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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 |
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 November 1, 2022, 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 |
21 |
4. |
29 |
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PART II – OTHER INFORMATION |
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1. |
30 |
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2. |
30 |
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3. |
30 |
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4. |
30 |
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5. |
30 |
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6. |
30 |
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31 |
2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
FreightCar America, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except for share data)
(Unaudited)
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September 30, |
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December 31, |
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Assets |
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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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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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Related party asset |
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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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Related party accounts payable |
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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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Deferred income state and local incentives, current |
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Lease liability, current |
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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’ deficit |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (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 |
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( |
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( |
) |
Total liabilities and stockholders’ deficit |
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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
(In thousands, except for share and per share data)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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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 |
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Selling, general and administrative expenses |
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Loss on pension settlement |
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Restructuring and impairment charges |
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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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Loss on change in fair market value of Warrant liability |
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( |
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( |
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( |
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( |
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Gain on extinguishment of debt |
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Other income |
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Income (loss) before income taxes |
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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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Net income (loss) |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
( |
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Net income (loss) per common share- basic |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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Net income (loss) per common share - 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 Income (Loss)
(In thousands)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Net income (loss) |
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$ |
( |
) |
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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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Loss on pension settlement |
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Reclassification adjustment for amortization of net loss (pre-tax other income) |
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( |
) |
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( |
) |
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Comprehensive income (loss) |
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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).
5
FreightCar America, Inc.
Condensed Consolidated Statements of Stockholders’ Deficit
(In thousands, except for share data)
(Unaudited)
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FreightCar America Stockholders |
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Accumulated |
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Additional |
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Other |
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Total |
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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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Retained |
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Stockholders' |
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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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Income (Loss) |
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Deficit |
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Deficit |
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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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$ |
( |
) |
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$ |
( |
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Net 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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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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Forfeiture of 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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Exercise of stock appreciation rights |
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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 recognized |
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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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Equity Fees |
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- |
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- |
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- |
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- |
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||||
Balance, September 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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$ |
( |
) |
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$ |
( |
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Balance, June 30, 2022 |
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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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( |
) |
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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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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Stock options exercised |
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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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- |
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- |
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- |
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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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- |
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- |
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Equity fees |
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- |
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- |
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- |
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- |
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||||
Balance, September 30, 2022 |
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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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$ |
( |
) |
||||
See Notes to Condensed Consolidated Financial Statements (Unaudited).
6
FreightCar America, Inc.
Condensed Consolidated Statements of Stockholders’ Deficit
(In thousands, except for share data)
(Unaudited)
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FreightCar America Stockholders |
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Accumulated |
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Additional |
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Other |
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Total |
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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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Retained |
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Stockholders' |
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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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Deficit |
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||||||||
Balance, December 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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||||
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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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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||
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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( |
) |
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( |
) |
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- |
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- |
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( |
) |
|
Exercise of stock appreciation rights |
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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 recognized |
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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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Equity Fees |
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- |
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- |
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- |
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- |
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|
||||
Balance, September 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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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance, December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|||
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Other comprehensive income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Restricted stock awards |
|
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
||
Stock options exercised |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Employee stock settlement |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Forfeiture of restricted stock awards |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Stock-based compensation recognized |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Equity Fees |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||||
Balance, September 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||||
See Notes to Condensed Consolidated Financial Statements (Unaudited).
7
FreightCar America, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Cash flows from operating activities |
|
|
|
|||||
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 |
|
|
|
|
|
|
||
Loss on pension settlement |
|
|
|
|
|
|
||
Stock-based compensation recognized |
|
|
|
|
|
|
||
Non-cash interest expense |
|
|
|
|
|
|
||
Gain on extinguishment of debt |
|
|
|
|
|
( |
) |
|
Other non-cash items, net |
|
|
( |
) |
|
|
|
|
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
( |
) |
|
|
|
|
VAT receivable |
|
|
|
|
|
( |
) |
|
Inventories |
|
|
( |
) |
|
|
( |
) |
Other assets |
|
|
( |
) |
|
|
( |
) |
Related party asset, net |
|
|
( |
) |
|
|
( |
) |
Accounts and contractual payables |
|
|
|
|
|
|
||
Accrued payroll and employee benefits |
|
|
|
|
|
( |
) |
|
Income taxes 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 |
|
|
|
|
|
|
||
Maturity of restricted certificates of deposit |
|
|
|
|
|
|
||
Purchase of property, plant and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of property, plant and equipment |
|
|
|
|
|
|
||
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 |
|
$ |
|
|
$ |
|
||
Issuance of warrants |
|
$ |
|
|
$ |
|
||
Issuance of equity fee |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
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” or the “Company”) 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”).
In September 2020, the Company announced its plan to permanently close its manufacturing facility in Cherokee, Alabama (the “Shoals Facility”). The closure reduced costs and aligned the Company’s manufacturing capacity with the current railcar market. The Company ceased production at the Shoals Facility in February 2021 (See Note 14–Restructuring and Impairment Charges).
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 nine months ended September 30, 2022 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 2021 year-end balance sheet data was derived from the audited financial statements as of December 31, 2021. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with GAAP have been condensed or omitted. Certain prior year amounts have been reclassified, where necessary, to conform to the current year presentation. 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, 2021.
Note 3 – Revenue Recognition
The following table disaggregates the Company’s revenues by major source:
|
|
Three Months Ended |
|
Nine Months Ended |
|
|||||||||||
|
|
September 30, |
|
September 30, |
|
|||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Railcar sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Parts 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 had
9
timing of when the Company expects to recognize the related revenue. Deferred revenue and customer deposits are included in customer deposits, other current liabilities and other long-term liabilities in the Company’s Condensed Consolidated Balance Sheet and were $
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 September 30, 2022 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.
|
|
Three Months Ended |
|
|
|
Nine Months Ended |
|
|
||||||||||
|
|
September 30, |
|
|
|
September 30, |
|
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
|
2022 |
|
|
2021 |
|
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Manufacturing |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated revenues |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Manufacturing (1) |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
( |
) |
|
|||
Corporate and Other (2) |
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
|
Consolidated operating income (loss) |
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
|
Consolidated interest expense |
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
|
Loss on change in fair market value of Warrant liability |
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
|
Gain on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated income (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) There were no restructuring and impairment charges for the three and nine months ended September 30, 2022. Results for the three and nine months ended September 30, 2021 include restructuring and impairment charges of $ |
|
|
||||||||||||||||
(2) Results for the three and nine months ended September 30, 2022 include a pension settlement loss of $8,105. There were no pension settlement losses in the three and nine months ended September 30, 2021. |
||||||||||||||||||
10
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Assets: |
|
|
|
|
|
|
||
Manufacturing |
|
$ |
|
|
$ |
|
||
Corporate and Other |
|
|
|
|
|
|
||
Total operating assets |
|
|
|
|
|
|
||
Consolidated income taxes receivable |
|
|
|
|
|
|
||
Consolidated assets |
|
$ |
|
|
$ |
|
||
Geographic Information |
|
|||||||||||||||||||||||
|
|
Revenues |
|
|
Long Lived Assets(a) |
|
||||||||||||||||||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
|
|
|
|
||||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
December 31, |
|
||||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
(a) Long lived assets include property plant and equipment, net, railcars available for lease, and right-of-use (ROU) assets. |
|
|||||||||||||||||||||||
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 September 30, 2022 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liability |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Recurring Fair Value Measurements |
|
As of December 31, 2021 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liability |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Non-recurring Fair Value Measurements |
|
During the Year Ended December 31, 2021 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
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, par value $
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.
11
The Company’s restricted cash balances are as follows:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Restricted cash from customer deposit |
|
$ |
|
|
$ |
|
||
Restricted cash to collateralize standby letters of credit |
|
|
|
|
|
|
||
Restricted cash equivalents to collateralize standby letters of credit |
|
|
|
|
|
|
||
Total restricted cash and restricted cash equivalents |
|
$ |
|
|
$ |
|
||
Note 7 – Inventories
Inventories, net of reserve for excess and obsolete items, consist of the following:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Raw materials |
|
|
|
|
|
|
||
Work in process |
|
|
|
|
|
|
||
Finished railcars |
|
|
|
|
|
|
||
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
Long-term debt consists of the following as of September 30, 2022 and December 31, 2021:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
M&T Credit Agreement outstanding |
|
$ |
|
|
$ |
|
||
Siena Loan Agreement outstanding |
|
|
|
|
|
|
||
Credit Agreement outstanding |
|
|
|
|
|
|
||
Total debt |
|
|
|
|
|
|
||
Less Credit Agreement discount |
|
|
( |
) |
|
|
( |
) |
Less 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 September 30, 2022 and December 31, 2021.
Credit Agreement
In October 2020, the Company entered into a $
The Company incurred $
The term loan outstanding under the Credit Agreement bears interest, at Borrower’s option and subject to the provisions of the Credit Agreement, at Base Rate (as defined in the Credit Agreement) or Eurodollar Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) for each such interest rate set forth in the Credit Agreement. As of September 30, 2022, the interest rate on the original advance under the Credit Agreement was
12
In May 2021, the Loan Parties entered into an Amendment No. 2 to the Credit Agreement (the “Second Amendment”) with Lender and the Agent, pursuant to which the principal amount of the Credit Agreement was increased by $
Pursuant to the Second Amendment, in the event that the Additional Loan was not repaid in full by March 31, 2022, the Company was to issue to the Lender and/or a Lender affiliate, a warrant (the “2022 Warrant”) to purchase a number of shares of Common Stock equal to
Pursuant to the Second Amendment, the Company was required to, among other things, i) obtain a term sheet for additional financing of no less than $
In July 2021, the Loan Parties entered into an Amendment No. 3 to Credit Agreement (the “Third Amendment”) with the Lender and 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 $
In December 2021, the Loan Parties entered into an Amendment No. 4 to Credit Agreement (the “Fourth Amendment”) with the Lender and the Agent, pursuant to which the principal amount of the term loan credit facility was increased by $
The Delayed Draw Loan, if funded, will bear the same interest rate as the original term loan.
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.
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 designee thereof a fee (the “Equity Fee”) payable in shares of Common Stock. The Equity Fee shall be calculated by dividing $
The Equity Fee shall no longer be paid once the Company has issued Equity Fees in an amount of Common Stock equal to
13
of Common Stock, or
Cash Fee
The Company shall pay to the Agent, for the account of the Lender or a designee thereof 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 $
Warrants
In connection with the Credit Agreement, the Company issued to an affiliate of the Lender (the “Warrantholder”) a warrant (the “2020 Warrant”), pursuant to that certain warrant acquisition agreement, dated as of October 13, 2020, by and between the Company and the Lender, to purchase a number of shares of Common Stock equal to
Pursuant to the Fourth Amendment and a warrant acquisition agreement, dated as of December 30, 2021, the Company issued to the Lender a warrant (the “2021 Warrant”) to purchase a number of shares of Common Stock equal to
The 2020 Warrant, 2021 Warrant, and 2022 Warrant collectively are referred to herein as the “Warrant”.
Warrant liability as of December 31, 2021 |
|
$ |
|
|
Change in fair value |
|
|
|
|
Warrant liability as of September 30, 2022 |
|
$ |
|
The change in fair value of the Warrant is reported on a separate line in the consolidated statement of operations. The Credit Agreement is presented net of the unamortized discount and unamortized deferred financing costs.
To the extent the Delayed Draw Loan is funded, the Company has agreed to issue to the Lender a warrant (the “
Siena Loan and Security Agreement
In October 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 “Revolving Loan Parties”), and Siena Lending Group LLC, as lender (“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 $
The Siena Loan Agreement provided for a revolving credit facility with maximum availability of $
14
In July 2021, the Revolving 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, including, among other things, an increase of $
The Amended and Restated Loan and Security Agreement has a term ending on October 8, 2023. 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
In February 2022, the Revolving Loan Parties and the Revolving Loan Lender entered into a First Amendment to Amended and Restated Loan and Security Agreement (the “First Amendment to Amended and Restated Loan and Security Agreement”), pursuant to which, among other things, the Maximum Revolving Facility Amount was increased to $
Revolving Loans outstanding under the First Amendment to Amended and Restated Loan and Security Agreement bear interest, subject to the provisions of the First Amendment to Amended and Restated Loan and Security Agreement, at a rate of 2% per annum in excess of the Base Rate (as defined in the Amended and Restated Loan and Security Agreement). Notwithstanding the foregoing, Revolving Loans made in respect of Excess Availability (as defined in the First Amendment to Amended and Restated Loan and Security Agreement) arising from clause (b) of the definition of “Borrowing Base” (as defined in the First Amendment to Amended and Restated Loan and Security Agreement) bear interest, subject to the provisions of the First Amendment to Amended and Restated Loan and Security Agreement, at a rate of
As of September 30, 2022, the Company had $
M&T Credit Agreement
In April 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”), with a term that ended on April 16, 2021 (the “Term End”). 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 $
The Loans outstanding 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), and 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).
In April 2021, FreightCar Leasing Borrower received a notice from M&T that an Event of Default (as defined in the M&T Credit Agreement) had occurred due to all amounts outstanding under the M&T Credit Agreement having not been paid by the Term End.
In December 2021 (the “Execution Date”), FreightCar Leasing Borrower, FreightCar Leasing Guarantor (together with FreightCar Leasing Borrower, the “Obligors”), the Company, FreightCar America Railcar Management, LLC (“FCA Management”), and M&T, entered into a Forbearance and Settlement Agreement (the “Forbearance Agreement”) with respect to the M&T Credit Agreement and its related Credit Documents (as defined in the M&T Credit Agreement), as well as certain intercompany services agreements related thereto.
Pursuant to the Forbearance Agreement, the Obligors will continue to perform and comply with all of their performance obligations (as opposed to payment obligations) under certain provisions of the M&T Credit Agreement (primarily related to information obligations and the preservation of the collateral pledged by FreightCar Leasing Borrower to M&T pursuant to the M&T Security Agreement (the “Collateral”)) and all the provisions of the M&T Security Agreement.
On December 1, 2023, or sooner if requested by the Lender (the “Turnover Date”), FreightCar Leasing Borrower shall execute and deliver to M&T documents required to deliver and assign to M&T all the leased railcars and related leases serving as Collateral for the
15
M&T Credit Agreement, and the Company shall turn over to M&T certain rents in the amount of $
Upon the Turnover Date and the Obligors’ performance of their respective obligations under the Forbearance Agreement, including the delivery of certain Collateral to M&T upon the Turnover Date, all Obligations (as defined in the M&T Credit Agreement) shall be deemed satisfied in full, M&T shall no longer have any further claims against the Obligors under the Credit Documents and the Credit Documents shall automatically terminate and be of no further force or effect except for the provisions thereof that expressly survive termination.
As of September 30, 2022 and December 31, 2021, FreightCar Leasing Borrower had $
Note 9 – Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) consist of the following:
|
|
Pre-Tax |
|
|
Tax |
|
|
After-Tax |
|
|||
Three months ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|||
Pension liability activity: |
|
|
|
|
|
|
|
|
|
|||
Loss on pension settlement |
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Reclassification adjustment for amortization of net loss (pre-tax other income) |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
|
|
Pre-Tax |
|
|
Tax |
|
|
After-Tax |
|
|||
Three months ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|||
Pension liability activity: |
|
|
|
|
|
|
|
|
|
|||
Reclassification adjustment for amortization of net loss (pre-tax other income) |
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
|
|
Pre-Tax |
|
|
Tax |
|
|
After-Tax |
|
|||
Nine months ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|||
Pension liability activity: |
|
|
|
|
|
|
|
|
|
|||
Loss on pension settlement |
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Reclassification adjustment for amortization of net loss (pre-tax other income) |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
Pre-Tax |
|
|
Tax |
|
|
After-Tax |
|
|||
Nine months ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|||
Pension liability activity: |
|
|
|
|
|
|
|
|
|
|||
Reclassification adjustment for amortization of net loss (pre-tax other income) |
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|||
The components of accumulated other comprehensive income (loss) consist of the following:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Unrecognized pension income (cost), net of tax of $ |
|
$ |
|
|
$ |
( |
) |
|
Note 10 – Stock-Based Compensation
Total stock-based compensation was $
16
2020 and 2021 Grants of Stock Appreciation Rights
During 2020 and 2021, the Company granted
The estimated fair value of the cash settled stock appreciation rights was $
The fair value of unvested cash settled stock appreciation rights as of September 30, 2022 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 (the “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 nine months ended September 30, 2022 and 2021, are as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
|
|||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
Pension Benefits |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Interest cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amortization of unrecognized net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Reclassification adjustment for amortization of net income (loss) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Loss on pension settlement |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
The Company made
17
The Company entered into a commitment agreement (the “OneAmerica Agreement”) with OneAmerica Financial Partners, Inc. (“OneAmerica”) during the three months ended September 30, 2022. Under the OneAmerica Agreement, the Company purchased a non-participating group annuity contract (the “Annuity Contract”) from OneAmerica and transferred to OneAmerica about
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.
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 no reserve with respect to these matters as they are neither probable nor estimable.
Note 13 – Earnings Per Share
The weighted-average common shares outstanding are as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Issuance of Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Issuance of contingent Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
||||
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 September 30, 2022 and 2021,
Note 14 – Restructuring and Impairment Charges
In September 2020, the Company announced its plan to permanently close its Shoals Facility in light of the ongoing cyclical industry downturn, which had been magnified by the COVID-19 pandemic. In October 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
18
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 $
Restructuring and impairment charges are reported as a separate line item on the Company’s condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021, and are detailed below:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
||||
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, 2021 |
|
|
Cash |
|
|
Non-cash charges |
|
|
Cash payments |
|
|
Accrued as of September 30, 2022 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
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 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Impairment and 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 Fabricaciones y Servicios de México, S.A. de C.V. (“Fasemex”): Jesus Gil, VP Operations and director of the Company; and Alejandro Gil and Salvador Gil, siblings of Jesus Gil. Fasemex owns approximately
19
payable on the condensed consolidated balance sheet of $
The Warrantholder beneficially owns approximately
20
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 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, delays in the delivery of raw materials, potential financial and operational impacts of the COVID-19 pandemic, and 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.
In September, 2020, we announced our plan to permanently close the Shoals Facility in light of the cyclical industry downturn, which was magnified by the global pandemic. The closure reduced costs and aligned our manufacturing capacity with the current railcar market. We ceased production at the Shoals Facility in February 2021.
Total new orders received for railcars for the nine months ended September 30, 2022 were 2,240 units, consisting of 1,817 new railcars and 423 rebuilt railcars, compared to orders for 1,633 units, consisting of 1000 new railcars and 633 rebuilt railcars for the nine months ended September 30, 2021. Total backlog of unfilled orders was 2,529 units at September 30, 2022, compared to 2,323 railcars as of December 31, 2021. The estimated sales value of the backlog was $276 million and $240 million, respectively, as of September 30, 2022 and December 31, 2021. The increase in the number of orders for new railcars for the nine months ended September 30, 2022 compared to the prior year period is a reflection of improvement in the railcar equipment market.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2022 compared to Three Months Ended September 30, 2021
Revenues
Our consolidated revenues for the three months ended September 30, 2022 were $85.7 million compared to $58.3 million for the three months ended September 30, 2021. Manufacturing segment revenues for the three months ended September 30, 2022 were $82.8 million compared to $55.9 million for the corresponding prior year quarter. The $26.9 million increase in Manufacturing segment revenues was largely driven by an increase in the volume of railcar units delivered. Railcar deliveries totaled 783 units for the third quarter of 2022, consisting of 483 new railcars and 300 rebuilt railcars, compared to 505 new railcars delivered in the third quarter of
21
2021. Corporate and Other revenues were $2.9 million for the three months ended September 30, 2022 compared to $2.4 million for the three months ended September 30, 2021.
Gross Profit
Our consolidated gross profit was $4.6 million for the three months ended September 30, 2022 compared to $1.5 million for the three months ended September 30, 2021. Manufacturing segment gross profit was $3.8 million for the three months ended September 30, 2022 compared to $0.8 million for the three months ended September 30, 2021. The $3.1 million increase in consolidated gross profit and $3.0 million increase in Manufacturing segment gross profit reflect a favorable volume variance and favorable margins per car.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses for the three months ended September 30, 2022 were $7.1 million compared to $5.7 million for the three months ended September 30, 2021. The $1.4 million increase was primarily due to increases in stock-based compensation-related fair value adjustments for cash-settled stock appreciation rights awarded to employees in prior periods. Manufacturing segment selling, general and administrative expenses were $0.7 million for the three months ended September 30, 2022, compared to $0.6 million for the three months ended September 30, 2021. Manufacturing segment selling, general and administrative expenses for the three months ended September 30, 2022 were 0.8% of revenue, compared to 1.2% of revenue for the three months ended September 30, 2021. Corporate and Other selling, general and administrative expenses were $6.4 million for the three months ended September 30, 2022 compared to $5.1 million for the three months ended September 30, 2021. Corporate and Other selling, general and administrative expenses for the three months ended September 30, 2022 included increases in stock-based compensation of $1.0 million.
Restructuring and Impairment Charges
There were no restructuring and impairment charges for the three months ended September 30, 2022 and 2021.
Operating Income (Loss)
Our consolidated operating loss for the three months ended September 30, 2022 was $10.7 million compared to $4.2 million operating loss for the three months ended September 30, 2021. The $6.5 million increase in consolidated operating loss is primarily a result of the pension settlement loss of $8.1 million. Operating income for the Manufacturing segment was $3.1 million for the three months ended September 30, 2022 compared to operating income of $0.2 million for the three months ended September 30, 2021, reflecting the increase in railcars delivered during the three months ended September 30, 2022 compared to the 2021 period. Corporate and Other operating loss was $13.7 million for the three months ended September 30, 2022 compared to operating loss of $4.3 million for the three months ended September 30, 2021. The $9.4 million increase in Corporate and Other operating loss is primarily a result of the previously described pension settlement loss of $8.1 million.
Income Taxes
Our income tax provision was $0.0 million for the three months ended September 30, 2022 compared to $1.5 million for the three months ended September 30, 2021.
Net Income (Loss)
As a result of the changes and results discussed above, as well as the $1.3 million loss on change in fair market value of Warrant liability, the net loss was $17.8 million for the three months ended September 30, 2022 compared to a $0.7 million net income for the three months ended September 30, 2021. For the three months ended September 30, 2022, basic and diluted net loss per share was $0.69 compared to basic and diluted net income per share of $0.03 for the three months ended September 30, 2021.
Nine Months Ended September 30, 2022 compared to Nine Months Ended September 30, 2021
Revenues
Our consolidated revenues for the nine months ended September 30, 2022 were $235.8 million compared to $128.0 million for the nine months ended September 30, 2021. Manufacturing segment revenues for the nine months ended September 30, 2022 were $226.5 million compared to $121.1 million for the corresponding prior year period. The $105.4 million increase in Manufacturing segment revenues was largely driven by an increase in the volume of railcar units delivered. Railcar deliveries in the nine months ended September 30, 2022 totaled 2,034 units, consisting of 1,331 new railcars and 703 rebuilt railcars, compared to 1,127 units in the
22
same period of 2021, consisting of 978 new railcars and 149 rebuilt railcars. Corporate and Other revenues were $9.2 million for the nine months ended September 30, 2022 compared to $7.0 million for the nine months ended September 30, 2021.
Gross Profit
Our consolidated gross profit was $21.2 million for the nine months ended September 30, 2022 compared to $4.9 million for the nine months ended September 30, 2021. Manufacturing segment gross profit was $18.6 million for the nine months ended September 30, 2022 compared to $3.0 million for the nine months ended September 30, 2021. The $16.3 million increase in consolidated gross profit and $15.6 million increase in Manufacturing segment gross profit reflect a favorable volume variance and favorable margins per car.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses for the nine months ended September 30, 2022 were $21.9 million compared to $21.1 million for the nine months ended September 30, 2021. The $0.8 million increase in consolidated selling, general and administrative expenses for the nine months ended September 30, 2022 was primarily due to increases in corporate realignment costs in the current year. Manufacturing segment selling, general and administrative expenses were $2.1 million for each of the nine months ended September 30, 2022 and the nine months ended September 30, 2021. Manufacturing segment selling, general and administrative expenses for the nine months ended September 30, 2022 were 0.9% of revenue, compared to 1.8% of revenue for the nine months ended September 30, 2021. Corporate and Other selling, general and administrative expenses were $19.8 million for the nine months ended September 30, 2022 compared to $19.0 million for the nine months ended September 30, 2021. The $0.8 million increase in Corporate and Other selling, general and administrative expenses is primarily a result of the previously mentioned corporate realignment costs in the current year.
Restructuring and Impairment Charges
There were no restructuring and impairment charges for the nine months ended September 30, 2022. Restructuring and impairment charges of $6.5 million for the nine months ended September 30, 2021 primarily represented costs related to relocating some of the Shoals Facility’s equipment to the Castaños Facility.
Operating Income (Loss)
Our consolidated operating loss for the nine months ended September 30, 2022 was $8.8 million compared to a $22.8 million operating loss for the nine months ended September 30, 2021 driven primarily by the previously mentioned increase in gross profit. Operating income for the Manufacturing segment was $16.5 million for the nine months ended September 30, 2022 compared to an operating loss of $5.6 million for the nine months ended September 30, 2021, reflecting the increase in railcars delivered during the nine months ended September 30, 2022 compared to the 2021 period. Manufacturing segment operating loss for the nine months ended September 30, 2021 included restructuring and impairment charges of $6.5 million while there were no restructuring and impairment charges for the nine months ended September 30, 2022. Corporate and Other operating loss was $25.3 million for the nine months ended September 30, 2022 compared to $17.2 million for the nine months ended September 30, 2021. The $8.1 million increase in operating loss is primarily a result of the previously described pension settlement loss of $8.1 million.
Income Taxes
Our income tax provision was $1.9 million for the nine months ended September 30, 2022 compared to $2.2 million for the nine months ended September 30, 2021.
Net Income (Loss)
As a result of the changes and results discussed above, net loss was $29.1 million for the nine months ended September 30, 2022 compared to $42.6 million for the nine months ended September 30, 2021. For the nine months ended September 30, 2022, basic and diluted net loss per share was $1.19 compared to $2.11 for the nine months ended September 30, 2021.
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.
Credit Agreement
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In October 2020, the Company entered into a $40,000 Credit Agreement (as amended from time to time, the “Credit Agreement”) by and among the Company, as guarantor, FreightCar North America, LLC (“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”). The $40,000 term loan under the Credit Agreement closed and was funded on November 24, 2020 (the “Closing Date”).
The Company incurred $2,872 in deferred financing costs that are presented as a reduction of the long-term debt balance and amortized to interest expense over the term of the Credit Agreement.
The term loan outstanding under the Credit Agreement bears interest, at Borrower’s option and subject to the provisions of the Credit Agreement, at Base Rate (as defined in the Credit Agreement) or Eurodollar Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) for each such interest rate set forth in the Credit Agreement. As of September 30, 2022, the interest rate on the original advance under the Credit Agreement was 15.5%.
In May 2021, the Loan Parties entered into an Amendment No. 2 to the Credit Agreement (the “Second Amendment”) with Lender and the Agent, pursuant to which the principal amount of the Credit Agreement was increased by $16,000 to a total of $56,000 (the “Additional Loan”). The Additional Loan closed and was funded on May 17, 2021. The Company incurred $480 in deferred financing costs related to the Second 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 Second Amendment. As of September 30, 2022, the interest rate on the Second Amendment under the Credit Agreement was 16.2%.
Pursuant to the Second Amendment, in the event that the Additional Loan was not repaid in full by March 31, 2022, the Company was to issue to the Lender and/or a Lender affiliate, a warrant (the “2022 Warrant”) to purchase a number of shares of Common Stock equal to 5% of the Company’s outstanding Common Stock on a fully-diluted basis at the time the 2022 Warrant is exercised. The Company believed it was probable that the 2022 Warrant would be issued and recorded an additional Warrant liability of $7,351 during the third quarter of 2021. The 2022 Warrant was issued on April 4, 2022 with an exercise price of $0.01 and a term of ten (10) years. As of September 30, 2022 and December 31, 2021, the 2022 Warrant was exercisable for an aggregate of 1,456,999 and zero (0) shares of Common Stock, respectively with a per share exercise price of $0.01.
Pursuant to the Second Amendment, the Company was required to, among other things, i) obtain a term sheet for additional financing of no less than $15,000 by July 31, 2021 and ii) file a registration statement on Form S-3 registering Company securities by no later than August 31, 2021. The Company has met each of the aforementioned obligations. The Form S-3 registering Company securities was filed with the Securities and Exchange Commission on August 27, 2021 and became effective on September 9, 2021.
In July 2021, the Loan Parties entered into an Amendment No. 3 to Credit Agreement (the “Third Amendment”) with the Lender and 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 $25,000 for the account of the Company and for the benefit of the Revolving Loan Lender (as defined below).
In December 2021, the Loan Parties entered into an Amendment No. 4 to Credit Agreement (the “Fourth Amendment”) with the Lender and the Agent, pursuant to which the principal amount of the term loan credit facility was increased by $15,000 to a total of $71,000, with such additional $15,000 (the “Delayed Draw Loan”) to be funded, at the Borrower’s option, upon the satisfaction of certain conditions precedent set forth in the Fourth Amendment. The Borrower has the option to draw on the Delayed Draw Loan through January 31, 2023 and may choose not to do so.
The Delayed Draw Loan, if funded, will bear the same interest rate as the original term loan.
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.
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
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The Company shall pay to Agent, for the account of Lender, an annual fee of $500, 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 designee thereof a fee (the “Equity Fee”) payable in shares of Common Stock. The Equity Fee shall be calculated by dividing $1,000 by the volume weighted average price of the Common Stock on the Nasdaq Global Market for the ten (10) trading days ending on the last business day of the applicable Measurement Period. The Company may pay the Equity Fee in cash if certain conditions are met.
The Equity Fee shall no longer be paid once the Company has issued 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, or 1,547,266 shares of Common Stock (the “Maximum Equity”). Through September 30, 2022, the Company has paid Equity Fees totaling 1,128,837 shares of Common Stock.
Cash Fee
The Company shall pay to the Agent, for the account of the Lender or designee thereof 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, 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.
Warrants
In connection with the Credit Agreement, the Company issued to an affiliate of the Lender (the “Warrantholder”) a warrant (the “2020 Warrant”), pursuant to that certain warrant acquisition agreement, dated as of October 13, 2020, by and between the Company and the Lender, to purchase a number of shares of Common Stock equal to 23% of the outstanding Common Stock on a fully-diluted basis at the time the 2020 Warrant is exercised (after giving effect to such issuance). The 2020 Warrant was issued on November 24, 2020 and is exercisable for a term of ten (10) years from the date of the issuance of the 2020 Warrant. As of September 30, 2022 and December 31, 2021, the 2020 Warrant was exercisable for an aggregate of 6,702,195 and 6,098,217 shares, respectively, of Common Stock with a per share exercise price of $0.01. The Company determined that the 2020 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 2020 Warrant in a variable number of shares of Common Stock. The 2020 Warrant was recorded at fair value and is treated as a discount on the term loan. The discount on the associated debt is amortized over the life of the Credit Agreement and included in interest expense.
Pursuant to the Fourth Amendment and a warrant acquisition agreement, dated as of December 30, 2021, the Company issued to the Lender a warrant (the “2021 Warrant”) to purchase a number of shares of Common Stock equal to 5% of the outstanding Common Stock on a fully-diluted basis at the time the 2021 Warrant is exercised. The 2021 Warrant has an exercise price of $0.01 and a term of ten years. As of September 30, 2022 and December 31, 2021, the 2021 Warrant was exercisable for an aggregate of 1,456,999 and 1,325,699 shares of Common Stock, respectively with a per share exercise price of $0.01.
The 2020 Warrant, 2021 Warrant, and 2022 Warrant collectively are referred to herein as the “Warrant”.
The change in fair value of the Warrant is reported on a separate line in the consolidated statement of operations. The Credit Agreement is presented net of the unamortized discount and unamortized deferred financing costs.
To the extent the Delayed Draw Loan is funded, the Company has agreed to issue to the Lender a warrant (the “3% Additional Warrant”) to purchase up to a number of shares of Common Stock equal to 3% of the outstanding Common Stock on a fully-diluted basis at the time the 3% Additional Warrant is exercised (after giving effect to such issuance). The 3% Additional Warrant, if issued, will have an exercise price of $0.01 and a term of ten years.
Siena Loan and Security Agreement
In October 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 “Revolving Loan Parties”), and Siena Lending Group LLC, as lender (“Revolving Loan Lender”). Pursuant to the Siena Loan Agreement, the Revolving Loan Lender
25
provided an asset backed credit facility, in the maximum aggregate principal amount of up to $20,000, (the “Maximum Revolving Facility Amount”) consisting of revolving loans (the “Revolving Loans”).
The Siena Loan Agreement provided for a revolving credit facility with maximum availability of $20,000, subject to certain borrowing base requirements set forth in the Siena Loan Agreement.
In July 2021, the Revolving 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, including, among other things, an increase of $25,000 to the Maximum Revolving Facility Amount.
The Amended and Restated Loan and Security Agreement has a term ending on October 8, 2023. 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).
In February 2022, the Revolving Loan Parties and the Revolving Loan Lender entered into a First Amendment to Amended and Restated Loan and Security Agreement (the “First Amendment to Amended and Restated Loan and Security Agreement”), pursuant to which, among other things, the Maximum Revolving Facility Amount was increased to $35,000.
Revolving Loans outstanding under the First Amendment to Amended and Restated Loan and Security Agreement bear interest, subject to the provisions of the First Amendment to Amended and Restated Loan and Security Agreement, at a rate of 2% per annum in excess of the Base Rate (as defined in the Amended and Restated Loan and Security Agreement). Notwithstanding the foregoing, Revolving Loans made in respect of Excess Availability (as defined in the First Amendment to Amended and Restated Loan and Security Agreement) arising from clause (b) of the definition of “Borrowing Base” (as defined in the First Amendment to Amended and Restated Loan and Security Agreement) bear interest, subject to the provisions of the First Amendment to Amended and Restated Loan and Security Agreement, at a rate of 1.5% per annum in excess of the Base Rate (as defined in the Amended and Restated Loan and Security Agreement). As of September 30, 2022, the interest rate on outstanding debt under the Amended and Restated Loan and Security Agreement was 7.75% and under the First Amendment to Amended and Restated Loan and Security Agreement was 8.25%.
As of September 30, 2022, the Company had $33,920 in outstanding debt under the Siena Loan Agreement and remaining borrowing availability of $207. As of December 31, 2021, the Company had $24,026 in outstanding debt under the Siena Loan Agreement and remaining borrowing availability of $122. The Company incurred $1,101 in deferred financing costs related to the Siena Loan Agreement during the fourth quarter of 2020 and incurred $1,037 in additional deferred financing costs related to the Amended and Restated Loan and Security Agreement during the third quarter of 2021. The deferred financing costs are presented as an asset and amortized to interest expense on a straight-line basis over the term of the Siena Loan Agreement.
M&T Credit Agreement
In April 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”), with a term that ended on April 16, 2021 (the “Term End”). Pursuant to the M&T Credit Agreement, M&T extended a revolving credit facility to FreightCar Leasing Borrower in an aggregate amount of up to $40,000 for the purpose of financing railcars to be leased to third parties. In connection with the M&T Credit Agreement, (i) FreightCar Leasing LLC, a wholly owned subsidiary of the Company and parent of FreightCar Leasing Borrower (“FreightCar Leasing Guarantor”), entered into a Guaranty Agreement (the “M&T Guaranty Agreement”) and Pledge Agreement (the “M&T Pledge Agreement”) with M&T.
The Loans outstanding 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), and 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).
In April 2021, FreightCar Leasing Borrower received a notice from M&T that an Event of Default (as defined in the M&T Credit Agreement) had occurred due to all amounts outstanding under the M&T Credit Agreement having not been paid by the Term End.
In December 2021 (the “Execution Date”), FreightCar Leasing Borrower, FreightCar Leasing Guarantor (together with FreightCar Leasing Borrower, the “Obligors”), the Company, FreightCar America Railcar Management, LLC (“FCA Management”), and M&T, entered into a Forbearance and Settlement Agreement (the “Forbearance Agreement”) with respect to the M&T Credit Agreement and its related Credit Documents (as defined in the M&T Credit Agreement), as well as certain intercompany services agreements related thereto.
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Pursuant to the Forbearance Agreement, the Obligors will continue to perform and comply with all of their performance obligations (as opposed to payment obligations) under certain provisions of the M&T Credit Agreement (primarily related to information obligations and the preservation of the collateral pledged by FreightCar Leasing Borrower to M&T pursuant to the M&T Security Agreement (the “Collateral”)) and all the provisions of the M&T Security Agreement.
On December 1, 2023, or sooner if requested by the Lender (the “Turnover Date”), FreightCar Leasing Borrower shall execute and deliver to M&T documents required to deliver and assign to M&T all the leased railcars and related leases serving as Collateral for the M&T Credit Agreement, and the Company shall turn over to M&T certain rents in the amount of $715 that it had previously collected as servicing agent for FreightCar Leasing Borrower.
Upon the Turnover Date and the Obligors’ performance of their respective obligations under the Forbearance Agreement, including the delivery of certain Collateral to M&T upon the Turnover Date, all Obligations (as defined in the M&T Credit Agreement) shall be deemed satisfied in full, M&T shall no longer have any further claims against the Obligors under the Credit Documents and the Credit Documents shall automatically terminate and be of no further force or effect except for the provisions thereof that expressly survive termination.
As of September 30, 2022 and December 31, 2021, FreightCar Leasing Borrower had $7,180 and $7,917, respectively, in outstanding debt under the M&T Credit Agreement, which was collateralized by leased railcars with a carrying value of $6,505 and $6,638, respectively. As of September 30, 2022, the interest rate on outstanding debt under the M&T Credit Agreement was 7.25%.
Additional Liquidity Factors
Our restricted cash, restricted cash equivalents and restricted certificates of deposit balances were $3.9 million and $5.0 million as of September 30, 2022 and December 31, 2021, respectively. Restricted deposits of $0.3 million as of each of September 30, 2022 and December 31, 2021, relate to a customer deposit for purchase of railcars. Restricted deposits of $3.6 million as of September 30, 2022 and $4.7 million as of December 31, 2021 are used to collateralize standby letters of credit with respect to performance guarantees. The standby letters of credit outstanding as of September 30, 2022 are scheduled to expire at various dates through December 10, 2022.
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 Credit Agreement 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 equity or debt and through long-term borrowings. There can be no assurance that long-term debt, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders and debt financing, if available, may involve restrictive covenants. Our failure to raise capital if and when needed could have a material adverse effect on our results of operations and financial condition.
Cash Flows
The following table summarizes our cash flow activities for the nine months ended September 30, 2022 and 2021:
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2022 |
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2021 |
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||
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(In thousands) |
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|||||
Net cash (used in) provided by: |
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Operating activities |
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$ |
(13,585 |
) |
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$ |
(56,958 |
) |
Investing activities |
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(3,380 |
) |
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(1,368 |
) |
Financing activities |
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9,096 |
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31,765 |
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Total |
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$ |
(7,869 |
) |
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$ |
(26,561 |
) |
Operating Activities. Our net cash provided by (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
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delivery of new railcars in train-set quantities, variations in our sales lead to significant fluctuations in our operating profits and cash from operating activities. We do not usually experience business credit issues, although a payment may be delayed pending completion of closing documentation.
Our net cash used in operating activities for the nine months ended September 30, 2022 was $13.6 million compared to net cash used in operating activities of $57.0 million for the nine months ended September 30, 2021. Our net cash used in operating activities for the nine months ended September 30, 2022 reflects changes in working capital, including an increase in accounts payable of $4.4 million and a decrease in VAT receivable of $24.6 million, all of which were partially offset by increases in both accounts receivable of $2.6 million and inventory of $30.1 million. Increases in accounts payable and inventory relate to inventory to be used in production of railcars to be delivered during the fourth quarter of 2022. Our VAT receivable decreased as a result of recovering VAT refunds during the nine months ended September 30, 2022, while accounts receivable increased as a result of a higher volume of railcars delivered during the nine months ended September 30, 2022. Our net cash used in operating activities for the nine months ended September 30, 2021 reflects changes in working capital, including increases in VAT receivable of $25.6 million and decreases in customer deposits and deferred revenue of $6.5 million.
Investing Activities. Net cash used in investing activities for the nine months ended September 30, 2022 was $3.4 million and consisted of capital expenditures related to the expansion of the Castaños Facility. Net cash used in investing activities for the nine months ended September 30, 2021 was $1.4 million and included capital expenditures of $2.0 million, related to the construction in progress for our Castaños Facility, $0.4 million proceeds from sale of equipment from our Shoals Facility, and $0.2 million proceeds from maturity of restricted certificates of deposit.
Financing Activities. Net cash provided by financing activities for the nine months ended September 30, 2022 was $9.1 million which consisted of $84.4 million of borrowings on our revolving line of credit, offset by $75.2 million of repayments on our revolving line of credit. Net cash provided by financing activities for the nine months ended September 30, 2021 was $31.8 million, which primarily consisted of proceeds from issuance of long-term debt of $16.0 million and net borrowings on revolving line of credit of $17.3 million, partially offset by deferred financing costs of $1.5 million.
Capital Expenditures
Our capital expenditures were $3.4 million in the nine months ended September 30, 2022, compared to $2.0 million in the nine months ended September 30, 2021. We anticipate capital expenditures during 2022 to be in the range of $7 million to $8 million, primarily related to the expansion of our Castaños Facility.
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Item 4. Controls and Procedures.
Management’s Report on Internal Control over Financial Reporting
The Company’s management evaluated, with the participation of the Company’s principal executive officer and principal financial officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of September 30, 2022. Based on their evaluation, the Company’s management concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2022.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act) during the quarter ended September 30, 2022 that have materially affected, or are 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 and Legal Settlements 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.
31.1 |
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31.2 |
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32 |
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 |
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|
Exhibit 104 |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
30
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: November 7, 2022 |
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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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Date: November 7, 2022 |
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By: |
/s/ MICHAEL A. RIORDAN |
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Michael A. Riordan, Vice President, Finance, Chief Financial Officer and Treasurer (Principal Financial Officer) |
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Date: November 7, 2022 |
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By: |
/s/ JUAN CARLOS FUENTES SIERRA |
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Juan Carlos Fuentes Sierra, Corporate Controller and Chief Accounting Officer (Principal Accounting Officer) |
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