UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2014
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-51237
FREIGHTCAR AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware | 25-1837219 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
Two North Riverside Plaza, Suite 1300 Chicago, Illinois |
60606 | |
(Address of principal executive offices) | (Zip Code) |
(800) 458-2235
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.:
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | 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
As of November 3, 2014, there were 12,066,823 shares of the registrants common stock outstanding.
FREIGHTCAR AMERICA, INC.
2
PART I FINANCIAL INFORMATION
FreightCar America, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, 2014 | December 31, 2013 | |||||||
(In thousands, except share and per share data) | ||||||||
Assets |
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Current assets |
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Cash and cash equivalents |
$ | 26,454 | $ | 145,506 | ||||
Restricted cash and restricted certificates of deposit |
6,015 | 7,780 | ||||||
Marketable securities |
47,990 | 38,988 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $196 and $221, respectively |
33,534 | 4,034 | ||||||
Inventories, net |
103,520 | 66,340 | ||||||
Inventory on lease |
25,676 | 16,955 | ||||||
Other current assets |
10,609 | 6,768 | ||||||
Deferred income taxes, net |
11,017 | 11,017 | ||||||
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Total current assets |
264,815 | 297,388 | ||||||
Property, plant and equipment, net |
41,541 | 39,396 | ||||||
Railcars available for lease, net |
30,123 | 36,110 | ||||||
Goodwill |
22,128 | 22,128 | ||||||
Deferred income taxes, net |
19,425 | 19,758 | ||||||
Other long-term assets |
3,035 | 2,939 | ||||||
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Total assets |
$ | 381,067 | $ | 417,719 | ||||
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Liabilities and Stockholders Equity |
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Current liabilities |
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Accounts and contractual payables |
$ | 65,202 | $ | 16,016 | ||||
Accrued payroll and employee benefits |
5,277 | 3,981 | ||||||
Accrued postretirement benefits |
413 | 413 | ||||||
Accrued warranty |
8,691 | 6,957 | ||||||
Customer deposits |
540 | 91,771 | ||||||
Customer advance |
18,623 | 19,037 | ||||||
Other current liabilities |
6,154 | 9,053 | ||||||
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Total current liabilities |
104,900 | 147,228 | ||||||
Accrued pension costs |
300 | 845 | ||||||
Accrued postretirement benefits, less current portion |
64,873 | 62,899 | ||||||
Accrued taxes and other long-term liabilities |
7,638 | 4,212 | ||||||
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Total liabilities |
177,711 | 215,184 | ||||||
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Stockholders equity |
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Preferred stock, $0.01 par value, 2,500,000 shares authorized (100,000 shares each designated as Series A voting and Series B non-voting, 0 shares issued and outstanding at September 30, 2014 and December 31, 2013) |
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Common stock, $0.01 par value, 50,000,000 shares authorized, 12,731,678 shares issued at September 30, 2014 and December 31, 2013 |
127 | 127 | ||||||
Additional paid in capital |
99,794 | 99,265 | ||||||
Treasury stock, at cost, 666,219 and 682,264 shares at September 30, 2014 and December 31, 2013, respectively |
(30,004 | ) | (30,970 | ) | ||||
Accumulated other comprehensive loss |
(14,733 | ) | (15,132 | ) | ||||
Retained earnings |
148,172 | 149,245 | ||||||
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Total stockholders equity |
203,356 | 202,535 | ||||||
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Total liabilities and stockholders equity |
$ | 381,067 | $ | 417,719 | ||||
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
3
FreightCar America, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended September 30, |
Nine Months Ended September 30, |
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2014 | 2013 | 2014 | 2013 | |||||||||||||
(In thousands, except share and per share data) | ||||||||||||||||
Revenues |
$ | 190,280 | $ | 75,946 | $ | 386,054 | $ | 210,670 | ||||||||
Cost of sales |
171,461 | 69,764 | 359,333 | 197,242 | ||||||||||||
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Gross profit |
18,819 | 6,182 | 26,721 | 13,428 | ||||||||||||
Selling, general and administrative expenses |
9,215 | 7,691 | 26,296 | 19,971 | ||||||||||||
Gain on sale of railcars available for lease |
(635 | ) | (563 | ) | (653 | ) | (590 | ) | ||||||||
Gain on sale of assets held for sale |
(1,078 | ) | | (1,078 | ) | | ||||||||||
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Operating income (loss) |
11,317 | (946 | ) | 2,156 | (5,953 | ) | ||||||||||
Interest expense and deferred financing costs |
(284 | ) | (238 | ) | (854 | ) | (481 | ) | ||||||||
Other income |
7 | 15 | 48 | 59 | ||||||||||||
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Income (loss) before income taxes |
11,040 | (1,169 | ) | 1,350 | (6,375 | ) | ||||||||||
Income tax provision (benefit) |
4,608 | (243 | ) | 252 | 633 | |||||||||||
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Net income (loss) |
$ | 6,432 | $ | (926 | ) | $ | 1,098 | $ | (7,008 | ) | ||||||
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Net income (loss) per common share basic |
$ | 0.53 | $ | (0.08 | ) | $ | 0.09 | $ | (0.59 | ) | ||||||
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Net income (loss) per common share diluted |
$ | 0.53 | $ | (0.08 | ) | $ | 0.09 | $ | (0.59 | ) | ||||||
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Weighted average common shares outstanding basic |
12,007,970 | 11,957,548 | 11,999,150 | 11,950,593 | ||||||||||||
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Weighted average common shares outstanding diluted |
12,108,397 | 11,957,548 | 12,088,728 | 11,950,593 | ||||||||||||
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Dividends declared per common share |
$ | 0.06 | $ | 0.06 | $ | 0.18 | $ | 0.18 | ||||||||
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
4
FreightCar America, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended September 30, |
Nine Months Ended September 30, |
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2014 | 2013 | 2014 | 2013 | |||||||||||||
(In thousands) | ||||||||||||||||
Net income (loss) |
$ | 6,432 | $ | (926 | ) | $ | 1,098 | $ | (7,008 | ) | ||||||
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Other comprehensive income: |
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Pension liability adjustments, net of tax |
34 | 85 | 102 | 255 | ||||||||||||
Postretirement liability adjustments, net of tax |
99 | 138 | 297 | 414 | ||||||||||||
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Other comprehensive income |
133 | 223 | 399 | 669 | ||||||||||||
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Comprehensive income (loss) |
$ | 6,565 | $ | (703 | ) | $ | 1,497 | $ | (6,339 | ) | ||||||
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
5
FreightCar America, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Unaudited)
(in thousands, except share data)
Additional Paid In Capital |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Total Stockholders Equity |
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Common Stock | Treasury Stock | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
Balance, December 31, 2012 |
12,731,678 | $ | 127 | $ | 100,402 | (752,167 | ) | $ | (34,488 | ) | $ | (26,139 | ) | $ | 171,429 | $ | 211,331 | |||||||||||||||
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Net loss |
| | | | | | (7,008 | ) | (7,008 | ) | ||||||||||||||||||||||
Other comprehensive income |
| | | | | 669 | | 669 | ||||||||||||||||||||||||
Restricted stock awards |
| | (3,327 | ) | 72,635 | 3,327 | | | | |||||||||||||||||||||||
Employee restricted stock settlement |
| | | (2,794 | ) | (65 | ) | | | (65 | ) | |||||||||||||||||||||
Forfeiture of restricted stock awards |
| | 64 | (2,976 | ) | (64 | ) | | | | ||||||||||||||||||||||
Stock-based compensation recognized |
| | 1,703 | | | | | 1,703 | ||||||||||||||||||||||||
Cash dividends |
| | | | | | (2,166 | ) | (2,166 | ) | ||||||||||||||||||||||
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Balance, September 30, 2013 |
12,731,678 | $ | 127 | $ | 98,842 | (685,302 | ) | $ | (31,290 | ) | $ | (25,470 | ) | $ | 162,255 | $ | 204,464 | |||||||||||||||
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Balance, December 31, 2013 |
12,731,678 | $ | 127 | $ | 99,265 | (682,264 | ) | $ | (30,970 | ) | $ | (15,132 | ) | $ | 149,245 | $ | 202,535 | |||||||||||||||
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Net income |
| | | | | | 1,098 | 1,098 | ||||||||||||||||||||||||
Other comprehensive income |
| | | | | 399 | | 399 | ||||||||||||||||||||||||
Stock options exercised |
| | (137 | ) | 6,185 | 280 | | | 143 | |||||||||||||||||||||||
Restricted stock awards |
| | (1,048 | ) | 23,212 | 1,048 | | | | |||||||||||||||||||||||
Employee restricted stock settlement |
| | | (8,709 | ) | (224 | ) | | | (224 | ) | |||||||||||||||||||||
Stock-based compensation recognized |
| | 1,576 | | | | | 1,576 | ||||||||||||||||||||||||
Forfeiture of restricted stock awards |
| | 138 | (4,643 | ) | (138 | ) | | | | ||||||||||||||||||||||
Cash dividends |
| | | | | | (2,171 | ) | (2,171 | ) | ||||||||||||||||||||||
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Balance, September 30, 2014 |
12,731,678 | $ | 127 | $ | 99,794 | (666,219 | ) | $ | (30,004 | ) | $ | (14,733 | ) | $ | 148,172 | $ | 203,356 | |||||||||||||||
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
6
FreightCar America, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30, | ||||||||
2014 | 2013 | |||||||
(In thousands) | ||||||||
Cash flows from operating activities |
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Net income (loss) |
$ | 1,098 | $ | (7,008 | ) | |||
Adjustments to reconcile net income (loss) to net cash flows used in operating activities |
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Depreciation and amortization |
7,481 | 7,289 | ||||||
Gain on sale of railcars available for lease |
(653 | ) | (590 | ) | ||||
Gain on sale of assets held for sale |
(1,078 | ) | | |||||
Other non-cash items, net |
795 | 108 | ||||||
Deferred income taxes |
116 | 337 | ||||||
Stock-based compensation recognized |
1,576 | 1,703 | ||||||
Changes in operating assets and liabilities: |
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Accounts receivable |
(29,500 | ) | (7,623 | ) | ||||
Inventories |
(37,509 | ) | 7,156 | |||||
Inventory on lease |
(8,721 | ) | (16,955 | ) | ||||
Other assets |
(4,380 | ) | 614 | |||||
Accounts and contractual payables |
47,922 | (12,710 | ) | |||||
Accrued payroll and employee benefits |
1,280 | (2,857 | ) | |||||
Income taxes receivable/payable |
870 | 77 | ||||||
Accrued warranty |
1,734 | (657 | ) | |||||
Customer deposits and other current liabilities |
(91,128 | ) | (27,418 | ) | ||||
Deferred revenue, long-term |
379 | (39 | ) | |||||
Deferred rent, long-term |
(45 | ) | | |||||
Accrued pension costs and accrued postretirement benefits |
1,422 | (1,171 | ) | |||||
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Net cash flows used in operating activities |
(108,341 | ) | (59,744 | ) | ||||
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Cash flows from investing activities |
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Restricted cash deposits |
(1,017 | ) | (3,675 | ) | ||||
Restricted cash withdrawals |
2,782 | 14,240 | ||||||
Purchase of restricted certificates of deposit |
| (295 | ) | |||||
Purchase of securities held to maturity |
(50,974 | ) | (38,976 | ) | ||||
Proceeds from securities held to maturity |
42,002 | 42,000 | ||||||
Proceeds from sale of property, plant and equipment, assets held for sale and railcars available for lease |
8,031 | 6,741 | ||||||
Purchases of property, plant and equipment |
(8,248 | ) | (16,282 | ) | ||||
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Net cash flows (used in) provided by investing activities |
(7,424 | ) | 3,753 | |||||
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Cash flows from financing activities |
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Deferred financing costs |
| (138 | ) | |||||
Stock option exercise |
143 | | ||||||
Employee restricted stock settlement |
(224 | ) | (65 | ) | ||||
Cash dividends paid to stockholders |
(2,171 | ) | (2,166 | ) | ||||
Customer advance for production of leased railcars |
| 19,400 | ||||||
Repayment of customer advance |
(1,035 | ) | (552 | ) | ||||
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Net cash flows (used in) provided by financing activities |
(3,287 | ) | 16,479 | |||||
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Net decrease in cash and cash equivalents |
(119,052 | ) | (39,512 | ) | ||||
Cash and cash equivalents at beginning of period |
145,506 | 98,509 | ||||||
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Cash and cash equivalents at end of period |
$ | 26,454 | $ | 58,997 | ||||
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Supplemental cash flow information: |
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Interest paid |
$ | 42 | $ | 106 | ||||
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Income taxes paid |
$ | 51 | $ | 581 | ||||
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Income tax refunds received |
$ | 573 | $ | | ||||
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
7
FreightCar America, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share data)
Note 1 Description of the Business
FreightCar America, Inc. (FreightCar) operates primarily in North America through its direct and indirect subsidiaries, JAC Operations, Inc. (Operations), Johnstown America, LLC (JA LLC), Freight Car Services, Inc. (FCS), JAIX Leasing Company (JAIX), FreightCar Roanoke, LLC (FCR), FreightCar Mauritius Ltd. (Mauritius), FreightCar Rail Services, LLC (FCRS), FreightCar Short Line, Inc. (Short Line) and FreightCar Alabama, LLC (FCAL) (herein collectively referred to as the Company), and manufactures a wide range of railroad freight cars, supplies railcar parts, leases freight cars and provides railcar maintenance and repairs. The Company designs and builds high-quality railcars, including coal cars, bulk commodity cars, covered hopper cars, intermodal and non-intermodal flat cars, mill gondola cars, coil steel cars and motor vehicle carriers. The Company is headquartered in Chicago, Illinois and has facilities in the following locations: Cherokee, Alabama; Danville, Illinois; Grand Island, Nebraska; Hastings, Nebraska; Johnstown, Pennsylvania; and Roanoke, Virginia.
The Companys operations comprise two reportable segments, Manufacturing and Services. The Company and its direct and indirect subsidiaries are all Delaware corporations or Delaware limited liability companies except Mauritius, which is incorporated in Mauritius. The Companys direct and indirect subsidiaries are all wholly owned.
Note 2 Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of FreightCar America, Inc. and subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The foregoing financial information has been prepared in accordance with the accounting principles generally accepted in the United States of America (GAAP) and rules and regulations of the Securities and Exchange Commission (the SEC) for interim financial reporting. The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. The results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of the results to be expected for the full year. The accompanying interim financial information is unaudited; however, the Company believes the financial information reflects all adjustments (consisting of items of a normal recurring nature) necessary for a fair presentation of financial position, results of operations and cash flows in conformity with GAAP. The 2013 year-end balance sheet data was derived from the audited financial statements as of December 31, 2013. Certain information and note disclosures normally included in the Companys annual financial statements prepared in accordance with GAAP have been condensed or omitted. These interim financial statements should be read in conjunction with the audited financial statements contained in the Companys annual report on Form 10-K for the year ended December 31, 2013.
Note 3 Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) 605, Revenue Recognition. ASU 2014-09 provides for a single five-step model to be applied to all revenue contracts with customers. ASU 2014-09 also requires additional financial statement disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and may be adopted either retrospectively or on a modified retrospective basis whereby the new standard would be applied to new contracts and existing contracts with remaining performance obligations as of the effective date, with a cumulative catch-up adjustment recorded to beginning retained earnings at the effective date for existing contracts with remaining performance obligations. Early adoption is not permitted. The Company is currently evaluating the methods of adoption allowed by the new standard and the effect that the standard is expected to have on its consolidated financial position, results of operations and cash flows and related disclosures.
8
In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 changes the criteria for reporting discontinued operations and expands disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift that has (or will have) a major effect on an entitys operations should be presented as discontinued operations when the component of an entity or group of components of an entity is classified as held for sale or is disposed of by sale or other means. Examples include a disposal of operations in a major geographic area, a major line of business or a major equity method investment. This standard is effective prospectively for reporting periods beginning after December 15, 2014 (early adoption is permitted only for disposals that have not been previously reported). The adoption of these changes is not expected to have a material impact on the consolidated financial position, results of operations or cash flows of the Company.
Note 4 Segment Information
The Companys operations comprise two reportable segments, Manufacturing and Services. The Companys Manufacturing segment includes new railcar manufacturing, used railcar sales, railcar leasing and major railcar rebuilds. The Companys Services segment includes general railcar repair and maintenance, inspections and parts sales. Corporate includes selling, general and administrative expenses not related to production of goods and services, retiree pension and other postretirement benefit costs, and all other non-operating activity.
Segment operating income is an internal performance measure used by the Companys Chief Operating Decision Maker to assess the performance of each segment in a given period. Segment operating income includes all external revenues attributable to the segments as well as operating costs and income that management believes are directly attributable to the current production of goods and services. The Companys management reporting package does not include interest revenue, interest expense or income taxes allocated to individual segments and these items are not considered as a component of segment operating income. Segment assets represent operating assets and exclude intersegment accounts, deferred tax assets and income tax receivables. The Company does not allocate cash and cash equivalents to its operating segments as the Companys treasury function is managed at the corporate level. Intersegment revenues were not material in any period presented.
Three Months Ended September 30, |
Nine Months Ended September 30, |
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2014 | 2013 | 2014 | 2013 | |||||||||||||
Revenues: |
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Manufacturing |
$ | 181,490 | $ | 66,943 | $ | 358,248 | $ | 181,722 | ||||||||
Services |
8,790 | 9,003 | 27,806 | 28,948 | ||||||||||||
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Consolidated revenues |
$ | 190,280 | $ | 75,946 | $ | 386,054 | $ | 210,670 | ||||||||
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Operating income (loss): |
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Manufacturing |
$ | 16,185 | $ | 4,298 | $ | 18,584 | $ | 5,376 | ||||||||
Services |
1,633 | 706 | 2,277 | 3,607 | ||||||||||||
Corporate |
(6,501 | ) | (5,950 | ) | (18,705 | ) | (14,936 | ) | ||||||||
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Consolidated operating income (loss) |
11,317 | (946 | ) | 2,156 | (5,953 | ) | ||||||||||
Consolidated interest expense and deferred financing costs |
(284 | ) | (238 | ) | (854 | ) | (481 | ) | ||||||||
Consolidated other income |
7 | 15 | 48 | 59 | ||||||||||||
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Consolidated income (loss) before income taxes |
$ | 11,040 | $ | (1,169 | ) | $ | 1,350 | $ | (6,375 | ) | ||||||
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Depreciation and amortization: |
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Manufacturing |
$ | 1,740 | $ | 1,790 | $ | 5,060 | $ | 4,614 | ||||||||
Services |
367 | 520 | 1,155 | 1,561 | ||||||||||||
Corporate |
429 | 396 | 1,266 | 1,114 | ||||||||||||
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Consolidated depreciation and amortization |
$ | 2,536 | $ | 2,706 | $ | 7,481 | $ | 7,289 | ||||||||
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Capital expenditures: |
||||||||||||||||
Manufacturing |
$ | 2,460 | $ | 829 | $ | 7,591 | $ | 14,960 | ||||||||
Services |
88 | 88 | 393 | 287 | ||||||||||||
Corporate |
55 | 311 | 264 | 1,035 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consolidated capital expenditures |
$ | 2,603 | $ | 1,228 | $ | 8,248 | $ | 16,282 | ||||||||
|
|
|
|
|
|
|
|
9
September 30, 2014 |
December 31, 2013 |
|||||||
Assets: |
||||||||
Manufacturing |
$ | 239,200 | $ | 161,221 | ||||
Services |
20,237 | 21,026 | ||||||
Corporate |
90,607 | 203,571 | ||||||
|
|
|
|
|||||
Total operating assets |
350,044 | 385,818 | ||||||
Consolidated income taxes receivable |
581 | 1,126 | ||||||
Consolidated deferred income taxes, current |
11,017 | 11,017 | ||||||
Consolidated deferred income taxes, long-term |
19,425 | 19,758 | ||||||
|
|
|
|
|||||
Consolidated assets |
$ | 381,067 | $ | 417,719 | ||||
|
|
|
|
Note 5 Fair Value Measurements
The following table sets forth by level within the ASC 820 fair value hierarchy the Companys financial assets that were recorded at fair value on a recurring basis and the Companys non-financial assets that were recorded at fair value on a non-recurring basis.
Recurring Fair Value Measurements |
As of September 30, 2014 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
ASSETS: |
||||||||||||||||
Cash equivalents |
$ | 65 | $ | | $ | | $ | 65 | ||||||||
Restricted certificates of deposit |
$ | 4,605 | $ | | $ | | $ | 4,605 | ||||||||
Recurring Fair Value Measurements |
As of December 31, 2013 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
ASSETS: |
||||||||||||||||
Cash equivalents |
$ | 48 | $ | | $ | | $ | 48 | ||||||||
Restricted certificates of deposit |
$ | 4,605 | $ | | $ | | $ | 4,605 | ||||||||
Non-Recurring Fair Value Measurements |
As of December 31, 2013 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
ASSETS: |
||||||||||||||||
Property, plant and equipment |
$ | | $ | 2,451 | $ | | $ | 2,451 |
The carrying values of property, plant and equipment at the Companys Danville and Clinton facilities were reduced to their estimated fair market values during the fourth quarter of 2013. Fair market values for the Danville and Clinton facilities were estimated using the market approach using market data such as recent sales of comparable assets in active markets and estimated salvage values. No non-financial assets were recorded at fair value on a non-recurring basis as of September 30, 2014.
Note 6 Marketable Securities
The Companys current investment policy is to invest in cash, certificates of deposit, U.S. treasury securities, U.S. government agency obligations and money market funds invested in U.S. government securities. Marketable securities as of September 30, 2014 and December 31, 2013 of $47,990 and $38,988, respectively, consisted of U.S. treasury securities held to maturity with original maturities of greater than 90 days and up to one year. Due to the short-term nature of these securities and their low interest rates, there is no material difference between their fair market values and amortized costs.
10
Note 7 Inventories
Inventories, net of reserve for excess and obsolete items, consist of the following:
September 30, 2014 |
December 31, 2013 |
|||||||
Work in progress |
$ | 95,242 | $ | 43,643 | ||||
Finished new railcars |
2,491 | 16,798 | ||||||
Used railcars acquired upon trade-in |
21 | 105 | ||||||
Parts and service inventory |
5,766 | 5,794 | ||||||
|
|
|
|
|||||
Total inventories |
$ | 103,520 | $ | 66,340 | ||||
|
|
|
|
Inventory on the Companys condensed consolidated balance sheets includes reserves of $1,893 and $1,793 relating to excess or slow-moving inventory for parts and work in progress at September 30, 2014 and December 31, 2013, respectively.
Note 8 Leased Railcars
Inventory on lease was $25,676 and $16,955 at September 30, 2014 and December 31, 2013, respectively. Railcars available for lease, net at September 30, 2014 was $30,123 (cost of $35,225 and accumulated depreciation of $5,102) and at December 31, 2013 was $36,110 (cost of $41,389 and accumulated depreciation of $5,279). The Companys lease utilization rate for railcars in its lease fleet was 100% at each of September 30, 2014 and December 31, 2013.
Leased railcars at September 30, 2014 are subject to lease agreements with external customers with terms of up to seven years and are accounted for as operating leases.
Future minimum rental revenues on leased railcars at September 30, 2014 are as follows:
Three months ending December 31, 2014 |
$ | 1,168 | ||
Year ending December 31, 2015 |
2,052 | |||
Year ending December 31, 2016 |
1,256 | |||
Year ending December 31, 2017 |
1,256 | |||
Year ending December 31, 2018 |
668 | |||
Thereafter |
1,377 | |||
|
|
|||
$ | 7,777 | |||
|
|
Note 9 Property, Plant and Equipment
Property, plant and equipment consists of the following:
September 30, 2014 |
December 31, 2013 |
|||||||
Buildings and improvements |
$ | 10,838 | $ | 11,076 | ||||
Machinery and equipment |
48,240 | 42,115 | ||||||
Software |
8,299 | 9,089 | ||||||
Leasehold improvements |
6,662 | 5,483 | ||||||
|
|
|
|
|||||
Cost of buildings and improvements, leasehold improvements, machinery, equipment and software |
74,039 | 67,763 | ||||||
Less: Accumulated depreciation and amortization |
(36,655 | ) | (31,406 | ) | ||||
|
|
|
|
|||||
Buildings and improvements, leasehold improvements, machinery, equipment and software, net of accumulated depreciation and amortization |
37,384 | 36,357 | ||||||
Land (including easements) |
1,976 | 2,072 | ||||||
Construction in process |
2,181 | 967 | ||||||
|
|
|
|
|||||
Total property, plant and equipment, net |
$ | 41,541 | $ | 39,396 | ||||
|
|
|
|
As part of the Companys strategic initiative to improve the contribution of its Services business to the Companys results of operations, management evaluated the long-term profitability of each of its railcar maintenance and repair shops during the fourth quarter of 2013 and decided to close its underperforming maintenance and repair shop in Clinton, Indiana. The estimated fair market values, representing the estimated salvage values of buildings, equipment and rail at the facility and the estimated sales value of the associated land as of December 31, 2013 are included in the table above. During the third quarter of 2014, these assets were sold to a third party resulting in a gain on sale of $1,078, which is included in gain on sale of assets held for sale in the condensed consolidated statements of operations for the three and nine months ended September 30, 2014.
11
Note 10 Intangible Assets and Goodwill
Intangible assets consist of the following:
September 30, 2014 |
December 31, 2013 |
|||||||
Patents |
$ | 13,097 | $ | 13,097 | ||||
Accumulated amortization |
(12,000 | ) | (11,557 | ) | ||||
|
|
|
|
|||||
Patents, net of accumulated amortization |
1,097 | 1,540 | ||||||
|
|
|
|
|||||
Customer-related intangibles |
1,194 | 1,194 | ||||||
Accumulated amortization |
(458 | ) | (362 | ) | ||||
|
|
|
|
|||||
Customer-related intangibles, net of accumulated amortization |
736 | 832 | ||||||
|
|
|
|
|||||
Total amortizing intangibles |
$ | 1,833 | $ | 2,372 | ||||
|
|
|
|
|||||
Manufacturing segment goodwill |
$ | 21,521 | $ | 21,521 | ||||
Services segment goodwill |
607 | 607 | ||||||
|
|
|
|
|||||
Total goodwill |
$ | 22,128 | $ | 22,128 | ||||
|
|
|
|
Patents are being amortized on a straight-line method over their remaining legal life from the date of acquisition. The weighted average remaining life of the Companys patents is three years. Amortization expense related to patents, which is included in cost of sales, was $148 for each of the three month periods ended September 30, 2014 and 2013, and $443 for each of the nine month periods ended September 30, 2014 and 2013, respectively. Customer-related intangibles are being amortized from the date of acquisition and have a remaining life of 16 years. Amortization expense related to customer intangibles, which is included in selling, general and administrative expenses, was $32 and $37 for the three months ended September 30, 2014 and 2013, respectively, and $97 and $111 for the nine months ended September 30, 2014 and 2013, respectively.
The estimated future intangible amortization at September 30, 2014 is as follows:
Three months ending December 31, 2014 |
$ | 180 | ||
Year ending December 31, 2015 |
698 | |||
Year ending December 31, 2016 |
457 | |||
Year ending December 31, 2017 |
91 | |||
Year ending December 31, 2018 |
73 | |||
Thereafter |
334 | |||
|
|
|||
$ | 1,833 | |||
|
|
The Company assesses the carrying value of goodwill for impairment annually or more frequently whenever events occur and circumstances change indicating potential impairment. During the quarter ended September 30, 2014, the Company performed its annual assessment and concluded that the estimated fair value of the Companys reporting units exceeded the carrying value as of the testing date.
Management determines the fair value of the reporting units using a combination of the income approach, utilizing the discounted cash flow method, and the market approach, utilizing the guideline company method.
12
Note 11 Product Warranties
Warranty terms are based on the negotiated railcar sales contracts. The Company typically warrants that new railcars produced by it will be free from defects in material and workmanship under normal use and service identified for a period of up to five years from the time of sale. The changes in the warranty reserve for the three and nine months ended September 30, 2014 and 2013, are as follows:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Balance at the beginning of the period |
$ | 8,158 | $ | 6,776 | $ | 6,957 | $ | 7,625 | ||||||||
Provision for warranties issued during the period |
711 | 73 | 1,501 | 372 | ||||||||||||
Reductions for payments, cost of repairs and other |
(219 | ) | (271 | ) | (480 | ) | (764 | ) | ||||||||
Adjustments to prior warranties |
41 | 390 | 713 | (265 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at the end of the period |
$ | 8,691 | $ | 6,968 | $ | 8,691 | $ | 6,968 | ||||||||
|
|
|
|
|
|
|
|
Note 12 Revolving Credit Facility
The Company entered into a $50,000 senior secured revolving credit facility (the Revolving Credit Facility) pursuant to a Credit Agreement dated as of July 26, 2013 (the Credit Agreement) by and among FreightCar and certain of its subsidiaries, as borrowers (together the Borrowers), and Bank of America, N.A., as lender. The Revolving Credit Facility can be used for general corporate purposes, including working capital. As of September 30, 2014, the Company had no borrowings under the Revolving Credit Facility. The Credit Agreement also contains a sub-facility for letters of credit not to exceed the lesser of $30,000 and the amount of the senior secured revolving credit facility at such time. As of September 30, 2014, the Company had $5,435 in outstanding letters of credit under the Revolving Credit Facility and therefore had $44,565 available for borrowing under the Revolving Credit Facility. The Credit Agreement has a term ending on July 26, 2016 and revolving loans outstanding thereunder will bear interest at a rate of LIBOR plus an applicable margin of 1.50% or at a base rate, as selected by the Company. Base rate loans will bear interest at the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate or (c) LIBOR plus 1.00%. The Company is required to pay a non-utilization fee of between 0.10% and 0.30% on the unused portion of the revolving loan commitment depending on the Companys quarterly average balance of unrestricted cash and the Companys consolidated leverage ratio. Borrowings under the Revolving Credit Facility are secured by a first priority perfected security interest in substantially all of the Borrowers assets excluding railcars held by the Companys railcar leasing subsidiary, JAIX. The Borrowers also have pledged all of the equity interests in the Companys direct and indirect domestic subsidiaries as security for the Revolving Credit Facility. The Credit Agreement has both affirmative and negative covenants, including, without limitation, a covenant requiring minimum consolidated net liquidity of $35,000 and limitations on indebtedness, liens and investments. The Credit Agreement also provides for customary events of default.
As of December 31, 2013, the Company had $4,605 in outstanding letters of credit under the Revolving Credit Facility and therefore had $45,395 available for borrowing under the Revolving Credit Facility. As of December 31, 2013, the Company had no borrowings under the Revolving Credit Facility.
Note 13 Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) consist of the following:
Pre-Tax | Tax | Net of Tax | ||||||||||
Three months ended September 30, 2014 |
||||||||||||
Pension liability activity: |
||||||||||||
Reclassification adjustment for amortization of net loss (pre-tax cost of sales of $44 and selling, general and administrative expenses of $9) |
$ | 53 | $ | 19 | $ | 34 | ||||||
Postretirement liability activity: |
||||||||||||
Reclassification adjustment for amortization of net loss (pre-tax cost of sales of $82 and selling, general and administrative expenses of $10) |
92 | 32 | 60 | |||||||||
Reclassification adjustment for amortization of prior service cost (pre-tax cost of sales of $54 and selling, general and administrative expenses of $6) |
60 | 21 | 39 | |||||||||
|
|
|
|
|
|
|||||||
$ | 205 | $ | 72 | $ | 133 | |||||||
|
|
|
|
|
|
13
Pre-Tax | Tax | Net of Tax | ||||||||||
Three months ended September 30, 2013 |
||||||||||||
Pension liability activity: |
||||||||||||
Reclassification adjustment for amortization of net loss (pre-tax cost of sales of $118 and selling, general and administrative expenses of $13) |
$ | 131 | $ | 46 | $ | 85 | ||||||
Postretirement liability activity: |
||||||||||||
Reclassification adjustment for amortization of net loss (pre-tax cost of sales of $146 and selling, general and administrative expenses of $7) |
153 | 53 | 100 | |||||||||
Reclassification adjustment for amortization of prior service cost (pre-tax cost of sales of $57 and selling, general and administrative expenses of $3) |
60 | 22 | 38 | |||||||||
|
|
|
|
|
|
|||||||
$ | 344 | $ | 121 | $ | 223 | |||||||
|
|
|
|
|
|
Pre-Tax | Tax | Net of Tax | ||||||||||
Nine months ended September 30, 2014 |
||||||||||||
Pension liability activity: |
||||||||||||
Reclassification adjustment for amortization of net loss (pre-tax cost of sales of $133 and selling, general and administrative expenses of $26) |
$ | 159 | $ | 57 | $ | 102 | ||||||
Postretirement liability activity: |
||||||||||||
Reclassification adjustment for amortization of net loss (pre-tax cost of sales of $248 and selling, general and administrative expenses of $30) |
278 | 98 | 180 | |||||||||
Reclassification adjustment for amortization of prior service cost (pre-tax cost of sales of $162 and selling, general and administrative expenses of $18) |
180 | 63 | 117 | |||||||||
|
|
|
|
|
|
|||||||
$ | 617 | $ | 218 | $ | 399 | |||||||
|
|
|
|
|
|
|||||||
Pre-Tax | Tax | Net of Tax | ||||||||||
Nine months ended September 30, 2013 |
||||||||||||
Pension liability activity: |
||||||||||||
Reclassification adjustment for amortization of net loss (pre-tax cost of sales of $354 and selling, general and administrative expenses of $39) |
$ | 393 | $ | 138 | $ | 255 | ||||||
Postretirement liability activity: |
||||||||||||
Reclassification adjustment for amortization of net loss (pre-tax cost of sales of $437 and selling, general and administrative expenses of $23) |
460 | 162 | 298 | |||||||||
Reclassification adjustment for amortization of prior service cost (pre-tax cost of sales of $171 and selling, general and administrative expenses of $9) |
180 | 64 | 116 | |||||||||
|
|
|
|
|
|
|||||||
$ | 1,033 | $ | 364 | $ | 669 | |||||||
|
|
|
|
|
|
The components of accumulated other comprehensive loss consist of the following:
September 30, 2014 |
December 31, 2013 |
|||||||
Unrecognized pension cost, net of tax of $4,196 and $4,253 |
$ | (6,376 | ) | $ | (6,478 | ) | ||
Unrecognized postretirement cost, net of tax of $5,245 and $5,406 |
(8,357 | ) | (8,654 | ) | ||||
|
|
|
|
|||||
$ | (14,733 | ) | $ | (15,132 | ) | |||
|
|
|
|
14
Note 14 Stock-Based Compensation
The Company recognizes stock-based compensation expense for stock option awards based on the fair value of the award on the grant date using the Black-Scholes option valuation model. Expected life in years for all stock options awards was determined using the simplified method. The Company believes that it is appropriate to use the simplified method in determining the expected life for options because the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for stock options and due to the limited number of stock option grants to date. Expected volatility was based on the historical volatility of the Companys stock. The risk-free interest rate was based on the U.S. Treasury bond rate for the expected life of the option. The expected dividend yield was based on the latest annualized dividend rate and the current market price of the underlying common stock on the date of the grant. The Company recognizes stock-based compensation for restricted stock awards over the vesting period based on the fair market value of the stock on the date of the award, calculated as the average of the high and low trading prices for the Companys common stock on the award date.
Total stock-based compensation was $476 and $629 for the three months ended September 30, 2014 and 2013, respectively, and $1,576 and $1,703 for the nine months ended September 30, 2014 and 2013, respectively. As of September 30, 2014, there was $3,043 of unearned compensation expense related to stock options and restricted stock awards, which will be recognized over the remaining requisite service period of 36 months.
Note 15 Employee Benefit Plans
The Company has qualified, defined benefit pension plans that were established to provide benefits to certain employees. These plans are frozen and participants are no longer accruing benefits. The Company also provides certain postretirement health care benefits for certain of its salaried and hourly retired employees. Generally, employees may become eligible for health care benefits if they retire after attaining specified age and service requirements. These benefits are subject to deductibles, co-payment provisions and other limitations.
A substantial portion of the Companys postretirement benefit plan obligation relates to an expired settlement agreement with the union representing employees at the Companys and its predecessors Johnstown manufacturing facilities. The terms of that settlement agreement (the 2005 Settlement Agreement) required the Company to pay until November 30, 2012 certain monthly amounts toward the cost of retiree health care coverage. The Company engaged in voluntary negotiations for two years in an effort to reach a consensual agreement related to the expired 2005 Settlement Agreement but no agreement was reached. The Company terminated, effective November 1, 2013, its contributions for medical coverage and life insurance benefits to affected retirees and is seeking declaratory relief to confirm the Companys rights under the Employee Retirement Income Security Act of 1974, as amended (ERISA), to reduce or terminate retiree medical coverage and life insurance benefits pursuant to the plans that were the subject of the 2005 Settlement Agreement. On July 9, 2013, the union and certain retiree defendants filed suit in the United States District Court for the Western District of Pennsylvania regarding the same dispute (see Note 16). The outcome of the pending litigation and the impact on the Companys postretirement benefit plan obligation cannot be determined at this time. The Companys recorded postretirement benefit plan obligation assumes for accounting purposes a continuation of those monthly payments after November 30, 2012 (as was permitted under the settlement). However, the Companys postretirement benefit plan obligation could significantly increase or decrease as a result of the litigation or if the parties agree to an alternative settlement agreement.
Generally, contributions to the plans are not less than the minimum amounts required under ERISA and not more than the maximum amount that can be deducted for federal income tax purposes. The plans assets are held by independent trustees and consist primarily of equity and fixed income securities.
The components of net periodic benefit cost (benefit) for the three and nine months ended September 30, 2014 and 2013, are as follows:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Pension Benefits |
||||||||||||||||
Interest cost |
$ | 661 | $ | 632 | $ | 1,983 | $ | 1,896 | ||||||||
Expected return on plan assets |
(905 | ) | (887 | ) | (2,715 | ) | (2,661 | ) | ||||||||
Amortization of unrecognized net loss |
53 | 131 | 159 | 393 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | (191 | ) | $ | (124 | ) | $ | (573 | ) | $ | (372 | ) | |||||
|
|
|
|
|
|
|
|
15
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Postretirement Benefit Plan |
||||||||||||||||
Service cost |
$ | 16 | $ | 18 | $ | 48 | $ | 54 | ||||||||
Interest cost |
750 | 657 | 2,250 | 1,971 | ||||||||||||
Amortization of prior service cost |
60 | 60 | 180 | 180 | ||||||||||||
Amortization of unrecognized net loss |
92 | 153 | 278 | 460 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 918 | $ | 888 | $ | 2,756 | $ | 2,665 | |||||||||
|
|
|
|
|
|
|
|
The Company made contributions to the Companys defined benefit pension plans of $108 and $61 for the three months ended September 30, 2014 and 2013, respectively, and $217 and $122 for the nine months ended September 30, 2014 and 2013, respectively. The Company expects to make $341 in contributions (including contributions already made) to its pension plans in 2014 to meet its minimum funding requirements.
The Company made payments to the Companys postretirement benefit plan of $107 and $508 for the three months ended September 30, 2014 and 2013, respectively, and $323 and $2,977 for the nine months ended September 30, 2014 and 2013, respectively. The Company expects to make $407 in contributions (including contributions already made) to its postretirement benefit plan in 2014 for salaried retirees. However, because the Companys postretirement benefit plan obligation is currently subject to litigation the postretirement benefit payments for hourly retirees, if any, are unknown at this time.
The Company also maintains qualified defined contribution plans, which provide benefits to employees based on employee contributions, employee earnings or certain subsidiary earnings, with discretionary contributions allowed. Expenses related to these plans were $443 and $310 for the three months ended September 30, 2014 and 2013, respectively, and $1,142 and $1,190 for the nine months ended September 30, 2014 and 2013, respectively.
Note 16 Contingencies
The Company is involved in various warranty and repair claims and, in certain cases, related pending and threatened legal proceedings with its customers in the normal course of business. In the opinion of management, the Companys potential losses in excess of the accrued warranty and legal provisions, if any, are not expected to be material to the Companys consolidated financial condition, results of operations or cash flows.
On July 8, 2013, the Company filed a Complaint for Declaratory Judgment (the Complaint) in the United States District Court for the Northern District of Illinois, Eastern Division (the Illinois Court). The case names as defendants the United Steel, Paper & Forestry, Rubber, Manufacturing, Energy, Allied Industrial & Services Workers International Union, AFL-CIO, CLC (the USW), as well as approximately 650 individual Retiree Defendants (as defined in the Complaint), and was assigned Case No 1:13-cv-4889.
As described in the Complaint, pursuant to the 2005 Settlement Agreement among the Company, the USW and the Retiree Defendants, the Company agreed to make certain levels of contributions to medical coverage for the Retiree Defendants and to continue to provide life insurance benefits at their amount at that time under certain of the Companys employee welfare benefit plans. The 2005 Settlement Agreement expressly provided that, as of November 30, 2012, the Company could cease making these contributions. In June 2011, the Company and the USW began discussing the possibility of an extension beyond November 30, 2012 for the Companys contributions to retiree medical coverage and life insurance benefits at a reduced amount and on other mutually acceptable terms. The Company engaged in voluntary negotiations for two years with the USW and counsel for the Retiree Defendants in an effort to reach a consensual agreement regarding such medical and life insurance benefits, but the parties were unable to reach a final agreement. The Company terminated, effective November 1, 2013, its contributions for medical coverage provided to the Retiree Defendants and the provision of life insurance benefits and is seeking declaratory relief to confirm its rights under the ERISA to reduce or terminate retiree medical coverage and life insurance benefits pursuant to the plans that were the subject of the 2005 Settlement Agreement.
On July 9, 2013, the USW and certain Retiree Defendants (collectively, the Pennsylvania Plaintiffs) filed a putative class action in the United States District Court for the Western District of Pennsylvania (the Pennsylvania Court), captioned as Zanghi, et al. v. FreightCar America, Inc., et al., Case No. 3:13-cv-146. The complaint filed with the Pennsylvania Court alleges that the Company does not have the right to terminate welfare benefits previously provided to the Retiree Defendants and requests, among other relief, entry of a judgment finding that the Retiree Defendants have a vested right to specified welfare benefits.
16
On July 26, 2013, the Pennsylvania Plaintiffs filed with the Illinois Court a Motion to Dismiss Pursuant to Fed. R. Civ. P. 12(b) or in the Alternative, to Transfer Pursuant to 28 U.S.C. 1404(a), as well as a Motion to Stay and/or Prevent Plaintiff from Obtaining Defaults against the Retiree Defendants. On August 5, 2013, the Company filed with the Pennsylvania Court a Motion to Dismiss Pursuant to Fed. R. Civ. P. 12(b) or in the Alternative, to Transfer Pursuant to 28 U.S.C. 1404(a). On January 14, 2014, the Pennsylvania Court denied the Companys motion to dismiss and, on January 16, 2014, the Illinois Court transferred the Companys case to the Pennsylvania Court. On January 31, 2014, the Company filed a motion to consolidate both cases before the Pennsylvania Court. On April 3, 2014, the Pennsylvania Court entered an order (the Initial Procedural Order) that, among other things, consolidated both cases before the Pennsylvania Court, certified a class for purposes of the consolidated actions, established discovery parameters and deadlines and established a briefing schedule applicable to the parties cross motions for summary judgment as to liability only. On July 17, 2014, the parties filed with the Pennsylvania Court their respective motions for summary judgment as to liability. The parties have submitted their responses and replies with respect to each of the motions. There can be no assurance as to when the Pennsylvania Court will issue its ruling on such motions, or how the Pennsylvania Court will rule.
On September 5, 2013, the Pennsylvania Plaintiffs and certain putative class representatives filed a Plaintiffs Motion for Temporary Restraining Order and Preliminary Injunction (the TRO Motion) with the Pennsylvania Court. In the TRO Motion, the plaintiffs requested that the Pennsylvania Court enter an injunction requiring the Company to continue to make monthly contributions at the same rate established by the 2005 Settlement Agreement until the parties dispute is fully adjudicated on the merits. Following entry of the Initial Procedural Order, the Pennsylvania Court denied the TRO Motion without prejudice.
The Company has recorded postretirement benefit plan obligations, a substantial portion of which relates to the dispute now before the Illinois Court and the Pennsylvania Court (see Note 15).
On September 29, 2008, Bral Corporation, a supplier of certain railcar parts to the Company, filed a complaint against the Company in the U.S. District Court for the Western District of Pennsylvania (the Pennsylvania Lawsuit). The complaint alleged that the Company breached an exclusive supply agreement with Bral by purchasing parts from CMN Components, Inc. (CMN) and sought damages in an unspecified amount, attorneys fees and other legal costs. On December 14, 2007, Bral sued CMN in the U.S. District Court for the Northern District of Illinois, alleging among other things that CMN interfered in the business relationship between Bral and the Company (the Illinois Lawsuit) and seeking damages in an unspecified amount, attorneys fees and other legal costs. On October 22, 2008, the Company entered into an Assignment of Claims Agreement with CMN under which CMN assigned to the Company its counterclaims against Bral in the Illinois Lawsuit and the Company agreed to defend and indemnify CMN against Brals claims in that lawsuit. On March 4, 2013, Bral Corporation and the Company agreed to settle the Illinois Lawsuit and the Pennsylvania Lawsuit. The settlement resulted in a $3,884 reduction in litigation reserves, which favorably impacted the Companys results of operations for the nine months ended September 30, 2013.
In addition to the foregoing, the Company is involved in certain other pending and threatened legal proceedings, including commercial disputes and workers compensation and employee matters arising out of the conduct of its business. While the ultimate outcome of these other legal proceedings cannot be determined at this time, it is the opinion of management that the resolution of these other actions will not have a material adverse effect on the Companys financial condition, results of operations or cash flows.
Note 17 Other Commitments
The Company leases certain property and equipment under long-term operating leases expiring at various dates through 2024. The leases generally contain specific renewal options at lease-end at the then fair market amounts.
Future minimum lease payments at September 30, 2014 are as follows:
Three months ending December 31, 2014 |
$ | 2,594 | ||
Year ending December 31, 2015 |
10,005 | |||
Year ending December 31, 2016 |
9,095 | |||
Year ending December 31, 2017 |
8,786 | |||
Year ending December 31, 2018 |
8,859 | |||
Thereafter |
35,692 | |||
|
|
|||
$ | 75,031 | |||
|
|
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The Company is liable for maintenance, insurance and similar costs under most of its leases and such costs are not included in the future minimum lease payments. Total rental expense for the three months ended September 30, 2014 and 2013, was approximately $2,331 and $2,334, respectively. Total rental expense for the nine months ended September 30, 2014 and 2013, was approximately $7,000 and $6,551, respectively.
The Company is party to non-cancelable agreements with its suppliers to purchase certain materials used in the manufacturing process. The commitments may vary based on the actual quantities ordered and be subject to the actual price when ordered. At September 30, 2014, the Company had purchase commitments under these agreements as follows:
Three months ending December 31, 2014 |
$ | 1,364 | ||
Year ending December 31, 2015 |
6,251 | |||
Year ending December 31, 2016 |
9,375 | |||
Year ending December 31, 2017 |
9,375 | |||
Year ending December 31, 2018 |
| |||
Thereafter |
| |||
|
|
|||
$ | 26,365 | |||
|
|
Note 18 Earnings Per Share
Shares used in the computation of the Companys basic and diluted earnings per common share are reconciled as follows:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Weighted average common shares outstanding |
12,007,970 | 11,957,548 | 11,999,150 | 11,950,593 | ||||||||||||
Dilutive effect of employee stock options and nonvested share awards |
100,427 | | 89,578 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average diluted common shares outstanding |
12,108,397 | 11,957,548 | 12,088,728 | 11,950,593 | ||||||||||||
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding include the incremental shares that would be issued upon the assumed exercise of stock options and the assumed vesting of nonvested share awards. For the three months ended September 30, 2014 and 2013, 366,964 and 739,499 shares, respectively, were not included in the weighted average common shares outstanding calculation as they were anti-dilutive. For the nine months ended September 30, 2014 and 2013, 441,098 and 701,805 shares, respectively, were not included in the weighted average common shares outstanding calculation as they were anti-dilutive.
Note 19 Income Taxes
The Companys income tax provision was $4,608 for the three months ended September 30, 2014 compared to an income tax benefit of $243 for the three months ended September 30, 2013. The Companys effective tax rate for the three months ended September 30, 2014 was 41.7% and was higher than the statutory U.S. federal income tax rate of 35% primarily due to a 7.5% blended state tax rate and the 1.1% impact of other differences, which were partially offset by the (1.9)% impact of changes in the valuation allowance. The Companys effective tax rate for the three months ended September 30, 2013 was 20.8% and was lower than the statutory U.S. federal income tax rate of 35% primarily due to the (25.7)% impact of changes in the valuation allowance, which was partially offset by a 5.8% blended state rate and the 5.7% impact of non-deductible expenses and other permanent adjustments.
The Companys income tax provision was $252 for the nine months ended September 30, 2014 compared to $633 for the nine months ended September 30, 2013. The Companys effective tax rate for the nine months ended September 30, 2014 was 18.8% and was lower than the statutory U.S. federal income tax rate of 35% primarily due to the (29.1)% impact of changes in the valuation allowance, which was partially offset by a 6.8% blended state tax rate, the 5.4% impact of changes in uncertain tax positions and 0.7% for the effect of other differences.
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The income tax provision for the nine months ended September 30, 2013 included a provision of $1,538 resulting from applying changes in effective state tax rates on the Companys deferred tax balances. The addition of the Companys Shoals facility changed the mix of income from states in which it operates, resulting in changes in the Companys estimated state tax apportionment and effective state tax rates during the nine months ended September 30, 2013. Additionally, projected taxable income in certain states in which the Company operates may not be sufficient to realize the full value of net operating loss carryforwards. As a result, the income tax provision for the nine months ended September 30, 2013 also included the recognition of a valuation allowance of $2,503 against deferred tax assets related to net operating loss carryforwards in certain states in which the Company operates. These discrete tax provisions during the nine months ended September 30, 2013 were partially offset by $891 of discrete tax benefits recorded during the period.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEW
You should read the following discussion in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements that are based on managements current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements. See Cautionary Statement Regarding Forward-Looking Statements.
We believe we are the leading manufacturer of aluminum-bodied railcars and coal cars in North America, based on the number of railcars delivered. Our railcar manufacturing facilities are located in Cherokee, Alabama, Danville, Illinois and Roanoke, Virginia. Our Shoals facility is an important part of our long-term growth strategy as we continue to expand our railcar product and service offerings outside of our traditional coal car market. While our Danville and Roanoke facilities will continue to support our coal car products, the Shoals facility allows us to produce a broader variety of railcars in a cost-effective and efficient manner. Our Shoals facility delivered its first railcars during the fourth quarter of 2013 and production has continued to ramp up during 2014. Our Danville facility resumed production in June 2014 after being idled for fourteen months. We refurbish and rebuild railcars and sell forged, cast and fabricated parts for all of the railcars we produce, as well as those manufactured by others. We provide railcar repair and maintenance for all types of freight railcars through our FCRS subsidiary. FCRS has repair and maintenance facilities in Grand Island, Nebraska and Hastings, Nebraska and services freight cars and unit coal trains utilizing key rail corridors in the Western regions of the United States. We also lease freight cars through our JAIX Leasing Company subsidiary. As of September 30, 2014, the book value of leased railcars (including inventory on lease and railcars available for lease) was $55.8 million. Our primary customers are railroads, financial institutions and shippers.
We have two reportable segments, Manufacturing and Services. Our Manufacturing segment includes new railcar manufacturing, used railcar sales, railcar leasing and major railcar rebuilds. Our Services segment includes railcar repair and maintenance and parts sales. Corporate includes administrative activities and all other non-operating activities.
Total orders for railcars in the third quarter of 2014 were 7,375 units, consisting of 5,165 new railcars and 2,210 rebuilt railcars, compared to 2,401 units ordered in the second quarter of 2014, consisting of 2,201 new railcars and 400 leased railcars, and 6,001 units ordered in the third quarter of 2013, consisting of 1,714 new railcars, 75 leased railcars and 4,212 rebuilt railcars. Railcar deliveries totaled 2,354 units, consisting of 1,554 new railcars and 800 rebuilt railcars, in the third quarter of 2014, compared to 1,635 units, consisting of 835 new railcars and 800 rebuilt railcars, in the second quarter of 2014 and 937 units, consisting of 194 new railcars and 743 rebuilt railcars, in the third quarter of 2013. Total backlog of unfilled orders was 13,514 units, consisting of 9,414 new railcars, 3,700 rebuilt railcars and 400 leased railcars, at September 30, 2014, compared to 8,493 units, consisting of 5,424 new railcars, 2,290 rebuilt railcars and 779 leased railcars, at June 30, 2014 and 6,826 units, consisting of 3,071 new railcars, 3,680 rebuilt railcars and 75 leased railcars, at December 31, 2013. The estimated sales values of the backlogs were $1.1 billion and $492 million, respectively, as of September 30, 2014 and December 31, 2013. As of September 30, 2014, approximately 17% of the railcars in our backlog are expected to be delivered during 2014. The remaining 83% of the railcars are scheduled to be delivered in 2015 or beyond.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2014 compared to Three Months Ended September 30, 2013
Revenues
Our consolidated revenues for the three months ended September 30, 2014 were $190.3 million compared to $75.9 million for the three months ended September 30, 2013. Manufacturing segment revenues for the three months ended September 30, 2014 were $181.5 million compared to $66.9 million for the three months ended September 30, 2013. The increase in Manufacturing segment revenues for the 2014 period compared to the 2013 period reflects the increase in the number of railcars delivered and change in product mix. Services segment revenues for the three months ended September 30, 2014 were $8.8 million compared to $9.0 million for the three months ended September 30, 2013. The decrease in Services segment revenues for the 2014 period compared to the 2013 period reflects lower repair volumes, partially offset by higher parts sales revenue. Higher coal train utilization during the third quarter of 2014 reduced the volume of coal trains released for maintenance and reduced the repair volumes through our repair shops and sales of repair parts.
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Gross Profit
Our consolidated gross profit for the three months ended September 30, 2014 was $18.8 million compared to $6.2 million for the three months ended September 30, 2013, representing an increase of $12.6 million. The increase in our consolidated gross profit for the third quarter of 2014 compared to the third quarter of 2013 primarily reflects an increase in gross profit from our Manufacturing segment of $12.9 million, which was partially offset by a decrease in gross profit from our Services segment of $0.3 million. The increase in gross profit for our Manufacturing segment for the third quarter of 2014 compared to the third quarter of 2013 reflects the increase in deliveries. The strong industry backlog for railcars during 2014 has led to a tightening of certain railcar component supply. If this tightening of supply were to create disruptions to our operations, such circumstances could negatively impact future production and gross profit for our Manufacturing Segment. Gross profit for our Manufacturing segment for the third quarter of 2013 included start-up costs of our Shoals facility and carrying costs associated with our idled Danville facility totaling $3.3 million. The decrease in gross profit for our Services segment for the third quarter of 2014 compared to the third quarter of 2013 reflects lower repair volumes caused by increased utilization of railcars and a less profitable mix of parts sales and repair services, which were partially offset by higher parts sales volumes. Our consolidated gross profit margin was 9.9% for the three months ended September 30, 2014 compared to 8.1% for the three months ended September 30, 2013.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses for the three months ended September 30, 2014 were $9.2 million compared to $7.7 million for the three months ended September 30, 2013. The increase primarily reflects increases in a provision for incentive compensation of $1.3 million. Manufacturing segment selling, general and administrative expenses for the three months ended September 30, 2014 were $3.0 million compared to $1.9 million for the three months ended September 30, 2013. Services segment selling, general and administrative expenses were $0.8 million for the three months ended September 30, 2014 compared to $0.9 million for the three months ended September 30, 2013. Corporate selling, general and administrative expenses for the three months ended September 30, 2014 were $5.4 million compared to $4.8 million for the three months ended September 30, 2013.
Gain on Sale of Railcars Available for Lease
Gain on sale of railcars available for lease for the three months ended September 30, 2014 was $0.6 million and primarily represented the gain on sale of leased railcars with a net book value of $5.2 million. Gain on sale of railcars available for lease for the three months ended September 30, 2013 was $0.6 million and primarily represented the gain on sale of leased railcars with a net book value of $6.2 million.
Gain on Sale of Assets Held for Sale
In December 2013, we closed our underperforming maintenance and repair shop in Clinton, Indiana, reduced the carrying values of repair shop assets to their estimated fair market value, representing the estimated salvage values of building, equipment and rail at the facility and the estimated sales value of the associated land, and recorded restructuring and impairment charges of $1.7 million. Sale of the repair shop assets to a strategic buyer during the three months ended September 30, 2014 resulted in a gain of $1.1 million.
Operating Income (Loss)
Our consolidated operating income for the three months ended September 30, 2014 was $11.3 million compared to consolidated operating loss of $0.9 million for the three months ended September 30, 2013. Operating income for the Manufacturing segment was $16.2 million for the three months ended September 30, 2014 compared to $4.3 million for the three months ended September 30, 2013, reflecting the increase in deliveries. Operating income for our Manufacturing segment for the third quarter of 2013 reflected start-up costs of our Shoals facility and carrying costs associated with our idled Danville facility totaling $3.3 million. Services segment operating income was $1.6 million for the three months ended September 30, 2014 compared to $0.7 million for the three months ended September 30, 2013, reflecting the $1.1 million gain on sale of the repair shop assets during the three months ended September 30, 2014. Services segment operating income also reflects higher parts sales volumes, which were offset by lower repair volumes caused by increased utilization of trains and a less profitable mix of parts sales and repair services for the 2014 period compared to the 2013 period. Corporate costs were $6.5 million for the three months ended September 30, 2014 compared to $6.0 million for the three months ended September 30, 2013. Corporate costs for the three months ended September 30, 2013 included $0.4 million related to the start-up of our Shoals facility. The increase in Corporate costs for the three months ended September 30, 2014, compared to the 2013 period primarily reflects increases in the provision for incentive compensation of $1.3 million.
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Interest Expense and Deferred Financing Costs
Interest expense and the amortization of deferred financing costs were $0.3 million for the three months ended September 30, 2014 compared to $0.2 million for the three months ended September 30, 2013. In addition to commitment fees on our revolving credit facility, letter of credit fees and amortization of deferred financing costs, results for the 2014 period included non-cash imputed interest on a customer advance for leased railcars delivered for which revenue cannot be recognized until all contingencies have been resolved.
Income Taxes
Our income tax provision was $4.6 million for the three months ended September 30, 2014 compared to an income tax benefit of $0.2 million for the three months ended September 30, 2013. Our effective tax rate for the three months ended September 30, 2014 was 41.7% and was higher than the statutory U.S. federal income tax rate of 35% primarily due to a 7.5% blended state tax rate and the 1.1% impact of other differences, which were partially offset by the (1.9)% impact of changes in the valuation allowance. Our effective tax rate for the three months ended September 30, 2013 was 20.8% and was lower than the statutory U.S. federal income tax rate of 35% primarily due to the (25.7)% impact of changes in the valuation allowance due to changes in the mix of income from states in which we operate, which was partially offset by a 5.8% blended state rate and the 5.7% impact of non-deductible expenses and other permanent adjustments.
Net Income (Loss)
As a result of the foregoing, net income was $6.4 million for the three months ended September 30, 2014 compared to a net loss of $0.9 million for the three months ended September 30, 2013. For the three months ended September 30, 2014, our basic and diluted net income per share was $0.53 on basic and diluted shares outstanding of 12,007,970 and 12,108,397, respectively. For the three months ended September 30, 2013, our basic and diluted net loss per share was $0.08 on basic and diluted shares outstanding of 11,957,548.
Nine Months Ended September 30, 2014 compared to Nine Months Ended September 30, 2013
Revenues
Our consolidated revenues for the nine months ended September 30, 2014 were $386.1 million compared to $210.7 million for the nine months ended September 30, 2013. Manufacturing segment revenues for the nine months ended September 30, 2014 were $358.2 million compared to $181.7 million for the nine months ended September 30, 2013. The increase in Manufacturing segment revenues for the 2014 period compared to the 2013 period reflects the increase in the number of railcars delivered and product mix changes. Our Manufacturing segment delivered 4,742 units, consisting of 2,677 new railcars, 1,990 rebuilt railcars and 75 leased railcars, for the nine months ended September 30, 2014, compared to 2,720 units, consisting of 802 new railcars, 200 leased railcars and 1,718 rebuilt railcars, in the nine months ended September 30, 2013. Services segment revenues for the nine months ended September 30, 2014 were $27.8 million compared to $28.9 million for the nine months ended September 30, 2013. The decrease in Services segment revenues for the 2014 period compared to the 2013 period reflects lower repair volumes, which were partially offset by higher parts sales. Services segment revenues for the nine months ended September 30, 2014 were negatively impacted by higher coal train utilization, which reduced the volume of coal trains released for maintenance and reduced the repair volumes through our repair shops and sales of repair parts.
Gross Profit
Our consolidated gross profit for the nine months ended September 30, 2014 was $26.7 million compared to $13.4 million for the nine months ended September 30, 2013, representing an increase of $13.3 million. The increase in our consolidated gross profit for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 primarily reflects an increase in gross profit from our Manufacturing segment of $15.7 million, which was partially offset by a decrease in gross profit from our Services segment of $2.8 million. The increase in gross profit for our Manufacturing segment for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 reflects the increase in deliveries, which was partially offset by the effect of production inefficiencies at our Shoals and Danville facilities as they continued to ramp up production levels to support our backlog growth and product expansion. Costs associated with the continued ramp up of production volumes at our Shoals facility, carrying costs associated with our idled Danville facility, and incremental costs associated with the restart of production at Danville totaled $5.5 million for the first half of 2014. Gross profit for our Manufacturing segment for the nine months ended September 30, 2014 was also negatively impacted by multiple weather-related production shutdowns, supply disruptions and related inefficiencies during the first quarter of 2014
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totaling $1.9 million. The strong industry backlog for railcars during 2014 has led to a tightening of certain railcar component supply, which, if realized could significantly impact future production and gross profit for our Manufacturing Segment. Gross profit for our Manufacturing segment for the nine months ended September 30, 2013 included start-up costs of our Shoals facility and carrying costs associated with our idled Danville facility totaling $5.8 million. The decrease in gross profit for our Services segment for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 reflects lower repair volumes caused by increased utilization of trains and a less profitable mix of parts sales and repair services, partially offset by higher parts sales volumes. Our consolidated gross profit margin was 6.9% for the nine months ended September 30, 2014 compared to 6.4% for the nine months ended September 30, 2013.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses for the nine months ended September 30, 2014 were $26.3 million compared to $20.0 million for the nine months ended September 30, 2013, representing an increase of $6.3 million. During the nine months ended September 30, 2013, we settled the Bral litigation (see note 15 to our condensed consolidated financial statements), which resulted in a $3.9 million reduction in litigation reserves. Selling, general and administrative expenses for the nine months ended September 30, 2014 included increases in the provision for incentive compensation of $1.9 million and legal costs of $0.7 million, which were partially offset by decreases in employee procurement, relocation and travel costs totaling $0.7 million. Legal cost increases for the nine months ended September 30, 2014 were primarily related to the ongoing litigation relating to our postretirement benefit plan. Manufacturing segment selling, general and administrative expenses for the nine months ended September 30, 2014 were $8.1 million compared to $5.5 million for the nine months ended September 30, 2013. Services segment selling, general and administrative expenses for the nine months ended September 30, 2014 were $2.4 million compared to $2.8 million for the nine months ended September 30, 2013. Corporate selling, general and administrative expenses for the nine months ended September 30, 2014 were $15.8 million compared to $11.7 million for the nine months ended September 30, 2013, reflecting the reduction in the litigation reserve during the nine months ended September 30, 2013. Corporate selling, general and administrative expenses for the nine months ended September 30, 2013 also included $1.2 million related to the start-up of our Shoals facility.
Gain on Sale of Railcars Available for Lease
Gain on sale of railcars available for lease for the nine months ended September 30, 2014 was $0.7 million and primarily represented the gain on sale of leased railcars with a net book value of $5.2 million. Gain on sale of railcars available for lease for the nine months ended September 30, 2013 was $0.6 million and primarily represented the gain on sale of leased railcars with a net book value of $6.2 million.
Gain on Sale of Assets Held for Sale
In December 2013, we closed our underperforming maintenance and repair shop in Clinton, Indiana, reduced the carrying values of repair shop assets to their estimated fair market value, representing the estimated salvage values of building, equipment and rail at the facility and the estimated sales value of the associated land, and recorded restructuring and impairment charges of $1.7 million. Sale of the repair shop assets to a strategic buyer during the nine months ending September 30, 2014 resulted in a gain of $1.1 million.
Operating Income (Loss)
Our consolidated operating income for the nine months ended September 30, 2014 was $2.2 million compared to an operating loss of $6.0 million for the nine months ended September 30, 2013. Operating income for the Manufacturing segment was $18.6 million for the nine months ended September 30, 2014 compared to $5.4 million for the nine months ended September 30, 2013, reflecting the increase in deliveries. The increase in operating income for our Manufacturing segment for the nine months ended September 30, 2014 was negatively impacted by the effect of production inefficiencies at our Shoals and Danville facilities as they continued to ramp up production levels to support our backlog growth and product expansion. Costs associated with the continued ramp up of production volumes at our Shoals facility, carrying costs associated with our idled Danville facility and incremental costs associated with the restart of production at Danville totaled $5.6 million for the first half of 2014. Operating income for our Manufacturing segment for the nine months ended September 30, 2014 was also negatively impacted by multiple weather-related production shutdowns, supply disruptions and related inefficiencies during the first quarter of 2014 totaling $1.9 million. Operating income for our Manufacturing segment for the nine months ended September 30, 2013 reflected start-up costs of our Shoals facility and carrying costs associated with our idled Danville facility totaling $5.9 million. Services segment operating income was $2.3 million for the nine months ended September 30, 2014 compared to $3.6 million for the nine months ended September 30, 2013. The decrease in
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Services segment operating income reflects lower repair volumes caused by increased utilization of trains and a less profitable mix of parts sales and repair services, partially offset by higher parts sales for the 2014 period compared to the 2013 period. Corporate costs were $18.7 million for the nine months ended September 30, 2014 compared to $14.9 million for the nine months ended September 30, 2013, reflecting the $3.9 million reduction in litigation reserves from the Bral settlement. Corporate costs for the nine months ended September 30, 2014 also included increases in legal costs of $0.7 million, which were primarily related to our ongoing litigation relating to our postretirement benefit plan. Corporate costs for the nine months ended September 30, 2013 included $1.2 million related to the start-up of our Shoals facility.
Interest Expense and Deferred Financing Costs
Interest expense and the amortization of deferred financing costs were $0.9 million for the nine months ended September 30, 2014 compared to $0.5 million for the nine months ended September 30, 2013. In addition to commitment fees on our revolving credit facility, letter of credit fees and amortization of deferred financing costs, results for the 2014 period included non-cash imputed interest on a customer advance for leased railcars delivered for which revenue cannot be recognized until all contingencies have been resolved.
Income Taxes
Our income tax provision was $0.3 million for the nine months ended September 30, 2014 compared to $0.6 million for the nine months ended September 30, 2013. Our effective tax rate for the nine months ended September 30, 2014 was 18.8% and was lower than the statutory U.S. federal income tax rate of 35% primarily due to the (29.1)% impact of changes in the valuation allowance which was partially offset by a 6.8% blended state tax rate, the 5.4% impact of changes in uncertain tax positions and 0.7% for the effect of other differences.
The income tax provision for the nine months ended September 30, 2013 included a provision of $1.5 million resulting from applying changes in effective state tax rates on our deferred tax balances. The addition of our Shoals facility changed the mix of income from states in which we operate, resulting in changes in our estimated state tax apportionment and effective state tax rates during the nine months ended September 30, 2013. Additionally, projected taxable income in certain states in which we operate may not be sufficient to realize the full value of net operating loss carryforwards. As a result, the income tax provision for the nine months ended September 30, 2013 also included the recognition of a valuation allowance of $2.5 million against deferred tax assets related to net operating loss carryforwards in certain states in which we operate. These discrete tax provisions during the nine months ended September 30, 2013 were partially offset by $0.9 million of discrete tax benefits recorded during the period.
Net Income (Loss)
As a result of the foregoing, net income was $1.1 million for the nine months ended September 30, 2014 compared to a net loss of $7.0 million for the nine months ended September 30, 2013. For the nine months ended September 30, 2014, our basic and diluted net income per share was $0.09 on basic and diluted shares outstanding of 11,999,150 and 12,088,728, respectively. For the nine months ended September 30, 2013, our basic and diluted net loss per share was $0.59 on basic and diluted shares outstanding of 11,950,593.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity for the nine months ended September 30, 2014 and 2013, were our cash and cash equivalent balances on hand, our securities held to maturity and our revolving credit facility.
We entered into a $50.0 million senior secured revolving credit facility (the Revolving Credit Facility) pursuant to a Credit Agreement dated as of July 26, 2013 (the Credit Agreement) by and among FreightCar and certain of our subsidiaries, as borrowers, and Bank of America, N.A., as lender. The Revolving Credit Facility can be used for general corporate purposes, including working capital. As of September 30, 2014, we had no borrowings under the Revolving Credit Facility. The Credit Agreement also contains a sub-facility for letters of credit not to exceed the lesser of $30.0 million and the amount of the senior secured revolving credit facility at such time. As of September 30, 2014, we had $5.4 million in outstanding letters of credit under the Revolving Credit Facility and therefore had $44.6 million available for borrowing under the Revolving Credit Facility. The Credit Agreement has a term ending on July 26, 2016 and revolving loans outstanding thereunder will bear interest at a rate of LIBOR plus an applicable margin of 1.50% or at a base rate, as selected by us. Base rate loans will bear interest at the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate or (c) LIBOR plus 1.00%. We are required to pay a non-utilization fee of between 0.10% and 0.30% on the unused portion of the revolving loan commitment depending on our quarterly average balance of unrestricted cash and our consolidated leverage ratio. Borrowings under the
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Revolving Credit Facility are secured by a first priority perfected security interest in substantially all of our and our subsidiaries assets excluding railcars held by our railcar leasing subsidiary, JAIX. We also have pledged all of the equity interests in our direct and indirect domestic subsidiaries as security for the Revolving Credit Facility. The Credit Agreement has both affirmative and negative covenants, including, without limitation, a covenant requiring minimum consolidated net liquidity of $35.0 million and limitations on indebtedness, liens and investments. The Credit Agreement also provides for customary events of default.
As of December 31, 2013, we had $4.6 million in outstanding letters of credit under the Revolving Credit Facility and therefore had $45.4 million available for borrowing under the Revolving Credit Facility. As of December 31, 2013, we had no borrowings under the Revolving Credit Facility.
Our restricted cash and restricted certificates of deposit balance was $6.0 million as of September 30, 2014 and $7.8 million as of December 31, 2013, and consisted of cash and certificates of deposit used to collateralize standby letters of credit with respect to performance guarantees and to support our workers compensation insurance claims. The decrease in restricted cash balances as of September 30, 2014 compared to December 31, 2013 was a result of decreases in standby letters of credit with respect to performance guarantees and our corresponding obligation to collateralize them. The standby letters of credit outstanding as of September 30, 2014 are scheduled to expire at various dates through October 1, 2018. We expect to establish restricted cash balances and restricted certificates of deposit in future periods to minimize bank fees related to standby letters of credit.
As of September 30, 2014, the value of leased railcars (including inventory on lease and railcars available for lease) was $55.8 million. We continue to offer railcars for lease to certain customers and pursue opportunities to sell leased railcars in our portfolio.
Based on our current level of operations and known changes in planned volume based on our backlog, we believe that our operating cash flows, our marketable securities and our cash balances, together with amounts available under our revolving credit facility, will be sufficient to meet our expected liquidity needs. Our long-term liquidity is contingent upon future operating performance and our ability to continue to meet financial covenants under our revolving credit facility and any other indebtedness. We may also require additional capital in the future to fund working capital as demand for railcars increases, organic growth opportunities, including new plant and equipment and development of railcars, joint ventures, international expansion and acquisitions, and these capital requirements could be substantial.
Our long-term liquidity needs also depend to a significant extent on our obligations related to our pension and welfare benefit plans. We provide pension and retiree welfare benefits to certain salaried and hourly employees upon their retirement. Benefits under our pension plans are now frozen and will not be impacted by increases due to future service. The most significant assumptions used in determining our net periodic benefit costs are the discount rate used on our pension and postretirement welfare obligations and expected return on pension plan assets. As of December 31, 2013, our benefit obligations under our defined benefit pension plans and our postretirement benefit plan were $56.3 million and $63.3 million, respectively, which exceeded the fair values of plan assets by $0.8 million and $63.3 million, respectively. We made contributions of $0.2 million to our defined benefit pension plans during the nine months ended September 30, 2014. As disclosed in Note 15 to the condensed consolidated financial statements, we expect to make contributions of $0.3 million (including contributions already made) to our defined benefit pension plans in 2014. The Pension Protection Act of 2006 provides for changes to the method of valuing pension plan assets and liabilities for funding purposes as well as minimum funding levels. Our defined benefit pension plans are in compliance with the minimum funding levels established in the Pension Protection Act. Funding levels will be affected by future contributions, investment returns on plan assets, growth in plan liabilities and interest rates. Assuming that the plans are fully funded as that term is defined in the Pension Protection Act, we will be required to fund the ongoing growth in plan liabilities on an annual basis.
In September 2014, we communicated to certain former employees the option to receive a lump-sum pension payment or annuity, with payments beginning in the fourth quarter of 2014. To the extent eligible individuals elect the option to receive a lump-sum pension payment or annuity, our pension obligations will be reduced. Payments to eligible participants who elect to participate in the offer will be funded from existing pension plan assets and will constitute a complete settlement of our pension liabilities with respect to these participants. The discount rates and actuarial assumptions used to calculate the payouts will be determined according to federal regulations. We expect the discount rates to approximate those used to calculate our pension obligation for financial reporting purposes. Depending on which and how many individuals elect the option to receive a lump-sum pension payment or annuity, we may be required to record a non-cash settlement charge in the fourth quarter in connection with the settlement payments. This charge will result from the recognition in earnings of a portion of the losses recorded in accumulated other comprehensive loss based on the proportion of the obligation settled. The amount of this charge will depend on which and how many individuals elect the option to receive a lump-sum pension payment or annuity, as well as the discount rate and asset values on the settlement date.
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We made payments to our postretirement benefit plan of $0.3 million for the nine months ended September 30, 2014 for salaried retirees. We expect to make $0.4 million in contributions (including contributions already made) to our postretirement benefit plan in 2014 for salaried retirees. However, because our postretirement benefit plan obligation is currently subject to litigation the postretirement benefit payments for hourly retirees, if any, are unknown at this time. A substantial portion of our postretirement benefit plan obligation relates to an expired settlement agreement with the union representing employees at the Companys and its predecessors Johnstown manufacturing facilities. The terms of that settlement agreement (the 2005 Settlement Agreement) required us to pay until November 30, 2012 certain monthly amounts toward the cost of retiree health care coverage. We engaged in voluntary negotiations for two years in an effort to reach a consensual agreement related to the expired 2005 Settlement Agreement but no agreements were reached. We terminated, effective November 1, 2013, our contributions for medical coverage and life insurance benefits to affected retirees and are seeking declaratory relief to confirm our rights under the Employee Retirement Income Security Act of 1974, as amended (ERISA), to reduce or terminate retiree medical coverage and life insurance benefits pursuant to the plans that were the subject of the 2005 Settlement Agreement. On July 9, 2013, the union and certain retiree defendants filed suit in the United States District Court for the Western District of Pennsylvania regarding the same dispute (see Note 16 to the condensed consolidated financial statements). The outcome of the pending litigation and the impact on our postretirement benefit plan obligation cannot be determined at this time. Our postretirement benefit plan obligation could significantly increase or decrease as a result of the litigation or if the parties agree to an alternative settlement agreement. We anticipate funding pension plan contributions and postretirement benefit plan payments with cash from operations and available cash.
Based upon our operating performance, capital requirements and obligations under our pension and welfare benefit plans, we may, from time to time, be required to raise additional funds through additional offerings of our common stock and through long-term borrowings. There can be no assurance that long-term debt, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders and debt financing, if available, may involve restrictive covenants. Our failure to raise capital if and when needed could have a material adverse effect on our results of operations and financial condition.
Contractual Obligations
The following table summarizes our contractual obligations as of September 30, 2014 and the effect that these obligations and commitments would be expected to have on our liquidity and cash flow in future periods:
Payments Due by Period | ||||||||||||||||||||
Contractual Obligations |
Total | 1 Year | 2-3 Years |
4-5 Years |
After 5 Years |
|||||||||||||||
(In thousands) | ||||||||||||||||||||
Operating leases |
$ | 75,031 | $ | 10,272 | $ | 18,013 | $ | 17,734 | $ | 29,012 | ||||||||||
Material and component purchases |
26,365 | 6,052 | 17,969 | 2,344 | | |||||||||||||||
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|
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|
|
|
|
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Total |
$ | 101,396 | $ | 16,324 | $ | 35,982 | $ | 20,078 | $ | 29,012 | ||||||||||
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Material and component purchases consist of non-cancelable agreements with suppliers to purchase materials used in the manufacturing process. Purchase commitments for aluminum are made at a fixed price and are typically entered into after a customer places an order for railcars. The estimated amounts above may vary based on the actual quantities and price.
The above table excludes $3.8 million related to a reserve for unrecognized tax benefits and accrued interest and penalties at September 30, 2014 because the timing of the payout of these amounts cannot be determined. We are also required to make minimum contributions to our pension plans and postretirement welfare plans as described above.
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Cash Flows
The following table summarizes our net cash (used in) provided by operating activities, investing activities and financing activities for the nine months ended September 30, 2014 and 2013:
Nine Months Ended September 30, | ||||||||
2014 | 2013 | |||||||
(In thousands) | ||||||||
Net cash (used in) provided by: |
||||||||
Operating activities |
$ | (108,341 | ) | $ | (59,744 | ) | ||
Investing activities |
(7,424 | ) | 3,753 | |||||
Financing activities |
(3,287 | ) | 16,479 | |||||
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|
|
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Total |
$ | (119,052 | ) | $ | (39,512 | ) | ||
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Operating Activities. Our net cash provided by or used in operating activities reflects net income or loss adjusted for non-cash charges and changes in operating assets and liabilities. Cash flows from operating activities are affected by several factors, including fluctuations in business volume, contract terms for billings and collections, the timing of collections on our contract receivables, processing of bi-weekly payroll and associated taxes, and payments to our suppliers. As some of our customers accept delivery of new railcars in train-set quantities, consisting on average of 120 to 135 railcars, variations in our sales lead to significant fluctuations in our operating profits and cash from operating activities. We do not usually experience business credit issues, although a payment may be delayed pending completion of closing documentation.
Our net cash used in operating activities for the nine months ended September 30, 2014 was $108.3 million compared to $59.7 million for the nine months ended September 30, 2013. Net cash used in operating activities for the nine months ended September 30, 2014 was driven primarily by an increase in working capital, including a $46.2 million increase in inventory and inventory on lease, a $29.5 million increase in accounts receivable and a $91.1 million decrease in customer deposits, partially offset by a $47.9 million increase in accounts and contractual payables. Changes in inventory and accounts and contractual payables primarily represents purchases of materials to support increased production levels, while the reduction in customer deposits reflects the delivery of railcars during 2014 for which a prepayment was received from the customer during the fourth quarter of 2013. The increase in accounts receivable for the nine months ended September 30, 2014 reflects increased deliveries under customary payment terms. Net cash used in operating activities for the nine months ended September 30, 2013 included decreases in cash related to changes in accounts receivable of $7.6 million, inventory on lease of $17.0 million, accounts and contractual payables of $12.7 million and customer deposits of $27.4 million, which were partially offset by increases in cash related to changes in inventory of $7.2 million.
Investing Activities. Net cash used in investing activities for the nine months ended September 30, 2014 was $7.4 million compared to net cash provided by investing activities of $3.8 million for the nine months ended September 30, 2013. Net cash used in investing activities for the nine months ended September 30, 2014 included purchases of securities held to maturity of $9.0 million (net of proceeds from redemptions) and purchases of property, plant and equipment of $8.2 million (primarily purchases of equipment for our Shoals facility), which were partially offset by proceeds from sale of property, plant and equipment, assets held for sale and railcars available for lease totaling $8.0 million. Net cash used in operating activities for the nine months ended September 30, 2014 also included restricted cash withdrawals (net of deposits) of $1.8 million related to decreases in collateralization obligations with respect to letters of credit for performance guarantees. Net cash provided by investing activities for the nine months ended September 30, 2013 included maturities of securities (net of purchases) of $3.0 million, restricted cash withdrawals (net of deposits) of $10.6 million related to decreases in collateralization obligations with respect to letters of credit for performance guarantees and proceeds from the sale of railcars available for lease of $6.7 million, which were partially offset by purchases of restricted certificates of deposit of $0.3 million and purchases of property, plant and equipment of $16.3 million.
Financing Activities. Net cash used in financing activities for the nine months ended September 30, 2014 was $3.3 million compared to net cash provided by financing activities of $16.5 million for the nine months ended September 30, 2013. Net cash used in financing activities for the nine months ended September 30, 2014 primarily included cash dividends paid to our stockholders of $2.2 million and customer advance repayments of $1.0 million. Net cash provided by financing activities for the nine months ended September 30, 2013 included a $19.4 million customer advance for production of leased railcars for which revenue cannot be recognized until all contingencies have been met, which was partially offset by $2.2 million of cash dividends paid to our stockholders and $0.5 million of customer advance repayments.
Capital Expenditures
Our capital expenditures were $8.2 million in the nine months ended September 30, 2014 compared to $16.3 million in the nine months ended September 30, 2013. Capital expenditures were primarily purchases of equipment for our Shoals facility. Excluding unforeseen expenditures, management expects that total capital expenditures will be between $10.0 million and $12.0 million for 2014. To support our strong backlog and order activity we will invest in additional production capacity at our Shoals facility. This new capacity will allow us to capture current and projected demand and is expected to be on line during the second quarter of 2015. The total capital investment for the expansion will be approximately $10.0 million.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains certain forward-looking statements including, in particular, statements about our plans, strategies and prospects. We have used the words may, will, expect, anticipate, believe, estimate, plan, intend and similar expressions in this report to identify forward-looking statements. We have based these forward-looking statements on our current views with respect to future events and financial performance. Our actual results could differ materially from those projected in the forward-looking statements.
Our forward-looking statements are subject to risks and uncertainties, including:
| the cyclical nature of our business; |
| adverse economic and market conditions; |
| the highly competitive nature of our industry; |
| our reliance upon a small number of customers that represent a large percentage of our sales; |
| the variable purchase patterns of our customers and the timing of completion, delivery and customer acceptance of orders; |
| our ability to maintain relationships with our suppliers of railcar components; |
| the availability and price of used railcars offered for sale and new or used railcars offered for lease; |
| fluctuating costs of raw materials, including steel and aluminum, and delays in the delivery of raw materials; |
| limitations on the supply of railcar components; |
| our reliance on the sales of our coal cars; |
| international economic and political risks to the extent we expand our sales or products and services internationally; |
| the risk of lack of acceptance of our new railcar offerings by our customers; |
| our reported backlog may not indicate what our future sales will be; |
| potential significant warranty claims; |
| our ability to successfully integrate our Shoals facility or any acquired business with our existing business; |
| shortages of skilled labor; |
| our ability to manage our health care and pension costs; |
| risks relating to our relationship with our unionized employees and their unions; |
| cybersecurity risks relating to our information technology and other systems; |
| the cost of complying with environmental laws and regulations; and |
| various covenants in the agreement governing our indebtedness that limit our managements discretion in the operation of our businesses. |
Our actual results could be different from the results described in or anticipated by our forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections and may be better or worse than anticipated. Given these uncertainties, you should not rely on forward-looking statements. Forward-looking statements represent our estimates and assumptions only as of the date that they were made. We expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, in order to reflect changes in circumstances or expectations or the occurrence of unanticipated events except to the extent required by applicable securities laws. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under Item 1A, Risk Factors in our annual report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We have a $50.0 million senior secured revolving credit facility, the proceeds of which can be used for general corporate purposes, including working capital. On an annual basis, a 1% change in the interest rate in our revolving credit facility will increase or decrease our interest expense by $10,000 for every $1.0 million of outstanding borrowings. As of September 30, 2014, we had $5.4 million in outstanding letters of credit under the Revolving Credit Facility and therefore had $44.6 million available for borrowing under the Revolving Credit Facility.
The production of railcars and our operations require substantial amounts of aluminum and steel. The cost of aluminum, steel and all other materials (including scrap metal) used in the production of our railcars represents a significant majority of our direct manufacturing costs. Our business is subject to the risk of price increases and periodic delays in the delivery of aluminum, steel and other materials, all of which are beyond our control. Any fluctuations in the price or availability of
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aluminum or steel, or any other material used in the production of our railcars, may have a material adverse effect on our business, results of operations or financial condition. In addition, if any of our suppliers were unable to continue its business or were to seek bankruptcy relief, the availability or price of the materials we use could be adversely affected. When market conditions permit us to do so, we negotiate contracts with our customers that allow for variable pricing to protect us against future changes in the cost of raw materials. When raw material prices increase rapidly or to levels significantly higher than normal, we may not be able to pass price increases through to our customers, which could adversely affect our operating margins and cash flows.
We are not exposed to any significant foreign currency exchange risks as our general policy is to denominate foreign sales and purchases in U.S. dollars.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our Chief Executive Officer and Principal Financial Officer, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this quarterly report on Form 10-Q (the Evaluation Date). Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commissions rules and forms.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
On July 8, 2013, we filed a Complaint for Declaratory Judgment (the Complaint) in the United States District Court for the Northern District of Illinois, Eastern Division (the Court). The case names as defendants the United Steel, Paper & Forestry, Rubber, Manufacturing, Energy, Allied Industrial & Services Workers International Union, AFL-CIO, CLC (the USW), as well as approximately 650 individual Retiree Defendants (as defined in the Complaint), and was assigned Case No. 1:13-cv-4889.
As described in the Complaint, pursuant to a settlement agreement (the 2005 Settlement Agreement) among the Company, the USW and the Retiree Defendants, we agreed to make certain levels of contributions to medical coverage for the Retiree Defendants and to continue to provide life insurance benefits at their amount at that time under certain of our employee welfare benefit plans. The 2005 Settlement Agreement expressly provided that, as of November 30, 2012, we could cease making these contributions. In June 2011, the Company and the USW began discussing the possibility of an extension beyond November 30, 2012 for our contributions to retiree medical coverage and life insurance benefits at a reduced amount and on other mutually acceptable terms. We engaged in voluntary negotiations for two years with the USW and counsel for the Retiree Defendants in an effort to reach a consensual agreement regarding such medical and life insurance benefits, but the parties were unable to reach a final agreement. We terminated, effective November 1, 2013, our contributions for medical coverage provided to the Retiree Defendants and the provision of life insurance benefits and are seeking declaratory relief to confirm our rights under ERISA to reduce or terminate retiree medical coverage and life insurance benefits pursuant to the plans that were the subject of the 2005 Settlement Agreement.
On July 9, 2013, the USW and certain Retiree Defendants (collectively, the Pennsylvania Plaintiffs) filed a putative class action in the United States District Court for the Western District of Pennsylvania (the Pennsylvania Court), captioned as Zanghi, et al. v. FreightCar America, Inc., et al., Case No. 3:13-cv-146. The complaint filed with the Pennsylvania Court alleges that we do not have the right to terminate welfare benefits previously provided to the Retiree Defendants and requests, among other relief, entry of a judgment finding that the Retiree Defendants have a vested right to specified welfare benefits.
29
On July 26, 2013, the Pennsylvania Plaintiffs filed with the Illinois Court a Motion to Dismiss Pursuant to Fed. R. Civ. P. 12(b) or in the Alternative, to Transfer Pursuant to 28 U.S.C. 1404(a), as well as a Motion to Stay and/or Prevent Plaintiff from Obtaining Defaults against the Retiree Defendants. On August 5, 2013, we filed with the Pennsylvania Court a Motion to Dismiss Pursuant to Fed. R. Civ P. 12(b) or in the Alternative, to Transfer Pursuant to 28 U.S.C. 1404(a). On January 14, 2014, the Pennsylvania Court denied our motion to dismiss and, on January 16, 2014, the Illinois Court transferred our case to the Pennsylvania Court. On January 31, 2014, we filed a motion to consolidate both cases before the Pennsylvania Court. On April 3, 2014, the Pennsylvania Court entered an order (the Initial Procedural Order) that, among other things, consolidated both cases before the Pennsylvania Court, certified a class for purposes of the consolidated actions, established discovery parameters and deadlines, and established a briefing schedule applicable to the parties cross motions for summary judgment as to liability only. On July 17, 2014, the parties filed with the Pennsylvania Court their respective motions for summary judgment as to liability. The parties have submitted their responses and replies with respect to each of the motions. There can be no assurance as to when the Pennsylvania Court will issue its ruling on such motions, or how the Pennsylvania Court will rule.
On September 5, 2013, the Pennsylvania Plaintiffs filed a Plaintiffs Motion for Temporary Restraining Order and Preliminary Injunction (the TRO Motion) with the Pennsylvania Court. In the TRO Motion, the plaintiffs requested that the Pennsylvania Court enter an injunction requiring us to continue to make monthly contributions at the same rate established by the 2005 Settlement Agreement until the parties dispute is fully adjudicated on the merits. Following entry of the Initial Procedural Order, the Pennsylvania Court denied the TRO Motion without prejudice.
We have recorded postretirement benefit plan obligations, a substantial portion of which relate to the dispute now before the Illinois Court and the Pennsylvania Court (see Note 15 to the condensed consolidated financial statements).
On September 29, 2008, Bral Corporation, a supplier of certain railcar parts to us, filed a complaint against us in the U.S. District Court for the Western District of Pennsylvania (the Pennsylvania Lawsuit). The complaint alleged that we breached an exclusive supply agreement with Bral by purchasing parts from CMN Components, Inc. (CMN) and sought damages in an unspecified amount, attorneys fees and other legal costs. On December 14, 2007, Bral sued CMN in the U.S. District Court for the Northern District of Illinois, alleging among other things that CMN interfered in the business relationship between Bral and us (the Illinois Lawsuit) and seeking damages in an unspecified amount, attorneys fees and other legal costs. On October 22, 2008, we entered into an Assignment of Claims Agreement with CMN under which CMN assigned to us its counterclaims against Bral in the Illinois Lawsuit and we agreed to defend and indemnify CMN against Brals claims in that lawsuit. On March 4, 2013, Bral Corporation and the Company agreed to settle the Illinois Lawsuit and the Pennsylvania Lawsuit. The settlement resulted in a $3.9 million reduction in litigation reserves, which favorably impacted our results of operations for the nine months ended September 30, 2013.
In addition to the foregoing, we are involved in certain other pending and threatened legal proceedings, including commercial disputes and workers compensation and employee matters arising out of the conduct of our business. While the ultimate outcome of these other legal proceedings cannot be determined at this time, it is the opinion of management that the resolution of these other actions will not have a material adverse effect on our financial condition, results of operations or cash flows.
There have been no material changes from the risk factors previously disclosed in Item 1A of our 2013 annual report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
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Item 4. Mine Safety Disclosures.
Not applicable.
None.
(a) | Exhibits filed as part of this Form 10-Q: |
31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FREIGHTCAR AMERICA, INC. | ||||||
Date: November 6, 2014 | By: | /s/ JOSEPH E. MCNEELY | ||||
Joseph E. McNeely, President and Chief Executive Officer (Principal Executive Officer) | ||||||
By: | /s/ CHARLES F. AVERY, JR. | |||||
Charles F. Avery, Jr., Vice President, Finance, Chief Financial Officer and Treasurer (Principal Financial Officer) | ||||||
By: | /s/ JOSEPH J. MALIEKEL | |||||
Joseph J. Maliekel, Vice President and Corporate Controller (Principal Accounting Officer) |
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EXHIBIT INDEX
Exhibit Number |
Description | |
31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |