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FreightCar America, Inc. - Quarter Report: 2019 September (Form 10-Q)

10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2019

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

(Registrant’s telephone number, including area code)

 

Title of each class

 

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

Common stock, par value $0.01 per share   RAIL   Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  ☒    NO  ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    YES  ☒    NO  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer      Accelerated Filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act:  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ☐    NO  ☒

As of October 29, 2019, there were 12,687,573 shares of the registrant’s common stock outstanding.

 

 

 


Table of Contents

FREIGHTCAR AMERICA, INC.

INDEX TO FORM 10-Q

 

Item
Number

       Page
Number
 
  PART I – FINANCIAL INFORMATION   

1.

  Financial Statements:   
  Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2019 and December 31, 2018      3  
  Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2019 and 2018      4  
  Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the Three and Nine Months Ended September 30, 2019 and 2018      5  
  Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, 2019 and 2018      6  
  Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2019 and 2018      8  
  Notes to Condensed Consolidated Financial Statements (Unaudited)      9  

2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      21  

4.

  Controls and Procedures      26  
  PART II – OTHER INFORMATION   

1.

  Legal Proceedings      27  

2.

  Unregistered Sales of Equity Securities and Use of Proceeds      27  

3.

  Defaults Upon Senior Securities      27  

4.

  Mine Safety Disclosures      27  

5.

  Other Information      27  

6.

  Exhibits      27  
  Signatures      28  

 

2


Table of Contents

PART I – FINANCIAL INFORMATION

Item

1. Financial Statements.

FreightCar America, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

 

     September 30, 2019     December 31, 2018  

Assets

     (in thousands, except for share and per share data)  

Current assets

    

Cash, cash equivalents and restricted cash equivalents

   $ 59,441   $ 45,070

Restricted certificates of deposit

     506     4,952

Marketable securities

     —         18,019

Accounts receivable, net of allowance for doubtful accounts of $140 and $91, respectively

     8,735     18,218

Inventories, net

     55,656     64,562

Other current assets

     7,672     5,012
  

 

 

   

 

 

 

Total current assets

     132,010     155,833

Property, plant and equipment, net

     38,912     45,317

Railcars available for lease, net

     47,051     64,755

Right of use asset

     69,208     —    

Goodwill

     —         21,521

Other long-term assets

     2,106     2,311
  

 

 

   

 

 

 

Total assets

   $ 289,287   $ 289,737
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current liabilities

    

Accounts and contractual payables

   $ 23,994   $ 34,749

Accrued payroll and other employee costs

     4,211     1,639

Reserve for workers’ compensation

     3,816     3,344

Accrued warranty

     7,666     9,309

Customer deposits

     1,281     3,000

Deferred income state and local incentives, current

     2,219     2,219

Deferred rent, current

     —         6,466

Lease liability, current

     17,144     —    

Other current liabilities

     1,402     1,324
  

 

 

   

 

 

 

Total current liabilities

     61,733     62,050

Long-term debt

     10,200     —    

Accrued pension costs

     5,574     5,841

Accrued postretirement benefits, less current portion

     4,694     4,975

Deferred income state and local incentives, long-term

     5,277     6,941

Deferred rent, long-term

     —         15,519

Lease liability, long-term

     68,804     —    

Other long-term liabilities

     4,009     801
  

 

 

   

 

 

 

Total liabilities

     160,291     96,127
  

 

 

   

 

 

 

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, 2019 and December 31, 2018)

     —         —    

Common stock, $0.01 par value, 50,000,000 shares authorized, 12,731,678 shares issued at September 30, 2019 and December 31, 2018

     127     127

Additional paid in capital

     82,550     90,593

Treasury stock, at cost, 43,105 and 272,030 shares at September 30, 2019 and December 31, 2018, respectively

     (983     (9,721

Accumulated other comprehensive loss

     (8,057     (8,188

Retained earnings

     55,359     120,799
  

 

 

   

 

 

 

Total stockholders’ equity

     128,996     193,610
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 289,287   $ 289,737
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

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Table of Contents

FreightCar America, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2019     2018     2019     2018  
     (In thousands, except for share and per share data)  

Revenues

   $ 40,651     $ 78,968     $ 185,020     $ 228,684  

Cost of sales

     46,061       82,806       191,255       228,279  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross (loss) profit

     (5,410     (3,838     (6,235     405  

Selling, general and administrative expenses

     7,772       5,448       30,791       21,829  

Loss on sale of railcars available for lease

     42       —         5,238       —    

Gain on sale of facility

     —         (573     —         (573

Restructuring and impairment charges

     23,032       —         24,351       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (36,256     (8,713     (66,615     (20,851

Interest expense and deferred financing costs

     (223     (26     (374     (85

Other income

     363       452       765       1,421  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (36,116     (8,287     (66,224     (19,515

Income tax benefit

     (387     (2,115     (576     (4,603
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (35,729   $ (6,172   $ (65,648   $ (14,912
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share – basic

   $ (2.83   $ (0.50   $ (5.20   $ (1.20
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share – diluted

   $ (2.83   $ (0.50   $ (5.20   $ (1.20
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding – basic

     12,359,478       12,325,718       12,349,670       12,316,497  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding – diluted

     12,359,478       12,325,718       12,349,670       12,316,497  
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared per common share

   $ —       $ —       $ —       $ —    
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

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Table of Contents

FreightCar America, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2019     2018     2019     2018  
     (In thousands)     (In thousands)  

Net loss

   $ (35,729   $ (6,172   $ (65,648   $ (14,912
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income:

        

Pension liability adjustments, net of tax

     138       89       412       265  

Postretirement liability adjustments, net of tax

     (94     (53     (281     (157
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     44       36       131       108  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (35,685   $ (6,136   $ (65,517   $ (14,804
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

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Table of Contents

FreightCar America, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(in thousands, except for share data)

 

                   For the Three Months Ended September 30     Retained
Earnings
    Total
Stockholders’
Equity
 
                                     Accumulated  
                   Additional                 Other  
     Common Stock      Paid In     Treasury Stock     Comprehensive  
     Shares      Amount      Capital     Shares     Amount     Loss  

Balance, June 30, 2018

     12,731,678    $  127    $  89,110     (267,880   $ (9,685   $ (7,495   $  152,640   $  224,697
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     —          —          —         —         —         —         (6,172     (6,172

Other comprehensive income

     —          —          —         —         —         36     —         36

Restricted stock awards

     —          —          (36     1,000     36     —         —         —    

Employee stock settlement

     —          —          —         —         1     —         —         1

Forfeiture of restricted stock awards

     —          —          20     (1,150     (20     —         —         —    

Stock-based compensation recognized

     —          —          760     —         —         —         —         760
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2018

     12,731,678    $  127    $  89,854     (268,030   $ (9,668   $ (7,459   $  146,468   $  219,322
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2019

     12,731,678    $  127    $  83,435     (102,951   $ (2,348   $ (8,101   $  91,088   $  164,201
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cumulative effect of adoption of ASC 842

     —          —          —         —         —         —         —         —    

Net loss

     —          —          —         —         —         —         (35,729     (35,729

Other comprehensive income

     —          —          —         —         —         44     —         44

Restricted stock awards

     —          —          (1,365     59,846     1,365     —         —         —    

Employee stock settlement

     —          —          —         —         —         —         —         —    

Forfeiture of restricted stock awards

     —          —          —         —         —         —         —         —    

Stock-based compensation recognized

     —          —          480     —         —         —         —         480
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2019

     12,731,678    $  127    $  82,550     (43,105   $ (983   $ (8,057   $ 55,359   $  128,996
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

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Table of Contents

FreightCar America, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(in thousands, except for share data)

 

                   For the Nine Months Ended September 30     Retained
Earnings
    Total
Stockholders’
Equity
 
                                     Accumulated  
                   Additional                 Other  
     Common Stock      Paid In     Treasury Stock     Comprehensive  
     Shares      Amount      Capital     Shares     Amount     Loss  

Balance, December 31, 2017

     12,731,678    $  127    $  90,347     (336,982   $ (12,555   $ (7,567   $ 161,380   $  231,732
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     —          —          —         —         —         —         (14,912     (14,912

Other comprehensive income

     —          —          —         —         —         108     —         108

Restricted stock awards

     —          —          (3,141     85,182     3,141     —         —         —    

Employee stock settlement

     —          —          —         (7,089     (117     —         —         (117

Forfeiture of restricted stock awards

     —          —          137     (9,141     (137     —         —         —    

Stock-based compensation recognized

     —          —          2,511     —         —         —         —         2,511
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2018

     12,731,678    $  127    $  89,854     (268,030   $ (9,668   $ (7,459   $ 146,468   $  219,322
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2018

     12,731,678    $  127    $  90,593     (272,030   $ (9,721   $ (8,188   $ 120,799   $  193,610
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cumulative effect of adoption of ASC 842

     —          —          —         —         —         —         208     208

Net loss

     —          —          —         —         —         —         (65,648     (65,648

Other comprehensive income

     —          —          —         —         —         131     —         131

Restricted stock awards

     —          —          (9,171     293,309     9,171     —         —         —    

Employee stock settlement

     —          —          —         (7,404     (59     —         —         (59

Forfeiture of restricted stock awards

     —          —          374     (56,980     (374     —         —         —    

Stock-based compensation recognized

     —          —          754     —         —         —         —         754
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2019

     12,731,678    $  127    $  82,550     (43,105   $ (983   $ (8,057   $ 55,359   $  128,996
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

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FreightCar America, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

     Nine Months Ended September 30,  
     2019     2018  
Cash flows from operating activities    (in thousands)  

Net loss

   $ (65,648   $ (14,912

Adjustments to reconcile net loss to net cash flows used in operating activities:

    

Restructuring and impairment charges

     24,351     —    

Net proceeds from Shoals transaction

     —         2,655

Depreciation and amortization

     9,487     8,341

Amortization expense - right-of-use leased assets

     8,168     —    

Recognition of deferred income from state and local incentives

     (1,665     (1,665

Loss on sale of railcars available for lease

     5,131     —    

Deferred income taxes

     (346     (4,840

Stock-based compensation recognized

     754     2,511

Other non-cash items, net

     (1,364     (260

Changes in operating assets and liabilities, net of acquisitions:

    

Accounts receivable

     9,483     (31,305

Inventories

     10,407     (14,465

Inventories on lease

     —         (32,228

Other assets

     (1,706     406

Accounts and contractual payables

     (11,206     18,159

Accrued payroll and employee benefits

     1,254     (449

Income taxes receivable/payable

     (289     814

Accrued warranty

     (1,643     1,464

Lease liability

     (13,210     —    

Other liabilities

     2,906     (604

Accrued pension costs and accrued postretirement benefits

     (417     (1,003
  

 

 

   

 

 

 

Net cash flows used in operating activities

     (25,553     (67,381
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchase of restricted certificates of deposit

     (1,416     (4,952

Maturity of restricted certificates of deposit

     5,862     5,220

Purchase of securities held to maturity

     (1,986     (101,356

Proceeds from maturity of securities

     20,025     117,442

Cost of railcars available for lease

     —         (5,119

Purchase of property, plant and equipment

     (3,292     (1,107

Proceeds from sale of property, plant and equipment and railcars available for lease

     11,519     2,458
  

 

 

   

 

 

 

Net cash flows provided by investing activities

     30,712     12,586
  

 

 

   

 

 

 

Cash flows from financing activities

    

Proceeds from line of credit borrowings

     10,200     —    

Employee stock settlement

     (59     (117

Deferred financing costs

     (929     —    
  

 

 

   

 

 

 

Net cash flows provided by (used in) financing activities

     9,212     (117
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     14,371     (54,912

Cash, cash equivalents and restricted cash equivalents at beginning of period

     45,070     87,788
  

 

 

   

 

 

 

Cash, cash equivalents and restricted cash equivalents at end of period

   $ 59,441   $ 32,876
  

 

 

   

 

 

 

Supplemental cash flow information

    

Interest paid

   $ 153   $ 51
  

 

 

   

 

 

 

Income tax refunds received

   $ —       $ 552
  

 

 

   

 

 

 

Income tax paid

   $ 58   $ 5
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

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FreightCar America, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except for 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., Johnstown America, LLC, Freight Car Services, Inc., JAIX Leasing Company (“JAIX”), FreightCar America Leasing, LLC, FreightCar America Leasing 1, LLC, FreightCar Roanoke, LLC, FreightCar Mauritius Ltd. (“Mauritius”), FreightCar Rail Services, LLC (“FCRS”), FreightCar Short Line, Inc. (“FCSL”), FreightCar Alabama, LLC and FreightCar (Shanghai) Trading Co., Ltd (herein collectively referred to as the “Company”), and manufactures a wide range of railroad freight cars, supplies railcar parts and leases freight cars. 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 boxcars. The Company is headquartered in Chicago, Illinois and has facilities in the following locations: Cherokee, Alabama; Grand Island, Nebraska; Johnstown, Pennsylvania; Roanoke, Virginia; and Shanghai, People’s Republic of China.

The Company and its direct and indirect subsidiaries are all Delaware corporations or Delaware limited liability companies except Mauritius, which is incorporated in Mauritius, and FreightCar (Shanghai) Trading Co., Ltd., which is organized in the People’s Republic of China. The Company’s direct and indirect subsidiaries are all wholly owned.

On September 19, 2019, the Company announced the formation of a joint venture with Fabricaciones y Servicios de México, S.A. de C.V. (“Fasemex”), a Mexican company with operations in both Mexico and the United States. The joint venture will lease a manufacturing facility in Castanos, Mexico in which it will manufacture railcars. Production of railcars at the facility is expected to begin in mid 2020.

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 U.S. 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, 2019 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 2018 year-end balance sheet data was derived from the audited financial statements as of December 31, 2018. Certain information and note disclosures normally included in the Company’s 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 Company’s annual report on Form 10-K for the year ended December 31, 2018.

Note 3 – Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Intangibles – Goodwill and Other – Internal-Use Software, which requires capitalization of certain implementation costs incurred in a cloud computing arrangement that is a service contract. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of this standard on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General, which modifies the disclosure requirements for defined benefit and other postretirement plans. ASU 2018-14 eliminates certain disclosures related to accumulated other comprehensive income, plan assets, related parties and the effects of interest

 

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rate basis point changes on assumed health care costs, and adds disclosures to address significant gains and losses related to changes in benefit obligations. ASU 2018-14 also clarifies disclosure requirements for projected benefit and accumulated benefit obligations. ASU 2018-14 is effective for fiscal years ending after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. Adoption on a retrospective basis for all periods presented is required. The Company is currently assessing the impact of this standard on its consolidated financial statements and related disclosures.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits entities to reclassify tax effects stranded in accumulated other comprehensive income as a result of the recent U.S. tax reform to retained earnings. Companies that elect to reclassify these amounts must reclassify stranded tax effects for all items accounted for in accumulated other comprehensive income. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company did not elect to reclassify tax effects stranded in accumulated other comprehensive income as a result of the recent U.S. tax reform to retained earnings.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Topic 350 currently requires an entity to perform a two-step test to determine the amount, if any, of goodwill impairment. The amendment in ASU 2017-04 removes the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. This standard is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company early adopted ASU 2017-04 during the three months ended September 30, 2019, and accounting for goodwill impairment in 2019 is in accordance with the guidance under ASU 2017-04.

In February 2016, the FASB issued ASU 2016-02, as amended, Leases (Topic 842), which requires a lessee to record a right-of-use asset and a lease liability for all leases with a term greater than twelve months regardless of whether the lease is classified as an operating lease or a financing lease. The Company adopted ASU 2016-02 effective January 1, 2019. See Note 4 Leases for the impact on the financial statements and related disclosures from the adoption of this standard.

Note 4 – Leases

Effective January 1, 2019, the Company adopted ASU 2016-02, as amended, Leases (Topic 842) using the modified retrospective method of applying the new standard at the adoption date. In addition, the Company has elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, does not require reassessment of prior conclusions related to contracts containing a lease, lease classification, and initial direct lease costs. Adoption of this standard resulted in the recording of net operating lease right-of-use (ROU) assets of $45,727 and corresponding operating lease liabilities of $67,508 as of January 1, 2019. The condensed consolidated balance sheets for reporting periods beginning on or after January 1, 2019 are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with ASC Topic 840, Leases.

The Company determines if an arrangement is a lease at inception of a contract. Substantially all of the Company’s leases are operating leases. A significant portion of the Company’s operating lease portfolio includes manufacturing sites, component warehouses and corporate offices. The remaining lease terms on the majority of the Company’s leases is between 2.5 to 8 years, some of which include options to extend the lease terms. Leases with initial term of 12 months or less are not recorded on the condensed consolidated balance sheet. Operating lease ROU assets are presented within long term assets, the current portion of operating lease liabilities is presented within current liabilities and the non-current portion of operating lease liabilities are presented within long term liabilities on the condensed consolidated balance sheet.

ROU assets represent the Company’s right to use an underlying asset during the lease term and the lease liabilities represent the Company’s obligation to make the lease payments arising during the lease. ROU assets and liabilities are recognized at commencement date based on the net present value of fixed lease payments over the lease term. The Company’s ROU assets have been reduced by the remaining unamortized lease incentive that the Company received on February 28, 2018 from Navistar, Inc. in exchange for the Company assuming all of the remaining contractual lease obligations for the Shoals facility. The Company’s lease term includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. As most of the Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Operating lease expense is recognized on a straight-line basis over the lease term. The components of the lease costs were as follows:

 

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     Three Months Ended
September 30, 2019
     Nine Months Ended
September 30, 2019
 

Operating lease costs:

     

Fixed

   $  3,504      $  10,541  

Variable

     —          —    

Short-term

     305      $  807  
  

 

 

    

 

 

 

Total lease cost

   $  3,810      $  11,348  
  

 

 

    

 

 

 

Supplemental balance sheet information related to leases were as follows:

 

     September 30, 2019  

Operating leases:

  

Right of use assets

   $  69,208  

Lease liabilities:

  

Lease liability, current

   $  17,144  

Lease liability, long-term

     68,804  
  

 

 

 

Total operating lease liabilities

   $  85,948  
  

 

 

 

Supplemental cash flow information is as follows:

 

     Nine Months Ended
September 30, 2019
 

Cash paid for amounts included in the measurement of lease liabilities:

  

Operating cash flows from operating leases

   $  15,581  
  

 

 

 

Total

   $  15,581  
  

 

 

 

Right of use assets obtained in exchange for new lease obligations:

  

Operating leases

   $  32,079  
  

 

 

 

Total

   $  32,079  
  

 

 

 

The aggregate future lease payments for operating leases as of September 30, 2019 are as follows:

 

     Operating leases  

2019 (Excluding the nine months ended September 30, 2019)

   $  5,393  

2020

     20,325  

2021

     20,017  

2022

     12,869  

2023

     11,817  

Thereafter

     27,313  
  

 

 

 

Total lease payments

     97,733  

Less: interest

     (11,785
  

 

 

 

Total

   $  85,948  
  

 

 

 

 

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The aggregate future lease payments for operating leases as of December 31, 2018 were as follows:

 

     Operating leases  

2019

   $  20,295  

2020

     20,595  

2021

     20,424  

2022

     4,873  

2023

     3,820  

Thereafter

     3,024  
  

 

 

 

Total

   $  73,031  
  

 

 

 

Weighted-average remaining lease term (years)

  

Operating leases

     7.5  

Weighted-average discount rate

  

Operating leases

     4.5

On February 26, 2019, the Company entered into an Amendment to its lease of the Shoals, Alabama manufacturing facility to extend the initial term thereof from December 31, 2021 to December 31, 2026, with two five-year extension terms thereafter through December 31, 2031 and December 31, 2036, at the Company’s option. In addition, the Company will vacate up to 40% of the manufacturing facility on or before December 31, 2021 with the base rent payable to the Landlord reduced on proportional basis.

The Company has accounted for the amendment as a modification of the lease, resulting in a non-cash increase to lease liability and right of use asset of $32,079. The company concluded that the initial term through December 31, 2026 would be included in the measurement of lease liabilities as of the modification date. The Company has concluded that the options for extensions beyond that date are not reasonably certain of exercise, and have been excluded from the measurement of lease liabilities.

Note 5 – Revenue Recognition

The following table disaggregates the Company’s revenues by major source:

 

     Three months ended
September 30,
     Nine months ended
September 30,
 
     2019      2018      2019      2018  

Railcar sales

   $ 36,343      $ 73,540      $ 171,460      $ 213,788  

Parts sales

     2,733        3,745        8,592        10,630  

Other sales

     12        2        42        60  
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenues from contracts with customers

     39,088        77,287        180,094        224,478  

Leasing revenues

     1,563        1,681        4,926        4,206  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 40,651      $ 78,968      $ 185,020      $ 228,684  
  

 

 

    

 

 

    

 

 

    

 

 

 

Contract Balances and Accounts Receivable

Contract assets represent the Company’s rights to consideration for performance obligations that have been satisfied but for which the terms of the contract do not permit billing at the reporting date. The Company has no contract assets as of September 30, 2019. The Company may receive cash payments from customers in advance of the Company satisfying performance obligations under its sales contracts resulting in deferred revenue or customer deposits, which are considered contract liabilities. Deferred revenue and customer deposits are classified as either current or long-term in the Condensed Consolidated Balance Sheet based on the timing of when the Company expects to recognize the related revenue. Deferred

 

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revenue and customer deposits included in customer deposits, other current liabilities and other long-term liabilities in the Company’s Condensed Consolidated Balance Sheet as of September 30, 2019 were not material.

Performance Obligations

The Company is electing not to disclose the value of the remaining unsatisfied performance obligation with a duration of one year or less as permitted by the practical expedient in ASU 2014-09, Revenue from Contracts with Customers. The Company had remaining unsatisfied performance obligations as of September 30, 2019 with expected duration of greater than one year of $104,100.

Note 6 – Segment Information

The Company’s operations comprise two operating segments, Manufacturing and Parts, and one reportable segment, Manufacturing. The Company’s Manufacturing segment includes new railcar manufacturing, used railcar sales, railcar leasing and major railcar rebuilds. The Company’s Parts operating segment is not significant for reporting purposes and has been combined with corporate and other non-operating activities as Corporate and Other.

Segment operating income is an internal performance measure used by the Company’s 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 Company’s 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 and restricted cash and restricted cash equivalents to its operating segments as the Company’s 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,
 
     2019      2018      2019      2018  

Revenues:

           

Manufacturing

   $  37,868      $  75,162      $  176,280      $  217,946  

Corporate and Other

     2,783        3,806        8,740        10,738  
  

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated Revenues

   $  40,651      $  78,968      $  185,020      $  228,684  
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating Loss:

           

Manufacturing (1)

   $ (30,788    $ (5,906    $ (43,444    $ (8,014

Corporate and Other

     (5,468      (2,807      (23,171      (12,837
  

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated Operating Loss

     (36,256      (8,713      (66,615      (20,851

Consolidated interest expense and deferred financing costs

     (223      (26      (374      (85

Consolidated other income (expense)

     363        452        765        1,421  
  

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated Loss Before Income Taxes

   $  (36,116)      $ (8,287    $ (66,224    $ (19,515
  

 

 

    

 

 

    

 

 

    

 

 

 

Depreciation and Amortization:

           

Manufacturing

   $  2,819      $  2,759      $  8,922      $  7,740  

Corporate and Other

     191        135        565        601  
  

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated Depreciation and Amortization

   $  3,010      $  2,894      $  9,487      $  8,341  
  

 

 

    

 

 

    

 

 

    

 

 

 

Capital Expenditures:

           

Manufacturing (2)

   $  1,052      $  564      $  2,485      $  789  

Corporate and Other

     205        64        807        318  
  

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated Capital Expenditures

   $  1,257      $  628      $  3,292      $  1,107  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Results for the three and nine months ended September 30, 2019 include restructuring and impairment charges of $23,032 and $24,351, respectively

(2)

Excluding assets of $17,169 acquired as part of a business acquisition on February 28, 2018.

 

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     September 30,
2019
     December 31,
2018
 

Assets:

     

Manufacturing

   $ 209,830      $ 208,663  

Corporate and Other

     77,435        79,028  
  

 

 

    

 

 

 

Total Operating Assets

     287,265        287,691  

Consolidated income taxes receivable

     2,022        2,046  
  

 

 

    

 

 

 

Consolidated Assets

   $ 289,287      $ 289,737  
  

 

 

    

 

 

 

Note 7 – Fair Value Measurements

The following table sets forth by level within the fair value hierarchy the Company’s financial assets that were recorded at fair value on a recurring basis and the Company’s non-financial assets that were recorded at fair value on a non-recurring basis.

 

Recurring Fair Value Measurements

   As of September 30, 2019  
     Level 1      Level 2      Level 3      Total  

ASSETS:

           

Cash equivalents

   $ 4,088      $ —        $ —        $ 4,088  

Restricted certificates of deposit

   $ 4,446      $ —        $ —        $ 4,446  

Escrow receivable

   $ —        $ —        $ 930      $ 930  

 

Recurring Fair Value Measurements

   As of December 31, 2018  
     Level 1      Level 2      Level 3      Total  

ASSETS:

           

Cash equivalents

   $ 17,012      $ —        $ —        $ 17,012  

Restricted certificates of deposit

   $ 4,952      $ —        $ —        $ 4,952  

Escrow receivable

   $ —        $ —        $ 930      $ 930  

The sale of the Company’s railcar repair and maintenance services business on September 30, 2015 resulted in $1,960 of the aggregate purchase price being placed into escrow in order to secure the indemnification obligations of FCRS and FCSL. The fair market value of the remaining escrow receivable above represents the escrow balance of $980 as of each of September 30, 2019 and December 31, 2018, net of the fair value of the indemnification obligations, which was estimated using the discounted probability-weighted cash flow method.

Note 8 – Marketable Securities

The Company’s 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 of $18,019 as of December 31, 2018 consisted of U.S. Treasury securities held to maturity and certificates of deposit with original maturities of greater than 90 days and up to one year. The Company had no marketable securities as of September 30, 2019. 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.

Note 9 – Inventories

Inventories, net of reserve for excess and obsolete items, consist of the following:

 

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     September 30,
2019
     December 31,
2018
 

Work in process

   $ 50,634      $ 60,112  

Finished new railcars

     —          —    

Parts inventory

     5,022        4,450  
  

 

 

    

 

 

 

Total inventories, net

   $ 55,656      $ 64,562  
  

 

 

    

 

 

 

Inventory on the Company’s Condensed Consolidated Balance Sheets includes reserves of $5,311 and $6,812 relating to excess or slow-moving inventory for parts and work in process at September 30, 2019 and December 31, 2018, respectively.

Note 10 – Revolving Credit Facilities

BMO Credit Agreement

On April 12, 2019, the Company entered into a Credit and Security Agreement (the “BMO Credit Agreement”) by and among the Company and certain of its subsidiaries, as borrowers and guarantors (together with the Company, the “Borrowers”), and BMO Harris Bank N.A., as lender (“BMO”). Pursuant to the BMO Credit Agreement, BMO extended an asset-backed credit facility, in the maximum aggregate principal amount of up to $50,000, consisting of revolving loans and a sub-facility for letters of credit not to exceed the lesser of $10,000 and the amount of the revolving credit facility.

The BMO Credit Agreement replaced the Company’s prior revolving credit facility pursuant to a Credit Agreement dated as of July 26, 2013, among the Company and certain of its subsidiaries, as borrowers and guarantors, Bank of America, N.A., as administrative agent, swingline lender and letter of credit issuer, and the lenders party thereto, as amended from time to time, which was terminated effective April 12, 2019 and otherwise would have matured on July 26, 2019. As of December 31, 2018, the Company had no borrowings under its prior revolving credit facility and $4,789 in outstanding letters of credit under such facility.

The BMO Credit Agreement has a term ending on April 12, 2024. Revolving loans outstanding thereunder will bear interest, at the Borrowers’ option and subject to the provisions of the BMO Credit Agreement, at Base Rate (as defined in the BMO Credit Agreement) or LIBOR Rate (as defined in the BMO Credit Agreement) plus the Applicable Margin for each such interest rate set forth in the BMO Credit Agreement.

The BMO Credit Agreement provides for a revolving credit facility with maximum availability of $42,500, subject to borrowing base requirements set forth in the BMO Credit Agreement. The maximum availability under the BMO Credit Agreement is determined by a formula and may fluctuate depending on the value of the borrowing base included in such formula at the time of determination.

The BMO Credit Agreement has both affirmative and negative covenants, including, without limitation, limitations on indebtedness, liens and investments. The BMO Credit Agreement also provides for customary events of default. Borrowings under the BMO Credit Agreement are collateralized by substantially all of the Borrowers’ assets. As of September 30, 2019, the Company had no borrowings under the BMO credit facility.

M&T Credit Agreement

On April 16, 2019, FreightCar America Leasing 1, LLC, an indirect wholly-owned subsidiary of the Company (“Freightcar Leasing Borrower”), entered into a Credit Agreement (the “M&T Credit Agreement”) with M & T Bank, N.A., as lender (“M&T”). Pursuant to the M&T Credit Agreement, M&T extended a revolving credit facility to Freightcar Leasing Borrower in an aggregate amount of up to $40,000 for the purpose of financing railcars which will be leased to third parties.

 

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Freightcar Leasing Borrower also entered into a Security Agreement on April 16, 2019 (the “M&T Security Agreement”) pursuant to which it granted a security interest in all of its assets to M&T to secure its obligations under the M&T Credit Agreement.

On April 16, 2019, FreightCar America Leasing, LLC, a wholly-owned subsidiary of the Company and parent of Freightcar Leasing Borrower (“Freightcar Leasing Guarantor”), entered into (i) a Guaranty Agreement (the “M&T Guaranty Agreement”) pursuant to which Freightcar Leasing Guarantor guaranties the repayment and performance of certain obligations of Freightcar Leasing Borrower and (ii) a Pledge Agreement (the “M&T Pledge Agreement”) pursuant to which Freightcar Leasing Guarantor pledged all of the equity of Freightcar Leasing Borrower held by Freightcar Leasing Guarantor.

The loans under the M&T Credit Agreement are non-recourse to the assets of the Company or its subsidiaries other than the assets of Freightcar Leasing Borrower and Freightcar Leasing Guarantor.

The M&T Credit Agreement has a term ending on April 16, 2021. Loans outstanding thereunder will bear interest, accrued daily, at the Adjusted LIBOR Rate (as defined in the M&T Credit Agreement) or the Adjusted Base Rate (as defined in the M&T Credit Agreement).

The M&T Credit Agreement has both affirmative and negative covenants, including, without limitation, maintaining an Interest Coverage Ratio (as defined in the M&T Credit Agreement) of not less than 1.25:1.00, measured quarterly, and limitations on indebtedness, loans, liens and investments. The M&T Credit Agreement also provides for customary events of default. As of September 30, 2019 FreightCar Leasing Borrower had $10,200 in outstanding debt under the M&T Credit Agreement which was collateralized by leased railcars with a carrying value of $16,548. As of September 30, 2019, the interest rate on outstanding debt under the M&T Credit Agreement was 4.14% representing the 90 day LIBOR plus 2.05%.

Note 11 – Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) consist of the following:

 

     Pre-Tax      Tax      After-Tax  

Three months ended September 30, 2019

        

Pension liability activity:

        

Reclassification adjustment for amortization of net loss (pre-tax other income (expense))

   $  138      $ —        $  138  

Postretirement liability activity:

        

Reclassification adjustment for amortization of net gain (pre-tax other income (expense))

     (98      —          (98

Reclassification adjustment for amortization of prior service cost (pre-tax other income (expense))

     4        —          4  
  

 

 

    

 

 

    

 

 

 
   $  44      $ —        $  44  
  

 

 

    

 

 

    

 

 

 

 

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     Pre-Tax      Tax      After-Tax  

Three months ended September 30, 2018

        

Pension liability activity:

        

Reclassification adjustment for amortization of net loss (pre-tax other income (expense))

   $  112      $  23      $  89  

Postretirement liability activity:

        

Reclassification adjustment for amortization of net gain (pre-tax other income (expense))

     (70      (14      (56

Reclassification adjustment for amortization of prior service cost (pre-tax other income (expense))

     4        1        3  
  

 

 

    

 

 

    

 

 

 
   $  46      $  10      $  36  
  

 

 

    

 

 

    

 

 

 

 

     Pre-Tax      Tax      After-Tax  

Nine months ended September 30, 2019

        

Pension liability activity:

        

Reclassification adjustment for amortization of net loss (pre-tax other income (expense))

   $  412      $ —        $  412  

Postretirement liability activity:

        

Reclassification adjustment for amortization of net gain (pre-tax other income (expense))

     (292      —          (292

Reclassification adjustment for amortization of prior service cost (pre-tax other income (expense))

     11        —          11  
  

 

 

    

 

 

    

 

 

 
   $  131      $ —        $  131  
  

 

 

    

 

 

    

 

 

 

 

     Pre-Tax      Tax      After-Tax  

Nine months ended September 30, 2018

        

Pension liability activity:

        

Reclassification adjustment for amortization of net loss (pre-tax other income (expense))

   $  338      $  73      $  265  

Postretirement liability activity:

        

Reclassification adjustment for amortization of net gain (pre-tax other income (expense))

     (210      (45      (165

Reclassification adjustment for amortization of prior service cost (pre-tax other income (expense))

     12        4        8  
  

 

 

    

 

 

    

 

 

 
   $  140      $  32      $  108  
  

 

 

    

 

 

    

 

 

 

The components of accumulated other comprehensive loss consist of the following:

 

     September 30,
2019
     December 31,
2018
 

Unrecognized pension cost, net of tax of $6,282 and $6,282

   $ (9,892    $ (10,304

Unrecognized postretirement income, net of tax of $527 and $527

     1,835        2,116  
  

 

 

    

 

 

 
   $ (8,057    $ (8,188
  

 

 

    

 

 

 

Note 12 – Stock-Based Compensation

Total stock-based compensation was $480 and $760 for the three months ended September 30, 2019 and 2018, respectively, and $754 and $2,511 for the nine months ended September 30, 2019 and 2018, respectively. Stock-based compensation for

 

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the nine months ended September 30, 2019 includes the impact of forfeitures of unvested stock awards by executives. As of September 30, 2019, there was $1,748 of unearned compensation expense related to restricted stock awards, which will be recognized over the remaining weighed average service period of 24 months. As of September 30, 2019, there was $122 of unearned compensation related to performance stock options, which will be recognized over the remaining weighted average derived service period of 5 months. As of September 30, 2019, there was $705 of unearned compensation related to time-vested stock options, which will be recognized over the remaining service period of 25 months.

Note 13 – Employee Benefit Plans

The Company has a qualified, defined benefit pension plan that was established to provide benefits to certain employees. The plan is frozen and participants are no longer accruing benefits. Generally, contributions to the plan are not less than the minimum amounts required under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and not more than the maximum amount that can be deducted for federal income tax purposes. The plan assets are held by an independent trustee and consist primarily of equity and fixed income securities.

The Company also provides certain postretirement health care benefits for certain of its salaried 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 components of net periodic benefit cost (benefit) for the three and nine months ended September 30, 2019 and 2018, are as follows:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
Pension Benefits    2019      2018      2019      2018  

Interest cost

   $ 466      $ 428      $ 1,398      $ 1,283  

Expected return on plan assets

     (555      (711      (1,665      (2,133

Amortization of unrecognized net loss

     138        112        412        338  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 49      $ (171    $ 145      $ (512
  

 

 

    

 

 

    

 

 

    

 

 

 
           
     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
Postretirement Benefit Plan    2019      2018      2019      2018  

Service cost

   $ 5      $ 8      $ 15      $ 24  

Interest cost

     46        46        136        138  

Amortization of prior service cost

     4        4        11        12  

Amortization of unrecognized net (gain) loss

     (98      (70      (292      (210
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ (43    $ (12    $ (130    $ (36
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company made no contributions to the Company’s defined benefit pension plan for each of the three and nine months ended September 30, 2019 and 2018. The Company expects to make no contributions to its pension plan in 2019.

The Company made contributions to the Company’s postretirement benefit plan for salaried retirees of $156 and $74 for the three months ended September 30, 2019 and 2018, respectively, and $432 and $426 for the nine months ended September 30, 2019 and 2018, respectively. The Company expects to make $576 in contributions (including contributions already made) to its postretirement benefit plan in 2019 for salaried retirees.

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 $331 and $329 for the three months ended September 30, 2019 and 2018, respectively, and $1,075 and $1,216 for the nine months ended September 30, 2019 and 2018, respectively.

 

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Note 14 – 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 Company’s potential losses in excess of the accrued warranty and legal provisions, if any, are not expected to be material to the Company’s consolidated financial condition, results of operations or cash flows.

The Company received cash payments of $15,733 and $1,410 during 2015 and 2017, respectively, for Alabama state and local incentives related to its capital investment and employment levels at its Cherokee, Alabama (“Shoals”) facility. Under the incentive agreements a certain portion of the incentives may be repayable by the Company if targeted levels of employment are not maintained for a period of up to six years from the date of the incentive. In the event that employment levels drop below the minimum targeted levels of employment and any portion of the incentives is required to be paid back, the amount is unlikely to exceed the deferred liability balance of $7,496 as of September 30, 2019.

As part of a settlement agreement reached with one of its customers, the Company agreed to pay $7,500 to settle all claims related to a prior year’s commercial dispute. During the three months ended September 30, 2019, the Company paid $3,500 of the settlement amount and the remaining $4,000 will be paid over a period of three years, or on an accelerated basis in the event both parties agree to accelerate delivery of railcars currently in the backlog.

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 Company’s financial condition, results of operations or cash flows.

Note 15 – Earnings Per Share

Shares used in the computation of the Company’s basic and diluted earnings per common share are reconciled as follows:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2019      2018      2019      2018  

Weighted average common shares outstanding

     12,359,478        12,325,718        12,349,670        12,316,497  

Dilutive effect of employee stock options and nonvested share awards

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average diluted common shares outstanding

     12,359,478        12,325,718        12,349,670        12,316,497  
  

 

 

    

 

 

    

 

 

    

 

 

 

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, 2019 and 2018, 661,048 and 346,948 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, 2019 and 2018, 665,903 and 351,042 shares, respectively, were not included in the weighted average common shares outstanding as they were anti-dilutive.

Note 16 – Restructuring and Impairment Charges

Restructuring and Impairment Related to Plant Closure

On July 22, 2019, the Company announced its intention to close its Roanoke, Virginia manufacturing facility as part of its “Back to Basics” strategy. The Company will retain the necessary workforce to complete the remaining contracted work at the facility through the end of November 2019. The cost of the restructuring plan is expected to range between $3,500 and

 

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$4,500, excluding the lease termination gain disclosed in Note 17 Subsequent Events, and will be incurred in 2019 and during the first half of 2020. Restructuring and impairment charges related to the plant closure primarily include non-cash impairment charges for property, plant and equipment at the Roanoke facility and employee severance and retention charges.

Goodwill Impairment

The Company assesses the carrying value of goodwill for impairment annually or more frequently whenever events occur and circumstances change indicating potential impairment. On August 1, 2019, the Company performed its annual assessment of its Manufacturing reporting unit, the only reporting unit carrying goodwill. Management determined the fair value of the Manufacturing reporting unit using the income approach, utilizing the discounted cash flow method. Fair value calculations using the income approach contain significant judgments and estimates with respect to a variety of factors that will significantly impact the future performance of the business, including: future railcar volume projections based on expected railcar demand; estimated margins on railcar sales; estimated growth rate for selling, general and administrative costs; future effective tax rate for the Company; and weighted-average cost of capital (“WACC”). Management estimated a WACC of 16% for the Company’s August 1, 2019 goodwill impairment valuation analysis. Based on this analysis, the Company determined that the carrying value of its Manufacturing reporting unit exceeded its fair value by an amount that exceeded the Manufacturing reporting unit goodwill. As a result, the Company recorded a goodwill impairment charge equal to the total goodwill balance of the Manufacturing reporting unit of $21,521 during the three months ended September 30, 2019. As previously disclosed, the new railcar market and the operating environment for our Manufacturing reporting unit continues to be challenging. Our outlook for new railcar demand and usage has accelerated its decline in the second half of the year. In addition, the sustained decline in our stock price as well as a change in our business model and market share decline has resulted in downward revisions of our forecasts of current and future projected earnings and cash flows for the Manufacturing reporting unit.

Restructuring and impairment charges are reported as a separate line item on the Company’s condensed consolidated statements of operations for the three and nine months ended September 30, 2019 and are detailed below:

 

     Nine Months Ended
September 30, 2019
 

Impairment charge for leasehold improvements and equipment

   $  1,380  

Employee severance and retention

     1,318  

Other charges related to facility closure

     132  

Goodwill impairment

     21,521  
  

 

 

 

Total restructuring and impairment charges

   $  24,351  
  

 

 

 

Approximately $1.4 million of employee severance and facility closure costs remained to be paid at September 30, 2019.

Note 17 – Subsequent Events

On October 1, 2019, Johnstown America, LLC notified the lessor of its Roanoke, Virginia manufacturing facility of its intention to cease operations at the facility as of November 29, 2019. Johnstown America, LLC also informed the lessor of its current intent to terminate its leases for the facility effective as of March 31, 2020. The lease termination will result in 1) a decrease in the lease liability of $12.8 million, 2) a decrease in the right of use asset of $10.3 million and 3) a net lease termination gain of $1.9 million.

On October 15, 2019 the Company notified retirees and affected active employees that it will terminate medical benefits offered to retirees of the Company and their dependents effective January 1, 2020. The retiree benefits that are being terminated include medical insurance and vison insurance that were offered under the Company’s Health and Welfare Plan. The benefit termination is expected to result in a gain of approximately $6.3 million which will be recorded in the fourth quarter of 2019.

 

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Item 2. Management’s 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 management’s 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 are a diversified manufacturer of railcars and railcar components. We design and manufacture a broad variety of railcar types for transportation of bulk commodities and containerized freight products primarily in North America.

We rebuild and convert railcars and sell forged, cast and fabricated parts for all of the railcars we produce, as well as those manufactured by others. We also lease freight cars. Our primary customers are railroads, shippers and financial institutions.

The Company’s operations comprise two operating segments, Manufacturing and Parts, and one reportable segment, Manufacturing. The Company’s Manufacturing segment includes new railcar manufacturing, used railcar sales, railcar leasing and major railcar rebuilds. The Company’s Parts operating segment is not significant for reporting purposes and has been combined with corporate and other non-operating activities as Corporate and Other.

Our railcar manufacturing facilities are located in Cherokee, Alabama (“Shoals”) 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. On February 28, 2018, we acquired substantially all of the operating assets at the Shoals facility of Navistar, Inc. (“Navistar”) and its subsidiary, International Truck and Engine Investments Corporation, including their railcar business, and assumed the lease for the facility (the “Acquisition”).

On July 22, 2019, the Company announced its intention to close its Roanoke, Virginia manufacturing facility as part of its “Back to Basics” strategy. The Company will retain the necessary workforce to complete the remaining contracted work at the facility through the end of November 2019. The cost of the restructuring plan is expected to range between $3.5 million and $4.5 million and will be incurred in 2019 and during the first half of 2020. Annual cost savings of approximately $5.0 million are expected upon completion of the restructuring plan.

On September 19, 2019, the Company announced the formation of a joint venture with Fabricaciones y Servicios de México, S.A. de C.V. (“Fasemex”), a Mexican company with operations in both Mexico and the United States. The joint venture will lease a manufacturing facility in Castanos, Mexico in which it will manufacture railcars. Production of railcars at the facility is expected to begin in mid 2020.

Total orders for railcars for the nine months ended September 30, 2019 were 1,842 units, consisting of 1,294 new railcars and 548 rebuilt railcars, compared to orders for 2,686 units, consisting of 2,086 new railcars and 600 rebuilt railcars, for the nine months ended September 30, 2018. Total backlog of unfilled orders was 1,704 units at September 30, 2019, compared to 1,699 units at December 31, 2018. The estimated sales value of the backlog was $188 million and $160 million, respectively, as of September 30, 2019 and December 31, 2018.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2019 compared to Three Months Ended September 30, 2018

Revenues

Our consolidated revenues for the three months ended September 30, 2019 were $40.7 million compared to $79.0 million for the three months ended September 30, 2018. Manufacturing segment revenues for the three months ended September 30, 2019 were $37.9 million compared to $75.2 million for the three months ended September 30, 2018. Railcar deliveries totaled 467 units, consisting of 255 new railcars and 212 rebuilt railcars, in the third quarter of 2019, compared to 888 units, consisting of 498 new railcars and 390 rebuilt railcars, in the third quarter of 2018. The decrease in Manufacturing segment revenues for the 2019 period compared to the 2018 period reflects the decrease in the number of railcars delivered and a lower average selling price for new railcars. Corporate and Other revenues for the three months ended September 30, 2019 were $2.8 million compared to $3.8 million for the three months ended September 30, 2018, reflecting lower parts sales.

 

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Gross Profit (Loss)

Our consolidated gross margin was (13.3)% for the three months ended September 30, 2019 compared to (4.9)% for the three months ended September 30, 2018. Our consolidated gross loss was $5.4 million for the three months ended September 30, 2019 compared to 3.8 million for the three months ended September 30, 2018. Manufacturing segment gross loss for the three months ended September 30, 2019 was $6.1 million compared to $4.5 million for the three months ended September 30, 2018. The decline in railcar deliveries contributed a $2.0 million decrease in gross profit for our Manufacturing segment for the 2019 period compared to the 2018 period. The unfavorable impact of product mix of $1.5 million was mostly offset by production efficiencies for the 2019 period compared to the 2018 period.

Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses for the three months ended September 30, 2019 were $7.8 million compared to $5.4 million for the three months ended September 30, 2018. Manufacturing segment selling, general and administrative expenses for the three months ended September 30, 2019 were $1.6 million compared to $2.0 million for the three months ended September 30, 2018 reflecting lower salaries and wages and lower allocated costs. Corporate and Other selling, general and administrative expenses were $6.2 million for the three months ended September 30, 2019 compared to $3.5 million for the three months ended September 30, 2018. The increase in Corporate and Other selling, general and administrative expenses for the three months ended September 30, 2019 reflected increases in incentive compensation of $1.3 million, increases in legal fees of $0.8 million, increases in research and development costs of $0.4 million and increases in allocated costs of $0.2 million compared to the three months ended September 30, 2018.

Restructuring and Impairment Charges

On July 22, 2019, we announced our intention to close our Roanoke, Virginia manufacturing facility as part of our “Back to Basics” strategy. Restructuring and impairment charges related to the Roanoke closure for the three months ended September 30, 2019 included employee severance and retention costs of $1.3 million, non-cash impairment charges for property, plant and equipment of $0.1 million and other charges of $0.1 million. During the three months ended September 30, 2019, the Company determined that the carrying value of its Manufacturing reporting unit exceeded its fair value by an amount that exceeded the Manufacturing reporting unit goodwill. As a result, the Company recorded a goodwill impairment charge equal to the total goodwill balance of the Manufacturing reporting unit of $21.5 million during the three months ended September 30, 2019. As previously disclosed, the new railcar market and the operating environment for our Manufacturing reporting unit continues to be challenging. Our outlook for new railcar demand and usage has accelerated its decline in the second half of the year. In addition, the sustained decline in our stock price as well as a change in our business model and market share decline have resulted in downward revisions of our forecasts of current and future projected earnings and cash flows for the Manufacturing reporting unit. There were no restructuring and impairment charges for the three months ended September 30, 2018.

Operating Loss

Our consolidated operating loss for the three months ended September 30, 2019 was $36.3 million compared to $8.7 million for the three months ended September 30, 2018. Operating loss for the Manufacturing segment was $30.8 million for the three months ended September 30, 2019 compared to $5.9 million for the three months ended September 30, 2018 reflecting the restructuring and impairment charges and decline in Manufacturing segment gross profit described above. Corporate and Other operating loss was $5.5 million for the three months ended September 30, 2019 compared to $2.8 million for the three months ended September 30, 2018 primarily due to the increase in selling, general and administrative expenses described above.

Income Taxes

Our income tax benefit was $0.4 million for the three months ended September 30, 2019 compared to $2.1 million for the three months ended September 30, 2018. Our income tax benefit for the three months ended September 30, 2019 primarily represents discrete events related to the goodwill impairment charge and changes in uncertain tax positions recorded during the three months ended September 30, 2019. Our effective tax rate for the three months ended September 30, 2019 was 1.1% compared to 25.5% for the three months ended September 30, 2018.

 

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Net Loss

As a result of the foregoing, our net loss was $35.7 million for the three months ended September 30, 2019 compared to $6.2 million for the three months ended September 30, 2018. For the three months ended September 30, 2019, our diluted net loss per share was $2.83 compared to $0.50 for the three months ended September 30, 2018.

Nine Months Ended September 30, 2019 compared to Nine Months Ended September 30, 2018

Revenues

Our consolidated revenues for the nine months ended September 30, 2019 were $185.0 million compared to $228.7 million for the nine months ended September 30, 2018. Manufacturing segment revenues for the nine months ended September 30, 2019 were $176.3 million compared to $217.9 million for the nine months ended September 30, 2018. Railcar deliveries totaled 1,837 units, consisting of 1,374 new railcars and 463 rebuilt railcars, in the nine months ended September 30, 2019, compared to 3,167 units, consisting of 1,757 new railcars, 425 leased railcars and 985 rebuilt railcars, in the nine months ended September 30, 2018. The decrease in Manufacturing segment revenues for the 2019 period compared to the 2018 period reflects a decrease in the number of railcars delivered which was partially offset by a higher average selling price for new railcars and a higher number of new versus rebuilt railcars. Corporate and Other revenues for the nine months ended September 30, 2019 were $8.7 million compared to $10.8 million for the nine months ended September 30, 2018 reflecting lower parts sales.

Gross Profit (Loss)

Our consolidated gross margin was (3.4)% for the nine months ended September 30, 2019 compared to 0.2% for the nine months ended September 30, 2018. Our consolidated gross loss was $6.2 million for the nine months ended September 30, 2019 compared to gross profit of $0.4 million for the nine months ended September 30, 2018. Manufacturing segment gross loss for the nine months ended September 30, 2019 was $8.4 million compared to $2.5 million for the nine months ended September 30, 2018. The decline in railcar deliveries contributed a $6.1 million decrease in gross profit in our Manufacturing segment for the 2019 period compared to the 2018 period. The unfavorable impact of product mix of $7.2 million was mostly offset by production efficiencies and the $0.8 million favorable impact of a product claim that was settled during 2019.

Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses for the nine months ended September 30, 2019 were $30.8 million compared to $21.8 million for the nine months ended September 30, 2018. Manufacturing segment selling, general and administrative expenses for the nine months ended September 30, 2019 were $5.5 million compared to $6.1 million for the nine months ended September 30, 2018 and included lower research and development costs of $0.2 million, lower salaries and wages of $0.2 million and lower employee severance of $0.1 million. Corporate and Other selling, general and administrative expenses were $25.3 million for the nine months ended September 30, 2019 compared to $15.7 million for the nine months ended September 30, 2018. The increase in Corporate and Other selling, general and administrative expenses for the nine months ended September 30, 2019 was primarily due to $7.5 million recorded as part of a settlement agreement reached with one of our customers to settle all claims related to a prior year’s commercial dispute. Corporate and Other selling, general and administrative expenses for the nine months ended September 30, 2019 also reflected increases in incentive compensation of $1.4 million, increases in legal fees of $0.7 million, increases in research and development costs of $0.8 million, increases in employee severance of $0.4 million and decreases in stock-based compensation of $1.8 million compared to the nine months ended September 30, 2018.

Loss on Sale of Railcars Available for Lease

Loss on sale of railcars available for lease for the nine months ended September 30, 2019 was $5.2 million and represented the loss on sale of leased railcars with a net book value of $16.6 million. We did not sell any railcars available for lease during the nine months ended September 30, 2018.

Restructuring and Impairment Charges

On July 22, 2019, we announced our intention to close our Roanoke, Virginia manufacturing facility as part of our “Back to Basics” strategy. Restructuring and impairment charges related to the Roanoke closure for the nine months ended September

 

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30, 2019 included employee severance and retention costs of $1.3 million, non-cash impairment charges for property, plant and equipment of $1.4 million and other charges of $0.1 million. During the nine months ended September 30, 2019, the Company determined that the carrying value of its Manufacturing reporting unit exceeded its fair value by an amount that exceeded the Manufacturing reporting unit goodwill. As a result, the Company recorded a goodwill impairment charge equal to the total goodwill balance of the Manufacturing reporting unit of $21.5 million during the nine months ended September 30, 2019. There were no restructuring and impairment charges for the nine months ended September 30, 2018.

Operating Loss

Our consolidated operating loss for the nine months ended September 30, 2019 was $66.6 million compared to $20.9 million for the nine months ended September 30, 2018. Operating loss for the Manufacturing segment was $43.4 million for the nine months ended September 30, 2019 compared to $8.0 million for the nine months ended September 30, 2018 reflecting the decrease in Manufacturing segment gross profit described above, the loss on sale of railcars available for lease and restructuring and impairment charges for the nine months ended September 30, 2019. Corporate and Other operating loss was $23.1 million for the nine months ended September 30, 2019 compared to $12.8 million for the nine months ended September 30, 2018 reflecting lower parts sales and the increases in Corporate and Other selling, general and administrative expenses described above.

Income Taxes

Our income tax benefit was $0.6 million for the nine months ended September 30, 2019 compared to $4.6 million for the nine months ended September 30, 2018. Our income tax benefit for the nine months ended September 30, 2019 primarily represents discrete events related to the goodwill impairment charge and changes in uncertain tax positions recorded during the nine months ended September 30, 2019. Our effective tax rate for the nine months ended September 30, 2019 was 0.9% compared to 23.6% for the nine months ended September 30, 2018.

Net Loss

As a result of the foregoing, our net loss was $65.6 million for the nine months ended September 30, 2019 compared to $14.9 million for the nine months ended September 30, 2018. For the nine months ended September 30, 2019, our diluted net loss per share was $5.20 compared to $1.20 for the nine months ended September 30, 2018.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity for the nine months ended September 30, 2019 and 2018, were our cash and cash equivalent balances on hand, our securities held to maturity and our revolving credit facilities.

On April 12, 2019, our credit agreement with Bank of America N.A. was terminated and replaced by a new Credit and Security Agreement (the “BMO Credit Agreement”) with BMO Harris Bank N.A. (“BMO”). As of December 31, 2018, we had no borrowings under our prior revolving credit facility and $4.8 million in outstanding letters of credit under such facility. As of September 30, 2019, we had no borrowings under the BMO credit facility.

On April 16, 2019, FreightCar America Leasing 1, LLC, an indirect wholly-owned subsidiary of the Company, entered into a credit agreement (the “M&T Credit Agreement”) with M&T Bank N.A. As of September 30, 2019, FreightCar America Leasing 1, LLC had $10.2 million in outstanding debt under the M&T Credit Agreement, which was collateralized by leased railcars with a carrying value of $16.5 million. See Note 10 Revolving Credit Facilities.

Our restricted certificates of deposit and restricted cash equivalents balance was $4.4 million and $5.0 million as of September 30, 2019 and December 31, 2018, respectively, and consisted of certificates of deposit used to collateralize standby letters of credit with respect to performance guarantees and to support our workers’ compensation insurance claims. The standby letters of credit outstanding as of September 30, 2019 are scheduled to expire at various dates through July 16, 2020.

We adopted ASU 2016-02, the new lease accounting standard, effective January 1, 2019 and also entered into an amendment of the lease of our Shoals, Alabama facility to extend the term. See Note 4 Leases for additional information and discussion. On October 1, 2019, we exercised the termination provisions of the lease for our Roanoke manufacturing facility

 

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by notifying the lessor of our intent to terminate our lease as of March 31, 2020. On October 15, 2019, we notified retirees and affected active employees that we will terminate medical benefits offered to retirees and their dependents effective January 1, 2020. See Note 17 – Subsequent Events for additional information.

Based on our current level of operations and known changes in planned volume based on our backlog, we believe that our operating cash flows and our cash balances, together with amounts available under our revolving credit facilities, 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 facilities and any other indebtedness. We may also require additional capital in the future to fund working capital as demand for railcars increases, payments for contractual obligations, 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.

Based upon our operating performance and capital requirements, 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.

Cash Flows

The following table summarizes our net cash provided by (used in) operating activities, investing activities and financing activities for the nine months ended September 30, 2019 and 2018:

 

     Nine Months Ended September 30,  
     2019      2018  
     (In thousands)  

Net cash provided by (used in):

     

Operating activities

   $ (25,553    $ (67,381

Investing activities

     30,712        12,586  

Financing activities

     9,212        (117
  

 

 

    

 

 

 

Total

   $ 14,371      $ (54,912
  

 

 

    

 

 

 

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, 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, 2019 was $25.6 million compared to net cash used in operating activities of $67.4 million for the nine months ended September 30, 2018. Our net cash used in operating activities for the nine months ended September 30, 2019 reflects changes in working capital, including decreases in inventory and accounts receivable due to the timing of deliveries of railcars and the related cash receipts. Our net cash used in operating activities for the nine months ended September 30, 2019 includes restructuring and impairment charges including non-cash impairment charges of $1.3 million related to the closure of our Roanoke facility and non-cash goodwill impairment charges of $21.5 million. Our net cash used in operating activities for the nine months ended September 30, 2018 reflects changes in working capital, including a $32.2 million increase in inventory on lease, a $31.3 million increase in accounts receivable due to the timing of deliveries of railcars and the related cash receipts, and a $14.5 million increase in inventory due to additional inventory on hand for the start-up of several new railcar orders.

Investing Activities. Net cash provided by investing activities for the nine months ended September 30, 2019 was $30.7 million and represented the $18.0 million maturity of U.S. Treasury securities and certificates of deposit (net of purchases), $11.5 million proceeds from sale of railcars available for lease and the $4.4 million maturity of restricted certificates of deposit (net of purchases) which was partially offset by capital expenditures of $3.3 million. Net cash provided by investing

 

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activities for the nine months ended September 30, 2018 was $12.6 million and primarily represented the $16.1 million maturity of U.S. Treasury securities and certificates of deposit (net of purchases), which was partially offset by the $5.1 million cost of railcars on operating leases.

Financing Activities. Net cash provided by financing activities was $9.2 million for the nine months ended September 30, 2019, compared to net cash used in financing activities of $0.1 million for the nine months ended September 30, 2018. Net cash provided by financing activities for the nine months ended September 30, 2019 primarily represented $10.2 million of proceeds from our line of credit borrowings (collateralized by leased railcars) which were partially offset by $0.9 million of deferred financing costs related to our new credit facilities.

Capital Expenditures

Our capital expenditures were $3.3 million in the nine months ended September 30, 2019 compared to $1.1 million in the nine months ended September 30, 2018. Excluding unforeseen expenditures, management anticipates that total capital expenditures for 2019 will be between $4.0 million and $5.0 million, including amounts already paid.

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. However, forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. These risks and uncertainties relate to, among other things, the cyclical nature of our business, the 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, fluctuating costs of raw materials, including steel and aluminum, and delays in the delivery of raw materials, the risk of lack of acceptance of our new railcar offerings by our customers, risks relating to our relationship with our unionized employees and their unions and other competitive factors. The factors listed above are not exhaustive. Other sections of this quarterly report on Form 10-Q include additional factors that could materially and adversely affect our business, financial condition and results of operations. New factors emerge from time to time and it is not possible for management to predict the impact of all of these factors on our business, financial condition or results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not rely on forward-looking statements as a prediction of actual results. 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.

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 Commission’s 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.

 

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

The information in response to this item is included in Note 14 Contingencies to our condensed consolidated

financial statements included in Part I, Item 1 of this Form 10-Q.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

 

  (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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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: October 31, 2019     By:   /s/ JAMES R. MEYER
      James R. Meyer, President and Chief Executive Officer (Principal Executive Officer)
    By:   /s/ CHRISTOPHER J. EPPEL
      Christopher J. Eppel, 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