CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains certain forward-looking statements
including, in particular, statements about our plans, strategies and prospects.
We have used the words "may," "will," "expect," "anticipate," "believe,"
"estimate," "plan," "likely," "unlikely," "intend" and similar expressions in
this report to identify forward-looking statements. We have based these
forward-looking statements on our current views with respect to future events
and financial performance. However, forward-looking statements inherently
involve risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements. These risks
and uncertainties relate to, among other things, risks relating to the potential
financial and operational impacts of the COVID-19 pandemic, the cyclical nature
of our business, the competitive nature of our industry, our reliance upon a
small number of customers that represent a large percentage of our sales, the
variable purchase patterns of our customers and the timing of completion,
delivery and customer acceptance of orders, fluctuating costs of raw materials,
including steel and aluminum, and delays in the delivery of raw materials, the
risk of lack of acceptance of our new railcar offerings by our customers, risks
relating to our relationship with our unionized employees and their unions and
other competitive factors. The factors listed above are not exhaustive. Other
sections of this quarterly report on Form 10-Q include additional factors that
could materially and adversely affect our business, financial condition and
results of operations. New factors emerge from time to time and it is not
possible for management to predict the impact of all of these factors on our
business, financial condition or results of operations or the extent to which
any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. Given these
risks and uncertainties, investors should not rely on forward-looking statements
as a prediction of actual results. We expressly disclaim any duty to provide
updates to forward-looking statements, and the estimates and assumptions
associated with them, in order to reflect changes in circumstances or
expectations or the occurrence of unanticipated events except to the extent
required by applicable securities laws.
OVERVIEW
You should read the following discussion in conjunction with our condensed
consolidated financial statements and related notes included elsewhere in this
quarterly report on Form 10-Q. This discussion contains forward-looking
statements that are based on management's current expectations, estimates and
projections about our business and operations. Our actual results may differ
materially from those currently anticipated and expressed in such
forward-looking statements. See "Cautionary Statement Regarding Forward-Looking
Statements."
We are a diversified manufacturer of railcars and railcar components. We design
and manufacture a broad variety of railcar types for transportation of bulk
commodities and containerized freight products primarily in North America. We
rebuild and convert railcars and sell forged, cast and fabricated parts for all
of the railcars we produce, as well as those manufactured by others. We also
lease freight cars. Our primary customers are financial institutions, railroads
and shippers.
During 2019, we entered into a joint venture arrangement with Fabricaciones y
Servicios de México, S.A. de C.V. ("Fasemex"), a Mexican company with operations
in both Mexico and the United States, to manufacture railcars in Castaños,
Coahuila, Mexico ("Castaños"), in exchange for a 50% interest in the operation.
Production of railcars at the facility began during the third quarter of 2020.
On October 16, 2020, we acquired Fasemex's 50% ownership in the joint venture.
As of March 2021, we moved all of our production to the Castaños facility.
We ceased operations at the Roanoke Facility and vacated the facility as of
March 31, 2020. On September 10, 2020, we announced our plan to permanently
close the Shoals Facility in light of the ongoing cyclical industry downturn,
which has been magnified by the global pandemic. The closure will reduce costs
and align our manufacturing capacity with the current rail car market. We ceased
production at the Shoals Facility in February 2021.
Total new orders received for railcars for the six months ended June 30, 2021
were 1,433 units, consisting of 800 new railcars and 633 rebuilt railcars,
compared to orders for 300 units, all of which were rebuilt railcars for the six
months ended June 30, 2020. Total backlog of unfilled orders was 2,200 units at
June 30, 2021, compared to 1,389 railcars as of December 31, 2020. The estimated
sales value of the backlog was $224 million and $146 million, respectively, as
of June 30, 2021 and December 31, 2020. The increase in the number of orders for
new railcars for the six months ended June 30, 2021 compared to the prior year
period is a reflection of improvement in the railcar equipment market.
Since first being reported in December 2019, the global pandemic continues to
create a general disruption in the world economy. We are closely monitoring and
managing the impacts of the global pandemic on our business, as well as the
significant decline in global economic activity, and governmental reactions to
the pandemic. The United States government and the Mexico Federal Ministry of
Health and Federal Ministry of Communications and Transportation cited the
railcar industry as critical to the United States and
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Mexico's response efforts to the pandemic. The railcar industry is susceptible
to a reduction in demand associated with the overall economic slowdown caused by
the virus. In addition, public health organizations and national, state and
local governments have implemented measures to combat the spread of COVID-19,
including restrictions on movement such as quarantines, "stay-at-home" orders
and social distancing ordinances and restricting or prohibiting some forms of
business activity. Accordingly, our ability to predict industry demand and
establish forecasts for sales, operating results and cash flows may be impacted.
Furthermore, our plant operations and supply chain are potentially susceptible
to large-scale outbreaks of the virus within our workforce or that of any of our
suppliers.
Our management is focused on mitigating the impact of COVID-19 on our business
and the risk to our employees. We have taken a number of precautionary measures
including implementing detailed cleaning and disinfecting processes at our
facilities, adhering to social distancing protocols, suspending non-essential
air travel and encouraging employees to work remotely, when possible.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2021 compared to Three Months Ended June 30, 2020
Revenues
Our consolidated revenues for the three months ended June 30, 2021 were $37.4
million compared to $17.5 million for the three months ended June 30, 2020.
Manufacturing segment revenues for the three months ended June 30, 2021 were
$35.2 million compared to $15.1 million for the corresponding prior year
quarter. The $20.0 million increase in Manufacturing segment revenues was
largely driven by an increase in the volume of railcar units delivered, the
impact of which was partially offset by a lower average selling price for
railcars in 2021. Railcar deliveries totaled 313 units for the second quarter of
2021,all of which were new railcars, compared to 100 units, all of which were
new railcars, in the second quarter of 2020. Corporate and Other revenues were
$2.2 million for the three months ended June 30, 2021 compared to $2.3 million
for the three months ended June 30, 2020.
Gross Profit (Loss)
Our consolidated gross profit was $3.6 million for the three months ended
June 30, 2021 compared to a gross loss of $6.1 million for the three months
ended June 30, 2020. Manufacturing segment gross profit was $2.8 million for the
three months ended June 30, 2021 compared to a gross loss of $6.4 million for
the three months ended June 30, 2020. The $9.8 million increase in consolidated
gross profit and $9.2 million increase in Manufacturing segment gross profit
reflect a favorable volume variance and a reduction in overhead costs due to the
restructuring of our manufacturing footprint.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses for the three months
ended June 30, 2021 were $6.3 million compared to $6.5 million for the three
months ended June 30, 2020. Consolidated selling, general and administrative
expenses for the three months ended June 30, 2021 included decreases in
incentive compensation of $0.5 million, bad debt expense of $0.3 million and
research and development costs of $0.2 million which were partially offset by
increases in stock compensation of $0.5 million. Manufacturing segment selling,
general and administrative expenses were $0.9 million for the three months ended
June 30, 2021, compared to $1.7 million for the three months ended June 30,
2020, and the change was primarily due to decreases in allocated costs.
Manufacturing segment selling, general and administrative expenses for the three
months ended June 30, 2021 were 2.7% of revenue, compared to 11.3% of revenue
for the three months ended June 30, 2020. Corporate and Other selling, general
and administrative expenses were $5.4 million for the three months ended
June 30, 2021 compared to $4.8 million for the three months ended June 30, 2020.
Corporate and Other selling, general and administrative expenses for the three
months ended June 30, 2021 included increases in allocated costs of $1.0 million
and stock-based compensation expenses of $0.5 million, which were partially
offset by decreases in incentive compensation of $0.5 million and decreases in
research and development costs and bad debt expense.
Restructuring and Impairment Charges
Restructuring and impairment charges were not material for the three months
ended June 30, 2021 or 2020.
Operating Loss
Our consolidated operating loss for the three months ended June 30, 2021 was
$2.5 million compared to $12.9 million for the three months ended June 30, 2020.
Operating income for the Manufacturing segment was $1.9 million for the three
months ended June 30, 2021 compared to an operating loss of $8.3 million for the
three months ended June 30, 2020, reflecting increases in Manufacturing segment
gross profit of $9.2 million and previously described decreases in selling,
general and administrative expenses of $0.8 million
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compared to the 2020 period. Corporate and Other operating loss was $4.4 million
for the three months ended June 30, 2021 compared to $4.6 million for the three
months ended June 30, 2020,
Income Taxes
Our income tax provision was $0.5 million for the three months ended June 30,
2021 and our effective tax rate was (24.4)%. Our effective tax rate for the
three months ended June 30, 2020 was 0.0%.
Net Loss
As a result of the changes and results discussed above, net loss was $2.6
million for the three months ended June 30, 2021 compared to $12.8 million for
the three months ended June 30, 2020. For the three months ended June 30, 2021,
basic and diluted net loss per share was $0.13 compared to $0.97 for the three
months ended June 30, 2020.
Six Months Ended June 30, 2021 compared to Six Months Ended June 30, 2020
Revenues
Our consolidated revenues for the six months ended June 30, 2021 were $69.7
million compared to $22.7 million for the six months ended June 30, 2020.
Manufacturing segment revenues for the six months ended June 30, 2021 were $65.2
million compared to $18.1 million for the six months ended June 30, 2020. The
$47.1 million increase in Manufacturing segment revenues was largely driven by
an increase in the volume of railcar units delivered, the impact of which was
partially offset by a lower average selling price for railcars in 2021. Railcar
deliveries totaled 622 units for the first half of 2021, consisting of 473 new
railcars and 149 rebuilt railcars, compared to 111 units, all of which were new
railcars, in the first half of 2020. Corporate and Other revenues were $4.5
million for the six months ended June 30, 2021 compared to $4.6 million for the
six months ended June 30, 2020.
Gross Profit (Loss)
Our consolidated gross profit was $6.2 million for the six months ended June 30,
2021 compared to a gross loss of $14.9 million for the six months ended June 30,
2020. Manufacturing segment gross profit was $5.1 million for the six months
ended June 30, 2021 compared to a gross loss of $15.7 million for the six months
ended June 30, 2020. The $21.2 million increase in consolidated gross profit and
$20.8 million increase in Manufacturing segment gross profit reflect a favorable
volume variance and a reduction in overhead costs due to the restructuring of
our manufacturing footprint.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses for the six months
ended June 30, 2021 were $15.4 million compared to $13.9 million for the six
months ended June 30, 2020. Consolidated selling, general and administrative
expenses for the six months ended June 30, 2021 included increases in
stock-based compensation expenses of $2.9 million and legal costs of $0.5
million, which were partially offset by decreases in salaries and wages of $0.8
million, medical insurance costs of $0.5 million and bad debt expense of $0.5
million. Manufacturing segment selling, general and administrative expenses were
$1.5 million for the six months ended June 30, 2021, compared to $3.3 million
for the six months ended June 30, 2020, and the decrease was primarily due to
decreases in allocated costs, salaries and wages and the provision for doubtful
accounts. Manufacturing segment selling, general and administrative expenses for
the six months ended June 30, 2021 were 2.2% of revenue, compared to 18.2% of
revenue for the six months ended June 30, 2020. Corporate and Other selling,
general and administrative expenses were $14.0 million for the six months ended
June 30, 2021 compared to $10.7 million for the six months ended June 30, 2020.
Corporate and Other selling, general and administrative expenses for the six
months ended June 30, 2021 included increases in stock-based compensation
expenses of $2.9 million, allocated costs of $1.9 million and legal costs of
$0.5 million, which were partially offset by decreases in salaries and wages of
$0.5 million and medical insurance costs of $0.5 million.
Restructuring and Impairment Charges
On September 10, 2020, we announced our plan to permanently close our Shoals
facility in light of the ongoing cyclical industry downturn, which has been
magnified by the COVID-19 pandemic. On October 8, 2020, we reached an agreement
with the Shoals facility owner and landlord to shorten the Shoals lease term by
amending the expiration date to the end of February 2021. In addition, the
landlord agreed to waive the base rent payable under the original lease for the
months of October 2020 through February 2021. Property, plant and equipment with
an estimated fair value of $10.1 million was sold or transferred to the Shoals
landlord during the six months ended June 30, 2021 as consideration for the
landlord's entry into the lease amendment and the aforementioned rent waiver.
Restructuring and impairment charges of $6.5 million related to the plant
closure for the six months ended June 30, 2021
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primarily represented costs related to relocating some of the facility's
equipment to Castaños as well as shutting down the Shoals facility.
On July 22, 2019, we announced our intention to close our Roanoke, Virginia
manufacturing facility as part of our "Back to Basics" strategy. We ceased
operations at the facility as of November 29, 2019 and terminated our leases for
the facility effective as of March 31, 2020. Restructuring and impairment
charges of $1.1 million related to the plant closure for the six months ended
June 30, 2020 primarily represented impairment charges for property, plant and
equipment and costs related to relocating some of the facility's equipment to
other manufacturing locations.
Operating Loss
Our consolidated operating loss for the six months ended June 30, 2021 was $15.7
million compared to $30.0 million for the six months ended June 30, 2020 .
Operating loss for the Manufacturing segment was $2.9 million compared to $20.1
million for the six months ended June 30, 2020, reflecting increases in
Manufacturing segment gross profit of $20.8 million and previously described
decreases in selling, general and administrative expenses of $1.8 million, which
were partially offset by increases in Manufacturing segment restructuring and
impairment charges of $5.4 million, compared to the 2020 period. Corporate and
Other operating loss was $12.9 million for the six months ended June 30, 2021
compared to $9.9 million for the six months ended June 30, 2020, primarily due
to the previously described $3.3 million increase in selling, general and
administrative expenses.
Income Taxes
Our income tax provision was $0.6 million for the six months ended June 30, 2021
and our effective tax rate was (1.6)% for the six months ended June 30, 2021.
Our effective tax rate for the six months ended June 30, 2020 was 0.0%.
Net Loss
As a result of the changes and results discussed above, net loss was $40.4
million for the six months ended June 30, 2021 compared to $29.7 million for the
six months ended June 30, 2020. For the six months ended June 30, 2021, basic
and diluted net loss per share was $2.01 compared to $2.26 for the six months
ended June 30, 2020.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are our cash and cash equivalent balances on
hand and our credit and debt facilities outlined below.
The Company manufactures and provides essential products and services to a
variety of critical infrastructure customers, and it intends to continue
providing its products and services to these customers. The extent of the impact
of the COVID-19 pandemic on the Company's operational and financial performance
will depend on future developments, including the duration and spread of the
pandemic and related actions taken by the U.S. and Mexico governments, state and
local government officials, and other international governments to prevent
disease spread, all of which are uncertain and cannot be predicted. Accordingly,
our ability to predict industry demand and establish forecasts for sales,
operating results and cash flows may be impacted.
SBA Paycheck Protection Program Loan
In March 2020, Congress passed the Paycheck Protection Program ("PPP"),
authorizing loans to small businesses for use in paying employees that they
continue to employ throughout the COVID-19 pandemic and for rent, utilities and
interest on mortgages. In June 2020, Congress enacted the Paycheck Protection
Program Flexibility Act ("PPPFA"), amending the PPP.
Loans obtained through the PPP, as amended, are eligible to be forgiven as long
as the proceeds are used for qualifying purposes and certain other conditions
are met. On April 16, 2020, the Company received a loan from BMO Harris Bank
N.A. in the amount of $10.0 million through the PPP (the "PPP Loan"). Since the
entire loan was used for payroll, utilities and interest, management anticipated
that the majority of the PPP Loan would be forgiven. The Company filed an
application for PPP Loan forgiveness on October 28, 2020 along with a request
for extension of the term of the PPP Loan to five years.
On July 14, 2021, the Company received a notification from BMO Harris Bank N.A.
that the Small Business Administration approved the Company's PPP Loan
forgiveness application for the entire $10.0 million balance, together with
interest accrued thereon, of the PPP Loan and that the remaining balance of the
PPP Loan was zero as of June 14, 2021. Since loan forgiveness was approved
subsequent to June 30, 2021 the $10.0 million balance of the PPP Loan is
included in the current portion of long-term debt on the
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Company's condensed consolidated balance sheet as of June 30, 2021. The Company
will recognize PPP Loan forgiveness during the third quarter of 2021
Siena Loan and Security Agreement
On October 8, 2020, the Company entered into a Loan and Security Agreement (the
"Siena Loan Agreement") by and among the Company, as guarantor, and certain of
its subsidiaries, as borrowers (together with the Company, the "Loan Parties"),
and Siena Lending Group LLC, as lender ("Siena"). Pursuant to the Siena Loan
Agreement, Siena provided an asset backed credit facility, in the maximum
aggregate principal amount of up to $20.0 million, consisting of revolving
loans.
The Siena Loan Agreement replaced the Company's prior revolving credit facility
under the Credit and Security Agreement (the "BMO Credit Agreement") dated as of
April 12, 2019, among the Company and certain of its subsidiaries, as borrowers
and guarantors, and BMO Harris Bank N.A., as lender, as amended from time to
time, which was terminated effective October 8, 2020 and otherwise would have
matured on April 12, 2024.
The Siena Loan Agreement has a term ending on October 8, 2023. Revolving loans
outstanding thereunder bear interest, subject to the provisions of the Siena
Loan Agreement, at the Base Rate (as defined in the Siena Loan Agreement) plus
3.00% per annum. As of June 30, 2021, the interest rate on outstanding debt
under the Siena Loan Agreement was 6.26%.
The Siena Loan Agreement provides for a revolving credit facility with maximum
availability of $20.0 million, subject to borrowing base requirements set forth
in the Siena Loan Agreement, which generally limit availability under the
revolving credit facility to (a) 85% of the value of eligible accounts and (b)
up to the lesser of (i) 50% of the lower of cost or market value of eligible
inventory and (ii) 85% of the net orderly liquidation value of eligible
inventory, and as reduced by reserves established by Siena from time to time in
accordance with the Siena Loan Agreement.
The Siena Loan Agreement contains affirmative and negative covenants, including
limitations on future indebtedness, liens and investments. The Siena Loan
Agreement also provides for customary events of default. Pursuant to the terms
and conditions set forth in the Siena Loan Agreement, each of the Loan Parties
granted Siena a continuing lien upon certain assets of the Loan Parties to
secure the obligations of the Loan Parties under the Siena Loan Agreement.
As of June 30, 2021, the Company had $2.6 million in outstanding debt under the
Siena Loan Agreement and less than $0.1 million in remaining borrowing
availability. The Company incurred $1.1 million in deferred financing costs
related to the Siena Loan Agreement. The deferred financing costs are presented
as an asset and amortized on a straight-line basis to interest expense over the
term of the Siena Loan Agreement.
On July 30, 2021, the Loan Parties and the Revolving Loan Lender entered into an
Amended and Restated Loan and Security Agreement (the "Amended and Restated Loan
and Security Agreement"), which amended and restated the terms and conditions of
the Siena Loan Agreement in its entirety.
Pursuant to the Amended and Restated Loan and Security Agreement, the Maximum
Revolving Facility Amount was increased to $25.0 million, provided, however,
that the outstanding balance of all Revolving Loans may not exceed the lesser of
(A) the Maximum Revolving Facility Amount minus the Availability Block and (B)
an amount equal to the issued and undrawn portion of the Third Amendment Letter
of Credit (as defined above) minus the Availability Block. The term
"Availability Block", as defined in the Amended and Restated Loan and Security
Agreement, means 3.0% of the issued and undrawn amount under the Third Amendment
Letter of Credit.
Revolving Loans outstanding under the Amended and Restated Loan and Security
Agreement bear interest, subject to the provisions of the Amended and Restated
Loan and Security Agreement, at an interest rate of 2% per annum in excess of
the Base Rate (as defined in the Siena Loan Agreement).
Term Loan Credit Agreement
On October 13, 2020, the Company entered into a Credit Agreement (the "Term Loan
Credit Agreement") by and among the Company, as guarantor, FreightCar North
America ("Borrower" and together with the Company and certain other subsidiary
guarantors, collectively, the "Loan Parties"), CO Finance LVS VI LLC, as lender
(the "Lender"), and U.S. Bank National Association, as disbursing agent and
collateral agent ("Agent"). Pursuant to the Term Loan Credit Agreement, the
Lender committed to the extension of a term loan credit facility in the
principal amount of $40.0 million, consisting of a single term loan to be funded
upon the satisfaction of certain conditions precedent set forth in the Term Loan
Credit Agreement, including stockholder approval of the issuance of the common
stock underlying the Warrant described below (the funding date of such term
loan, the "Closing Date").
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FreightCar America, Inc. stockholders approved the issuance of the common stock
underlying the Warrant at a special stockholders' meeting on November 24, 2020.
The $40.0 million term loan closed and was funded on November 24, 2020. The
Company incurred $2.9 million in deferred financing costs related to the Term
Loan Agreement. The deferred financing costs are presented as a reduction to the
long-term debt balance and amortized to interest expense on a straight-line
basis over the term of the Term Loan Agreement.
The Term Loan Credit Agreement has a term ending five years following the
Closing Date. The term loan outstanding under the Term Loan Credit Agreement
bears interest, at Borrower's option and subject to the provisions of the Term
Loan Credit Agreement, at Base Rate (as defined in the Term Loan Credit
Agreement) or Eurodollar Rate (as defined in the Term Loan Credit Agreement)
plus the Applicable Margin (as defined in the Term Loan Credit Agreement) for
each such interest rate set forth in the Term Loan Credit Agreement. As of June
30, 2021, the interest rate on outstanding debt under the Term Loan Credit
Agreement was 14.0%.
The Term Loan Credit Agreement has both affirmative and negative covenants,
including minimum liquidity, limitations on indebtedness, liens and investments.
The Term Loan Credit Agreement also provides for customary events of default.
Pursuant to the terms and conditions set forth in the Term Loan Credit Agreement
and the related loan documents, each of the Loan Parties granted to Agent a
continuing lien upon all of such Loan Parties' assets to secure the obligations
of the Loan Parties under the Term Loan Credit Agreement.
On May 14, 2021, FreightCar North America ("Borrower" and together with the
Company and certain other subsidiary guarantors, collectively, the "Loan
Parties") entered into an Amendment No. 2 to the Term Loan Credit Agreement (the
"Amendment" and together with the Term Loan Credit Agreement, the "Term Loan
Credit Agreement") with CO Finance LVS VI LLC, as lender (the "Lender"), an
affiliate of a corporate credit fund, and U.S. Bank National Association, as
disbursing agent and collateral agent ("Agent"), pursuant to which the principal
amount of the term loan credit facility was increased by $16.0 million to a
total of $56.0 million, with such additional $16.0 million (the "Additional
Loan") to be funded upon the satisfaction of certain conditions precedent set
forth in the Amendment. The Additional Loan closed and was funded on May 17,
2021. The Company incurred $0.5 million in deferred financing costs related to
the Amendment which are presented as a reduction of the long-term debt balance
and amortized on a straight-line basis to interest expense over the term of the
Amendment.
The Additional Loan will bear interest, at Borrower's option and subject to the
provisions of the Term Loan Credit Agreement, at Base Rate (as defined in the
Term Loan Credit Agreement) or Eurodollar Rate (as defined in the Term Loan
Credit Agreement) plus the Applicable Margin (as defined in the Term Loan Credit
Agreement) for each such interest rate set forth in the Term Loan Credit
Agreement. As of June 30, 2021, the interest rate on the Additional Loan was
14.75%.
Pursuant to the Amendment, in the event that the Additional Loan is not repaid
in full by March 31, 2022, the Company shall issue to the Lender and/or an
affiliate of the Lender a warrant (the "Additional Warrant") to purchase a
number of shares of the Company's common stock, par value $0.01 per share, equal
to 5% of the Company's outstanding common stock on a fully-diluted basis at the
time the Additional Warrant is exercised (after giving effect to such
issuance). The Additional Warrant, if issued, will have an exercise price of
$0.01 and a term of ten years.
The Amendment contains additional covenants, including, among other things, that
the Company i) obtain a term sheet for additional financing of no less than
$15.0 million by July 31, 2021 and ii) file a registration statement on Form S-3
registering Company securities, including the shares of Company common stock
issuable upon exercise of the Additional Warrants, by no later than August 31,
2021.
On July 30, 2021, FreightCar North America, LLC ("Borrower" and together with
the Company and certain other subsidiary guarantors, collectively, the "Loan
Parties") entered into an Amendment No. 3 to Credit Agreement (the "Third
Amendment" and together with the Credit Agreement, as amended, the "Term Loan
Credit Agreement") with CO Finance LVS VI LLC, as lender and letter of credit
provider (the "Lender"), an affiliate of a corporate credit fund, and U.S. Bank
National Association, as disbursing agent and collateral agent (the "Agent"),
pursuant to which, among other things, Lender obtained a standby letter of
credit (as may be amended from time to time, the "Third Amendment Letter of
Credit") from Wells Fargo Bank, N.A., in the principal amount of $25.0 million
for the account of the Company and for the benefit of Siena Lending Group LLC
(the "Revolving Loan Lender").
Pursuant to the Third Amendment, on July 30, 2021, the Company, the Lender,
Alter Domus (US) LLC, as calculation agent, and the Agent entered into a
reimbursement agreement (the "Reimbursement Agreement"), pursuant to which,
among other things, the Company agreed to reimburse the Agent, for the account
of the Lender, in the event of any drawings under the Third Amendment Letter of
Credit by the Revolving Loan Lender.
In addition, pursuant to the Reimbursement Agreement, the Company shall make
certain other payments as set forth below, so long as the Third Amendment Letter
of Credit remains outstanding:
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Letter of Credit Fee
The Company shall pay to Agent, for the account of Lender, an annual fee of
$500,000, which shall be due and payable quarterly beginning on August 2, 2021,
and every three months thereafter.
Equity Fee
Every three months (the "Measurement Period"), commencing on August 6, 2021, the
Company shall pay to the Lender (or, so long as Lender is the sole provider of
the Third Amendment Letter of Credit, to OC III LVS XII LP, if Lender has timely
notified the Company in writing of such designation) a fee (the "Equity Fee")
payable in shares of common stock, par value $0.01 per share, of the Company
(the "Common Stock"). The Equity Fee shall be calculated by dividing $1.0
million by the volume weighted average price of the Company's Common Stock on
the Nasdaq Capital Market for the ten (10) trading days ending on the last
business day of the applicable Measurement Period. The Company can opt to pay
the Equity Fee in cash, in the amount of $1,000,000, if, and only if, (x) the
Company has already issued as Equity Fees a number of shares of its Common Stock
equal to (I) 5.0% multiplied by (II) the total number of shares of Common Stock
outstanding as of July 30, 2021, rounded down to the nearest whole share of
Common Stock, and (y) the Company has at least $15,000,000 of Repayment
Liquidity after giving effect to such payment. The term Repayment Liquidity, as
defined in the Term Loan Credit Agreement, means (a) all unrestricted and
unencumbered cash and cash equivalents of the Loan Parties, plus (b) the undrawn
and available portion of the commitments under that certain Amended and Restated
Loan and Security Agreement by and among the Loan Parties and the Revolving Loan
Lender (as described below), minus (c) all accounts payable of the Loan Parties
that are more than 30 days past due.
The Equity Fee shall no longer be paid once the Company has issued to Lender
and/or OC III LVS XII LP Equity Fees in an amount of Common Stock equal to 9.99%
multiplied by the total number of shares of Common Stock outstanding as of July
30, 2021, rounded down to the nearest whole share of Common Stock (the "Maximum
Equity").
The issuance of each Equity Fee under the Reimbursement Agreement will be made
in reliance on the exemption from registration contained in Section 4(a)(2) of
the Securities Act for offers and sales of securities that do not involve a
"public offering."
Cash Fee
The Company shall pay to the Agent, for the account of the Lender (or, so long
as the Lender is the sole provider of the Third Amendment Letter of Credit, to
OC III LVS XII LP, if the Lender has timely notified the Company in writing of
such designation) a cash fee (the "Cash Fee") which shall be due and payable in
cash quarterly beginning on the date that the Maximum Equity has been issued and
thereafter on the business day immediately succeeding the last business day of
the applicable Measurement Period. The Cash Fee shall be equal to $1,000,000,
provided that, in the quarter in which the Maximum Equity is issued, such fee
shall be equitably reduced by the value of any Equity Fee issued by the Company
that quarter.
Warrant
In connection with the entry into the Term Loan Credit Agreement, the Company
issued to an affiliate of the Lender (the "Warrantholder") a warrant (the
"Warrant"), pursuant to that certain warrant acquisition agreement, dated as of
October 13, 2020 (the "Warrant Acquisition Agreement"), by and between the
Company and the Lender to purchase a number of shares of the Company's common
stock, par value $0.01 per share, equal to 23% of the outstanding common stock
on a fully-diluted basis at the time the Warrant is exercised (after giving
effect to such issuance). The Warrant is exercisable for a term of ten years
from the date of the issuance of the Warrant. The Warrant was issued on
November 24, 2020 after the Company received stockholder approval of the
issuance of the common stock issuable upon exercise of the Warrant by the
Warrantholder. In connection with the issuance of the Warrant, the Company and
the Lender entered into a registration rights agreement (the "Registration
Rights Agreement") as of the Closing Date of November 24, 2020. As of June 30,
2021 and December 31, 2020, the Warrant was exercisable for an aggregate of
5,305,140 and 5,307,539 shares, respectively, of common stock of the Company
with a per share exercise price of $0.01. The Company determined that the
Warrant should be accounted for as a derivative instrument and classified as a
liability on its Consolidated Balance Sheets primarily due to the instrument
obligating the Company to settle the Warrant in a variable number of shares of
common stock. The Warrant was recorded as a liability at fair value and is
treated as a discount on the associated debt. The discount on the associated
debt is amortized over the life of the Term Loan Credit Agreement and included
in interest expense.
As part of the Second Amendment Loans executed on May 14, 2021, if any amount
remains outstanding on March 31, 2022, the Company shall immediately issue to
the Lenders additional Warrants to purchase 5.0% of the outstanding common stock
on a fully-diluted basis at the date of any partial or full exercise of such
Warrants at the agreed purchase price of $0.01 per share.
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M&T Credit Agreement
On April 16, 2019, FreightCar America Leasing 1, LLC, an indirect wholly-owned
subsidiary of the Company ("Freightcar Leasing Borrower"), entered into a Credit
Agreement (the "M&T Credit Agreement") with M & T Bank, N.A., as lender ("M&T").
Pursuant to the M&T Credit Agreement, M&T extended a revolving credit facility
to Freightcar Leasing Borrower in an aggregate amount of up to $40.0 million for
the purpose of financing railcars which will be leased to third parties.
On April 16, 2019 Freightcar Leasing Borrower also entered into a Security
Agreement (the "M&T Security Agreement") pursuant to which it granted a security
interest in all of its assets to M&T to secure its obligations under the M&T
Credit Agreement.
On April 16, 2019, FreightCar America Leasing, LLC, a wholly-owned subsidiary of
the Company and parent of Freightcar Leasing Borrower ("Freightcar Leasing
Guarantor"), entered into (i) a Guaranty Agreement (the "M&T Guaranty
Agreement") pursuant to which Freightcar Leasing Guarantor guarantees the
repayment and performance of certain obligations of Freightcar Leasing Borrower
and (ii) a Pledge Agreement (the "M&T Pledge Agreement") pursuant to which
Freightcar Leasing Guarantor pledged all of the equity of Freightcar Leasing
Borrower held by Freightcar Leasing Guarantor.
The loans under the M&T Credit Agreement are non-recourse to the assets of the
Company or its subsidiaries other than the assets of Freightcar Leasing Borrower
and Freightcar Leasing Guarantor.
The M&T Credit Agreement had a term ending on April 16, 2021 (the "Term End".
Loans outstanding thereunder will bear interest, accrued daily, at the Adjusted
LIBOR Rate (as defined in the M&T Credit Agreement) or the Adjusted Base Rate
(as defined in the M&T Credit Agreement).
The M&T Credit Agreement has both affirmative and negative covenants, including,
without limitation, maintaining an Interest Coverage Ratio (as defined in the
M&T Credit Agreement) of not less than 1.25:1.00, measured quarterly, and
limitations on indebtedness, loans, liens and investments. The M&T Credit
Agreement also provides for customary events of default. As of June 30, 2021 and
December 31, 2020, FreightCar Leasing Borrower had $10.5 million and $10.1
million, respectively, in outstanding debt under the M&T Credit Agreement which
was collateralized by leased railcars with a carrying value of $6.9 million and
$7.0 million, respectively. As of June 30, 2021, the interest rate on
outstanding debt under the M&T Credit Agreement was 4.18%.
On August 7, 2020, FreightCar Leasing Borrower received notice (the "First
Notice") from M&T Bank, N.A. ("M&T") that, based on an appraisal (the
"Appraisal") conducted by a third party at the request of M&T with respect to
the railcars in FreightCar Leasing Borrower's Borrowing Base (as defined in the
M&T Credit Agreement) under the M&T Credit Agreement, the unpaid principal
balance under the M&T Credit Agreement exceeded the availability under the M&T
Credit Agreement as of the date of the Appraisal by $5.1 million (the "Payment
Demand Amount"). In the First Notice, M&T Bank: (a) asserted that an Event of
Default under the M&T Credit Agreement has occurred because FreightCar Leasing
Borrower did not pay the Payment Demand Amount to M&T within five days of the
asserted change in availability; (b) demanded payment of the amount within five
days of the date of the First Notice; and (c) terminated the commitment to
advance additional loans under the M&T Credit Agreement.
On December 18, 2020, FreightCar Leasing Borrower received a revised notice (the
"Second Notice," and together with the First Notice, the "Notices") from M&T
asserting that: (a) as a result of the continuing Event of Default that M&T
alleged to have occurred under the M&T Credit Agreement, M&T has declared a
default and accelerated and demands immediate payment by FreightCar Leasing
Borrower of $10.1 million (the "Outstanding Amount"); (b) FreightCar Leasing
Borrower is liable for all interest that continues to accrue on the Outstanding
Amount; and (c) FreightCar Leasing Borrower is liable for all attorneys' fees,
costs and expenses as set forth in the M&T Credit Agreement.
On April 20, 2021, FreightCar Leasing Borrower received a notice from M&T that
an Event of Default had occurred due to all amounts outstanding under the M&T
Credit Agreement having not be paid by the Term End. FreightCar Leasing Borrower
has resumed discussions with M&T during the quarter ended June 30, 2021
regarding the Event of Default.
Additional Liquidity Factors
Our restricted cash, restricted cash equivalents and restricted certificates of
deposit balances were $7.2 million and $10.6 million as of June 30, 2021 and
December 31, 2020, respectively. Restricted deposits of $0.3 million and $3.2
million as of June 30, 2021 and December 31, 2020, respectively relate to a
customer deposit for purchase of railcars. Restricted deposits of $6.7 million
and $7.4 million as of June 30, 2021 and December 31, 2020 respectively are used
to collateralize standby letters of credit with respect to performance
guarantees. The standby letters of credit outstanding as of June 30, 2021 are
scheduled to expire at various dates through December 10, 2021.
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Based on our current level of operations and known changes in planned volume
based on our backlog, we believe that our cash balances will be sufficient to
meet our expected liquidity needs for at least the next twelve months. Our
long-term liquidity is contingent upon future operating performance and our
ability to continue to meet financial covenants under our revolving credit
facilities, our Term Loan Credit Agreement and the PPP Loan and any other
indebtedness and the availability of additional financing if needed. We may also
require additional capital in the future to fund working capital as demand for
railcars increases, payments for contractual obligations, organic growth
opportunities, including new plant and equipment and development of railcars,
joint ventures, international expansion and acquisitions, and these capital
requirements could be substantial.
Based upon our operating performance and capital requirements, we may, from time
to time, be required to raise additional funds through additional offerings of
our common stock and through long-term borrowings such as the $40.0 million term
loan under the Term Loan Credit Agreement. There can be no assurance that
long-term debt, if needed, will be available on terms attractive to us, or at
all. Furthermore, any additional equity financing may be dilutive to
stockholders and debt financing, if available, may involve restrictive
covenants. Our failure to raise capital if and when needed could have a material
adverse effect on our results of operations and financial condition.
Cash Flows
The following table summarizes our net cash provided by (used in) operating
activities, investing activities and financing activities for the six months
ended June 30, 2021 and 2020:
2021 2020
(In thousands)
Net cash (used in) provided by:
Operating activities $ (44,109 ) $ (20,783 )
Investing activities (818 ) (6,925 )
Financing activities 11,610 9,991
Total $ (33,317 ) $ (17,717 )Operating Activities. Our net cash provided by or used in operating activities
reflects net loss adjusted for non-cash charges and changes in operating assets
and liabilities. Cash flows from operating activities are affected by several
factors, including fluctuations in business volume, contract terms for billings
and collections, the timing of collections on our contract receivables,
processing of bi-weekly payroll and associated taxes, payments to our suppliers
and other operating activities. As some of our customers accept delivery of new
railcars in train-set quantities, variations in our sales lead to significant
fluctuations in our operating profits and cash from operating activities. We do
not usually experience business credit issues, although a payment may be delayed
pending completion of closing documentation.
Our net cash used in operating activities for the six months ended June 30, 2021
was $44.1 million compared to net cash used in operating activities of
$20.8 million for the six months ended June 30, 2020. Our net cash used in
operating activities for the six months ended June 30, 2021 reflects changes in
working capital, including increases in VAT receivable of $16.8 million and
inventory of $8.1 million to meet current production needs for the start-up of
several new railcar orders and decreases in customer deposits and deferred
revenue of $6.9 million. Our net cash used in operating activities for the six
months ended June 30, 2020 reflects our net loss and changes in working capital,
including increases in inventory of $27.1 million which were offset by
increases in customer deposits of $27.9 million.
Investing Activities. Net cash used in investing activities for the six months
ended June 30, 2021 was $0.8 million and included capital expenditures of
$1.4 million, related to the construction in progress for our Mexico operations
and the $0.4 million proceeds from sale of equipment from our Shoals facility.
Net cash used in investing activities for the six months ended June 30, 2020 was
$6.9 million, consisting primarily of capital expenditures of $7.0 million,
largely related to the construction in progress for our Mexico operations.
Financing Activities. Net cash provided by financing activities for the six
months ended June 30, 2021 was $11.6 million and included proceeds from issuance
of long-term debt of $16.0 million which were partially offset by net repayments
on revolving line of credit of $3.8 million. Net cash provided by financing
activities was $10.0 million for the six months ended June 30 2020 and consisted
of PPP loan proceeds.
Capital Expenditures
Our capital expenditures were $1.4 million in the six months ended June 30,
2021, compared to $7.0 million in the six months ended June 30, 2020. We
anticipate capital expenditures during 2021 to be in the range of $2 million to
$3 million, primarily related to the construction of our Mexico facility.
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