discretely. Unvested restricted stock awards are excluded from the per share calculation for the first, second and third quarters due to a net loss in each of those periods. |
(2) |
Quarterly amounts do not total to the year to date amount as each period is calculated discretely. The dilutive effect of warrants is excluded from per share calculations for the first, second and third quarters due to net loss for those periods. The fourth quarter dilutive earnings per common share includes the outstanding warrants using the treasury stock method, which equates to 2.3 million shares, and the dilutive effect of 6.0 million shares underlying the 2018 Convertible Notes using the if converted method under which $1.4 million of debt issuance and interest costs, net of tax, were added back to net earnings. |
The Greenbrier Companies 2011 Annual Report | 69 |
Quarterly Results of Operations (Unaudited)
Operating results by quarter for 2010 are as follows:
(In thousands, except per share amount) | First | Second | Third | Fourth | Total | |||||||||||||||
2010 |
||||||||||||||||||||
Revenue |
||||||||||||||||||||
Manufacturing |
$ | 60,078 | $ | 88,065 | $ | 77,877 | $ | 69,546 | $ | 295,566 | ||||||||||
Wheel Services, Refurbishment & Parts |
92,300 | 94,329 | 111,242 | 90,563 | 388,434 | |||||||||||||||
Leasing & Services |
17,781 | 17,455 | 18,312 | 18,732 | 72,280 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
170,159 | 199,849 | 207,431 | 178,841 | 756,280 | ||||||||||||||||
Cost of revenue |
||||||||||||||||||||
Manufacturing |
55,847 | 81,608 | 68,931 | 62,009 | 268,395 | |||||||||||||||
Wheel Services, Refurbishment & Parts |
83,286 | 83,387 | 96,725 | 81,124 | 344,522 | |||||||||||||||
Leasing & Services |
10,918 | 10,789 | 9,931 | 9,727 | 41,365 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
150,051 | 175,784 | 175,587 | 152,860 | 654,282 | ||||||||||||||||
Margin |
20,108 | 24,065 | 31,844 | 25,981 | 101,998 | |||||||||||||||
Selling and administrative |
16,208 | 16,958 | 17,519 | 19,246 | 69,931 | |||||||||||||||
Gain on disposition of equipment |
(1,534 | ) | (101 | ) | (4,024 | ) | (2,511 | ) | (8,170 | ) | ||||||||||
Special items |
| | | (11,870 | ) | (11,870 | ) (1) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Earnings from operations |
5,434 | 7,208 | 18,349 | 21,116 | 52,107 | |||||||||||||||
Other costs |
||||||||||||||||||||
Interest and foreign exchange |
11,112 | 12,406 | 10,811 | 10,875 | 45,204 | |||||||||||||||
Gain on extinguishment of debt |
| | (1,275 | ) | (795 | ) | (2,070 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Earnings (loss) before income tax and loss from unconsolidated affiliates |
(5,678 | ) | (5,198 | ) | 8,813 | 11,036 | 8,973 | |||||||||||||
Income tax benefit (expense) |
2,500 | 944 | (2,418 | ) | (67 | ) | 959 | |||||||||||||
Loss from unconsolidated affiliates |
(183 | ) | (131 | ) | (318 | ) | (969 | ) | (1,601 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net earnings (loss) |
(3,361 | ) | (4,385 | ) | 6,077 | 10,000 | 8,331 | |||||||||||||
Net loss (earnings) attributable to noncontrolling interest |
117 | (367 | ) | (1,514 | ) | (2,290 | ) | (4,054 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net earnings (loss) attributable to Greenbrier |
$ | (3,244 | ) | $ | (4,752 | ) | $ | 4,563 | $ | 7,710 | $ | 4,277 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic earnings (loss) per common share: |
$ | (0.19 | ) | $ | (0.28 | ) | $ | 0.25 | $ | 0.35 | $ | 0.23 | ||||||||
Diluted earnings (loss) per common share: |
$ | (0.19 | ) | $ | (0.28 | ) | $ | 0.23 | $ | 0.33 | $ | 0.21 | (2) |
(1) |
2010 includes income of $11.9 million net of tax for a special item related to the release of the liability associated with the 2008 de-consolidation of our former Canadian subsidiary. |
(2) |
Quarterly amounts do not total to the year to date amount as each period is calculated discretely. The dilutive effect of options and warrants are excluded from per share calculations for the first and second quarters due to a net loss for those periods. |
70 | The Greenbrier Companies 2011 Annual Report |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
The Greenbrier Companies, Inc.
We have audited the accompanying consolidated balance sheet of The Greenbrier Companies, Inc. and subsidiaries (the Company) as of August 31, 2011 and the related consolidated statements of operations, equity and comprehensive income (loss), and cash flows for the year ended August 31, 2011. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Greenbrier Companies, Inc. and subsidiaries as of August 31, 2011, and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Companys internal control over financial reporting as of August 31, 2011, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated November 3, 2011 expressed an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.
/s/ KPMG LLP
Portland, Oregon
November 3, 2011
The Greenbrier Companies 2011 Annual Report | 71 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
The Greenbrier Companies, Inc.
We have audited the accompanying consolidated balance sheet of The Greenbrier Companies, Inc. and subsidiaries (the Company) as of August 31, 2010, and the related consolidated statements of operations, equity and comprehensive income (loss), and cash flows for each of the two years in the period ended August 31, 2010. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Greenbrier Companies, Inc. and subsidiaries as of August 31, 2010, and the results of their operations and their cash flows for each of the two years in the period ended August 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
Portland, Oregon
November 10, 2010
(November 3, 2011 as to Note 11)
72 | The Greenbrier Companies 2011 Annual Report |
Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
Item 9a. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our President and Chief Executive Officer and Chief Financial 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 President and Chief Executive Officer and Chief Financial 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 President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls
During 2011, we commenced implementation of a new ERP system at our Portland, Oregon and Monclova, Mexico manufacturing facilities. The ERP implementation is accompanied by process changes and improvements, which we believe will have a favorable impact on the Companys internal control over financial reporting. The key controls surrounding the ERP system have been identified and are subject to our Sarbanes-Oxley testing.
There were no additional changes, other than those noted above, in the Companys internal controls over financial reporting during the quarter ended August 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
Managements Report on Internal Control over Financial Reporting
Management of The Greenbrier Companies, Inc. together with its consolidated subsidiaries (the Company), is responsible for establishing and maintaining adequate internal control over financial reporting. The Companys internal control over financial reporting is a process designed under the supervision of the Companys principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Companys financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.
As of the end of the Companys 2011 fiscal year, management conducted an assessment of the effectiveness of the Companys internal control over financial reporting based on the framework established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Companys internal control over financial reporting as of August 31, 2011 is effective.
Our independent registered public accounting firm, KPMG LLP, independently assessed the effectiveness of the Companys internal control over financial reporting, as stated in their attestation report, which is included at the end of Part II, Item 9A of this Form 10-K.
The Greenbrier Companies 2011 Annual Report | 73 |
Inherent Limitations on Effectiveness of Controls
The Companys management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
74 | The Greenbrier Companies 2011 Annual Report |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
The Greenbrier Companies, Inc.
We have audited The Greenbrier Companies, Inc. and subsidiaries (the Company) internal control over financial reporting as of August 31, 2011 based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2011 based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of August 31, 2011 and the related consolidated statements of operations, equity and comprehensive income (loss), and cash flows for the year ended August 31, 2011, and our report dated November 3, 2011 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Portland, Oregon
November 3, 2011
The Greenbrier Companies 2011 Annual Report | 75 |
Item 9B. | OTHER INFORMATION |
None
PART III
Item 10. | DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
There is hereby incorporated by reference the information under the captions Election of Directors, Board Committees, Meetings and Charters, Section 16(a) Beneficial Ownership Reporting Compliance and Executive Officers of the Company in the Companys definitive Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of Registrants year ended August 31, 2011.
Item 11. | EXECUTIVE COMPENSATION |
There is hereby incorporated by reference the information under the caption Executive Compensation and Compensation Committee Report in Registrants definitive Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of Registrants year ended August 31, 2011.
Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS |
There is hereby incorporated by reference the information under the captions Security Ownership of Certain Beneficial Owners and Management and Equity Compensation Plan Information in Registrants definitive Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of Registrants year ended August 31, 2011.
Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
There is hereby incorporated by reference the information under the caption Transactions with Related Persons and Independence of Directors in Registrants definitive Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of Registrants year ended August 31, 2011.
Item 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
There is hereby incorporated by reference the information under the caption Ratification of Appointment of Auditors in Registrants definitive Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrants year ended August 31, 2011.
76 | The Greenbrier Companies 2011 Annual Report |
PART IV
Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(1) |
Financial Statements |
See Consolidated Financial Statements in Item 8
(a) |
(2) Financial Statements Schedule* |
|
All other schedules have been omitted because they are inapplicable, not required or because the information is given in the Consolidated Financial Statements or notes thereto. This supplemental schedule should be read in conjunction with the Consolidated Financial Statements and notes thereto included in this report. |
(a) |
(3) The following exhibits are filed herewith and this list is intended to constitute the exhibit index: |
3.1 |
Registrants Articles of Incorporation are incorporated herein by reference to Exhibit 3.1 to the Registrants Form 10-Q filed April 5, 2006. |
|
3.2 |
Articles of Merger amending the Registrants Articles of Incorporation are incorporated herein by reference to Exhibit 3.2 to the Registrants Form 10-Q filed April 5, 2006. |
|
3.3 |
Registrants Bylaws, as amended January 11, 2006, are incorporated herein by reference to Exhibit 3.3 to the Registrants Form 10-Q filed April 5, 2006. |
|
3.4 |
Amendment to the Registrant's Bylaws, dated October 31, 2006, is incorporated herein by reference to Exhibit 3.1 to the Registrants Form 8-K filed November 6, 2006. |
|
3.5 |
Amendment to the Registrant's Bylaws, dated January 8, 2008, is incorporated herein by reference to Exhibit 3.1 to the Registrant's Form 8-K filed November 8, 2007. |
|
3.6 |
Amendment to the Registrant's Bylaws, dated April 8, 2008, is incorporated herein by reference to Exhibit 3.1 to the Registrants Form 8-K filed April 11, 2008. |
|
3.7 |
Amendment to the Registrant's Bylaws, dated April 7, 2009, is incorporated herein by reference to Exhibit 3.1 to the Registrant's Form 8-K filed April 13, 2009. |
|
3.8 |
Amendment to the Registrant's Bylaws, dated June 8, 2009, is incorporated herein by reference to Exhibit 3.1 to the Registrant's Form 8-K filed June 10, 2009. |
|
3.9 |
Amendment to the Registrant's Bylaws, dated June 10, 2009, is incorporated herein by reference to Exhibit 3.1 to the Registrant's Form 8-K filed June 12, 2009. |
|
4.1 |
Specimen Common Stock Certificate of Registrant is incorporated herein by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-3 filed April 7, 2010 (SEC File Number 333-165924). |
|
4.2 |
Indenture between the Registrant, the Guarantors named therein and U.S. Bank National Association as Trustee, dated May 22, 2006, is incorporated herein by reference to Exhibit 4.1 to the Registrants Form 8-K filed May 25, 2006. |
|
4.3 |
Rights Agreement between the Registrant and EquiServe Trust Company, N.A., as Rights Agent, dated as of July 13, 2004, is incorporated herein by reference to Exhibit 4.1 to the Registrants Registration Statement on Form 8-A filed September 16, 2004. |
|
4.4 |
Amendment No. 1 to the Rights Agreement, dated November 9, 2004, is incorporated herein by reference to Exhibit 4.2 to the Registrants Form 8-K filed November 15, 2004. |
|
4.5 |
Amendment No. 2 to the Rights Agreement, dated February 5, 2005, is incorporated herein by reference to Exhibit 4.3 to the Registrants Form 8-K filed February 9, 2005. |
The Greenbrier Companies 2011 Annual Report | 77 |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (continued)
4.6 |
Amendment No. 3 to the Rights Agreement, dated June 10, 2009, is incorporated herein by reference to Exhibit 4.1 to the Registrant's Form 8-K filed June 12, 2009. |
|
4.7 |
Amendment No. 4 to the Rights Agreement, dated March 29, 2011, is incorporated herein by reference to Exhibit 4.1 to the Registrant's Form 8-K filed March 30, 2011. |
|
4.8 |
Warrant Agreement among the Registrant, WLR Recovery Fund IV, L.P., WLR IV Parallel ESC, L.P. and each other holder from time to time party thereto, dated June 10, 2009, is incorporated herein by reference to Exhibit 4.2 to the Registrant's Form 8-K filed June 12, 2009. |
|
4.9 |
Investor Rights and Restrictions Agreement among the Registrant, WLR Recovery Fund IV, L.P., WLR IV Parallel ESC, L.P., WL Ross & Co. LLC and the other holders from time to time party thereto, dated June 10, 2009, is incorporated herein by reference to Exhibit 4.3 to the Registrant's Form 8-K filed June 12, 2009. |
|
4.10 |
Indenture between the Registrant and U.S. Bank National Association, as Trustee, including the form of Global Note attached as Exhibit A thereto, dated April 5, 2011, is incorporated herein by reference to Exhibit 4.1 to the Registrant's Form 8-K filed April 5, 2011. |
|
10.1 |
Registration Rights Agreement among the Registrant and Banc of America Securities LLC and Bear, Stearns & Co. Inc., dated May 11, 2005, is incorporated herein by reference to Exhibit 10.1 to the Registrants Form 8-K filed May 13, 2005. |
|
10.2 |
Registration Rights Agreement among the Registrant and Banc of America LLC and Bear, Stearns & Co. Inc., dated November 21, 2005, is incorporated herein by reference to Exhibit 10.2 to the Registrants Form 8-K filed December 1, 2005. |
|
10.3 |
Registration Rights Agreement among the Registrant, the Guarantors named therein, Bear, Stearns & Co. Inc. and Banc of America Securities LLC, dated May 22, 2006, is incorporated herein by reference to Exhibit 10.1 to the Registrants Form 8-K filed May 25, 2006. |
|
10.4 |
Second Amended and Restated Credit Agreement among the Registrant, Bank of America, N.A., as Administrative Agent, Union Bank, National Association, as Syndication Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Sole Lead Arranger and Sole Book Manager, and the lenders identified therein, dated June 30, 2011, is incorporated herein by reference to Exhibit 10.1 to the Registrant's Form 8-K filed July 7, 2011. |
|
10.5* |
Employment Agreement between Mr. Mark Rittenbaum and Registrant, dated April 7, 2006, is incorporated herein by reference to Exhibit 10.1 to the Registrants Form 8-K filed April 13, 2006. |
|
10.6* |
Amendment to Employment Agreement between Mark Rittenbaum and Registrant, dated June 24, 2008, is incorporated herein by reference to Exhibit 10.7 to the Registrant's Form 10-K filed November 10, 2008. |
|
10.7* |
Employment Agreement between the Registrant and Mr. William A. Furman, dated September 4, 2004, is incorporated herein by reference herein to Exhibit 10.1 to the Registrants Form 8-K filed April 20, 2005. |
|
10.8* |
Amendment to Employment Agreement between Mr. William A. Furman and Registrant, dated May 11, 2006, is incorporated herein by reference to Exhibit 10.1 to the Registrants Form 8-K filed May 12, 2006. |
|
10.9* |
Amendment to Employment Agreement between the Registrant and Mr. William A. Furman, dated November 1, 2006, is incorporated herein by reference to Exhibit 10.1 to the Registrants Form 8-K filed November 6, 2006. |
78 |
The Greenbrier Companies 2011 Annual Report |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (continued)
10.10* |
Amendment to Employment Agreement between the Registrant and William A. Furman, dated June 5, 2008, is incorporated herein by reference to Exhibit 10.11 to the Registrant's Form 10-K filed November 10, 2008. |
|
10.11* |
Amendment to Employment Agreement between the Registrant and William A. Furman, dated April 6, 2009, is incorporated herein by reference to Exhibit 10.5 to the Registrant's Form 10-Q filed April 9, 2009. |
|
10.12* |
Amendment to Employment Agreement between the Registrant and William A. Furman, dated December 1, 2010, is incorporated herein by reference to Exhibit 10.2 to the Registrant's Form 8-K filed December 13, 2010. |
|
10.13* |
Amendment to Employment Agreement between the Registrant and William A. Furman, dated July 1, 2011. |
|
10.14* |
Employment Agreement between Timothy A. Stuckey and Registrant, dated June 26, 2007, is incorporated herein by reference to Exhibit 10.13 to the Registrant's Form 10-K filed November 10, 2008. |
|
10.15* |
2011 Restated Greenbrier Leasing Company LLC Manager Owned Target Benefit Plan. |
|
10.16 |
Form of Agreement concerning Indemnification and Related Matters (Directors) between Registrant and its directors is incorporated herein by reference to Exhibit 10.15 to the Registrant's Form 10-K filed November 10, 2008. |
|
10.17 |
Form of Agreement concerning Indemnification and Related Matters (Officers) between Registrant and its officers is incorporated herein by reference to Exhibit 10.16 to the Registrant's Form 10-K filed November 10, 2008. |
|
10.18* |
Employment Agreement between James T. Sharp and Registrant, dated April 7, 2008, is incorporated herein by reference to Exhibit 10.1 to the Registrants Form 8-K filed April 11, 2008. |
|
10.19* |
Amendment to Employment Agreement between James T. Sharp and Registrant, , dated June 26, 2008, is incorporated herein by reference to Exhibit 10.23 to the Registrant's Form 10-K filed November 10, 2008. |
|
10.20* |
Employment Agreement between Alejandro Centurion and Registrant, dated April 6, 2009, is incorporated herein by reference to Exhibit 10.6 to the Registrant's Form 10-Q dated April 9, 2009. |
|
10.21* |
Form of Amendment to Employment Agreement between Alejandro Centurion and Registrant, dated December 1, 2010, is incorporated herein by reference to Exhibit 10.3 to the Registrant's Form 8-K filed December 13, 2010. |
|
10.22* |
Consulting Agreement between A. Daniel O'Neal Jr. and Greenbrier Leasing Company LLC, dated December 31, 2010, is incorporated herein by reference to Exhibit 10.1 to the Registrant's Form 10-Q filed April 7, 2011. |
|
10.23* |
Consulting Agreement between C. Bruce Ward and Greenbrier Leasing Corporation, dated March 31, 2005 and as amended on January 1, 2007, is incorporated herein by reference to Exhibit 10.4 to the Registrant's Form 8-K filed December 13, 2010. |
|
10.24* |
Form of Employee Restricted Share Agreement (5 year vesting) related to the 2005 Stock Incentive Plan is incorporated herein by reference to Exhibit 10.24 to the Registrant's Form 10-K filed November 10, 2008. |
The Greenbrier Companies 2011 Annual Report | 79 |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (continued)
10.25* |
Form of Employee Restricted Share Agreement (time and performance vesting) related to the 2005 Stock Incentive Plan is incorporated herein by reference to Exhibit 10.25 to the Registrant's Form 10-K filed November 10, 2008. |
|
10.26* |
Form of Change of Control Agreement for Senior Managers is incorporated herein by reference to Exhibit 10.26 to the Registrant's Form 10-K filed November 10, 2008. |
|
10.27* |
Form of Amendment to Employment Agreements between Registrant and certain of Registrant's Executive Officers, dated as of March 1, 2009, is incorporated herein by reference to Exhibit 10.1 to the Registrant's Form 10-Q filed April 9, 2009. |
|
10.28* |
Form of Amendment to Employment Agreements between the Registrant and certain of the Registrant's Executive Officers, dated as of December 1, 2010, is incorporated herein by reference to Exhibit 10.1 to the Registrant's Form 8-K filed December 13, 2010. |
|
10.29* |
2009 Employee Stock Purchase Plan is incorporated herein by reference to Appendix B to the Registrant's Proxy Statement on Schedule 14A filed November 25, 2008. |
|
10.30* |
First Amendment to 2009 Employee Stock Purchase Plan, dated April 5, 2010, is incorporated herein by reference to Exhibit 10.1 to the Registrant's Form 10-Q filed July 7, 2010. |
|
10.31* |
2005 Stock Incentive Plan is incorporated herein by reference to Appendix C to the Registrants Proxy Statement on Schedule 14A filed November 24, 2004. |
|
10.32* |
Amendment No. 1 to the 2005 Stock Incentive Plan, dated June 30, 2005, is incorporated herein by reference to Exhibit 10.36 to the Registrants Annual Report on Form 10-K filed November 4, 2005. |
|
10.33* |
Amendment No. 2 to the 2005 Stock Incentive Plan, dated April 3, 2007, is incorporated herein by reference to Exhibit 10.1 to the Registrants Form 10-Q filed July 10, 2007. |
|
10.34* |
Amendment No. 3 to the 2005 Stock Incentive Plan, dated November 6, 2008, is incorporated herein by reference to Appendix C to the Registrant's Proxy Statement on Schedule 14A filed November 25, 2008. |
|
10.35* |
The Greenbrier Companies, Inc. 2010 Amended and Restated Stock Incentive Plan is incorporated herein by reference to Appendix B to the Registrant's Proxy Statement on Schedule 14A filed November 24, 2010. |
|
10.36* |
Form of Director Restricted Share Agreement related to the 2010 Amended and Restated Stock Incentive Plan is incorporated herein by reference to Exhibit 10.2 to the Registrant's Form 10-Q filed April 7, 2011. |
|
10.37* |
Form of Employee Restricted Share Agreement (time and performance vesting) related to the 2010 Amended and Restated Stock Incentive Plan is incorporated herein by reference to Exhibit 10.2 to the Registrant's Form 8-K filed July 8, 2011. |
|
10.38* |
The Greenbrier Companies, Inc. Nonqualified Deferred Compensation Plan Basic Plan Document. |
|
10.39* |
The Greenbrier Companies Nonqualified Deferred Compensation Plan Adoption Agreement. |
|
10.40* |
Amendment No. 1 to the Greenbrier Companies Nonqualified Deferred Compensation Plan Adoption Agreement, dated May 25, 2011, is incorporated herein by reference to Exhibit 10.1 to the Registrant's Form 10-Q filed July 8, 2011. |
|
10.41 |
Stock Purchase Agreement among Gunderson Rail Services LLC and Meridian Rail Holdings Corp., dated October 15, 2006, is incorporated herein by reference to Exhibit 10.34 to the Registrants Annual Report on Form 10-K filed November 2, 2006. |
80 |
The Greenbrier Companies 2011 Annual Report |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (continued)
10.42 |
Asset Purchase Agreement among Gunderson Rail Services LLC, American Allied Railway Equipment Co., Inc., and American Allied Freight Car Co., Inc., dated January 24, 2008, is incorporated herein by reference to Exhibit 2.1 to the Registrant's Form 8-K filed April 3, 2008. |
|
10.43 |
Railcar Remarketing and Management Agreement between Greenbrier Management Services, LLC and WL Ross-Greenbrier Rail I LLC, dated as of April 29, 2010, is incorporated herein by reference to Exhibit 10.1 to the Registrant's Form 8-K filed May 3, 2010.** |
|
10.44 |
Advisory Services Agreement between Greenbrier Leasing Company LLC and WLR-Greenbrier Rail Inc., dated as of April 29, 2010, is incorporated herein by reference to Exhibit 10.2 to the Registrant's Form 8-K filed May 3, 2010.** |
|
10.45 |
Contract Placement Agreement between Greenbrier Leasing Company LLC and WLR-Greenbrier Rail Inc., dated as of April 29, 2010, is incorporated herein by reference to Exhibit 10.3 to the Registrant's Form 8-K filed May 3, 2010.** |
|
10.46 |
Syndication Agreement between Greenbrier Leasing Company LLC and WLR-Greenbrier Rail Inc., dated as of April 29, 2010, is incorporated herein by reference to Exhibit 10.4 to the Registrant's Form 8-K filed May 3, 2010.** |
|
10.47 |
Amendment to Syndication Agreement between Greenbrier Leasing Company LLC and WLR- Greenbrier Rail Inc., dated as of August 18, 2010, is incorporated herein by reference to Exhibit 10.1 to the Registrant's Form 8-K filed August 20, 2010. |
|
10.48 |
Line of Credit Participation Letter Agreement between Greenbrier Leasing Company LLC and WLR-Greenbrier Rail Inc., dated as of April 29, 2010, is incorporated herein by reference to Exhibit 10.5 to the Registrant's Form 8-K filed May 3, 2010.** |
|
10.49 |
Guaranty of Greenbrier Leasing Company LLC, dated as of April 29, 2010, is incorporated herein by reference to Exhibit 10.6 to the Registrant's Form 8-K filed May 3, 2010.** |
|
10.50 |
Guaranty of the Greenbrier Companies, Inc., dated as of August 18, 2010, is incorporated herein by reference to Exhibit 10.2 to the Registrant's Form 8-K filed August 20, 2010. |
|
10.51 |
Purchase Agreement among The Greenbrier Companies, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman, Sachs & Co., dated March 30, 2011, is incorporated herein by reference to Exhibit 10.1 to the Registrant's Form 8-K filed April 5, 2011. |
|
14.1 |
Code of Business Conduct and Ethics is incorporated herein by reference to Exhibit 14.1 to the Registrant's Form 8-K filed January 11, 2011. |
|
21.1 |
List of the subsidiaries of the Registrant. |
|
23.1 |
Consent of KPMG LLP, independent auditors. |
|
23.2 |
Consent of Deloitte & Touche LLP, independent auditors. |
|
31.1 |
Certification pursuant to Rule 13(a) 14(a). |
|
31.2 |
Certification pursuant to Rule 13(a) 14(a). |
|
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 |
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* |
Management contract or compensatory plan or arrangement |
** |
Certain confidential information contained in these Exhibits was omitted by means of redacting a portion of the text and replacing it with brackets and asterisks ([***]). These Exhibits have been filed separately with the SEC without the redaction and have been granted confidential treatment by the Securities and Exchange Commission pursuant to a Confidential Treatment Request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended. |
Note: For all exhibits incorporated by reference, unless otherwise noted above, the SEC file number is 001-13146.
The Greenbrier Companies 2011 Annual Report | 81 |
The Company filed the required 303A.12(a) New York Stock Exchange Certification of its Chief Financial Officer with the New York Stock Exchange with no qualifications following the 2011 Annual Meeting of Shareholders and the Company filed as an exhibit to its Annual Report on Form 10-K for the year ended August 31, 2010, as filed with the Securities and Exchange Commission, a Certification of the Chief Executive Officer and a Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
82 | The Greenbrier Companies 2011 Annual Report |
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE GREENBRIER COMPANIES, INC.
Dated: November 3, 2011 | By: |
/s/ William A. Furman |
||||
William A. Furman |
||||||
President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature | Date | |
/s/ Benjamin R. Whiteley Benjamin R. Whiteley, Chairman of the Board |
November 3, 2011 | |
/s/ William A. Furman William A. Furman, President and Chief Executive Officer, Director |
November 3, 2011 | |
/s/ Graeme Jack Graeme Jack, Director |
November 3, 2011 | |
/s/ Duane C. McDougall Duane McDougall, Director |
November 3, 2011 | |
/s/ Victoria McManus Victoria McManus, Director |
November 3, 2011 | |
/s/ A. Daniel ONeal A. Daniel O'Neal, Director |
November 3, 2011 | |
/s/ Wilbur L. Ross Wilbur L. Ross, Jr., Director |
November 3, 2011 | |
/s/ Charles J. Swindells Charles J. Swindells, Director |
November 3, 2011 | |
/s/ Wendy L. Teramoto Wendy L. Teramoto, Director |
November 3, 2011 | |
/s/ C. Bruce Ward C. Bruce Ward, Director |
November 3, 2011 | |
/s/ Donald A. Washburn Donald A. Washburn, Director |
November 3, 2011 | |
/s/ Mark J. Rittenbaum Mark J. Rittenbaum, Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
November 3, 2011 | |
/s/ James W. Cruckshank James W. Cruckshank, Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) |
November 3, 2011 |
The Greenbrier Companies 2011 Annual Report | 83 |
Exhibit 10.13
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement dated for convenience as of November 1, 2011 (this Amendment) is entered into by and between The Greenbrier Companies, Inc. (Company) and William A. Furman (Executive) and amends that certain Employment Agreement between such parties dated as of September 1, 2004, as previously amended as of May 11, 2006, November 1, 2006, June 5, 2008, April 6, 2009, March 1, 2009 and December 1, 2010 (the Employment Agreement). For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Restoration of Base Salary . Section 3.1 of the Employment Agreement is deleted and replaced in its entirety with the following new Section 3.1, in order to fully restore Executives base salary to the rate in effect prior to the 50% reduction implemented March 1, 2009:
3.1 Base Salary . Effective as of July 1, 2011, the Company shall pay Executive a Base Salary at an annual rate of not less than $750,000 per year, subject to such periodic increases as the Compensation Committee of the Board of Directors shall deem appropriate. Base Salary shall be payable in accordance with the Companys usual and customary payroll practices, but no less frequently than monthly.
2. Adoption of New Bonus Program . Section 3.2 of the Employment Agreement, as previously amended, is deleted in its entirety and replaced with the following new Section 3.2, and Exhibit A to the Employment Agreement is deleted, in order to implement the performance-based bonus program adopted and approved by the Compensation Committee of the Companys Board of Directors:
3.2 Bonus . The Company shall pay Executive a cash bonus of up to 225% of Executives annual Base Salary with respect to each fiscal year of the Company, based upon achievement of Company and individual performance goals, in accordance with the annual bonus program then in effect, as adopted and approved by the Compensation Committee of the Companys Board of Directors.
Except as hereby amended, the Employment Agreement shall remain in full force and effect.
THE GREENBRIER COMPANIES, INC. | EXECUTIVE | |||
By: |
/s/ Mark J. Rittenbaum |
/s/ William A. Furman |
||
Mark J. Rittenbaum | William A. Furman | |||
Executive Vice President and Chief Financial Officer |
Exhibit 10.15
GREENBRIER LEASING COMPANY LLC
MANAGER OWNED TARGET BENEFIT PLAN
2011 Restatement
GREENBRIER LEASING COMPANY LLC
MANAGER OWNED TARGET BENEFIT PLAN
2011 Restatement
The Company:
GREENBRIER LEASING COMPANY LLC
An Oregon limited liability company
One Centerpointe Drive, Suite 200
Lake Oswego, OR 97035
Greenbrier Leasing Company LLC (the Company) originally adopted the Manager Owned Target Benefit Plan (the Plan) effective January 1, 1996 to provide retirement benefits for certain of its managers and, potentially, those of Company affiliates that adopt the Plan with the approval of the Company. The Company previously restated the Plan as of January 1, 2005, and further amended and restated the Plan as of January 1, 2007 in order to give the Company flexibility with respect to the methodology used to allocate contributions among Plan participants, in order to more effectively achieve the goals of the Plan. The Plan is hereby amended and restated as of January 1, 2011 to modify the change of control provisions and to make certain other clarifying and administrative changes. The benefits provided by the Plan are in addition to those provided by Social Security and by any tax-qualified retirement plan maintained by the Company and/or its affiliates.
1. | Purpose; Employers; Plan Year |
1.1 Purpose . The purpose of this Plan is to provide eligible managers of the Company and its affiliates with additional retirement benefits in order to help retain and attract top-quality managers.
1.2 Employers . This Plan shall apply to the Company and to corporations or other entities that are affiliates of the Company and that adopt the Plan for their employees with the approval of the Compensation Committee of the Board of Directors of The Greenbrier Companies, Inc., the Companys parent corporation (the Committee).
(a) For this purpose, an affiliate means an employer that is a member, with the Company, of a controlled group, a group of trades or businesses under common control or an affiliated service group under sections 414(b), (c) or (m) of the Internal Revenue Code of 1986, as amended (the Code).
(b) An affiliate may adopt the Plan by a statement in writing signed by the affiliate and upon approval of the Committee. The statement shall include the effective date of adoption and any special provisions applicable to employees of the adopting affiliate.
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(c) Once the Company has approved an affiliates adoption of the Plan as provided in (b) above, such approval may not be revoked as long as the affiliate continues to meet the definition of affiliate in (a) above.
(d) The term Employer refers collectively to the Company and adopting affiliates.
1.3 Plan Year . The Plan Year shall be the calendar year.
2. | Eligibility; Participation; Vesting |
2.1 Eligibility . The employees listed in Appendix A below are the eligible employees as of the effective date of this amended and restated Plan. Additional employees subsequently designated by the Committee shall become eligible to participate in the Plan.
2.2 Participation . Any additional eligible employees shall begin participating on the date specified in their designation of eligibility. If no date is specified in the designation of eligibility, participation shall begin on the January 1 next after the date of the designation. Each eligible employee who has begun participating shall be known as a participant.
2.3 Termination of Participation . Once an employee has become a participant, the designation of eligibility to participate under Section 2.1 above may not be revoked, and participation shall continue until the participants termination of employment with the Company and any affiliate for any reason, subject to Sections 3.3 and 5.5 below.
2.4 Vesting . Participants benefits under the Plan shall be fully vested and nonforfeitable at all times.
3. | Contributions and Allocations |
3.1 Contributions . By the January 31 following each Plan Year, or as soon as reasonably practicable thereafter, the Committee shall determine the amount of the Companys annual contribution to the Plan in respect of the preceding Plan Year. Once determined, the amount of contributions for a year shall not be changed because of any later adjustment of accounts.
3.2 Time of Employer Contributions . Subject to Sections 5.5 and 8.2(b) below, by the January 31 following each Plan Year, or as soon as reasonably practicable thereafter, Employer shall contribute to one or more insurers selected by the Administrator (the Insurers) for the Plan Year an amount determined under Section 3.1 above.
3.3 Target Benefit Amount . The Plan is designed to provide a retirement benefit to participants in an annual amount (the Target Benefit Amount) equal to 50% of a participants Final Base Salary, payable in monthly installments over 180 months beginning on a participants Normal Retirement Date. The foregoing notwithstanding, no amount or level of benefits under the Plan is assured or guaranteed, and no provision of the Plan is intended, or shall be construed, to create any entitlement to a specific amount or level of benefits or to impose any obligation on the Company to make contributions of any specified amount or level whatsoever. For purposes
Target Benefit Plan
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of this Plan, a participants Final Base Salary shall mean the participants annualized base salary rate in effect as of the last day of the calendar year preceding the calendar year during which the participant attains age 65, and a participants Normal Retirement Date shall mean the date of the participants 65 th birthday.
3.4 Allocation of Contributions . Each annual contribution under Section 3.1 above shall be allocated among eligible participants as follows:
(a) Eligible participants are all participants except those (i) who reached age 65 any time prior to or during the Plan Year in respect of which the contribution is made, or (ii) whose employment with the Company and affiliates terminates during the Plan Year in respect of which the contribution is made, or (iii) for whom the amount of the Normal Retirement Benefit under the Plan is projected to equal or exceed the Target Benefit Amount based upon the Contracts (as defined in Section 4.1) previously purchased on behalf of such participant under the Plan. The foregoing notwithstanding, the Committee may designate a participant as eligible to continue participation, notwithstanding that such participant reached age 65 before the start of the relevant Plan Year.
(b) Each year the Administrator, as defined below, shall allocate each annual contribution among eligible participants in such amounts as the Administrator determines in its sole discretion and using such actuarial methodology or methodologies as the Administrator deems appropriate, which amount may be zero, with the goal of providing each participant a Normal Retirement Benefit of the Target Benefit Amount. No provision of the Plan is intended or shall be construed to give any participant a right to receive an allocation of an annual contribution of any specific amount or percentage.
3.5 Tax Payment . In addition, with respect to each participant on whose behalf an allocation was made, Employer shall make a remittance to the appropriate taxing authorities in an amount based upon the maximum federal and state income tax rates and the applicable Medicare payroll tax rate then in effect, to cover the participants estimated tax liability resulting from contributions and tax payments made during the year pursuant to the Plan, including without limitation any contribution made pursuant to Sections 5.5, 5.7 and 8.2(b). The remittance shall be made at the time the contribution for the participant is made by the Employer, in satisfaction of its obligations to make withholdings in respect of contributions and tax payments made on behalf of participants hereunder.
4. | Annuity Purchase |
4.1 Payment to Insurers . Employer contributions under Section 3 shall be promptly transmitted to the Insurers, as defined below, for purchase of individual annuity contracts (the Contracts), which will be owned by each participant. The Insurers shall hold and invest the contributions under the terms of the Contracts. Insurers refers to the duly licensed life and/or annuity company(ies) determined in the sole discretion of the Administrator to be of satisfactory financial strength and selected to issue annuity contracts for purposes of this Plan.
4.2 Insurer Duties . The Insurers duties shall be as set forth in the Contracts. To the extent not inconsistent with the Contracts, the Insurers shall have the following duties:
(a) To notify the Administrator at least annually, at the end of the Plan Year, and when reasonably requested by the Administrator, of the amount held under each Contract.
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(b) To make distributions pursuant to this Plan and to report and disclose, as required by law, the taxable amount of each distribution.
5. | Payment of Benefits |
5.1 Retirement Benefit . If a participant has not previously terminated employment with the Employer, payment of the amount held under the participants Contract(s) shall be made as follows:
(a) Unless a participant elects an alternative payment option under Section 5.1(b), payment of the amount held under the participants Contract(s) shall be made in substantially equal monthly installments beginning on the participants Normal Retirement Date and continuing for 180 months (the Normal Retirement Benefit). Payment shall be made whether or not the participant remains employed with the Employer after Normal Retirement Date.
(b) A participant may elect any alternative payment option permitted by the Insurer. Any alternative payment option will provide benefits that are actuarially equivalent to the Normal Retirement Benefit, as determined by the Insurer.
5.2 Termination Benefit . Subject to Section 5.5 below, if a participants employment with the Employer terminates for any reason, including disability, other than Normal Retirement, payment of the amount held under the participants Contract shall be made in substantially equal monthly installments beginning on the participants Normal Retirement Date and continuing for 180 months, unless the Contract permits earlier payment to or on behalf of the participant.
5.3 Effect of Death . If a participant dies before the benefit starting date, or dies after the benefit starting date but before payment is completed, the amount held under the participants Contract shall be paid to the participants beneficiary either in a single sum within 30 days after the Insurer receives satisfactory evidence of the participants death or in 180 substantially equal monthly installments beginning on the date that would have been the participants Normal Retirement Date, as provided in the Contract.
5.4 Designation of Beneficiary . Each participant shall designate beneficiaries in writing to the Insurer. If no beneficiary has been named, or no named beneficiary is living at the participants death, payment shall be made in the following order of preference:
(a) To the participants surviving spouse.
(b) To the participants surviving children, in equal shares.
(c) To the participants estate.
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5.5 Change of Control . In the event that a participants employment terminates within 24 months following a Change of Control in any manner described in (a), (b) or (c) below, Employer shall, within 30 days after such termination of employment, and without regard to Section 3 above, contribute to the Insurers the amount determined under Section 5.7 below. Distribution to the participant shall be made pursuant to Section 5.2 above.
(a) Termination by the Employer without Cause (as defined in Section 5.8(a), below).
(b) Termination by a participant for Good Reason (as defined in Section 5.8(b), below).
(c) Termination by a participant without any reason during the 30-day Window Period immediately following the first anniversary of the effective date of the Change of Control.
5.6 Definition of Change of Control . For purposes of this Plan, a Change of Control shall mean the occurrence of any of the following:
(a) The acquisition by any individual, entity or group (within the meaning of section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30 percent or more of the stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of the Parent (irrespective of whether at the time stock of any class or classes of the Parent shall have or might have voting power by reason of the happening of any contingency); provided, however, that for purposes of this subsection (a), the following acquisitions will not constitute a Change of Control: (i) any acquisition directly from the Parent; (ii) any acquisition by the Parent or a subsidiary of the Parent; or (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Parent or any corporation or other entity controlled by the Parent.
(b) The individuals who, as of the effective date of this 2011 Restatement of the Plan, are the members of the Board of Directors of the Parent (the Incumbent Board) cease for any reason to constitute a majority of such Board, unless the election or appointment, or nomination for election or appointment, of any new member of the Board was approved by a vote of a majority of the Incumbent Board, then such new member shall be considered as though such individual were a member of the Incumbent Board.
(c) The consummation of a merger or consolidation involving the Parent if the stockholders owning the capital and profits (ownership interests) of the Parent immediately before such merger or consolidation do not, as a result of such merger or consolidation, own, directly or indirectly, more than 50 percent of the combined voting power or ownership interests of the Parent, or the entity resulting from such merger or consolidation, in substantially the same proportion as their ownership of the combined voting power or ownership interests outstanding immediately before such merger or consolidation.
(d) The sale or other disposition of all or substantially all of the assets of the Parent.
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(e) The dissolution or the complete or partial liquidation of the Parent.
5.7 Contribution Due Upon Change of Control . Within 30 days following the termination of a participants employment in any manner described in Section 5.5(a), (b) or (c) that occurs within 24 months following a Change of Control, Employer shall contribute on behalf of the affected participant an amount equal to the discounted present value of the aggregate projected annual allocations to the participant for the Plan Year in which the participants employment is terminated and all future Plan Years until the participants Normal Retirement Date. The amount of each future annual allocation will equal the amount of the participants average allocation for the prior three Plan Years of participation immediately preceding the year in which the participants termination of employment occurred (or all Plan Years of participation, if less than three). A full years allocation shall be credited for both the year in which the participants termination of employment occurs and the year in which the participants Normal Retirement Date occurs. The interest rate used in determining present value shall be the interest rate applicable to the Parents principal bank borrowings as of the effective date of the Change of Control or, if no such rate is readily determinable, at a rate equal to the current prime rate as listed in the Eastern print edition of the Wall Street Journal as of the effective date of the Change of Control transaction plus1.5%.
5.8 Definitions of Cause and Good Reason . For purposes of Section 5.5 above:
(a) Cause shall mean the occurrence of either of the following:
(1) Misconduct by the participant that both is clearly inconsistent with the participants position or responsibilities and has had or can reasonably be expected to have a material adverse effect on either the participants effectiveness as an employee or an Employers interests.
(2) Persistent failure or refusal by the participant to perform with reasonable competence and in good faith duties assigned by the Employer that are commensurate with the participants position or another position designated by Employer for which the participant is comparably qualified, the designation of which would not constitute Good Reason pursuant to (b), below.
(b) Good Reason shall mean the occurrence of any of the following:
(1) A material change in the participants status, positions, duties or responsibility as an employee of the Employer as in effect immediately prior to the Change of Control which may reasonably be considered to be an adverse change, except in connection with the termination of the participants employment for Cause or due to death, or resulting from the participants decision for any reason other than for Good Reason.
(2) A reduction by the Employer of the participants base salary exceeding 5 percent of the participants prior years base salary (or an adverse change in the form or timing of the payment thereof) as in effect immediately prior to the Change of Control.
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(3) A reduction by the Employer of the participants annual bonus exceeding 20 percent of the participants prior years annual bonus (unless such reduction relates to the amount of annual bonus payable to the participant for the achievement of specified performance goals, or to the attainment of profitability levels of the Employer or certain of its subsidiaries, and the non-achievement of such goals and/or the non-attainment of profitability levels of the Employer or certain of its subsidiaries, is the reason for the reduction in the participants annual bonus compared to the prior years bonus).
(4) The Employer requiring the participant to be based at any office more than 35 miles from where participants office is located immediately prior to the Change of Control.
(5) The Employer fails to require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer, to assume expressly and agree to perform its obligations under this Plan in the same manner and to the same extent that the Employer would be required to perform if no such succession had taken place.
6. | Administration |
6.1 Company and Employer Functions . All Company or Employer functions or responsibilities shall be exercised by the chief executive officer of the entity or his delegate, except the power to amend or terminate the Plan under Section 8.1 below, which may be exercised only by the Committee.
6.2 Administrator Functions . The Plan shall be administered by the Chief Financial Officer of the Parent, or such other person as the Chief Executive Officer of the Parent may designate (the Administrator). The Administrator shall interpret the Plan, decide any questions about the rights of participants and beneficiaries and in general administer the Plan. The Administrator may delegate all or part of his or her administrative duties to one or more agents and may retain advisors for assistance. The Administrator may consult with and rely upon the advice of counsel, who may be counsel for an Employer. Any decision by the Administrator within the Administrators authority shall be final and bind all parties. The Administrator shall have absolute discretion to carry out his or her responsibilities under the Plan. The Administrator shall be the agent for service of process on the Plan. Any person having an interest under the Plan may consult the Administrator at any reasonable time.
7. | Claims Procedure |
7.1 Original Claim . Any person claiming a benefit or requesting an interpretation, a ruling or information under the Plan shall present the request in writing to the Administrator, who shall respond in writing as soon as practicable.
7.2 Denial . If the claim or request is denied, the written notice of denial shall state:
(a) The reasons for denial, with specific reference to the provisions on which the denial is based.
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(b) A description of any additional material or information required and an explanation of why it is necessary.
(c) An explanation of this claim review procedure.
7.3 Request for Review . Any person whose claim or request is denied or who has not received a response within 30 days may request review by notice in writing to the Administrator. The original decision shall be reviewed by the Administrator, which may, but shall not be required to, grant the claimant a hearing. On review, whether or not there is a hearing, the claimant may have representation, examine pertinent documents and submit issues and comments in writing.
7.4 Decision on Review . The decision on review shall normally be made within 60 days. If an extension of time is required for a hearing or other special circumstances, the claimant shall be so notified and the time limit shall be 120 days. The decision shall be in writing and shall state the reasons and the relevant provisions. All decisions on review shall be final and bind all parties concerned.
8. | Amendment and Termination |
8.1 Amendment; Termination . The Committee may amend or terminate this Plan at any time. The foregoing notwithstanding, no termination nor any amendment affecting the Change of Control rules or allocation provisions shall be effective before the last day of the Plan Year in which the proposed amendment or termination is approved by the Committee, unless each eligible participant is provided with a copy or written summary of the amendment or termination document and agrees in writing to an earlier effective date.
8.2 Effect of Termination .
(a) Upon termination of the Plan or discontinuance of contributions, payments shall be made under Section 5.2 above.
(b) Upon termination of the Plan following a Change of Control, Employer shall, within 30 days after such termination, contribute to the Plan on behalf of each participant who was an eligible participant as of the effective date of the Change of Control transaction, an amount calculated in accordance with Section 5.7 above, treating the date of termination of the Plan as the date of termination of employment of each participant solely for purposes of such calculations, and payments shall be made under Section 5.2 above.
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9. | General Provisions |
9.1 Information Required. The Administrator may require satisfactory proof of age or other data from a participant or beneficiary, and may adjust any benefit if an error in relevant data is discovered.
9.2 No Implied Waiver . A waiver by an Employer, participant or beneficiary of a breach of a provision of the Plan shall not constitute a waiver or prejudice the partys right otherwise to demand subsequent strict compliance with that provision or any other provision.
9.3 Arbitration . Any dispute or controversy arising out of this Plan, or any contribution, claim or benefit hereunder, or any interpretation hereof, shall be resolved by binding arbitration conducted in Portland, Oregon by a single, neutral arbitrator, under the Commercial Arbitration Rules of the American Arbitration Association.
9.4 Notices . Any notice under this Plan shall be in writing and shall be effective when actually delivered or, if mailed, when deposited postpaid as first-class mail or overnight delivery. Mail shall be directed to the Company at the address stated in this Plan, to a participant or beneficiary at the address shown in the Companys employment records or to such other address as a party may specify by notice to the other parties or as the Administrator may determine to be appropriate. Notices to the Administrator shall be sent to the Companys address.
9.5 Nonassignment . The rights of participants under this Plan are personal. No interest of a participant or one claiming through a participant may be directly or indirectly transferred, encumbered, seized by legal process or in any other way subjected to the claims of any creditor.
9.6 Indemnity . The Company shall indemnify and defend any director, officer or employee of an Employer from any claim or liability that arises from any action or inaction in connection with the Plan, subject to the following rules:
(a) Coverage is limited to actions taken in good faith that the person reasonably believed were not opposed to the Plans best interests.
(b) Negligence by the person shall be covered to the fullest extent permitted by law.
(c) Coverage shall be reduced to the extent of any liability insurance.
9.7 Payments Not Wages . The payments under Section 5 above shall not constitute salary or wages. Such payments are retirement benefits, not compensation for performance of any substantial services.
9.8 Applicable Law . This Plan shall be construed according to the laws of Oregon, except as preempted by federal law.
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9.9 Not Contract of Employment . Nothing in this Plan shall give any employee the right to continue employment. This Plan shall not prevent discharge of any employee at any time for any reason.
9.10 Plan Binding on Successors . This Plan shall be binding upon and inure to the benefit of the parties and their successors and assigns.
COMPANY: | GREENBRIER LEASING COMPANY LLC | |||||
By: |
/s/ William A. Furman |
|||||
Its: |
Manager |
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APPENDIX A TO
GREENBRIER LEASING COMPANY LLC
MANAGER OWNED TARGET BENEFIT PLAN
As of January 1, 2011, the group of employees who are eligible to participate in the Plan pursuant to Sections 2.1 and 2.2 of the Plan are the following:
1. Robin D. Bisson
2. Mark J. Rittenbaum
3. Timothy A. Stuckey
4. Maren C. Malik
5. James T. Sharp
6. Alejandro Centurion
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Exhibit 10.38
The Greenbrier Companies
NONQUALIFIED
DEFERRED COMPENSATION PLAN
BASIC PLAN DOCUMENT
(Including Code §409A provisions)
Nonqualified Deferred Compensation Prototype Plan
NONQUALIFIED
DEFERRED COMPENSATION PLAN
BASIC PLAN DOCUMENT
By execution of the Adoption Agreement associated with this Basic Plan Document, the Employer establishes this Nonqualified Deferred Compensation Plan (Plan) for the benefit of certain Employees and Contractors the Employer designates in its Adoption Agreement. The primary purpose of the Plan is to provide additional compensation to Participants upon termination of employment or service with the Employer. The Employer will pay benefits under the Plan only in accordance with the terms and conditions set forth in the Plan.
PREAMBLE
ERISA/Code Plan Type . The Employer in its Adoption Agreement will specify whether it establishes the Plan as a nonqualified deferred compensation plan or as an ineligible Code §457(f) plan. A nonqualified deferred compensation plan is an unfunded plan that may be: (i) an excess benefit plan under ERISA §3(36); (ii) a plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees (top-hat plan) under ERISA §§201(2), 301(a)(3) and 401(a)(1); (iii) a plan only for Contractors and exempt from Title I of ERISA; or (iv) a church plan under Code §414(e) and ERISA §3(33) and maintained by a church or church-controlled organization under Code §3121(w)(3). A top-hat plan includes a supplemental executive retirement plan (SERP). A tax-exempt Code §457(f) plan may include a church plan under Code §414(e) and ERISA §3(33) but which is not sponsored by a church or church-controlled organization under Code §3121(w)(3).
409A Plan Type . The Employer in its Adoption Agreement will specify whether it establishes the Plan as an Account Balance Plan or as a Separation Pay Plan.
Possible Nonuniformity . The Employer in its Adoption Agreement will specify such Plan terms as will apply to all Participants uniformly or as may apply to a given Participant. Except where the Plan or Applicable Guidance require uniformity in order to comply with Code §409A, the Employer need not provide the same Plan benefits or apply the same Plan terms and conditions to all Participants, even as to Participants who are of similar pay, title and other status with the Employer. The elections the Employer makes in its Adoption Agreement apply uniformly to all Participants, except to the extent the Employer adopts inconsistent provisions with respect to one or more Participants in a separate attachment designated as Exhibit A and attached to the Adoption Agreement. The Employer may create a separate Exhibit A for one or more Participants, specifying such terms and conditions as are applicable to a given Participant. The Employer, in Exhibit A, may modify any Plan provision or any Adoption Agreement election as to one or more Participants.
I. DEFINITIONS
1.01 Account means the account the Employer establishes under the Plan for each Participant and, as applicable, means a Participants Elective Deferral Account, Nonelective Contribution Account or Matching Contribution Account.
1.02 Account Balance Plan means an Elective Deferral Account Balance Plan or an Employer Contribution Account Balance Plan, or a combination of both, as the Employer elects in its Adoption Agreement.
(A) Elective Deferral Account Balance Plan . An Elective Deferral Account Balance Plan is a plan comprised of an Elective Deferral Account as described under Treas. Reg. §1.409A-1(c)(2)(i)(A).
(B) Employer Contribution Account Balance Plan . An Employer Contribution Account Balance Plan is a plan comprised of Employer Nonelective Contribution Accounts, Matching Contribution Accounts, or both, as described under Treas. Reg. §1.409A-1(c)(2)(i)(B).
1.03 Accrued Benefit means the total dollar amount credited to a Participants Account.
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Nonqualified Deferred Compensation Prototype Plan
1.04 Adoption Agreement means the document the Employer executes to establish the Plan and includes all Exhibits and other documents referenced therein.
1.05 Aggregated Plans means this Plan and any other like-type plan of the Employer in which a given Participant participates and as to which the Plan (see Sections 2.02(B)(2) and 6.03(B)) or Treas. Reg. §1.409A-1(c)(2) requires the aggregation of all such nonqualified deferred compensation in applying Code §409A. For this purpose, the following rules apply:
(A) Participants in Separate Plans . The plan for a Participant is treated as a separate plan from the plan for any other Participant, even though such plans may be incorporated into a single written plan in this Plan and covering all Participants.
(B) Plan Types . The following plans under clauses (i), (ii) and (iii) are not like-type plans and are treated as separate from each other: (i) all Elective Deferral Account Balance Plans (including for aggregation purposes only, Separation Pay Plans based on Voluntary Separation from Service); (ii) all Employer Contribution Account Balance Plans (including for aggregation purposes only, Separation Pay Plans based on Voluntary Separation from Service); and (iii) all Separation Pay Plans based on Involuntary Separation from Service or under a Window Program.
(C) Dual Status . If a Participant in two like-type plans participates in one plan as an Employee and in the other as a Contractor, the plans are not Aggregated Plans. If an Employee also serves on the Employers board of directors (or in a similar capacity with regard to a non-corporate entity) and participates in like-type plans but participates in one plan as an Employee and in the other as a director (or similar capacity with regard to a non-corporate entity) [a director plan], the plans are not Aggregated Plans provided that the director plan is substantially similar to a plan the maintains for non-employee directors. If the director plan is not substantially similar, for purposes of aggregation, the director plan is treated as a plan for Employees. Director plans and plans for Contractors are subject to aggregation under this Section 1.05.
1.06 Applicable Guidance means as the context requires Code §§83, 409A and 457, Treas. Reg. §1.83, Treas. Reg. §§1.409A-1 through -6, Treas. Reg. §1.457-11, or other written Treasury or IRS guidance regarding or affecting Code §§83, 409A or 457(f), including, as applicable, any Code §409A guidance in effect prior to January 1, 2009.
1.07 Base Salary means a Participants Compensation consisting only of regular salary and excluding any other Compensation.
1.08 Basic Plan Document means this Nonqualified Deferred Compensation Plan document.
1.09 Beneficiary means the person or persons entitled to receive Plan benefits in the event of a Participants death.
1.10 Bonus means a Participants Compensation consisting only of bonus and excluding any other Compensation. A Bonus also may be Performance-Based Compensation under Section 1.37.
1.11 Change in Control means, as to an Employer which is a corporation, a change: (i) in the ownership of the Employer (acquisition by one or more persons acting as a group of more than 50% of the total voting power or fair market value of the Employer); (ii) in the effective control of the Employer (acquisition or acquisition during a 12-month period ending on the date of the latest acquisition, by one or more persons acting as a group of 30% or more of the total voting power of the Employer or replacement of a majority of the members of the board of directors of the Employer [described below, but including only the entity for which no other corporation is a majority shareholder] during any 12-month period by directors not endorsed by a majority of the board before the appointment or election); or (iii) in the ownership of a substantial portion of the assets of the Employer (acquisition or acquisition during a 12-month period ending on the date of the latest acquisition, by one or more persons [other than related persons described in Treas. Reg. §1.409A-3(i)(5)(vii)(B)] acting as a group of assets with a total gross fair market value of 40% or more of the total gross fair market value of all assets of the Employer immediately before such acquisition or acquisitions), each within the meaning of Treas. Reg. §1.409A-3(i)(5) or in Applicable Guidance. For this purpose, the Employer includes the Employer, the corporation which is liable for the payment of the Deferred
2 7/08
Nonqualified Deferred Compensation Prototype Plan
Compensation, a majority shareholder (more than 50% of total fair market value and voting power) of the foregoing or a corporation in a chain of corporations in which each is a majority owner of another corporation in the chain, ending in the Employer or in the corporation that is liable for payment of the Deferred Compensation, all in accordance with Treas. Reg. §1.409A-3(i)(5)(ii). An event constituting a Change in Control must be objectively determinable and any certification thereof by the Employer or its agents may not subject to the discretion of such person. For purposes of applying this Section 1.11, stock ownership is determined in accordance with Code §318(a) as modified under Treas. Reg. §1.409A-3(i)(5)(iii). The Employer in its Adoption Agreement will elect whether a Change in Control includes any or all the events described in clauses (i), (ii) or (iii) and also may elect to increase the percentage change required under any such event to constitute a Change in Control. Pending the issuance of Applicable Guidance as to the application of the Change in Control provisions to partnerships (or other non-corporate entities), if the Employer elects in its Adoption Agreement to permit Change in Control as a payment event, the Employer will apply clauses (i) and (iii) and clause (ii) as it relates to a change in the composition of the board of directors by analogy in accordance with Treas. Reg. §1.409A, Preamble, III.G and Notice 2007-86.
1.12 Change in the Employers Financial Health means an adverse change in the Employers financial condition as described in Applicable Guidance.
1.13 Code means the Internal Revenue Code of 1986, as amended.
1.14 Commissions means Compensation or portions of Compensation consisting of Sales Commissions or of Investment Commissions. See Section 2.02(B)(5).
(A) Sales Commissions . Sales Commissions means Compensation or portions of Compensation a Participant earns if: (i) a substantial portion of Participants services to the Employer consists of the direct sale of a product or a service to a customer that is not related or treated as related to the Employer or to the Participant (under Treas. Reg. §§1.409A-1(f)(2)(ii) and (iv)); (ii) the Compensation the Employer pays to the Participant consists either of a portion of the purchase price for the product or service or of an amount substantially all of which is calculated by reference to volume of sales; and (iii) payment is either contingent upon the Employer receiving payment from an unrelated customer (as described in clause (i) above) for the product or services or, if consistently applied as to all similarly situated service providers, is contingent upon the closing of a sales transaction and such other requirements as the Employer may specify before the closing of the sales transaction.
(B) Investment Commissions . Investment Commissions means Compensation or portions of Compensation a Participant earns if: (i) a substantial portion of the Participants services to the Employer to which the Compensation relates consists of sales of financial products or other direct customer services to a customer that is not related or treated as related to the Employer or to the Participant (under Treas. Reg. §§1.409A-1(f)(2)(ii) and (iv)) as to customer assets or customer asset accounts; (ii) the customer retains the right to terminate the relationship and to move or liquidate the assets or asset accounts without undue delay (but subject to a reasonable notice period); (iii) the Compensation is based on a portion of the value of the overall assets or asset account balance, substantially all of the Compensation is calculated by reference to the increase in value of the overall assets of account balance, or both; and (iv) the value of the overall assets or account balance and Investment Commissions are determined at least annually.
(C) Related Customer Commissions . This Section 1.14 also applies to Sales Commissions and to Investment Commissions involving a related customer provided: (i) the Employer as to unrelated customers makes substantial sales or provides substantial services giving rise to Commissions; and (ii) the sales, service and Commission arrangements with the related customer are bona fide, arise from the Employers ordinary course of business and are substantially the same, in terms and in practice, as those terms and practices that apply to unrelated customers to which substantial sales are made or substantial services are rendered.
1.15 Compensation
(A) Employees . Compensation means as to an Employee, gross W-2 compensation. W-2 Compensation means wages for Federal income tax withholding purposes, as defined under Code §3401(a), plus all other payments to an Employee in the course of the Employers trade or business, for which the Employer must furnish the Employee a written statement under Code §§6041, 6051 and 6052, disregarding any rules limiting the remuneration included as wages under this definition based on the nature or location of
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the employment or service performed. Gross W-2 compensation means W-2 compensation plus all amounts excludible from a Participants gross income under Code §§125,132(f)(4), 402(e)(3), 402(h)(2), 403(b), and 408(p), contributed by the Employer, at the Participants election, to a cafeteria plan, a qualified transportation fringe benefit plan, a 401(k) arrangement, a SEP, a tax sheltered annuity, or a SIMPLE plan.
(B) Contractors . Compensation as to a Contractor means all payments by the Employer to the Contractor for services during a Taxable Year.
(C) Modifications . The Employer in its Adoption Agreement will elect whether to modify the definition of Compensation. The Employer may modify the definition of Compensation or may specify a different definition of Compensation either as to Employees, as to Contractors or both.
1.16 Contractor means a person or entity providing services to the Employer (not as an Employee) as described in Treas. Reg. §1.409A-1(f)(1) and which for any Taxable Year of the Contractor that the Contractor is on the cash receipts and disbursements method of accounting for Federal income tax purposes. A person serving on a board of directors is a Contractor as to Compensation for such service without regard to whether the person is an Employee for other purposes. A Contractor is not subject to this Plan or to Code §409A if in the Taxable Year in which the Legally Binding Right to Compensation arises: (i) the Contractor is actively engaged in the trade or business of performing services other than as an Employee or as a director (or similar position as to a non-corporate Employer); (ii) the Contractor provides significant services to the Employer and to at least one other unrelated service recipient, where the Contractor, the Employer and the other service recipient(s) are all unrelated to each other within the meaning of Treas. Reg. §§1.409A-1(f)(2)(i)(B) and (C) as applicable; and (iii) the services are not management services within the meaning of Treas. Reg. §1.409A-1(f)(2)(iv). For purposes of clause (ii), significant services means as described in Treas. Reg. §1.409A-1(f)(2)(iii). This Plan and Code §409A also do not apply to certain other related Contractor services as described in Treas. Reg. §1.409A-1(f)(2)(v).
1.17 Disability except as the Plan otherwise provides means a condition of a Participant who by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months: (i) is unable to engage in any substantial gainful activity; or (ii) is receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering Employees. The Employer in its Adoption Agreement will elect whether Disability includes all impairments constituting Disability under this Section 1.17, or only certain specified Disabilities which satisfy the foregoing definition. The Employer will determine whether a Participant has incurred a Disability based on its own good faith determination and may require a Participant to submit to reasonable physical and mental examinations for this purpose. A Participant will be deemed to have incurred a Disability if: (i) the Social Security Administration or Railroad Retirement Board determines that the Participant is totally disabled; or (ii) the applicable insurance company providing disability insurance to the Participant under an Employer sponsored disability program determines that a Participant is disabled under the insurance contract definition of disability, provided such definition complies with the definition in this Section 1.17.
1.18. Deferred Compensation means the Participants Account Balance attributable to Elective Deferrals and Employer Contributions and includes Earnings on such amounts except where the Plan otherwise provides. Compensation Deferred is Compensation that the Participant or the Employer has deferred under this Plan. Compensation is Deferred Compensation if: (i) under the terms of the Plan and the relevant facts and circumstances, the Participant has a Legally Binding Right to Compensation during a Taxable Year that the Participant has not actually or constructively received and included in gross income; and (ii) pursuant to the Plan terms, the Compensation is or may be payable to or on behalf of the Participant in a later Taxable Year. Deferred Compensation includes Separation Pay paid pursuant to a Separation Pay Plan except as otherwise described in Treas. Reg. §1.409A-1(b)(9) relating to certain excluded Involuntary or Voluntary Separation from Service or Window Programs and certain reimbursements, medical benefits, in-kind benefits and limited payments. Deferred Compensation excludes certain short-term deferrals and all other items described in Treas. Reg. §§1.409A-1(b)(3), (4), (5), (6), (8), (10), (11) and (12) or in other Applicable Guidance.
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1.19 Earnings means earnings, gain or loss applicable to a Participants Account provided that such amounts reflect actual predetermined investments or notional amounts which do not exceed a reasonable rate of interest. Amounts credited to an Account that do not reflect actual predetermined investments or a reasonable rate of interest are Deferred Compensation and are not Earnings. For purposes of making the determination of whether an amount is Earnings or is Deferred Compensation, the principles of Treas. Reg. §31.3121(v)(2)-1(d)(2) apply.
1.20 Effective Date of the Plan is the date the Employer specifies in the Adoption Agreement, but which is not earlier than January 1, 2009 unless the Employer specifies an earlier date. If this Plan restates a Plan (written or otherwise) which was in effect before January 1, 2009, for periods before January 1, 2009, as to 409A Amounts, the standards and transition rules in effect under Applicable Guidance applies. See for example, Notice 2007-86.
1.21 Elective Deferral means Compensation a Participant elects to defer into the Participants Account under the Plan.
1.22 Elective Deferral Account means the portion of a Participants Account attributable to Elective Deferrals and Earnings thereon.
1.23 Employee means a person providing services to the Employer as a common law employee (and not as a Contractor) as described in Treas. Reg. §1.409A-1(f)(1) and who, for any Taxable Year of the Employee, is on the cash receipts and disbursements method of accounting for Federal income tax purposes.
1.24 Employer means the person or entity: (i) receiving the services of the Participant (even if another person pays the Deferred Compensation); (ii) with respect to whom the Legally Binding Right to Compensation arises; and (iii) who or which executes an Adoption Agreement establishing the Plan. The Employer includes all persons with whom the Employer would be considered a single employer under Code §§414(b) or (c). In the case of an Ineligible 457 Plan, Employer means a State or a Tax-Exempt Organization. For purposes of this Plan, Employer means service recipient as that term in used in Treas. Reg. §1.409A-1 through -6.
1.25 Employer Contribution means amounts the Employer contributes or credits to an Account under the Plan, including Nonelective Contributions and Matching Contributions but not including Elective Deferrals.
1.26 Employer Contribution Account means the portion of a Participants Account attributable to Employer Contributions and Earnings thereon.
1.27 ERISA means the Employee Retirement Income Security Act of 1974, as amended.
1.28 409A Amount means: (i) any Compensation Deferred prior to January 1, 2005, unless such Deferred Compensation is a Grandfathered Amount; and (ii) any Compensation Deferred in Taxable Years beginning after December 31, 2004. In determining 409A Amounts, the rules of Section 1.05 regarding Aggregated Plans apply.
1.29 Grandfathered Amount means an amount of Deferred Compensation hereunder as to which, prior to January 1, 2005, a Participant: (i) had a Legally Binding Right to be paid Deferred Compensation; and (ii) was Vested. However, if the Employer after October 3, 2004, materially modifies the Plan as described in Treas. Reg. 1.409A-6(a)(4), then such amount ceases to be a Grandfathered Amount. In determining Grandfathered Amounts, the rules of Section 1.05 regarding Aggregated Plans apply.
1.30 Ineligible 457 Plan means this Plan which is subject to Code §457(f) and that is not an eligible 457 plan under Code §457(b).
1.31 Legally Binding Right means, in reference to Compensation, the grant by the Employer to the Participant of an enforceable right (under contract, statute or other applicable law) to Compensation where, after the Participant has performed the services which created the Legally Binding Right, the Compensation is not subject to unilateral reduction or elimination by the Employer or any other person. The Employer, based on the facts and circumstances and in accordance with Treas. Reg. §1.409A-1(b)(1), will determine: (i) whether a Legally Binding Right exists; or (ii) whether a Legally Binding Right does not exist on account of the existence of negative discretion which has substantive significance to reduce or eliminate
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the Compensation. Negative discretion does not exist where the Participant has effective control over the person with the negative discretion, has effective control over any portion of compensation of the decision maker or is a family member of the decision maker (within the meaning of Code §267(c)(4) applied as if the family of an individual includes the spouse of any member of the family). Compensation is not subject to unilateral reduction or elimination merely because: (i) it may be reduced or eliminated by operation of objective Plan terms, such as a Substantial Risk of Forfeiture; (ii) the Compensation is determined under a formula that provides for an offset based on benefits provided under another plan, including a qualified plan; or (iii) benefits are reduced on account of actual or notional investment losses, or, in a final average pay plan, because of subsequent decreases in compensation.
1.32 Matching Contribution means a fixed or discretionary Employer contribution made with respect to a Participants Elective Deferral.
1.33 Matching Contribution Account means the portion of a Participants Account attributable to Matching Contributions and Earnings thereon.
1.34 Nonelective Contribution means a fixed or discretionary Employer Contribution that is unrelated to a Participants Elective Deferrals.
1.35 Nonelective Contribution Account means the portion of a Participants Account attributable to Nonelective Contributions and Earnings thereon.
1.36 Participant means an Employee or Contractor the Employer designates under Adoption Agreement Section 2.01 or in Exhibit B to the Adoption Agreement to participate in the Plan. For purposes of this Plan, Participant means a service provider as that term is used in Treas. Reg. 1.409A-1 through-6, who is a participant in the Plan. A reference herein to service provider means another service provider to the Employer, whether or not that person is a Participant.
1.37 Performance-Based Compensation means Compensation (including a Bonus) where the amount of, or entitlement to, the Compensation is contingent on satisfaction of preestablished organizational or individual performance criteria relating to a performance period of at least 12 consecutive months. The Employer must establish the organizational or individual performance criteria in writing not later than 90 days after commencement of the performance period and the outcome must be substantially uncertain at the time that the Employer establishes the performance criteria. The Employer may establish performance criteria without the necessity of action by its shareholders, board of directors, compensation committee or similar entities in the case of a non-corporate Employer. Performance-Based Compensation does not include any amount that will be paid regardless of performance or that will be paid based on a level of performance that is substantially certain to be met at the time the criteria are established. If the Plan will pay the Participants Performance-Based Compensation in the event of the Participants death or disability or if a Change in Control occurs, without regard to whether the performance criteria have been satisfied, the Compensation is not Performance-Based Compensation (and therefore is not entitled to the election timing under Section 2.02(B)(4)) if payment occurs as a result of any of such events. Disability for purposes of this Section 1.37 means any medically determinable physical or mental impairment resulting from the Participants inability to perform the duties of his/her position or of any substantially similar position, where such impairment can be expected to result in death or to last for a continuous period of not less than 6 months. Performance-Based Compensation does not include an amount of Compensation which is based on a specified number of shares of stock multiplied by the share price at the end of the performance period, but may include an amount of Compensation based on an increase in share price over the performance period or which is not payable unless the share price is at or above a specified price. Performance-Based Compensation may be based on subjective performance criteria provided: (i) the criteria are bona fide and relate the Participants performance, a group of service providers that includes the Participant or a business unit for which the Participant provides services which may include the Employer; and (ii) the person who decides whether the subjective performance criteria have been met is someone other than the Participant, the Participants family member (within the meaning of Code §267(c)(4) applied as if the family of an individual includes the spouse of any member of the family), or a person under the effective control of the Participant or such a family member. In addition, the decision makers compensation may not be controlled in whole or in part by the Participant or such a family member. The Employer will determine the status of Compensation as Performance-Based Compensation in accordance with Treas. Reg. §1.409A-1(e) and Applicable Guidance.
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1.38 Plan means the Nonqualified Deferred Compensation Plan of the Employer established by and including the Adoption Agreement, the Basic Plan Document, the Trust, if any, and all notices, forms, elections and other written documentation to which the Plan refers. The Employer will set forth the name of the Plan in its Adoption Agreement . For purposes of applying Code §409A requirements this Plan, as the Employer elects in its Adoption Agreement, is an Elective Deferral Account Balance Plan, an Employer Contribution Account Balance Plan or both, or is a Separation Pay Plan. This Plan does not constitute: (i) a Code §401(a) plan with an exempt trust under Code §501(a); (ii) a Code §403(a) annuity plan; (iii) a Code §403(b) annuity; (iv) a Code §408(k) SEP; (v) a Code §408(p) Simple IRA; (vi) a Code §501(c)(18) trust to which an active participant makes deductible contributions; (vii) a Code §457(b) plan; or (viii) a Code §415(m) plan.
1.39 Retirement Age means the date (if any) the Employer elects in the Adoption Agreement.
1.40 Separation from Service
(A) Employees . Separation from Service means in the case of an Employee, the Employees termination of employment with the Employer whether on account of death, retirement, Disability or otherwise.
(1) Insignificant or Significant Service/Presumptions . The Employer will determine whether an Employee has terminated employment (and incurred a Separation from Service) based on whether the facts and circumstances as described in Treas. Reg. §1.409A-1(h)(1)(ii). An Employee incurs a Separation from Service if the parties reasonably anticipate, based on the facts and circumstances, the Employee will not perform any additional services after a certain date or that the level of bona fide services (whether performed as an Employee or as a Contractor) will permanently decrease to no more than 20% of the average level of bona fide services performed (whether performed as an Employee or as a Contractor) over the immediately preceding 36-month period (or, if less, the period the employee has rendered service to the Employer) (average prior service). An Employee is presumed to have incurred a Separation from Service if the Employees service level decreases to 20% or less than the average prior service and an Employee is presumed to not have incurred a Separation from Service if the Employees service level continues at a rate which is 50% or more of the average prior service. No presumption applies where the Employees service level is more than 20% and less than 50% of the average prior service.
(2) Effect of Leave . An Employee does not incur a Separation from Service if the Employee is on military leave, sick leave, or other bona fide leave of absence if such leave does not exceed a period of 6 months, or if longer, the period for which a statute or contract provides the Employee with the right to reemployment with the Employer. If a Participants leave exceeds 6 months but the Participant is not entitled to reemployment under a statute or contract, the Participant incurs a Separation from Service on the next day following the expiration of 6 months. A leave of absence constitutes a bona fide leave of absence for this Section 1.40 only if there is a reasonable expectation that the Employee will return to perform services for the Employer. Where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of at least 6 months, and where the Participant cannot perform his/her duties or the duties of any substantially similar position, in determining when a Separation from Service occurs, the above 6-month period is 29 months unless the Employer or the Employee terminate the leave sooner. For purposes of determining average prior service under Section 1.40 (A)(1), during a paid leave of absence which is not a Separation From Service, the Employee is treated as rendering bona fide services at a level that would have been required to earn the amount paid during the leave. If the leave of absence is unpaid, the leave period is disregarded in determining average prior service.
(3) Alternative Definition . In lieu of applying Section 1.40(A)(1), the Employer or Participant in an initial payment election or in a change payment election may elect a percentage of reduced bona fide services resulting in a Separation from Service which percentage must be greater than 20% and less than 50% of prior average service, determined over the immediately preceding 36 months.
(B) Contractors . Separation from Service, in the case of a Contractor, means the expiration of the contract (or all contracts) under which the Contractor performs services for the Employer provided that the expiration constitutes a good-faith and complete termination of the contractual relationship between the
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Contractor and the Employer. A good-faith and complete termination does not occur if the Employer anticipates a renewal of the service contract or the Employer anticipates the Contractor becoming an Employee. The Employer anticipates the renewal of the contract if the Employer intends to contract again for the services provided under the expired contract and neither the Employer nor the Contractor has eliminated the Contractor as a possible provider of such additional services. The Employer is deemed to intend renewal of the Contractors expired contract if renewal is conditioned only upon incurring a need for services, the Employers ability to pay for the services, or both. See Section 4.01(E) as to Contractor deemed Separation from Service provisions.
(C) Involuntary Separation from Service (including for good reason) . Involuntary Separation from Service means a Separation from Service due to the Employers independent exercise of unilateral authority to terminate the Participants services (other than due the Participants implicit or explicit request), where the Participant was willing and able to continue performing services for the Employer. Involuntary Separation from Service may include the Employers failure to renew the service contract at the time the contract expires provided that the Participant was willing and able to execute a new contract on substantially the same terms and conditions as the expiring contract and to continue providing such services. The Employer will make the determination as to whether an Involuntary Separation from Service has occurred based on all of the facts and circumstances and in accordance with Treas. Reg. §1.409A-1(n). For this purpose, a Participants voluntary Separation from Service is treated as an Involuntary Separation from Service if it is for good reason as described in Treas. Reg. §§1.409A-1(n)(2). A Separation from Service is deemed to be for a good reason if it occurs during a limited period not to exceed 2 years following the initial existence of the following without the Participants consent: (i) a material reduction in the Participants base compensation (including Base Salary); (ii) a material reduction in the Participants authority, duties or responsibilities; (iii) a material reduction in the authority, duties or responsibilities of the Participants supervisor, including a change in the Participants reporting responsibilities to a lower level than the board of directors or similar authority in a non-corporate entity; (iv) a material reduction in the Participants budget; (v) a material change in the location at which the Participant renders service; or (vi) any other action or inaction that constitutes the Employers material breach of the agreement under which the Participant provides services to the Employer. In addition, to be a deemed good reason the amount, time and form of payment upon Separation from Service must be substantially identical to the amount payable upon an actual Involuntary Separation from Service, if such right exists, and the Participant must provide notice to the Employer within 90 days of the initial existence of the condition and afford the Employer at least 30 days to remedy the condition without having to pay the Compensation.
(D) Voluntary Separation from Service . Voluntary Separation from Service means a Separation from Service which is not an Involuntary Separation from Service under Section 1.40(C).
(E) Employer for Purposes of Separation Rules . The Employer for purposes of applying this Section 1.40 (determining Separation from Service under the Plan) means as defined under Section 1.24 but by applying 50% in lieu of 80% in applying Code §§414(b) and (c). The Employer in lieu of applying the previous sentence may elect in its Adoption Agreement to use a percentage equal to not less than 20% and not more than 80% in determining related employers under Code §§414(b) and (c); provided that the Employer may not elect to apply a percentage which is less than 50% unless there are legitimate business criteria for doing so.
(F) Dual Capacity . If a Participant renders service to the Employer both in the capacity as an Employee and as a Contractor (or changes status from Employee to Contractor or vice versa), the Participant must incur a Separation from Service in both capacities to constitute a Separation from Service. For this purpose, if a Participant renders service both as an Employee and as a member of the Employers board of directors (or an analogous position in the case of a non-corporate Employer) the director services (or the Employee services if this Plan relates to director services) are disregarded in determining whether the Participant has incurred a Separation from Service as to this Plan provided that the plans are not Aggregated Plans.
(G) Certain Asset Sales . In accordance with and subject to Treas. Reg. §1.409A-1(h)(4), if the Employer sells its assets to an unrelated party purchaser where the Participants otherwise would incur a Separation from Service and where such Participants will provide services to the purchaser after the sale closing, the Employer and the purchaser retain discretion no later than the asset sale closing date to specify in writing whether the Participants will incur a Separation from Service. In making such determination, the Employer and the purchaser must treat all affected Participants consistently.
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(H) Collectively Bargained Multiple Employer Plan . If the Plan is established pursuant to a bona fide collective bargaining agreement covering services rendered for multiple employers, the Employer (which for this purpose means the employer which executes the Adoption Agreement) in its Adoption Agreement may elect to define Separation from Service in a reasonable manner that treats an Employee as not having separated during periods in which the Employee is not providing services covered by the collective bargaining agreement but is available to do so for one or more employers. However, such alternative definition must also provide that the Employee is deemed to have incurred a Separation from Service at a specified date not later than the end of any period of at least 12 consecutive months during which time the Employee has not provided any service covered by the collective bargaining agreement to any participating employer. The Employer will apply this section in accordance with the requirements of Treas. Reg. §1.409A-1(h)(6).
1.41 Separation Pay means any Deferred Compensation (applied before application of any exclusion applicable to Separation Pay Plans under Treas. Reg. §1.409A-1(b)(9)) that will not be paid under any circumstances unless the Participant incurs a Separation from Service, whether voluntary or involuntary, including payments in the form of reimbursements for expenses incurred and provision of in-kind benefits. Deferred Compensation that a Participant may receive without incurring a Separation from Service is not Separation Pay merely because the Participant elects to receive or receives payment upon or after Separation from Service. Deferred Compensation does not fail to constitute Separation Pay merely because the Participant must execute a release of claims, noncompetition agreement or nondisclosure agreement or is subject to similar requirements. Any amount or entitlement that acts as a substitute for, or replacement of, Deferred Compensation is a payment of Deferred Compensation and is not Separation Pay.
1.42 Separation Pay Plan means any plan that provides for Separation Pay, including the portion of any plan that provides for Separation Pay, under Treas. Reg. §§1.409A-1(m). The Employer in its Adoption Agreement will elect whether this Plan is a Separation Pay Plan and will elect whether the plan pays benefits in the event of Involuntary Separation from Service, Voluntary Separation from Service, pursuant to a Window Program or a combination thereof.
1.43 Service Year means a Participants Taxable Year in which the Participant performs services which give rise to Compensation. A service period or performance period means a Service Year or such other period in which a Participant performs services for the Employer giving rise to Compensation.
1.44 Specified Employee means a Participant who is a key employee as described in Code §416(i)(1)(A), disregarding paragraph (5) thereof and using compensation as defined under Treas. Reg. §1.415(c)-2(a). However, a Participant is not a Specified Employee unless any stock of the Employer is publicly traded on an established securities market or otherwise and the Participant is a Specified Employee on the date of his/her Separation from Service. If a Participant is a key employee at any time during the 12 months ending on the Specified Employee identification date, the Participant is a Specified Employee for the 12 month period commencing on the Specified Employee effective date. The Specified Employee identification date is December 31. The Specified Employee effective date is the April 1 following the Specified Employee identification date. The Employer, in determining whether this Section 1.44 and all related Plan provisions apply, will determine whether the Employer has any publicly traded stock as of the date of a Participants Separation from Service. In the case of certain corporate transactions (a merger, acquisition, spin-off or initial public offering), or in the case of nonresident alien Employees, the Employer will apply the Specified Employee provisions of the Plan in accordance with Treas. Reg. §1.409A-1(i) and other Applicable Guidance. Notwithstanding the foregoing, the Employer in its Adoption Agreement, and in accordance with Treas. Reg. §1.409A-1(i) and other Applicable Guidance, may make the following elections: (i) use of any Code §415 definition of compensation for Specified Employee determination; (ii) designation of an alternative Specified Employee identification date; (iii) designation of an alternative Specified Employee effective date; (iv) use of an alternative method to identify Participants who will be subject to the 6 month delay rule in Section 4.01(D); (v) certain elections in the context of corporate transactions; and (vi) certain elections regarding nonresident alien Employees. The Employers election under clauses (ii) or (iii) regarding an identification date or effective date made on or before December 31, 2007, applies to any Separation from Service occurring on or after January 1, 2005, unless the Employer subsequently changes the identification date and/or effective date. Such elections are effective as of the date that all necessary corporate
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action has been taken to make the election binding as to all nonqualified deferred compensation plans in which service providers of the Employer who would become a Specified Employees participate. The Employer must apply all such elections consistently as to all service providers. The Employer will apply the Specified Employee provisions of the Plan, including the elections described in this Section 1.44, in accordance with Treas. Reg. §1.409A-1(i) and other Applicable Guidance.
1.45 Specified Time or Fixed Schedule means, in reference to a payment of Deferred Compensation, the Employer, at the time of the deferral of the Compensation can objectively determine: (i) the amount payable; and (ii) the payment date or dates. An amount is objectively determinable if the deferral election specifically identifies the amount or if the Employer can determine the amount at the time it is due pursuant to an objective, nondiscretionary formula specified at the time of deferral.
(A) Dates and Period(s) . A payment is scheduled to occur at a specified time if it is a lump sum payment on a specific date, or a specific, objectively determinable date, including following the lapse of a substantial risk of forfeiture. A payment is scheduled to occur on a fixed schedule if it is a series of payments (which may include an annuity or a series of installments) payable on specific dates or on objectively determinable specific dates including following the lapse of a substantial risk of forfeiture. The designation of a Taxable Year of the Participant, or a defined period within a Taxable Year of the Participant, in which payment will occur is adequate designation of a specific date. For purposes of Sections 4.02 and 4.05, if the date specified is only a designated Taxable Year of the Participant, or a period of time during such a Taxable Year, the date specified under the plan is treated as the first day of such Taxable Year or the first day of the period of time, as applicable.
(B) Limitations and Link to Employer Receipts . A Fixed Schedule may include certain: (i) limitations on the amount payable at a specified time of during a specified period expressed either as a stated limit or based on an objective nondiscretionary formula; and (ii) payment schedules based on the timing of payments received by the Employer as described in Treas. Reg. §§1.409A-3(i)(1)(ii) and (iii) and other Applicable Guidance.
(C) Tax Gross-Up Payments . A Specified Time or Fixed Schedule may include tax gross-up payments made by the end of the Participants Taxable Year which follows the Taxable Year in which the Participant remits the related taxes resulting from compensation paid or made available to the Participant by the Employer, as described in Treas. Reg. §1.409A-3(i)(1)(v) and other Applicable Guidance.
1.46 State means: (i) one of the fifty states of the United States or the District of Columbia, or (ii) a political subdivision of a State, or any agency or instrumentality of a State or its political subdivision. A State does not include the Federal government or an agency or instrumentality thereof.
1.47 Substantial Risk of Forfeiture
(A) 409A Amounts . Substantial Risk of Forfeiture means as to 409A Amounts, and other than for purposes of application of Code §457(f), Compensation which is payable conditioned: (i) on the performance of substantial future services by any person including the Participant; or (ii) on the occurrence of a condition related to a purpose of the Compensation, and where under clause (i) or (ii) the possibility of forfeiture is substantial. A condition related to the purpose of the Compensation relates to the Participants performance for the Employer or to the Employers business activities or organizational goals. A Substantial Risk of Forfeiture includes conditioning payment on the Participants Involuntary Separation from Service without cause provided the possibility of not incurring such a Separation from Service is substantial. Except as to payment of Compensation related to a Change in Control, a Substantial Risk of Forfeiture does not include any addition of a condition after a Legally Binding Right to the Compensation arises or any extension of a period during which the Compensation is subject to a Substantial Risk of Forfeiture. Compensation is not subject to a Substantial Risk of Forfeiture merely because payment is conditioned on the Participants refraining from performing services. Compensation is not subject to a Substantial Risk of Forfeiture beyond the date or time that the Participant otherwise could have elected to receive the Compensation unless the present value of the amount subject to the Substantial Risk of Forfeiture (determined without regard to the Substantial Risk of Forfeiture) is materially greater than the present value of the amount that the Participant otherwise could have elected to receive, absent the Substantial Risk of Forfeiture. As such, a Participants Elective Deferrals generally may not be made subject to a Substantial Risk of Forfeiture if the Participant
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could have elected to receive an equivalent amount in cash. In addition, Compensation the Participant would receive for continuing to perform service for the Employer (such as through the extension of an employment contract) is disregarded in determining whether the present value of such nonvested payment amount is materially greater than the Compensation which the Participant could have elected to receive presently. In determining whether the possibility of forfeiture is substantial in the case of rights to Compensation granted to a Participant who owns significant voting power or value in the Employer, the Employer in accordance with Treas. Reg. §1.409A-1(d)(3) and Applicable Guidance, will take into account all relevant facts and circumstances.
(B) Grandfathered Amounts . A Substantial Risk of Forfeiture for Grandfathered Amounts is defined in Treas. Reg. §1.83-3(c) and in Notice 2005-1, Q/A-16(b) or in Applicable Guidance.
(C) Ineligible 457 Plan . A Substantial Risk of Forfeiture for purposes of application of Code §457(f) under an Ineligible 457 Plan is described in Code §457(f)(3)(B), Treas. Reg. §1.83-3(c) and Applicable Guidance, including any such Guidance which may apply the same or a substantially similar definition as under Section 1.47(A)
1.48 Tax-Exempt Organization means any tax-exempt organization other than: (i) a governmental unit; or (ii) a church or a qualified church-controlled organization within the meaning of Code §§3121(w)(3)(A) and 3121(w)(3)(B).
1.49 Taxable Year means as to the Participant, the Participants taxable year and means as to the Employer, the Employers taxable year, in each case as the Plan provides or as the context otherwise requires.
1.50 Trust means the trust, if any, described in Section 5.03 of the Basic Plan Document and which the Employer in its Adoption Agreement elects to create.
1.51 Unforeseeable Emergency means: (i) a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participants spouse, a Beneficiary or the Participants dependent (as defined in Code §152 but without regard to Code §§152(b)(1), (b)(2) and (d)(1)(B)); (ii) loss of the Participants property due to casualty; or (iii) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Participants control. The Employer in its Adoption Agreement will elect whether to permit payment based on a Participants Unforeseeable Emergency. The Employer will determine whether a Participant incurs an Unforeseeable Emergency based on the relevant facts and circumstances and in accordance with Treas. Reg. §1.409A-3(i)(3) or Applicable Guidance, but in any case, the Plan may not make payment to the extent that the Unforeseeable Emergency may be relieved: (i) through reimbursement or compensation from insurance or otherwise; (ii) by liquidation of the Participants assets to the extent that such liquidation of assets would not itself cause severe financial hardship; or (iii) by the Participants cessation of Elective Deferrals under the Plan. The Plan must limit the amount of any payment based on Unforeseeable Emergency to the amount that is reasonably necessary to satisfy the emergency need, which may include amounts necessary to pay any Federal, state, local or foreign income taxes or penalties reasonably anticipated to result from the payment. The Employer in making the determination as to the amount of payment must take into account any additional Compensation available to the Participant upon cancellation of an Elective Deferral election under Section 2.02(D). However, the Employer in determining necessity may disregard amounts available as a hardship distribution or a loan from a qualified plan or as an unforeseeable emergency distribution from another nonqualified plan, regardless of whether such amount is 409A Amount or is a Grandfathered Amount. If the Employer in its Adoption Agreement elects to permit payment based on Unforeseeable Emergency, the Employer further will elect whether to permit payment based on all events that will constitute an Unforeseeable Emergency or to limit such events to a subset of specific events which will so qualify. The Employer will not pay a Participant any Deferred Compensation based an Unforeseeable Emergency unless the Participant requests such payment on a form the Employer provides for this purpose, the Employer determines that the payment would qualify under the Plan terms as being based on the Participants Unforeseeable Emergency, and the Employer in its sole discretion otherwise approves the payment. Neither a Participants request, or failure to request, an Unforeseeable Emergency payment, nor the Employers acceptance or rejection of such a request is a change payment election under Section 4.02(B).
1.52 USERRA means the Uniformed Services Employment and Reemployment Rights Act of 1994, as amended.
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1.53 Valuation Date means the last day of each of the Employers Taxable Year and such other dates as the Employer may determine.
1.54 Vested means an amount of Deferred Compensation which is not subject to a Substantial Risk of Forfeiture or to a requirement to perform further services for the Employer. For purposes of determining whether an amount satisfies the vesting requirement for Grandfathered Amounts under Article VII, the definition of Substantial Risk of Forfeiture in Section 1.47(B) applies.
1.55 Window Program means a program the Employer establishes in connection with an impending Separation from Service to provide Separation Pay to separated Participants and which program is available only for a period of up to 12 months for Participants who separate during such period or who separate during such period under specified circumstances. A Window Program does not include a program the Employer establishes under which there is a pattern of repeated provision of similar Separation Pay in similar situations for substantially consecutive limited periods of time. Whether a recurrent program constitutes such a pattern depends upon all of the facts and circumstances, including whether the benefits are account of a specific event or condition, the degree to which the separation pay relates to the event or condition and whether the event or condition is temporary or discrete or is a permanent aspect of the Employers business.
1.56 Wraparound Election means as to a Participant who also is a participant in a 401(k) or 403(b) plan of the Employer, an election (or elections, if made separately) to defer compensation under both plans with the result that the Participant will achieve under the 401(k) or 403(b) plan, the maximum amount of elective deferrals and matching contributions, if any, as is permissible under the 401(k) or 403(b) plan terms and under Code §§402(g), 401(k)(3), 401(m), 415 and 414(v). For any Participants Taxable Year, the maximum amount of Elective Deferrals the Plan will transfer as to the Participant (and corresponding decrease in amounts of Compensation Deferred to this Plan) may not exceed the Code §402(g) limit (but increased by catch-up contributions under Code §§414(v) and 402(g)(7) for any year in which the Participant is catch-up eligible). For any Participants Taxable Year, the maximum amount of Matching Contributions the Plan will transfer as to the Participant (and corresponding decrease in amounts of Compensation Deferred to this Plan) may not exceed the maximum amount of matching contributions that would be provided under the 401(k) or 403(b) plan absent any plan-based restrictions which reflect Code limits on qualified plan or 403(b) contributions. Under a Wraparound Election, the Plan promptly following completion of 401(k) or 403(b) plan testing and within any time required under Applicable Guidance, will transfer from the Participants Account such Elective Deferrals and related Matching Contributions for the Taxable Year (but without Earnings thereon) as are consistent with the Wraparound Election, to the Participants account under the 401(k) or 403(b) plan to be held and administered in accordance with the 401(k) or 403(b) plan. Any remaining amounts not transferred to the 401(k) or 403(b) plan will remain in and be administered in accordance with this Plan. The Employer in its Adoption Agreement will specify whether a participant may make a Wraparound Election. A Participant will make a Wraparound Election subject to any timing requirements of Applicable Guidance and on a form the Employer provides for this purpose.
1.57 Year of Service means the requirements, if any, the Employer specifies in its Adoption Agreement.
II. PARTICIPATION
2.01 Participants Designated . The Employer will designate from time to time in its Adoption Agreement those Employees or Contractors (by name, job title or other classification) who are Participants in the Plan.
2.02 Elective Deferrals . The Employer will specify in its Adoption Agreement whether Participants may elect to make Elective Deferrals to their Accounts.
(A) Limitations . The Employer will specify in its Adoption Agreement any amount limitations or conditions applicable to Elective Deferrals.
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(B) Election Form and Timing . A Participant must make his/her Elective Deferral election on an election form the Employer provides for that purpose. The Participant must make the election no later than the latest of the applicable times specified below. The Employer in its Adoption Agreement will elect that a Participant must make and deliver his/her election to the Employer no later than: (i) such applicable time; or (ii) the number of days prior to such applicable time as the Employer sets forth in its Adoption Agreement. The Employer will disregard any Elective Deferral election which is not timely under this Section 2.02(B). See Section 6.04.
(1) General Timing Rule . Except as otherwise provided in this Section 2.02(B), a Participant must deliver to the Employer his/her Elective Deferral election regarding Service Year Compensation no later than the end of the Participants Taxable Year which is prior to the Service Year.
(2) New Participant/New Plan . As to the Service Year in which an Employee or a Contractor first becomes a Participant (a newly eligible Participant), the Participant must make and deliver an Elective Deferral election for that Service Year not later than 30 days after the Employee or Contractor becomes a Participant. All Participants who are eligible to participate on the Effective Date of a new plan are newly eligible Participants as of the Effective Date.
(a) Participant status . For purposes of this Section 2.02(B)(2), an Employee or Contractor is eligible to participate in the Plan at any time during which, under the Plan terms and without further amendment or action by the Employer, the Employee or Contractor is eligible to accrue Deferred Compensation under the Plan (other than Earnings on prior Deferred Compensation), even if the Employee or Contractor has elected not to accrue any such Deferred Compensation (or has made no election).
(b) Changes in status . For purposes of this Section 2.02(B)(2), if a Participant has been paid all Deferred Compensation and on or before the last payment ceases to be eligible to participate in the Plan, but thereafter becomes eligible to participate, the Employee or Contractor is treated as a newly eligible Participant. If a Participant ceases to be eligible to participate, other than as to Earnings, regardless of whether the Participant has been fully paid all Deferred Compensation under the Plan, and subsequently becomes eligible to participate, the Employee or Contractor is treated as a newly eligible Participant provided that the period during which the Employee or Contractor was ineligible was at least 24 months.
(c) Compensation to which election applies . Under this Section 2.02(B)(2), a Participants election may apply only to Compensation for services the Participant performs subsequent to the date the Participant delivers the election to the Employer. For Compensation that is earned for a specified performance period, including an annual bonus, if the newly eligible Participant makes an Elective Deferral election after the performance period commences, the Employer will pro rate the election by multiplying the performance period Compensation by the ratio of the number of days left in the performance period at the time of the election, over the total number of days in the entire performance period.
(d) Excess benefit plan . For purposes of this Section 2.02(B)(2), if this Plan is an excess benefit plan, an Employee is a newly eligible Participant in the Plan as of the first day of the Employees Taxable Year immediately following the first year in which he or she accrues a benefit under the Plan. Any election the Employee makes within 30 days following such date applies to any benefits accrued for services provided before the election. An excess benefit plan for purposes of this Section 2.02(B)(2)(d) means a plan under which all Deferred Compensation is attributable to Employer Contributions and is based on the amount the Participant would have accrued under the Employers qualified plan(s) but for one or more Code limits which apply to the qualified plan(s) over the benefits the Participant actually accrues in such plan(s). Once a Participant has accrued a benefit or deferred Compensation in any year, the Participant is not eligible to use the delayed election in this Section 2.02(B)(2)(d).
(e) Aggregated Plans . All references to the Plan in this Section 2.02(B)(2) include Aggregated Plans. As such, an Employee or Contractor who participates in an Aggregated Plan is not a newly eligible Participant and this Section 2.02(B)(2) does not apply.
(3) Certain Forfeitable Rights . If payment of Deferred Compensation is subject to a condition requiring the Participant to perform services for the Employer for at least 12 months after the Participant obtains the Legally Binding Right to the Compensation to avoid forfeiture of the payment, the Participant may make an Elective Deferral election no later than 30 days after the Participant obtains the Legally Binding
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Right to the Compensation, provided the Participant makes the election at least 12 months prior to the earliest date on which the service forfeiture condition could lapse. If the Plan provides for a waiver of the service condition upon the Participants death, Disability or upon a Change in Control, and such event occurs before the end of the 12 month minimum service period, the Participants elective Deferral election is valid only if the election is timely under the Plan without regard to this Section 2.02(B)(3).
(4) Performance-Based Compensation . As to any Performance-Based Compensation, a Participant may elect no later than 6 months before the end of the performance period to defer such Compensation, provided that the Participant: (i) continuously performs services from the later of the beginning of the performance period or the date the Employer establishes the performance criteria and at least through the date of the Participants election; and (ii) may not make an election after the Compensation has become readily ascertainable. For purposes of this Section 2.02(B)(4), if the Performance-Based Compensation is a specified or calculable amount, the Compensation is readily ascertainable if and when the amount is first substantially certain to be paid. If the Performance-Based Compensation is not a specified or calculable amount, the Compensation or any portion thereof is readily ascertainable when the amount is first both calculable and substantially certain to be paid. In applying this Section 2.02(B)(4), the Employer will bifurcate any right to payment as between amounts which are readily ascertainable and amounts which are not readily ascertainable.
(5) Commissions .
(a) Sales Commissions . For purposes of election timing under this Section 2.02(B), if Compensation consists of Sales Commissions, the Participant is treated as providing the services giving rise to the Commissions in the Participants Taxable Year in which the customer remits payment to the Employer, or, if applied consistently to all similarly situated service providers, the Participants Taxable Year in which the sale occurs.
(b) Investment Commissions . For purposes of election timing under this Section 2.02(B), if Compensation consists of Investment Commissions, the Participant is treated as providing the services giving rise to the Commissions over the 12 months preceding the date as of which the overall value of the assets or the asset accounts is determined for purposes of calculation of the Investment Commissions.
(6) Final Payroll Period . If Compensation is payable after the last day of the Participants Taxable Year, but is Compensation for the Participants services during the final payroll period within the meaning of Code §3401(b) (or, as to a Contractor, a period not longer than such period) which contains the last day of the Participants Taxable Year, the Compensation is treated for purposes of an election under this Section 2.02(B), as Compensation: (i) for the current Taxable Year in which the final payroll period commenced; or (ii) for the subsequent Taxable Year in which the Employer pays the Compensation, as the Employer elects in its Adoption Agreement. This Section 2.02(B)(6) does not apply to Compensation for services performed over any period other than the final payroll period as described herein, including an annual bonus. If the Employer amends its Adoption Agreement after December 31, 2007, to alter the timing rule of this Section 2.02(B)(6), any such amendment may not take effect until 12 months after the later of the date the amendment is executed and is effective.
(7) Separation Pay/Window Program . If the Participants election relates to Separation Pay (based on voluntary or involuntary Separation from Service) and the Separation Pay is the subject of bona-fide, arms length negotiations at the time of Separation from Service, the Participant may make an election under this Section 2.02(B) at any time up to the time that the Participant has a Legally Binding Right to the Separation Pay. This Section 2.02(B)(7) does not apply to any Separation Pay to which the Participant obtained a Legally Binding Right before the negotiations at the time of Separation from Service, including a right to payment subject to a condition. If the Separation Pay results from a Window Program, the Participant may make the election at any time up to the time that the Participants election to participate in the Window Program becomes irrevocable.
(8) Fiscal Year Employer . In the event that the Employers Taxable Year is a not the same as the Participants Taxable Year, a Participant may elect to defer Compensation which is co-extensive with one or more of the Employers consecutive Taxable Years, and no amount of which is paid or payable during the Employers Taxable Year or Years constituting the period of service, by making an election no later than the end of the Employers Taxable Year which precedes the Employers first Taxable Year in which the Participant performs the service for which the Compensation is payable.
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(C) Election Changes/ Irrevocability . The Employer in its Adoption Agreement will elect whether a Participants Elective Deferral election made prior to the Section 2.02(B) deadline becomes irrevocable as to a Taxable Year: (i) following the last day on which a Participant may make an election under Section 2.02(B) for such Taxable Year; or (ii) if earlier, when the Participant makes the election for a Taxable Year. For this purpose, a Participants Elective Deferral election is considered made when the Employer accepts the election. If the Employer elects to permit changes to an election up to the Section 2.02(B) election deadline, a Participant may make any number of changes to his/her Elective Deferral election during the period prior to the election becoming irrevocable. If the Employer elects in its Adoption Agreement and under Section 2.02(D) that a Participants election is continuing, the Participant is deemed to have made an irrevocable election as to each Taxable Year on the last day that the Participant could have made an election under Section 2.02(B). As such, the Participant may revoke or modify a continuing election for a Taxable Year up to the date that such election is deemed made and irrevocable for that Taxable Year. A change payment election under Section 4.02(B) or a permissible acceleration under Section 4.02(C)(3) does not render an Elective Deferral election and an accompanying initial payment election under Section 4.02(A) revocable within the meaning of this Section 2.02(C).
(D) Election Duration/Cancellation . As the Employer elects in its Adoption Agreement, a Participants Elective Deferral election remains in effect: (i) only for the duration of the Taxable Year or Taxable Years for which the Participant makes the election; or (ii) for the duration of the Taxable Year for which the Participant makes the election and for all subsequent Taxable Years unless the Participant executes a subsequent timely election, modification or revocation. A Participant, subject to Plan requirements regarding election timing, may make a new election, or may revoke or modify an existing election effective no earlier than for the next Taxable Year, provided that under Section 4.02(C)(3), the Employer may cancel an existing and otherwise irrevocable election for a Taxable Year at any time following the Participants receipt of an Unforeseeable Emergency distribution or of a distribution from the Employers 401(k) plan based upon hardship within the meaning of Treas. Reg. §1.401(k)-1(d)(3).
(E) Non-Elections or Deemed Compliance .
(1) Linkage to Qualified or Certain Foreign Plans . The following as described in Treas. Reg. §1.409A-2(a)(9) are not elections under Section 2.02(B): (i) the amount of Compensation Deferred under this Plan is determined under a formula for determining benefits under the Employers qualified plan or broad-based foreign retirement plan (but applied without regard to Code or foreign law imposed limitations); or (ii) the amount of Compensation Deferred under this Plan is offset by some or all benefits provided under the Employers qualified plan or broad-based foreign plan and where in either case the amount of Compensation Deferred under the Plan increases on account of changes in the Code or foreign law imposed benefit limitations applicable to the qualified plan or foreign plan, provided in either case such operation does not result in a change in the time or form for payment under this Plan and that the change in the amounts of Compensation Deferred do not exceed the change in amounts deferred under the qualified plan or foreign plan.
(2) Actions/Inactions (including Wraparound Elections) . As described in Treas. Reg. §1.409A-2(a)(9), the following Participant actions or in actions are not elections under Section 2.02(B), even if they result in an increase in Compensation Deferred under the Plan: (i) election or non-election under the Employers qualified plan or broad-based foreign plan as to receipt of a subsidized or ancillary benefit under such plans; (ii) an amendment of such other plans benefits to add or remove a subsidized or ancillary benefit or to freeze or limit future accruals under the qualified plan or foreign plan or to reduce existing benefits under the foreign plan; or (iii) a Participants Wraparound Election, provided in all cases such action or inaction does not result in a change in the time or form for payment under this Plan and that under clauses (i) and (ii) above, the change in the amounts of Compensation Deferred do not exceed the change in amounts deferred under the qualified plan or foreign plan.
(3) Elections under a Cafeteria (125) Plan . As described in Treas. Reg. §1.409A-2(a)(10), -if a Participant who is also a participant in a cafeteria (Code §125) plan of the Employer, changes an election under the cafeteria plan with the result that the amount of Compensation Deferred under this Plan changes on account of an increase or decrease in Compensation under this Plan as a result of the cafeteria plan election, the cafeteria plan election is not an election for purposes of Section 2.02(B).
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(4) USERRA Rights . The requirements of Section 2.02(B) are deemed satisfied as to any Elective Deferral election (including an initial payment election) which the Plan provides to satisfy the requirements of USERRA.
(5) Annualizing Recurrent Partial Year Compensation . If a Participant is receiving recurring part-year Compensation, the Participants election to defer all or a portion of such Compensation to be earned during a particular service period is deemed to satisfy the requirements of Section 2.02(B) if the Participant makes the election before the services giving rise to the Compensation begin and the election does not defer payment of any of such Compensation to a date beyond the last day of the 13 th month following the first date of the service period. For purposes of this Section 2.02(E)(5), recurring part-year Compensation means Compensation paid for services rendered as to a position the Participant and the Employer reasonably anticipate will continue on similar terms and on similar conditions in subsequent years, and will require services to be provided in successive service periods, each of which comprises less than 12 months and each of which begins in one Taxable Year of the Participant and ends in the next Taxable Year. This Section 2.02(E)(5) applies only once to Compensation Deferred such that the same amount may not again be treated as recurring part-year Compensation and subject to a second deferral election.
2.03 Nonelective Contributions . The Employer will specify in its Adoption Agreement whether the Employer will or may make Nonelective Contributions to the Plan, and the terms and conditions applicable to any Nonelective Contributions.
2.04 Matching Contributions . The Employer will specify in its Adoption Agreement whether the Employer will or may make Matching Contributions to the Plan, and the terms and conditions applicable to any Matching Contributions.
2.05 Actual or Notional Contribution . The Employer will specify in its Adoption Agreement whether it will make any Employer Contribution as a notional contribution or as an actual contribution. If the Employer establishes the Trust, any Employer Contributions to the Trust will be actual contributions.
2.06 Allocation Conditions . The Employer will specify in its Adoption Agreement any employment or other condition applicable to the allocation of Employer Contributions for a Taxable Year.
2.07 Timing . The Employer may elect to make any Employer Contribution for a Taxable Year at such times as Code §409A or Applicable Guidance may permit. The Employer is not required to contribute any actual contribution (or to post any notional contribution) to an Account at the time that the Employer makes its contribution election.
2.08 Administration . The Employer will administer all Employer Contributions in the same manner as Elective Deferrals, and will treat the Employers election to make Employer Contributions as an Elective Deferral election, except as the Plan otherwise provides. If the Employer establishes the Trust, the Employer will remit any Elective Deferrals to the Trust and will make any Employer Contributions to the Trust. Any Employer Contribution is not subject to an immediate Participant right to elect a cash payment in lieu of the Employer Contribution and such amounts are payable only in accordance with the Plan terms.
III. VESTING AND SUBSTANTIAL RISK OF FORFEITURE
3.01 Vesting Schedule or other Substantial Risk of Forfeiture . The Employer will specify in its Adoption Agreement any vesting schedule or other Substantial Risk of Forfeiture applicable to Participant Accounts. If the Plan is an Ineligible 457 Plan, the Employer must specify a Substantial Risk of Forfeiture.
3.02 Immediate Vesting on Specified Events . The Employer will specify in its Adoption Agreement whether a Participants Account is Vested without regard to Years of Service if the Participant Separates from Service on or following Retirement Age, or as a result of death, Disability, or other events.
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3.03 Application of Forfeitures . A Participant will forfeit any non-Vested Accrued Benefit (where vesting is based on a service condition) upon Separation from Service. A Participant will forfeit any other non-Vested Accrued Benefit when the condition constituting a Substantial Risk of Forfeiture can no longer be satisfied, such as its expiration date. The Employer will specify in its Adoption Agreement how it will apply Participant forfeitures under the Plan.
IV. BENEFIT PAYMENTS
4.01 Payment Events . The Employer in its Adoption Agreement will specify the Plan permissible payment events as all or some of the following payment events affecting a Participant: (i) Separation from Service; (ii) death; (iii) Disability; (iv) a Specified Time or pursuant to a Fixed Schedule; (v) Change in Control; or (vi) Unforeseeable Emergency. As to payment events (i), (ii),(iii), (v) and (vi), the Plan will pay to the Participant the Vested Accrued Benefit held in the Participants Account on the applicable payment event or on another specified payment date as provided in Section 4.01(A). Payment will commence at the time and payment will be made in the form and medium specified under Section 4.02. See Section 4.02 as to payment elections, including as to payment events under this Section 4.01.
(A) Payment on Objective and Nondiscretionary (Specified) Payment Date(s) . The Plan or an initial payment election or change payment election must provide for a payment date that the Employer, at the time of the payment event, can determine objectively and without the exercise of discretion. Such payment date may, but need not, coincide with a payment event, but any payment date must be on or following and must relate to a Plan payment event.
(1) Payment Schedule as Payment Date . A specified payment date as required under this Section 4.01(A) may include a payment schedule which is objectively determinable and nondiscretionary based on the date of the payment event and that would qualify as a Fixed Schedule if the payment event were a fixed date. An election of a payment schedule must be made at the time of the election of the payment event.
(2) Designation of Year or Other Period . A specified payment date or a specified payment schedule as required under this Section 4.01(A) with regard to any payment event other than a Specified Time or pursuant to a Fixed Schedule may include: (i) a Participants Taxable Year or Years; or (ii) a designated period of time but only if the designated period both begins and ends within one Taxable Year of the Participant or the designated period is not more than 90 days and the Participant does not have the right to designate the Taxable Year of payment except under a change payment election under Section 4.02(B). For purposes of clause (ii), this includes designation of payment on or before the last date of the designated (maximum 90 day) period but after the payment event occurs.
(3) Deemed Payment Date. If the Adoption Agreement or any such election provides for payment only in a designated Taxable Year or Years, the payment date is deemed to be January 1 of that Taxable Year or Years. If the Adoption Agreement or any such election provides for payment only in a designated period, the payment date is deemed to be the first day in the relevant period.
(B) Payment Event Default. This Section 4.01(B) applies if the Employer in its Adoption Agreement fails to elect one or more payment events described in this Section 4.01, if a Participant or the Employer under Section 4. 02 fails to elect one of more payment events where the Adoption Agreement affords them such an election, or if the Employer under Section 4.06 rejects the election and the Participant does not timely file a new election the Employer accepts. In such event, the Plan will pay the affected Participants Vested Benefit held in the Participants Account following the earlier of the Participants Separation from Service or death. See Section 4.02(A)(5) as to the applicable default for the time, form and medium of such payments. If this default provision applies, the default payment is deemed to be an initial payment election under the Plan.
(C) Multiple Payment Events; Sequencing . The Plan or an initial payment election or a change payment election may provide for more than one permissible payment event and may provide for payment upon the earliest or latest of more than one permissible payment event. See Section 4.02(A)(4) as to limitations on the number of time and form of payment elections which may apply to a single payment event. In a Separation Pay Plan, the Plan or any election may provide for any payment only upon Separation from Service (including as a result of death or Disability).
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(D) Payment to Specified Employees . Notwithstanding anything to the contrary in the Plan or in a Participant or Employer payment election, the Plan may not make payment based on Separation from Service to a Participant who, on the date of Separation from Service is a Specified Employee, earlier than 6 months following Separation from Service (or if earlier, upon the Specified Employees death), except as permitted under this Section 4.01(D). This limitation applies regardless of the Participants status as a Specified Employee or otherwise on any other date including the next Specified Employee effective date had the Participant continued to render services through such date. The Employer, operationally and without any direct or indirect Participant election, will elect whether any payments that otherwise would be payable to the Specified Employee during the foregoing 6 month period: (i) will be accumulated and payment delayed until the first day of the seventh month that is after the 6 month period; or (ii) will be delayed by 6 months as to each installment otherwise payable during the 6 month period. This Section 4.01(D) does not apply to payments made on account of a domestic relations order, payments made because of a conflict of interest, or payment of employment taxes, all as described in Treas. Reg. §1.409A-3(i)(2)(i). This Section 4.01(D) also does not apply to any reimbursement or in-kind benefit which is Separation Pay but which is not Deferred Compensation under Section 1.18.
(E) Deemed Separation of Contractor . The Employer in its Adoption Agreement may elect to apply the special payment timing rules in this Section 4.01(E) as to Contractors. Compliance with this Section 4.01(E) results in the Contractor being deemed to have incurred a Separation from Service under Section 1.40. Under this Section 4.01(E): (i) the Plan will not pay a Contractors Account, or any portion thereof, before a date that is at least 12 months after the expiration of the contract (or all contracts) under which the Contractor performs services for the Employer; and (ii) no amount payable under clause (i) will be paid to the Contractor if the Contractor (whether as a Contractor or an Employee) performs services for the Employer after the contract(s) expiration and before the payment date.
4.02 Timing, Form and Medium/ Payment Elections . Unless the Employer under Section 4.02(A) and/or 4.02(B) permits Employer or Participant elections, the Employer (in addition to its election of permissible payment events under Section 4.01) will elect in its Adoption Agreement the permissible: (i) payment timing; (ii) payment form (lump-sum, installments, annuity or other form, including a combination thereof); and (iii) payment medium (cash or property) applicable to Plan Accounts (all of which elections are collectively, payment elections). Until the Plan pays a Participants entire Vested Accrued Benefit, the Plan will continue to credit the Participants Account with Earnings, in accordance with Section 5.02(A) or Section 5.03(B) as applicable. A permissible payment medium election may, but is not required to be, made at the same time as the initial payment election or change payment election, but must be made a reasonable time before any payment date. No election as to payment medium may change the time or form of payment except in accordance with Section 4.02(B) .
(A) Initial Payment Election . The Employer will elect in its Adoption Agreement: (i) whether a Participant or the Employer may make an initial payment election from the payment events, timing, form and medium options available under the Adoption Agreement or whether there are no Participant or Employer initial payment elections; and (ii) whether any Participant payment election applies to all Account types or only applies to a Participants Elective Deferral Account. A Participant must make any permissible initial payment election on a form the Employer provides for that purpose.
(1) No elections are a Deemed Initial Election . If the Employer elects in its Adoption Agreement not to provide any Participant or Employer initial payment elections, the elected Adoption Agreement and applicable Plan provisions constitute an initial payment election under the Plan.
(2) Timing .
(a) Participant Election . A Participant must make an initial payment election at the time of the Participants Elective Deferral election under Section 2.02(B), or in the absence of such an Elective Deferral election but where the Participant may make an initial payment election as to Employer Contributions, within the same time period as such an Elective Deferral election would be permitted.
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(b) Employer Election . The Employer must make an initial payment election as to a Participant at the time that the Employer grants a Legally Binding Right to Deferred Compensation to the Participant, or, if later, by the time that the Participant would have had to make such election, if the Plan had permitted the Participant to make such an election. In the case of a newly eligible Participant or a new Plan described under Section 2.02(B)(2), the Employer must make the initial payment election no later than 30 days after the date the Employee or Contractor becomes a Participant and the proration provisions of Section 2.02(B)(2)(c) do not apply to such Employer election.
(3) Future Deferred Compensation and Earnings . A payment election may apply only to the Deferred Compensation that is the subject of the Elective Deferral election or the Employer Contribution or may apply to such Deferred Compensation and to all future Deferred Compensation, as the payment election indicates. A payment election separately may apply to Deferred Compensation and to the Earnings thereon provided that the Plan credits Earnings at least annually.
(4) Limitations on Payment Time and Form; Multiple Payment Events . Except as otherwise provided in this Section 4.02(A)(4), the Plan or a payment election may designate only one time and form of payment for each of the following payment events: Separation from Service, Disability, death or Change in Control.
(a) Disability, Death or Change in Control . In the case of payment in the event of Disability, death or Change in Control, the Plan or payment election may provide for one time and/or method of payment if the event occurs on or before one specified date and may provide for an alternative time and form of payment if the event occurs after the specified date.
(b) Separation From Service . In the case of payment in the event of Separation from Service, the Plan or payment election may provide for an alternative time and form of payment where: (i) Separation from Service occurs within a limited period of time not exceeding two years following a Change in Control; (ii) Separation from Service occurs before or after a specified date or Separation occurs before or after the combination of a specified date and a specified period of service determined under a predetermined, nondiscretionary objective formula or pursuant to the method for crediting service under a qualified plan of the Employer (but not both of the options under clause (ii)); and (iii) Separation from Service which is not described in clause (i) or (ii). However, neither the Plan nor a payment election may provide for a different time and form of payment based on whether Separation from Service is Voluntary or Involuntary or based on the Participants marital status at the time of Separation from Service.
(c) Unforeseeable Emergency . If the Employer in its Adoption Agreement elects to permit Unforeseeable Emergency as a payment event, a Participant at any time may request payment based on Unforeseeable Emergency by submitting to the Employer a form the Employer provides for this purpose. The Plan will make payment to the Participant within 90 days following the Employers acceptance of the Participants Unforeseeable Emergency payment request. If that 90-day period spans more than one Taxable Year of the Participant, the Participant will not have any discretion over the Taxable Year of payment. See Section 1.51 as to additional requirements relating to an Unforeseeable Emergency payment.
(d) Addition, Change or Deletion of Time and Form . The addition, change, or deletion of an alternative time and form of payment (after the initial payment election has become irrevocable) as permitted under this Section 4.02(A)(4) is a change payment election subject to Section 4.02(B) and is subject to Section 4.02(C).
(5) Time, Form and Medium Default . If the Participant or the Employer as applicable has the right to make an initial payment election but fails to do so, or if the Employer rejects the Participants election under Section 4.06 and the Participant does not make a new timely election the Employer accepts, the Plan will pay the affected Participants Vested Accrued Benefit attributable to the non-election under this default provision, in a lump-sum cash payment 13 months following the earliest event permitting payment of the Participants Account under Section 4.01 (including, if applicable, the default payment events under Section 4.01(B)). If this default provision applies, the default payment is deemed to be an initial payment election under the Plan.
(B) Change Payment Election . The Employer will elect in its Adoption Agreement whether the Employer or a Participant may make a change payment election under this Section 4.02(B). If the Plan permits change elections, the Employer in its Adoption Agreement will elect whether to limit the number of change payment elections. If the Plan permits a Participant or the Employer to change existing payment
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elections (initial or change payment elections) as to any or all Deferred Compensation, including any Plan specified initial payment election or a default payment applicable in the absence of an actual initial payment election, any such change payment election must comply with this Section 4.02(B). A change payment election may add or delete payment events, may delay payment and/or may change the form of payment, provided the change does not result in an impermissible acceleration under Section 4.02(C). The Employer in its Adoption Agreement will elect whether a Beneficiary following a Participants death may make a change payment election under this Section 4.02(B). A Participants change of Beneficiary is not a change payment election provided that the time and method of payment is not otherwise changed. See Section 4.02(B)(3) as to changes of Beneficiary where the payment method is a life annuity. A Participant or Beneficiary must make any change payment election on a form the Employer provides for such purpose.
(1) Conditions on Change Payment Elections .
(a) Election Timing/Deferral of Payment . Any change payment election: (i) may not take effect until at least 12 months following the date the change payment election is made; (ii) if the change payment election relates to a payment based on Separation from Service or on Change in Control, or if the payment is at a Specified Time or pursuant to a Fixed Schedule, the change payment election must result in payment being made not earlier than 5 years following the date upon which the payment otherwise would have been made (or, in the case of a life annuity or installment payments treated as a single payment, 5 years from the date the first amount was scheduled to be paid); and (iii) if the change payment election relates to payment at a Specified Time or pursuant to a Fixed Schedule, the Participant or Employer must make the change payment election not less than 12 months prior to the date the payment is scheduled to be made (or, in the case of a life annuity or installment payments treated as a single payment, 12 months prior to the date the first amount was scheduled to be paid).
(b) Application of Other Rules . A change payment election must satisfy the Plan provisions applicable to initial payment elections under Section 4.02(A)(4) regarding time and form elections and multiple payment events and under Section 4.02(A)(3) regarding scope and Earnings. For purposes of application of Section 4.02(A)(4), Section 4.02(B)(1)(a) applies separately as to each payment described under Section 4.02(B)(2) and due upon each payment event.
(c) Rejection . If the Employer under Section 4.06 rejects a Participant or Beneficiary change payment election, the Participants initial payment election or deemed initial payment election continues to apply unless and until the Participant makes another change payment election which the Employer accepts.
(d) USERRA Rights . The requirements of Section 4.02(B) are deemed satisfied as to any change payment election which the Plan provides to satisfy the requirements of USERRA. Such elections are not an acceleration under Section 4.02(C).
(2) Definition of Payment. Except as otherwise provided in Section 4.02(B)(3), a payment for purposes of applying Section 4.02(B)(1) is each separately identified amount the Plan is obligated to pay to a Participant on a determinable date and includes amounts paid for the benefit of the Participant. An amount is separately identified only if the amount is objectively determinable under a nondiscretionary formula. A payment includes the provision of any taxable benefit, including payment in cash or in-kind. A payment includes, but is not limited to, the transfer, cancellation or reduction of an amount of Deferred Compensation in exchange for benefits under a welfare benefit plan, fringe benefits excludible under Code §§119 or 132, or any other benefit that is excluded from gross income. In the case of a Specified Time or a Fixed Schedule, payment for purposes of Section 4.02(B)(1) means as further described in Treas. Reg. §1.409A-3(i)(1).
(3) Life Annuities and Installment Payments .
(a) Life Annuities . A life annuity is treated as a single payment. For purposes of this Section 4.02(B)(3), a life annuity is a series of substantially equal periodic payments, payable not less frequently than annually, for the life (or life expectancy) of the Participant, or the joint lives (or life expectancies) of the Participant and of his/her Beneficiary. A change of Beneficiary which occurs before the initial payment of a life annuity is not a change payment election. A change in the form of payment before
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any annuity payment has been made from one type of life annuity to another with the same scheduled date for the first payment is not subject to the change payment election requirements provided that the annuities are actuarially equivalent applying reasonable actuarial assumptions and that at any given time, the same actuarial assumptions and methods are used to value each annuity. The requirement of actuarial equivalence applies for the duration of the Participants participation in the Plan such that the annuity payment must be actuarially equivalent at all times for the annuity payment options to be treated as a single time and method of payment. The Plan over time may change actuarial assumptions and methods provided such methods and assumptions are reasonable. The following features are disregarded in determining if the payment is a life annuity but are taken into account in determining if one life annuity is the actuarial equivalent of another: (i) term certain features under which payments continue for the longer of the annuitants life or for a fixed period of time; (ii) pop-up features under which payments increase upon the death of the Beneficiary or other event which eliminates the survivor annuity; (iii) cash refund features under which there is a payment on the death of the last annuitant in an amount not greater than the excess of the present value of the annuity at the annuity starting state over the total payments before the last annuitants death; (iv) a feature under which the annuity provides higher periodic payments before the expected commencement of Social Security or Railroad Retirement Act benefits and lower payments after the expected commencement of such benefits, such the combined payments are approximately level before and after the expected commencement date; and (v) features providing for a cost-of-living increase in the annuity payment in accordance with Treas. Reg. §1.401(a)(9)-6, Q & A-14(A)(1) or (2). A joint and survivor annuity does not fail to be actuarially equivalent to a single life annuity solely due to the value of a subsidized survivor benefit provided the annual lifetime annuity to the Participant is not greater than the annual lifetime benefit to the Participant under the single life annuity and the annual survivor annuity benefit is not greater than the annual lifetime annuity to the Participant under the joint and survivor annuity.
(b) Installments . The Employer in its Adoption Agreement will elect whether to treat a series of installment payments which are not a life annuity as a single payment or as a series of separate payments. If the Employer fails to so elect, the Employer must treat the installments as a single payment. Any election to treat installments as separate payments applies at all times with respect to the amount deferred. For purposes of this Section 4.02(B)(3), a series of installment payments means payment of a series of substantially equal periodic amounts to be paid over a predetermined number of years, except to the extent that any increase in the payment amounts reflects reasonable Earnings through the date of payment. For this purpose, a series of installment payments over a predetermined period and: (i) a series of installments over a shorter or longer period; and (ii) a series of installments over the same period but with a difference commencement date, are different times and methods of payment and a change in the predetermined period or commencement date is subject to this Section 4.02(B). An installment payment does not fail to be an installment solely because the plan provides for an immediate payment of all remaining installments if the present value of the Deferred Compensation to be paid in the remaining installments falls below a predetermined amount, and the immediate payment in not an acceleration under Section 4.02(C) provided that the payment election establishes this feature, including the predetermined amount triggering immediate payment and that any change to the feature is subject to this Section 4.02(B). If the Plan is a restated Plan, whatever election the Employer made in writing on or before December 31, 2007, applies to any Compensation deferred for the period spanning 2005 through 2007.
(4) Coordination with Anti-Acceleration Rule . The definition of payment in Sections 4.02(B)(2) and (3) also applies to Section 4.02(C). A change payment election may change the form of payment to a more rapid schedule (including a change from installments to a lump-sum payment) without violating Section 4.02(C), provided any such change remains subject to the change payment election provisions under this Section 4.02(B).
(5) Multiple Payment Events . If the Plan permits multiple payment events, the change payment election provisions of Section 4.02(B)(1) apply separately as to each payment due upon each payment event. The addition or deletion of a permissible payment event to Deferred Compensation previously deferred is subject to the change election provisions of Section 4.02(B)(1) where the additional event may cause a change in the time or form of payment. However the addition of death, Disability or Unforeseeable Emergency as an earliest of payment event is not a change payment election and is not an impermissible acceleration under Section 4.02(C ).
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(6) Domestic Relations Orders . An election, pursuant to or reflected in a domestic relations order under Code §414(p)(1)(B), by someone other than the Participant, as to payments to a person other than the Participant, is not a change payment election subject to this Section 4.02(B).
(7) Certain Payment Delays not Subject to Change Payment Election Rules . The Employer operationally will elect whether to apply the some or all of the following payment delay provisions. The Employer in applying such provisions must treat all payments to similarly situated service providers on a reasonably equivalent basis. If applicable, these provisions do not result in the Plan failing to provide for payment upon a permissible event as Code §409A requires nor are the delays treated as a change payment election under this Section 4.02(B).
(a) Non-deductible Payment . The Plan may delay payment to a Participant if the Employer reasonably anticipates that the Employers deduction for the scheduled payment of the Participants Deferred Compensation will be barred under Code §162(m). In such event, the Plan (without any Participant election as to timing) will pay such Deferred Compensation either in the Participants first Taxable Year in which the Employer reasonably anticipates or should reasonably anticipate that Code §162(m) will not apply or during the period beginning on the date the affected Participant Separates from Service and ending on the later of the last day of the Participants Taxable Year in which the Separation occurs or the 15 th day of the third month following the Separation. If the Employer fails to delay under this Section 4.02(B)(7)(a) all scheduled payments during a Taxable Year which could be so delayed, the Employers delay of any payment is a change payment election subject to this Section 4.02(B). If the Employer delays payment until the Participants Separation from Service, the payment is considered as made based on Separation from Service for purpose of application of Section 4.01(D) and payment to a Specified Employee will be made on the date that is six months after Separation from Service.
(b) Securities or Other Laws . The Plan may delay payment to a Participant if the Employer reasonably anticipates that the payment will violate Federal securities law or other applicable law. The Plan will pay such Deferred Compensation at the earliest date at which the Employer reasonably anticipates that the payment will not cause a violation of such laws. For purposes of this Section 4.02(B)(7)(b), a violation of other applicable law does not include a payment which would cause inclusion of the Deferred Compensation in the Participants gross income or which would subject the Participant to any Code penalty or other Code provision.
(c) Change in Control . The Plan may delay payment to a Participant related to a Change in Control and that occur under the circumstances described in Treas. Reg. 1.409A-3(i)(5)(iv).
(d) Other . The Plan may delay payment to a Participant upon such other events as Applicable Guidance may permit.
(8) Extension of Short-Term Deferral . A Participant who, after the deadline for an initial payment election under Section 4.02(A)(2)(a), makes an election to defer payment of an amount which, but for the election, would be a short-term deferral under Treas. Reg. 1.409A-1(b)(4) and not subject to 409A, makes a change payment election subject to this Section 4.02(B) and in applying Section 4.02(B), the Plan treats the scheduled payment date as the date the Substantial Risk of Forfeiture lapses; provided that a Participant making such an election may provide for payment upon a Change in Control without regard to the 5 year requirement under clause (ii) of Section 4.02(B)(1)(a).
(C) No Acceleration .
(1) General Rule . No person may accelerate the time or schedule of any Plan payment or amount scheduled to be paid under the Plan. For this purpose, the payment of an amount substituted for the Deferred Compensation is a payment of the Deferred Compensation, as provided in Treas. Reg. §1.409A-3(f).
(2) N ot an Acceleration. Certain actions as described in Treas. Reg. §§1.409A-3(j)(1), (2), (3), (5) and (6) are not an acceleration including: (i) certain payments made as a result of an intervening payment event and made in accordance with Plan provisions or pursuant to an initial payment election under Section 4.02(A) or a change payment election under Section 4.02(B); (ii) the Employers waiver or acceleration of the satisfaction of any condition constituting a Substantial Risk of Forfeiture provided that
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payment is made only upon a permissible payment event; (iii) the addition of death, Disability or Unforeseeable Emergency as payment events where such addition results in an earlier payment than would have occurred without the addition of such events (iv) an election to change Beneficiaries (including before the commencement of a life annuity) the if the time and form of payment does not change (except where under a life annuity a change in time of payments results solely from the different life expectancy of the new Beneficiary); (v) a decrease in the Compensation Deferred under the Plan as a result of certain linkage to qualified plans or broad-based foreign plans or certain other actions or inactions, including related to Wraparound Elections; or (vi) a change to a cafeteria plan election (under Code §125(d)) resulting in a change in the Compensation Deferred under this Plan.
(3) Permissible Accelerations/ Including Cash-Out . Notwithstanding Section 4.02(C)(1), the Employer in its sole discretion and without any Participant discretion or election, operationally may elect accelerations of the time or schedule of payment from the Plan in any or all of the circumstances described in Treas. Reg. §§1.409A-3(j)(4)(ii) through (xiv). Such circumstances include, but are not limited to, the mandatory lump-sum payment of the Participants entire Vested Accrued Benefit at any time or only at the time payment will commence (the latter as permitted by Applicable Guidance), provided that the Employer evidences its discretion to make such payment in writing no later than the date of payment, the payment results in the termination and liquidation of the Participants interest under the Plan and under all Aggregated Plans, and the payment amount does not exceed the applicable dollar amount under Code §402(g)(1)(B). The Employer in applying this Section 4.02(C)(3) must treat all similarly situated service providers on a reasonably equivalent basis. See Section 6.03 as to Plan termination which also results in a permissible acceleration.
4.03 Withholding . The Employer will withhold from any payment made under the Plan and from any amount taxable under Code §409A, all applicable taxes, and any and all other amounts required to be withheld under Applicable Guidance.
4.04 Beneficiary Designation . A Participant may designate a Beneficiary (including one or more primary and contingent Beneficiaries) to receive payment of any Vested Accrued Benefit remaining in the Participants Account at death. The Employer will provide each Participant with a form for this purpose and no designation will be effective unless made on that form and delivered to the Employer. A Participant may modify or revoke an existing designation of Beneficiary by executing and delivering a new designation to the Employer. In the absence of a properly designated Beneficiary, the Employer will pay a deceased Participants Vested Accrued Benefit to the Participants surviving spouse and if none, to the Participants then living lineal descendants, by right of representation, and if none, to the Participants estate. If a Beneficiary is a minor or otherwise is a person whom the Employer reasonably determines to be legally incompetent, the Employer may cause the Plan or Trust to pay the Participants Vested Accrued Benefit to a guardian, trustee or other proper legal representative of the Beneficiary. The Plans or Trusts payment of the deceased Participants Vested Accrued Benefit to the Beneficiary or proper legal representative of the Beneficiary completely discharges the Employer, the Plan and Trust of all further obligations under the Plan.
4.05 Payments Treated as Made on Payment Date .
(A) Certain Late Payments . The Plans payment of Deferred Compensation is deemed made on the Plan required payment date or payment election required payment date even if the Plan makes payment after such date, provided the payment is made by the latest of: (i) the end of the Taxable Year in which the payment is due; (ii) the 15 th day of the third calendar month following the payment due date provided that the Participant is not able, directly or indirectly, to designate the Taxable Year of payment; (iii) in case the Employer cannot calculate the payment amount on account of administrative impracticality which is beyond the Participants control (or the control of the Participants Beneficiary), in the first Taxable Year of the Participant in which payment is practicable; or (iv) in case the making of the payment on the specified date would jeopardize the Employers ability to continue as a going concern, in the first Taxable Year of the Participant in which the payment would not have such effect. The Employer may cause the Plan or Trust to pay a Participants Vested Accrued Benefit on any date which satisfies this Section 4.05(A) and that is administratively practicable following any Plan specified payment date or the date specified in any valid payment election.
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(1) Change in Control . In the case of certain Change in Control events, as described in Treas. Reg. §1.409A-3(i)(5)(iv), certain transaction based compensation paid on the same schedule and on the same terms as apply to shareholders generally with respect the Employers stock or as the payments to the Employer, is treated as paid on the designated payment date. Further, such payments made within 5 years after the Change in Control event are deemed compliant with Sections 4.02(A) and (B).
(2) Disputed Payments/Other Failure to Pay . In the event of a dispute between the Employer and a Participant as to whether Deferred Compensation is payable to the Participant or as to the amount thereof, or any other intentional or unintentional failure to pay, other than with the Participants express or implied consent, payment is treated as paid on the designated payment date if such payment is made in accordance with Treas. Reg. §1.409A-3(g).
(B) Early Payments . The Employer also may cause the Plan or Trustee to pay on a date no earlier than 30 days before the specified payment date provided the Participant is not able, directly or indirectly, to designate the Taxable Year of the payment. Such early payments are not an accelerated payment under Section 4.02(C).
4.06 Payment Election Requirements . The term payment election, for purposes of this Section 4.06(B) and the Plan generally, means either an initial payment election under Section 4.02(A) or a change payment election under Section 4.02(B).
(A) Compliance with Plan Terms . All initial payment elections and change payment elections must be consistent with the Plan and with the Adoption Agreement.
(B) When Election is Considered Made; Irrevocability .
(1) Participant Elections . A Participants payment election is not considered made for any purpose under the Plan until both: (i) the Employer approves the election; and (ii) the election has become irrevocable. A Participants payment election is always revocable until the Employer accepts the election, which acceptance must occur within the time period described in Section 4.06(C). A Participants payment election becomes irrevocable as the Employer elects in its Adoption Agreement.
(2) Employer Elections. The Employers payment election is not considered made for any purpose under the Plan until the election has become irrevocable. The Employers initial payment election is irrevocable after the last permissible date for making the election under Section 4.02(A)(2)(b). The Employers change payment election relating to payment at a Specified Time or pursuant to a Fixed Schedule is irrevocable after the last permissible date for making the election under Section 4.02(B)(1)(a). The Employers change payment election relating to payment based on any other payment event (not a Specified Time or Fixed Schedule) remains revocable for 30 days following the Employers execution of the change payment election.
(3) Effect of Changes While Election is Revocable. Any change made to a payment election while the election remains revocable is not a change payment election, either for purposes of Section 4.02(B)(1)(a) timing rules or in applying any Plan limit on the number of change payment elections a Participant may make as to any amount of Deferred Compensation. Any modification to a payment election after the election has become irrevocable is a change payment election (if made with respect to an initial payment election) or is a new change payment election (if made with respect to a change payment election).
(4) Continuing Elections. If an initial payment election is continuing under Section 4.02(A)(3), such that it applies to Compensation Deferred in one or more Taxable Years beginning after the first Taxable Year to which the payment election applies, the payment election is revocable as to such future Taxable Years until the last permissible date under Section 4.02(A)(2) for making the election with regard to such future Taxable Year or Years.
(C) Employer Approval of Participant and Beneficiary Elections . The Employer expressly and in writing must approve any Participant or Beneficiary payment election (payment event, timing, form and medium), even if the Plan and Adoption Agreement permit such election. The Employer, in its absolute discretion, may withhold approval for any reason, including, but not limited to, non-compliance with Plan terms. However, the Employer must approve or reject any such election within the time period during which the Participant or Beneficiary would have had to make the election. If the Employer does not so approve or
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reject a payment election, the election is deemed rejected within such time period. With regard to initial payment elections, unless the Participant subsequently makes a timely initial payment election the Employer accepts, the Employer will pay the Participants Vested Accrued Benefit under the payment event, timing, form and medium default provisions of Sections 4.01(B) and 4.02(A)(5).
(D) Preservation of Pre-2009 Payment Elections . If the Plan is a restatement of a Plan which was in effect before January 1, 2009, as to pre-2009 Deferred Compensation (and Earnings thereon) which is a 409A Amount, the Plan preserves any 409A permissible payment elections under the Plan which elections are not available under the Plan as to Compensation Deferred after 2008, subject to any change payment election made as to such pre-2009 Deferred Compensation.
V. TRUST ELECTION AND PLAN EARNINGS
5.01 Unfunded Plan . The Employer as it elects in its Adoption Agreement intends this Plan to be an unfunded plan that is wholly or partially exempt under ERISA. No Participant, Beneficiary or successor thereto has any legal or equitable right, interest or claim to any property or assets of the Employer, including assets held in any Account under the Plan except as the Plan otherwise permits. The Employers obligation to pay Plan benefits is an unsecured promise to pay. Any assets held in Plan Accounts remain subject to claims of the Employers general creditors and no Participants or Beneficiarys claim to Plan assets has any priority over any general unsecured creditor of the Employer. Except as otherwise provided in the Plan or Trust, all Plan assets, including all incidents of ownership thereto, at all times will be the sole property of the Employer.
5.02 No Trust. Except as provided in its Adoption Agreement, this Plan does not create a trust for the benefit of any Participant. If the Employer does not establish the Trust: (i) the Employer may elect to make notional contributions in lieu of actual contributions to the Plan; and (ii) the Employer may elect not to invest any actual Plan contributions. If the Employer elects to invest any actual Plan contributions, such investments may be held for the Employers benefit in providing for the Employers obligations under the Plan or for such other purposes as the Employer may determine.
(A) Earnings . If the Employer does not establish the Trust, the Employer will elect in its Adoption Agreement whether the Plan periodically will credit actual or notional Plan contributions with a determinable amount of notional Earnings (at a specified fixed or floating interest rate or other specified index) or will credit or charge each Participants Account with the Earnings actually incurred by the Account.
(B) Investment Direction . If the Account is credited and charged with actual Earnings, the Employer will specify in the Adoption Agreement whether the Employer or the Participant has the right to direct the investment of the Participants Account and also may specify any limitations on the Participants right of investment direction. If the Adoption Agreement provides for Employer investment direction, the Employer may make any investment of Plan assets it deems reasonable or appropriate. If the Adoption Agreement provides for Participant investment direction, this right is limited strictly to investment direction and the Participant will not be entitled to the distribution of any Account asset except as the Plan otherwise permits.
5.03 Trust. If the Employer elects in its Adoption Agreement to create the Trust, the applicable provisions of the Basic Plan Document continue to apply, including those of Section 5.01. The Trustee will pay Plan benefits in accordance with the Plan terms or upon the Employers direction consistent with Plan terms.
(A) Restriction on Trust Assets . If an Employer establishes, directly or indirectly, the Trust (or any other arrangement Applicable Guidance may describe), the Trust and the Trust assets must be and must remain located within the United States, except with respect to a Participant who performs outside the United States substantially all services giving rise to the Deferred Compensation. The Trust may not contain any provision limiting the Trust assets to the payment of Plan benefits upon a Change in the Employers Financial Health, even if the assets remain subject to claims of the Employers general creditors. For this purpose, the Employer, upon a Change in the Employers Financial Health, may not transfer Deferred Compensation to the Trust. The Employer (and any member of a controlled group which includes the Employer) during the restricted period also may not transfer Deferred Compensation to the Trust and the Trust may not be restricted to payment of Plan benefits, to the extent that such transfer or restriction would violate the at-risk limitation of Code §409A(b)(3). Any Trust the Employer establishes under this Plan shall be further subject to Applicable Guidance, compliance with which is necessary to avoid the transfer of assets to the Trust being treated as a transfer of property under Code §83.
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Nonqualified Deferred Compensation Prototype Plan
(B) Trust Earnings and Investment . If the Employer establishes the Trust, the Trust earnings provisions apply to all Plan contributions and constitute Earnings for purposes of the Plan. The Trustee will invest the assets held in the Trust in accordance with the Trust terms but are not subject to Participant direction of investment.
VI. MISCELLANEOUS
6.01 No Assignment . No Participant or Beneficiary has the right to anticipate, alienate, assign, pledge, encumber, sell, transfer, mortgage or otherwise in any manner convey in advance of actual receipt, the Participants Account. Prior to actual payment, a Participants Account is not subject to the debts, judgments or other obligations of the Participant or Beneficiary and is not subject to attachment, seizure, garnishment or other process applicable to the Participant or Beneficiary.
6.02 Not Employment Contract . This Plan is not a contract for employment between the Employer and any Employee who is a Participant. This Plan does not entitle any Participant to continued employment with the Employer, and benefits under the Plan are limited to payment of a Participants Vested Accrued Benefit in accordance with the terms of the Plan.
6.03 Amendment and Termination .
(A) Amendment . The Employer reserves the right to amend the Plan at any time to comply with Code §409A, Treas. Reg. §1.409A and other Applicable Guidance or for any other purpose, provided that such amendment will not result in taxation to any Participant under Code §409A. Except as the Plan and Applicable Guidance otherwise may require, the Employer may make any such amendments effective immediately.
(B) Termination . The Employer may terminate, but is not required to terminate and liquidate the Plan which includes the distribution of all Plan Accounts, under the following circumstances:
(1) Dissolution/Bankruptcy . The Employer may terminate and liquidate the Plan within 12 months following a dissolution of a corporate Employer taxable under Code §331 or with approval of a Bankruptcy court under 11 U.S.C. §503(b)(1)(A), provided that the Deferred Compensation is paid to the Participants and is included in the Participants gross income in the latest of (or, if earlier, the Taxable Year in which the amount is actually or constructively received): (i) the calendar year in which the plan termination and liquidation occurs; (ii) the first calendar year in which the amounts no longer are subject to a Substantial Risk of Forfeiture; or (iii) the first calendar year in which the payment is administratively practicable.
(2) Change in Control . The Employer may terminate and liquidate the Plan by irrevocable action taken within the 30 days preceding or the 12 months following a Change in Control, provided the Employer distributes all Plan Accounts (and must distribute the accounts under any Aggregated Plans which plan the Employer also must terminate and liquidate as to each Participant who has experienced the Change in Control) within 12 months following the date of Employers irrevocable action to terminate and liquidate the Plan and Aggregated Plans. Where the Change in Control results from an asset purchase transaction, the Employer with discretion to terminate and liquidate the Plan is the Employer that is primarily liable after the transaction to pay the Deferred Compensation.
(3) Other . The Employer may terminate the Plan for any other reason in the Employers discretion provided that: (i) the termination and liquidation does not occur proximate to a downturn in the Employers financial health; (ii) the Employer also terminates all Aggregated Plans in which any Participant also is a participant; (ii) the Plan makes no payments in the 12 months following the date of Employers irrevocable action to terminate and liquidate the Plan other than payments the Plan would have made irrespective of Plan termination; (iii) the Plan makes all payments within 24 months following the date of Employers irrevocable action to terminate and liquidate the Plan; and (iv) the Employer within 3 years following the date of Employers irrevocable action to terminate and liquidate the Plan does not adopt a new plan covering any Participant that would be an Aggregated Plan.
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(4) Applicable Guidance . The Employer may terminate and liquidate the Plan under such other circumstances as Applicable Guidance may permit.
(C) Effect on Vesting . Any Plan amendment or termination will not reduce the Vested Accrued Benefit held in any Participant Account at the date of the amendment or termination and will not accelerate vesting except as the Employer may expressly provide for in connection with the amendment or termination, provided that any such vesting acceleration does not subject any Participant to taxation under Code §409A.
(D) Cessation of Future Contributions . The Employer in its Adoption Agreement may elect at any time to amend the Plan to cease future Elective Deferrals, Nonelective Contributions or Matching Contributions as of a specified date. In such event, the Plan remains in effect (except those provisions permitting the frozen contribution type) until all Accounts are paid in accordance with the Plan terms, or, if earlier, upon the Employers termination of the Plan.
6.04 Fair Construction . The Employer, Participants and Beneficiaries intend that this Plan in form and in operation comply with Code 409A, the regulations thereunder, and all other present and future Applicable Guidance. The Employer and any other party with authority to interpret or administer the Plan will interpret the Plan terms in a manner which is consistent with Applicable Law. However, as required under Treas. Reg. §1.409A-1(c)(1), the interpretation of the Plan does not permit the deletion of material terms which are expressly contrary to Code §409A and the regulations thereunder and also does not permit the addition of missing terms necessary to comply therewith. Such deletions or additions may be accomplished only be means of a Plan amendment under Section 6.03(A). Any Participant, Beneficiary or Employer permitted Elective Deferral election, initial payment election, change payment election or any other Plan permitted election, notice or designation which is not compliant with Applicable Law is not an election or other action under the Plan and has no effect whatsoever. In the event that a Participant, Beneficiary or the Employer fail to make an election or fail to make a compliant election, the Employer will apply the Plans default terms under Sections 4.01(B) and 4.02(A)(5).
6.05 Notice and Elections . Any notice given or election made under the Plan must be in writing and must be delivered in person or electronically in a manner reasonably designed to ensure receipt, or mailed by certified mail, to the Employer, the Trustee or to the Participant or Beneficiary as appropriate. The Employer will prescribe the form of any Plan notice or election to be given to or made by Participants. Any notice or election will be deemed given or made as of the date of delivery, or if given or made by certified mail, as of 3 business days after mailing.
6.06 Administration/Correction . The Employer will administer and interpret the Plan, including making a determination of the Vested Accrued Benefit due any Participant or Beneficiary under the Plan. As a condition of receiving any Plan benefit to which a Participant or Beneficiary otherwise may be entitled, a Participant or Beneficiary will provide such information and will perform such other acts as the Employer reasonably may request. The Employer may cause the Plan to forfeit any or all of a Participants Vested Accrued Benefit, if the Participant fails to cooperate reasonably with the Employer in the administration of the Participants Plan Account, provided that this provision does not apply to a bona fide dispute under Section 4.05(A)(2). The Employer may retain agents to assist in the administration of the Plan and may delegate to agents such duties as it sees fit. The decision of the Employer or its designee concerning the administration of the Plan is final and is binding upon all persons having any interest in the Plan. The Employer will indemnify, defend and hold harmless any Employee designated by the Employer to assist in the administration of the Plan from any and all loss, damage, claims, expense or liability with respect to this Plan (collectively, claims) except claims arising from the intentional acts or gross negligence of the Employee. The Employer, to minimize or avoid any sanction or damages to a Participant or Beneficiary, to itself or to any other person resulting from a violation of Code §409A under the Plan, may undertake correction of any violation or participate in any available correction program, as described in Notice 2007-100 or other Applicable Guidance.
6.07 Account Statements . The Employer from time to time will provide each Participant with a statement of the Participants Vested Accrued Benefit as of the most recent Valuation Date. The Employer also will provide Account statements to any Beneficiary of a deceased Participant with a Vested Accrued Benefit remaining in the Plan. Any such statements are for information purposes only prior to an actual Plan payment, are subject to adjustment or correction, and are not binding upon the Employer.
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6.08 Accounting . The Employer will maintain for each Participant as is necessary for proper administration of the Plan, an Elective Deferral Account, a Matching Contribution Account, a Nonelective Contribution Account, and separate sub-accounts reflecting 409A Amounts and Grandfathered Amounts in accordance with Section 7.03.
6.09 Costs and Expenses . Investment charges will be borne by the Account to which they pertain. The Employer will pay the other costs, expenses and fees associated with the operation of the Plan, excluding those incurred by Participants or Beneficiaries. The Employer will pay costs, expenses or fees charged by or incurred by the Trustee only as provided in the Trust or other agreement between the Employer and the Trustee.
6.10 Reporting . The Employer will report Deferred Compensation for Employee Participants on Form W-2 for and on Form 1099-MISC for Contractor Participants in accordance with Applicable Guidance.
6.11 ERISA Claims Procedure . If this Plan is established as a top-hat plan within the meaning of DOL Reg. §2520.104-23, the following claims procedure under DOL Reg. §2560.503-1 applies. For purposes of the Plans claims procedure under this Section 6.11, the Plan Administrator means the Employer. A Participant or Beneficiary may file with the Plan Administrator a written claim for benefits, if the Participant or Beneficiary disputes the Plan Administrators determination regarding the Participants or Beneficiarys Plan benefit. However, the Plan Administrator will cause the Plan to pay only such benefits as the Plan Administrator in its discretion determines a Participant or Beneficiary is entitled to receive. The Plan Administrator under this Section 6.11 will provide a separate written document to affected Participants and Beneficiaries which explains the Plans claims procedure and which by this reference is incorporated into the Plan. If the Plan Administrator makes a final written determination denying a Participants or Beneficiarys claim, the Participant or Beneficiary must file an action with respect to the denied claim within 180 days following the date of the Plan Administrators final determination.
VII. 409A AMOUNTS AND GRANDFATHERED AMOUNTS
7.01 409A Amounts . The terms of this Plan control as to any 409A Amount.
7.02 Grandfathered Amounts . A Grandfathered Amount remains subject to the terms of the Plan as in effect before January 1, 2005, unless the Employer makes a material modification to the Plan as described in Treas. Reg. §1.409A-6(a)(4).
7.03 Separate Accounting/Earnings . The Employer will account separately for 409A Amounts and for Grandfathered Amounts within each Participants Account. The Employer also will account separately for Earnings on the 409A Amounts and Earnings on the Grandfathered Amounts. Post-2004 Earnings on Grandfathered Amounts are included in the Grandfathered Amount.
* * * * * * * * * * * * * * *
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Exhibit 10.39
THE GREENBRIER COMPANIES
NONQUALIFIED DEFERRED COMPENSATION PLAN
NONQUALIFIED
DEFERRED COMPENSATION PLAN
ADOPTION AGREEMENT
(Including Code §409A provisions)
Nonqualified Deferred Compensation Plan
Adoption Agreement
NONQUALIFIED
DEFERRED COMPENSATION PLAN
ADOPTION AGREEMENT
The undersigned The Greenbrier Companies, Inc. (Employer) by execution of this Adoption Agreement hereby establishes this Nonqualified Deferred Compensation Plan (Plan) consisting of the Basic Plan Document, this Adoption Agreement and all other Exhibits and documents to which they refer. The Employer makes the following elections concerning this Plan. All capitalized terms used in the Adoption Agreement have the same meaning given in the Basic Plan Document. References to Section followed by a number in this Adoption Agreement are references to the Basic Plan Document.
PREAMBLE
ERISA/Code Plan Type : The Employer establishes this Plan as ( choose one of (a) or (b) ):
x | (a) Nonqualified Deferred Compensation Plan . An unfunded nonqualified deferred compensation plan which is ( choose only one of (i), (ii), (iii) or (iv) ): |
¨ | (i) Excess benefit plan. An excess benefit plan under ERISA§3(36) and exempt from Title I of ERISA. |
x | (ii) Top-hat plan. A SERP or other plan primarily for a select group of management or highly compensated employees under ERISA and partially exempt from Title I of ERISA. |
¨ | (iii) Contractors only. A plan benefiting only Contractors (non-Employees) and exempt from Title I of ERISA. |
¨ | (iv) Church plan . A church plan as described in Code §414(e) and ERISA §3(33) and maintained by a church or church controlled organization under Code §3121(w)(3) and exempt from Title I of ERISA. |
¨ | (b) Ineligible 457 Plan . An ineligible 457 Plan subject to Code §457(f). The Employer is ( choose only one of (i), (ii) or (iii) ): |
¨ | (i) Governmental Plan. A State. |
¨ | (ii) Tax-Exempt Plan. A Tax-Exempt Organization. The Plan is intended to be a top-hat plan or an excess benefit plan as described in (a)(ii) and (a)(ii) above or the Plan benefits only Contractors. |
¨ | (iii) Church plan . A church plan as described in Code §414(e) and ERISA §3(33) but which is not maintained by a church or church controlled organization under Code §3121(w)(3). |
Note: If the Employer elects (a)(i), the Plan benefits only Employees. If the Employer elects (a)(ii), the Plan generally may not benefit Contractors based on the primarily requirement. If the Employer elects (a)(iii), the Plan benefits only Contractors. If the Employer elects (a)(iv), (b)(i), or (b)(iii) the Plan may benefit Employees and Contractors. If the Employer elects (b)(ii), the plan is either a top-hat plan, an excess benefit plan or benefits only Contractors.
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Adoption Agreement
409A Plan Type: The Employer establishes this Plan ( choose one of (a) or (b) ):
x | (a) Account Balance Plan . As the following type(s) of Account Balance Plan(s) under Section 1.02 ( choose one of (i), (ii) or (iii) ): |
¨ | (i) Elective Deferral Account Balance Plan . See Section 2.02. |
¨ | (ii) Employer Contribution Account Balance Plan. See Sections 2.03 and 2.04. |
x | (iii) Both. Both an Elective Deferral Account Balance Plan and an Employer Contribution Account Balance Plan. |
Note: For purposes of aggregation under Section 1.05, a Separation Pay Plan based only on Voluntary Separation from Service is treated as an Account Balance Plan. Nevertheless, if the Employer maintains this Plan as any type of Separation Pay Plan, the Employer should elect (b) below.
¨ | (b) Separation Pay Plan. As the following type(s) of Separation Pay Plan(s) under Section 1.42 ( choose one of (i) through (iv) ): |
¨ | (i) Involuntary Separation . |
¨ | (ii) Window Program . |
¨ | (iii) Voluntary Separation. |
¨ | (iv) Combination : ( specify ) |
Note: Under a Separation Pay Plan, the Employer must limit its payment election to Separation from Service but it may also include death. Electing death as a separate payment event would permit a different payment election for death versus any other Separation from Service.
Uniformity or Nonuniformity: The nonuniformity provisions described in the Preamble to the Basic Plan Document ( choose one of (a) or (b) ):
x | (a) Do not apply. All Adoption Agreement elections and Plan provisions apply to all Participants. |
¨ | (b) Apply . See Exhibit A to the Adoption Agreement. |
ARTICLE I
DEFINITIONS
1.11 Change in Control. Change in Control means ( choose (a) or choose one of (b), (c) or (d) ):
¨ | (a) Not applicable. Change in Control does not apply for purposes of this Plan. |
x | (b) All events. Change in Control means all events under Section 1.11. |
¨ | (c) Limited events. Change in Control means only the following events under Section 1.11 ( choose one or two of (i), (ii) and (iii) ): |
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Adoption Agreement
¨ | (i) Change in ownership of the Employer. |
¨ | (ii) Change in the effective control of the Employer. |
¨ | (iii) Change in the ownership of a substantial portion of the Employers assets. |
¨ | (d) (Specify): . |
Note: The Employer may not use the blank in (d) to specify events not described in Treas. Reg. §1.409A-3(i)(5). However, the Employer may increase the percentages required to trigger a Change in Control under one or all three of the listed events.
1.15 Compensation. The Employer makes the following modifications to the gross W-2 definition of Compensation ( choose (a) or at least one of (b) (e) ):
¨ | (a) No modifications . |
¨ | (b) Net Compensation. Exclude all elective deferrals to other plans of the Employer described in Section 1.15. |
¨ | (c) Base Salary only. Exclude all Compensation other than Base Salary. |
¨ | (d) Bonus only. Exclude all Compensation other than Bonus. |
x | (e) ( Specify ): Eligible Compensation shall be defined as wages, tips and other compensation on Form W-2, EXCEPT that Compensation shall not include amounts attributable to: |
1. | Reimbursement of other Expense Allowances |
2. | Fringe Benefits (cash or non-cash) such as: |
a. | Restricted Stock |
b. | Dividends |
3. | Moving Expenses |
4. | Commissions |
5. | Auto Allowances |
6. | Life Insurance Premiums |
7. | On-call Pager Compensation |
8. | Gain Share |
9. | Safety Bonus |
Note: See Section 1.15(B) as to Contractor Compensation.
1.17 Disability. Disability means ( choose one of (a) or (b) ):
x | (a) All impairments. All impairments constituting Disability. |
¨ | (b) Limited. Only the following impairments constituting Disability: . |
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Adoption Agreement
1.20 Effective Date. The effective date of the Plan is ( choose one of (a) or (b) ):
¨ | (a) New Plan. This Plan is a new Plan and is effective . |
Note: The effective date should be no earlier than January 1, 2009.
x | (b) Restated Plan. This Plan is a restated Plan and is restated effective as of January 1, 2010 . The Plan is restated to comply with Code §409A. The Plan was originally effective March 1, 1994 . |
Note: If the Plan (whether or not in written form) was in effect before January 1, 2009, the Plan is a restated Plan.
1.38 Plan Name . The name of the Plan as adopted by the Employer is: The Greenbrier Companies Nonqualified Deferred Compensation Plan .
1.39 Retirement Age. A Participants Retirement Age under the Plan is ( choose only one of (a)-(d) ):
x | (a) Not applicable. Retirement Age does not apply for purposes of this Plan. |
¨ | (b) Age. The Participants attainment of age: . |
¨ | (c) Age and service. The Participants attainment of age with Years of Service (defined under 1.57) with the Employer. |
¨ | (d) ( Specify ): . |
1.40 Separation from Service. In determining whether a Participant has incurred a Separation from Service under the Plan ( choose one or both or (a) and (b) ):
x | (a) Determination of Employer. In determining the Employer under Section 1.40(E) and Code §§414(b) and (c), apply the following percentage: 80% ( specify percentage ). |
Note: The specified percentage may not be more than 80% and may not be less than 20%. If the percentage is less than 50%, there must be legitimate business criteria.
¨ | (b) Collectively Bargained Multiple Employer Plan. Under Section 1.40(H), the following reasonable definition of Separation from Service applies: ( specify ). |
1.44 Specified Employees-Elections. The Employer makes the following elections relating to the determination of Specified Employees ( choose (a) or choose one or more of (b)-(e) ):
x | (a) Not applicable. The Employer does not have any Specified Employees or none which benefit under the Plan. Alternatively, the Employer makes no special elections under Section 1.44. |
¨ | (b) Alternative Code §415 Compensation. The Employer elects the following alternative definition of Code §415 Compensation: ( specify ). |
¨ | (c) Alternative Specified Employee identification date. The Employer elects the following alternative Specified Employee identification date: ( specify ). |
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¨ | (d) Alternative Specified Employee effective date. The Employer elects the following alternative Specified Employee effective date: ( specify ). |
¨ | (e) Other elections. The Employer makes the following other elections relating to Specified Employees: (specify). |
Note: See Treas. Reg. 1.409A-1(i)(8) as to uniformity requirements affecting the above Specified Employee elections.
1.51 Unforeseeable Emergency. Unforeseeable Emergency means (choose (a) or choose one of (b) or (c)):
¨ | (a) Not applicable. Unforeseeable Emergency does not apply for purposes of this Plan. |
x | (b) All events. All events constituting Unforeseeable Emergency. |
¨ | (c) Limited. Only the following events constituting Unforeseeable Emergency: . |
1.56 Wraparound Election. The Plan ( choose one of (a) or (b) ):
x | (a) Permits. Permits Participants who participate in a 401(k) or 403(b) plan of the Employer to make Wraparound Elections. |
¨ | (b) Not permitted. Does not permit Wraparound Elections (or the Employer does not maintain a 401(k) or 403(b) plan covering any Participants). |
1.57 Year of Service. The following apply in determining credit for a Year of Service under the Plan ( choose (a) or choose one or more of (b) (e) ):
x | (a) Not applicable. Year of Service does not apply for purposes of this Plan. |
¨ | (b) Year of continuous service. To receive credit for one Year of Service, the Participant must remain in continuous employment with the Employer (or render contract service to the Employer) for the Participants entire Taxable Year. |
¨ | (c) Service on any day. To receive credit for one Year of Service, the Participant only need be employed by the Employer (or render contract service to the Employer) on any day of the Participants Taxable Year. |
¨ | (d) Pre-Plan service. The Employer will treat service before the Plans Effective Date for determining Years of Service as follows (choose one of (i) or (ii)) : |
x | (i) Include. |
¨ | (ii) Disregard. |
¨ | (e) (Specify) : . |
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ARTICLE II
PARTICIPATION
2.01 Participant Designation. The Employer designates the following Employees or Contractors as Participants in the Plan ( choose one of (a), (b) or (c) ):
¨ | (a) All top-hat Employees. All Employees whom the Employer from time to time designates in writing as part of a select group of management or highly compensated employees. |
¨ | (b) All Employees with maximum qualified plan additions or benefits. All Employees who have reached or will reach their limit under Code §§415(b) or (c) in the Employers qualified plan for the Taxable Year, or for the 415 limitation year ending in the Taxable Year. |
x | (c) Specified Employees/Contractors by name, job title or classification: All Employees who are classified as Highly Compensated Employees pursuant to Code sec. 414(q) during the preceding year, for purposes of the Greenbrier Companies 401(k) Plan. |
Note: An Employer might elect (c) and reference Exhibit B to maintain confidentiality within the workforce as to the identity of some or all Participants.
2.02 Elective Deferrals. Elective Deferrals by Participants are ( choose one of (a), (b) or (c) ):
x | (a) Permitted. Participants may make Elective Deferrals. |
¨ | (b) Not permitted. Participants may not make Elective Deferrals. |
¨ | (c) Frozen Elective Deferrals. The Plan does not permit Elective Deferrals as of: . |
2.02(A) Amount limitation/conditions. A Participants Elective Deferrals for a Taxable Year are subject to the following amount limitation(s) or other conditions ( choose (a) or choose at least one of (b) (d) ):
¨ | (a) No limitation. |
x | (b) Maximum Elective Deferral amount: 50% . |
¨ | (c) Minimum Elective Deferral amount: . |
¨ | (d) (Specify) : . |
2.02(B) Election timing. A Participant must provide the Elective Deferral election under Section 2.02 to the Employer ( choose one of (a) or (b) ):
x | (a) By the deadline. No later than the applicable election deadline under Section 2.02(B). |
¨ | (b) Specified date. No later than days before the applicable election deadline under Section 2.02(B). |
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2.02(B)(6) Final payroll period. The Plan treats final payroll period Compensation under Section 2.02(B)(6) as ( choose one of (a) or (b) ):
¨ | (a) Current Year. As Compensation for the current Taxable Year in which the payroll period commenced. |
x | (b) Subsequent Year. As Compensation for the subsequent Taxable Year in which the Employer pays the Compensation. |
2.02(C) Election changes/Irrevocability. A Participant who makes an Elective Deferral election before the applicable deadline under Section 2.02(B) ( choose one of (a) or (b) ):
x | (a) May change. May change the election until the applicable election deadline. |
¨ | (b) May not change. May not change the election as to the first Taxable Year to which the election applies. |
Note: A payment election under Section 4.02(A) or (B) is a separate election which is not controlled by this Section 2.02(C). See Section 4.06(B).
2.02(D) Election duration. A Participants Elective Deferral election ( choose one of (a) or (b) ):
¨ | (a) Taxable Year(s) only. Applies only to the Participants Compensation for the Taxable Year or Taxable Years for which the Participant makes the election. |
x | (b) Continuing. Applies to the Participants Compensation for all Taxable Years, commencing with the Taxable Year for which the Participant makes the election, unless the Participant makes a new election or revokes or modifies an existing election. |
2.03 Nonelective Contributions. During each Taxable Year the Employer will contribute a Nonelective Contribution for each Participant equal to ( choose (a) or (f) or choose one or more of (b) (e) ):
x | (a) None. The Employer will not make Nonelective Contributions to the Plan. |
¨ | (b) Fixed percentage . % of the Participants Compensation. |
¨ | (c) Fixed dollar amount. $ per Participant. |
¨ | (d) Discretionary . Such Nonelective Contributions (or additional Nonelective Contributions) as the Employer may elect, including zero. |
¨ (e) (Specify) : .
¨ | (f) Frozen Nonelective Contributions. The Employer will not make any Nonelective Contributions as of: |
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Adoption Agreement
2.04 Matching Contributions. During each Taxable Year, the Employer will contribute a Matching Contribution equal to ( choose (a) or (i) or choose one or more of (b) (h) ):
¨ | (a) None. The Employer will not make Matching Contributions to the Plan. |
¨ | (b) Fixed match-flat. An amount equal to % of each Participants Elective Deferrals for each Taxable Year. |
¨ | (c) Fixed match-tiered. An amount equal to the following percentages for each specified level of a Participants Elective Deferrals or Years of Service for each Taxable Year: |
Elective Deferrals | Matching Percentage | |||
% | ||||
% | ||||
% | ||||
% |
Note: Specify Elective Deferrals subject to match as a percentage of Compensation or a dollar amount.
Years of Service | Matching Percentage | |||
% | ||||
% | ||||
% | ||||
% |
¨ | (d) No other caps. The Employer in applying the Matching Contribution formula under 2.04(b) or (c) above will not limit the Participants Elective Deferrals taken into account (except as indicated above) and otherwise will not limit the amount of the match. |
¨ | (e) Limit on Elective Deferrals matched. The Employer in making Matching Contributions will disregard a Participants Elective Deferrals exceeding ( specify percentage or dollar amount of Compensation ) for the Taxable Year. |
¨ | (f) Limit on matching amount. The Matching Contribution for any Participant for a Taxable Year may not exceed: (specify percentage or dollar amount of Compensation). |
x | (g) Discretionary. Such Matching Contributions as the Employer may elect, including zero. |
¨ | (h) ( Specify ): . |
¨ | (i) Frozen Matching Contributions. The Employer will not make any Matching Contributions as of: . |
2.05 Actual or Notional Contribution . The Employers Contributions will be ( choose one of (a) or (b) and choose (c) as applicable ):
x | (a) Actual. Made in cash or property to Participant Accounts or to the Trust. |
¨ | (b) Notional. Credited to Participant Accounts only as a bookkeeping entry. |
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¨ | (c) ( Specify ): . |
2.06 Allocation Conditions. To receive an allocation of Employer Contributions, a Participant must satisfy the following conditions during the Taxable Year ( choose (a) or choose one or both of (b) and (c) ):
x | (a) No allocation conditions. |
¨ | (b) Year of continuous service. The Participant must remain in continuous employment with the Employer (or render contract service to the Employer) for the entire Taxable Year. |
¨ | (c) (Specify) : . |
ARTICLE III
VESTING AND SUBSTANTIAL RISK OF FORFEITURE
3.01 Vesting Schedule/Other Substantial Risk of Forfeiture. The following vesting schedule or other Substantial Risk of Forfeiture applies to a Participants Accrued Benefit ( choose (a) or choose one or more of (b) (f) ):
x | (a) Not applicable. The Plan does not apply a vesting schedule or other Substantial Risk of Forfeiture. |
¨ | (b) Immediate vesting. 100% Vested at all times with respect to the entire Accrued Benefit. |
¨ | (c) Immediate vesting (Elective Deferrals)/vesting schedule (Employer Contributions) . A Participants Elective Deferral Account is 100% Vested at all times. A Participants Nonelective Contributions Account and/or Matching Contributions Account are subject to the following vesting schedule: |
Years of Service | Vesting % | |||
or less | 0 % | |||
% | ||||
% | ||||
% | ||||
or more | 100 % |
¨ | (d) Vesting scheduleentire Accrued Benefit. The Participants entire Accrued Benefit is subject to the following vesting schedule: |
Years of Service | Vesting % | |||
or less | 0 % | |||
% | ||||
% | ||||
% | ||||
% | ||||
% | ||||
or more | 100 % |
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¨ | (e) Vesting schedule class year or all years. The Plans vesting schedule applies as follows ( Choose one of (i) or (ii) ): |
¨ | (i) Class year. Apply the vesting schedule separately to the Deferred Compensation for each Taxable Year. |
¨ | (ii) All years. Apply the vesting schedule to all Deferred Compensation. |
¨ | (f) Other Substantial Risk of Forfeiture. (Specify): |
Note: An Employer may elect both a vesting schedule and an additional Substantial Risk of Forfeiture. In such event, a Participant failing to satisfy the conditions resulting in a Substantial Risk of Forfeiture will forfeit his/her Account, even if 100% Vested under any vesting schedule. If the Plan is an Ineligible 457 Plan, the Employer must specify a Substantial Risk of Forfeiture, which may be a vesting schedule provided that under any graded vesting schedule, an Ineligible 457 Plan Participant will be taxed as and when each portion of his/her Deferred Compensation vests.
3.02 Immediate Vesting upon Specified Events. A Participants entire Accrued Benefit is 100% Vested without regard to Years of Service if the Participants Separation from Service with the Employer on or following or as a result of ( choose (a) or choose one or more of (b) (e) ):
x | (a) Not Applicable . |
¨ | (b) Retirement Age. On or following Retirement Age. |
¨ | (c) Death. As a result of death. |
¨ | (d) Disability. As a result of Disability. |
¨ | (e) (Specify) : |
Note: An early vesting provision generally does not result in prohibited acceleration of benefits under Code §409A. See Section 4.02(C)(2).
3.03 Application of Forfeitures. The Employer will ( choose only one of (a) (d) ):
x | (a) Not Applicable. Not apply any provision regarding allocation of forfeitures since there are no Plan forfeitures. |
¨ | (b) Retain. Keep all forfeitures for the Employers account. |
¨ | (c) Allocate. Allocate (in the year in which the forfeiture occurs) any forfeiture to the Accounts of the remaining (nonforfeiting) Participants, in accordance with one of the following methods ( choose one of (i) or (ii) ): |
¨ | (i) Per Compensation. In the same ratio each Participants Compensation for the Taxable Year bears to the total Compensation of all Participants sharing in the forfeiture allocation for the Taxable Year. |
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¨ | (ii) Per Account balances. In the same ratio each Participants Account balance at the beginning of the Taxable Year bears to the total Account balances of all Participants sharing in the forfeiture allocation for the Taxable Year. |
¨ | (d) ( Specify ): . |
Note: If the Employer elects to create the Trust under Section 5.03, the Employer should coordinate its forfeiture application elections with the provisions of the Trust.
ARTICLE IV
BENEFIT PAYMENTS
4.101 Payment Events/Elections. The Plan payment events are ( choose one or more of (a) through (i) as applicable ):
Note: The Employer must elect the Plan permitted payment events. The Employer may elect all of the 409A permitted events or limit the payment events, but the Employer must elect at least one payment event. If the Plan is a separation pay plan, the Employer must elect 4.01(a) and the Employer also may elect 4.01(b). If the Plan permits initial payment elections, change payment elections, or both, as to any or all of the Plan permitted payment events, the Employer should elect 4.01(d)(iv), (e)(ii) and (i) as applicable. The Employer also should elect under 4.02(A) and 4.02(B) as to who has election rights and to specify any limitations on such rights. If the Plan will not offer any initial or change payment elections, the Employer should not elect 4.01(d)(iv), (e)(ii) or (i). If the Plan will not offer any initial payment elections the Employer also should elect 4.02(A)(a). If the Plan will not offer change payment elections, the Employer also should elect 4.02(B)(a).
x | (a) Separation from Service . |
x | (b) Death. |
x | (c) Disability. |
¨ | (d) Specified Time. The Plan permits payment to a Participant at a Specified Time ( choose one of (i)(iv) ): |
¨ | (i) Forfeiture Lapse . At the time that the Deferred Compensation no longer is subject to a Substantial Risk of Forfeiture. |
¨ | (ii) Stated Age . Upon attainment of age: ( specify age ). |
¨ | (iii) ( Specify ): On: ( e.g. , January 1, 2015). |
¨ | (iv) Election . In accordance with a Participant or Employer election under 4.02(A) or (B). |
Note: The Employer must approve any Participant payment election. See Section 4.06. Payment at a Specified Time will be a lump-sum payment.
¨ | (e) Fixed Schedule. The Plan Permits payment to a Participant in accordance with the following Fixed Schedule ( choose one of (i) or (ii) ): |
¨ | (i) Schedule : . |
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¨ | (ii) Election. In accordance with a Participant or Employer election under 4.02(A) or (B). |
Note: The Employer must approve any Participant payment election. See Section 4.06. Payment pursuant to a Fixed Schedule will be installments or an annuity commencing at a specific time.
x | (f) Change in Control. The Plan permits payment to a Participant based on a Change in Control. |
x | (g) Unforeseeable Emergency. The Plan permits payment to a Participant who has an Unforeseeable Emergency. |
¨ | (h) (Specify) : ( e.g., based on Unforeseeable Emergency, but only as the Elective Deferral Accounts). |
Note: The Employer in (h) may modify any of (a)-(g) but only if such modifications are consistent with Code §409A.
x | (i) Election. As to 4.01 (a), (b), (c), (f), (g) and/or (h), in accordance with a Participant or Employer election under 4.02(A) or (B). |
Note: The Employer must approve any Participant payment election. See Section 4.06.
4.01(E) Contractor deemed Separation from Service. In making any payment to a Contractor based on Separation from Service, the Plan ( choose (a) or choose one of (b) or (c) ):
x | (a) Not applicable. Only Employees are Participants in the Plan. |
¨ | (b) Applies deemed Separation from Service. Applies the deemed Separation from Service provisions of Section 4.01(E). |
¨ | (c) Does not apply. Does not apply the deemed Separation from Service provisions of Section 4.01(E). |
4.02 Timing, Form and Medium of Payment/Elections. The Plan will pay a Participants Vested Accrued Benefit as follows ( complete (a), (b) and (c) ):
(a) Timing. Payment will commence or be made ( choose only one of (i)(vi) ):
x | (i) 30 days. On a date which is 30 days following the payment event, unless otherwise made at a Specified Time or in accordance with a Fixed Schedule. |
¨ | (ii) 90 days . On a date which is within 90 days following the payment event, unless otherwise made at a Specified Time or in accordance with a Fixed Schedule. |
Note: A Participant may not designate the Taxable Year of Payment under (a)(ii).
¨ | (iii) 6 months. On a date that is 6 months following the payment event, unless otherwise made at a Specified Time or in accordance with a Fixed Schedule. |
¨ | (iv) Specified Time/Fixed Schedule. At the Specified Time under Section 4.01(d) or pursuant to the Fixed Schedule under Section 4.01(e). |
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¨ | (v) ( Specify ): . |
¨ | (vi) Election. In accordance with a Participant or Employer election under Sections 4.02(A) or (B). |
Note: The Employer must approve any Participant payment election. See Section 4.06(C).
Note: See Section 4.01(D) as to restrictions on timing of payments to Specified Employees.
(b) | Form. The Plan will make payment in the form of ( choose one or more of (i) (v) ): |
x | (i) Lump-sum . A single payment. |
x | (ii) Installments. In installments as follows: . |
¨ | (iii) Annuity. An immediate annuity contract. |
¨ | (iv) ( Specify ) : . |
¨ | (v) Election. In accordance with a Participant or Employer election under Sections 4.02(A) or (B). |
Note: The Employer must approve any Participant payment election. See Section 4.06.
(c) | Medium. The form of payment will be ( choose only one of (i)(iv) ): |
x | (i) Cash only. |
¨ | (ii) Property only. |
¨ | (iii) Property or cash ( or both). |
¨ | (iv) Election. In accordance with a Participant or Employer election under 4.02(A) or (B). |
Note: The Employer must approve all Participant payment elections. See Section 4.06.
Note: A choice between cash or property is not subject to Code §409A. See Treas. Reg. §1.409A-2(a)(1).
The Plan treats this election as not being subject to the timing rules applicable to payment elections.
4.02(A) Initial payment elections. The Plan ( choose only one of (a)(d) ):
¨ | (a) No initial payment elections. The Plan and Adoption Agreement specify the payment events and the timing, form and medium of payment. If there are multiple payment events, the Plan will make payment based on the earliest event to occur except as follows: ( indicate no exceptions or specify sequencing ). |
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x | (b) Participant initial payment election. Permits a Participant initially to elect the payment event and the timing, form and medium of payment of his/her Deferred Compensation in accordance with Section 4.02(A) ( choose only one of (i) or (ii) ): |
x | (i) All Accounts. The Plan applies a Participants elections to all of the Participants Accounts under the Plan. |
¨ | (ii) Elective Deferral Account. The Plan applies a Participants elections only to the Participants Elective Deferral Account. The Employer will make all payment elections as to Nonelective and Matching Contribution Accounts. |
Note: A Participant must elect a payment event from those which the Employer has elected under 4.01 above, which might include all of the 409A permissible payment events. A Participant in his/her election form may limit the payment election to Compensation Deferred at the time of the election or also may apply the payment election to all future Deferred Compensation.
¨ | (c) Employer initial payment election . Permits the Employer (and not the Participant) initially to elect the payment events and the timing, form and medium of payment of all Participant Accounts in accordance with Section 4.02(A). |
x | (d) ( Specify ): Participant initial payment elections are permitted in accordance with Section 4.02 (A) for amounts deferred on or after January 1, 2010 for all accounts. |
Participant | initial payment elections are not permitted for amounts deferred prior to January 1, 2010. |
Note: If a Participant or the Employer does not make an initial payment election, see Sections 4.01(B) and 4.02(A)(5).
4.02(B) Change payment elections. The Plan ( choose only one of (a) or (b); choose (c) if (b) applies and choose (d) if applicable) :
Note: Even if the Employer under 4.02(A)(a) elects not to permit any Participant or Employer initial payment elections, the Plan under Section 4.02(A)(1)treats a Plan designation of the payment events and of the timing, form and medium of payment as an initial election for purposes of applying any change election the Plan permits.
¨ | (a) Change payment elections not permitted. Does not permit a Participant, a Beneficiary or the Employer to make a change payment election in accordance with Section 4.02(B). |
x | (b) Permits change payment elections. Permits change payment elections or changes to change payment elections in accordance with Section 4.02(B) and as follows ( choose one or more of (i) -(iv) ): |
x | (i) Participant election. Permits a Participant to make change payment elections. |
¨ | (ii) Employer election. Permits the Employer to make change payment elections. |
¨ | (iii) Beneficiary election. Permits a Beneficiary following the Participants death to make change payment elections. |
x | (iv) (Specify): See Addendum for payment provisions applicable to amounts deferred under the Plan prior to the effective date of this restatement . |
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x | (c) Limit on number of change payment elections . The number of change payment elections (as to any initial payment election) that a Participant, a Beneficiary or the Employer (as applicable) may make is ( choose one of (i) or (ii) ): |
x | (i) Unlimited. Not limited except as required under Section 4.02(B). |
¨ | (ii) Limited. Limited to: ( specify number ). |
x | (d) ( Specify ): See Addendum for payment provisions applicable to amounts deferred under the Plan prior to the effective date of this restatement. |
4.02(B)(3)(b) Installment payments. The Plan under Section 4.02(B)(3)(b) for purposes of application of the change payment election provisions treats an installment payment as a ( choose one of (a) or (b) or choose (c) if applicable ):
x | (a) Single payment. |
¨ | (b) Series of payments . |
Note: If the Plan is a restated Plan, and the Employer otherwise before January 1, 2008, did not make a written designation regarding the treatment of installment payments, the installments under the Plan as to pre-2008 deferrals must be treated as a single payment. See Treas. Reg. 1.409A-2(b)(2)(iv).
¨ | (c) Not applicable. The Plan does not permit installment payments. |
4.06(B) Election changes/Irrevocability. A Participant who makes an initial payment election or a change payment election which the Employer has accepted ( complete (a) and (b) ):
(a) | Initial payment elections. ( choose one of (i), (ii) or (iii) ): |
x | (i) May change. May change the initial payment election as to the Deferred Compensation to which the election applies, until the applicable election deadline under 4.02(A)(2)(a). Any change to an initial payment election made after the initial payment election becomes irrevocable is a change payment election. |
¨ | (ii) May not change. May not change the initial election as to the Deferred Compensation to which the election applies. |
¨ | (iii) Not applicable. As elected above, a Participant may not make an initial payment election. |
(b) | Change payment elections. ( choose one of (i), (ii) or (iii) ): |
x |
(i) May change. May change the change payment election as to the Deferred Compensation to which the election applies. Where the payment event is a Specified Time or a Fixed Schedule, the Participant may change the election until the applicable deadline under Section 4.02(B)(1)(a). Where the change payment election relates to any other payment event (not a Specified Time or a Fixed Schedule), the Participant must make the change within 30 days following the Participants making of the change payment election which the Participant seeks to change. Any change to a |
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change payment election made after the change payment election becomes irrevocable is a new change payment election. |
¨ | (ii) May not change. May not change the change payment election as to the Deferred Compensation to which the election applies. |
¨ | (iii) Not applicable. As elected above, a Participant may not make a change payment election. |
Note: An Elective Deferral election under Section 2.02(C) is a separate election which is not controlled by this election 4.06(B).
ARTICLE V
TRUST ELECTION AND INVESTMENTS
5.02 No Trust. The Employer by electing (a) or (b) below does not create the Trust described in Section 5.03. Section 5.02 applies. The Employer will credit each Participants Account with ( choose one or both of (a) or (b) ):
x | (a) Actual Earnings ( choose only one of (i) through (iv) ): |
¨ | (i) Employer direction. As a result of the Employers directed investment of the Account. |
x | (ii) Participant direction. As a result of the Participants directed investment of his/her own Account. |
¨ | (iii) Participant direction over Elective Deferrals. As a result of the Participants directed investment of his/her own Elective Deferral Account, and the Employers directed investment of the balance of the Participants Account. |
¨ | (iv) ( Specify ): . |
¨ | (b) Notional Earnings . ( choose one or both of (i) or (ii) ): |
¨ | (i) Fixed/floating interest. Interest at the rate of and applied to (choose only one of (A), (B) or (C)) : |
Note: Use blank to specify rate, fixed or floating with index, time interval, simple or compounded interest, etc.
¨ | (A) Total Account. The Participants entire Account. |
¨ | (B) Deferrals only. The Participants Elective Deferral Account, with the balance of the Account being subject to actual Earnings as specified in 5.02(a). |
¨ | (C) Employer Contribution only. The Participants Employer Contribution Accounts with the balance of the Account being subject to actual Earnings as specified in 5.02(a). |
¨ | (ii) (Specify) : . |
5.03 Trust. The Employer by electing (a) or (b) below will establish the Trust described in Section 5.03 and designated as Exhibit C. The Trust will be identical in form to the Model Rabbi Trust issued by the
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Internal Revenue Service under Rev. Proc. 92-64 or any successor thereto. The Employer also may modify the Trust if necessary to comply with Applicable Guidance. The Employer will select among the optional and alternative features available under the Trust, and the Employer will not establish or adopt any other trust under the Plan. The version of the Trust the Employer adopts is ( choose one of (a) or (b) ):
¨ | (a) Individually designed version . |
¨ | (b) Adoption agreement version. |
EMPLOYER SIGNATURE
The Employer hereby agrees to the provisions of this Plan, and in witness of its agreement, the Employer, by its duly authorized officer, has executed this Adoption Agreement on December 29, 2009.
Name of Employer: The Greenbrier Companies, Inc | ||||
Employers EIN: 93-0916972 | ||||
Signed: |
/s/ Lorie Leeson |
|||
[Name/Title] Lorie Leeson |
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TRUSTEE SIGNATURE
[If Trust created under Section 5.03]
The Trustee(s), by executing this Adoption Agreement on December 29, 200 9, accept(s) the appointment as Trustee of the Trust created under Section 5.03 of the Plan and attached hereto as Exhibit C.
Name of Trustee(s): |
|
|||
Signed: |
/s/ Martin R. Baker |
|||
Signed: |
/s/ James W. Cruckshank |
|||
[Name/Title] Martin R. Baker | ||||
[Name/Title] James W. Cruckshank |
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ADDENDUM TO NONQUALIFIED
DEFERRED COMPENSATION PLAN
ADOPTION AGREEMENT
(Pour-Over Plan)
This Addendum supplements the Adoption Agreement executed by The Greenbrier Companies, Inc. (Employer) in connection with the establishment of its Nonqualified Deferred Compensation Plan (the Plan) consisting of the Basic Plan Document, the Adoption Agreement, the Exhibits and documents to which they refer, and this Addendum, effective as of January 1, 2010.
BACKGROUND
A. | The Gunderson Savings Maximizer Plan (the Gunderson Savings Plan), a nonqualified deferred compensation plan originally adopted effective on September 1, 1994 by the predecessor of Gunderson LLC, a subsidiary of the Employer, has been amended and restated and merged with and into the Plan effective as of January 1, 2010. |
B. | Amounts that were deferred and fully vested under the Gunderson Savings Plan as of December 31, 2004 were and are separately accounted for and grandfathered under the terms of the Gunderson Savings Plan in effect as of that date and are not subject to the requirements of IRC § 409A and implementing Treasury Regulations and other guidance (collectively, § 409A). Such accounts are referred to in this Addendum as Grandfathered Accounts. |
C. | Amounts that were deferred under the Gunderson Savings Plan on or after January 1, 2005 but prior to January 1, 2010 (Existing Accounts) are subject to the distribution provisions of the Gunderson Savings Plan in effect immediately prior to January 1, 2010. |
D. | This Addendum incorporates into the Plan certain provisions of the Gunderson Savings Plan that apply only to the Grandfathered Accounts, and the distribution provisions that apply to Existing Accounts. |
The Plan and Adoption Agreement are hereby supplemented as follows:
1. | Grandfathered Accounts. |
1.1 | Haircut Withdrawals . Notwithstanding any other provision of the Plan to the contrary, a Participant may at any time elect that a specified amount of his benefits from a Grandfathered Account be payable from the Plan. Such a withdrawal request shall be made in writing and delivered to the Administrative Committee. Of the amount so specified by the Participant, 10% shall be forfeited and the balance paid to the Participant in a lump sum as soon as practicable. |
Addendum to Adoption Agreement
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1.2 | Optional Forms of Benefit Distribution . A Participant may elect an optional form of benefit distribution from his Grandfathered Account at any time prior to the commencement of benefit payments. Such an election shall be made in writing and delivered to the Administrative Committee. A distribution of benefits from a Participants Grandfathered Account may be made in any alternate form which the Administrative Committee approves, including a lump sum payment, or semi-annual, quarterly or monthly installments of substantially equal amounts over a period of years, provided that such period does not extend beyond the life expectancy of the Participant. |
1.3 | Normal Form of Benefit Distribution . Unless a Participant elects an optional form of benefit distribution from his Grandfathered Account, a Grandfathered Account will be paid in annual installments over the life expectancy of the Participant. The life expectancy of the Participant will be rounded to the nearest integer and based on Table V of Treasury Regulation § 1.79-9. Each annual installment is to be based on the number of remaining years of original life expectancy and the re-valued account balance remaining to the credit of the Participant. |
2. | Distribution of Benefits from Existing Accounts. Sections 4.01(e), 4.02(b)(iv), 4.02(A)(a), 4.02(A)(d), 4.02(B)(b) and 4.02(B)(d) of the Adoption Agreement shall incorporate the following provisions by reference: |
Distribution of Benefits to Participant.
Unless a Participant elects a different payment election in accordance with Section 4.02.B of the Plan for his Existing Account, a Participants Existing Account will be paid in six installments which are considered a single payment and not a series of separate payments. The first installment will the lesser of $1,000 or 100% of the Participants Existing Account balance and will be paid on the date that the Participant attains age 55. Installments two through six will be paid in approximately equal amounts annually for five years beginning after the later of the date of the Participants (i) Separation from Service, or (ii) attainment of age 60.
In the case of a Participant who first becomes eligible to participate in the Plan after attainment of age 54, his Existing Account balance will be paid in five annual installments of approximately equal amounts beginning after the later of the date of the Participants (i) Separation from Service, or (ii) attainment of age 65.
Distribution of Benefits to Beneficiary Due to Participants Pre-Retirement Death.
If a Participant dies prior to retirement and commencement of benefit payments and the total death benefit due to his Beneficiary from his Existing Account is less than $100,000, then one-half of the Participants Existing Account balance will be paid no later than December 31 of the calendar year after the year of the
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Participants death, and the remaining balance of his Existing Account will be paid no later than December 31 of the following calendar year.
If a Participant dies prior to retirement and commencement of benefit payments and the total death benefit due to his Beneficiary from his Existing Account is $100,000 or more, then the Participants Existing Account balance will be paid in five annual installments which are considered a single payment and not a series of separate payments. The first installment will be paid on the last day of the month that is 16 months after the Participants death, and each subsequent installment will be paid on the anniversary of such date. The first installment will equal one-fifth of the Existing Account balance; the second installment will equal one-fourth of the remaining Existing Account balance; the third installment will equal one-third of the remaining Existing Account balance; the fourth installment will equal one-half of the remaining Existing Account balance, and the fifth and final installment will equal the remaining Existing Account balance.
The Employer hereby agrees to the provisions of the Plan as supplemented in this Addendum to Adoption Agreement as of the date first written above.
THE GREENBRIER COMPANIES, INC. | ||
By: | /s/ Lorie Leeson | |
Title: VP Corp. Finance & Treasurer |
Addendum to Adoption Agreement
Page 3
Exhibit 21.1
THE GREENBRIER COMPANIES, INC.
LIST OF SUBSIDIARIES
As of August 31, 2011
Name |
State of
|
Names Under Which Does Business (if other than registered name) |
||
Alliance Castings Company, LLC | DE | |||
Autostack Company LLC | OR | |||
Brandon Railroad LLC | OR | |||
Chicago Castings Company LLC | DE | |||
Greenbrier Europe B.V. | Netherlands | |||
Greenbrier Germany GmbH | Germany | |||
Greenbrier GIMSA, LLC | OR | |||
Greenbrier Leasing Company LLC | OR | Greenbrier Intermodal | ||
Greenbrier Leasing Limited | Nova Scotia, Canada | |||
Greenbrier Leasing Limited Partner, LLC | DE | |||
Greenbrier Leasing, L.P. | DE | |||
Greenbrier Management Services, LLC | DE | CIT Rail Services | ||
Greenbrier Rail Holdings I, LLC | OR | |||
Greenbrier Rail Holdings II, LLC | OR | |||
Greenbrier Rail Holdings III, LLC | OR | |||
Greenbrier Rail Services Canada Inc | Ontario, Canada | |||
Greenbrier Rail Services Tierra Blanca S.A. de C.V. | Mexico | |||
Greenbrier Railcar Leasing, Inc. | WA | |||
Greenbrier Railcar LLC | OR | |||
Greenbrier-Concarril, LLC | DE | |||
Gunderson GIMSA S. de R.L. de C.V. | Mexico | |||
Gunderson LLC | OR | |||
Gunderson Marine LLC | OR | |||
Gunderson Rail Services LLC | OR |
American Hydraulics GMO Parts Greenbrier Rail Services YSD Industries Greenbrier Castings |
||
Gunderson Specialty Products, LLC | DE | |||
Gunderson-Concarril S.A. de C.V. | Mexico | |||
Meridian Rail Acquisition Corp. | OR | Greenbrier Rail Services | ||
Meridian Rail Holdings Corp. | OR | |||
Meridian Rail Mexico City Corp. | OR | |||
Mexico Meridianrail Services, S.A. de C.V. | Mexico | |||
Ohio Castings Company, LLC | DE | |||
WagonySwidnica S.A. | Poland | |||
YSD Doors, S.A. de C.V | Mexico | |||
Zaklad Naprawczy Taboru Kolejowego Olawa sp. z o.o. | Poland |
Exhibit 23.1
The Board of Directors
The Greenbrier Companies, Inc.:
We consent to the incorporation by reference in the registration statements (Nos. 333-172933, 333-52032, 333-127922, 333-157591, 333-157593 and 333-116102) on Form S-8 and registration statements (Nos. 333-136014, 333-165924) on Form S-3 of The Greenbrier Companies, Inc. and subsidiaries (the Company) of our report dated November 3, 2011, with respect to the consolidated balance sheet of the Company as of August 31, 2011 and the related consolidated statements of operations, equity and comprehensive income (loss), and cash flows for the year ended August 31, 2011, which report appears in the August 31, 2011 annual report on Form 10-K of the Company.
/s/ KPMG LLP
Portland, Oregon
November 3, 2011
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-172933, 333-52032, 333-127922, 333-157591, 333-157593 and 333-116102 on Form S-8 and Registration Statement Nos. 333-165924 and 333-136014 on Form S-3 of our report dated November 10, 2010 (November 3, 2011 as to Note 11), relating to the consolidated financial statements of The Greenbrier Companies, Inc. as of August 31, 2010 and for each of the two years in the period ended August 31, 2010, appearing in this Annual Report on Form 10-K of The Greenbrier Companies, Inc. for the year ended August 31, 2011.
/s/ Deloitte & Touche LLP
Portland, Oregon
November 3, 2011
Exhibit 31.1
CERTIFICATIONS
I, William A. Furman, certify that:
1 | I have reviewed this annual report on Form 10-K of the Greenbrier Companies for the annual period ended August 31, 2011; |
2 | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a 15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statement for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably like to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: November 3, 2011 |
/s/ William A. Furman |
William A. Furman |
President and |
Chief Executive Officer, Director |
The Greenbrier Companies, Inc. |
The Greenbrier Companies 2011 Annual Report |
Exhibit 31.2
CERTIFICATIONS (contd)
I, Mark J. Rittenbaum, certify that:
1. | I have reviewed this annual report on Form 10-K of the Greenbrier Companies for the annual period ended August 31, 2011; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a 15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statement for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably like to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: November 3, 2011 |
/s/ Mark J. Rittenbaum |
Mark J. Rittenbaum |
Executive Vice President and |
Chief Financial Officer |
The Greenbrier Companies, Inc. |
The Greenbrier Companies 2011 Annual Report |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of The Greenbrier Companies, Inc. (the Company) on Form 10-K for the annual period ended August 31, 2011 as filed with the Securities and Exchange Commission on the date therein specified (the Report), I, William A. Furman, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 3, 2011 |
/s/ William A. Furman |
William A. Furman |
President and Chief Executive Officer |
The Greenbrier Companies 2011 Annual Report |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of The Greenbrier Companies, Inc. (the Company) on Form 10-K for the annual period ended August 31, 2011 as filed with the Securities and Exchange Commission on the date therein specified (the Report), I, Mark J. Rittenbaum, Executive Vice President and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 3, 2011 |
/s/ Mark J. Rittenbaum |
Mark J. Rittenbaum |
Executive Vice President and Chief Financial Officer |
The Greenbrier Companies 2011 Annual Report |