Business Context and Reporting Period
Company: Freightcar America, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 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) | Q1 2010 | Q1 2009 |
|---|---|---|
| Revenues | $19,530 | $39,563 |
| Gross Profit | $(92) | $10,295 |
| Operating Loss | $(5,834) | $3,352 |
| Net Loss | $(3,301) | $2,386 |
| Net Loss Attributable to Company | $(3,294) | $2,397 |
| Diluted EPS | $(0.28) | $0.20 |
| Cash and Equivalents | $104,080 | $91,265 |
| Operating Cash Flow | $11,000 | $(20,737) |
| Total Debt (Borrowings) | $0 | $0 |
Note: Q1 2009 revenues included a $3.9 million contract termination fee. Q1 2010 gross profit was essentially break-even due to low manufacturing activity.
Material Changes vs. Prior Period
- Revenue Decline: Revenues dropped 50.6% to $19.5 million, driven by a significant decrease in railcar deliveries (321 units in Q1 2010 vs. 876 units in Q1 2009) and the absence of the $3.9 million termination fee recognized in the prior year.
- Profitability Reversal: The Company reported a net loss of $3.3 million compared to net income of $2.4 million in the prior year. Operating loss was $5.8 million versus operating income of $3.4 million previously.
- Cash Flow Improvement: Operating cash flow turned positive at $11.0 million, a stark contrast to the $20.7 million outflow in Q1 2009. This was primarily due to $28.4 million in customer deposits received and a $7.0 million reduction in inventory.
- Backlog Expansion: Total backlog of unfilled orders surged to 3,600 units at March 31, 2010, compared to only 265 units at December 31, 2009, following 3,656 new orders in the quarter.
Outlook, Risks, and Management Commentary
- Market Conditions: Management describes the market for coal-carrying railcars as "very soft" due to high storage levels, recession-driven electricity demand reductions, and natural gas substitution. However, they anticipate demand will improve once recessionary pressures subside.
- Liquidity: The Company holds $104.1 million in cash and equivalents. It has two revolving credit facilities totaling $110 million ($50 million corporate, $60 million JAIX), with no borrowings outstanding as of March 31, 2010. Management believes current resources are sufficient for 2010 liquidity needs.
- Capital Expenditures: CapEx was $0.4 million for the quarter. Management expects approximately $0.9 million for the remainder of 2010 to maintain facilities and enhance ERP systems.
- Risks: 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 significant obligations related to underfunded pension and postretirement benefit plans (totaling over $124 million in obligations).
- Unusual Items: The sale of the Johnstown facility is ongoing; the Company received a $500,000 down payment and is receiving monthly installments, but profit recognition is deferred until Q4 2010 under the "deposit method."
Investor Verification Checklist
- Backlog Conversion: Verify the ability to convert the 3,600-unit backlog into revenue given the current soft market and potential for order cancellations.
- 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.
- Pension Obligations: Review the funding status of the defined benefit pension and postretirement plans, which have significant unfunded liabilities ($15.5 million and $63.3 million respectively as of Dec 31, 2009).
- Credit Facility Covenants: Confirm continued compliance with financial covenants (minimum fixed charge coverage ratio) under the $110 million credit facilities, especially given the current operating loss.
- Johnstown Facility Sale: Track the progress of the Johnstown facility sale to ensure the anticipated $422,000 gain is recognized as expected in Q4 2010.