Business Context and Reporting Period
Company: Freightcar America, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: July 27, 2009
Reporting Period: The filing addresses preliminary financial metrics for the second quarter of 2009 and identifies historical accounting errors affecting periods from the fourth quarter of 2007 through the quarter ended March 31, 2009.
Key Financial Metrics
Revenue, Profit, Cash Flow, Margins: The filing text does not provide specific values for revenue, profit, cash flow, or margins. It references a press release (Exhibit 99.1) containing preliminary Q2 2009 metrics, but the data is not included in the provided text.
Debt and Liquidity:
- The Company has no borrowings currently outstanding under its Second Amended and Restated Credit Agreement or the JAIX Credit Agreement.
- Liquidity status is not explicitly quantified in the text.
Material Changes and Accounting Errors
Accounting Error Identification:
- The Company identified historical accounting errors in accounts payable.
- Estimated Impact: Accounts payable were overstated by a range of $10 million to $14 million as of March 31, 2009.
- Effect on Earnings: The errors resulted in an understatement of net earnings since the fourth quarter of 2007.
- Cause: Flaws in the design of an internal IT and accounting process implemented in Q4 2007 for accounting for the receipt of certain goods.
- Intent: Management states there is no evidence of fraud or intentional misconduct.
Restatement and Non-Reliance:
- The Audit Committee concluded that previously issued audited financial statements for fiscal years 2007 and 2008, and unaudited interim statements for all quarters from Q4 2007 through Q1 2009, should no longer be relied upon.
- The Company intends to restate these financial statements.
Guidance, Outlook, Risks, and Contingencies
Outlook and Filings:
- The Company expects it will likely not file its Form 10-Q for the period ended June 30, 2009, on time.
- The review is expected to be completed during the third quarter of 2009.
- Amended quarterly reports (10-Q) for Q1 2009 and Q3 2008, and an amended annual report (10-K) for 2008, are expected to be filed.
Credit Agreement Covenants:
- The restatement caused a failure to comply with representations and covenants regarding the provision of financial statements in the Company Credit Agreement and the JAIX Credit Agreement.
- The Company is in advanced discussions with lenders to obtain waivers for these breaches.
Risks and Contingencies:
- Final conclusions on the impact of errors may differ materially from current estimates.
- Risks include potential delays in SEC filings, damage to business reputation, and potential litigation from stockholders, employees, customers, or governmental agencies.
- The impact on internal control over financial reporting has not yet been finalized.
Investor Verification Checklist
- Verify the final quantified impact of the accounting errors on net earnings once the restatement is complete.
- Confirm the status of waivers obtained from lenders regarding the credit agreement covenant breaches.
- Monitor the timeline for the filing of the amended 10-Q (Q1 2009), amended 10-Q (Q3 2008), and amended 10-K (2008).
- Review the upcoming Form 10-Q for the period ended June 30, 2009, for updated financial metrics and internal control assessments.
- Assess any potential legal proceedings or regulatory actions arising from the accounting errors.