Business Context and Reporting Period
Company: FreightCar America, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2010
Business Overview: The Company manufactures, rebuilds, repairs, sells, and leases freight cars, primarily aluminum-bodied coal-carrying railcars. Operations are conducted through facilities in Danville, Illinois, and Roanoke, Virginia. The Company operates as a single segment.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2010 |
Six Months Ended June 30, 2010 |
Six Months Ended June 30, 2009 |
|---|---|---|---|
| Revenues | $30,999 | $50,529 | $143,891 |
| Gross Profit | $3,661 | $3,569 | $26,278 |
| Gross Margin | 11.8% | 7.1% | 18.3% |
| Operating (Loss) Income | $(2,142) | $(7,976) | $12,738 |
| Net (Loss) Income | $(1,320) | $(4,621) | $9,371 |
| Net (Loss) Income Attributable to FCA | $(1,305) | $(4,599) | $9,419 |
| Diluted EPS | $(0.11) | $(0.39) | $0.79 |
| Cash and Cash Equivalents | $90,144 (as of June 30, 2010) | ||
| Net Cash Provided by Operating Activities | $3,983 (Six Months 2010) | ||
| Total Debt | $0 (No borrowings under credit facilities) |
Material Changes vs. Prior Period
- Revenue Decline: Revenues for the six months ended June 30, 2010, dropped to $50.5 million from $143.9 million in the prior year period. This 65% decrease is attributed to a severe downturn in the coal-carrying railcar market, reduced industry demand, and the absence of a $3.9 million contract termination fee recognized in the first half of 2009.
- Profitability Reversal: The Company reported a net loss of $4.6 million for the six months ended June 30, 2010, compared to net income of $9.4 million in the same period of 2009. Operating loss was driven by low production volumes and competitive pricing pressures.
- Margin Compression: Gross margin for the six months ended June 30, 2010, fell to 7.1% from 18.3% in 2009. Management cited low manufacturing activity and a less favorable sales mix as primary drivers.
- Backlog Increase: Despite the revenue decline, the backlog of unfilled orders increased to 3,000 units at June 30, 2010, up from 265 units at December 31, 2009, though down from 3,600 units at March 31, 2010.
Guidance, Outlook, and Risks
- Market Outlook: Management anticipates continued challenges in the coal-carrying railcar market for the remainder of 2010 due to high railcar storage levels, recession-driven reductions in electricity demand, and natural gas substitution. Long-term demand is expected to improve as railroads upgrade aging fleets to aluminum-bodied cars.
- Liquidity and Capital Resources: The Company maintains a strong liquidity position with $90.1 million in cash and cash equivalents. On July 29, 2010, the Company entered into a new $30 million senior secured revolving credit facility, replacing prior facilities. There were no borrowings under the new facility as of August 6, 2010.
- Capital Expenditures: Capital expenditures for the first half of 2010 were $0.6 million. Management expects approximately $1.2 million in capital expenditures for the remainder of 2010 to maintain facilities and enhance ERP systems.
- Pension and Postretirement Obligations: The Company has significant unfunded pension and postretirement benefit obligations. As of December 31, 2009, the pension plan was underfunded by $15.5 million, and the postretirement plan was underfunded by $63.3 million. The Company expects to make less than $100,000 in pension contributions in 2010 but anticipates $5.3 million in postretirement benefit payments.
- Risk Factors: Key risks include the cyclical nature of the railcar industry, reliance on a small number of customers, fluctuating raw material costs (aluminum and steel), and the potential for significant warranty claims.
Investor Verification Checklist
- Backlog Quality: Verify the composition and timing of the 3,000-unit backlog to assess revenue visibility for the remainder of 2010.
- Raw Material Costs: Monitor aluminum and steel prices, as these represent a significant majority of direct manufacturing costs and the Company does not currently hedge these risks.
- Customer Concentration: Review the concentration of sales among the Company's primary customers (financial institutions, shippers, and railroads) to assess dependency risks.
- Pension Funding: Track the Company's ability to meet future pension and postretirement funding requirements, given the significant underfunded status of these plans.
- Coal Market Dynamics: Assess the impact of natural gas substitution and utility stockpiles on the long-term demand for coal-carrying railcars.