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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the Quarterly period ended
or
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code)
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
The |
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.
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).
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.
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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
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.
As of August 9, 2021, there were
FREIGHTCAR AMERICA, INC.
INDEX TO FORM 10-Q
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Item |
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Page |
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PART I – FINANCIAL INFORMATION |
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1. |
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Condensed Consolidated Balance Sheets (Unaudited) as of |
3 |
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4 |
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5 |
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6 |
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8 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
9 |
2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 |
4. |
33 |
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PART II – OTHER INFORMATION |
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1. |
34 |
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2. |
34 |
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3. |
34 |
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4. |
34 |
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5. |
34 |
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6. |
34 |
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35 |
2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
FreightCar America, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
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June 30, |
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December 31, |
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Assets |
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(in thousands, except for share and per share data) |
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Current assets |
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Cash, cash equivalents and restricted cash equivalents |
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$ |
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$ |
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Restricted certificates of deposit |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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VAT receivable |
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Inventories, net |
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Assets held for sale |
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- |
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Prepaid expenses |
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Total current assets |
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Property, plant and equipment, net |
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Railcars available for lease, net |
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Right of use asset |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities |
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Accounts and contractual payables |
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$ |
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$ |
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Accrued payroll and other employee costs |
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Reserve for workers' compensation |
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Accrued warranty |
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Customer deposits |
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- |
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Deferred income state and local incentives, current |
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Lease liability, current |
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Current portion of long-term debt |
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Other current liabilities |
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Total current liabilities |
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Long-term debt, net of current portion |
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Warrant liability |
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Accrued pension costs |
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Deferred income state and local incentives, long-term |
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Lease liability, long-term |
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Other long-term liabilities |
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Total liabilities |
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Stockholders’ equity |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid in capital |
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Treasury stock, at cost, |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
) |
Accumulated deficit |
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( |
) |
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( |
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Total stockholders' (deficit) equity |
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( |
) |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
3
FreightCar America, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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(In thousands, except for share and per share data) |
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Revenues |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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Gross profit (loss) |
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( |
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Selling, general and administrative expenses |
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Restructuring and impairment charges |
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( |
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Operating loss |
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( |
) |
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( |
) |
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( |
) |
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( |
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Interest expense |
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( |
) |
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( |
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( |
) |
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( |
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Gain (loss) on change in fair market value of warrant liability |
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( |
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- |
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Other income |
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Loss before income taxes |
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( |
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( |
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( |
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( |
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Income tax provision (benefit) |
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( |
) |
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( |
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Net loss |
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( |
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( |
) |
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( |
) |
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( |
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Less: Net loss attributable to noncontrolling interest in JV |
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( |
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( |
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Net loss attributable to FreightCar America |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Net loss per common share attributable to FreightCar America- basic |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Net loss per common share attributable to FreightCar America- diluted |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Weighted average common shares outstanding – basic |
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Weighted average common shares outstanding – diluted |
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
4
FreightCar America, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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(In thousands) |
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(In thousands) |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Other comprehensive income net of tax: |
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Pension and postretirement liability adjustments, net of tax |
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Comprehensive loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
5
FreightCar America, Inc.
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(in thousands, except for share data)
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FreightCar America Shareholders |
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Accumulated |
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Total |
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Additional |
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Other |
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Retained |
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Stockholders' |
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Common Stock |
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Paid In |
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Treasury Stock |
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Comprehensive |
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Earnings |
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Noncontrolling |
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Equity |
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Shares |
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Amount |
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Capital |
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Shares |
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Amount |
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Loss |
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(Deficit) |
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Interest in JV |
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(Deficit) |
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Balance, March 31, 2020 |
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$ |
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$ |
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( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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|||||
Net loss |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
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( |
) |
Other comprehensive income |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Restricted stock awards |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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- |
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Employee stock settlement |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Forfeiture of restricted stock |
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- |
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- |
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( |
) |
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( |
) |
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- |
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- |
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- |
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- |
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Stock-based compensation |
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- |
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- |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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( |
) |
Balance, June 30, 2020 |
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$ |
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$ |
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( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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|||||
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Balance, March 31, 2021 |
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$ |
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$ |
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( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
- |
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$ |
( |
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|||
Net loss |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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( |
) |
Other comprehensive income |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Restricted stock awards |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Employee stock settlement |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Forfeiture of restricted stock |
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( |
) |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
Stock-based compensation |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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||
Balance, June 30, 2021 |
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$ |
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$ |
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( |
) |
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
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$ |
- |
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$ |
( |
) |
|||
See Notes to Condensed Consolidated Financial Statements (Unaudited).
6
FreightCar America, Inc.
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(in thousands, except for share data)
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FreightCar America Shareholders |
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Accumulated |
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Total |
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Additional |
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Other |
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Retained |
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Stockholders' |
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Common Stock |
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Paid In |
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Treasury Stock |
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Comprehensive |
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Earnings |
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Noncontrolling |
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Equity |
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Shares |
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Amount |
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Capital |
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Shares |
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Amount |
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Loss |
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(Deficit) |
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Interest in JV |
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(Deficit) |
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|||||||||
Balance, December 31, 2019 |
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|
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|
$ |
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$ |
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|
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
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|
$ |
( |
) |
|
$ |
|
|||||
Net loss |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
|
|
( |
) |
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( |
) |
Other comprehensive income |
|
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- |
|
|
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- |
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- |
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- |
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- |
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- |
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- |
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||
Restricted stock awards |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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- |
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||
Employee stock settlement |
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- |
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- |
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- |
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( |
) |
|
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( |
) |
|
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- |
|
|
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- |
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|
|
- |
|
|
|
( |
) |
Forfeiture of restricted stock awards |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
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- |
|
|
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- |
|
|
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- |
|
|
|
- |
|
|
Stock-based compensation recognized |
|
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- |
|
|
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- |
|
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|
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- |
|
|
|
- |
|
|
|
- |
|
|
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- |
|
|
|
- |
|
|
|
|
||
Balance, June 30, 2020 |
|
|
|
|
$ |
|
|
$ |
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|
|
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
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$ |
( |
) |
|
$ |
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|||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Balance, December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
|
||||
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Other comprehensive income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Restricted stock awards |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
|
- |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
- |
|
|
$ |
— |
|
||
Employee stock settlement |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Forfeiture of restricted stock awards |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Stock-based compensation recognized |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Balance, June 30, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
( |
) |
|||
See Notes to Condensed Consolidated Financial Statements (Unaudited)
7
FreightCar America, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
Six Months Ended June 30, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Cash flows from operating activities |
|
(in thousands) |
|
|||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash flows used in operating activities: |
|
|
|
|
|
|
||
Restructuring and impairment charges |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Non-cash lease expense on right-of-use assets |
|
|
|
|
|
|
||
Recognition of deferred income from state and local incentives |
|
|
( |
) |
|
|
( |
) |
Loss on change in fair market value for warrant liability |
|
|
|
|
|
|
||
Stock-based compensation recognized |
|
|
|
|
|
|
||
Non-cash interest expense |
|
|
|
|
|
|
||
Other non-cash items, net |
|
|
|
|
|
|
||
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
|
||
VAT receivable |
|
|
( |
) |
|
|
( |
) |
Inventories |
|
|
( |
) |
|
|
( |
) |
Other assets |
|
|
( |
) |
|
|
( |
) |
Accounts and contractual payables |
|
|
|
|
|
|
||
Accrued payroll and employee benefits |
|
|
( |
) |
|
|
( |
) |
Income taxes receivable/payable |
|
|
( |
) |
|
|
( |
) |
Accrued warranty |
|
|
( |
) |
|
|
( |
) |
Lease liability |
|
|
( |
) |
|
|
( |
) |
Customer deposits |
|
|
|
|
|
|
||
Other liabilities |
|
|
( |
) |
|
|
|
|
Accrued pension costs and accrued postretirement benefits |
|
|
( |
) |
|
|
( |
) |
Net cash flows used in operating activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from investing activities |
|
|
|
|
|
|
||
Purchase of restricted certificates of deposit |
|
|
|
|
|
( |
) |
|
Maturity of restricted certificates of deposit |
|
|
|
|
|
|
||
Purchase of property, plant and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of property, plant and equipment and railcars available for lease |
|
|
|
|
|
|
||
Net cash flows used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities |
|
|
|
|
|
|
||
Proceeds from issuance of long-term debt |
|
|
|
|
|
|
||
Deferred financing costs |
|
|
( |
) |
|
|
|
|
Borrowings on revolving line of credit |
|
|
|
|
|
|
||
Repayments on revolving line of credit |
|
|
( |
) |
|
|
|
|
Employee stock settlement |
|
|
( |
) |
|
|
( |
) |
Payment for stock appreciation rights exercised |
|
|
( |
) |
|
|
|
|
Net cash flows provided by financing activities |
|
|
|
|
|
|
||
Net decrease in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
Cash, cash equivalents and restricted cash equivalents at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash equivalents at end of period |
|
$ |
|
|
$ |
|
||
Supplemental cash flow information |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Income tax refunds received, net of payments |
|
$ |
|
|
$ |
|
||
Non-cash transactions |
|
|
|
|
|
|
||
Change in unpaid construction in process |
|
$ |
|
|
$ |
( |
) |
|
Accrued PIK interest paid through issuance of PIK Note |
|
$ |
|
|
$ |
|
||
See Notes to Condensed Consolidated Financial Statements (Unaudited).
8
FreightCar America, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except for share and per share data and unless otherwise noted)
Note 1 – Description of the Business
FreightCar America, Inc. (“FreightCar”) operates primarily in North America through its direct and indirect subsidiaries, 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, and also specializes in the conversion of railcars for re-purposed use. The Company is headquartered in Chicago, Illinois and has facilities in the following locations: Johnstown, Pennsylvania; Shanghai, People’s Republic of China, and Castaños, Coahuila, Mexico (“Castaños”).
During 2019, the Company entered into a joint venture arrangement with Fabricaciones y Servicios de México, S.A. de C.V. (“Fasemex”), a Mexican company with operations in both Mexico and the United States to manufacture railcars in Castaños, in exchange for a
The Company ceased operations at its Roanoke Virginia manufacturing facility (the “Roanoke Facility”) and vacated the facility as of March 31, 2020. On September 10, 2020, the Company announced its plan to permanently close its manufacturing facility in Cherokee, Alabama (the “Shoals Facility”) in light of the ongoing cyclical industry downturn, which has been magnified by the global pandemic. The closure will reduce costs and align the Company’s manufacturing capacity with the current rail car market. The Company ceased production at the Shoals Facility in February 2021. See Note 14–Restructuring and Impairment Charges.
We are closely monitoring the spread and impact of the COVID-19 pandemic and are continually assessing its potential effects on our business and our financial performance as well as the businesses of our customers and vendors. The Company cannot predict the duration or severity of the COVID-19 pandemic, and we cannot reasonably estimate the financial impact the COVID-19 outbreak will have on our results and significant estimates going forward.
Note 2 – Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of FreightCar America, Inc. and its 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 six months ended June 30, 2021 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 2020 year-end balance sheet data was derived from the audited financial statements as of December 31, 2020. 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, 2020.
9
Note 3 – Revenue Recognition
The following table disaggregates the Company’s revenues by major source:
|
|
Three Months Ended |
|
Six Months Ended |
|
|||||||||||
|
|
June 30, |
|
June 30, |
|
|||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Railcar sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Parts sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenues from contracts with customers |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Leasing revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Contract Balances and Accounts Receivable
Accounts receivable payments for railcar sales are typically due within
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
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 ASU 2014-09, Revenue from Contracts with Customers. The Company had remaining unsatisfied performance obligations as of June 30, 2021 with expected duration of greater than one year of $
Note 4 – Segment Information
The Company’s operations comprise
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 internal 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.
10
|
|
Three Months Ended |
|
|
|
Six Months Ended |
|
|
||||||||||
|
|
June 30, |
|
|
|
June 30, |
|
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
|
2021 |
|
|
2020 |
|
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Manufacturing |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated revenues |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Manufacturing (1) |
|
$ |
|
|
$ |
( |
) |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
Corporate and Other |
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
|
Consolidated operating loss |
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
|
Consolidated interest expense |
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
|
Gain (loss) on change in fair market value of warrant liability |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|||
Consolidated other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated loss before income taxes |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Manufacturing |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated depreciation and amortization |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Manufacturing |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated capital expenditures |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(1) Results for the three months and six months ended June 30, 2021 include restructuring and impairment charges of ($ |
||||||||||||||||||
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
Assets: |
|
|
|
|
|
|
||
Manufacturing |
|
$ |
|
|
$ |
|
||
Corporate and Other |
|
|
|
|
|
|
||
Total operating assets |
|
|
|
|
|
|
||
Consolidated income taxes receivable |
|
|
|
|
|
|
||
Consolidated assets |
|
$ |
|
|
$ |
|
||
Geographic Information |
|
|||||||||||||||||||||||
|
|
Revenues |
|
|
Long Lived Assets(a) |
|
||||||||||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
|
|
|
|
||||||||||||
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
December 31, |
|
||||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
(a) Long lived assets include property plant and equipment, net, railcars available for lease, and ROU assets. |
|
|||||||||||||||||||||||
11
Note 5 – 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 June 30, 2021 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liability |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Recurring Fair Value Measurements |
|
As of December 31, 2020 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Restricted certificates of deposit |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liability |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Non-recurring Fair Value Measurements |
|
During the Year-Ended December 31, 2020 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Assets held for sale |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Right of use assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Property, plant and equipment, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Railcars available for lease, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The fair value of the Company’s warrant liability recorded in the Company’s financial statements, determined using the quoted price of the Company’s common stock in an active market, exercise price ($
On September 10, 2020, the Company announced its plan to permanently close its Shoals Facility. In connection with the announcement, the Company estimated the fair value of the related asset group because it determined that an impairment trigger had occurred due to the shortened asset recoverability timeframe. Assets held for sale represents property, plant and equipment to be sold or transferred to the Shoals landlord as consideration for the landlord’s entry into the lease amendment.
During the fourth quarter of 2020, the oil and gas proppants (or “frac sand”) industry continued to experience economic pressure created by low oil prices, reduced fracking activity, and the ongoing economic impact of COVID-19. In particular, small cube covered hopper railcars are primarily used in North America to serve the frac sand industry. The Company believes that the events and circumstances that arose during the fourth quarter of 2020 constituted an impairment triggering event related to the small cube covered hopper car type in its leased railcar portfolio. During the fourth quarter of 2020, the Company recorded a pre-tax non-cash impairment charge of $
Note 6 – Restricted Cash
The Company establishes restricted cash balances when required by customer contracts and to collateralize standby letters of credit. The carrying value of restricted cash approximates fair value.
12
The Company’s restricted cash balances are as follows:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
Restricted cash from customer deposit |
|
$ |
|
|
$ |
|
||
Restricted cash to collateralize standby letters of credit |
|
|
|
|
|
|
||
Restricted cash equivalents to collateralize standby letters of credit |
|
|
|
|
|
|
||
Restricted cash equivalents - other |
|
|
|
|
|
|
||
Total restricted cash |
|
$ |
|
|
$ |
|
||
Note 7 – Inventories
Inventories, net of reserve for excess and obsolete items, consist of the following:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
Work in process |
|
$ |
|
|
$ |
|
||
Parts inventory |
|
|
|
|
|
|
||
Total inventories, net |
|
$ |
|
|
$ |
|
||
Inventory on the Company’s Condensed Consolidated Balance Sheets includes reserves of $
Note 8 – Debt Financing and Revolving Credit Facilities
Siena Loan and Security Agreement
On October 8, 2020, the Company entered into a Loan and Security Agreement (the “Siena Loan Agreement”) by and among the Company, as guarantor, and certain of its subsidiaries, as borrowers (together with the Company, the “Loan Parties”), and Siena Lending Group LLC, as lender (“Siena”). Pursuant to the Siena Loan Agreement, Siena provided an asset backed credit facility, in the maximum aggregate principal amount of up to $
The Siena Loan Agreement replaced the Company’s prior revolving credit facility under the Credit and Security Agreement (the “BMO Credit Agreement”) dated as of April 12, 2019, among the Company and certain of its subsidiaries, as borrowers and guarantors, and BMO Harris Bank N.A., as lender, as amended from time to time, which was terminated effective October 8, 2020 and otherwise would have matured on April 12, 2024.
The Siena Loan Agreement has a term ending on October 8, 2023. Revolving loans outstanding thereunder bear interest, subject to the provisions of the Siena Loan Agreement, at the Base Rate (as defined in the Siena Loan Agreement) plus
The Siena Loan Agreement provides for a revolving credit facility with maximum availability of $
The Siena Loan Agreement contains affirmative and negative covenants, including, without limitation, limitations on future indebtedness, liens and investments. The Siena Loan Agreement also provides for customary events of default. Pursuant to the terms and conditions set forth in the Siena Loan Agreement, each of the Loan Parties granted Siena a continuing lien upon certain assets of the Loan Parties to secure the obligations of the Loan Parties under the Siena Loan Agreement.
As of June 30, 2021, the Company had $
13
On July 30, 2021, the Loan Parties and Siena Lending Group LLC ( the "Revolving Loan Lender") entered into an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan and Security Agreement”), which amended and restated the terms and conditions of the Siena Loan Agreement in its entirety. See Note 16 - Subsequent Events
Term Loan Credit Agreement
On October 13, 2020, the Company entered into a Credit Agreement (the “Term Loan Credit Agreement”) by and among the Company, as guarantor, FreightCar North America (“Borrower” and together with the Company and certain other subsidiary guarantors, collectively, the “Loan Parties”), CO Finance LVS VI LLC, as lender (the “Lender”), and U.S. Bank National Association, as disbursing agent and collateral agent (“Agent”). Pursuant to the Term Loan Credit Agreement, the Lender committed to the extension of a term loan credit facility in the principal amount of $
The Term Loan Credit Agreement has a term ending
The Term Loan Credit Agreement has both affirmative and negative covenants, including, without limitation, minimum liquidity, limitations on indebtedness, liens and investments. The Term Loan Credit Agreement also provides for customary events of default. Pursuant to the terms and conditions set forth in the Term Loan Credit Agreement and the related loan documents, each of the Loan Parties granted to Agent a continuing lien upon all of such Loan Parties’ assets to secure the obligations of the Loan Parties under the Term Loan Credit Agreement.
On May 14, 2021, FreightCar North America (“Borrower” and together with the Company and certain other subsidiary guarantors, collectively, the “Loan Parties”) entered into an Amendment No. 2 to the Term Loan Credit Agreement (the “Amendment” and together with the Term Loan Credit Agreement, the “Term Loan Credit Agreement”) with CO Finance LVS VI LLC, as lender (the “Lender”), an affiliate of a corporate credit fund, and U.S. Bank National Association, as disbursing agent and collateral agent (“Agent”), pursuant to which the principal amount of the term loan credit facility was increased by $
The Additional Loan will bear interest, at Borrower’s option and subject to the provisions of the Term Loan Credit Agreement, at Base Rate (as defined in the Term Loan Credit Agreement) or Eurodollar Rate (as defined in the Term Loan Credit Agreement) plus the Applicable Margin (as defined in the Term Loan Credit Agreement) for each such interest rate set forth in the Term Loan Credit Agreement. As of June 30, 2021, the interest rate on the Additional Loan was
The Amendment contains additional covenants, including, among other things, that the Company i) obtain a term sheet for additional financing of no less than $
On July 30, 2021, FreightCar North America, LLC (“Borrower” and together with the Company and certain other subsidiary guarantors, collectively, the “Loan Parties”) entered into an Amendment No. 3 to Credit Agreement. See Note 16 - Subsequent Events.
14
Warrant
In connection with the entry into the Term Loan Credit Agreement, the Company issued to an affiliate of the Lender (the “Warrantholder”) a warrant (the “Warrant”), pursuant to that certain warrant acquisition agreement, dated as of October 13, 2020 (the “Warrant Acquisition Agreement”), by and between the Company and the Lender to purchase a number of shares of the Company’s common stock, par value $
The following schedule shows the change in fair value of the Warrant as of June 30, 2021.
Warrant liability as of December 31, 2020 |
|
$ |
|
|
Change in fair value |
|
|
|
|
Warrant liability as of June 30, 2021 |
|
$ |
|
The change in fair value of the Warrant is reported on a separate line in the consolidated statement of operations. The Term Loan Credit Agreement is presented net of the unamortized discount and unamortized deferred financing costs.
SBA Paycheck Protection Program Loan
In March 2020, Congress passed the Paycheck Protection Program (“PPP”), authorizing loans to small businesses for use in paying employees that they continue to employ throughout the global pandemic and for rent, utilities and interest on mortgages. In June 2020, Congress enacted the Paycheck Protection Program Flexibility Act (“PPPFA”), amending the PPP.
Loans obtained through the PPP, as amended, are eligible to be forgiven as long as the proceeds are used for qualifying purposes and certain other conditions are met. On April 16, 2020, the Company received a loan from BMO Harris Bank N.A. in the amount of $
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 $
On April 16, 2019, Freightcar Leasing Borrower also entered into a Security Agreement (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 guarantees 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.
15
The M&T Credit Agreement had a term ending on April 16, 2021 (the “Term End”). 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
On August 7, 2020, FreightCar Leasing Borrower received notice (the “First Notice”) from M&T that, based on an appraisal (the “Appraisal”) conducted by a third party at the request of M&T with respect to the railcars in FreightCar Leasing Borrower’s Borrowing Base (as defined in the M&T Credit Agreement) under the M&T Credit Agreement, the unpaid principal balance under the M&T Credit Agreement exceeded the availability under the M&T Credit Agreement as of the date of the Appraisal by $
On December 18, 2020, FreightCar Leasing Borrower received a revised notice (the “Second Notice,” and together with the First Notice, the “Notices”) from M&T asserting that: (a) as a result of the continuing Event of Default that M&T alleged to have occurred under the M&T Credit Agreement, M&T has declared a default and accelerated and demands immediate payment by FreightCar Leasing Borrower of $
On April 20, 2021, FreightCar Leasing Borrower received a notice from M&T that an Event of Default had occurred due to all amounts outstanding under the M&T Credit Agreement having not be paid by the Term End. FreightCar Leasing Borrower has resumed discussions with M&T during the quarter ended June 30, 2021 regarding the Event of Default.
Long-term debt consists of the following as of June 30, 2021 and December 31, 2020:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
M&T Credit Agreement outstanding |
|
$ |
|
|
$ |
|
||
SBA Payroll Protection Program Loan outstanding |
|
|
|
|
|
|
||
Siena Loan Agreement outstanding |
|
|
|
|
|
|
||
Term Loan Credit Agreement outstanding |
|
|
|
|
|
|
||
Total debt |
|
|
|
|
|
|
||
Less Term Loan Credit Agreement discount |
|
|
( |
) |
|
|
( |
) |
Less Term Loan Credit Agreement deferred financing costs |
|
|
( |
) |
|
|
( |
) |
Total debt, net of discount and deferred financing costs |
|
|
|
|
|
|
||
Less amounts due within one year |
|
|
( |
) |
|
|
( |
) |
Long-term debt, net of current portion |
|
$ |
|
|
$ |
|
||
The fair value of long-term debt approximates its carrying value as of June 30, 2021 and December 31, 2020.
Note 9 – Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss consist of the following:
|
|
Pre-Tax |
|
|
Tax |
|
|
After-Tax |
|
|||
Three months ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|||
Pension liability activity: |
|
|
|
|
|
|
|
|
|
|||
Reclassification adjustment for amortization of net loss (pre-tax other income) |
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
16
|
|
Pre-Tax |
|
|
Tax |
|
|
After-Tax |
|
|||
Three months ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|||
Pension liability activity: |
|
|
|
|
|
|
|
|
|
|||
Reclassification adjustment for amortization of net loss (pre-tax other |
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
|
|
Pre-Tax |
|
|
Tax |
|
|
After-Tax |
|
|||
Six months ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|||
Pension liability activity: |
|
|
|
|
|
|
|
|
|
|||
Reclassification adjustment for amortization of net loss (pre-tax other income) |
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
Pre-Tax |
|
|
Tax |
|
|
After-Tax |
|
|||
Six months ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|||
Pension liability activity: |
|
|
|
|
|
|
|
|
|
|||
Reclassification adjustment for amortization of net loss (pre-tax other income (expense)) |
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|||
The components of accumulated other comprehensive loss consist of the following:
|
|
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
|
2021 |
|
|
2020 |
|
||
Unrecognized pension cost, net of tax of $ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
Note 10 – Stock-Based Compensation
Total stock-based compensation was $
2020 Grants of Stock Appreciation Rights
During 2020, the Company granted
2021 Grants of Stock Appreciation Rights
During the six months ended June 30, 2021, the Company granted
17
The 2021 cash settled stock appreciation rights are classified as liabilities. Because vesting of the 2021 cash settled stock appreciation rights included a market condition, the grant date fair market value of the 2021 cash settled stock appreciation rights of $
The estimated fair value of the cash settled stock appreciation rights as of June 30, 2021 was $
The fair value of unvested cash settled stock appreciation rights as of June 30, 2021 was estimated using the Black-Scholes option valuation model with the following assumptions:
|
|
|
|
|
|
|
|
Expected |
|
Risk Free |
|
|
|
|
|
|
|
|
|
|
Expected |
|
Dividend |
|
Interest |
|
Fair Value |
|
|
Grant Year |
|
Grant Date |
|
Expected Life |
|
Volatility |
|
Yield |
|
Rate |
|
Per Award |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|||||||
|
|
|
|
|
|
$ |
|
|||||||
|
|
|
|
|
|
$ |
|
|||||||
|
|
|
|
|
|
$ |
|
|||||||
Note 11 – 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 components of net periodic benefit cost (benefit) for the three and six months ended June 30, 2021 and 2020, are as follows:
|
|
Three Months Ended |
|
Six Months Ended |
|
|||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
Pension Benefits |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Interest cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amortization of unrecognized net loss |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The Company made
The Company also maintains qualified defined contribution plans, which provide benefits to employees based on employee contributions and employee earnings with discretionary contributions allowed.
Note 12 – Contingencies and Legal Settlements
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.
18
The Company received cash payments of $
As part of a settlement agreement reached with one of its customers during 2019, the Company agreed to pay $
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. The Company has reserved $
Note 13 – Loss Per Share
The weighted-average common shares outstanding are as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Issuance of warrants |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of employee stock options and nonvested share awards |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Weighted average common shares outstanding - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
The Company computes earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and participating securities. The Company’s participating securities are its grants of restricted stock which contain non-forfeitable rights to dividends. The Company allocates earnings between both classes; however, in periods of undistributed losses, they are only allocated to common shares as the unvested restricted stockholders do not contractually participate in losses of the Company. The Company computes basic earnings per share by dividing net income allocated to common shareholders by the weighted average number of shares outstanding during the period. Warrants issued in connection with the Company's long-term debt were issued at a nominal exercise price and are considered outstanding at the date of issuance. Diluted earnings per share is calculated to give effect to all potentially dilutive common shares that were outstanding during the period. 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 June 30, 2021 and 2020,
Note 14 – Restructuring and Impairment Charges
On September 10, 2020, the Company announced its plan to permanently close its Shoals Facility in light of the ongoing cyclical industry downturn, which has been magnified by the COVID-19 pandemic. On October 8, 2020, the Company reached an agreement with the Shoals facility owner and landlord, to shorten the Shoals lease term by amending the expiration date to the end of February 2021. In addition, the landlord agreed to waive the base rent payable under the original lease for the months of October 2020 through February 2021. Property, plant and equipment with an estimated fair value of $
19
rent waiver. Restructuring and impairment charges related to the plant closure for the six months ended June 30, 2021 primarily represented costs related to relocating some of the facility’s equipment to Castaños.
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 ceased operations at the facility as of November 29, 2019 and terminated its leases for the facility effective as of March 31, 2020. Restructuring and impairment charges related to the plant closure for the six months ended June 30, 2020 primarily represented impairment charges for property, plant and equipment and costs related to relocating some of the facility’s equipment to other manufacturing locations.
Restructuring and impairment charges are reported as a separate line item on the Company’s condensed consolidated statements of operations for the three and six months ended June 30, 2021 and 2020, and are detailed below:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|||||||||||
|
|
June 30, |
|
|
|
June 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
|
2021 |
|
|
2020 |
|
||||
Impairment and loss on disposal of machinery and equipment |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
||||
Employee severance and retention |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Other charges related to facility closure |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|||
Total restructuring and impairment costs |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
$ |
|
|||
|
|
Accrued as of December 31, 2020 |
|
|
Cash |
|
|
Non-cash charges |
|
|
Cash payments |
|
|
Accrued as of June 30, 2021 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Impairment and loss on disposal of machinery and |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Employee severance and retention |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|||
Other charges related to facility closure |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|||
Total restructuring and impairment costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
|
|
Accrued as of December 31, 2019 |
|
|
Cash |
|
|
Non-cash charges |
|
|
Cash payments |
|
|
Accrued as of June 30, 2020 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Loss on disposal of machinery and equipment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Employee severance and retention |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||
Other charges related to facility closure |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|||
Total restructuring and impairment costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Note 15 – Related Parties
The following persons are owners of Fasemex: Jesus Gil, VP Operations and director of the Company; and Alejandro Gil, sibling of Jesus Gil. Fasemex provides steel fabrication services to the Company and is the lessor for the Company’s leased facility in Castaños. The Company paid $
is owned by Jorge Gil, sibling of Jesus and Alejandro Gil. The Company paid $
The Company paid $
20
Note 16 – Subsequent Events
SBA Paycheck Protection Program Loan
On July 14, 2021, the Company received a notification from BMO Harris Bank N.A. that the Small Business Administration approved the Company’s PPP Loan forgiveness application for the entire $
Amendment No. 3 to Term Loan Credit Agreement
On July 30, 2021, FreightCar North America, LLC (“Borrower” and together with the Company and certain other subsidiary guarantors, collectively, the “Loan Parties”) entered into an Amendment No. 3 to Credit Agreement (the “Third Amendment” and together with the Credit Agreement, as amended, the “Term Loan Credit Agreement”) with CO Finance LVS VI LLC, as lender and letter of credit provider (the “Lender”), an affiliate of a corporate credit fund, and U.S. Bank National Association, as disbursing agent and collateral agent (the “Agent”), pursuant to which, among other things, Lender obtained a standby letter of credit (as may be amended from time to time, the “Third Amendment Letter of Credit”) from Wells Fargo Bank, N.A., in the principal amount of $
Reimbursement Agreement
Pursuant to the Third Amendment, on July 30, 2021, the Company, the Lender, Alter Domus (US) LLC, as calculation agent, and the Agent entered into a reimbursement agreement (the “Reimbursement Agreement”), pursuant to which, among other things, the Company agreed to reimburse the Agent, for the account of the Lender, in the event of any drawings under the Third Amendment Letter of Credit by the Revolving Loan Lender.
In addition, pursuant to the Reimbursement Agreement, the Company shall make certain other payments as set forth below, so long as the Third Amendment Letter of Credit remains outstanding:
Letter of Credit Fee
The Company shall pay to Agent, for the account of Lender, an annual fee of $
Equity Fee
Every three months (the “Measurement Period”), commencing on August 6, 2021, the Company shall pay to the Lender (or, so long as Lender is the sole provider of the Third Amendment Letter of Credit, to OC III LVS XII LP, if Lender has timely notified the Company in writing of such designation) a fee (the “Equity Fee”) payable in shares of common stock, par value $
The Equity Fee shall no longer be paid once the Company has issued to Lender and/or OC III LVS XII LP Equity Fees in an amount of Common Stock equal to
The issuance of each Equity Fee under the Reimbursement Agreement will be made in reliance on the exemption from registration contained in Section 4(a)(2) of the Securities Act for offers and sales of securities that do not involve a “public offering.”
21
Cash Fee
The Company shall pay to the Agent, for the account of the Lender (or, so long as the Lender is the sole provider of the Third Amendment Letter of Credit, to OC III LVS XII LP, if the Lender has timely notified the Company in writing of such designation) a cash fee (the “Cash Fee”) which shall be due and payable in cash quarterly beginning on the date that the Maximum Equity has been issued and thereafter on the business day immediately succeeding the last business day of the applicable Measurement Period. The Cash Fee shall be equal to $
Siena Loan and Security Agreement
As previously reported, on October 8, 2020, the Loan Parties entered into a Loan and Security Agreement (the “Siena Loan Agreement”) with the Revolving Loan Lender. Pursuant to the Siena Loan Agreement, the Revolving Loan Lender provided an asset backed credit facility, in the maximum aggregate principal amount of up to $
In connection with the Third Amendment, on July 30, 2021, the Loan Parties and the Revolving Loan Lender entered into an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan and Security Agreement”), which amended and restated the terms and conditions of the Siena Loan Agreement in its entirety.
Pursuant to the Amended and Restated Loan and Security Agreement, the Maximum Revolving Facility Amount was increased to $
Revolving Loans outstanding under the Amended and Restated Loan and Security Agreement bear interest, subject to the provisions of the Amended and Restated Loan and Security Agreement, at an interest rate of
Note 17 – Revision of Prior Period Financial Statements
In preparing its financial statements for the three months ended June 30, 2021, the Company discovered certain errors related to accounting for inventory transactions for the three months ended March 31, 2021. In accordance with SEC Staff Accounting Bulletin Nos. 99 and 108 (“SAB 99 and SAB 108”), the Company evaluated these errors and determined that they were immaterial to the reporting period affected and, therefore, an amendment to the previously filed report was not required. However, if the adjustments to correct the cumulative errors had been recorded in the second quarter of 2021, the Company believes the impact would have been significant to the period and would impact comparisons to prior periods.
22
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Revenues |
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Selling, general and administrative expenses |
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Restructuring and impairment charges |
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Operating loss |
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Interest expense |
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Gain (loss) on change in fair market value of warrant liability |
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Other income |
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Loss before income taxes |
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Net loss |
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Less: Net loss attributable to noncontrolling interest in JV |
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Net loss attributable to FreightCar America |
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Net loss per common share attributable to FreightCar America- diluted |
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Inventories |
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23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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,” “likely,” “unlikely,” “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, risks relating to the potential financial and operational impacts of the COVID-19 pandemic, 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.
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 financial institutions, railroads and shippers.
During 2019, we entered into a joint venture arrangement with Fabricaciones y Servicios de México, S.A. de C.V. (“Fasemex”), a Mexican company with operations in both Mexico and the United States, to manufacture railcars in Castaños, Coahuila, Mexico (“Castaños”), in exchange for a 50% interest in the operation. Production of railcars at the facility began during the third quarter of 2020. On October 16, 2020, we acquired Fasemex’s 50% ownership in the joint venture. As of March 2021, we moved all of our production to the Castaños facility.
We ceased operations at the Roanoke Facility and vacated the facility as of March 31, 2020. On September 10, 2020, we announced our plan to permanently close the Shoals Facility in light of the ongoing cyclical industry downturn, which has been magnified by the global pandemic. The closure will reduce costs and align our manufacturing capacity with the current rail car market. We ceased production at the Shoals Facility in February 2021.
Total new orders received for railcars for the six months ended June 30, 2021 were 1,433 units, consisting of 800 new railcars and 633 rebuilt railcars, compared to orders for 300 units, all of which were rebuilt railcars for the six months ended June 30, 2020. Total backlog of unfilled orders was 2,200 units at June 30, 2021, compared to 1,389 railcars as of December 31, 2020. The estimated sales value of the backlog was $224 million and $146 million, respectively, as of June 30, 2021 and December 31, 2020. The increase in the number of orders for new railcars for the six months ended June 30, 2021 compared to the prior year period is a reflection of improvement in the railcar equipment market.
Since first being reported in December 2019, the global pandemic continues to create a general disruption in the world economy. We are closely monitoring and managing the impacts of the global pandemic on our business, as well as the significant decline in global economic activity, and governmental reactions to the pandemic. The United States government and the Mexico Federal Ministry of Health and Federal Ministry of Communications and Transportation cited the railcar industry as critical to the United States and
24
Mexico’s response efforts to the pandemic. The railcar industry is susceptible to a reduction in demand associated with the overall economic slowdown caused by the virus. In addition, public health organizations and national, state and local governments have implemented measures to combat the spread of COVID-19, including restrictions on movement such as quarantines, “stay-at-home” orders and social distancing ordinances and restricting or prohibiting some forms of business activity. Accordingly, our ability to predict industry demand and establish forecasts for sales, operating results and cash flows may be impacted. Furthermore, our plant operations and supply chain are potentially susceptible to large-scale outbreaks of the virus within our workforce or that of any of our suppliers.
Our management is focused on mitigating the impact of COVID-19 on our business and the risk to our employees. We have taken a number of precautionary measures including implementing detailed cleaning and disinfecting processes at our facilities, adhering to social distancing protocols, suspending non-essential air travel and encouraging employees to work remotely, when possible.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2021 compared to Three Months Ended June 30, 2020
Revenues
Our consolidated revenues for the three months ended June 30, 2021 were $37.4 million compared to $17.5 million for the three months ended June 30, 2020. Manufacturing segment revenues for the three months ended June 30, 2021 were $35.2 million compared to $15.1 million for the corresponding prior year quarter. The $20.0 million increase in Manufacturing segment revenues was largely driven by an increase in the volume of railcar units delivered, the impact of which was partially offset by a lower average selling price for railcars in 2021. Railcar deliveries totaled 313 units for the second quarter of 2021,all of which were new railcars, compared to 100 units, all of which were new railcars, in the second quarter of 2020. Corporate and Other revenues were $2.2 million for the three months ended June 30, 2021 compared to $2.3 million for the three months ended June 30, 2020.
Gross Profit (Loss)
Our consolidated gross profit was $3.6 million for the three months ended June 30, 2021 compared to a gross loss of $6.1 million for the three months ended June 30, 2020. Manufacturing segment gross profit was $2.8 million for the three months ended June 30, 2021 compared to a gross loss of $6.4 million for the three months ended June 30, 2020. The $9.8 million increase in consolidated gross profit and $9.2 million increase in Manufacturing segment gross profit reflect a favorable volume variance and a reduction in overhead costs due to the restructuring of our manufacturing footprint.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses for the three months ended June 30, 2021 were $6.3 million compared to $6.5 million for the three months ended June 30, 2020. Consolidated selling, general and administrative expenses for the three months ended June 30, 2021 included decreases in incentive compensation of $0.5 million, bad debt expense of $0.3 million and research and development costs of $0.2 million which were partially offset by increases in stock compensation of $0.5 million. Manufacturing segment selling, general and administrative expenses were $0.9 million for the three months ended June 30, 2021, compared to $1.7 million for the three months ended June 30, 2020, and the change was primarily due to decreases in allocated costs. Manufacturing segment selling, general and administrative expenses for the three months ended June 30, 2021 were 2.7% of revenue, compared to 11.3% of revenue for the three months ended June 30, 2020. Corporate and Other selling, general and administrative expenses were $5.4 million for the three months ended June 30, 2021 compared to $4.8 million for the three months ended June 30, 2020. Corporate and Other selling, general and administrative expenses for the three months ended June 30, 2021 included increases in allocated costs of $1.0 million and stock-based compensation expenses of $0.5 million, which were partially offset by decreases in incentive compensation of $0.5 million and decreases in research and development costs and bad debt expense.
Restructuring and Impairment Charges
Restructuring and impairment charges were not material for the three months ended June 30, 2021 or 2020.
Operating Loss
Our consolidated operating loss for the three months ended June 30, 2021 was $2.5 million compared to $12.9 million for the three months ended June 30, 2020. Operating income for the Manufacturing segment was $1.9 million for the three months ended June 30, 2021 compared to an operating loss of $8.3 million for the three months ended June 30, 2020, reflecting increases in Manufacturing segment gross profit of $9.2 million and previously described decreases in selling, general and administrative expenses of $0.8 million
25
compared to the 2020 period. Corporate and Other operating loss was $4.4 million for the three months ended June 30, 2021 compared to $4.6 million for the three months ended June 30, 2020,
Income Taxes
Our income tax provision was $0.5 million for the three months ended June 30, 2021 and our effective tax rate was (24.4)%. Our effective tax rate for the three months ended June 30, 2020 was 0.0%.
Net Loss
As a result of the changes and results discussed above, net loss was $2.6 million for the three months ended June 30, 2021 compared to $12.8 million for the three months ended June 30, 2020. For the three months ended June 30, 2021, basic and diluted net loss per share was $0.13 compared to $0.97 for the three months ended June 30, 2020.
Six Months Ended June 30, 2021 compared to Six Months Ended June 30, 2020
Revenues
Our consolidated revenues for the six months ended June 30, 2021 were $69.7 million compared to $22.7 million for the six months ended June 30, 2020. Manufacturing segment revenues for the six months ended June 30, 2021 were $65.2 million compared to $18.1 million for the six months ended June 30, 2020. The $47.1 million increase in Manufacturing segment revenues was largely driven by an increase in the volume of railcar units delivered, the impact of which was partially offset by a lower average selling price for railcars in 2021. Railcar deliveries totaled 622 units for the first half of 2021, consisting of 473 new railcars and 149 rebuilt railcars, compared to 111 units, all of which were new railcars, in the first half of 2020. Corporate and Other revenues were $4.5 million for the six months ended June 30, 2021 compared to $4.6 million for the six months ended June 30, 2020.
Gross Profit (Loss)
Our consolidated gross profit was $6.2 million for the six months ended June 30, 2021 compared to a gross loss of $14.9 million for the six months ended June 30, 2020. Manufacturing segment gross profit was $5.1 million for the six months ended June 30, 2021 compared to a gross loss of $15.7 million for the six months ended June 30, 2020. The $21.2 million increase in consolidated gross profit and $20.8 million increase in Manufacturing segment gross profit reflect a favorable volume variance and a reduction in overhead costs due to the restructuring of our manufacturing footprint.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses for the six months ended June 30, 2021 were $15.4 million compared to $13.9 million for the six months ended June 30, 2020. Consolidated selling, general and administrative expenses for the six months ended June 30, 2021 included increases in stock-based compensation expenses of $2.9 million and legal costs of $0.5 million, which were partially offset by decreases in salaries and wages of $0.8 million, medical insurance costs of $0.5 million and bad debt expense of $0.5 million. Manufacturing segment selling, general and administrative expenses were $1.5 million for the six months ended June 30, 2021, compared to $3.3 million for the six months ended June 30, 2020, and the decrease was primarily due to decreases in allocated costs, salaries and wages and the provision for doubtful accounts. Manufacturing segment selling, general and administrative expenses for the six months ended June 30, 2021 were 2.2% of revenue, compared to 18.2% of revenue for the six months ended June 30, 2020. Corporate and Other selling, general and administrative expenses were $14.0 million for the six months ended June 30, 2021 compared to $10.7 million for the six months ended June 30, 2020. Corporate and Other selling, general and administrative expenses for the six months ended June 30, 2021 included increases in stock-based compensation expenses of $2.9 million, allocated costs of $1.9 million and legal costs of $0.5 million, which were partially offset by decreases in salaries and wages of $0.5 million and medical insurance costs of $0.5 million.
Restructuring and Impairment Charges
On September 10, 2020, we announced our plan to permanently close our Shoals facility in light of the ongoing cyclical industry downturn, which has been magnified by the COVID-19 pandemic. On October 8, 2020, we reached an agreement with the Shoals facility owner and landlord to shorten the Shoals lease term by amending the expiration date to the end of February 2021. In addition, the landlord agreed to waive the base rent payable under the original lease for the months of October 2020 through February 2021. Property, plant and equipment with an estimated fair value of $10.1 million was sold or transferred to the Shoals landlord during the six months ended June 30, 2021 as consideration for the landlord’s entry into the lease amendment and the aforementioned rent waiver. Restructuring and impairment charges of $6.5 million related to the plant closure for the six months ended June 30, 2021
26
primarily represented costs related to relocating some of the facility’s equipment to Castaños as well as shutting down the Shoals facility.
On July 22, 2019, we announced our intention to close our Roanoke, Virginia manufacturing facility as part of our “Back to Basics” strategy. We ceased operations at the facility as of November 29, 2019 and terminated our leases for the facility effective as of March 31, 2020. Restructuring and impairment charges of $1.1 million related to the plant closure for the six months ended June 30, 2020 primarily represented impairment charges for property, plant and equipment and costs related to relocating some of the facility’s equipment to other manufacturing locations.
Operating Loss
Our consolidated operating loss for the six months ended June 30, 2021 was $15.7 million compared to $30.0 million for the six months ended June 30, 2020 . Operating loss for the Manufacturing segment was $2.9 million compared to $20.1 million for the six months ended June 30, 2020, reflecting increases in Manufacturing segment gross profit of $20.8 million and previously described decreases in selling, general and administrative expenses of $1.8 million, which were partially offset by increases in Manufacturing segment restructuring and impairment charges of $5.4 million, compared to the 2020 period. Corporate and Other operating loss was $12.9 million for the six months ended June 30, 2021 compared to $9.9 million for the six months ended June 30, 2020, primarily due to the previously described $3.3 million increase in selling, general and administrative expenses.
Income Taxes
Our income tax provision was $0.6 million for the six months ended June 30, 2021 and our effective tax rate was (1.6)% for the six months ended June 30, 2021. Our effective tax rate for the six months ended June 30, 2020 was 0.0%.
Net Loss
As a result of the changes and results discussed above, net loss was $40.4 million for the six months ended June 30, 2021 compared to $29.7 million for the six months ended June 30, 2020. For the six months ended June 30, 2021, basic and diluted net loss per share was $2.01 compared to $2.26 for the six months ended June 30, 2020.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are our cash and cash equivalent balances on hand and our credit and debt facilities outlined below.
The Company manufactures and provides essential products and services to a variety of critical infrastructure customers, and it intends to continue providing its products and services to these customers. The extent of the impact of the COVID-19 pandemic on the Company’s operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. and Mexico governments, state and local government officials, and other international governments to prevent disease spread, all of which are uncertain and cannot be predicted. Accordingly, our ability to predict industry demand and establish forecasts for sales, operating results and cash flows may be impacted.
SBA Paycheck Protection Program Loan
In March 2020, Congress passed the Paycheck Protection Program (“PPP”), authorizing loans to small businesses for use in paying employees that they continue to employ throughout the COVID-19 pandemic and for rent, utilities and interest on mortgages. In June 2020, Congress enacted the Paycheck Protection Program Flexibility Act (“PPPFA”), amending the PPP.
Loans obtained through the PPP, as amended, are eligible to be forgiven as long as the proceeds are used for qualifying purposes and certain other conditions are met. On April 16, 2020, the Company received a loan from BMO Harris Bank N.A. in the amount of $10.0 million through the PPP (the "PPP Loan”). Since the entire loan was used for payroll, utilities and interest, management anticipated that the majority of the PPP Loan would be forgiven. The Company filed an application for PPP Loan forgiveness on October 28, 2020 along with a request for extension of the term of the PPP Loan to five years.
On July 14, 2021, the Company received a notification from BMO Harris Bank N.A. that the Small Business Administration approved the Company’s PPP Loan forgiveness application for the entire $10.0 million balance, together with interest accrued thereon, of the PPP Loan and that the remaining balance of the PPP Loan was zero as of June 14, 2021. Since loan forgiveness was approved subsequent to June 30, 2021 the $10.0 million balance of the PPP Loan is included in the current portion of long-term debt on the
27
Company's condensed consolidated balance sheet as of June 30, 2021. The Company will recognize PPP Loan forgiveness during the third quarter of 2021
Siena Loan and Security Agreement
On October 8, 2020, the Company entered into a Loan and Security Agreement (the “Siena Loan Agreement”) by and among the Company, as guarantor, and certain of its subsidiaries, as borrowers (together with the Company, the “Loan Parties”), and Siena Lending Group LLC, as lender (“Siena”). Pursuant to the Siena Loan Agreement, Siena provided an asset backed credit facility, in the maximum aggregate principal amount of up to $20.0 million, consisting of revolving loans.
The Siena Loan Agreement replaced the Company’s prior revolving credit facility under the Credit and Security Agreement (the “BMO Credit Agreement”) dated as of April 12, 2019, among the Company and certain of its subsidiaries, as borrowers and guarantors, and BMO Harris Bank N.A., as lender, as amended from time to time, which was terminated effective October 8, 2020 and otherwise would have matured on April 12, 2024.
The Siena Loan Agreement has a term ending on October 8, 2023. Revolving loans outstanding thereunder bear interest, subject to the provisions of the Siena Loan Agreement, at the Base Rate (as defined in the Siena Loan Agreement) plus 3.00% per annum. As of June 30, 2021, the interest rate on outstanding debt under the Siena Loan Agreement was 6.26%.
The Siena Loan Agreement provides for a revolving credit facility with maximum availability of $20.0 million, subject to borrowing base requirements set forth in the Siena Loan Agreement, which generally limit availability under the revolving credit facility to (a) 85% of the value of eligible accounts and (b) up to the lesser of (i) 50% of the lower of cost or market value of eligible inventory and (ii) 85% of the net orderly liquidation value of eligible inventory, and as reduced by reserves established by Siena from time to time in accordance with the Siena Loan Agreement.
The Siena Loan Agreement contains affirmative and negative covenants, including limitations on future indebtedness, liens and investments. The Siena Loan Agreement also provides for customary events of default. Pursuant to the terms and conditions set forth in the Siena Loan Agreement, each of the Loan Parties granted Siena a continuing lien upon certain assets of the Loan Parties to secure the obligations of the Loan Parties under the Siena Loan Agreement.
As of June 30, 2021, the Company had $2.6 million in outstanding debt under the Siena Loan Agreement and less than $0.1 million in remaining borrowing availability. The Company incurred $1.1 million in deferred financing costs related to the Siena Loan Agreement. The deferred financing costs are presented as an asset and amortized on a straight-line basis to interest expense over the term of the Siena Loan Agreement.
On July 30, 2021, the Loan Parties and the Revolving Loan Lender entered into an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan and Security Agreement”), which amended and restated the terms and conditions of the Siena Loan Agreement in its entirety.
Pursuant to the Amended and Restated Loan and Security Agreement, the Maximum Revolving Facility Amount was increased to $25.0 million, provided, however, that the outstanding balance of all Revolving Loans may not exceed the lesser of (A) the Maximum Revolving Facility Amount minus the Availability Block and (B) an amount equal to the issued and undrawn portion of the Third Amendment Letter of Credit (as defined above) minus the Availability Block. The term “Availability Block”, as defined in the Amended and Restated Loan and Security Agreement, means 3.0% of the issued and undrawn amount under the Third Amendment Letter of Credit.
Revolving Loans outstanding under the Amended and Restated Loan and Security Agreement bear interest, subject to the provisions of the Amended and Restated Loan and Security Agreement, at an interest rate of 2% per annum in excess of the Base Rate (as defined in the Siena Loan Agreement).
Term Loan Credit Agreement
On October 13, 2020, the Company entered into a Credit Agreement (the “Term Loan Credit Agreement”) by and among the Company, as guarantor, FreightCar North America (“Borrower” and together with the Company and certain other subsidiary guarantors, collectively, the “Loan Parties”), CO Finance LVS VI LLC, as lender (the “Lender”), and U.S. Bank National Association, as disbursing agent and collateral agent (“Agent”). Pursuant to the Term Loan Credit Agreement, the Lender committed to the extension of a term loan credit facility in the principal amount of $40.0 million, consisting of a single term loan to be funded upon the satisfaction of certain conditions precedent set forth in the Term Loan Credit Agreement, including stockholder approval of the issuance of the common stock underlying the Warrant described below (the funding date of such term loan, the “Closing Date”).
28
FreightCar America, Inc. stockholders approved the issuance of the common stock underlying the Warrant at a special stockholders’ meeting on November 24, 2020. The $40.0 million term loan closed and was funded on November 24, 2020. The Company incurred $2.9 million in deferred financing costs related to the Term Loan Agreement. The deferred financing costs are presented as a reduction to the long-term debt balance and amortized to interest expense on a straight-line basis over the term of the Term Loan Agreement.
The Term Loan Credit Agreement has a term ending five years following the Closing Date. The term loan outstanding under the Term Loan Credit Agreement bears interest, at Borrower’s option and subject to the provisions of the Term Loan Credit Agreement, at Base Rate (as defined in the Term Loan Credit Agreement) or Eurodollar Rate (as defined in the Term Loan Credit Agreement) plus the Applicable Margin (as defined in the Term Loan Credit Agreement) for each such interest rate set forth in the Term Loan Credit Agreement. As of June 30, 2021, the interest rate on outstanding debt under the Term Loan Credit Agreement was 14.0%.
The Term Loan Credit Agreement has both affirmative and negative covenants, including minimum liquidity, limitations on indebtedness, liens and investments. The Term Loan Credit Agreement also provides for customary events of default. Pursuant to the terms and conditions set forth in the Term Loan Credit Agreement and the related loan documents, each of the Loan Parties granted to Agent a continuing lien upon all of such Loan Parties’ assets to secure the obligations of the Loan Parties under the Term Loan Credit Agreement.
On May 14, 2021, FreightCar North America (“Borrower” and together with the Company and certain other subsidiary guarantors, collectively, the “Loan Parties”) entered into an Amendment No. 2 to the Term Loan Credit Agreement (the “Amendment” and together with the Term Loan Credit Agreement, the “Term Loan Credit Agreement”) with CO Finance LVS VI LLC, as lender (the “Lender”), an affiliate of a corporate credit fund, and U.S. Bank National Association, as disbursing agent and collateral agent (“Agent”), pursuant to which the principal amount of the term loan credit facility was increased by $16.0 million to a total of $56.0 million, with such additional $16.0 million (the “Additional Loan”) to be funded upon the satisfaction of certain conditions precedent set forth in the Amendment. The Additional Loan closed and was funded on May 17, 2021. The Company incurred $0.5 million in deferred financing costs related to the Amendment which are presented as a reduction of the long-term debt balance and amortized on a straight-line basis to interest expense over the term of the Amendment.
The Additional Loan will bear interest, at Borrower’s option and subject to the provisions of the Term Loan Credit Agreement, at Base Rate (as defined in the Term Loan Credit Agreement) or Eurodollar Rate (as defined in the Term Loan Credit Agreement) plus the Applicable Margin (as defined in the Term Loan Credit Agreement) for each such interest rate set forth in the Term Loan Credit Agreement. As of June 30, 2021, the interest rate on the Additional Loan was 14.75%.
Pursuant to the Amendment, in the event that the Additional Loan is not repaid in full by March 31, 2022, the Company shall issue to the Lender and/or an affiliate of the Lender a warrant (the “Additional Warrant”) to purchase a number of shares of the Company’s common stock, par value $0.01 per share, equal to 5% of the Company’s outstanding common stock on a fully-diluted basis at the time the Additional Warrant is exercised (after giving effect to such issuance). The Additional Warrant, if issued, will have an exercise price of $0.01 and a term of ten years.
The Amendment contains additional covenants, including, among other things, that the Company i) obtain a term sheet for additional financing of no less than $15.0 million by July 31, 2021 and ii) file a registration statement on Form S-3 registering Company securities, including the shares of Company common stock issuable upon exercise of the Additional Warrants, by no later than August 31, 2021.
On July 30, 2021, FreightCar North America, LLC (“Borrower” and together with the Company and certain other subsidiary guarantors, collectively, the “Loan Parties”) entered into an Amendment No. 3 to Credit Agreement (the “Third Amendment” and together with the Credit Agreement, as amended, the “Term Loan Credit Agreement”) with CO Finance LVS VI LLC, as lender and letter of credit provider (the “Lender”), an affiliate of a corporate credit fund, and U.S. Bank National Association, as disbursing agent and collateral agent (the “Agent”), pursuant to which, among other things, Lender obtained a standby letter of credit (as may be amended from time to time, the “Third Amendment Letter of Credit”) from Wells Fargo Bank, N.A., in the principal amount of $25.0 million for the account of the Company and for the benefit of Siena Lending Group LLC (the “Revolving Loan Lender”).
Pursuant to the Third Amendment, on July 30, 2021, the Company, the Lender, Alter Domus (US) LLC, as calculation agent, and the Agent entered into a reimbursement agreement (the “Reimbursement Agreement”), pursuant to which, among other things, the Company agreed to reimburse the Agent, for the account of the Lender, in the event of any drawings under the Third Amendment Letter of Credit by the Revolving Loan Lender.
In addition, pursuant to the Reimbursement Agreement, the Company shall make certain other payments as set forth below, so long as the Third Amendment Letter of Credit remains outstanding:
29
Letter of Credit Fee
The Company shall pay to Agent, for the account of Lender, an annual fee of $500,000, which shall be due and payable quarterly beginning on August 2, 2021, and every three months thereafter.
Equity Fee
Every three months (the “Measurement Period”), commencing on August 6, 2021, the Company shall pay to the Lender (or, so long as Lender is the sole provider of the Third Amendment Letter of Credit, to OC III LVS XII LP, if Lender has timely notified the Company in writing of such designation) a fee (the “Equity Fee”) payable in shares of common stock, par value $0.01 per share, of the Company (the “Common Stock”). The Equity Fee shall be calculated by dividing $1.0 million by the volume weighted average price of the Company’s Common Stock on the Nasdaq Capital Market for the ten (10) trading days ending on the last business day of the applicable Measurement Period. The Company can opt to pay the Equity Fee in cash, in the amount of $1,000,000, if, and only if, (x) the Company has already issued as Equity Fees a number of shares of its Common Stock equal to (I) 5.0% multiplied by (II) the total number of shares of Common Stock outstanding as of July 30, 2021, rounded down to the nearest whole share of Common Stock, and (y) the Company has at least $15,000,000 of Repayment Liquidity after giving effect to such payment. The term Repayment Liquidity, as defined in the Term Loan Credit Agreement, means (a) all unrestricted and unencumbered cash and cash equivalents of the Loan Parties, plus (b) the undrawn and available portion of the commitments under that certain Amended and Restated Loan and Security Agreement by and among the Loan Parties and the Revolving Loan Lender (as described below), minus (c) all accounts payable of the Loan Parties that are more than 30 days past due.
The Equity Fee shall no longer be paid once the Company has issued to Lender and/or OC III LVS XII LP Equity Fees in an amount of Common Stock equal to 9.99% multiplied by the total number of shares of Common Stock outstanding as of July 30, 2021, rounded down to the nearest whole share of Common Stock (the “Maximum Equity”).
The issuance of each Equity Fee under the Reimbursement Agreement will be made in reliance on the exemption from registration contained in Section 4(a)(2) of the Securities Act for offers and sales of securities that do not involve a “public offering.”
Cash Fee
The Company shall pay to the Agent, for the account of the Lender (or, so long as the Lender is the sole provider of the Third Amendment Letter of Credit, to OC III LVS XII LP, if the Lender has timely notified the Company in writing of such designation) a cash fee (the “Cash Fee”) which shall be due and payable in cash quarterly beginning on the date that the Maximum Equity has been issued and thereafter on the business day immediately succeeding the last business day of the applicable Measurement Period. The Cash Fee shall be equal to $1,000,000, provided that, in the quarter in which the Maximum Equity is issued, such fee shall be equitably reduced by the value of any Equity Fee issued by the Company that quarter.
Warrant
In connection with the entry into the Term Loan Credit Agreement, the Company issued to an affiliate of the Lender (the “Warrantholder”) a warrant (the “Warrant”), pursuant to that certain warrant acquisition agreement, dated as of October 13, 2020 (the “Warrant Acquisition Agreement”), by and between the Company and the Lender to purchase a number of shares of the Company’s common stock, par value $0.01 per share, equal to 23% of the outstanding common stock on a fully-diluted basis at the time the Warrant is exercised (after giving effect to such issuance). The Warrant is exercisable for a term of ten years from the date of the issuance of the Warrant. The Warrant was issued on November 24, 2020 after the Company received stockholder approval of the issuance of the common stock issuable upon exercise of the Warrant by the Warrantholder. In connection with the issuance of the Warrant, the Company and the Lender entered into a registration rights agreement (the “Registration Rights Agreement”) as of the Closing Date of November 24, 2020. As of June 30, 2021 and December 31, 2020, the Warrant was exercisable for an aggregate of 5,305,140 and 5,307,539 shares, respectively, of common stock of the Company with a per share exercise price of $0.01. The Company determined that the Warrant should be accounted for as a derivative instrument and classified as a liability on its Consolidated Balance Sheets primarily due to the instrument obligating the Company to settle the Warrant in a variable number of shares of common stock. The Warrant was recorded as a liability at fair value and is treated as a discount on the associated debt. The discount on the associated debt is amortized over the life of the Term Loan Credit Agreement and included in interest expense.
As part of the Second Amendment Loans executed on May 14, 2021, if any amount remains outstanding on March 31, 2022, the Company shall immediately issue to the Lenders additional Warrants to purchase 5.0% of the outstanding common stock on a fully-diluted basis at the date of any partial or full exercise of such Warrants at the agreed purchase price of $0.01 per share.
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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 $40.0 million for the purpose of financing railcars which will be leased to third parties.
On April 16, 2019 Freightcar Leasing Borrower also entered into a Security Agreement (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 guarantees 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 had a term ending on April 16, 2021 (the ”Term End”. 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 June 30, 2021 and December 31, 2020, FreightCar Leasing Borrower had $10.5 million and $10.1 million, respectively, in outstanding debt under the M&T Credit Agreement which was collateralized by leased railcars with a carrying value of $6.9 million and $7.0 million, respectively. As of June 30, 2021, the interest rate on outstanding debt under the M&T Credit Agreement was 4.18%.
On August 7, 2020, FreightCar Leasing Borrower received notice (the “First Notice”) from M&T Bank, N.A. (“M&T”) that, based on an appraisal (the “Appraisal”) conducted by a third party at the request of M&T with respect to the railcars in FreightCar Leasing Borrower’s Borrowing Base (as defined in the M&T Credit Agreement) under the M&T Credit Agreement, the unpaid principal balance under the M&T Credit Agreement exceeded the availability under the M&T Credit Agreement as of the date of the Appraisal by $5.1 million (the “Payment Demand Amount”). In the First Notice, M&T Bank: (a) asserted that an Event of Default under the M&T Credit Agreement has occurred because FreightCar Leasing Borrower did not pay the Payment Demand Amount to M&T within five days of the asserted change in availability; (b) demanded payment of the amount within five days of the date of the First Notice; and (c) terminated the commitment to advance additional loans under the M&T Credit Agreement.
On December 18, 2020, FreightCar Leasing Borrower received a revised notice (the “Second Notice,” and together with the First Notice, the “Notices”) from M&T asserting that: (a) as a result of the continuing Event of Default that M&T alleged to have occurred under the M&T Credit Agreement, M&T has declared a default and accelerated and demands immediate payment by FreightCar Leasing Borrower of $10.1 million (the “Outstanding Amount”); (b) FreightCar Leasing Borrower is liable for all interest that continues to accrue on the Outstanding Amount; and (c) FreightCar Leasing Borrower is liable for all attorneys’ fees, costs and expenses as set forth in the M&T Credit Agreement.
On April 20, 2021, FreightCar Leasing Borrower received a notice from M&T that an Event of Default had occurred due to all amounts outstanding under the M&T Credit Agreement having not be paid by the Term End. FreightCar Leasing Borrower has resumed discussions with M&T during the quarter ended June 30, 2021 regarding the Event of Default.
Additional Liquidity Factors
Our restricted cash, restricted cash equivalents and restricted certificates of deposit balances were $7.2 million and $10.6 million as of June 30, 2021 and December 31, 2020, respectively. Restricted deposits of $0.3 million and $3.2 million as of June 30, 2021 and December 31, 2020, respectively relate to a customer deposit for purchase of railcars. Restricted deposits of $6.7 million and $7.4 million as of June 30, 2021 and December 31, 2020 respectively are used to collateralize standby letters of credit with respect to performance guarantees. The standby letters of credit outstanding as of June 30, 2021 are scheduled to expire at various dates through December 10, 2021.
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Based on our current level of operations and known changes in planned volume based on our backlog, we believe that our cash balances will be sufficient to meet our expected liquidity needs for at least the next twelve months. Our long-term liquidity is contingent upon future operating performance and our ability to continue to meet financial covenants under our revolving credit facilities, our Term Loan Credit Agreement and the PPP Loan and any other indebtedness and the availability of additional financing if needed. 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 such as the $40.0 million term loan under the Term Loan Credit Agreement. There can be no assurance that long-term debt, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders and debt financing, if available, may involve restrictive covenants. Our failure to raise capital if and when needed could have a material adverse effect on our results of operations and financial condition.
Cash Flows
The following table summarizes our net cash provided by (used in) operating activities, investing activities and financing activities for the six months ended June 30, 2021 and 2020:
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2021 |
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|
2020 |
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||
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(In thousands) |
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|||||
Net cash (used in) provided by: |
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|
|
|
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||
Operating activities |
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$ |
(44,109 |
) |
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$ |
(20,783 |
) |
Investing activities |
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|
(818 |
) |
|
|
(6,925 |
) |
Financing activities |
|
|
11,610 |
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|
|
9,991 |
|
Total |
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$ |
(33,317 |
) |
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$ |
(17,717 |
) |
Operating Activities. Our net cash provided by or used in operating activities reflects net 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, payments to our suppliers and other operating activities. 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 six months ended June 30, 2021 was $44.1 million compared to net cash used in operating activities of $20.8 million for the six months ended June 30, 2020. Our net cash used in operating activities for the six months ended June 30, 2021 reflects changes in working capital, including increases in VAT receivable of $16.8 million and inventory of $8.1 million to meet current production needs for the start-up of several new railcar orders and decreases in customer deposits and deferred revenue of $6.9 million. Our net cash used in operating activities for the six months ended June 30, 2020 reflects our net loss and changes in working capital, including increases in inventory of $27.1 million which were offset by increases in customer deposits of $27.9 million.
Investing Activities. Net cash used in investing activities for the six months ended June 30, 2021 was $0.8 million and included capital expenditures of $1.4 million, related to the construction in progress for our Mexico operations and the $0.4 million proceeds from sale of equipment from our Shoals facility. Net cash used in investing activities for the six months ended June 30, 2020 was $6.9 million, consisting primarily of capital expenditures of $7.0 million, largely related to the construction in progress for our Mexico operations.
Financing Activities. Net cash provided by financing activities for the six months ended June 30, 2021 was $11.6 million and included proceeds from issuance of long-term debt of $16.0 million which were partially offset by net repayments on revolving line of credit of $3.8 million. Net cash provided by financing activities was $10.0 million for the six months ended June 30 2020 and consisted of PPP loan proceeds.
Capital Expenditures
Our capital expenditures were $1.4 million in the six months ended June 30, 2021, compared to $7.0 million in the six months ended June 30, 2020. We anticipate capital expenditures during 2021 to be in the range of $2 million to $3 million, primarily related to the construction of our Mexico facility.
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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 were 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 12 – 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.
10.1 |
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31.1 |
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31.2 |
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32 |
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|
101.INS |
Inline XBRL Instance Document |
101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
101PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
Exhibit 104 |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
34
SIGNATURES
Pursuant to the requirements 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.
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FREIGHTCAR AMERICA, INC. |
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Date: August 16, 2021 |
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By: |
/s/ JAMES R. MEYER |
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James R. Meyer, President and Chief Executive Officer (Principal Executive Officer) |
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By: |
/s/ TERENCE R. ROGERS |
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Terence R. Rogers, Vice President, Finance, Chief Financial Officer, Treasurer and Corporate Secretary (Principal Financial Officer)
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By: |
/s/ MICHAEL A. RIORDAN |
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Michael A. Riordan, Corporate Controller and Chief Accounting Officer (Principal Accounting Officer)
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35
