Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
RAIL > SEC Filings for RAIL > Form 10-Q on 10-May-2013All Recent SEC Filings

Show all filings for FREIGHTCAR AMERICA, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for FREIGHTCAR AMERICA, INC.


10-May-2013

Quarterly Report


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 believe we are the leading manufacturer of aluminum-bodied railcars and coal cars in North America, based on the number of railcars delivered. Our railcar manufacturing facilities are located in Danville, Illinois; Roanoke, Virginia; and Cherokee, Alabama. Additionally, we refurbish and rebuild railcars and sell forged, cast and fabricated parts for all of the railcars we produce, as well as those manufactured by others. We provide railcar repair and maintenance, inspections and railcar fleet management services for all types of freight railcars through our FCRS and FCRMS subsidiaries. FCRS has repair and maintenance and inspection facilities in Clinton, Indiana, Grand Island, Nebraska and Hastings, Nebraska and services freight cars and unit coal trains utilizing key rail corridors in the Midwest and Western regions of the United States. We also lease freight cars through our JAIX Leasing Company subsidiary. Our primary customers are financial institutions, shippers and railroads.

In February 2013, we subleased approximately 25% of a state-of-the-art production facility located in the Shoals region of Alabama. Our Shoals production facility was designed to efficiently build a wide variety of railcar types and is an important part of our long-term growth strategy as we continue to expand our railcar product and service offerings outside of our traditional coal car market. While our Danville, Illinois and Roanoke, Virginia facilities will continue to support our coal car products, our Shoals facility will allow us to produce a broader variety of railcars in a cost-effective and efficient manner. In addition, the facility layout, automated production equipment, proximity to key suppliers and new supply agreements will increase our flexibility and make us more competitive in the marketplace. Production preparation has begun and we have installed a management team to operate the Shoals facility and are in the process of staffing and training the production work force. We have also procured our first order for the facility and are on track to begin production in the third quarter of 2013.

We have two reportable segments, Manufacturing and Services. Our Manufacturing segment includes new railcar manufacturing, used railcar sales, railcar leasing and major railcar rebuilds. Our Services segment includes general railcar repair and maintenance, inspections, parts sales and railcar fleet management services. Corporate includes administrative activities and all other non-operating costs.

Total orders for railcars in the first quarter of 2013 were 274 units, compared to 1,244 units, consisting of 1,164 new railcars and 80 used railcars, ordered in the first quarter of 2012. Our order activity for the first quarter of 2013 reflects continued uncertainty in the railcar market. Railcar deliveries totaled 1,073 units, consisting of 448 new railcars and 625 rebuilt railcars, in the first quarter of 2013, compared to 2,613 units, consisting of 2,146 new railcars, 80 used railcars sold and 387 leased railcars delivered, in the first quarter of 2012. Total backlog of unfilled orders was 2,082 units, consisting of 707 new railcars and 1,375 rebuilt railcars, at March 31, 2013, compared to 2,881 units, consisting of 981 new railcars and 1,900 rebuilt railcars, at December 31, 2012.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2013 compared to Three Months Ended March 31, 2012

Revenues

Our consolidated revenues for the three months ended March 31, 2013 were $87.6 million compared to $219.1 million for the three months ended March 31, 2012. Manufacturing segment revenues for the first quarter of 2013 were $77.7 million compared to $210.4 million for the first quarter of 2012. The decrease in Manufacturing segment revenues for the 2013 period compared to the 2012 period reflects the decrease in the number of railcars delivered and an unfavorable product mix. Our Manufacturing segment delivered 1,073 units, consisting of 448 new railcars and 625 rebuilt railcars, in the first quarter of 2013, compared to 2,613 units, consisting of 2,146 new railcars, 80 used railcars sold and 387 leased railcars, in the first quarter of 2012. Services segment revenues for the three months ended March 31, 2013 were $9.9 million compared to $8.6 million for the three months ended March 31, 2012. The increase in Services segment revenues for 2013 compared to 2012 reflects higher parts sales revenue that was partially offset by lower repair volumes.


Table of Contents

Gross Profit

Our consolidated gross profit for the three months ended March 31, 2013 was $5.0 million compared to $23.7 million for the three months ended March 31, 2012, representing a decrease of $18.7 million. The decrease in our consolidated gross profit for the first quarter of 2013 compared to the first quarter of 2012 reflects a decrease in gross profit from our Manufacturing segment of $19.4 million, which was partially offset by an increase in gross profit from our Services segment of $0.6 million. The decrease in gross profit for our Manufacturing segment for the first quarter of 2013 compared to the first quarter of 2012 reflects the decrease in deliveries, the negative impact of lower volumes on our operating efficiency, as well as product mix changes. The increase in gross profit for our Services segment for the first quarter of 2013 compared to 2012 reflects higher parts sales and an increase in higher margin program repairs. Our consolidated gross margin rate was 5.7% for the three months ended March 31, 2013 compared to 10.8% for the three months ended March 31, 2012.

Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses for the three months ended March 31, 2013 were $4.4 million compared to $8.7 million for the three months ended March 31, 2012, representing a decrease of $4.3 million. During the first quarter of 2013 we settled the Bral litigation (see note 14 to our condensed consolidated financial statements), which resulted in a $3.9 million reduction in litigation reserves, which was partially offset by $0.5 million of related legal expenses incurred during the quarter. Selling, general and administrative expenses for the three months ended March 31, 2013 also included decreases in compensation of $0.3 million and external services of $0.4 million. Manufacturing segment selling, general and administrative expenses for the three months ended March 31, 2013 were $1.7 million compared to $1.5 million for the three months ended March 31, 2012. Services segment selling, general and administrative expenses for the three months ended March 31, 2013 were $1.0 million compared to $0.9 million for the three months ended March 31, 2012. Corporate selling, general and administrative expenses for the three months ended March 31, 2013 were $1.8 million compared to $6.3 million for the three months ended March 31, 2012, reflecting the reduction in the litigation reserve (partially offset by related legal expenses) and decreases in compensation and external services.

Gain on Sale of Railcars Available for Lease

Gain on sale of railcars available for lease for the three months ended March 31, 2012 was $0.9 million and represented the gain on sale of 128 leased railcars (with a net book value of $10.4 million). Gain on sale of railcars available for lease for the three months ended March 31, 2013 was immaterial.

Operating Income

Our consolidated operating income for the three months ended March 31, 2013 was $0.6 million, compared to $16.0 million for the three months ended March 31, 2012. Operating income for the Manufacturing segment was $2.1 million for the three months ended March 31, 2013 compared to $22.7 million for the three months ended March 31, 2012. The reduction in operating income for the Manufacturing segment reflects the decrease in deliveries, the negative impact of lower volumes on our operating efficiency, as well as product mix changes. Services segment operating income was $1.3 million for the three months ended March 31, 2013 compared to $0.7 million for the three months ended March 31, 2012. The increase in Services segment operating income was primarily due to higher parts sales volume and higher volume of program repairs for the 2013 period compared to the 2012 period. Corporate costs were $2.8 million for the three months ended March 31, 2013 compared to $7.4 million for the three months ended March 31, 2012. The decrease in Corporate costs was primarily due to a reduction in the litigation reserve (partially offset by related legal expenses) and decreases in compensation and external services.

Interest Expense/Income

Interest expense (consisting of commitment fees on our revolving credit facility and letter of credit fees) was $0.1 million for each of the three months ended March 31, 2013 and 2012.

Income Taxes

The income tax provision was $3.1 million for the three months ended March 31, 2013, compared to $6.2 million for the three months ended March 31, 2012. The addition of our Shoals facility will change the mix of income from states in which we operate, resulting in changes in our estimated state tax apportionment and effective state tax rates. The income tax provision for the three months ended March 31, 2013 included a provision of $1.4 million resulting from applying these changes in effective state tax rates to our deferred tax balances. Additionally, projected taxable income in certain states in


Table of Contents

which we operate may not be sufficient to realize the full value of net operating loss carryforwards. As a result, the income tax provision also includes the recognition of a valuation allowance of $2.5 million against deferred tax assets related to net operating loss carryforwards in certain states in which we operate. These discrete tax provisions during the first quarter of 2013 were partially offset by $0.9 million of discrete tax benefits recorded during the quarter associated with tax deductible goodwill. Excluding these discrete items, our forecasted full-year effective tax rate applied against pre-tax income for the three months ended March 31, 2013 was 25.9%. The effective tax rate for the three months ended March 31, 2012 was 38.8% and was higher than the statutory U.S. federal income tax rate of 35% primarily due to a 4.9% blended state tax rate offset by 2.0% for the impact of tax deductible goodwill.

Net (Loss) Income

As a result of the foregoing, net loss was $2.6 million for the three months ended March 31, 2013, reflecting a decrease of $12.4 million from net income of $9.7 million for the three months ended March 31, 2012. For the three months ended March 31, 2013, our basic and diluted net loss per share was $0.22 on basic and diluted shares outstanding of 11,943,423.

For the three months ended March 31, 2012, our basic and diluted net income per share were $0.82 and $0.81, respectively, on basic and diluted shares outstanding of 11,924,418 and 11,979,727.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity for the three months ended March 31, 2013 and 2012, were our cash and cash equivalent balances on hand, our securities held to maturity, our lease fleet and our revolving credit facility. On July 29, 2010, we entered into a $30.0 million senior secured revolving credit facility pursuant to a Loan and Security Agreement dated as of July 29, 2010 (the "Revolving Loan Agreement") among the Company and certain of its subsidiaries, as borrowers (collectively, the "Borrowers"), and Fifth Third Bank, as lender. The proceeds of the revolving credit facility can be used for general corporate purposes, including working capital. The Revolving Loan Agreement also contains a sub-facility for letters of credit not to exceed $20.0 million. As of each of March 31, 2013 and December 31, 2012, we had no borrowings or outstanding letters of credit under the revolving credit facility.

Revolving loans outstanding under the Revolving Loan Agreement will bear interest at a rate of LIBOR plus an applicable margin of 2.50% or at prime, as selected by the Borrowers. We have no expectations to draw upon the revolving credit facility. We are required to pay a non-utilization fee of 0.35% on the unused portion of the revolving loan commitment. Borrowings under the Revolving Loan Agreement are secured by our accounts receivable, inventory and certain other assets, and borrowing availability is tied to a borrowing base of eligible accounts receivable and inventory. The Revolving Loan Agreement has both affirmative and negative covenants, including, without limitation, a minimum tangible net worth covenant and limitations on indebtedness, liens and investments. The minimum tangible net worth covenant effectively limits potential dividends to $64.9 million as of March 31, 2013. The Revolving Loan Agreement also provides for customary events of default. As of March 31, 2013, we had borrowing capacity of $30.0 million under the Revolving Loan Agreement and we were in compliance with all of the covenants contained in the agreement. The Revolving Loan Agreement has a term ending on July 29, 2013. We are currently evaluating renewal or refinancing alternatives for our current Revolving Loan Agreement and expect to have a new agreement in place by July 29, 2013.

Our restricted cash balance was $3.0 million as of March 31, 2013 and $14.7 million as of December 31, 2012, and consisted of cash used to collateralize standby letters of credit with respect to performance guarantees and to support our worker's compensation insurance claims. The standby letters of credit outstanding as of March 31, 2013 are scheduled to expire at various dates through December 2013. We expect to establish restricted cash balances in future periods to minimize bank fees related to standby letters of credit while maximizing our ability to borrow under the revolving credit facility.

As of March 31, 2013, the value of railcars available for lease was $43.1 million. We may continue to offer railcars for lease to certain customers and pursue opportunities to sell leased railcars in our portfolio. Additional railcars available for lease may be funded by cash flows from operations or we may pursue a new credit facility or both, as we evaluate our liquidity and capital resources.

Based on our current level of operations and known changes in planned volume based on our backlog, we believe that our cash balances and our marketable securities, together with amounts available under our revolving credit facility, will be sufficient to meet our expected liquidity needs. Our long-term liquidity is contingent upon future operating performance and our ability to continue to meet financial covenants under our revolving credit facility and any other indebtedness. We may also require additional capital in the future to fund working capital as demand for railcars increases, organic growth opportunities, including new plant and equipment and development of railcars, joint ventures, international expansion and acquisitions, and these capital requirements could be substantial.


Table of Contents

Our long-term liquidity needs also depend to a significant extent on our obligations related to our pension and welfare benefit plans. We provide pension and retiree welfare benefits to certain salaried and hourly employees upon their retirement. Benefits under our pension plans are now frozen and will not be impacted by increases due to future service. The most significant assumptions used in determining our net periodic benefit costs are the discount rate used on our pension and postretirement welfare obligations and expected return on pension plan assets. As of December 31, 2012, our benefit obligation under our defined benefit pension plans and our postretirement benefit plan was $65.0 million and $69.3 million, respectively, which exceeded the fair value of plan assets by $12.2 million and $69.3 million, respectively.

We made no contributions to our defined benefit pension plans during the first three months of 2013 and expect to make approximately $0.8 million in total contributions to our defined benefit pension plans during 2013. The Pension Protection Act of 2006 provides for changes to the method of valuing pension plan assets and liabilities for funding purposes as well as minimum funding levels. Our defined benefit pension plans are in compliance with the minimum funding levels established in the Pension Protection Act. Funding levels will be affected by future contributions, investment returns on plan assets, growth in plan liabilities and interest rates. Assuming that the plans are fully funded as that term is defined in the Pension Protection Act, we will be required to fund the ongoing growth in plan liabilities on an annual basis.

We made payments to our postretirement benefit plan of $1.2 million during the three months ended March 31, 2013. A substantial portion of our postretirement benefit plan obligation relates to a settlement with the union representing employees at the Company's and its predecessors' Johnstown manufacturing facilities. The terms of that settlement required us to pay until November 30, 2012 certain monthly amounts toward the cost of retiree health care coverage. We are currently engaged in negotiations related to the expired settlement agreement but no agreements have been reached. Therefore, the outcome of those negotiations and the impact on our postretirement benefit plan obligation cannot be determined at this time. If we continued to fund our postretirement benefit plan based on the expired settlement agreement we would make approximately $5.0 million in payments to the plan in 2013. However, the Company's postretirement benefit plan obligation could significantly increase or decrease if payments were to cease, if litigation should ensue or if the parties should agree on a modified settlement. We anticipate funding pension plan contributions and postretirement benefit plan payments with cash from operations and available cash.

Based upon our operating performance, capital requirements and obligations under our pension and welfare benefit plans, we may, from time to time, be required to raise additional funds through additional offerings of our common stock and through long-term borrowings. There can be no assurance that long-term debt, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders and debt financing, if available, may involve restrictive covenants. Our failure to raise capital if and when needed could have a material adverse effect on our results of operations and financial condition.

Contractual Obligations

The following table summarizes our contractual obligations as of March 31, 2013
and the effect that these obligations and commitments would be expected to have
on our liquidity and cash flow in future periods:



                                                       Payments Due by Period
                                                                 2-3          4-5         After
 Contractual Obligations              Total        1 Year       Years        Years       5 Years
                                                           (In thousands)
 Operating leases                   $  86,731     $  8,496     $ 18,233     $ 17,694     $ 42,308
 Material and component purchases      35,657       22,682       12,975           -            -

 Total                              $ 122,388     $ 31,178     $ 31,208     $ 17,694     $ 42,308

Material and component purchases consist of non-cancelable agreements with suppliers to purchase materials used in the manufacturing process. Purchase commitments for aluminum are made at a fixed price and are typically entered into after a customer places an order for railcars. The estimated amounts above may vary based on the actual quantities and price.

The above table excludes $3.5 million related to a reserve for unrecognized tax benefits and accrued interest and penalties at March 31, 2013 because the timing of the payout of these amounts cannot be determined.


Table of Contents

We are also required to make minimum contributions to our pension plans and postretirement welfare plans as discussed above.

Cash Flows

The following table summarizes our net cash (used in) provided by operating
activities, investing activities and financing activities for the three months
ended March 31, 2013 and 2012:



                                             Three Months Ended March 31,
                                              2013                  2012
                                                    (In thousands)
       Net cash (used in) provided by:
       Operating activities              $      (23,038 )       $      32,420
       Investing activities                      (1,618 )              (5,166 )
       Financing activities                        (776 )                (735 )

       Total                             $      (25,432 )       $      26,519

Operating Activities. Our net cash provided by or used in operating activities reflects net income or loss adjusted for non-cash charges and changes in operating assets and liabilities. Cash flows from operating activities are affected by several factors, including fluctuations in business volume, contract terms for billings and collections, the timing of collections on our contract receivables, processing of bi-weekly payroll and associated taxes, and payments to our suppliers. As some of our customers accept delivery of new railcars in train-set quantities, consisting on average of 120 to 135 railcars, variations in our sales lead to significant fluctuations in our operating profits and cash from operating activities. We do not usually experience business credit issues, although a payment may be delayed pending completion of closing documentation.

Our net cash used in operating activities for the three months ended March 31, 2013 was $23.0 million compared to net cash provided by operating activities of $32.4 million for the three months ended March 31, 2012. Net cash used in operating activities for the three months ended March 31, 2013 included decreases in accounts and contractual payables of $15.0 million and customer deposits of $8.7 million. Net cash provided by operating activities for the three months ended March 31, 2012 includes our income from operations and increases in accounts and contractual payables of $23.7 million. The increase in account and contractual payables for the three months ended March 31, 2012 primarily represents purchases of materials to support increased production levels and the timing of payment on those purchases.

Investing Activities. Net cash used in investing activities for the three months ended March 31, 2013 was $1.6 million compared to $5.2 million for the three months ended March 31, 2012. Net cash used in investing activities for the three months ended March 31, 2013 included purchases of property, plant and equipment of $13.4 million, which were partially offset by restricted cash withdrawals (net of deposits) of $11.7 million. Net cash used in investing activities for the three months ended March 31, 2012 included restricted cash deposits for collateralization of letters of credit of $14.5 million and purchases of property, plant and equipment of $1.2 million, which were partially offset by proceeds from the sale of railcars on operating leases of $10.4 million.

Financing Activities. Net cash used in financing activities for the three months ended March 31, 2013 was $0.8 million compared to net cash used in financing activities of $0.7 million for the three months ended March 31, 2012. Net cash used in financing activities primarily included cash dividends paid to our stockholders.

Capital Expenditures

Our capital expenditures were $13.4 million in the three months ended March 31, 2013 compared to $1.2 million in the three months ended March 31, 2012. Capital expenditures for the three months ended March 31, 2013 were primarily purchases of equipment for our Shoals facility. Capital expenditures for the three months ended March 31, 2012 were primarily cash outlays to maintain our existing facilities. Excluding unforeseen expenditures, management expects that total capital expenditures will be approximately $20.0 million for 2013, including capital expenditures for our Shoals facility.


Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains certain forward-looking statements including, in particular, statements about our plans, strategies and prospects. We have used the words "may," "will," "expect," "anticipate," "believe," "estimate," "plan," "intend" and similar expressions in this report to identify forward-looking statements. We have based these forward-looking statements on our current views with respect to future events and financial performance. Our actual results could differ materially from those projected in the forward-looking statements.

Our forward-looking statements are subject to risks and uncertainties, including:

the cyclical nature of our business;

adverse economic and market conditions;

the highly competitive nature of our industry;

our reliance upon a small number of customers that represent a large percentage of our sales;

the variable purchase patterns of our customers and the timing of completion, delivery and customer acceptance of orders;

fluctuating costs of raw materials, including steel and aluminum, and delays in the delivery of raw materials;

our reliance on the sales of our coal cars;

the risk of lack of acceptance of our new railcar offerings by our customers;

our reported backlog may not indicate what our future sales will be;

potential significant warranty claims;

shortages of skilled labor;

our ability to manage our health care and pension costs;

risks relating to our relationship with our unionized employees and their unions;

our ability to maintain relationships with our suppliers of railcar components;

the cost of complying with environmental laws and regulations; and

various covenants in the agreement governing our indebtedness that limit our management's discretion in the operation of our businesses.

Our actual results could be different from the results described in or anticipated by our forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections and may be better or worse than anticipated. Given these uncertainties, you should not rely on forward-looking statements. Forward-looking statements represent our estimates and assumptions only as of the date that they were made. We expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, in order to reflect changes in circumstances or . . .

  Add RAIL to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for RAIL - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.