e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2010
or
|
|
|
o |
|
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
(State or other jurisdiction of incorporation or organization)
|
|
25-1837219
(I.R.S. Employer Identification No.) |
|
|
|
Two North Riverside Plaza, Suite 1250
Chicago, Illinois
(Address of principal executive offices)
|
|
60606
(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 þ NO o
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 o NO o
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 o |
Accelerated filer þ |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
YES o NO þ
As of October 31, 2010, there were 11,933,942 shares of the registrants common stock
outstanding.
FREIGHTCAR AMERICA, INC.
INDEX TO FORM 10-Q
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
FreightCar America, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Assets |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
95,711 |
|
|
$ |
98,015 |
|
Restricted cash |
|
|
1,110 |
|
|
|
1,420 |
|
Securities available for sale, at fair value |
|
|
|
|
|
|
29,976 |
|
Accounts receivable, net of allowance for
doubtful accounts of $179 and $240,
respectively |
|
|
7,103 |
|
|
|
3,728 |
|
Inventories |
|
|
48,243 |
|
|
|
40,800 |
|
Leased railcars held for sale |
|
|
6,686 |
|
|
|
2,200 |
|
Assets held for sale |
|
|
2,478 |
|
|
|
2,478 |
|
Other current assets |
|
|
12,334 |
|
|
|
9,467 |
|
Deferred income taxes, net |
|
|
14,125 |
|
|
|
15,315 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
187,790 |
|
|
|
203,399 |
|
|
|
|
|
|
|
|
|
|
Long-term inventory |
|
|
12,893 |
|
|
|
5,611 |
|
Property, plant and equipment, net |
|
|
26,116 |
|
|
|
28,170 |
|
Railcars on operating leases |
|
|
59,188 |
|
|
|
58,771 |
|
Goodwill |
|
|
21,521 |
|
|
|
21,521 |
|
Deferred income taxes, net |
|
|
20,515 |
|
|
|
13,404 |
|
Other long-term assets |
|
|
3,739 |
|
|
|
4,690 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
331,762 |
|
|
$ |
335,566 |
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
18,799 |
|
|
$ |
16,948 |
|
Accrued payroll and employee benefits |
|
|
3,849 |
|
|
|
7,958 |
|
Accrued postretirement benefits |
|
|
5,329 |
|
|
|
5,329 |
|
Accrued warranty |
|
|
7,972 |
|
|
|
9,146 |
|
Customer deposits |
|
|
15,330 |
|
|
|
4,631 |
|
Other current liabilities |
|
|
5,125 |
|
|
|
5,332 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
56,404 |
|
|
|
49,344 |
|
Accrued pension costs |
|
|
15,574 |
|
|
|
15,675 |
|
Accrued postretirement benefits, less current portion |
|
|
57,321 |
|
|
|
57,962 |
|
Other long-term liabilities |
|
|
4,859 |
|
|
|
6,332 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
134,158 |
|
|
|
129,313 |
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
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, 2010 and December 31, 2009 |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 50,000,000
shares authorized, 12,731,678 shares issued
at September 30, 2010 and December 31, 2009 |
|
|
127 |
|
|
|
127 |
|
Additional paid in capital |
|
|
98,855 |
|
|
|
97,979 |
|
Treasury stock, at cost; 800,486 and 790,865
shares at September 30, 2010 and December
31, 2009, respectively |
|
|
(37,001 |
) |
|
|
(37,123 |
) |
Accumulated other comprehensive loss |
|
|
(18,183 |
) |
|
|
(18,578 |
) |
Retained earnings |
|
|
153,750 |
|
|
|
163,761 |
|
|
|
|
|
|
|
|
Total FreightCar America stockholders equity |
|
|
197,548 |
|
|
|
206,166 |
|
Noncontrolling interest in India JV |
|
|
56 |
|
|
|
87 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
197,604 |
|
|
|
206,253 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
331,762 |
|
|
$ |
335,566 |
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
3
FreightCar America, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands, except share and per share data) |
|
Revenues |
|
$ |
41,330 |
|
|
$ |
55,131 |
|
|
$ |
91,859 |
|
|
$ |
199,022 |
|
Cost of sales |
|
|
42,148 |
|
|
|
48,252 |
|
|
|
89,108 |
|
|
|
165,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross (loss) profit |
|
|
(818 |
) |
|
|
6,879 |
|
|
|
2,751 |
|
|
|
33,157 |
|
Selling, general and administrative expense |
|
|
6,503 |
|
|
|
6,595 |
|
|
|
18,048 |
|
|
|
20,630 |
|
Plant closure income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(495 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
(7,321 |
) |
|
|
284 |
|
|
|
(15,297 |
) |
|
|
13,022 |
|
Interest expense, net |
|
|
(562 |
) |
|
|
(210 |
) |
|
|
(827 |
) |
|
|
(505 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income before income taxes |
|
|
(7,883 |
) |
|
|
74 |
|
|
|
(16,124 |
) |
|
|
12,517 |
|
Income tax (benefit) provision |
|
|
(3,178 |
) |
|
|
(971 |
) |
|
|
(6,798 |
) |
|
|
2,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(4,705 |
) |
|
|
1,045 |
|
|
|
(9,326 |
) |
|
|
10,416 |
|
Less: Net loss attributable to noncontrolling
interest in India JV |
|
|
(9 |
) |
|
|
(24 |
) |
|
|
(31 |
) |
|
|
(72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to FreightCar America |
|
$ |
(4,696 |
) |
|
$ |
1,069 |
|
|
$ |
(9,295 |
) |
|
$ |
10,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share attributable to
FreightCar America basic |
|
$ |
(0.39 |
) |
|
$ |
0.09 |
|
|
$ |
(0.78 |
) |
|
$ |
0.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share attributable to
FreightCar America diluted |
|
$ |
(0.39 |
) |
|
$ |
0.09 |
|
|
$ |
(0.78 |
) |
|
$ |
0.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic |
|
|
11,906,193 |
|
|
|
11,867,314 |
|
|
|
11,892,724 |
|
|
|
11,859,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted |
|
|
11,906,193 |
|
|
|
11,875,748 |
|
|
|
11,892,724 |
|
|
|
11,864,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
|
$ |
|
|
|
$ |
0.06 |
|
|
$ |
0.06 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
4
FreightCar America, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Unaudited)
(in thousands, except for share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FreightCar America Shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Common Stock |
|
|
Paid In |
|
|
Treasury Stock |
|
|
Comprehensive |
|
|
Retained |
|
|
Noncontrolling |
|
|
Stockholders |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Shares |
|
|
Amount |
|
|
Loss |
|
|
Earnings |
|
|
Interest |
|
|
Equity |
|
|
Balance, December 31, 2008 |
|
|
12,731,678 |
|
|
$ |
127 |
|
|
$ |
98,253 |
|
|
|
(821,182 |
) |
|
$ |
(38,871 |
) |
|
$ |
(16,471 |
) |
|
$ |
161,687 |
|
|
$ |
101 |
|
|
$ |
204,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,488 |
|
|
|
(72 |
) |
|
|
10,416 |
|
Pension liability activity, net
of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
274 |
|
|
|
|
|
|
|
|
|
|
|
274 |
|
Postretirement liability
activity, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104 |
|
|
|
|
|
|
|
|
|
|
|
104 |
|
Unrealized holding gain on
available-for-sale securities,
net of reclassification
adjustment, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards |
|
|
|
|
|
|
|
|
|
|
(1,969 |
) |
|
|
41,589 |
|
|
|
1,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of restricted stock
awards |
|
|
|
|
|
|
|
|
|
|
24 |
|
|
|
(1,200 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
recognized |
|
|
|
|
|
|
|
|
|
|
1,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,653 |
|
Deficiency of tax benefit from
stock-based compensation |
|
|
|
|
|
|
|
|
|
|
(358 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(358 |
) |
Additional investment in
noncontrolling interest in
India JV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142 |
|
|
|
142 |
|
Cash dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,148 |
) |
|
|
|
|
|
|
(2,148 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009 |
|
|
12,731,678 |
|
|
$ |
127 |
|
|
$ |
97,603 |
|
|
|
(780,793 |
) |
|
$ |
(36,926 |
) |
|
$ |
(16,086 |
) |
|
$ |
170,027 |
|
|
$ |
171 |
|
|
$ |
214,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
|
12,731,678 |
|
|
$ |
127 |
|
|
$ |
97,979 |
|
|
|
(790,865 |
) |
|
$ |
(37,123 |
) |
|
$ |
(18,578 |
) |
|
$ |
163,761 |
|
|
$ |
87 |
|
|
$ |
206,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,295 |
) |
|
|
(31 |
) |
|
|
(9,326 |
) |
Pension liability activity, net
of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
199 |
|
Postretirement liability
activity, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198 |
|
|
|
|
|
|
|
|
|
|
|
198 |
|
Unrealized holding gain on
available-for-sale securities,
net of reclassification
adjustment, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,931 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards |
|
|
|
|
|
|
|
|
|
|
(740 |
) |
|
|
15,924 |
|
|
|
740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee restricted stock
settlement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,938 |
) |
|
|
(240 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(240 |
) |
Forfeiture of restricted stock
awards |
|
|
|
|
|
|
|
|
|
|
378 |
|
|
|
(15,607 |
) |
|
|
(378 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
recognized |
|
|
|
|
|
|
|
|
|
|
1,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,238 |
|
Cash dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(716 |
) |
|
|
|
|
|
|
(716 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2010 |
|
|
12,731,678 |
|
|
$ |
127 |
|
|
$ |
98,855 |
|
|
|
(800,486 |
) |
|
$ |
(37,001 |
) |
|
$ |
(18,183 |
) |
|
$ |
153,750 |
|
|
$ |
56 |
|
|
$ |
197,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
5
FreightCar America, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(9,326 |
) |
|
$ |
10,416 |
|
Adjustments to reconcile net (loss) income to net cash flows used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
4,964 |
|
|
|
4,024 |
|
Other non-cash items |
|
|
(1,518 |
) |
|
|
2,359 |
|
Deferred income taxes |
|
|
(6,122 |
) |
|
|
11,722 |
|
Compensation expense under stock option and restricted share award agreements |
|
|
1,238 |
|
|
|
1,653 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(3,375 |
) |
|
|
70,861 |
|
Inventories |
|
|
(12,289 |
) |
|
|
(27,075 |
) |
Leased railcars held for sale |
|
|
(6,686 |
) |
|
|
(7,948 |
) |
Prepaid expenses |
|
|
(4,058 |
) |
|
|
(197 |
) |
Accounts payable |
|
|
1,664 |
|
|
|
(19,108 |
) |
Accrued payroll and employee benefits |
|
|
(4,109 |
) |
|
|
(4,768 |
) |
Income taxes receivable/payable |
|
|
220 |
|
|
|
(1,789 |
) |
Accrued warranty |
|
|
(1,174 |
) |
|
|
(1,073 |
) |
Customer deposits and other current liabilities |
|
|
8,692 |
|
|
|
(6,964 |
) |
Deferred revenue, non-current |
|
|
(349 |
) |
|
|
(599 |
) |
Accrued pension costs and accrued postretirement benefits |
|
|
(345 |
) |
|
|
(12,204 |
) |
|
|
|
|
|
|
|
Net cash flows (used in) provided by operating activities |
|
|
(32,573 |
) |
|
|
19,310 |
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Restricted cash deposits |
|
|
(3,622 |
) |
|
|
|
|
Restricted cash withdrawals |
|
|
3,932 |
|
|
|
|
|
Purchase of securities available for sale |
|
|
(29,982 |
) |
|
|
(19,967 |
) |
Maturity of securities available for sale |
|
|
59,996 |
|
|
|
|
|
Cost of railcars on operating leases produced or acquired |
|
|
|
|
|
|
(8,758 |
) |
Sale of railcars on operating leases |
|
|
169 |
|
|
|
|
|
Cash payments received on deposit for sale of property, plant and equipment |
|
|
1,800 |
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(965 |
) |
|
|
(4,047 |
) |
|
|
|
|
|
|
|
Net cash flows provided by (used in) investing activities |
|
|
31,328 |
|
|
|
(32,772 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Payments on long-term debt |
|
|
|
|
|
|
(28 |
) |
Deferred financing costs paid |
|
|
(103 |
) |
|
|
(5 |
) |
Employee restricted stock settlement |
|
|
(240 |
) |
|
|
|
|
Investment in noncontrolling interest by joint venture partner |
|
|
|
|
|
|
142 |
|
Cash dividends paid to stockholders |
|
|
(716 |
) |
|
|
(2,148 |
) |
|
|
|
|
|
|
|
Net cash flows used in financing activities |
|
|
(1,059 |
) |
|
|
(2,039 |
) |
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(2,304 |
) |
|
|
(15,501 |
) |
Cash and cash equivalents at beginning of period |
|
|
98,015 |
|
|
|
129,192 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
95,711 |
|
|
$ |
113,691 |
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
311 |
|
|
$ |
194 |
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
135 |
|
|
$ |
175 |
|
|
|
|
|
|
|
|
Income tax refunds received |
|
$ |
794 |
|
|
$ |
7,750 |
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
6
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. (America), through its direct and indirect subsidiaries, JAC Operations,
Inc. (Operations), Johnstown America Corporation (JAC), Freight Car Services, Inc. (FCS),
JAIX Leasing Company (JAIX), JAC Patent Company (JAC Patent), FreightCar Roanoke, Inc. (FCR),
Titagarh FreightCar Private Limited, Inc. and FreightCar Mauritius Ltd. (Mauritius) (herein
collectively referred to as the Company), manufactures, rebuilds, repairs, sells and leases
freight cars used for hauling coal, other bulk commodities, steel and other metals, forest products
and automobiles. The Company has manufacturing facilities in Danville, Illinois and Roanoke,
Virginia and administrative facilities in Johnstown, Pennsylvania and Chicago, Illinois. The
Companys operations comprise one operating segment. The Company and its direct and indirect
subsidiaries are all Delaware corporations except Titagarh FreightCar Private Limited, Inc. which
is incorporated in India and FreightCar Mauritius Ltd. which is incorporated in Mauritius. The
Companys direct and indirect subsidiaries are all wholly owned except Titagarh FreightCar Private
Limited, Inc. for which the Company (through Mauritius) has a 51% ownership interest.
Note 2 Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of America,
Operations, JAC, FCS, JAIX, JAC Patent, FCR, Titagarh FreightCar Private Limited, Inc. and
Mauritius. All significant 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, 2010 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. 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, 2009.
Note 3 Recent Accounting Pronouncements
As of January 1, 2010, the Company adopted the Financial Accounting Standards Boards (FASB)
changes to ASC 810 Consolidation (formerly SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements: An amendment of ARB No. 51). These changes require the Company to perform an
analysis to determine whether the Companys variable interest or interests give it a controlling
financial interest in a variable interest entity and to perform ongoing reassessments of whether
the Company is the primary beneficiary of a variable interest entity. These changes to ASC 810
eliminate the solely quantitative approach previously required for determining the primary
beneficiary of a variable interest entity and add an additional reconsideration event for
determining whether an entity is a variable interest entity when any changes in facts and
circumstances occur such that holders of the equity investment, as a group, lose the power from
voting rights or similar rights of those investments to direct the activities of the entity that
most significantly impact the entitys economic performance. These changes to ASC 810 also require
enhanced disclosures to provide users of financial statements with more transparent information
about the Companys involvement in a variable interest entity. The adoption of changes to ASC 810
had no impact on the Companys financial statements.
In October 2009, the FASB issued changes to ASC 605, Revenue Recognition. These changes to revenue
recognition for multiple-deliverable arrangements require separation of consideration received in
such arrangements by establishing an information hierarchy for determining the selling price of a
deliverable, which will be based on available information in the following order: vendor-specific
objective evidence, third-party evidence, or estimated selling price. These changes to ASC 605
eliminate the residual method of allocation and require that the consideration be allocated at the
inception of the arrangement to all deliverables using the relative selling price method, which
allocates any discount in the arrangement to each deliverable on the basis of each deliverables
selling price and require that a vendor determine its best estimate of selling
7
price in a manner that is consistent with that used to determine the price to sell the deliverable
on a standalone basis. Enhanced disclosures related to multiple-deliverable revenue arrangements
are also required. The adoption of changes to ASC 605 are effective on January 1, 2011 and are not
expected to have any impact on the Companys financial statements, since the Company does not
currently have any such arrangements with its customers.
Note 4 Plant Closure
In December 2007, the Company announced that it planned to close its manufacturing facility located
in Johnstown, Pennsylvania. This action was taken to further the Companys strategy of optimizing
production at its low-cost facilities and continuing its focus on cost control.
On June 24, 2008, the Company announced a tentative global settlement that would resolve all legal
disputes relating to the Johnstown manufacturing facility and its workforce, including a class
action, a contested arbitration ruling and other pending grievance proceedings. Under the terms of
the settlement, the collective bargaining agreement between the Company and the USWA was terminated
effective May 15, 2008 and the Johnstown manufacturing facility was closed. The settlement
provided special pension benefits to certain workers at the Johnstown manufacturing facility and
deferred vested benefits to other workers, as well as health care benefits, severance pay and/or
settlement bonus payments to workers depending on their years of service at the facility.
The Condensed Consolidated Statement of Operations includes no plant closure charges (income) for
the three months and nine months ended September 30, 2010 and for the three months ended September
30, 2009. Plant closure income for the nine months ended September 30, 2009 included reductions in
employee termination benefits of $166 and insurance recoveries of $329.
Note 5 Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures (formerly SFAS No. 157), defines fair value,
establishes a framework for measuring fair value, and expands disclosures about fair value
measurements. Under ASC 820, fair value is an exit price and that exit price should reflect all
the assumptions that market participants would use in pricing the asset or liability.
Financial assets and liabilities are classified in their entirety based on the lowest level of
input that is significant to the fair value measurement. The Companys assessment of the
significance of a particular input to the fair value measurement requires judgment, and may affect
the valuation of assets and liabilities and the placement within the fair value hierarchy levels.
The Companys current investment policy is to invest in cash and securities backed by the U.S.
government. The Company classifies all unrestricted short-term investments with original
maturities of three months or less when acquired as cash equivalents. The carrying amounts of cash
equivalents approximate fair value because of the short maturity of these instruments. During the
fourth quarter of 2009, the Company purchased two fixed income government obligations with par
values of $20,000 and $10,000, respectively, and maturity dates of April 10, 2010 and August 10,
2010, respectively. These securities were classified as available for sale at December 31, 2009
and recorded at fair value on the Companys Condensed Consolidated Balance Sheet. During the second
quarter of 2010, the Company purchased a fixed income government obligation with a par value of
$30,000 and a maturity date of August 26, 2010. The proceeds received upon maturity of these
securities were reinvested in cash equivalent investments. Securities available for sale are
valued using quoted prices in active markets for identical assets and liabilities The Company owns
no securities available for sale at September 30, 2010.
The following table sets forth by level within the ASC 820 fair value hierarchy the Companys
financial assets and liabilities that were recorded at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010 |
Recurring Fair Value Measurements |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
64,317 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
64,317 |
|
Securities available for sale
fixed income government
obligations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 |
Recurring Fair Value Measurements |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
80,009 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
80,009 |
|
Securities available for sale
fixed income government
obligations |
|
$ |
29,976 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
29,976 |
|
Based on its current investments the Company uses only level one valuation techniques. If the
Companys investment policy and portfolio change in the future the Company will evaluate the use of
level two or level three valuation techniques for new investments.
Note 6 Inventories
Inventories are stated at the lower of first-in, first-out cost or market and include material,
labor and manufacturing overhead. The components of inventories are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Work in progress |
|
$ |
44,809 |
|
|
$ |
30,803 |
|
Used railcars acquired upon trade-in |
|
|
3,434 |
|
|
|
9,997 |
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
48,243 |
|
|
$ |
40,800 |
|
|
|
|
|
|
|
|
The above table excludes long-term inventory of $12,893 and $5,611 as of September 30, 2010
and December 31, 2009, respectively which represents raw materials that have been purchased under
long-term purchase agreements and that the Company believes will not be used in production within
twelve months.
Note 7 Leased Railcars
The Company offers railcar leases to its customers at market rates with terms and conditions that
have been negotiated with the customers. Railcar leases generally have terms from three to five
years but may extend up to seven years. It is the Companys strategy to offer these leased assets
for sale to leasing companies and financial institutions as market opportunities arise, rather than
holding them to maturity.
Initially as of the date of lease and on a quarterly basis thereafter the Company evaluates leased
railcars to determine if the leased railcars qualify as assets held for sale. If all of the held
for sale criteria are met, including the determination by management that the sale of the railcars
is probable, and transfer of the railcars is expected to qualify for recognition as a completed
sale within one year, then the leased railcars are treated as assets held for sale and classified
as current assets on the balance sheet (leased assets held for sale). In determining whether it is
probable that the leased railcars will be sold within one year, management considers general market
conditions for similar railcars and considers whether those market conditions are indicative of a
potential sales price that will be acceptable to the Company to sell the cars within one year.
Leased railcars held for sale are carried at the lower of carrying value or fair value less cost to
sell and are not depreciated.
Leased railcars that do not meet all of the held for sale criteria are included in railcars on
operating leases on the balance sheet and are depreciated over 40 years. Depreciation on railcars
on operating leases was $463 and $359 for the three months ended September 30, 2010 and 2009,
respectively, and $1,336 and $882 for the nine months ended September 30, 2010 and 2009,
respectively.
The Company recognizes operating lease revenue on leased railcars on a straight-line basis over the
life of the lease, except for lease revenue on leased railcars held for sale which is recognized on
a contractual basis over the life of the lease. The Company recognizes revenue from the sale of
railcars under operating leases on a gross basis in manufacturing sales and cost of sales if the
railcars are sold within 12 months of the manufacture of the railcars and the sales process is
complete. The Company recognizes revenue from the sale of railcars under operating leases on a net
basis in leasing revenue as a gain (loss) on sale (i.e. net) of leased railcars if the railcars are
held in excess of 12 months as the sale represents the disposal of a long-term asset.
Leased railcars at September 30, 2010 included leased railcars classified as held for sale of
$6,686 and railcars on operating leases classified as long-term assets of $59,188. Leased railcars
at December 31, 2009 included leased railcars classified as held for sale of $2,200 and railcars on
operating leases classified as long-term assets of $58,771. Due to a decline in asset
values in the market, an impairment write-down of $360 related to these railcars on operating
leases was recorded during the first nine months of 2009.
9
Leased railcars at September 30, 2010 are subject to lease agreements with external customers with
terms of up to five years.
Future minimum rental revenues on leased railcars at September 30, 2010 are as follows:
|
|
|
|
|
Three months ending December 31, 2010 |
|
$ |
1,098 |
|
Year ending December 31, 2011 |
|
|
3,524 |
|
Year ending December 31, 2012 |
|
|
1,216 |
|
Year ending December 31, 2013 |
|
|
705 |
|
Year ending December 31, 2014 |
|
|
535 |
|
Thereafter |
|
|
167 |
|
|
|
|
|
|
|
$ |
7,245 |
|
|
|
|
|
Note 8 Property, Plant and Equipment
Property, plant and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Buildings and improvements |
|
$ |
19,056 |
|
|
$ |
19,056 |
|
Machinery and equipment |
|
|
31,510 |
|
|
|
31,175 |
|
|
|
|
|
|
|
|
Cost of buildings, improvements, machinery and equipment |
|
|
50,566 |
|
|
|
50,231 |
|
Less: Accumulated depreciation and amortization |
|
|
(25,677 |
) |
|
|
(22,599 |
) |
|
|
|
|
|
|
|
Buildings, improvements, machinery and equipment, net
of accumulated depreciation and amortization |
|
|
24,889 |
|
|
|
27,632 |
|
Land |
|
|
151 |
|
|
|
151 |
|
Construction in process |
|
|
1,076 |
|
|
|
387 |
|
|
|
|
|
|
|
|
Total property, plant and equipment, net |
|
$ |
26,116 |
|
|
$ |
28,170 |
|
|
|
|
|
|
|
|
During the second quarter of 2009, land, building and equipment at the Companys Johnstown
manufacturing facility were classified as available for sale. The facility had a net book value of
$2,478 at December 31, 2009, which included land, building and equipment in the amounts of $550,
$1,468 (cost basis of $1,980) and $460 (cost basis of $20,050), respectively. During the fourth
quarter of 2009, the Company entered into an agreement for the sale of the facility. The Company
received $500 as a down payment on the sales price of $2,900 during December 2009 and is receiving
the remaining $2,400 in monthly installments of $200 during 2010. The Company accounted for the
transaction under the deposit method as prescribed by ASC 360-20-40 as the buyers initial
investment was less than 20% of the sales price and other recognition criteria were not satisfied.
As a result, the Company has not recognized any profit or recorded the notes receivable and the
property continues to be reflected as an asset on the Companys Condensed Consolidated Balance
Sheet as of September 30, 2010. The $500 down payment and the $1,800 in monthly installments
received to date are included in Customer deposits on the Companys Condensed Consolidated
Balance Sheet as of September 30, 2010. The estimated gain from the sale of the facility is $422
and is expected to be recognized during the fourth quarter of 2010.
Note 9 Goodwill and Intangible Assets
The Company performs the goodwill impairment test required by ASC 350 Intangibles Goodwill and
Other, (formerly, SFAS No. 142, Goodwill and Other Intangible Assets) as of January 1 of each year.
Management estimates the valuation of the Company (which consists of one reporting unit) using a
combination of methods, as are considered appropriate in the circumstances, including discounted
future cash flows, the prices of comparable businesses, recent transactions involving businesses
similar to the Companys, and the Companys market capitalization. There was no adjustment
required based on the annual impairment tests for 2010 or 2009.
Goodwill and intangible assets consist of the following:
10
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Patents |
|
$ |
13,097 |
|
|
$ |
13,097 |
|
Accumulated amortization |
|
|
(9,638 |
) |
|
|
(9,195 |
) |
|
|
|
|
|
|
|
Patents, net of accumulated amortization |
|
|
3,459 |
|
|
|
3,902 |
|
Goodwill |
|
|
21,521 |
|
|
|
21,521 |
|
|
|
|
|
|
|
|
Total goodwill and intangible assets |
|
$ |
24,980 |
|
|
$ |
25,423 |
|
|
|
|
|
|
|
|
Patents are being amortized on a straight-line method over their remaining legal life. The
weighted average remaining life of the Companys patents is 7 years. Amortization expense related
to patents, which is included in cost of sales, was $443 for each of the nine months ended
September 30, 2010 and 2009, and $148 for each of the three months ended September 30, 2010 and
2009. The Company estimates amortization expense for the year ending December 31, 2010 will be
approximately $590, for each of the two years in the period ending December 31, 2012 will be
approximately $586 and for each of the two years in the period ending December 31, 2014 will be
approximately $582.
The Company evaluates its patent intangibles for impairment at least annually and has identified no
impairment during 2010 or 2009.
Note 10 Product Warranties
Warranty terms are based on the negotiated railcar sales contracts and typically are for periods of
1 to 6 years. The changes in the warranty reserve for the three and nine months ended September 30,
2010 and 2009, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Balance at the beginning of the period |
|
$ |
8,392 |
|
|
$ |
10,768 |
|
|
$ |
9,146 |
|
|
$ |
11,476 |
|
Provision for warranties issued during the period |
|
|
137 |
|
|
|
203 |
|
|
|
240 |
|
|
|
672 |
|
Reductions for payments, cost of repairs and other |
|
|
(557 |
) |
|
|
(568 |
) |
|
|
(1,414 |
) |
|
|
(1,745 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period |
|
$ |
7,972 |
|
|
$ |
10,403 |
|
|
$ |
7,972 |
|
|
$ |
10,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11 Revolving Credit Facilities
On July 29, 2010, the Company entered into a new $30,000 senior secured revolving credit facility
pursuant to a Loan and Security Agreement dated as of July 29, 2010 (the Revolving Loan
Agreement) by and among America, JAC, FCS, Operations and FCR, as borrowers (collectively, the
Borrowers), and Fifth Third Bank, as lender. The proceeds of the new revolving credit facility
can be used for general corporate purposes, including funding working capital. As of September 30,
2010, the Company had no borrowings under the new revolving credit facility.
The Revolving Loan Agreement has a term ending on July 29, 2013 and revolving loans outstanding
thereunder will bear interest at a rate of LIBOR plus an applicable margin of 2.50%. The Company
is required to pay a non-utilization fee of 0.35% on the unused portion of the revolving loan
commitment. Borrowings under the Revolving Loan Agreement are secured by the Companys accounts
receivable, inventory and certain other assets of the Company, and borrowing availability is tied
to a borrowing base of eligible accounts receivable and inventory. The Revolving Loan Agreement
has both affirmative and negative covenants, including, without limitation, a minimum tangible net
worth covenant and limitations on indebtedness, liens and investments. The Revolving Loan
Agreement also provides for customary events of default. As of September 30, 2010, the
Company was in compliance with the covenants contained in the agreement.
The Revolving Loan Agreement replaces the Companys prior revolving credit facility under the
Second Amended and Restated Credit Agreement dated August 24, 2007, as amended, among certain of
the Borrowers and the lenders party thereto, (the Prior Credit Agreement) and the Credit
Agreement dated September 30, 2008, as amended, among JAIX Leasing Company and the lenders party
thereto (the JAIX Credit Agreement), which had been available to fund the Companys leasing
operations. The Company had no borrowings outstanding under the Prior Credit Agreement or the JAIX
Credit Agreement as of December 31, 2009 or when they were cancelled as of July 29, 2010. During
the third quarter of 2010 the Company wrote off $518 in unamortized deferred financing costs
related to these terminated agreements.
11
The Prior Credit Agreement consisted of a total senior secured revolving credit facility of
$50,000. The amount available under the Prior Credit Agreement was based on the lesser of (i)
$50,000 or (ii) the borrowing base representing a portion of working capital calculated as a
percentage of eligible accounts receivable plus percentages of eligible finished and semi-finished
inventory, less a $20,000 borrowing base reserve. The Prior Credit Agreement had a term ending on
May 31, 2012 and bore interest at a rate of LIBOR plus an applicable margin of between 1.50% and
2.25% depending on Revolving Loan Availability (as defined in the Prior Credit Agreement). The
Company was required to pay a commitment fee of between 0.175% and 0.250% based on Revolving Loan
Availability. Borrowings under the Prior Credit Agreement were collateralized by substantially all
of the assets of the Company and guaranteed by an unsecured guarantee made by JAIX. The Prior
Credit Agreement had both affirmative and negative covenants, including a minimum fixed charge
coverage ratio and limitations on debt, liens, dividends, investments, acquisitions and capital
expenditures. The Company had $1,154 in outstanding letters of credit under the letter of credit
sub-facility as of December 31, 2009. These letters of credit remain outstanding, as of September
30, 2010, but due to the cancellation of the Prior Credit Agreement and JAIX Credit Agreement, they
are unsecured.
The JAIX Credit Agreement consisted of a $60,000 senior secured revolving credit facility with a
term ending on March 31, 2012. JAIX was required to pay an annual commitment fee of 0.30% during
the Revolving Period. Borrowings under the JAIX Credit Agreement were collateralized by
substantially all of the assets of JAIX. Additionally, America guaranteed the JAIX Credit
Agreement. Availability under the JAIX Credit Agreement was based on a percentage of the Eligible
Railcar Leases (as defined in the agreement) held under the JAIX Credit Agreement. As of December
31, 2009, the Company had no borrowings under the JAIX Credit Agreement.
Note 12 Stock-Based Compensation
On January 26, 2010, the Company awarded 200,000 non-qualified stock options to the Chief Executive
Officer of the Company pursuant to its 2005 Long Term Incentive Plan. The stock options will vest
in two equal annual installments beginning on January 26, 2011 and have a contractual term of 10
years. The exercise price of each option is $19.96, which was the fair market value of the
Companys stock on the date of the grant. The Company recognizes stock compensation expense based
on the fair value of the award on the grant date using the Black-Scholes option valuation model.
The estimated fair value of $9.02 per option will be recognized over the period during which an
employee is required to provide service in exchange for the award, which is usually the vesting
period. The following assumptions were used to value the January 26, 2010 stock options: expected
life of the options of 5.75 years; expected volatility of 51.96%; risk-free interest rate of 2.38%;
and expected dividend yield of 1.21%.
On February 23, 2010, the Company awarded 74,310 non-qualified stock options to certain employees
of the Company pursuant to its 2005 Long Term Incentive Plan. The stock options will vest in three
equal annual installments beginning on February 23, 2011 and have a contractual term of 10 years.
The exercise price of each option is $20.69, which was the fair market value of the Companys stock
on the date of the grant. The Company recognizes stock compensation expense based on the fair
value of the award on the grant date using the Black-Scholes option valuation model. The estimated
fair value of $9.52 per option will be recognized over the period during which an employee is
required to provide service in exchange for the award, which is usually the vesting period. The
following assumptions were used to value the February 23, 2010 stock options: expected lives of the
options of 6 years; expected volatility of 51.81%; risk-free interest rate of 2.37%; and expected
dividend yield of 1.16%.
Expected life in years was determined using the simplified method. 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.
On April 19, 2010, the Company awarded 5,000 shares of restricted stock to certain employees of the
Company pursuant to its 2005 Long Term Incentive Plan. Each restricted stock award will vest in
three equal annual installments beginning on the first anniversary of the award, with continued
vesting of each award subject to the recipients continued employment with the Company. Stock
compensation expense will be recognized 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.
On May 12, 2010, the Company awarded 8,424 shares of restricted stock to certain individuals for
service on the Companys board of directors pursuant to its 2005 Long Term Incentive Plan. Each
restricted stock award will vest on May 12, 2011. Stock compensation expense will be recognized
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.
12
On September 13, 2010, the Company awarded 2,500 shares of restricted stock to an employee of the
Company pursuant to its 2005 Long Term Incentive Plan. The restricted stock award will vest in
three equal annual installments beginning on the first anniversary of the award, with continued
vesting of each award subject to the recipients continued employment with the Company. Stock
compensation expense will be recognized 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
As of September 30, 2010, there was $1,930 of unearned compensation expense related to the stock
options and restricted stock granted during the first nine months of 2010, which will be recognized
over the average remaining requisite service period of 19 months.
Note 13 Comprehensive Income
Comprehensive income consists of net income or loss and the unrecognized pension and postretirement
costs, which are shown net of tax.
Net income or loss reported in the Condensed Consolidated Statements of Operations is reconciled to
total comprehensive income as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net (loss) income |
|
$ |
(4,705 |
) |
|
$ |
1,045 |
|
|
$ |
(9,326 |
) |
|
$ |
10,416 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service
costs and actuarial losses, net
of tax |
|
|
132 |
|
|
|
41 |
|
|
|
397 |
|
|
|
378 |
|
Market value adjustment for
securities available for sale,
net of reclassification
adjustment, net of tax |
|
|
|
|
|
|
7 |
|
|
|
(2 |
) |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income |
|
$ |
(4,573 |
) |
|
$ |
1,093 |
|
|
$ |
(8,931 |
) |
|
$ |
10,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 14 Employee Benefit Plans
The Company has qualified, defined benefit pension plans that were established to cover employees
of JAC, Operations and JAIX. 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.
The Companys decision in December 2007 to close its manufacturing facility in Johnstown,
Pennsylvania significantly affected current and future employment levels and resulted in a decrease
in the estimated remaining future service years for the employees covered by the plans. The
decrease in the estimated remaining future service years resulted in plan curtailments for the
defined benefit pension plans and the postretirement benefit plan and caused the Company to
recognize in 2007 a substantial portion of the net actuarial losses and prior service costs
relating to these plans that had not yet been recognized in earnings. In addition, the plant
closure decision triggered contractual special pension benefits that were recognized in 2008 for
the Companys pension plan and contractual termination benefits that were recognized for the
Companys postretirement plan. As of December 31, 2009, the Company suspended its pension plan
for salaried employees who are not part of a collective bargaining unit. As a result of this
decision, the Company recognized a substantial portion of the net actuarial loss and prior service
cost relating to this plan that had not yet been recognized in earnings during the fourth quarter
of 2009.
The Company uses a measurement date of December 31 for all of its employee benefit plans.
Generally, contributions to the plans are not less than the minimum amounts required under the
Employee Retirement Income Security Act 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.
13
The components of net periodic benefit cost for the three and nine months ended September 30, 2010
and 2009, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
Pension Benefits |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Service cost |
|
$ |
|
|
|
$ |
6 |
|
|
$ |
|
|
|
$ |
306 |
|
Interest cost |
|
|
856 |
|
|
|
931 |
|
|
|
2,568 |
|
|
|
2,883 |
|
Expected return on plan assets |
|
|
(889 |
) |
|
|
(733 |
) |
|
|
(2,667 |
) |
|
|
(2,207 |
) |
Amortization of prior service cost |
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
78 |
|
Amortization of unrecognized net loss (gain) |
|
|
106 |
|
|
|
(8 |
) |
|
|
318 |
|
|
|
368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
73 |
|
|
$ |
222 |
|
|
$ |
219 |
|
|
$ |
1,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
Postretirement Benefit Plan |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Service cost |
|
$ |
14 |
|
|
$ |
20 |
|
|
$ |
42 |
|
|
$ |
44 |
|
Interest cost |
|
|
870 |
|
|
|
976 |
|
|
|
2,610 |
|
|
|
2,962 |
|
Amortization of prior service cost |
|
|
60 |
|
|
|
69 |
|
|
|
180 |
|
|
|
181 |
|
Amortization of unrecognized net loss (gain) |
|
|
46 |
|
|
|
(1 |
) |
|
|
138 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
990 |
|
|
$ |
1,064 |
|
|
$ |
2,970 |
|
|
$ |
3,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company made no contributions to the Companys defined benefit pension plans for each of
the three months and nine months ended September 30, 2010. The Company made contributions to the
Companys defined benefit pension plans of $12,075 for each of the three months and nine months
ended September 30, 2009. The Company expects to make $28 in contributions to its pension plans in
2010. The Company made payments to the Companys postretirement benefit plan of approximately
$934 and $1,588, respectively, for the three months ended September 30, 2010 and 2009, and $3,339
and $4,493, respectively, for the nine months ended September 30, 2010 and 2009. Total payments to
the Companys postretirement benefit plan in 2010 are expected to be $5,342. As of December 31,
2009, the Companys benefit obligations under its defined benefit pension plans and its
postretirement benefit plan were $61,462 and $63,291, respectively, which exceeded the fair value
of plan assets by $15,546 and $63,291, respectively.
The Company also maintains qualified defined contribution plans which provide benefits to employees
based on employee contributions, years of service, employee earnings or certain subsidiary
earnings, with discretionary contributions allowed. Expenses related to these plans were $205 and
$190 for the three months ended September 30, 2010 and 2009, respectively, and $452 and $863 for
the nine months ended September 30, 2010 and 2009, respectively.
Note 15 Contingencies
The Company is involved in certain threatened and pending 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 legal proceedings cannot be determined at this time, it is the
opinion of management that resolution of these actions will not have a material adverse effect on
the Companys financial condition, results of operations or cash flows.
The Company is involved in various warranty and repair claims with its customers in the normal
course of business. In the opinion of management, the Companys potential losses in excess of the
accrued warranty provisions, if any, are not expected to be material to the Companys financial
condition, results of operations or cash flows.
On a quarterly basis, the Company evaluates the potential outcome of all significant contingencies
and estimates the likelihood that a future event or events will confirm the loss of an asset or
incurrence of a liability. When information available prior to issuance of the Companys financial
statements indicates that in managements judgment, it is probable that an asset had been impaired
or a liability had been incurred at the date of the financial statements and the amount of loss can
be reasonably estimated, the contingency is accrued by a charge to income
14
Note 16 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 |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Weighted average common shares outstanding |
|
|
11,906,193 |
|
|
|
11,867,314 |
|
|
|
11,892,724 |
|
|
|
11,859,361 |
|
Dilutive effect of employee stock options and
nonvested share awards |
|
|
|
|
|
|
8,434 |
|
|
|
|
|
|
|
4,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding |
|
|
11,906,193 |
|
|
|
11,875,748 |
|
|
|
11,892,724 |
|
|
|
11,864,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. Because the Company had a net loss for the three and nine months ended September 30, 2010,
all stock options and shares of nonvested share awards were anti-dilutive and not included in the
above calculation for that period. For each of the three and nine months ended September 30, 2009,
there were 159,240 stock options and 43,682 shares of nonvested share awards which were
anti-dilutive and not included in the above calculation.
Note 17 Sales Contract Termination Revenue
During the first nine months of 2009, the Company received a termination fee of $3,935 from a
customer in connection with reducing the number of railcars to be purchased under a previously
agreed-to contract. The contract termination fee is included in Revenues on the Condensed
Consolidated Statements of Operations for the nine months ended September 30, 2009.
Note 18 Subsequent Event
On November 1, 2010, the Company acquired the business assets of DTE Rail Services Inc., a
non-regulated subsidiary of DTE Energy Resources Inc., for approximately $23,327. The transaction
was funded with cash from operations. The acquisition furthers the Companys strategic growth
initiative to expand its presence in the railcar services sector through its newly formed
subsidiary, FreightCar Rail Services, LLP. FreightCar Rail Services, LLP will provide repair and
maintenance, inspections and fleet management services for all types of freight-carrying railcars.
FreightCar Rail Services, LLP has operations in Colorado, Indiana and Nebraska and will service
freight cars and unit coal trains utilizing key rail corridors in the Midwest and Western regions
of the United States. The expansion of the Companys railcar services activities is intended to
diversify the Companys revenue sources and lessen the cyclicality of the railcar market on its
earnings. The acquired business added approximately 130 skilled employees to the Company. The
Company has considered the disclosure requirements of ASC 805-10-50-2 and ASC 805-10-50-4 but has
not included the required disclosures due to the timing of the transaction.
15
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-carrying railcars
in North America, based on the number of railcars delivered. We also refurbish and rebuild railcars
and sell forged, cast and fabricated parts for the railcars we produce, as well as those
manufactured by others. Our primary customers are financial institutions, shippers and railroads.
Our manufacturing facilities are located in Danville, Illinois and Roanoke, Virginia. Each of our
manufacturing facilities has the capability to manufacture a variety of types of railcars,
including aluminum-bodied and steel-bodied railcars.
On November 1, 2010, we acquired the business assets of DTE Rail Services Inc., a non-regulated
subsidiary of DTE Energy Resources Inc. The acquisition furthers our strategic growth initiative
to expand our presence in the railcar services sector through our newly formed subsidiary,
FreightCar Rail Services, LLP. The acquired business will bolster our existing parts and repair
service capabilities. Our collective offering will provide repair and maintenance, inspections and
fleet management services for all types of freight-carrying railcars. Going forward, we expect
that this addition will expand our customer base and strengthen existing relationships by
significantly enhancing our involvement in the entire railcar life cycle. The expansion of our
railcar services activities is intended to diversify our revenue sources and lessen the cyclicality
of the railcar market on our earnings.
Orders for railcars in the third quarter of 2010 were 17 units compared to 14 units ordered in the
second quarter of 2010 and no units ordered in the third quarter of 2009. Railcar deliveries
totaled 600 new railcars in the third quarter of 2010 compared to 614 units in the second quarter
of 2010 and 695 units delivered in the third quarter of 2009. Total backlog of unfilled orders was
2,417 at September 30, 2010 compared to 3,000 units at June 30, 2010 and 265 units at December 31,
2009.
Our sales and order volume for the third quarter of 2010 reflects the continuation of challenging
market conditions and resultant low level of demand for coal-carrying railcars. Although showing
signs of improvement, the number of railcars that are currently in storage places pressure on the
price and demand for coal-carrying railcars. We anticipate that economic factors will continue to
challenge the market for coal-carrying railcars in North America throughout the remainder of 2010
and into 2011.
The North American railcar market is highly cyclical and the trends in the railcar industry are
closely related to the overall level of economic activity. We expect railroads and utilities to
continue to upgrade their fleets of aging steel-bodied coal-carrying railcars to lighter and more
durable aluminum-bodied coal-carrying railcars. Roughly half of our nations electrical power is
generated from coal. The U.S. Energy Information Administration has projected continued growth in
domestic coal consumption for electric power generation through 2030. Factors such as these
suggest that our main products and services should be in demand for the foreseeable future.
However, future government policies and the potential of a long-term shift away from coal, the
primary fuel source for electric power generation, could mitigate this demand.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2010 compared to Three Months Ended September 30, 2009
Revenues
Our revenues for the three months ended September 30, 2010 were $41.3 million compared to $55.1
million for the three months ended September 30, 2009. Total deliveries in the third quarter of
2010 were 600 units, consisting of only new cars sold, compared to 695 total units, consisting of
560 new cars sold and 135 cars leased, delivered in the third quarter of last year. Our revenues
for the third quarter of 2010 reflect the continuation of the extended downturn in the
coal-carrying railcar cycle. Total backlog of unfilled orders was 2,417 units at September 30,
2010 compared to 777 units at September 30, 2009.
16
Gross Profit
Our gross profit for the third quarter of 2010 was ($0.8) million with a corresponding margin rate
of (2.0%). Gross profit for the third quarter of 2009 was $6.9 million with a corresponding margin
rate of 12.5%. The margin rate for the third quarter of 2010 was negatively impacted by the low
level of manufacturing activity during the quarter, product mix, as well as continued competitive
pricing pressures.
Selling, General and Administrative Expense
Selling, general and administrative expenses for the three months ended September 30, 2010 were
$6.5 million compared to $6.6 million for the three months ended September 30, 2009, representing a
decrease of $0.1 million. The decrease in selling, general and administrative expenses for the
third quarter of 2010 compared to the 2009 period is primarily attributable to reductions in
incentive compensation of $0.8 million and postretirement benefit costs of $0.2 million which were
partially offset by increases in professional fees of $0.3 million and employee severance of $0.5
million.
Interest Income
Interest expense, net of interest income was $0.6 million for the three months ended September 30,
2010 compared to $0.2 million for the three months ended September 30, 2009. Interest expense for
the third quarter of 2010 included the write-off of deferred financing costs of $0.5 million.
Income Taxes
The income tax benefit was $3.2 million, at an effective tax rate of 40.3%, for the three months
ended September 30, 2010. The effective tax rate for the three months ended September 30, 2010 was
higher than the statutory tax rate primarily due to tax deductible goodwill, which increased the
effective tax rate 2.3% in the current period because the goodwill amortization increases the
effective tax rate in periods of loss, whereas it reduces the effective tax rate during periods of
profitability. The effective tax rate for the third quarter of 2010 also included the addition of
a 2.2% blended state rate. The income tax benefit was $1.0 million for the three months ended
September 30, 2009 and included a deferred tax benefit of $0.6 million related to an increase in
the Illinois blended tax rate to account for idling of our Roanoke, Virginia manufacturing facility
during the third quarter of 2009.
Net Income Attributable to FreightCar America
As a result of the foregoing, net loss attributable to FreightCar America was $4.7 million for the
three months ended September 30, 2010, compared to net income attributable to FreightCar America of
$1.1 million for the three months ended September 30, 2009. For the three months ended September
30, 2010, our diluted net loss per share was $0.39, on diluted shares outstanding of 11,906,193.
For the three months ended September 30, 2009, our diluted net income per share was $0.09, on
diluted shares outstanding of 11,875,748.
Nine Months Ended September 30, 2010 compared to Nine Months Ended September 30, 2009
Revenues
Our sales for the nine months ended September 30, 2010 were $91.9 million compared to $199.0
million for the nine months ended September 30, 2009. Revenues for the first nine months of 2009
include $3.9 million generated from contract termination fees resulting from a customers reduction
of a sales order. The decrease in sales was due primarily to lower coal car sales driven by reduced
industry demand. Total deliveries in the first nine months of 2010 were 1,535 units, consisting of
1,385 cars sold (840 new, 545 used) and 150 cars leased, compared to 2,680 total units delivered,
consisting of 1,040 cars sold (1,004 new, 36 used) and 1,080 cars leased, in the first nine months
of last year.
Gross Profit
Our gross profit for the nine months ended September 30, 2010 was $2.8 million, compared to $33.2
million for the nine months ended September 30, 2009, a decrease of $30.4 million. The
corresponding margin rate was 3.0% for the nine months ended September 30, 2010, compared with
16.7% generated in the corresponding period of 2009. The margin rate for the first nine months of
2009 was favorably impacted by the contract termination fee of $3.9 million that was recorded in
17
the first quarter of 2009 while the margin rate for the first nine months of 2010 was negatively
impacted by the very low production levels during 2010, product mix, and continued competitive
pricing pressures on margins.
Selling, General and Administrative Expense
Selling, general and administrative expenses for the nine months ended September 30, 2010 were
$18.0 million compared to $20.6 million for the nine months ended September 30, 2009, representing
a decrease of $2.6 million. The decrease in selling, general and administrative expenses for the
nine months ended September 30, 2010 compared to the 2009 period is primarily attributable to
reductions in salaries and benefits of $4.6 million which were partially offset by increases in
outside professional fees of $1.5 million.
Plant Closure Income
Results for the nine months ended September 30, 2009 included plant closure income of $0.5 million,
which represented reductions in employee termination benefits of $166,000 and insurance recoveries
of $329,000.
Interest Income
Interest expense, net of interest income, was $0.8 million for the nine months ended September 30,
2010 compared to $0.5 million for the nine months ended September 30, 2009. Interest expense for
the nine months ended September 30, 2010 included the write-off of deferred financing costs of $0.5
million
Income Taxes
The income tax benefit was $6.8 million, at an effective tax rate of 42.2%, for the nine months
ended September 30, 2010, compared to an income tax provision of $2.1 million, at an effective tax
rate of 16.8%, for the nine months ended September 30, 2009. The effective tax rate for the nine
months ended September 30, 2010 was higher than the statutory tax rate primarily due tax deductible
goodwill, which increased the effective tax rate 3.0% in the current period because the goodwill
amortization increases the effective tax rate in periods of loss, whereas it reduces the effective
tax rate during periods of profitability. The effective tax rate for the nine months ended
September 30, 2009 was lower than the statutory tax rate primarily due to a reduction of 15.2% for
the positive effect of tax-deductible goodwill. The effective tax rate for the nine months ended
September 30, 2009 was also positively impacted by the benefit from applying an increase in the
Illinois tax rate against short-term deferred tax assets. The increase in the Illinois tax rate
resulted from an increase in the percentage of sales revenue apportioned to Illinois due to the
idling of our Roanoke, Virginia manufacturing facility during the third quarter of 2009.
Net Income Attributable to FreightCar America
As a result of the foregoing, net loss attributable to FreightCar America was $9.3 million for the
nine months ended September 30, 2010, compared to net income attributable to FreightCar America of
$10.5 million for the nine months ended September 30, 2009. For the nine months ended September
30, 2010, our diluted net loss per share was $0.78, on diluted shares outstanding of 11,892,724.
For the nine months ended September 30, 2009, our diluted net income per share was $0.88, on
diluted shares outstanding of 11,864,161.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity for the nine months ended September 30, 2010 and 2009, were our
cash and cash equivalent balances on hand, our cash generated by operations and our revolving
credit facilities.
On July 29, 2010, we entered into a new $30.0 million senior secured revolving credit facility
pursuant to a Loan and Security Agreement dated as of July 29, 2010 (the Revolving Loan
Agreement) by and among America, JAC, FCS, Operations, and FCR, as borrowers (collectively, the
Borrowers), and Fifth Third Bank, as lender. The new revolving credit facility can be used for
general corporate purposes, including funding working capital. As of September 30, 2010, we had no
borrowings under the new revolving credit facility.
The Revolving Loan Agreement has a term ending on July 29, 2013 and revolving loans outstanding
thereunder will bear interest at a rate of LIBOR plus an applicable margin of 2.50%. We are
required to pay a non-utilization fee of 0.35% on the unused portion of the revolving loan
commitment. Borrowings under the Revolving Loan Agreement are secured by our accounts receivable,
inventory and certain other assets, and borrowing availability is tied to a borrowing base of
eligible
18
accounts receivable and inventory. The Revolving Loan Agreement has both affirmative and negative
covenants, including, without limitation, a minimum tangible net worth covenant and limitations on
indebtedness, liens and investments. The Revolving Loan Agreement also provides for customary
events of default. As of September 30, 2010, we were in compliance with the covenants
contained in the agreement.
The Revolving Loan Agreement replaces our prior revolving credit facility under the Second Amended
and Restated Credit Agreement dated August 24, 2007, as amended, among certain of the Borrowers and
the lenders party thereto, (the Prior Credit Agreement) and the Credit Agreement dated September
30, 2008, as amended, among JAIX Leasing Company and the lenders party thereto (the JAIX Credit
Agreement), which had been available to fund our leasing operations. There were no borrowings
outstanding under the Prior Credit Agreement or the JAIX Credit Agreement as of December 31, 2009
or when they were cancelled as of July 29, 2010. We had $1.2 million in outstanding letters of
credit under the letter of credit sub-facility as of December 31, 2009. These letters of credit
remain outstanding as of September 30, 2010, but due to the cancellation of the Prior Credit
Agreement and JAIX Credit Agreement, they are unsecured.
As of September 30, 2010, the value of railcars under operating leases was $65.9 million, the
investment in which was funded by cash flows from operations. We anticipate that we may continue
to offer railcars under operating leases to certain customers and pursue opportunities to sell
leases in our portfolio. Additional railcars under lease may be funded by cash flows from
operations, or we may pursue a new credit facility to fund railcars under lease, or both, as we
evaluate our liquidity and capital resources.
Our restricted cash balance was $1.1 million as of September 30, 2010 to collateralize standby
letters of credit with respect to purchase price payment guarantees and performance guarantees.
The standby letters of credit are scheduled to expire during the fourth quarter of 2010. We expect
to establish restricted cash balances in future periods to minimize bank fees related to standby
letters of credit while maximizing our ability to borrow under our revolving credit facility.
Our payment of $23.3 million to acquire the business assets of DTE Rail Services Inc. on November
1, 2010 was funded by cash from operations. Based on our current level of operations and known
changes in planned volume based on our backlog, we believe that our proceeds from operating cash
flows and our cash balances, together with amounts available under our revolving credit facility,
will be sufficient to meet our anticipated liquidity needs for the next year. 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
or to fund organic growth opportunities, including new plant and equipment, development of
railcars, joint ventures and acquisitions, and these capital requirements could be substantial.
Although management believes it is unlikely that it will need to make significant investments in
order to expand our manufacturing capacity at any time in the near future, market conditions and
opportunities may require increased levels of capital expenditures to optimize capacity or to
provide capabilities for manufacturing other railcar types. We are also exploring product
diversification initiatives and international and other opportunities.
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, 2009, our benefit obligation under our defined benefit pension plans and our
postretirement benefit plan was $61.5 million and $63.3 million, respectively, which exceeded the
fair value of plan assets by $15.5 million and $63.3 million, respectively. We made no
contributions to our defined benefit pension plans during the first nine months of 2010 and expect
to make contributions of $28,000 to our defined benefit pension plans during the fourth quarter of
2010. 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. We made payments to our postretirement
benefit plan of approximately $3.3 million during the first nine months of 2010, and expect to make
approximately $5.3 million in total payments to our postretirement benefit plan in 2010. We
anticipate funding pension plan contributions and postretirement plan payments with operating 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
19
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, 2010, 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 |
|
|
|
|
|
|
|
|
|
|
|
2-3 |
|
|
4-5 |
|
|
After |
|
Contractual Obligations |
|
Total |
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
5 Years |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Operating leases |
|
$ |
11,842 |
|
|
$ |
2,614 |
|
|
$ |
5,337 |
|
|
$ |
3,345 |
|
|
$ |
546 |
|
Material and component purchases |
|
|
104,761 |
|
|
|
24,661 |
|
|
|
54,796 |
|
|
|
25,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
116,603 |
|
|
$ |
27,275 |
|
|
$ |
60,133 |
|
|
$ |
28,649 |
|
|
$ |
546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $4.1 million related to a reserve for uncertain tax positions at September
30, 2010 because the timing of the payout of these amounts cannot be determined.
We are also required to make minimum contributions to our pension and postretirement welfare plans.
See Note 14 to the condensed consolidated financial statements regarding our expected contributions
to our pension plans and our expected postretirement welfare benefit payments for 2010
Cash Flows
The following table summarizes our net cash used in operating activities, investing activities and
financing activities for the nine months ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Net cash (used in) provided by: |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(32,573 |
) |
|
$ |
19,310 |
|
Investing activities |
|
|
31,328 |
|
|
|
(32,772 |
) |
Financing activities |
|
|
(1,059 |
) |
|
|
(2,039 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
(2,304 |
) |
|
$ |
(15,501 |
) |
|
|
|
|
|
|
|
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 payment 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 and production lead times cause 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.
During the first nine months of 2010, our loss from operations and an increase in other working
capital balances (including increases in inventory of $12.3 million and accounts receivable of $3.4
million) during the period were partially off-set by an
20
increase in customer deposits of $8.9
million. We expect the increase in customer deposits to be fully off-set against shipments during
the fourth quarter of 2010. During the first nine months of 2009, we generated earnings from
operations and incurred a significant reduction in working capital driven by the collection of
accounts receivable.
Investing Activities. Net cash provided by investing activities for the nine months ended September
30, 2010 was $31.3 million compared to net cash used in investing activities of $32.8 million for
the nine months ended September 30, 2009. Net cash provided by investing activities for the nine
months ended September 30, 2010 consisted of sales and maturities of securities available for sale
(net of purchases) of $30.0 million, restricted cash withdrawals (net of deposits) of $0.3 million,
cash received on deposit for sale of property, plant and equipment of $1.8 million, offset by
capital expenditures of $1.0 million. Net cash used in investing activities for the nine months
ended September 30, 2009 consisted of the cost of securities available for sale of $20.0 million,
railcars under operating leases produced or acquired of $8.8 million and capital expenditures of
$4.0 million.
Financing Activities. Net cash used in financing activities was $1.1 million for the nine months
ended September 30, 2010 compared to $2.0 million for the nine months ended September 30, 2009.
Net cash used in financing activities for the first nine months of 2010 included $0.7 million of
cash dividends to our stockholders, $0.2 million related to employee restricted stock settlements
and $0.1 million in deferred financing costs. Net cash used in financing activities for the first
nine months of 2009 consisted primarily of cash dividends to our stockholders of $2.1 million.
Capital Expenditures
Our capital expenditures were $1.0 million in the nine months ended September 30, 2010 compared to
$4.0 million in the nine months ended September 30, 2009. Excluding unforeseen expenditures,
management expects that capital expenditures to maintain our existing facilities and add additional
functionality to our ERP system that was implemented during 2009 will be approximately $0.5 million
for the remainder of 2010. We continuously evaluate our manufacturing facility requirements based
upon market demand and may elect to make capital investments at higher levels in the future.
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; |
|
|
|
fluctuating costs of raw materials, including steel and aluminum, and delays in the
delivery of raw materials; |
|
|
|
our ability to maintain relationships with our suppliers of railcar components; |
|
|
|
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
acceptance of customer orders; |
|
|
|
the highly competitive nature of our industry; |
|
|
|
risks relating to our relationship with our unionized employees and their unions; |
|
|
|
our ability to manage our health care and pension costs; |
|
|
|
our reliance on the sales of our aluminum-bodied coal-carrying railcars; |
|
|
|
shortages of skilled labor; |
|
|
|
the risk of lack of acceptance of our new railcar offerings by our customers; |
|
|
|
the cost of complying with environmental laws and regulations; |
|
|
|
the costs associated with being a public company; |
|
|
|
potential significant warranty claims; and |
|
|
|
various covenants in the agreement governing our indebtedness that limit our managements
discretion in the operation of our businesses. |
21
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, 2009 filed with the Securities and
Exchange Commission.
22
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
On July 29, 2010, we entered into a new $30.0 million senior secured revolving credit facility and
cancelled our previous credit facilities. The new revolving credit facility can be used for
general corporate purposes, including the funding of working capital. On an annual basis, a 1%
change in the interest rate in our revolving credit facilities will increase or decrease our
interest expense by $10,000 for every $1.0 million of outstanding borrowings. As of September 30,
2010, there were no borrowings 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 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.
We currently do not plan to enter into any hedging arrangements to manage the price risks
associated with raw materials, although we may do so in the future. 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 Chief 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 Chief 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.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
We are involved in certain threatened and pending 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 legal proceedings cannot be determined at this time, it is the
opinion of management that the resolution of these actions will not have a material adverse effect
on our financial condition, results of operations or cash flows.
Item 1A. Risk Factors.
There have been no material changes from the risk factors previously disclosed in Item 1A of our
2009 annual report on Form 10-K.
23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
|
(a) |
|
Exhibits filed as part of this Form 10-Q: |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32
|
|
Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. |
24
SIGNATURES
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 9, 2010 |
By: |
/s/ Edward J. Whalen
|
|
|
|
Edward J. Whalen, President and |
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
By: |
/s/ Joseph E. McNeely
|
|
|
|
Joseph E. McNeely, Vice President, Finance, |
|
|
|
Chief Financial Officer and Treasurer |
|
25
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32
|
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
26