2010 Annual Report
To Our Customers, Employees, Stockholders and Suppliers:
At the time of my return to FreightCar America in late 2009, the United States and much of the world was in the
midst of a global economic crisis. The economic stress created by this recession persisted throughout 2010 and
our business continued to be impacted by weak demand for railcars.
While market conditions began to show signs of improvement late in the year, deliveries of railcars, especially coal
cars, were at low levels. Our operating results for 2010 reflect that weakness, with revenues of $143 million and
a net loss of $13 million, or $1.07 per diluted share. Given that demand-related factors are largely outside our
control, we addressed the factors that are within our control: optimizing performance through improved efficiency
and cost management. With a dedicated focus on working capital management and a highly-disciplined approach
to investment, we were able to maintain our strong balance sheet while also successfully executing on key strategic
initiatives. We ended the year with cash and marketable securities of approximately $64 million and no debt.
On the strategic front, during the year we acquired and have since successfully integrated the business assets of
DTE Rail Services, Inc. into our FreightCar Rail Services, LLC subsidiary. This acquisition has served to enhance the
value proposition for our customers and stockholders by offering services that address the entire lifecycle of a
railcar, and has been immediately accretive to earnings.
Looking forward, we recognize that there are political uncertainties surrounding the outlook for the use of coal
in North America, yet even a conservative view of future U.S. coal demand indicates that coal will remain a
substantial component of our national energy supply for years to come. Given coal’s prominent ongoing
contribution to electricity generation, we believe our customers will continue to replace aging steel-bodied coal
cars with modern aluminum, stainless steel-bodied, and hybrid coal cars.
In 2011, we will continue to concentrate on factors within our control: maximizing operational efficiency, strict
cost management and preservation of our financial strength and flexibility in anticipation of an improvement in
railcar orders. Strategically, we will continue to explore ways to further improve the efficiency of our railcar service
offerings and will remain alert for possible additional strategic opportunities to enhance our business. We believe
that FreightCar America’s coal car market position, strong balance sheet and strategic initiatives will enable it to
be a more competitive company as we emerge from the downturn.
While 2010 was a difficult year for FreightCar America, I am privileged to lead a resilient and determined group
of people who continually strive to position FreightCar America for long-term success. We appreciate the support
we have received from our customers, stockholders and suppliers and we remain firmly dedicated to our core
missions: supplying quality railcars and railcar services to our customers, providing a rewarding place to work for
our employees and delivering long-term value for our stockholders.
Sincerely,
Edward J. Whalen
P r e s i d e nt a n d C h i e f E x e c u t i v e O f f i c e r
1
A Message from the Chairman of the Board:
On behalf of the Board of Directors, I want to thank our stockholders for their support in 2010. In the face of a
deeply challenging operating and economic environment, FreightCar America’s Board and management have
worked together closely to make the most of 2010: capturing the business available and preserving and
enhancing the strength of the FreightCar America franchise, while making strategic progress toward the future.
Management has done an admirable job of prudently managing the business to retain its strong financial
position and flexibility. At the same time, the Board is pleased to report the successful development of the
FreightCar Rail Services dimension of our business in 2010, with the acquisition of the business assets of DTE
Rail Services, Inc.
In 2011, we expect to work with management to ensure both optimal operating success and prudent strategic
development. We will continue to implement our strategic vision to complement the Company’s historic
strengths in manufacturing with services that address the entire lifecycle of a railcar.
This year we put before you our first advisory vote on executive compensation, and on how often we should
solicit your advisory vote. The Board of Directors values stockholders’ input on the Company’s compensation
philosophy, policies and business objectives. The new say-on-pay vote is an important new channel for
shareholders to communicate with the Board of Directors, and we want to encourage that communication.
We recognize the additional effort that the new say-on-pay vote asks from our stockholders, and we thank you
in advance for that extra effort. Compensation is one of many tools that can be used to further FreightCar
America’s business objectives. The Board will carefully consider the outcome of this advisory vote when
evaluating future executive compensation decisions.
On behalf of the Board, thank you for investing in FreightCar America.
Thomas M. Fitzpatrick
Chairman o f the B o ar d
“FreightCar America through its direct and indirect wholly owned
subsidiaries, manufactures, rebuilds, repairs, maintains, sells, manages
and leases freight cars used for hauling coal, other bulk commodities,
steel and other metals, and motor vehicles.”
2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
⌧
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
or
(cid:133)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-51237
FREIGHTCAR AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
25-1837219
(I.R.S. Employer Identification No.)
Two North Riverside Plaza, Suite 1250, Chicago, Illinois
(Address of principal executive offices)
60606
(Zip Code)
(800) 458-2235
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of class
Common stock, par value $0.01 per share
Name of Each Exchange on Which Registered
Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES (cid:133) NO ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES (cid:133) NO ⌧
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. YES ⌧ NO (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment of this Form 10-K. (cid:133)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). YES (cid:31) NO (cid:31)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.:
Large accelerated filer (cid:133)
Accelerated filer ⌧
Non-accelerated filer (cid:133)
(Do not check if a smaller
reporting company)
Smaller reporting company (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES (cid:133) NO ⌧
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2010 was $267.8
million, based on the closing price of $22.62 per share on the Nasdaq Global Market.
As of February 18, 2011, there were 11,948,266 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Documents
Portions of the registrant’s definitive Proxy Statement for the 2011
annual meeting of stockholders to be filed pursuant to Regulation 14A
within 120 days of the end of the registrant’s fiscal year ended
December 31, 2010.
Part of Form 10-K
Part III
1
FREIGHTCAR AMERICA, INC.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results
of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Page
3
8
15
16
16
17
19
20
32
33
66
66
67
67
67
67
67
67
68
69
PART I
PART II
PART III
PART IV
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
SIGNATURES
2
PART I
Item 1. Business.
OVERVIEW
We and our predecessors have been manufacturing railcars since 1901. We are the leading manufacturer of
aluminum-bodied railcars in North America, based on the number of railcars delivered. We specialize in the
production of coal cars, which represented 90% of our deliveries of railcars in 2010 and 92% of our deliveries of
railcars in 2009. The balance of our production consisted of a broad spectrum of railcar types. We also refurbish
and rebuild railcars and sell forged, cast and fabricated parts for all of the railcars we produce, as well as those
manufactured by others. In addition, in the fourth quarter of 2010, we announced our acquisition of the business
assets of DTE Rail Services, Inc., a non-regulated subsidiary of DTE Energy Company. The acquired business is
now known as FreightCar Rail Services, LLC (“FCRS”). FCRS provides general railcar repair and maintenance,
inspections, and railcar fleet management services for all types of freight railcars. We also lease freight cars through
our JAIX Leasing Company subsidiary.
We are the leading North American manufacturer of coal cars. We estimate that we have manufactured
approximately 60% of the coal cars delivered over the three years ended December 31, 2010 in the North American
market. Our BethGon® railcar has been the leading aluminum-bodied coal car sold in North America for nearly 20
years. Over the last 25 years, we believe we have built and introduced more types of coal cars than all other
manufacturers in North America combined.
Our railcar manufacturing facilities are located in Danville, Illinois and Roanoke, Virginia. Both facilities have the
capability to manufacture a variety of types of railcars, including aluminum-bodied and steel-bodied railcars. In
May 2008, we closed our manufacturing facility located in Johnstown, Pennsylvania. In addition, through our
acquisition of the business assets of DTE Rail Services, Inc., we have repair and maintenance and inspection
facilities in Clinton, Indiana, Grand Island, Nebraska and Hastings, Nebraska.
Our primary customers are railroads, shippers and financial institutions, which represented 63%, 24% and 3%,
respectively, of our total sales attributable to each type of customer for the year ended December 31, 2010. In the
year ended December 31, 2010, we delivered 2,229 railcars, including 1,534 aluminum-bodied coal cars. Our total
backlog of firm orders for railcars increased from 265 railcars as of December 31, 2009 to 2,054 railcars as of
December 31, 2010, representing estimated sales of $25 million and $144 million as of December 31, 2009 and
2010, respectively, attributable to such backlog. In 2008, we began offering railcar leasing and refurbishment
alternatives to our customers, an approach designed to enhance our position as a full service provider to the railcar
industry. Although we continually look for opportunities to package our leased assets for sale to our leasing
company partners, these leased assets may not be converted to sales, and may remain revenue producing assets into
the foreseeable future.
In 2008, we established a joint venture in India for the purpose of designing, building and selling coal cars for use in
India. The joint venture company, Titagarh FreightCar Private Ltd., is seeking approval of a prototype railcar based
on our designs. We continue to explore opportunities in other international markets.
Our Internet website is www.freightcaramerica.com. We make available free of charge on or through our website
items related to corporate governance, including, among other things, our corporate governance guidelines, charters
of various committees of the Board of Directors and our code of business conduct and ethics. Our annual reports on
Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments thereto, are available
on our website and on the SEC’s website at www.sec.gov. Any stockholder of our company may also obtain copies
of these documents, free of charge, by sending a request in writing to Investor Relations at FreightCar America, Inc.,
Two North Riverside Plaza, Suite 1250, Chicago, Illinois 60606.
OUR PRODUCTS AND SERVICES
We design and manufacture aluminum-bodied and steel-bodied railcars that transport a variety of different products.
The types of railcars listed below include the major types of railcars that we are capable of manufacturing; however,
some of the types of railcars listed below have not been ordered by any of our customers or manufactured by us in a
number of years. We refurbish and rebuild railcars and sell forged, cast and fabricated parts for all of the railcars we
produce, as well as those manufactured by others. We also provide general railcar repair and maintenance,
3
inspections and railcar fleet management services for all types of freight-carrying railcars. We manufacture two
primary types of coal cars: gondolas and open-top hoppers. We build all of our coal cars using a patented one-piece
center sill, the main longitudinal structural component of the railcar. The one-piece center sill provides a higher
carrying capacity, but weighs significantly less than traditional multiple-piece center sills. Any of the railcar types
listed below may be further developed to meet the characteristics of the materials being transported and customer
specifications.
• BethGon Series. The BethGon® is the leader in the aluminum-bodied coal gondola railcar segment. Since we
introduced the steel BethGon railcar in the late 1970s and the aluminum BethGon railcar in 1986, the BethGon
railcar has become the most widely used coal car in North America. Our current BethGon II features lighter
weight, higher capacity and increased durability suitable for long-haul coal carrying railcar service. We have
received several patents on the features of the BethGon II and continue to explore ways to increase the BethGon
II’s capacity and further improve its reliability.
• AutoFlood Series. Our aluminum bodied open-top hopper railcar, the AutoFlood™, is a five-pocket coal car
equipped with a bottom discharge gate mechanism. We began manufacturing AutoFlood railcars in 1984, and
introduced the AutoFlood II and AutoFlood III designs in 1996 and 2002, respectively. Both the AutoFlood II
and AutoFlood III design incorporate the automatic rapid discharge system, the MegaFlo™ door system, a
patented mechanism that uses an over-center locking design, enabling the cargo door to close with tension rather
than by compression. Further, AutoFlood railcars can be equipped with rotary couplers to permit rotary
unloading.
• Other Coal Cars. We also manufacture a variety of other types of aluminum and steel-bodied coal cars,
including triple hopper, hybrid aluminum/stainless steel hoppers and gondolas and flat bottom gondola railcars.
• Other Railcar Types.
Our portfolio of other railcar types includes the following: the AVC™ Aluminum Vehicle Carrier design used to
transport commercial and light vehicles (automobiles and trucks) from assembly plants and ports to rail
distribution centers; the Articulated Bulk Container railcar designed to carry dense bulk products such as waste
products in 20 foot containers; Intermodal Double Stack railcars, including a stand-alone, 40 foot well car and the
DynaStack® articulated, 5-unit, 40 foot well car for transportation of international containers; a Small Cube
Covered Hopper railcar used to transport high density products such as roofing granules, fly ash, sand and cement;
a Mill Gondola Railcar used to transport steel products and scrap; Slab and Coil steel railcars designed
specifically for transportation of steel slabs and coil steel products, respectively; Flat Railcars, Bulkhead Flat
Railcars and Centerbeam Flat Railcars designed to transport a variety of products, including machinery and
equipment, steel and structural steel components (including pipe), forest products and other bulky industrial
products; a Woodchip Gondola Railcar designed to haul woodchips and municipal waste or other high-volume,
low-density commodities; and a variety of non-coal carrying open top hopper railcars designed to carry
aggregates, iron ore, taconite pellets, petroleum coke and other bulk commodities. For example, our VersaFlood™
aggregate car features the MegaFlo IA™ independent automatic door system with an optional hybrid
aluminum/carbon steel body design.
• International Railcar Designs. We have established a licensing arrangement with a railcar manufacturer in
Brazil pursuant to which our technology is used to produce various types of railcars in Brazil. In addition, we
manufacture coal cars for export to Latin America and have manufactured intermodal railcars for export to the
Middle East. Railroads outside of North America have a variety of track gauges that are sized differently than in
North America, which requires us, in some cases, to alter manufacturing specifications for foreign sales.
We have added 13 new or redesigned products to our portfolio in the last five years, including the AVC, slab and
coil steel railcar, triple hopper and hybrid aluminum/stainless steel railcars, ore cars, ballast cars and aggregate cars.
Focused product development activity continues in areas where we can leverage our technical knowledge base and
capabilities to realize market opportunities.
With operations in Colorado, Indiana and Nebraska, we service freight cars and unit coal trains utilizing key rail
corridors in the Midwest and Western regions of the United States. Separately, we also sell forged, cast and
fabricated replacement parts for all of the railcars we produce, as well as those manufactured by others.
4
MANUFACTURING
We operate railcar production facilities in Danville, Illinois and Roanoke, Virginia. Our Danville and Roanoke
facilities are each certified or approved for certification by the Association of American Railroads, (“AAR”) which
sets railcar manufacturing industry standards for quality control. At our Danville and Roanoke facilities, we will
continue to adjust salaried and hourly labor personnel levels to coincide with production requirements. In May
2008, we closed our manufacturing facility located in Johnstown, Pennsylvania. This action was taken to further our
strategy of maintaining our competitive position by optimizing production at our lower-cost facilities. We have
focused on making our remaining manufacturing facilities more flexible and efficient.
Our manufacturing process involves four basic steps: fabrication, assembly, finishing and inspection. Each of our
facilities has numerous checkpoints at which we inspect products to maintain quality control, a process that our
operations management continuously monitors. In our fabrication processes, we employ standard metal working
tools, many of which are computer controlled. Each assembly line typically involves 15 to 20 manufacturing
positions, depending on the complexity of the particular railcar design. We use mechanical fastening in the fitting
and assembly of our aluminum-bodied railcar parts, while we typically use welding for the assembly of our steel-
bodied railcars. For aluminum-bodied railcars, we begin the finishing process by cleaning the railcar’s surface and
then applying the decals. In the case of steel-bodied railcars, we begin the finishing process by blasting the surface
area of the railcar, painting it and then applying decals. We use water-based paints to reduce the emission of volatile
organic compounds, and we meet state and U.S. federal regulations for control of emissions and disposal of
hazardous materials. Once we have completed the finishing process, our employees, along with representatives of
the customer purchasing the particular railcars, inspect all railcars for adherence to specifications.
CUSTOMERS
We have strong long-term relationships with many large purchasers of railcars. Long-term customer relationships
are particularly important in the railcar industry, given the limited number of buyers of railcars.
Our customer base consists mostly of North American financial institutions, shippers and railroads. We believe that
our customers’ preference for reliable, high-quality products, the relatively high cost for customers to switch
manufacturers, our technological leadership in developing and enhancing innovative products and the competitive
pricing of our railcars have helped us maintain our long-standing relationships with our customers.
In 2010, revenue from three customers, CSX Transportation Inc, Vale Inco Limited and Dakota Missouri Valley &
Western Railroad, accounted for approximately 63%, 10% and 5%, respectively, of total revenue. In 2010, sales to
our top five customers accounted for approximately 85% of total revenue. Our railcar sales to customers outside the
United States were $19.6 million in 2010. While we maintain strong relationships with our customers and we serve
over 70 active customers, many customers do not purchase railcars every year since railcar fleets are not necessarily
replenished or augmented every year. The size and frequency of railcar orders often results in a small number of
customers representing a significant portion of our sales in a given year.
SALES AND MARKETING
Our direct sales group is organized geographically and consists of regional sales managers and contract
administrators, a manager of customer service and support staff. The regional sales managers are responsible for
managing customer relationships. Our contract administrators are responsible for preparing proposals and other
inside sales activities. Our manager of customer service is responsible for after-sale follow-up and in-field product
performance reviews.
RESEARCH AND DEVELOPMENT
Our railcar research and development activities play a major role in creating our competitive advantage. We utilize
the latest engineering methods, tools and processes to ensure that new products and processes meet our customers’
requirements and are delivered in a timely manner. We develop and introduce new railcar designs as a result of a
combination of customer feedback and close observation of developing market trends. We work closely with our
customers to better understand their expectations and design railcars that meet their needs. New product designs are
tested and validated for compliance with AAR standards prior to introduction. This comprehensive approach
provides the criteria and direction that ensure we are developing the products that our customers desire and perform
5
as expected. Costs associated with research and development are expensed as incurred and totaled $0.8 million,
$0.8 million and $2.0 million for the years ended December 31, 2010, 2009 and 2008, respectively.
BACKLOG
We define backlog as the value of those products or services which our customers have committed in writing to
purchase from us or lease from us when built, but which have not yet been recognized as sales. Our contracts may
include cancellation clauses under which customers are required, upon cancellation of the contract, to reimburse us
for costs incurred in reliance on an order and to compensate us for lost profits. However, customer orders may be
subject to customer requests for delays in railcar deliveries, inspection rights and other customary industry terms and
conditions, which could prevent or delay backlog from being converted into sales.
The following table depicts our reported railcar backlog in number of railcars and estimated future sales value
attributable to such backlog, for the periods shown.
Year Ended December 31,
2010
2009
2008
Railcar backlog at start of period .............................
Railcars delivered ....................................................
Railcar orders, net of cancellations ..........................
Railcar backlog at end of period(1) ...........................
265
(2,229)
4,018
2,054
2,424
(3,377)
1,218
265
5,399
(10,276)
7,301
2,424
Estimated revenue from backlog at end of period
(in thousands) (2) ...................................................
$
144,306
$
24,839
$
183,441
(1) Subsequent to December 31, 2010 we received additional orders for more than 4,000 new railcars to be
manufactured and delivered over the course of 2011 and 2012.
(2) Estimated revenue from backlog reflects the total revenue attributable to the backlog reported at the end of the
particular period as if such backlog were converted to actual sales. Estimated revenue from backlog does not
reflect potential price increases and decreases under customer contracts that provide for variable pricing based
on changes in the cost of raw materials. Although we continually look for opportunities to package our leased
assets for sale to our leasing company partners, these leased assets may not be converted to sales.
Although our reported backlog is typically converted to sales within one year, our reported backlog may not be
converted to sales in any particular period, if at all, and the actual sales from these contracts may not equal our
reported backlog estimates. See Item 1A. “Risk Factors—Risks Related to Our Business—The level of our reported
backlog may not necessarily indicate what our future sales will be and our actual sales may fall short of the
estimated sales value attributed to our backlog.” In addition, due to the large size of railcar orders and variations in
the mix of railcars, the size of our reported backlog at the end of any given period may fluctuate significantly. See
Item 1A. “Risk Factors—Risks Related to the Railcar Industry—The variable purchase patterns of our customers
and the timing of completion, delivery and customer acceptance of the railcar may cause our revenues and income
from operations to vary substantially each quarter, which will result in significant fluctuations in our quarterly
results.”
Substantially all of the contracts covering our backlog at December 31, 2010 are fixed-rate contracts. Therefore, if
material costs were to increase, we may not be able to pass on these increased costs to our customers.
SUPPLIERS AND MATERIALS
The cost of raw materials and components represents a substantial majority of the manufacturing costs of most of
our railcar product lines. As a result, the management of raw materials and components purchasing is critical to our
profitability. We enjoy generally strong relationships with our suppliers, which helps to ensure access to supplies
when railcar demand is high.
6
Our primary aluminum suppliers are Alcoa Inc. and Alcan Inc. Aluminum prices generally are fixed at the time a
railcar order is accepted, mitigating the effect of future fluctuations in prices. We purchase steel primarily from U.S.
sources, except for our roll-formed center sills, which we purchase from a single Canadian supplier. A center sill is
the primary structural component of a railcar.
Our primary component suppliers include Amsted Industries, Inc., which supplies us with castings and couplers
through its American Steel Foundries subsidiary, wheels through its Griffin Wheel Company subsidiary, draft
components through its Keystone subsidiary and bearings through its Brenco subsidiary. Roll Form Group, a
division of Samuel Manu-Tech, Inc., is the sole supplier of our roll-formed center sills, which were used in 76% and
99% of our railcars produced in 2010 and 2009, respectively. Other suppliers provide brake systems, wheels,
castings, axles and bearings. The railcar industry is subject to supply constraints for some of the key railcar
components. See Item 1A. “Risk Factors—Risks Related to the Railcar Industry—Limitations on the supply of
wheels and other railcar components could adversely affect our business because they may limit the number of
railcars we can manufacture.”
Except as described above, there are usually at least two suppliers for each of our raw materials and specialty
components, and we actively purchase from over 200 suppliers. No single supplier accounted for more than 19%
and 21% of our total purchases in 2010 and 2009, respectively. Our top ten suppliers accounted for 84% and 69% of
our total purchases in 2010 and 2009, respectively.
COMPETITION
We operate in a highly competitive marketplace. Competition is based on price, product design, reputation for
product quality, reliability of delivery and customer service and support.
We have four principal competitors in the North American railcar market that primarily manufacture railcars for
third-party customers, which are Trinity Industries, Inc., National Steel Car Limited, The Greenbrier Companies,
Inc. and American Railcar Industries, Inc.
Competition in the North American market from railcar manufacturers located outside of North America is limited
by, among other factors, high shipping costs and familiarity with the North American market.
INTELLECTUAL PROPERTY
We have several U.S. and international patents and pending applications, registered trademarks, copyrights and trade
names. Key patents include our one-piece center sill, our MegaFlo™ door system and our top chord and side stake
for coal cars. The protection of our intellectual property is important to our business.
EMPLOYEES
As of December 31, 2010, we had 464 employees, of whom 139 were salaried and 325 were hourly wage earners.
As of December 31, 2010, approximately 174, or 38%, of our employees were members of unions. As of December
31, 2009, we had 188 employees, of whom 121 were salaried and 67 were hourly wage earners. As of December 31,
2009, approximately 58, or 31%, of our employees were members of unions. See Item 1A. “Risk Factors—Risks
Related to Our Business—Labor disputes could disrupt our operations and divert the attention of our management
and may have a material adverse effect on our operations and profitability.”
REGULATION
The Federal Railroad Administration, or FRA, administers and enforces U.S. federal laws and regulations relating to
railroad safety. These regulations govern equipment and safety compliance standards for freight railcars and other
rail equipment used in interstate commerce. The AAR promulgates a wide variety of rules and regulations governing
safety and design of equipment, relationships among railroads with respect to freight railcars in interchange and
other matters. The AAR also certifies freight railcar manufacturers and component manufacturers that provide
equipment for use on railroads in the United States as well as providers of railcar repair and maintenance services.
New products must generally undergo AAR testing and approval processes. As a result of these regulations, we
must maintain certifications with the AAR as a freight railcar manufacturer and provider of railcar repair and
maintenance services, and products that we sell must meet AAR and FRA standards.
7
We are also subject to oversight in other jurisdictions by foreign regulatory agencies and to the extent that we
expand our business internationally, we will increasingly be subject to the regulations of other non-U.S.
jurisdictions.
ENVIRONMENTAL MATTERS
We are subject to comprehensive federal, state, local and international environmental laws and regulations relating
to the release or discharge of materials into the environment, the management, use, processing, handling, storage,
transport or disposal of hazardous materials, or otherwise relating to the protection of human health and the
environment. These laws and regulations not only expose us to liability for our own negligent acts, but also may
expose us to liability for the conduct of others or for our actions that were in compliance with all applicable laws at
the time these actions were taken. In addition, these laws may require significant expenditures to achieve
compliance, and are frequently modified or revised to impose new obligations. Civil and criminal fines and penalties
may be imposed for non-compliance with these environmental laws and regulations. Our operations that involve
hazardous materials also raise potential risks of liability under the common law.
Environmental operating permits are, or may be, required for our operations under these laws and regulations. These
operating permits are subject to modification, renewal and revocation. We regularly monitor and review our
operations, procedures and policies for compliance with these laws and regulations. Despite these compliance
efforts, risk of environmental liability is inherent in the operation of our businesses, as it is with other companies
engaged in similar businesses. We believe that our operations and facilities are in substantial compliance with
applicable laws and regulations and that any noncompliance is not likely to have a material adverse effect on our
operations or financial condition.
Future events, such as changes in or modified interpretations of existing laws and regulations or enforcement
policies, or further investigation or evaluation of the potential health hazards of products or business activities, may
give rise to additional compliance and other costs that could have a material adverse effect on our financial
condition and operations. In addition, we have in the past conducted investigation and remediation activities at
properties that we own to address historic contamination. To date, such costs have not been material. Although we
believe we have satisfactorily addressed all known material contamination through our remediation activities, there
can be no assurance that these activities have addressed all historic contamination. The discovery of historic
contamination or the release of hazardous substances into the environment could require us in the future to incur
investigative or remedial costs or other liabilities that could be material or that could interfere with the operation of
our business.
In addition to environmental laws, the transportation of commodities by railcar raises potential risks in the event of a
derailment or other accident. Generally, liability under existing law in the United States for a derailment or other
accident depends on the negligence of the party, such as the railroad, the shipper or the manufacturer of the railcar or
its components. However, for the shipment of certain hazardous commodities, strict liability concepts may apply.
Item 1A. Risk Factors.
The factors described below are the principal risks that could materially adversely affect our operating results and
financial condition. Other factors may exist that we do not consider significant based on information that is
currently available. In addition, new risks may emerge at any time, and we cannot predict those risks or estimate the
extent to which they may affect us.
RISKS RELATED TO THE RAILCAR INDUSTRY
We operate in a highly cyclical industry, and our industry and markets are influenced by factors that are
beyond our control, including U.S. economic conditions. Such factors could adversely affect demand for our
railcar offerings.
Historically, the North American railcar market has been highly cyclical and we expect it to continue to be highly
cyclical. During the previous industry cycle, industry-wide railcar deliveries declined from a peak of 75,704 railcars
in 1998 to a low of 17,736 railcars in 2002. During this period, our railcar production declined from approximately
9,000 railcars in 1998 to 4,067 railcars in 2002. Industry-wide railcar deliveries again peaked in 2006 with
deliveries of 74,729 before declining to 16,535 in 2010. Our railcar deliveries trended downward from 18,764 in
2006 to 2,229 in 2010. Our industry and the markets for which we supply railcars are influenced by factors that are
8
beyond our control, including U.S. economic conditions. Downturns in economic conditions could result in lower
sales volumes, lower prices for railcars and a loss of profits. The cyclicality of the markets in which we operate may
adversely affect our operating results and cash flow. In addition, fluctuations in the demand for our railcars may
cause comparisons of our sales and operating results between different fiscal years to be less meaningful as
indicators of our future performance.
We depend upon a small number of customers that represent a large percentage of our sales. The loss of any
single customer, or a reduction in sales to any such customer, could have a material adverse effect on our
business, financial condition and results of operations.
Since railcars are typically sold pursuant to large, periodic orders, a limited number of customers typically represent
a significant percentage of our railcar sales in any given year. Over the last five years, our top five customers in each
year based on sales represented, in the aggregate, approximately 36% of our total sales for the five-year period. In
2010, sales to our top three customers accounted for approximately 63%, 10% and 5%, respectively, of our total
sales. In 2009, sales to our top three customers accounted for approximately 15%, 15% and 14%, respectively, of
our total sales. Although we have long-standing relationships with many of our major customers, the loss of any
significant portion of our sales to any major customer, the loss of a single major customer or a material adverse
change in the financial condition of any one of our major customers could have a material adverse effect on our
business, financial condition and results of operations.
The variable purchase patterns of our customers and the timing of completion, delivery and customer
acceptance of orders may cause our revenues and income from operations to vary substantially each quarter,
which will result in significant fluctuations in our quarterly results.
Most of our individual customers do not make purchases every year, since they do not need to replace, replenish or
increase their railcar fleets on a yearly basis. Many of our customers place orders for products on an as-needed basis,
sometimes only once every few years. As a result, the order levels for railcars, the mix of railcar types ordered and
the railcars ordered by any particular customer have varied significantly from quarterly period to quarterly period in
the past and may continue to vary significantly in the future. Therefore, our results of operations in any particular
quarterly period may be significantly affected by the number of railcars delivered and product mix of railcars
delivered in any given quarterly period. Additionally, because we record the sale of a new and rebuilt railcar at the
time 1) we complete production, 2) the railcar is accepted by the customer following inspection, 3) the risk for any
damage or loss with respect to the railcar passes to the customer, and 4) title to the railcar transfers to the customer,
and not when the order is taken, the timing of the completion, delivery and acceptance of significant customer orders
will have a considerable effect on fluctuations in our quarterly results. As a result of these quarterly fluctuations, we
believe that comparisons of our sales and operating results between quarterly periods may not be meaningful and, as
such, these comparisons should not be relied upon as indicators of our future performance.
We operate in a highly competitive industry and we may be unable to compete successfully against other
railcar manufacturers.
We operate in a competitive marketplace and face substantial competition from established competitors in the railcar
industry in North America. We have four principal competitors that primarily manufacture railcars for third-party
customers. Some of these manufacturers have greater financial and technological resources than us, and they may
increase their participation in the railcar segments in which we compete. In addition to price, competition is based
on product performance and technological innovation, quality, reliability of delivery, customer service and other
factors. In particular, technological innovation by any of our existing competitors, or new competitors entering any
of the markets in which we do business, could put us at a competitive disadvantage and impair our ability to
compete successfully against other railcar manufacturers or retain our market share in our established markets.
Increased competition for the sales of our railcar products, particularly our coal cars, could result in price reductions,
reduced margins and loss of market share, which could negatively affect our prospects, business, financial condition
and results of operations.
Our ability to sell new railcars may be limited by other factors, including the availability and price of used
railcars offered for sale and new or used railcars offered for lease by leasing companies and others.
Our customers may consider alternatives to the purchase of new railcars, including the purchase of used railcars or
the lease of new or used railcars. Our competitors may also be able to offer railcar leases at favorable lease rates,
negatively impacting our ability to sell new railcars, which may result in price reductions, reduced margins and loss
9
of market share. These additional competitive factors could negatively affect our prospects, business, financial
condition and results of operations.
Consolidation of our customer base may adversely affect our business.
Railroad carriers, utilities and leasing companies are large purchasers of railcars and represent a significant portion
of our historical customer base. Future consolidation within these industries may adversely affect our sales and
reduce our income from operations as fewer and larger customers will have proportionately greater buying power
and operating efficiency, which may intensify competition among railcar manufacturers and cause our prices to
decline.
The potential cost volatility of the raw materials that we use to manufacture railcars, especially aluminum
and steel, and delivery delays associated with these raw materials may adversely affect our financial condition
and results of operations.
The production of railcars and our operations require substantial amounts of aluminum and steel. The cost of
aluminum, steel and all other materials (including scrap metal) used in the production of our railcars represents a
significant majority of our direct manufacturing costs. Our business is subject to the risk of price increases and
periodic delays in the delivery of aluminum, steel and other materials, all of which are beyond our control. Any
fluctuations in the price or availability of aluminum or steel, or any other material used in the production of our
railcars, may have a material adverse effect on our business, results of operations or financial condition. In addition,
if any of our suppliers were unable to continue its business or were to seek bankruptcy relief, the availability or price
of the materials we use could be adversely affected. Deliveries of our materials may also fluctuate depending on
supply and demand for the material or governmental regulation relating to the material, including regulation relating
to the importation of the material.
Limitations on the supply of wheels and other railcar components could adversely affect our business because
they may limit the number of railcars we can manufacture.
We rely upon third-party suppliers for wheels and other components for our railcars. In the future, suppliers of
railcar components may be unable to meet the short-term or longer-term demand of our industry for wheels and
other railcar components. In the event that any of our suppliers of railcar components were to stop or reduce the
production of wheels or the other railcar components that we use, go out of business, refuse to continue their
business relationships with us, become subject to work stoppages or ration their supply of wheels or components,
our business would be disrupted. We have in the past experienced challenges sourcing these railcar components to
meet our production requirements. In addition, our ability to increase our railcar production to expand our business
and/or meet any increase in demand, with new or additional manufacturing capabilities, depends on our ability to
obtain an adequate supply of these railcar components. While we believe that we could secure alternative sources for
these components, we may incur substantial delays and significant expense in doing so, the quality and reliability of
these alternative sources may not be the same and our operating results may be significantly affected. In an effort to
secure a supply of wheels, we have developed foreign sources that require deposits on some occasions. In the event
of a material adverse business condition, such deposits may be forfeited. In addition, if one of our competitors
entered into a preferred supply arrangement with, or was otherwise favored by, a particular supplier, we would be at
a competitive disadvantage, which could negatively affect our operating results. Furthermore, alternative suppliers
might charge significantly higher prices for wheels or other railcar components than we currently pay. Such
circumstances could have a material adverse impact on our customer relationships, financial condition and results of
operations.
RISKS RELATED TO OUR BUSINESS
We rely significantly on the sales of our coal cars. Future demand for coal could decrease, which could
adversely affect our business, financial condition and results of operations.
Coal cars are our primary railcar type, representing 74% and 92% of our sales revenues in 2010 and 2009,
respectively, and 90% and 92% of the total railcars that we delivered in 2010 and 2009, respectively. Fluctuations
in the price of coal relative to other energy sources may cause utility companies, which are significant customers of
our coal car lines, to select an alternative energy source to coal, thereby reducing the strength of the market for coal
10
cars. For example, if utility companies were to begin preferring natural gas instead of coal as an energy source,
demand for our coal car lines could decrease and our operating results could be negatively affected.
The U.S. federal and state governments may adopt new legislation and/or regulations, or judicial or administrative
interpretations of existing laws and regulations that materially adversely affect the coal industry and/or our
customers’ ability to use coal or to continue to use coal at present rates. Such legislation or proposed legislation
and/or regulations may include proposals for more stringent protections of the environment that would further
regulate and tax the coal industry. This legislation could significantly reduce demand for coal, adversely affect the
demand for our coal cars and have a material adverse effect on our financial condition and results of operations.
We rely upon a single supplier to supply us with all of our roll-formed center sills for our railcars, and any
disruption of our relationship with this supplier could adversely affect our business.
We rely upon a single supplier to manufacture all of our roll-formed center sills for our railcars, which are based
upon our proprietary and patented process. A center sill is the primary longitudinal structural component of a railcar,
which helps the railcar withstand the weight of the cargo and the force of being pulled during transport. Our center
sill is formed into its final shape without heating by passing steel plate through a series of rollers. Of the railcars that
we produced in 2010 and 2009, 76% and 99%, respectively, were manufactured using this roll-formed center sill.
Although we have a good relationship with our supplier and have not experienced any significant delays,
manufacturing shortages or failures to meet our quality requirements and production specifications in the past, our
supplier could stop production of our roll-formed center sills, go out of business, refuse to continue its business
relationship with us or become subject to work stoppages. While we believe that we could secure alternative
manufacturing sources, our present supplier is currently the only manufacturer of our roll-formed center sills for our
railcars. We may incur substantial delays and significant expense in finding an alternative source, our results of
operations may be significantly affected and the quality and reliability of these alternative sources may not be the
same. Moreover, alternative suppliers might charge significantly higher prices for our roll-formed center sills than
we currently pay.
Equipment failures, delays in deliveries or extensive damage to our facilities could lead to production or
service curtailments or shutdowns.
We have railcar production facilities in Danville, Illinois and Roanoke, Virginia and maintenance and repair
facilities in Clinton, Indiana, Grand Island, Nebraska and Hastings, Nebraska. An interruption in railcar production
capabilities or maintenance and repair capabilities at these facilities, as a result of equipment failure or other factors,
could reduce or prevent our production, service or repair of railcars. A halt of production at any of our
manufacturing facilities could severely affect delivery times to our customers. Any significant delay in deliveries to
our customers could result in the termination of contracts, cause us to lose future sales and negatively affect our
reputation among our customers and in the railcar industry and our results of operations. Our facilities are also
subject to the risk of catastrophic loss due to unanticipated events, such as fires, explosions, floods or weather
conditions. We may experience plant shutdowns or periods of reduced production as a result of equipment failures,
delays in deliveries or extensive damage to any of our facilities, which could have a material adverse effect on our
business, results of operations or financial condition.
An increase in health care costs could adversely affect our results of operations.
We provide health care benefits to our active employees and the costs of health care benefits in the United States
have increased significantly in recent years. We expect these costs to continue to increase in the future. In March
2010, the Patient Protection and Affordable Care Act and a reconciliation measure, the Health Care and Education
Act of 2010 (collectively, the “Health Care Reform Legislation”), were signed into law in the United States and are
scheduled to become effective over the next several years, subject to further guidance and clarification expected to
be provided by implementing regulations. The impact of the Health Care Reform Legislation on our business is not
yet known and may not be known for several years. A continued increase in health care costs or any additional costs
resulting from the Health Care Reform Legislation could materially adversely affect our financial position and
results of operations.
We also provide postretirement health care benefits for approximately 41 of our active employees and 711 of our
retired employees. As of December 31, 2010, we have an unfunded $65.3 million accrual for our projected retiree
health care costs, a substantial portion of which relates to a 2005 settlement with the employee union at our closed
11
Johnstown manufacturing facility. If for any reason our retiree health care costs should change or increase in the
future, our business and financial results could be materially adversely affected.
Our pension obligations are currently underfunded. We may have to make significant cash payments to our
pension plans, which would reduce the cash available for our business.
As of December 31, 2010, our accumulated benefit obligation under our defined benefit pension plans exceeded the
fair value of plan assets by $15.5 million. Additional benefit obligations were added to our existing defined benefit
pension plans in 2007, 2008 and 2009 as a result of plan curtailment and special termination benefit costs.
Management expects that any future obligations under our pension plans will be funded from our future cash flow
from operations. If the performance of the assets in our pension plans does not meet our expectations or actuarial
assumptions are modified, our contributions to our pension plans could be materially higher than we expect, which
would reduce the cash available for our business.
The level of our reported backlog may not necessarily indicate what our future sales will be and our actual
sales may fall short of the estimated sales value attributed to our backlog.
We define backlog as the sales value of products or services to which our customers have committed in writing to
purchase from us or lease from us when built, that have not yet been recognized as revenue. In this annual report on
Form 10-K, we have disclosed our backlog, or the number of railcars for which we have purchase orders or firm
operating leases for railcars to be built, in various periods and the estimated sales value (in dollars) that would be
attributable to this backlog once the backlog is converted to actual sales. We consider backlog to be an indicator of
future sales of railcars. However, our reported backlog may not be converted into sales in any particular period, if at
all, and the actual sales (including any compensation for lost profits and reimbursement for costs) from such
contracts may not equal our reported estimates of backlog value. For example, we rely on third-party suppliers for
castings, wheels and components for our railcars and if these third parties were to stop or reduce their supply of
heavy castings, wheels and other components, our actual sales could fall short of the estimated sales value attributed
to our backlog. Also, customer orders may be subject to cancellation, inspection rights and other customary industry
terms, and delivery dates may be subject to delay, thereby extending the date on which we will deliver the associated
railcars and realize revenues attributable to such railcar backlog.
As a public company, we are required to comply with the reporting obligations of the Exchange Act and
Section 404 of the Sarbanes-Oxley Act of 2002. If we fail to comply with the reporting obligations of the
Exchange Act and Section 404 of the Sarbanes-Oxley Act or if we fail to maintain adequate internal controls
over financial reporting, our business, results of operations and financial condition could be materially
adversely affected.
As a public company, we are required to comply with the periodic reporting obligations of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), including preparing annual reports and quarterly reports. Our failure
to prepare and disclose this information in a timely manner could subject us to penalties under federal securities
laws, expose us to lawsuits and restrict our ability to access financing. In addition, we are required under applicable
law and regulations to design and implement internal controls over financial reporting, and evaluate our existing
internal controls with respect to the standards adopted by the Public Company Accounting Oversight Board.
If we fail to maintain the adequacy of our internal controls in the future, we may not be able to ensure that we can
conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with the
Sarbanes-Oxley Act. Moreover, effective internal controls are necessary for us to produce reliable financial reports
and are important to help prevent fraud. As a result, any failure to satisfy the requirements of Section 404 on a
timely basis could result in the loss of investor confidence in the reliability of our financial statements, which in turn
could harm our business and negatively impact the trading price of our common stock.
If we lose key personnel, our operations and ability to manage the day-to-day aspects of our business may be
adversely affected.
We believe our success depends to a significant degree upon the continued contributions of our executive officers
and key employees, both individually and as a group. Our future performance will substantially depend on our
ability to retain and motivate them. If we lose key personnel or are unable to recruit qualified personnel, our ability
to manage the day-to-day aspects of our business may be adversely affected.
12
The loss of the services of one or more members of our senior management team could have a material adverse
effect on our business, financial condition and results of operations. Because our senior management team has many
years of experience in the railcar industry and other manufacturing and capital equipment industries, it could be
difficult to replace any of them without adversely affecting our business operations. Our future success will also
depend in part upon our continuing ability to attract and retain highly qualified personnel. We do not currently
maintain “key person” life insurance.
Labor disputes could disrupt our operations and divert the attention of our management and may have a
material adverse effect on our operations and profitability.
As of December 31, 2010, we had collective bargaining agreements with unions representing approximately 38% of
our total active labor force.
Disputes with the unions representing our employees could result in strikes or other labor protests which could
disrupt our operations and divert the attention of management from operating our business. If we were to experience
a strike or work stoppage, it could be difficult for us to find a sufficient number of employees with the necessary
skills to replace these employees. Any such labor disputes could have a material adverse effect on our financial
condition, results of operations or cash flows.
Shortages of skilled labor may adversely impact our operations.
We depend on skilled labor in the manufacture and repair of railcars. Some of our facilities are located in areas
where demand for skilled laborers often exceeds supply. Shortages of some types of skilled laborers may restrict
our ability to maintain or increase production rates and could cause our labor costs to increase.
Lack of acceptance of our new railcar offerings by our customers could adversely affect our business.
Our strategy depends in part on our continued development and sale of new railcar designs and design changes to
existing railcars to penetrate railcar markets in which we currently do not compete and to expand or maintain our
market share in the railcar markets in which we currently compete. We have dedicated significant resources to the
development, manufacturing and marketing of new railcar designs. We typically make decisions to develop and
market new railcars and railcars with modified designs without firm indications of customer acceptance. New or
modified railcar designs may require customers to alter their existing business methods or threaten to displace
existing equipment in which our customers may have a substantial capital investment. Many railcar purchasers
prefer to maintain a standardized fleet of railcars and railcar purchasers with established railcar fleets are generally
resistant to railcar design changes. Therefore, any new or modified railcar designs that we develop may not gain
widespread acceptance in the marketplace and any such products may not be able to compete successfully with
existing railcar designs or new railcar designs that may be introduced by our competitors.
We might fail to adequately protect our intellectual property, which may result in our loss of market share,
or third parties might assert that our intellectual property infringes on their intellectual property, which
would be costly to defend and divert the attention of our management.
The protection of our intellectual property is important to our business. We rely on a combination of trademarks,
copyrights, patents and trade secrets to protect our intellectual property. However, these protections might be
inadequate. For example, we have patents for portions of our railcar designs that are important to our market
leadership in the coal car segment. Our pending or future trademark, copyright and patent applications might not be
approved or, if allowed, might not be sufficiently broad. Conversely, third parties might assert that our technologies
or other intellectual property infringe on their proprietary rights. In either case, litigation may result, which could
result in substantial costs and diversion of our management team’s efforts. Regardless of whether we are ultimately
successful in any litigation, such litigation could adversely affect our business, results of operations and financial
condition.
13
We are subject to a variety of environmental laws and regulations and the cost of complying with
environmental requirements or any failure by us to comply with such requirements may have a material
adverse effect on our business, financial condition and results of operations.
We are subject to a variety of federal, state and local environmental laws and regulations, including those governing
air quality and the handling, disposal and remediation of waste products, fuel products and hazardous substances.
Although we believe that we are in material compliance with all of the various regulations and permits applicable to
our business, we may not at all times be in compliance with such requirements. The cost of complying with
environmental requirements may also increase substantially in future years. If we violate or fail to comply with these
regulations, we could be fined or otherwise sanctioned by regulators. In addition, these requirements are complex,
change frequently and may become more stringent over time, which could have a material adverse effect on our
business. We have in the past conducted investigation and remediation activities at properties that we own to address
historic contamination. However, there can be no assurance that these remediation activities have addressed all
historic contamination. Environmental liabilities that we incur, including those relating to the off-site disposal of our
wastes, if not covered by adequate insurance or indemnification, will increase our costs and have a negative impact
on our profitability.
Our warranties may expose us to potentially significant claims, which may damage our reputation and
adversely affect our business, financial condition and results of operations.
We warrant the workmanship and materials of many of our manufactured new products under limited warranties,
generally for periods of five years or less. Accordingly, we may be subject to a risk of product liability or warranty
claims in the event that the failure of any of our products results in property damage, personal injury or death, or
does not conform to our customers’ specifications. Although we currently maintain product liability insurance
coverage, product liability claims, if made, may exceed our insurance coverage limits or insurance may not continue
to be available on commercially acceptable terms, if at all. These types of product liability and warranty claims may
result in costly product recalls, significant repair costs and damage to our reputation, all of which could adversely
affect our results of operations.
The agreement governing our revolving credit facility contains various covenants that, among other things,
limit our discretion in operating our business and provide for certain minimum financial requirements.
The agreement governing our revolving credit facility contains various covenants that, among other things, limit our
management’s discretion by restricting our ability to incur additional debt, enter into certain transactions with
affiliates, make investments and other restricted payments and create liens. Our failure to comply with these
financial covenants and other covenants under our revolving credit facility could lead to an event of default under
the agreement governing any other indebtedness that we may have outstanding at the time, permitting the lenders to
accelerate all borrowings under such agreement and to foreclose on any collateral. In addition, any such events may
make it more difficult or costly for us to borrow additional funds in the future. Our failure to raise capital if and
when needed could have a material adverse effect on our results of operations and financial condition.
Businesses that we may acquire may fail to perform to expectations or we may be unable to successfully
integrate acquired businesses with our existing business.
We recently acquired the business assets of DTE Rail Services, Inc. and may engage in future acquisitions, which in
each case could materially affect our business, operating results, and financial condition. However, we may not be
able to find other suitable acquisition candidates, and we may not be able to complete such acquisitions on favorable
terms, if at all. Our recent acquisition and, assuming we complete them, additional acquisitions, may not strengthen
our competitive position or achieve our desired goals, and may disrupt our ongoing operations, divert management
from day-to-day responsibilities, increase our expenses and reduce our cash available for operations and other uses.
There can be no assurance that we will be able to effectively manage the integration of our recently-acquired
business or businesses we may acquire in the future, or be able to retain and motivate key personnel from those
businesses.
14
To the extent we expand our sales of products and services internationally, we will increase our exposure to
international economic and political risks.
Conducting business outside the United States, for example through our joint venture in India and our sales to other
countries, subjects us to various risks, including changing economic, legal and political conditions, work stoppages,
currency fluctuations, terrorist activities directed at U.S. companies, armed conflicts and unexpected changes in the
United States and the laws of other countries relating to tariffs, trade restrictions, transportation regulations, foreign
investments and taxation. If we fail to obtain and maintain certifications of our railcars and railcar parts in the
various countries where we may operate, we may be unable to market and sell our railcars in those countries.
In addition, more stringent rules relating to labor or the environment, adverse tax consequences and price exchange
controls could limit our operations and make the manufacture and distribution of our products internationally more
difficult. Furthermore, any material changes in the quotas, regulations or duties on imports imposed by the U.S.
government and agencies or on exports by non-U.S. governments and their respective agencies could affect our
ability to export the railcars that we manufacture in the United States. The uncertainty of the legal environment
could limit our ability to enforce our rights effectively.
The market price of our securities may fluctuate significantly, which may make it difficult for stockholders to
sell shares of our common stock when desired or at attractive prices.
Since our initial public offering in April 2005 until February 18, 2011, the trading price of our common stock ranged
from a low of $14.05 per share to a high of $78.34 per share. The price for our common stock may fluctuate in
response to a number of events and factors, such as quarterly variations in operating results and our reported
backlog, the cyclical nature of the railcar market, announcements of new products by us or our competitors, changes
in financial estimates and recommendations by securities analysts, the operating and stock price performance of
other companies that investors may deem comparable to us, and news reports relating to trends in our markets or
general economic conditions. Additionally, volatility or a lack of positive performance in our stock price may
adversely affect our ability to retain key employees, all of whom have been granted stock options or other stock
awards.
Item 1B. Unresolved Staff Comments.
None.
15
Item 2. Properties.
The following table presents information on our leased and owned operating properties as of December 31, 2010:
Use
Location
Size
Leased or
Owned
Lease
Expiration Date
Corporate headquarters
Chicago, Illinois
8,574 square feet
Leased
September 30,
2013
Railcar assembly and
component
manufacturing
Railcar assembly and
component
manufacturing
Danville, Illinois
308,665 square feet
on 36.5 acres of land
Owned
—
Roanoke, Virginia
383,709 square feet
on 15.5 acres of land
Leased
November 30,
2014
Railcar maintenance and
repair
Grand Island,
Nebraska
132,067 square feet
on 448 acres of land
Owned
—
Railcar maintenance and
Hastings, Nebraska
repair
Railcar maintenance and
Clinton, Indiana
repair
35,107 square feet
on 13.4 acres of land
with an additional 7.5
acres of land leased
30,873 square feet
on 56.3 acres of land
Owned/
Leased
December 31,
2013
Owned
—
Railcar logistics
Lakewood, Colorado
1,054 square feet
Leased
May 12, 2012
management services
Short line railroad
Administrative
Parts warehouse
Grand Island,
Nebraska
Johnstown,
Pennsylvania
Johnstown,
Pennsylvania
5 miles of main line plus
2.77 miles of sidings for
a total of 7.77 miles
Owned
29,500 square feet
on 1.02 acres of land
Owned
86,000 square feet
Leased
—
—
December 31,
2016
In response to reduced industry demand for railcars over the short term, our facility in Roanoke, Virginia ceased
production of new railcars in July 2009 and at December 31, 2010 was preparing to resume production in 2011 as
industry demand had improved. In addition to the properties listed above, we also have various leased or owned
railroad easements or rights of way acquired during 2010 which are used by FCRS while supplying railcar
maintenance and repair services to customers.
Item 3. Legal Proceedings.
On September 29, 2008, Bral Corporation, a supplier of certain railcar parts to us, filed a complaint against us in the
U.S. District Court for the Western District of Pennsylvania (the “Pennsylvania Lawsuit”). The complaint alleges
that we breached an exclusive supply agreement with Bral by purchasing parts from CMN Components, Inc.
(“CMN”). On December 14, 2007, Bral sued CMN in the U.S. District Court for the Northern District of Illinois,
alleging among other things that CMN interfered in the business relationship between Bral and us (the “Illinois
Lawsuit”). On October 22, 2008, we entered into an Assignment of Claims Agreement with CMN under which
CMN assigned to us its counterclaims against Bral in the Illinois Lawsuit and we agreed to defend and indemnify
16
CMN against Bral’s claims in that lawsuit. While the ultimate outcomes of the Pennsylvania Lawsuit and the
Illinois Lawsuit cannot be determined at this time, it is the opinion of management that the resolution of these
lawsuits will not have a material adverse effect on our financial condition or results of operations.
In addition to the foregoing, we are involved in certain other threatened and pending legal proceedings, including
commercial disputes and workers’ compensation and employee matters arising out of the conduct of our business.
While the ultimate outcome of these other legal proceedings cannot be determined at this time, it is the opinion of
management that the resolution of these other actions will not have a material adverse effect on our financial
condition, results of operations or cash flows.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Our common stock has been quoted on the Nasdaq Global Market under the symbol “RAIL” since April 6, 2005.
Prior to that time, there was no public market for our common stock. As of February 18, 2011, there were
approximately 57 holders of record of our common stock, which does not include persons whose shares of common
stock are held by a bank, brokerage house or clearing agency. The following table sets forth quarterly high and low
closing prices of our common stock since January 1, 2009, as reported on the Nasdaq Global Market.
2010
Fourth quarter ............................................................................. $
Third quarter ............................................................................... $
Second quarter ............................................................................ $
First quarter ................................................................................. $
2009
Fourth quarter ............................................................................. $
Third quarter ............................................................................... $
Second quarter ............................................................................ $
First quarter ................................................................................. $
Common stock price
High
Low
Dividend
Declared
28.94
25.50
29.94
25.60
26.91
25.54
20.24
21.63
$
$
$
$
$
$
$
$
24.03
21.43
22.62
18.60
18.10
16.26
15.38
14.52
$
$
$
$
$
$
$
$
0.00
0.00
0.00
0.06
0.06
0.06
0.06
0.06
Dividend Policy
The declaration and payment of future dividends will be at the discretion of our board of directors and will depend
on, among other things, general economic and business conditions, our strategic plans, our financial results,
contractual and legal restrictions on the payment of dividends by us and our subsidiaries and such other factors as
our board of directors considers to be relevant. The ability of our board of directors to declare a dividend on our
common stock is limited by Delaware law.
17
Performance Graph
The following performance graph and related information shall not be deemed “soliciting material” or to be “filed”
with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
except to the extent that the Company specifically incorporates it by reference into such filing.
The following graph illustrates the cumulative total stockholder return on our common stock during the period from
January 1, 2006 through December 31, 2010 and compares it with the cumulative total return on the NASDAQ
Composite Index and DJ Transportation Index. The comparison assumes $100 was invested on January 1, 2006 in
our common stock and in each of the foregoing indices and assumes reinvestment of dividends, if any. The
performance shown is not necessarily indicative of future performance.
Dec.31,
2005
Jun.30,
2006
Dec.31,
2006
Jun.30,
2007
Dec.31,
2007
Jun.30,
2008
Dec.31,
2008
Jun.30,
2009
Dec.31,
2009
Jun.30,
2010
Dec.31,
2010
$100.00
$115.56
$115.62
$ 99.99
$ 73.38
$ 74.66
$ 38.63
$ 35.79
$ 42.48
$ 48.60
$ 62.18
$100.00
$ 99.01
$110.36
$119.34
$122.00
$105.88
$ 73.17
$ 85.60
$106.33
$ 99.27
$125.49
$100.00
$118.04
$109.81
$123.46
$111.38
$121.36
$ 87.53
$ 81.08
$103.79
$102.36
$131.55
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG
FREIGHTCAR AMERICA, NASDAQ COMPOSITE INDEX AND DOW JONES
TRANSPORTATION INDEX
FreightCar
America, Inc.
Nasdaq
Composite
Index
DJ
Transportation
Index
$140.00
$120.00
$100.00
S
R
A
L
L
O
D
$80.00
$60.00
$40.00
$20.00
$0.00
Dec-05
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
FreightCar America, Inc.
NASDAQ Market Index
Dow Jones Transportation Index
ASSUMES $100 INVESTED ON JAN 1, 2006
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2010
18
Item 6. Selected Financial Data.
The selected financial data presented for each of the years in the five-year period ended December 31, 2010 was
derived from our audited consolidated financial statements. The selected financial data should be read in
conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements and Notes thereto included in Item 7 and Item 8, respectively, of this annual
report on Form 10-K. (in thousands, except share and per share data and railcar amounts)
2010
Year Ended December 31,
2008
2009
2007
2006
Statements of operations data:
Revenues ................................................................... $ 142,889
2,722
Gross profit ...............................................................
Selling, general and administrative expense .............
24,618
Net (loss) income attributable to FreightCar
$ 248,462
36,522
31,316
$ 746,390
66,793
31,717
$ 817,025
104,901
38,914
$1,444,800
233,451
34,390
America ............................................................... $ (12,771)
$
4,940
$ 11,420
$ 27,459
$ 128,733
Weighted average common shares outstanding —
basic ..................................................................... 11,896,148
11,861,366
11,788,400
12,115,712
12,586,889
Weighted average common shares outstanding—
diluted .................................................................. 11,896,148
11,870,350
11,833,132
12,188,901
12,785,015
Per share data:
Net (loss) income per common share attributable
to FreightCar America – basic ........................ $ (1.07)
Net (loss) income per share common attributable
to FreightCar America – diluted ..................... $ (1.07)
0.06
Dividends declared per common share ................ $
$
$
$
0.42
0.42
0.24
$
$
$
0.97
0.97
0.24
$
$
$
2.27
2.25
0.24
$
$
$
10.23
10.07
0.15
Other financial and operating data:
Investment in property, plant and equipment,
railcars on operating leases and business
acquisitions .......................................................... $ 24,750
2,229
Railcars delivered ......................................................
4,018
Railcar orders ............................................................
Railcar backlog ..........................................................
2,054
Estimated revenue from backlog ............................... $ 144,306
$ 19,920
3,377
1,218
265
$ 24,839
$ 42,192
10,276
7,301
2,424
$ 183,441
$
6,073
10,282
6,366
5,399
$ 422,054
$
6,903
18,764
7,350
9,315
$ 697,054
Balance sheet data (at period end):
Cash and cash equivalents ......................................... $ 61,780
2,322
Restricted cash ..........................................................
310,643
Total assets ................................................................
—
Total debt, including capital leases ...........................
192,580
Total stockholders’ equity ........................................
$ 98,015
1,420
335,566
—
206,253
$ 129,192
—
383,293
28
204,826
$ 197,042
—
354,119
93
199,063
$ 212,026
—
419,981
154
203,869
19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEW
You should read the following discussion in conjunction with our consolidated financial statements and related
notes included elsewhere in this annual report on Form 10-K. 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 “Forward-Looking Statements.”
We are the leading manufacturer of aluminum-bodied railcars and coal cars in North America, based on the number
of railcars delivered. We refurbish and rebuild railcars and sell forged, cast and fabricated parts for all of the railcars
we produce, as well as those manufactured by others. We also provide general railcar repair and maintenance,
inspection, and railcar fleet management services for all types of freight-carrying railcars. Our primary customers
are railroads, shippers and financial institutions.
Our railcar manufacturing facilities are located in Danville, Illinois and Roanoke, Virginia. Each of our railcar
manufacturing facilities has the capability to manufacture a variety of types of railcars.
On November 1, 2010, we acquired the business assets of DTE Rail Services, Inc., a non-regulated subsidiary of
DTE Energy Company Inc., for approximately $23.3 million through our newly formed subsidiary, FreightCar Rail
Services, LLC. The transaction was funded with cash from operations. The acquisition furthers our strategic
growth initiative to expand our presence in the railcar services sector. FreightCar Rail Services, LLC provides
repair and maintenance, inspections and fleet management services for all types of freight-carrying railcars.
FreightCar Rail Services, LLC has operations in Colorado, Indiana and Nebraska and services freight cars and unit
coal trains utilizing key rail corridors in the Midwest and Western regions of the United States.
Railcar deliveries totaled 2,229 units for the year ended December 31, 2010, including delivery of 2,079 cars sold
and delivery of 150 cars leased, compared to 3,377 units, including delivery of 2,297 cars sold and delivery of 1,080
cars leased, in the same period of 2009. Our total backlog of firm orders for railcars increased by 1,789 railcars,
from 265 railcars as of December 31, 2009 to 2,054 railcars as of December 31, 2010. Our backlog at December 31,
2010, included 90 units to be built and placed on firm operating leases with independent third parties. Subsequent
to December 31, 2010 the Company received additional orders for more than 4,000 new railcars to be manufactured
and delivered over the course of 2011 and 2012.
The North American railcar market is highly cyclical and the trends in the railcar industry are closely related to the
overall level of economic activity. We expect railroads and utilities to continue to upgrade their fleets of aging steel-
bodied coal cars to, modern, higher-capacity aluminum, hybrid aluminum and stainless steel, and stainless steel
bodied coal cars, which are the core of our product offering.
In May 2008, we closed our manufacturing facility located in Johnstown, Pennsylvania. This action was taken to
further our strategy of optimizing production at our low-cost facilities and continuing our focus on cost control.
During 2008 we recorded $20.0 million in plant closure charges that were primarily related to special pension
benefits to certain workers at the Johnstown manufacturing facility and deferred vested benefits to other workers, as
well as health care benefits, severance pay and/or settlement bonus payments.
FINANCIAL STATEMENT PRESENTATION
Revenues
Our revenues are generated primarily from sales of the railcars that we manufacture. Our sales depend on industry
demand for new railcars, which is driven by overall economic conditions and the demand for railcar transportation
of various products, primarily coal but also other products such as motor vehicles, steel products, forest products,
minerals, cement and agricultural commodities. Our sales are also affected by competitive market pressures that
impact our market share, the prices for our railcars and by the types of railcars sold. Our additional revenue sources
include parts sales, lease rental revenue, revenues related to the maintenance and repair, inspections and rebuilding
of railcars and revenue for fleet management services. Lease revenue represents payments received with respect to
railcars under operating leases.
20
We generally manufacture railcars under firm orders from our customers. We recognize revenue, when 1) we
complete the individual railcars, 2) the railcars are accepted by the customer following inspection, 3) the risk of any
damage or other loss with respect to the railcars passes to the customer and 4) title to the railcars transfers to the
customer. Deliveries include new and used cars sold, cars built and contracted under operating leases and rebuilt
cars. With respect to sales transactions involving the trading-in of used railcars, in accordance with accounting
rules, we recognize revenue for the entire transaction when the cash consideration received is in excess of 25% of
the total transaction value and on a pro rata portion of the total transaction value when the cash consideration
received is less than 25% of the total transaction value. We value used railcars received at their estimated fair market
value. The variable purchase patterns of our customers and the timing of completion, delivery and customer
acceptance of railcars may cause our revenues and income from operations to vary substantially each quarter, which
will result in significant fluctuations in our quarterly results.
Cost of sales
Our cost of sales includes the cost of raw materials such as aluminum and steel, as well as the cost of finished railcar
components, such as castings, wheels, truck components and couplers, and other specialty components. Our cost of
sales also includes labor, utilities, freight, manufacturing depreciation and other operating costs. Factors that have
affected our cost of sales include the recent volatility in railcar deliveries, the cost of steel and aluminum, and our
efforts to continually reduce manufacturing costs at our manufacturing facilities and our closure of our Johnstown,
Pennsylvania facility. Substantially all of the contracts covering our backlog at December 31, 2010 are fixed-rate
contracts. Therefore, if material costs were to increase, we may not be able to pass on these increased costs to our
customers.
Operating (loss) income
Operating (loss) income represents revenues less cost of sales, selling, general and administrative expenses and plant
closure and sale (income) charges.
RESULTS OF OPERATIONS
Year Ended December 31, 2010 compared to Year Ended December 31, 2009
Revenues
Our revenues for the year ended December 31, 2010 were $142.9 million compared to $248.5 million for the year
ended December 31, 2009. Revenues for the year ended December 31, 2010 included $4.4 million of revenues
resulting from our acquisition of the business assets of DTE Rail Services, Inc. on November 1, 2010 and represent
revenues since the acquisition date that were generated from repair and maintenance, inspections and fleet
management services. Revenues for the year ended December 31, 2009 included $3.9 million generated from
contract termination fees resulting from a customer’s reduction of a sales order. The decrease in revenues for the
year ended December 31, 2010 compared to 2009 levels was due primarily to lower sales of coal cars driven by
reduced industry demand and a decrease of $4.9 million in revenues from parts sales for the year ended December
31, 2010 compared to 2009 levels. Railcar deliveries of 2,229 units for the year ended December 31, 2010 were
1,148 units below the 2009 deliveries of 3,377 units. Railcar deliveries for the year ended December 31, 2010
included delivery of 2,079 cars sold and delivery of 150 cars leased.
Gross Profit
Gross profit for the year ended December 31, 2010 was $2.7 million compared to $36.5 million for the year ended
December 31, 2009, representing a decrease of $33.8 million. Our gross margin rate of 1.9% for 2010 is a reflection
of the persistent challenging market conditions experienced during the year, the under-utilization of our fixed
manufacturing capacity and competitive pricing dynamics. This compares to our gross margin rate of 14.7% for
2009, which, while also influenced by the economic downturn, reflected a more favorable product mix, a better
pricing environment relative to 2010 and the contract cancellation payment of $3.9 million. Looking forward, we
expect recent orders to improve the utilization of our manufacturing capacity, but we also expect new railcar pricing
will remain very competitive, keeping pressure on margins.
21
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the year ended December 31, 2010 were $24.6 million compared to
$31.3 million for the year ended December 31, 2009, representing a decrease of $6.7 million or 21%. This decrease
reflects significant actions previously undertaken, eliminating employee bonuses for 2010 and lower severance costs
in 2010 which decreased selling, general and administrative expenses by $3.2 million and $1.9 million, respectively.
These decreases were partially offset by increases in consulting costs, including acquisition costs of $0.7 million.
Selling, general and administrative expenses for the year ended December 31, 2009 included $1.0 million of costs
associated with the restatement of our financial statements, $0.8 million of costs associated with the suspension of
our salaried pension plan and $0.4 million of expenses associated with the implementation of our enterprise resource
planning (“ERP”) system.
Plant Closure and Sale
Plant closure and sale income for the year ended December 31, 2010 represents the gain on the sale of our
Johnstown manufacturing facility while plant closure and sale income for the year ended December 31, 2009
represents insurance recoveries and accrual adjustments related to employee termination benefits. See Note 3 to the
consolidated financial statements.
Interest Expense/Income
Interest expense (consisting of commitment fees on our revolving credit facility and letter of credit fees) for the year
ended December 31, 2010 was $0.3 million compared to $0.5 million for the year ended December 31, 2009.
Reductions in interest expense for the 2010 period resulted from a lower fee structure in our current revolving credit
facility compared to our prior revolving credit facilities. Amortization and write-off of deferred financing costs for
the year ended December 31, 2010 included write-offs related to our prior credit facilities of $0.5 million. Interest
income was $0.1 million for each of the years ended December 31, 2010 and 2009.
Income Taxes
The income tax benefit was $9.5 million for the year ended December 31, 2010, compared to a provision for income
taxes of $0.2 million for the year ended December 31, 2009. The effective tax rates for the years ended December
31, 2010 and 2009, were 42.5% and 4.9%, respectively. The effective tax rate for the year ended December 31, 2010
was higher than the statutory U.S. federal income tax rate of 35% due to a 6.3% blended state tax rate, an increase of
2.7% for tax deductible goodwill offset by 1.6% for nondeductible expenses. The effective tax rate for the year
ended December 31, 2009 was lower than the statutory U.S. federal income tax rate of 35% due to a 13.9% blended
state rate, a decrease of 12.1% for tax-deductible goodwill, a decrease of 8.7% for the impact of the rate change on
deferred taxes, an increase of 3.2% caused by a change in the valuation allowance, an increase of 0.7% for
nondeductible expenses and an increase of 0.7% for the effect of other differences.
Net Income (Loss) Attributable to FreightCar America
As a result of the foregoing, net loss attributable to FreightCar America was $12.8 million for the year ended
December 31, 2010, reflecting a decrease of $17.7 million from net income attributable to FreightCar America of
$4.9 million for the year ended December 31, 2009. For 2010, our basic and diluted net loss per share were both
$1.07, on basic and diluted shares outstanding of 11,896,148. For 2009, our basic and diluted net income per share
were both $0.42, on basic and diluted shares outstanding of 11,861,366 and 11,870,350, respectively.
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
Revenues
Our revenues for the year ended December 31, 2009 were $248.5 million as compared to $746.4 million for the year
ended December 31, 2008 while railcar deliveries of 3,377 were 6,899 units below the 2008 level. Railcar deliveries
for the year ended December 31, 2009 included delivery of 2,297 cars sold and delivery of 1,080 cars leased.
Revenues for the year ended December 31, 2009 included $3.9 million generated from contract termination fees
resulting from a customer’s reduction of a sales order. The decrease in revenues for the year ended December 31,
2009 compared to 2008 levels was due primarily to lower sales of coal cars driven by reduced industry demand.
Coal loadings in 2009 significantly decreased from 2008 levels, and the number of railcars in storage remained high
22
during 2009. Recession-driven reductions in demand for electricity, ample utility stockpiles, lower production and
decelerating export activity contributed to the decline in coal activity during 2009.
Gross Profit
Gross profit for the year ended December 31, 2009 was $36.5 million compared to $66.8 million for the year ended
December 31, 2008, representing a decrease of $30.3 million. The corresponding margin rate was 14.7% for the
year ended December 31, 2009 compared to 8.9% for the year ended December 31, 2008. The change in margin
rate was driven primarily by a favorable product mix. The contract termination fee of $3.9 million also contributed
to the margin rate improvement for 2009.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the year ended December 31, 2009 were $31.3 million compared to
$31.7 million for the year ended December 31, 2008, representing a decrease of $0.4 million. We took significant
actions in 2009 to reduce selling, general and administrative expenses. However, those reductions were partially
offset by increases for severance costs of $3.1 million, costs associated with the restatement of our financial
statements of $1.0 million, costs associated with the suspension of our salaried pension plan of $0.8 million and
expenses associated with the implementation of our ERP system of $0.4 million.
Plant Closure and Sale
Plant closure and sale income for the year ended December 31, 2009 represent insurance recoveries and accrual
adjustments related to employee termination benefits. Plant closure and sale charges for the year ended December
31, 2008 represent the incremental costs associated with our decision, in December 2007, to close our Johnstown,
Pennsylvania manufacturing facility and included charges arising under our pension and postretirement benefit plans
as well as employment termination and related closure costs. See Note 3 to the consolidated financial statements.
Interest Expense/Income
Total interest expense for the year ended December 31, 2009 was $0.8 million compared to $0.7 million for the year
ended December 31, 2008. Interest expense consisted of commitment fees on our credit facilities and the
amortization of deferred financing costs. Interest income for the year ended December 31, 2009 was $0.1 million
compared to $3.8 million for the year ended December 31, 2008, representing a decrease of $3.7 million as interest
rates decreased compared to 2008 levels.
Income Taxes
The provision for income taxes was $0.2 million for the year ended December 31, 2009, compared to a provision for
income taxes of $6.8 million for the year ended December 31, 2008. The effective tax rates for the years ended
December 31, 2009 and 2008, were 4.9% and 37.2%, respectively. The effective tax rate for the year ended
December 31, 2009 was lower than the statutory U.S. federal income tax rate of 35% due to a decrease of 13.9%
resulting from a change in the blended state rate, a decrease of 12.1% for tax-deductible goodwill, a decrease of
8.7% for the impact of the rate change on deferred taxes, an increase of 3.2% caused by a change in the valuation
allowance, an increase of 0.7% for nondeductible expenses and an increase of 0.7% for the effect of other
differences. The effective tax rate for the year ended December 31, 2008 was higher than the statutory U.S. federal
income tax rate of 35% due to an increase of 7.7% caused by a change in the valuation allowance and an increase of
0.6% for the effect of other differences, partially offset by a decrease of 3.3% for tax-deductible goodwill and a
decrease of 2.8% due to a change in the blended state rate,. The increase in the valuation allowance for 2008 was
primarily due to plant closure charges that caused the Pennsylvania deferred tax assets to increase, resulting in a
corresponding increase to the valuation allowance.
Net Income Attributable to FreightCar America
As a result of the foregoing, net income attributable to FreightCar America was $4.9 million for the year ended
December 31, 2009, reflecting a decrease of $6.5 million from net income of $11.4 million for the year ended
December 31, 2008. For 2009, our basic and diluted net income per share were both $0.42, on basic and diluted
shares outstanding of 11,861,366 and 11,870,350, respectively. For 2008, our basic and diluted net income per
share were both $0.97, on basic and diluted shares outstanding of 11,788,400 and 11,833,132, respectively.
23
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity for the years ended December 31, 2010 and 2009, were our cash and cash
equivalent balances on hand, our securities available for sale, our cash generated by operations and our revolving
credit facilities. On July 29, 2010, we entered into a new $30.0 million senior secured revolving credit facility
pursuant to a Loan and Security Agreement dated as of July 29, 2010 (the “Revolving Loan Agreement”) among the
Company and certain of its subsidiaries, as borrowers (collectively, the “Borrowers”), and Fifth Third Bank, as
lender. The proceeds of the new revolving credit facility can be used for general corporate purposes, including
working capital. The Revolving Loan Agreement also contains a sub-facility for letters of credit not to exceed $20.0
million. As of December 31, 2010, we had no borrowings under the new revolving credit facility. We had $1.4
million in outstanding letters of credit under the new revolving credit facility as of December 31, 2010.
The Revolving Loan Agreement has a term ending on July 29, 2013 and revolving loans outstanding thereunder will
bear interest at a rate of LIBOR plus an applicable margin of 2.50% or at prime, as selected by the Borrowers. We
are required to pay a non-utilization fee of 0.35% on the unused portion of the revolving loan commitment.
Borrowings under the Revolving Loan Agreement are secured by our accounts receivable, inventory and certain
other assets, and borrowing availability is tied to a borrowing base of eligible accounts receivable and inventory.
The Revolving Loan Agreement has both affirmative and negative covenants, including, without limitation, a
minimum tangible net worth covenant and limitations on indebtedness, liens and investments. The Revolving Loan
Agreement also provides for customary events of default. As of December 31, 2010, we were in compliance with
all of the covenants contained in the agreement.
The Revolving Loan Agreement replaces our prior revolving credit facility under the Second Amended and Restated
Credit Agreement dated August 24, 2007, as amended, among certain of the Borrowers and the lenders party thereto
(the “Prior Credit Agreement”) and the Credit Agreement dated September 30, 2008, as amended, among JAIX
Leasing Company and the lenders party thereto (the “JAIX Credit Agreement”), which had been available to fund
our leasing operations. There were no borrowings outstanding under the Prior Credit Agreement or the JAIX Credit
Agreement as of December 31, 2009 or when they were cancelled as of July 29, 2010. During the third quarter of
2010, we wrote off $0.5 million in unamortized deferred financing costs related to these terminated agreements. We
had $1.2 million in outstanding letters of credit under the letter of credit sub-facility of the Prior Credit Agreement
as of December 31, 2009. These letters of credit remain outstanding as of December 31, 2010, but due to the
cancellation of the Prior Credit Agreement, they are currently secured by restricted cash deposits.
Our restricted cash balance was $2.3 million as of December 31, 2010, consisting of cash used to collateralize
standby letters of credit with respect to purchase price payment guarantees and performance guarantees. The
standby letters of credit are scheduled to expire at various dates through November 2011. We expect to establish
restricted cash balances in future periods to minimize bank fees related to standby letters of credit while maximizing
our ability to borrow under the new revolving credit facility.
As of December 31, 2010, the value of railcars under operating leases was $65.4 million, the investment in which
was funded by cash flows from operations. We anticipate that we may continue to offer railcars under operating
leases to certain customers and pursue opportunities to sell leases in our portfolio. Additional railcars under
operating leases may be funded by cash flows from operations, or we may pursue a new credit facility to fund
railcars under operating leases, or both, as we evaluate our liquidity and capital resources.
Our payment of $23.3 million to acquire the business assets of DTE Rail Services, Inc. on November 1, 2010 was
funded by cash from operations. Based on our current level of operations and known changes in planned volume
based on our backlog, we believe that our proceeds from operating cash flows and our cash balances, together with
amounts available under our revolving credit facility, will be sufficient to meet our anticipated liquidity needs for
2011. Our long-term liquidity is contingent upon future operating performance and our ability to continue to meet
financial covenants under our revolving credit facility and any other indebtedness. We may also require additional
capital in the future to fund working capital as demand for railcars increases or to fund organic growth opportunities,
including new plant and equipment, development of railcars, joint ventures and acquisitions, and these capital
requirements could be substantial. Management continuously evaluates manufacturing facility requirements based
on market demand and may elect to make capital investments at higher levels in the future. We are also exploring
product diversification initiatives, international expansion and other opportunities.
Our long-term liquidity needs also depend to a significant extent on our obligations related to our pension and
welfare benefit plans. We provide pension and retiree welfare benefits to certain salaried and hourly employees upon
24
their retirement. Benefits under our pension plans are now frozen and will not be impacted by increases due to future
service. The most significant assumptions used in determining our net periodic benefit costs are the discount rate
used on our pension and postretirement welfare obligations and expected return on pension plan assets. As of
December 31, 2010, our benefit obligation under our defined benefit pension plans and our postretirement benefit
plan was $62.3 million and $65.3 million, respectively, which exceeded the fair value of plan assets by $15.5 million
and $65.3 million, respectively. We made contributions of $28,000 to our defined benefit pension plans during 2010.
As disclosed in Note 12 to the consolidated financial statements, we expect to make contributions of $5.0 million to
our defined benefit pension plans in 2011. The Pension Protection Act of 2006 provides for changes to the method
of valuing pension plan assets and liabilities for funding purposes as well as minimum funding levels. Our defined
benefit pension plans are in compliance with the minimum funding levels established in the Pension Protection Act.
Funding levels will be affected by future contributions, investment returns on plan assets, growth in plan liabilities
and interest rates. Assuming that the plans are fully funded as that term is defined in the Pension Protection Act, we
will be required to fund the ongoing growth in plan liabilities on an annual basis. We made payments to our
postretirement benefit plan of approximately $4.3 million during 2010, and expect to make approximately $5.3
million in payments to our postretirement benefit plan in 2011. We anticipate funding pension plan contributions
and postretirement benefit plan payments with cash from operations and available cash.
Based upon our operating performance, capital requirements and obligations under our pension and welfare benefit
plans, we may, from time to time, be required to raise additional funds through additional offerings of our common
stock 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.
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2010, and the effect that these
obligations would be expected to have on our liquidity and cash flow in future periods:
Payments Due by Period
(In thousands)
Contractual Obligations
Total
1 Year
2-3
Years
4-5
Years
After
5 Years
Operating leases ....................................................... $ 11,255
Material and component purchases ..........................
95,605
$
2,658
24,799
$
5,219
52,664
$ 3,003
18,142
$
375
—
Total ................................................................ $ 106,860
$ 27,457
$ 57,883
$ 21,145
$
375
Material and component purchases consist of non-cancelable agreements with suppliers to purchase materials used
in the manufacturing process. Purchase commitments for aluminum are made at a fixed price and are typically
entered into after a customer places an order for railcars. The estimated amounts above may vary based on the
actual quantities and price.
The above table excludes $3.2 million related to a reserve for uncertain tax positions at December 31, 2010 because
the timing of the payout of these amounts cannot be determined.
We are a party to letter agreements regarding terms of employment with our President and Chief Executive Officer
and Vice President, Finance, Chief Financial Officer and Treasurer and employment agreements with other
members of our executive management team. See Item 11. “Executive Compensation.”
We are also required to make minimum contributions to our pension and postretirement welfare plans. See Note 12
to the consolidated financial statements regarding our expected contributions to our pension plans and our expected
postretirement welfare benefit payments for 2011.
25
Cash Flows
The following table summarizes our net cash provided by or used in operating activities, investing activities and
financing activities for the years ended December 31, 2010, 2009 and 2008:
(Amounts in thousands)
Net cash (used in) provided by:
2010
2009
2008
Operating activities ......................................................................$ (42,071)
Investing activities .......................................................................
6,908
Financing activities ......................................................................
(1,072)
$
22,864 $ (23,065)
(42,174)
(51,284)
(2,611)
(2,757)
Total ......................................................................................................$
(36,235) $
(31,177) $
(67,850)
Operating Activities. Our net cash provided by or used in operating activities reflects net income or 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, and payments to our
suppliers. As some of our customers accept delivery of new railcars in train-set quantities, consisting on average of
120 to 135 railcars, 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 year ended December 31, 2010 was $42.1 million compared to net
cash provided by operating activities of $22.9 million for the year ended December 31, 2009. Net cash used in
operating activities for the year ended December 1, 2010 included our loss from operations and an increase in
working capital balances to support the increase in orders and planned production levels, including increases in
inventory of $13.5 million, increases in prepaid expenses of $3.6 million, decreases in accounts payable of $5.1
million and decreases in accrued payroll and benefits of $3.9 million. Net cash provided by operating activities for
the year ended December 1, 2009 included increases in cash due to changes in accounts receivable of $69.4 million
and increases in cash due to changes in income taxes of $6.6 million, that were partially offset by decreases in cash
due to changes in accounts payable of $29.9 million, decreases in cash due to changes in inventories of $18.3
million, and decreases in cash related to changes in accrued pension and postretirement benefits of $10.6 million.
Net cash used in operating activities for the year ended December 31, 2008 included decreases in cash due to
changes in accounts receivable of $60.1 million, the cost of leased railcars held for sale of $11.5 million and
decreases in cash due to changes in customer deposits of $11.9 million that were partially offset by increases in cash
due to changes in inventories of $17.5 million and increases in cash due to changes in accounts payable of $10.1
million. Cash flows for the year ended December 31, 2008 also included increases from net income of $11.4 million
and adjustments for non-cash items, most significantly plant closure charges of $20.0 million.
Investing Activities. Net cash provided by investing activities for the year ended December 31, 2010 was $6.9
million compared to net cash used in investing activities of $51.3 million for the year ended December 31, 2009.
The most significant investing activities for the year ended December 31, 2010 were maturities of securities
available for sale (net of purchases) of $30.0 million, which were partially offset by business acquisition costs of
$23.3 million. Net cash used in investing activities for the year ended December 31, 2009 included the cost of
purchasing securities available for sale of $29.9 million (net of maturities), cost of railcars on operating leases
produced or acquired of $15.6 million and capital expenditures of $4.3 million. Net cash used in investing activities
for the year ended December 31, 2008 included the cost of railcars on operating leases produced or acquired of
$35.2 million and capital expenditures of $7.0 million.
Financing Activities. Net cash used in financing activities for the year ended December 31, 2010 was $1.1 million
compared to net cash used in financing activities of $2.8 million for the year ended December 31, 2009. Net cash
used in financing activities for the year ended December 31, 2010 included $0.7 million of cash dividends paid to
our stockholders, $0.2 million in employee restricted stock settlements and $0.1 million in deferred financing costs.
Net cash used in financing activities for the year ended December 31, 2009 included $2.9 million of cash dividends
paid to our stockholders, partially offset by a $0.1 million investment in noncontrolling interest by our joint venture
partner. Net cash used in financing activities for the year ended December 31, 2008 was $2.6 million and included
26
$2.9 million of cash dividends paid to our stockholders and $0.8 million in deferred financing costs. These were
partially offset by the receipt of $1.1 million from treasury stock issued for stock options exercised.
Capital Expenditures
Our capital expenditures were $1.4 million for the year ended December 31, 2010 compared to $4.3 million for the
year ended December 31, 2009. Capital expenditures for the year ended December 31, 2010 included cash outlays
to add additional functionality to our ERP system that was implemented during 2009 and expenditures to maintain
our existing facilities. For the year ended December 31, 2009, capital expenditures were primarily cash outlays for
our ERP system. Capital expenditures of $7.0 million for the year ended December 31, 2008 were primarily
comprised of equipment expenditures to enable us to build wheel and truck assemblies and side sheet assemblies in-
house as well as cash outlays for our new ERP system.
Excluding unforeseen expenditures, management expects that capital expenditures will be approximately $4.0
million in 2011 and will be used to maintain our existing railcar manufacturing, and repair and maintenance
facilities. Management continuously evaluates manufacturing facility requirements based upon market demand and
may elect to make capital investments at higher levels in the future.
CRITICAL ACCOUNTING POLICIES
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the
United States. The preparation of our financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of sales and expenses during the reporting period. Significant
estimates include long-lived assets, goodwill, pension and postretirement benefit assumptions, the valuation reserve
on the net deferred tax asset, warranty accrual and contingencies and litigation. Actual results could differ from
those estimates.
Our critical accounting policies include the following:
Long-lived assets
We evaluate long-lived assets, including property, plant and equipment, under the provisions of ASC 360, Property,
Plant and Equipment, which addresses financial accounting and reporting for the impairment of long-lived assets
and for long-lived assets to be disposed of. For assets to be held or used, we group a long-lived asset or assets with
other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash
flows of other assets and liabilities. An impairment loss for an asset group reduces only the carrying amounts of a
long-lived asset or assets of the group being evaluated. Our estimates of future cash flows used to test the
recoverability of a long-lived asset group include only the future cash flows that are directly associated with and that
are expected to arise as a direct result of the use and eventual disposition of the asset group. Our future cash flow
estimates exclude interest charges.
We test long-lived assets for recoverability whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. These changes in circumstances may include a significant decrease in
the market value of an asset or the extent or manner in which an asset is used. We routinely evaluate our
manufacturing footprint to assess our manufacturing capacity and cost of production in an effort to optimize
production at our low-cost manufacturing facilities.
In response to reduced industry demand for railcars, our manufacturing facility in Roanoke, Virginia ceased
production of new railcars in July 2009. As a result, we tested long-lived assets at our Roanoke and Danville
facilities for recoverability as of December 31, 2009 using estimated future cash flows derived from our strategic
plan. In connection with the analysis, we had to make estimates regarding future sales volumes, gross margins and
selling, general and administrative expenses, as well as the split of future production levels between our two plants.
The analysis indicated that there was no impairment of the long-lived assets for the Roanoke, Virginia and Danville,
Illinois facilities as of December 31, 2009. Because of the inherent uncertainties of our projections, we also
performed sensitivity analysis around these estimates and determined that an impairment would not occur under a
range of operating results, including shifts in the allocation of production, future railcar volumes and future gross
margins. At December 31, 2010, our manufacturing facility in Roanoke, Virginia was preparing to resume
production in 2011 as industry demand had improved.
27
We recorded impairment charges for leased railcars held for sale of $0 during 2010, $800,000 during 2009 and
$597,000 during 2008 (see note 6 to the consolidated financial statements).
Impairment of goodwill and intangible assets
We have recorded on our balance sheet both goodwill and intangible assets, which consist of patents and customer
related intangibles resulting from our acquisition of the business assets of DTE Rail Services, Inc. during 2010. We
perform the goodwill impairment test required by ASC 350, Intangibles – Goodwill and Other, as of January 1 of
each year. We test goodwill for impairment between annual tests if an event occurs or circumstances change that
may reduce the fair value of a reporting unit below its carrying amount. We tested goodwill for impairment as of
December 31, 2009 in connection with the economic downturn for new coal cars. We also tested goodwill for
impairment as of December 31, 2010 due to the continued low production levels during 2010 and uncertainty as to
when sustained demand for new coal cars will return.
Management estimates the valuation of our Company using a combination of methods, appropriate to the
circumstances, including discounted future cash flows and our company’s market capitalization. Historically,
management has valued our Company as one reporting unit, but after acquiring FCRS, the 2010 impairment test was
performed on two reporting units. We concluded that the estimated fair value of our Company’s net assets exceeded
the carrying value as of the dates of our annual impairment tests for 2010, 2009 and 2008 and as of the dates of our
interim impairment tests for 2009 and 2010. Additional steps, including an allocation of the estimated fair value to
our assets and liabilities, would be necessary to determine the amount, if any, of goodwill impairment if the fair
value of our net assets were less than their carrying value.
The discounted cash flow method involves management making estimates with respect to a variety of factors that
will significantly impact the future performance of the business, including:
• Future railcar volume projections based on an industry-specific outlook for railcar demand and specifically coal
railcar demand;
•
estimated margins on railcar sales; and
• weighted-average cost of capital (or WACC) used to discount future performance of our Company.
Because these estimates form a basis for the determination of whether or not an impairment charge should be
recorded, these estimates are considered to be critical accounting estimates.
We use industry data to estimate volume projections in our discounted cash flow method. We believe that this
independent industry data is the best indicator of expected future performance assuming that we maintain a
consistent market share, which management believes is supportable based on historical performance. Our estimated
margins used in the discounted cash flow method are based primarily on historical margins. Management estimated
a WACC of 15.2% for our December 31, 2010 goodwill impairment valuation analysis.
In addition to estimating the fair value of our net assets using the discounted cash flow method in the base case
scenario, we also estimated the fair value of our net assets using the discounted cash flow method for three alternate
scenarios, including the impact of a negative 15% adjustment to our new car build volume projections, the impact of
excluding certain revenue sources and the impact of a 1% increase in the WACC used in the discounted cash flow
method. We compared the estimated fair value of our net assets using the discounted cash flow method in the base
case scenario to the three alternate scenarios. Each of these three alternate scenarios reduced the estimated fair
value of our net assets using the discounted cash flow method by between 4% and 9% compared to the estimated
fair value of our net assets in the base case, however in all scenarios the estimated fair value of our net assets
exceeded the carrying value. Although future results may differ from those used in the base case scenario,
management believes that the discounted cash flow method using the base case scenario is the best estimate of the
lower range of fair value of our net assets as of December 31, 2010.
Pensions and postretirement benefits
We provide pension and retiree welfare benefits to certain salaried and hourly employees upon their retirement. The
most significant assumptions used in determining our net periodic benefit costs are the expected return on pension
28
plan assets and the discount rate used to calculate the present value of our pension and postretirement welfare plan
liabilities.
In 2010, we assumed that the expected long-term rate of return on pension plan assets would be 8.25%. As permitted
under ASC 715 the assumed long-term rate of return on assets is applied to a calculated value of plan assets, which
recognizes changes in the fair value of plan assets in a systematic manner over five years. This produces the
expected return on plan assets that is included in our net periodic benefit cost. The difference between this expected
return and the actual return on plan assets is deferred. The net deferral of past asset gains (losses) affects the
calculated value of plan assets and, ultimately, future net periodic benefit cost. We review the expected return on
plan assets annually and would revise it if conditions should warrant. A change of one percentage point in the
expected long-term rate of return on plan assets would have the following effect:
Effect on net periodic benefit cost ............................................................................... $
1% Increase
1% Decrease
(in thousands)
(431) $
431
At the end of each year, we determine the discount rate to be used to calculate the present value of our pension and
postretirement welfare plan liabilities. The discount rate is an estimate of the current interest rate at which our
pension liabilities could be effectively settled at the end of the year. In estimating this rate, we look to rates of return
on high-quality, fixed-income investments that receive one of the two highest ratings given by a recognized ratings
agency. At December 31, 2010, we determined this rate on our postretirement welfare plan to be 5.26%, a decrease
of 0.5% from the 5.76% rate used at December 31, 2009. At December 31, 2010, we determined this rate on our
pension plans on a plan by plan basis with results ranging from 5.22% to 5.49%. A change of one percentage point
in the discount rate would have the following effect:
Effect on net periodic benefit cost ................................................................................ $
(in thousands)
105 $
(67)
1% Increase
1% Decrease
For the years ended December 31, 2010, 2009 and 2008, we recognized consolidated pre-tax pension cost of $0.3
million, $2.7 million and $10.8 million, respectively. Pension costs for 2009 include accelerated recognition of
unrecognized prior service cost of $0.8 million resulting from the suspension of our pension plan for salaried
employees. Pension costs for 2008 include special termination benefit costs of $10.1 million resulting from our
plant closure decision (See Note 3, Plant Closure and Sale and Note 12, Employee Benefit Plans to our consolidated
financial statements for a description of these actions). We currently expect to make contributions of $5.0 million to
our pension plans during 2011. However, we may elect to adjust the level of contributions based on a number of
factors, including performance of pension investments and changes in interest rates. The Pension Protection Act of
2006 provided for changes to the method of valuing pension plan assets and liabilities for funding purposes as well
as requiring minimum funding levels. Our defined benefit pension plans are in compliance with minimum funding
levels established in the Pension Protection Act. Funding levels will be affected by future contributions, investment
returns on plan assets, growth in plan liabilities and interest rates. Once the plan is fully funded as that term is
defined within the Pension Protection Act, we will be required to fund the ongoing growth in plan liabilities on an
annual basis. We anticipate funding pension contributions with cash from operations.
For the years ended December 31, 2010, 2009 and 2008, we recognized a consolidated pre-tax postretirement
welfare benefit cost of $4.0 million, $4.2 million and $12.6 million, respectively. Postretirement welfare benefit
costs for 2008 include contractual benefit charges of $8.9 million resulting from our plant closure decision (See
Note 3, Plant Closure and Sale and Note 12, Employee Benefit Plans to our consolidated financial statements for a
description of these actions). We currently expect to pay approximately $5.3 million during 2011 in postretirement
welfare benefits.
Income taxes
We account for income taxes under the asset and liability method prescribed by ASC 740, Income Taxes. We
provide for deferred income taxes based on differences between the book and tax bases of our assets and liabilities
and for items that are reported for financial statement purposes in periods different from those for income tax
reporting purposes. The deferred tax liability or asset amounts are based upon the enacted tax rates expected to apply
to taxable income in the periods in which the deferred tax liability or asset is expected to be settled or realized.
29
Our income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect our best
assessment of estimated future taxes to be paid. Management judgment is required in developing our provision for
income taxes, including the determination of deferred tax assets, liabilities and any valuation allowances recorded
against the deferred tax assets. We record net deferred tax assets to the extent we believe these assets will more
likely than not be realized. In evaluating whether it is more likely than not that our net deferred tax assets will be
realized, we consider both positive and negative evidence including our Company’s three year cumulative pre-tax
income position, the reversal of existing taxable temporary differences, taxable income in prior carryback years if
carryback is permitted under the tax law and such taxable income has not previously been used for carryback, future
taxable income exclusive of reversing temporary differences and carryforwards based on near-term and longer-term
projections of operating results and the length of the carryforward period. We evaluate the realizability of our net
deferred tax assets and assess the valuation allowance on a quarterly basis, adjusting the amount of such allowance,
if necessary. Failure to achieve forecasted taxable income might affect the ultimate realization of the net deferred tax
assets. Factors that may affect our ability to achieve sufficient forecasted taxable income include, but are not limited
to, increased competition, a decline in sales or margins and loss of market share
At December 31, 2010, we had total net deferred tax assets of $37.0 million. The railcar industry is in the midst of
an extended cyclical downturn. However, the railcar market has an established history of cyclicality based on
significant swings in customer demand. Industry projections forecast this trend to continue, with a recovery in
demand in 2011-2012 and continuing for several years thereafter. Although realization of our net deferred assets is
not certain, management has concluded that, based on the positive and negative evidence considered and the
expected improvement in railcar demand and, therefore, operating results, we will more likely than not realize the
full benefit of the deferred tax assets except for our deferred tax assets in certain states and the foreign jurisdictions
in which we operate. At December 31, 2010, we had a valuation allowance of $5.0 million against net operating
losses and deferred tax assets in certain states and the foreign jurisdictions in which we operate.
Product warranties
We establish a warranty reserve for railcars sold and estimate the amount of the warranty accrual based on the
history of warranty claims for the type of railcar, adjusted for significant known claims in excess of established
reserves. Warranty terms are based on the negotiated railcar sales contracts and typically are for periods of one to
five years.
Revenue recognition
We recognize revenues on new and rebuilt railcars when 1) individual cars are completed, 2) the railcars are
accepted by the customer following inspection, 3) the risk for any damage or other loss with respect to the railcars
passes to the customer and 4) title to the railcars transfers to the customer. We do not record any returns or
allowances against sales. We recognize revenue for the entire transaction on transactions involving used railcar
trades when the cash consideration is in excess of 25% of the total transaction value and on a pro-rata portion of the
total transaction value when the cash consideration is less than 25% of the total transaction value. We value used
railcars received at their estimated fair market value at the date of receipt less a normal profit margin.
We recognize service-related revenue from maintenance and repairs and inspections when all significant
maintenance or repair or inspections services have been completed and quality accepted. We recognize revenue
from parts sales when the risk of any damage or loss and title passes to the customer and delivery has occurred.
We recognize operating lease revenue on leased railcars on a straight-line basis over the life of the lease, except for
lease revenue on leased railcars held for sale, which is recognized on a contractual basis over the life of the lease.
We recognize revenue from the sale of railcars under operating leases on a gross basis in manufacturing sales and
cost of sales if the railcars are sold within 12 months as the manufacture of the railcars and the sales process is
complete. We recognize revenue from the sale of railcars under operating leases on a net basis in leasing revenue as
a gain (loss) on sale of leased railcars if the railcars are held in excess of 12 months as the sale represents the
disposal of a long-term asset.
We accrue for loss contracts when we have a contractual commitment to manufacture railcars at an estimated cost in
excess of the contractual selling price.
30
Compensation expense under stock option agreements and restricted stock awards
We have historically granted certain stock-based awards to employees and directors in the form of non-qualified
stock options, incentive stock options and restricted stock. At the date that an award is granted, we determine the
fair value of the award and recognize the compensation expense over the requisite service period, which typically is
the period over which the award vests. We value restricted stock awards at the fair market value of our stock on the
grant date, calculated as the average of the high and low trading prices for our common stock on the grant date. We
estimate the fair value of stock options using the Black-Scholes option-pricing model. Determining the fair value of
stock options at the grant date requires us to apply judgment and use highly subjective assumptions, including
expected stock-price volatility, expected exercise behavior, expected dividend yield and expected forfeitures. While
the assumptions that we develop are based on our best expectations, they involve inherent uncertainties based on
market conditions and employee behavior that are outside of our control. If actual results, including forfeitures are
not consistent with the assumptions used, the stock-based compensation expense reported in our financial statements
could be impacted.
Contingencies and litigation
We are subject to the possibility of various loss contingencies related to certain legal proceedings arising in the
ordinary course of business. We consider the likelihood of loss or the incurrence of a liability, as well as our ability
to reasonably estimate the amounts of loss, in the determination of loss contingencies. We accrue an estimated loss
contingency when it is probable that a liability has been incurred and the amount of loss can be reasonably
estimated. We regularly evaluate current information available to us based on our ongoing monitoring activities to
determine whether the accruals should be adjusted. If the amount of the actual loss is greater than the amount we
have accrued, this would have an adverse impact on our operating results in that period.
RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 2010, we adopted the Financial Accounting Standards Board’s (FASB) changes to ASC 810
Consolidation. These changes require us to perform an analysis to determine whether our Company’s variable
interest or interests give it a controlling financial interest in a variable interest entity and to perform ongoing
reassessments of whether our Company is the primary beneficiary of a variable interest entity. These changes to
ASC 810 eliminate the solely quantitative approach previously required for determining the primary beneficiary of a
variable interest entity and add an additional reconsideration event for determining whether an entity is a variable
interest entity when any changes in facts and circumstances occur such that holders of the equity investment, as a
group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity
that most significantly impact the entity’s economic performance. These changes to ASC 810 also require enhanced
disclosures to provide users of financial statements with more transparent information about our Company’s
involvement in a variable interest entity. The adoption of changes to ASC 810 had no impact our financial
statements.
In December 2008, the FASB issued changes to ASC 715, Compensation-Retirement Benefits (formerly FASB Staff
Position No. FAS 132 (R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets). ASC 715 now
requires additional disclosures about plan assets for defined benefit pension and other postretirement benefit plans.
The additional disclosures required by ASC 715 are effective for fiscal years ending after December 15, 2009.
Upon initial application, the provisions of ASC 715 are not required for earlier periods that are presented for
comparative purposes. Since ASC 715 requires enhanced disclosures without a change to existing standards relative
to measurement and recognition, the adoption of ASC 715 did not have an impact on our results of operations or
financial position.
31
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K 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,” “intend” and similar expressions in this prospectus to identify forward-looking statements. We
have based these forward-looking statements on our current views with respect to future events and financial
performance. Our actual results could differ materially from those projected in the forward-looking statements.
Our forward-looking statements are subject to risks and uncertainties, including:
•
•
•
•
•
•
the cyclical nature of our business;
adverse economic and market conditions;
fluctuating costs of raw materials, including steel and aluminum, and delays in the delivery of raw materials;
our ability to maintain relationships with our suppliers of railcar components;
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;
the highly competitive nature of our industry;
our reported backlog may not indicate what our future sales will be;
risks relating to our relationship with our unionized employees and their unions;
our ability to manage our health care and pension costs;
our reliance on the sales of our aluminum-bodied coal cars;
shortages of skilled labor;
the risk of lack of acceptance of our new railcar offerings by our customers;
the cost of complying with environmental laws and regulations;
potential significant warranty claims; and
various covenants in the agreements governing our indebtedness that limit our management’s discretion in the
operation of our businesses.
•
•
•
•
•
•
•
•
•
•
Our actual results could be different from the results described in or anticipated by our forward-looking statements
due to the inherent uncertainty of estimates, forecasts and projections and may be better or worse than anticipated.
Given these uncertainties, you should not rely on forward-looking statements. Forward-looking statements represent
our estimates and assumptions only as of the date that they were made. 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. All of the forward-looking statements are qualified in their entirety by reference to the
factors discussed under Item 1A, “Risk Factors.”
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We have a $30.0 million senior secured revolving credit facility, the proceeds of which can be used for general
corporate purposes, including working capital. On an annual basis, a 1% change in the interest rate in our revolving
credit facility will increase or decrease our interest expense by $10,000 for every $1.0 million of outstanding
borrowings. As of December 31, 2010, there were no borrowings under the revolving credit facility and we had
issued approximately $1.4 million in letters of credit under the revolving credit facility.
The production of railcars and our operations require substantial amounts of aluminum and steel. The cost of
aluminum, steel and all other materials (including scrap metal) used in the production of our railcars represents a
significant majority of our direct manufacturing costs. Our business is subject to the risk of price increases and
periodic delays in the delivery of aluminum, steel and other materials, all of which are beyond our control. Any
fluctuations in the price or availability of aluminum or steel, or any other material used in the production of our
railcars, may have a material adverse effect on our business, results of operations or financial condition. In addition,
if any of our suppliers were unable to continue its business or were to seek bankruptcy relief, the availability or price
of the materials we use could be adversely affected. When market conditions permit us to do so, we negotiate
contracts with our customers that allow for variable pricing to protect us against future changes in the cost of raw
materials. When raw material prices increase rapidly or to levels significantly higher than normal, we may not be
able to pass price increases through to our customers, which could adversely affect our operating margins and cash
flows.
We are not exposed to any significant foreign currency exchange risks as our general policy is to denominate foreign
sales and purchases in U.S. dollars.
32
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
FreightCar America, Inc.:
We have audited the accompanying consolidated balance sheets of FreightCar America, Inc. and subsidiaries (the
“Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations,
stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010. Our audits
also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial
statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of
FreightCar America, Inc. and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and
their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company’s internal control over financial reporting as of December 31, 2010, based on the criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 15, 2011 expressed an unqualified opinion on the Company’s
internal control over financial reporting.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
March 15, 2011
33
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
FreightCar America, Inc.:
We have audited the internal control over financial reporting of FreightCar America, Inc. and subsidiaries (the
“Company”) as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s
Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control
over financial reporting at DTE Rail Services, Inc. (“DTE”), which was acquired on November 1, 2010, and whose
financial statements constitute 8% of total assets, 3% of revenues, and had an immaterial impact on net loss of the
consolidated financial statement amounts as of and for the year ended December 31, 2010. Accordingly, our audit
did not include the internal control over financial reporting at DTE. The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the
company’s principal executive and principal financial officers, or persons performing similar functions, and effected
by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion
or improper management override of controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2010, based on the criteria established in Internal Control — Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements and financial statement schedule as of and for the year ended
December 31, 2010 of the Company and our report dated March 15, 2011 expressed an unqualified opinion on those
financial statements and financial statement schedule.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
March 15, 2011
34
FreightCar America, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
December 31, 2010
December 31, 2009
$
$
$
Assets
Current assets ........................................................................................................................................
Cash and cash equivalents ........................................................................................................ $
Restricted cash ..........................................................................................................................
Securities available for sale, at fair value .................................................................................
Accounts receivable, net of allowance for doubtful accounts of $216 and $240,
respectively .........................................................................................................................
Inventories .................................................................................................................................
Assets held for sale....................................................................................................................
Other current assets ...................................................................................................................
Deferred income taxes, net........................................................................................................
61,780
2,322
—
4,106
57,713
6,686
7,065
10,804
Total current assets ................................................................................................................................
150,476
Long-term inventory .............................................................................................................................
Property, plant and equipment, net .......................................................................................................
Railcars on operating leases, net ...........................................................................................................
Goodwill ................................................................................................................................................
Deferred income taxes, net ....................................................................................................................
Other long-term assets ...........................................................................................................................
7,793
40,503
58,725
22,052
26,203
4,891
Total assets ............................................................................................................................................ $
310,643
Liabilities and Stockholders’ Equity
Current liabilities ...................................................................................................................................
Account and contractual payables ............................................................................................ $
Accrued payroll and employee benefits....................................................................................
Accrued postretirement benefits ...............................................................................................
Accrued warranty ......................................................................................................................
Customer deposits .....................................................................................................................
Other current liabilities .............................................................................................................
Total current liabilities ..........................................................................................................................
Accrued pension costs ...........................................................................................................................
Accrued postretirement benefits, less current portion ..........................................................................
Other long-term liabilities .....................................................................................................................
Total liabilities .......................................................................................................................................
Stockholders’ equity
Preferred stock, $0.01 par value, 2,500,000 shares authorized (100,000 shares each
designated as Series A voting and Series B non-voting, 0 shares issued and
outstanding at December 31, 2010 and 2009) ....................................................................
Common stock, $0.01 par value, 50,000,000 shares authorized, 12,731,678 and
12,731,678 shares issued at December 31, 2010 and 2009, respectively ..........................
Additional paid in capital ..........................................................................................................
Treasury stock, at cost, 790,486 and 790,865 shares at December 31, 2010 and 2009,
respectively .........................................................................................................................
Accumulated other comprehensive loss ...................................................................................
Retained earnings ......................................................................................................................
Total FreightCar America stockholders' equity ....................................................................................
Noncontrolling interest in JV ................................................................................................................
Total stockholders' equity .....................................................................................................................
12,882
4,129
5,347
7,932
3,894
4,497
38,681
15,689
59,909
3,784
118,063
—
127
98,722
(36,539)
(20,000)
150,274
192,584
(4)
192,580
Total liabilities and stockholders’ equity .............................................................................................. $
310,643
$
98,015
1,420
29,976
3,728
40,800
4,678
9,467
15,315
203,399
5,611
28,170
58,771
21,521
13,404
4,690
335,566
16,948
7,958
5,329
9,146
4,631
5,332
49,344
15,675
57,962
6,332
129,313
—
127
97,979
(37,123)
(18,578)
163,761
206,166
87
206,253
335,566
See notes to the consolidated financial statements.
35
FreightCar America, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Year Ended December 31,
2010
2009
2008
Revenues.................................................................................... $ 142,889
140,167
Cost of sales ...............................................................................
$ 248,462
211,940
$ 746,390
679,597
Gross profit ................................................................................
Selling, general and administrative expenses ............................
Plant closure and sale (income) charges ....................................
2,722
24,618
(399)
36,522
31,316
(495)
66,793
31,717
20,037
Operating (loss) income .............................................................
Interest income ..........................................................................
Interest expense and deferred financing costs ...........................
(21,497)
89
(965)
5,701
124
(793)
15,039
3,827
(677)
Operating (loss) income before income taxes ............................
Income tax (benefit) provision ...................................................
(22,373)
(9,511)
5,032
248
18,189
6,769
Net (loss) income .......................................................................
Less: Net loss attributable to noncontrolling interest in JV .
(12,862)
(91)
4,784
(156)
11,420
—
Net (loss) income attributable to FreightCar America ............... $ (12,771)
$
4,940
$ 11,420
Net (loss) income per common share attributable to FreightCar
America—basic .................................................................... $
(1.07)
$ 0.42
$ 0.97
Net (loss) income per common share attributable to FreightCar
America—diluted.................................................................. $
(1.07)
$
0.42
$ 0.97
Weighted average common shares outstanding—basic .............
11,896,148
11,861,366
11,788,400
Weighted average common shares outstanding—diluted ..........
11,896,148
11,870,350
11,833,132
Dividends declared per common share .................................... $ 0.06
$
0.24
$ 0.24
See notes to the consolidated financial statements.
36
FreightCar America, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except for share data)
FreightCar America Shareholders
Common Stock
Shares
Amount
Additional
Paid In
Capital
Treasury Stock
Shares
Amount
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Noncontrolling
Interest in JV
Total Stockholders'
Equity
Balance, January 1, 2008
12,731,678 $
127
$ 99,270
(918,257) $(43,597)
$
(9,857)
$153,120 $ __
$
199,063
Net income ..................................................
Pension liability activity, net
of tax .......................................................
Postretirement liability activity, net of tax ..
— —
— —
— —
Comprehensive income .........................
— —
—
—
—
—
—
—
—
—
—
—
—
—
—
11,420
(7,503)
889
—
—
—
—
—
—
—
—
11,420
(7,503)
889
4,806
Investment in noncontrolling interest by
joint venture partner
Stock options exercised ...............................
Restricted stock awards ...............................
Forfeiture of restricted stock awards ...........
Stock-based compensation recognized ........
Deficiency of tax benefit from stock-based
compensation ..........................................
Cash dividends .............................................
— —
— —
— —
— —
— —
—
(1,564)
(2,305)
188
2,852
—
—
2,609
54,968
48,547
2,305
(6,440) (188)
—
—
— —
— —
(188)
—
—
—
—
—
Balance, December 31, 2008
Net income ..................................................
Pension liability activity, net
12,731,678 $
127
— —
$ 98,253 (821,182) $(38,871)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,853)
101
—
—
—
—
—
—
$ (16,471)
—
$161,687 $ 101
(156)
4,940
—
—
785
(2,896)
—
—
of tax .......................................................
Postretirement liability activity, net of tax ..
Unrealized holding gain on available for
sale securities, net of reclassification
adjustment, net of tax ............................
Foreign currency translation adjustments....
— —
— —
— —
— —
Comprehensive income .........................
— —
—
—
—
—
—
—
—
—
—
—
—
—
—
Investment in noncontrolling interest by
joint venture partner
Restricted stock awards ...............................
Forfeiture of restricted stock awards ...........
Stock-based compensation recognized ........
Deficiency of tax benefit from stock-based
compensation ..........................................
Cash dividends .............................................
— —
— —
— —
— —
—
(1,969)
221
1,829
— —
— —
(355)
—
—
—
41,589
1,969
(11,272) (221)
—
—
—
—
—
—
of tax .......................................................
Postretirement liability activity, net of tax ..
Unrealized holding loss on available for
sale securities, net of reclassification
adjustment, net of tax ............................
Foreign currency translation adjustments....
— —
— —
— —
— —
Comprehensive loss ...............................
— —
—
—
—
—
—
—
—
—
—
—
—
—
—
Restricted stock awards ...............................
Employee restricted stock settlement ..........
Forfeiture of restricted stock awards ...........
Stock-based compensation recognized ........
Deficiency of tax benefit from stock-based
compensation ..........................................
Cash dividends .............................................
— —
— —
— —
— —
(1,202)
—
378
1,675
— —
— —
(108)
—
25,924
(9,938)
1,202
(240)
(15,607) (378)
—
—
—
—
—
—
2
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,866)
(2)
14
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(716)
101
1,045
—
—
2,852
(188)
(2,853)
$
204,826
4,784
785
(2,896)
2
2
2,677
142
—
—
1,829
(355)
(2,866)
—
—
—
—
—
142
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
89
(1,523)
(2 )
14
(14,284)
—
(240)
—
1,675
(108)
(716)
Balance, December 31, 2009
Net (loss) income ........................................
Pension liability activity, net
12,731,678 $
127
— —
$ 97,979 (790,865) $(37,123)
—
—
—
$ (18,578)
—
$163,761 $ 87
(91)
(12,771)
$
206,253
(12,862)
—
—
89
(1,523)
—
—
Balance, December 31, 2010
12,731,678 $
127
$ 98,722 (790,486)
$(36,539)
$ (20,000)
$150,274 $ (4)
$ 192,580
See notes to the consolidated financial statements.
37
FreightCar America, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities
Net (loss) income ................................................................................................
Adjustments to reconcile net (loss) income to net cash flows (used in)
provided by operating activities:
Year Ended December 31,
2010
2009
2008
$
(12,862)
$
4,784
$
11,420
Plant closure ............................................................................................
Depreciation and amortization ................................................................
Other non-cash items, net........................................................................
Deferred income taxes ............................................................................
Compensation expense under stock option and restricted share award
agreements .........................................................................................
Changes in operating assets and liabilities:
—
7,015
(1,809)
(7,738)
—
5,658
4,231
11,830
1,675
1,829
Accounts receivable ....................................................................
Inventories ...................................................................................
Leased railcars held for sale ........................................................
Other current assets .....................................................................
Account and contractual payables .............................................
Accrued payroll and employee benefits .....................................
Income taxes receivable/payable ................................................
Accrued warranty ........................................................................
Customer deposits and other current liabilities ..........................
Deferred revenue, non-current ....................................................
Accrued pension costs and accrued postretirement benefits ......
3,320
(13,482)
(6,686)
(3,612)
(5,102)
(3,829)
3,260
(1,214)
(1,072)
(464)
529
Net cash flows (used in) provided by operating
69,392
(18,314)
(1,420)
591
(29,910)
(1,572)
(5,271)
(2,330)
(5,310)
(711)
(10,613)
20,037
4,380
589
(516)
2,852
(60,052)
17,522
(11,490)
2,346
10,148
(4,475)
(4,936)
925
(11,871)
1,800
(1,744)
activities ....................................................................
(42,071)
22,864
(23,065)
Cash flows from investing activities
Restricted cash deposits ......................................................................................
Restricted cash withdrawals ................................................................................
Purchase of securities available for sale .............................................................
Sale of securities available for sale .....................................................................
Maturity of securities available for sale ..............................................................
Purchases of property, plant and equipment .......................................................
Cost of railcars on operating leases produced or acquired .................................
Proceeds from sale of property, plant and equipment, railcars on operating
(5,644)
4,742
(29,982)
—
59,996
(1,431)
—
(5,658)
4,238
(49,933)
19,986
—
(4,317)
(15,603)
—
—
—
—
—
(6,991)
(35,201)
leases and assets held for sale .......................................................................
Acquisition of business .......................................................................................
2,546
(23,319)
3
—
18
—
Net cash flows provided by (used in) investing
activities ....................................................................
6,908
(51,284)
(42,174)
Cash flows from financing activities
Deferred financing costs paid .............................................................................
Employee restricted stock settlement ..................................................................
Proceeds from exercise of stock options .............................................................
Investment in noncontrolling interest by joint venture partner ..........................
Cash dividends paid to stockholders ...................................................................
Other financing activities ....................................................................................
Net cash flows used in financing activities ....................
Net decrease in cash and cash equivalents ..........................................................
Cash and cash equivalents at beginning of year .................................................
(116)
(240)
—
—
(716)
—
(1,072)
(36,235)
98,015
(5)
—
—
142
(2,866)
(28)
(2,757)
(31,177)
129,192
(838)
—
1,045
101
(2,854)
(65)
(2,611)
(67,850)
197,042
Cash and cash equivalents at end of year............................................................
$ 61,780
$
98,015
$
129,192
Supplemental cash flow information
Cash paid for:
Interest ............................................................................................................
$ 341
Income tax refunds received ...........................................................................
$ 5,763
Income taxes paid ............................................................................................
$
136
$
$
$
265
7,750
175
$
$
$
311
1,737
9,740
See notes to the consolidated financial statements.
38
FreightCar America, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except for share and per share data)
Note 1 – Description of the Business
FreightCar America, Inc. (“America”), through its direct and indirect subsidiaries, JAC Operations, Inc.
(“Operations”), Johnstown America Corporation (“JAC”), Freight Car Services, Inc. (“FCS”), JAIX Leasing
Company (“JAIX”), JAC Patent Company (“JAC Patent”), FreightCar Roanoke, Inc. (“FCR”), Titagarh FreightCar
Private Limited, Inc. (“Titagarh”), FreightCar Mauritius Ltd. (“Mauritius”), FreightCar Rail Services, LLC
(“FCRS”) and FreightCar Short Line, Inc. (“Short Line”) (herein collectively referred to as the “Company”)
manufactures railroad freight cars, with particular expertise in coal cars, supplies railcar parts, leases freight cars and
provides railcar maintenance and repair, inspections and fleet management services. In addition to coal cars, the
Company designs and builds bulk commodity cars, flat cars, mill gondola cars, intermodal cars, coil steel cars and
motor vehicle carriers. The Company is headquartered in Chicago, Illinois and has facilities in the following
locations: Clinton, Indiana; Danville, Illinois; Grand Island, Nebraska; Hastings, Nebraska; Johnstown,
Pennsylvania; Lakewood, Colorado; and Roanoke, Virginia. The Company’s operations comprise one operating
segment. The Company and its direct and indirect subsidiaries are all Delaware corporations except Titagarh, which
is incorporated in India, Mauritius, which is incorporated in Mauritius and FCRS, which is a Delaware limited
liability company. The Company’s direct and indirect subsidiaries are all wholly owned except Titagarh, for which
the Company (through Mauritius) has a 51% ownership interest.
Note 2 – Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of America, Operations, JAC, FCS, JAIX,
JAC Patent, FCR, Titagarh, Mauritius, FCRS and Short Line. All significant intercompany accounts and transactions
have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Significant estimates include the valuation of used
railcars received in sale transactions, useful lives of long-lived assets, warranty and workers’ compensation accruals,
pension and postretirement benefit assumptions, stock compensation, evaluation of goodwill and other intangibles
for impairment and the valuation reserve on the net deferred tax asset. Actual results could differ from those
estimates.
Cash Equivalents
On a daily basis, cash in excess of current operating requirements is invested in various highly liquid investments
having a typical maturity date of three months or less at the date of acquisition. These investments are carried at
cost, which approximates market value, and are classified as cash equivalents.
The Company considers all unrestricted short-term investments with maturities of three months or less when
acquired to be cash equivalents. The carrying amounts of cash equivalents approximate fair value because of the
short maturity of these instruments.
The Company’s cash and cash equivalents are primarily deposited with two U.S. financial institutions which is in
excess of federally insured limits.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
Restricted Cash
The Company establishes restricted cash balances to collateralize certain standby letters of credit with respect to
purchase price payment guarantees and performance guarantees. The restrictions expire upon completing the
Company’s obligation.
Financial Instruments
Management estimates that all financial instruments (including cash equivalents, restricted cash, securities available
for sale, accounts receivable and accounts payable) as of December 31, 2010 and 2009, have fair values that
approximate their carrying values.
Upon purchase the Company categorizes debt securities as securities held to maturity, securities available for sale
or trading securities. Debt securities that the Company has the positive intent and ability to hold to maturity are
classified as securities-held-to-maturity and are reported at amortized cost adjusted for amortization of premium and
accretion of discount on a level yield basis. Debt securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and
losses included in earnings. Debt securities not classified as either held-to-maturity or trading securities are
classified as securities available for sale and are reported at fair value, with unrealized gains and losses excluded
from earnings and reported as a component of other comprehensive income, which is included in stockholders’
equity, net of deferred taxes.
During 2009 and 2010, the Company invested in securities available for sale, which were recorded at fair value on
the Company’s consolidated balance sheet.
Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures, defines fair value as an exit price that should reflect all the
assumptions that market participants would use in pricing the asset or liability.
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to
the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value
measurement requires judgment, and may affect the valuation of assets and liabilities and the placement within the
fair value hierarchy levels.
The Company classifies the inputs to valuation techniques used to measure fair value as follows:
Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities.
Level 2 — Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for
the asset or liability including quoted prices for similar assets or liabilities in active markets, quoted
prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that
are observable for the asset or liability, and inputs that are derived from observable market data by
correlation or other means.
Level 3 — Unobservable inputs for the asset or liability, including situations where there is little, if any, market
activity for the asset or liability.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
Inventories
Inventories are stated at the lower of first-in, first-out cost or market and include material, labor and manufacturing
overhead. The Company’s inventory consists of raw materials, work in progress and finished goods for individual
customer contracts, used railcars acquired upon trade-in and railcar parts retained for sale to external parties or use
by FCRS when providing maintenance and repair services to customers. Inventory on the Company’s consolidated
balance sheets includes reserves of $913 and $1,168 relating to slow-moving inventory for raw materials and work
in progress at December 31, 2010 and 2009, respectively.
Leased Railcars
In response to competitive market conditions and the deterioration of the financial markets, the Company began
offering railcar leasing to its customers on a selective and limited basis beginning in 2008. The Company offers
railcar leases to its customers generally at market rates with terms and conditions that have been negotiated with the
customers. Railcar leases generally have terms from three to five years but may extend up to seven years. It is the
Company’s strategy to generally offer these leased assets for sale to leasing companies and financial institutions as
market opportunities arise, rather than holding them.
Initially as of the date of lease and on a quarterly basis thereafter the Company evaluates leased railcars to determine
if the leased railcars qualify as “assets held for sale.” If all of the held for sale criteria are met, including the
determination by management that the sale of the railcars is probable, and transfer of the railcars is expected to
qualify for recognition as a completed sale within one year, then the leased railcars are treated as assets held for sale
and classified as current assets on the balance sheet (assets held for sale). In determining whether it is probable that
the leased railcars will be sold within one year, management considers general market conditions for similar railcars
and considers whether those market conditions are indicative of a potential sales price that will be acceptable to the
Company to sell the cars within one year. Leased railcars held for sale are carried at the lower of carrying value or
fair value less cost to sell and are not depreciated.
Leased railcars that do not meet all of the held for sale criteria are included in railcars on operating leases on the
balance sheet and are depreciated over 40 years.
Property, Plant and Equipment
Property, plant and equipment are stated at acquisition cost less accumulated depreciation. Depreciation is provided
using the straight-line method over the estimated useful lives of the assets, which are as follows:
Description of Assets
Buildings and improvements
Machinery and equipment
Software
Life
5-40 years
3-7 years
3-7 years
Maintenance and repairs are charged to expense as incurred, while major refurbishments and improvements are
capitalized. The cost and accumulated depreciation of items sold or retired are removed from the property accounts
and any gain or loss is recorded in the consolidated statement of income upon disposal or retirement.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
Long-Lived Assets
The Company evaluates long-lived assets under the provisions of ASC 360, Property, Plant and Equipment, which
addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be
disposed of. For assets to be held or used, the Company groups a long-lived asset or assets with other assets and
liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other
assets and liabilities. An impairment loss for an asset group reduces only the carrying amounts of a long-lived asset
or assets of the group being evaluated. Estimates of future cash flows used to test the recoverability of a long-lived
asset group include only the future cash flows that are directly associated with and that are expected to arise as a
direct result of the use and eventual disposition of the asset group. The future cash flow estimates used by the
Company exclude interest charges.
The Company tests long-lived assets for recoverability whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. These changes in circumstances may include a significant
decrease in the market value of an asset or the extent or manner in which an asset is used. The Company routinely
evaluates its manufacturing footprint to assess its manufacturing capacity and cost of production in an effort to
optimize production at its low-cost manufacturing facilities.
In response to reduced industry demand for railcars the Company’s manufacturing facility in Roanoke, Virginia
ceased production of new railcars in July 2009. As a result, the Company tested long-lived assets at its Roanoke and
Danville facilities for recoverability as of December 31, 2009 using estimated future cashflows derived from the
Company’s strategic plan. In connection with the analysis, the Company had to make estimates regarding future
sales volumes, gross margins and selling, general and administrative expenses, as well as the split of future
production levels between the Company’s two plants. The analysis indicated that there was no impairment of the
long-lived assets for the Roanoke, Virginia and Danville, Illinois facilities as of December 31, 2009. Because of the
inherent uncertainties of its projections, the Company also performed sensitivity analysis with respect to these
estimates and determined that an impairment would not occur under a range of operating results, including shifts in
the allocation of production, future railcar volumes and future gross margins. At December 31, 2010, the
Company’s manufacturing facility in Roanoke, Virginia was preparing to resume production in 2011 as industry
demand had improved.
The Company recorded impairment charges for assets held for sale of $0, $800, and $597 during 2010, 2009 and
2008, respectively (see note 6).
Research and Development
Costs associated with research and development are expensed as incurred and totaled approximately $849, $842 and
$1,959 for the years ended December 31, 2010, 2009 and 2008, respectively. Such costs are reflected within selling,
general and administrative expenses in the consolidated statements of income.
Goodwill and Intangible Assets
The Company performs the goodwill impairment test required by ASC 350 Intangibles – Goodwill and Other, as of
January 1 of each year. The Company tests goodwill for impairment between annual tests if an event occurs or
circumstances change that may indicate that the fair value of the reporting unit is below its carrying amount. The
Company tested goodwill for impairment as of December 31, 2009 in connection with the economic downturn for
new coal cars. The Company also tested goodwill for impairment as of December 31, 2010 due to the continued low
production levels during 2010 and uncertainty as to when sustained demand for new coal cars will return.
Management estimates the valuation of the Company using a combination of methods, appropriate to the
circumstances, including discounted future cash flows and the Company’s market capitalization. Historically,
management has valued the Company as one reporting unit, but after FCRS acquired the business assets of DTE
Rail Services, Inc., the 2010 impairment test was performed on two reporting units. There was no adjustment
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
required based on the annual impairment tests for 2010, 2009 and 2008 or the interim impairment tests as of
December 31, 2009 and 2010.
Patents are amortized on a straight-line method over their remaining legal life from the date of acquisition.
Customer related intangibles are amortized from the date of acquisition based on the estimated cash flows to be
generated from the intangibles.
Income Taxes
For Federal income tax purposes, the Company files a consolidated federal tax return. The Company also files
separate state tax returns in states where the Company has operations. In conformity with ASC 740, Income Taxes,
the Company provides for deferred income taxes on differences between the book and tax bases of its assets and
liabilities and for items that are reported for financial statement purposes in periods different from those for income
tax reporting purposes.
Management evaluates deferred tax assets and provides a valuation allowance when it believes that it is more likely
than not that some portion of these assets will not be realized. In making this determination, management evaluates
both positive evidence, such as the projection of future taxable income, the reversals of existing taxable temporary
differences and tax planning strategies, and negative evidence, such as any recent history of historical losses and any
projected losses. We evaluate the realizability of our net deferred tax assets and assess the valuation allowance on a
quarterly basis, adjusting the amount of such allowance as necessary.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
The Company recognizes operating lease revenue on leased railcars on a straight-line basis over the life of the lease,
except for lease revenue on leased railcars held for sale which is recognized on a contractual basis over the life of
the lease. The Company recognizes revenue from the sale of railcars under operating leases on a gross basis in
manufacturing sales and cost of sales if the railcars are sold within 12 months as the manufacture of the railcars and
the sales process is complete. The Company recognizes revenue from the sale of railcars under operating leases on a
net basis in leasing revenue as a gain (loss) on sale (i.e. net) of leased railcars if the railcars are held in excess of 12
months as the sale represents the disposal of a long-term asset.
The Company’s sales to customers outside the United States were $19,641, $43,104 and $84,784 in 2010, 2009 and
2008, respectively.
The Company accrues for loss contracts when it has a contractual commitment to manufacture railcars at an
estimated cost in excess of the contractual selling price.
The Company records amounts billed to customers for shipping and handling as part of sales in accordance with
ASC 605-45, Revenue Recognition – Principal Agent Consideration, and records related costs in cost of sales.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. Comprehensive income (loss) consists of
net income (loss), unrecognized pension and postretirement benefit cost, foreign currency translation adjustments
and unrealized holding gains on securities available for sale. All components of comprehensive income (loss) are
shown net of tax.
Earnings Per Share
Basic earnings per share are calculated as net income attributable to common stockholders divided by the weighted-
average number of common shares outstanding during the respective period. The Company includes contingently
issuable shares in its calculation of the weighted average number of common shares outstanding. Contingently
issuable shares are shares subject to options which require little or no cash consideration. Diluted earnings per share
are calculated by dividing net income attributable to common stockholders by the weighted-average number of
shares outstanding plus dilutive potential common shares outstanding during the year.
Stock-Based Compensation
The Company applies the provisions of ASC 718, Compensation – Stock Compensation for its stock-based
compensation plan. As a result, the Company recognizes stock-based compensation expense for stock awards based
on the grant-date fair value of the award. That cost is recognized over the period during which an employee is
required to provide service in exchange for the award, which is usually the vesting period. See Note 14.
Recent Accounting Pronouncements
As of January 1, 2010, the Company adopted the Financial Accounting Standards Board’s (FASB) changes to ASC
810 Consolidation. These changes require the Company to perform an analysis to determine whether the Company’s
variable interest gives it a controlling financial interest in a variable interest entity and to perform ongoing
reassessments of whether the Company is the primary beneficiary of a variable interest entity. These changes to
ASC 810 eliminate the solely quantitative approach previously required for determining the primary beneficiary of a
variable interest entity and add an additional reconsideration event for determining whether an entity is a variable
interest entity when any changes in facts and circumstances occur such that holders of the equity investment, as a
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity
that most significantly impact the entity’s economic performance. These changes to ASC 810 also require enhanced
disclosures to provide users of financial statements with more transparent information about the Company’s
involvement in a variable interest entity. The adoption of changes to ASC 810 had no impact on the Company’s
financial statements.
In December 2008, the FASB issued changes to ASC 715, Compensation-Retirement Benefits. ASC 715 now
requires additional disclosures about plan assets for defined benefit pension and other postretirement benefit plans.
The additional disclosures required by ASC 715 are effective for fiscal years ending after December 15, 2009.
Upon initial application, the provisions of ASC 715 are not required for earlier periods that are presented for
comparative purposes. Since ASC 715 requires enhanced disclosures without a change to existing standards relative
to measurement and recognition, the adoption of ASC 715 did not have an impact on the Company’s results of
operations or financial position.
Note 3 – Plant Closure and Sale
In December 2007, the Company announced that it planned to close its manufacturing facility located in Johnstown,
Pennsylvania. This action was taken to further the Company’s strategy of optimizing production at its low-cost
facilities and continuing its focus on cost control.
On May 6, 2008, an arbitrator issued a ruling in a grievance proceeding brought against the Company by the
USWA. The grievance proceeding, which was first filed by the USWA on April 1, 2007, surrounded the
interpretation of provisions in the collective bargaining agreement (“CBA”) covering employees at the Johnstown
facility. The dispute involved the interpretation of language regarding the classification of employees’ years of
service and the Company’s obligations to employees based on their years of service. The arbitrator’s ruling held the
Company responsible for providing back pay and appropriate benefits to affected employees, a group that included
over one-half of the workers who were employed at the Johnstown facility at the time the grievance was filed. As a
result of the ruling, the Company recorded an additional amount for the Company’s estimate of the probable cost of
the back pay and benefits under the ruling during 2008. On June 4, 2008 the Company filed a lawsuit against the
USWA asking the court to vacate the arbitrator’s ruling.
On June 24, 2008, the Company announced a tentative global settlement that would resolve all legal disputes
relating to the Johnstown facility and its workforce, including a class action, a contested arbitration ruling and other
pending grievance proceedings. Under the terms of the settlement, the collective bargaining agreement between
the Company and the USWA was terminated effective May 15, 2008 and the Johnstown manufacturing facility was
closed. The settlement provided special pension benefits to certain workers at the Johnstown manufacturing facility
and deferred vested benefits to other workers, as well as health care benefits, severance pay and/or settlement bonus
payments to workers depending on their years of service at the facility. During 2008, the Company recorded plant
closure charges of $20,037 related to these actions. Plant closure income of $495 for the year ended December 31,
2009 represents insurance recoveries and adjustments related to employment termination benefits. During 2010, the
sale of the Johnstown manufacturing facility was completed, resulting in a gain on sale of $399 which has been
included in plant closure and sale income.
Note 4 – Fair Value Measurements
The Company’s current investment policy is to invest in cash and securities backed by the U.S. government. The
carrying amounts of cash equivalents approximate fair value because of the short maturity of these instruments.
The following table sets forth by level within the ASC 820 fair value hierarchy the Company’s financial assets and
liabilities that were recorded at fair value on a recurring basis.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
Recurring Fair Value Measurements
As of December 31, 2010
ASSETS:
Cash equivalents
Restricted cash equivalents
Level 1
Level 2
Level 3
Total
$ 51,674
$ 1,212
$ —
$ —
$ —
$ —
$ 51,674
$ 1,212
Recurring Fair Value Measurements
As of December 31, 2009
ASSETS:
Cash equivalents
Securities available for sale – fixed-income government
obligations
$ 80,009
$ —
$ —
$ 80,009
$ 29,976
$ —
$ —
$ 29,976
Level 1
Level 2
Level 3
Total
Note 5 – Inventories
Inventories consist of the following:
December 31,
2010
2009
Work in progress ...................................................................................... $
Finished new railcars ................................................................................
Used railcars acquired upon trade-in ........................................................
55,439 $
—
2,274
30,803
—
9,997
Total inventories ....................................................................................... $
57,713 $
40,800
The above table excludes long-term inventory of $7,793 and $5,611 as of December 31, 2010 and 2009,
respectively.
Note 6– Leased Railcars
Leased railcars at December 31, 2010 included leased railcars classified as held for sale of $6,686 and railcars on
operating leases classified as long-term assets of $58,725. Leased railcars at December 31, 2009 included leased
railcars classified as held for sale of $2,200 and railcars on operating leases classified as long-term assets of
$58,771. Due to a decline in asset values in the market, an impairment write-down of $800 related to railcars on
operating leases was recorded during the year ended December 31, 2009. Depreciation expense on leased railcars
was $1,798, $1,291 and $369 for the years ended December 31, 2010, 2009 and 2008, respectively.
Leased railcars at December 31, 2010 are subject to lease agreements with external customers with terms of up to
four years.
Future minimum rental revenues on leases at December 31, 2010 are as follows:
Year ending December 31, 2011 ................................................................................................................ $
Year ending December 31, 2012 ................................................................................................................
Year ending December 31, 2013 ................................................................................................................
Year ending December 31, 2014 ................................................................................................................
Year ending December 31, 2015 ................................................................................................................
Thereafter ....................................................................................................................................................
3,871
1,594
1,083
566
167
—
$
7,281
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
Note 7 – Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
2010
2009
Land (including easements) ........................................................................... $
2,203
$
151
Buildings and improvements .........................................................................
Machinery and equipment ..............................................................................
Software .........................................................................................................
Cost of buildings, improvements, machinery and equipment ........................
Less: Accumulated depreciation and amortization ........................................
26,986
30,188
6,837
64,011
(27,097)
19,056
25,365
5,810
50,231
(22,599)
Buildings, improvements, machinery and equipment net of accumulated
depreciation and amortization ...................................................................
36,914
27,632
Construction in process ..................................................................................
1,386
387
Total property, plant and equipment .............................................................. $
40,503
$
28,170
Depreciation expense for the years ended December 31, 2010, 2009 and 2008, was $4,603, $3,777 and $3,420,
respectively.
During the second quarter of 2009, land, building and equipment at the Company’s Johnstown manufacturing
facility were classified as available for sale. The facility had a net book value of $2,478 at December 31, 2009,
which included land, building and equipment in the amounts of $550, $1,468 (cost basis of $1,980) and $460 (cost
basis of $20,050), respectively. During the fourth quarter of 2009 the Company entered into an agreement for the
sale of the facility. The Company received $500 as a downpayment on the sales price of $2,900 during December of
2009 and the remaining $2,400 was received in monthly installments of $200 beginning in January 2010. The
Company accounted for the transaction under the “deposit method” as prescribed by ASC 360-20-40 as the buyer’s
initial investment was less than 20% of sales price and other recognition criteria were not satisfied. As a result, the
Company did not recognize any profit during 2009 or record the notes receivable and the property remained
recorded within the Company’s financial statements as of December 31, 2009. The $500 downpayment was
included in “Customer deposits” on the Company’s consolidated balance sheet as of December 31, 2009. Gain from
the sale of the facility of $399 was recognized during 2010 and is included in “Plant Closure and Sale Income” on
the Company’s consolidated statement of operations.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
Note 8 – Intangible Assets and Goodwill
Intangible assets consist of the following:
December 31,
2010
2009
Patents ............................................................................................................. $
Accumulated amortization ..............................................................................
13,097
(9,786)
$
Patents, net of accumulated amortization ........................................................
3,311
Customer-related intangibles ...........................................................................
Accumulated amortization ..............................................................................
Customer-related intangibles, net of accumulated amortization .....................
1,300
(22)
1,278
13,097
(9,195)
3,902
—
—
—
Total amortizing intangibles
$
4,589
$
3,902
Goodwill.......................................................................................................... $
22,052
$ 21,521
The Company recorded goodwill of $531 and customer-related intangibles of $1,300 in connection with FCRS’
acquisition of the business assets of DTE Rail Services, Inc. during the fourth quarter of 2010. Goodwill was
recorded based on the amount by which the purchase price exceeded the preliminary fair value of the net assets
acquired. The fair value of customer-related intangibles was estimated using a discounted cash flow model which
included assumptions concerning projected growth rates as well as historical customer attrition. Customer-related
intangibles are being amortized from the date of acquisition and have a remaining life of 20 years. Amortization
expense related to customer intangibles, which is included in selling, general and administrative expenses, was $22
for the year ended December 31, 2010 and $0 for the years ended December 31, 2009 and 2008.
Patents are being amortized on a straight-line method over their remaining legal life from the date of acquisition.
The weighted average remaining life of the Company’s patents is 6 years. Amortization expense related to patents,
which is included in cost of sales, was $591 for each of the years ended December 31, 2010, 2009 and 2008.
Estimated future intangible amortization at December 31, 2010 is as follows:
Year ending December 31, 2011 ........................................................................$
Year ending December 31, 2012 ........................................................................
Year ending December 31, 2013 ........................................................................
Year ending December 31, 2014 ........................................................................
Year ending December 31, 2015 ........................................................................
Thereafter ...........................................................................................................
628
734
730
735
710
1,052
$
4,589
Note 9 – Product Warranties
Warranty terms are based on the negotiated railcar sales contracts and typically are for periods of one to five years.
The changes in the warranty reserve for the years ended December 31, 2010, 2009 and 2008, are as follows:
December 31,
2010
2009
2008
Balance at the beginning of the year.............................................. $
Warranties issued during the year .................................................
Reductions for payments, costs of repairs and other .....................
9,146 $
390
(1,604)
11,476 $
376
(2,706)
10,551
4,621
(3,696)
Balance at the end of the year .............................................. $
7,932 $
9,146 $
11,476
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
Note 10 – Revolving Credit Facilities
On July 29, 2010, the Company entered into a new $30,000 senior secured revolving credit facility pursuant to a
Loan and Security Agreement dated as of July 29, 2010 (the “Revolving Loan Agreement”) among America, JAC,
FCS, Operations and FCR, as borrowers (collectively, the “Borrowers”), and Fifth Third Bank, as lender. The
proceeds of the new revolving credit facility can be used for general corporate purposes, including working capital.
As of December 31, 2010, the Company had no borrowings and therefore had $30,000 available under the new
revolving credit facility. The Revolving Loan Agreement also contains a sub-facility for letters of credit not to
exceed $20,000. The Company had $1,372 in outstanding letters of credit under the new revolving credit facility as
of December 31, 2010.
The Revolving Loan Agreement has a term ending on July 29, 2013 and revolving loans outstanding thereunder will
bear interest at a rate of LIBOR plus an applicable margin of 2.50% or at prime, as selected by the Company. The
Company is required to pay a non-utilization fee of 0.35% on the unused portion of the revolving loan commitment.
Borrowings under the Revolving Loan Agreement are secured by the Company’s accounts receivable, inventory and
certain other assets of the Company, and borrowing availability is tied to a borrowing base of eligible accounts
receivable and inventory. The Revolving Loan Agreement has both affirmative and negative covenants, including,
without limitation, a minimum tangible net worth covenant and limitations on indebtedness, liens and investments.
The Revolving Loan Agreement also provides for customary events of default. As of December 31, 2010, the
Company was in compliance with all of the covenants contained in the agreement.
The Revolving Loan Agreement replaces the Company’s prior revolving credit facility under the Second Amended
and Restated Credit Agreement dated August 24, 2007, as amended, among certain of the Borrowers and the lenders
party thereto (the “Prior Credit Agreement”) and the Credit Agreement dated September 30, 2008, as amended,
among JAIX Leasing Company and the lenders party thereto (the “JAIX Credit Agreement”), which had been
available to fund the Company’s leasing operations. The Company had no borrowings outstanding under the Prior
Credit Agreement or the JAIX Credit Agreement as of December 31, 2009 or when they were cancelled as of July
29, 2010. During the third quarter of 2010, the Company wrote off $518 in unamortized deferred financing costs
related to these terminated agreements.
The Prior Credit Agreement consisted of a total senior secured revolving credit facility of $50,000. The amount
available under the Prior Credit Agreement was based on the lesser of (i) $50,000 or (ii) the borrowing base
representing a portion of working capital calculated as a percentage of eligible accounts receivable plus percentages
of eligible finished and semi-finished inventory, less a $20,000 borrowing base reserve. The Prior Credit Agreement
had a term ending on May 31, 2012 and bore interest at a rate of LIBOR plus an applicable margin of between
1.50% and 2.25% depending on Revolving Loan Availability (as defined in the Prior Credit Agreement). The
Company was required to pay a commitment fee of between 0.175% and 0.250% based on Revolving Loan
Availability. Borrowings under the Prior Credit Agreement were collateralized by substantially all of the assets of
the Company and guaranteed by an unsecured guarantee made by JAIX.
The Prior Credit Agreement had both affirmative and negative covenants, including a minimum fixed charge
coverage ratio and limitations on debt, liens, dividends, investments, acquisitions and capital expenditures. The
Company had $1,154 in outstanding letters of credit under the letter of credit sub-facility of the Prior Credit
Agreement as of December 31, 2009. These letters of credit remain outstanding, as of December 31, 2010, but due
to the cancellation of the Prior Credit Agreement they are currently secured by restricted cash deposits.
The JAIX Credit Agreement consisted of a $60,000 senior secured revolving credit facility with a term ending on
March 31, 2012. JAIX was required to pay an annual commitment fee of 0.30% during the Revolving Period.
Borrowings under the JAIX Credit Agreement were collateralized by substantially all of the assets of JAIX.
Additionally, America guaranteed the JAIX Credit Agreement. Availability under the JAIX Credit Agreement was
based on a percentage of the Eligible Railcar Leases (as defined in the agreement) held under the JAIX Credit
Agreement.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
Note 11 – Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) consist of the following:
Year ended December 31, 2008
Pension liability activity .................................................. $ (12,141)
Postretirement liability activity .......................................
1,299
$
4,638
(410)
$ (7,503)
889
Pre-Tax
Tax
After-Tax
$ (10,842)
$
4,228
$ (6,614)
Year ended December 31, 2009
Pension liability activity .................................................. $
Postretirement liability activity .......................................
Change in foreign currency translation adjustments ........
Change in unrealized holding gains on securities
1,266
(4,643)
2
$ (481)
1,747
—
$
785
(2,896)
2
available for sale, net of reclassification adjustment ..
3
(1)
2
$ (3,372)
$ 1,265
$ (2,107)
Year ended December 31, 2010
Pension liability activity .................................................. $ 264
Postretirement liability activity .......................................
(2,344)
Change in foreign currency translation adjustments ........
14
Change in unrealized holding gains on securities
$ (175)
821
—
$
89
(1,523)
14
available for sale, net of reclassification adjustment ..
(3)
1
(2)
$ (2,069)
$
647
$ (1,422)
The components of accumulated other comprehensive loss consist of the following:
December 31,
2010
2009
Unrecognized pension cost, net of tax of $6,506 and $6,681 .............. $ (10,966)
(9,050)
Unrecognized postretirement cost, net of tax of $5,370 and $4,549 ...
Foreign currency translation adjustments, net of tax of $0 and $0 ......
16
Unrealized holding gains on securities available for sale, net of tax
$ (11,055)
(7,527)
2
of $0 and $1 ...................................................................................
—
2
$ (20,000)
$ (18,578)
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
Note 12 – Employee Benefit Plans
The Company has qualified, defined benefit pension plans that were established to cover certain employees. The
Company also provides certain postretirement health care benefits for certain of its salaried and hourly retired
employees. Generally, employees may become eligible for health care benefits if they retire after attaining specified
age and service requirements. These benefits are subject to deductibles, co-payment provisions and other limitations.
The Company’s decision in December 2007 to close its manufacturing facility in Johnstown, Pennsylvania
significantly affected current and future employment levels and resulted in a decrease in the estimated remaining
future service years for the employees covered by the plans. The decrease in the estimated remaining future service
years resulted in plan curtailments for the defined benefit pension plans and the postretirement benefit plan and
caused the Company to recognize in 2007 a substantial portion of the net actuarial losses and prior service costs
relating to these plans that had not yet been recognized in earnings. In addition, the plant closure decision triggered
contractual special pension benefits and contractual termination benefits for the Company’s postretirement plan that
totaled $18,977, and were recognized in 2008 in “Plant Closure and Sale Income (Charges)” on the consolidated
statements of operations.
As of December 31, 2009, the Company suspended its pension plan for salaried employees who are not part of a
collective bargaining unit. As a result of this decision, the Company immediately recognized a substantial portion of
the net actuarial loss and prior service cost relating to this plan that had not yet been recognized in earnings.
Additional pension costs of $786 were recognized during 2009 related to this action.
The Company uses a measurement date of December 31 for all of its employee benefit plans. Generally,
contributions to the plans are not less than the minimum amounts required under the Employee Retirement Income
Security Act of 1974 (“ERISA”) and not more than the maximum amount that can be deducted for federal income
tax purposes. The plans’ assets are held by independent trustees and consist primarily of equity and fixed income
securities.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
The changes in benefit obligation, change in plan assets and funded status as of December 31, 2010 and 2009, are as
follows:
Pension Benefits
Postretirement
Benefits
2010
2009
2010
2009
Change in benefit obligation
Benefit obligation—Beginning of year .......................................... $
Service cost ....................................................................................
Interest cost ....................................................................................
Plan amendment .............................................................................
Actuarial loss (gain) .......................................................................
Benefits paid ...................................................................................
61,462 $
—
3,422
—
3,181
(5,769)
Benefit obligation—End of year .....................................................
62,296
Change in plan assets
Plan assets—Beginning of year ......................................................
Return on plan assets ......................................................................
Employer contributions ..................................................................
Benefits paid ...................................................................................
Plan assets at fair value—End of year ............................................
45,916
6,577
28
(5,769)
46,752
59,688 $
408
3,843
—
4,223
(6,700)
61,462
32,999
7,051
12,566
(6,700)
45,916
63,291 $
57
3,481
—
2,767
(4,340)
65,256
—
—
4,340
(4,340)
—
60,657
58
3,949
364
4,520
(6,257)
63,291
—
—
6,257
(6,257)
—
Funded status of plans—End of year .............................................. $
(15,544) $
(15,546) $ (65,256) $ (63,291)
Pension Benefits
Postretirement
Benefits
2010
2009
2010
2009
Amounts recognized in the Consolidated Balance Sheets
Noncurrent assets .......................................................................... $
Current liabilities ...........................................................................
Noncurrent liabilities .....................................................................
$
145
—
(15,689)
129 $
—
(15,675)
— $
(5,347)
(59,909)
—
(5,329)
(57,962)
Net amount recognized at December 31 ........................................ $ (15,544) $ (15,546) $
(65,256) $ (63,291)
Amounts recognized in accumulated other comprehensive loss but not yet recognized in earnings at December 31,
2010 and 2009, are as follows:
Pension Benefits
Postretirement
Benefits
2010
2009
2010
2009
Net actuarial loss ........................................................................... $
Prior service cost ...........................................................................
17,472 $
—
17,736 $
—
13,172 $
1,248
10,588
1,488
$
17,472 $
17,736 $
14,420 $
12,076
The estimated net loss for the defined benefit pension plan that will be amortized from accumulated other
comprehensive loss into net periodic benefit cost in 2011 is $391. The estimated net loss and prior service cost for
the postretirement benefit plan that will be amortized from accumulated other comprehensive loss into net periodic
benefit cost in 2011 are $342 and $241, respectively.
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
Components of net periodic benefit cost for the years ended December 31, 2010, 2009 and 2008, are as follows:
Pension Benefits
Postretirement Benefits
2010
2009
2008
2010
2009
2008
Components of net periodic benefit cost
Service cost ................................................. $
Interest cost .................................................
Expected return on plan assets ....................
Amortization of unrecognized prior
— $
408 $
3,422
(3,557)
3,843
(2,943)
1,128 $
3,370
(3,758)
57 $
58 $
3,481
—
3,949
—
service cost ............................................
Amortization of unrecognized net loss .......
Curtailment recognition ..............................
Contractual benefit charge ..........................
—
425
—
—
103
492
786
—
—
27
—
10,112
241
182
—
—
241
—
—
—
69
3,231
—
224
162
—
8,866
Total net periodic benefit cost ..................... $
290 $
2,689 $
10,879 $
3,961 $
4,248 $ 12,552
The increase (decrease) in accumulated other comprehensive loss (pre-tax) for the years ended December 31, 2010
and 2009, are as follows:
2010
Pension
Benefits
Postretirement
Benefits
2009
Pension
Benefits
Postretirement
Benefits
Net actuarial gain .................................................. $ 161
(425)
Amortization of net actuarial gain .........................
—
Amortization of prior service cost .........................
Prior service cost recognized through curtailment
—
Prior service cost arising during measurement
$ 2,767
(182)
(241)
—
115
$ 4,520
$
(492)
—
(103) (241)
(786) —
period................................................................
—
—
—
364
Total recognized in accumulated other
comprehensive loss (gain) ..................................... $ (264)
$
2,344
$ (1,266) $ 4,643
The following benefit payments, which reflect expected future service, as appropriate, were expected to be paid as
of December 31, 2010:
Pension
Benefits
Postretirement
Benefits
2011 .......................................................................................................................... $ 5,562
2012 ..........................................................................................................................
5,406
2013 ..........................................................................................................................
5,087
2014 ..........................................................................................................................
4,713
2015 ..........................................................................................................................
4,397
2016 through 2020 ....................................................................................................
18,825
$
5,300
5,200
5,100
5,000
4,900
22,300
The Company expects to make $5,024 in contributions to its pension plans in 2011.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
The assumptions used to determine end of year benefit obligations are shown in the following table:
Pension Benefits
2010
2009
Postretirement
Benefits
2010
2009
Discount rates .......................................................
Rate of compensation increase .............................
5.22% –5.49%
5.76%
5.26%
5.76%
N/A
N/A
The discount rate is determined using a yield curve model that uses yields on high quality corporate bonds (AA rated
or better) to produce a single equivalent rate. The yield curve model excludes callable bonds except those with
make-whole provisions, private placements and bonds with variable rates.
The assumptions used in the measurement of net periodic cost are shown in the following table:
Pension Benefits
Postretirement Benefits
2010
2009
2008
2010
2009
2008
Discount rate ................................... 5.76% 6.85%
Expected return on plan assets ........ 8.25% 8.25%
—
Rate of compensation increase ....... N/A 3.00% 3.00%-4.00% —
6.40%
8.25%
5.76%
—
—
6.85%
6.40%
—
—
Assumed health care cost trend rates at December 31 are set forth below:
Health care cost trend rate assigned for next year ......
Rate to which cost trend is assumed to decline ..........
Year the rate reaches the ultimate trend rate ..............
2010
9.00%
5.00%
2018
2009
9.00%
5.50%
2016
2008
9.00%
5.50%
2015
As benefits under these postretirement healthcare plans have been capped, assumed health care cost trend rates have
no effect on the amounts reported for the health care plans.
The Company’s pension plans’ investment policy, weighted average asset allocations at December 31, 2010 and
2009, and target allocations for 2011, by asset category, are as follows:
Asset Category
Equity securities .....................................................................
Debt securities ........................................................................
Real estate ..............................................................................
Plan Assets at
December 31,
Target
Allocation
2010
2009
2011
58%
38%
4%
100%
48%
46%
6%
100%
55%
40%
5%
100%
The basic goal underlying the pension plan investment policy is to ensure that the assets of the plans, along with
expected plan sponsor contributions, will be invested in a prudent manner to meet the obligations of the plans as
those obligations come due under a broad range of potential economic and financial scenarios, maximize the long-
term investment return with an acceptable level of risk based on such obligations, and broadly diversify investments
across and within the capital markets to protect asset values against adverse movements in any one market. The
Company’s investment strategy balances the requirement to maximize returns using potentially higher return
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
generating assets, such as equity securities, with the need to manage the risk of such investments with less volatile
assets, such as fixed-income securities. Investment practices must comply with the requirements of ERISA and any
other applicable laws and regulations. The Company, in consultation with its investment advisors, has determined a
targeted allocation of invested assets by category and it works with its advisors to reasonably maintain the actual
allocation of assets near the target.
The long term return on assets was estimated based upon historical market performance, expectations of future
market performance for debt and equity securities and the related risks of various allocations between debt and
equity securities. Numerous asset classes with differing expected rates of return, return volatility and correlations are
utilized to reduce risk through diversification.
The following table presents the fair value of pension plan assets classified under the appropriate level of the ASC
820 fair value hierarchy (see Note 4 for a description of the fair value hierarchy) as of December 31, 2010 and 2009:
Pension Plan Assets
As of December 31, 2010
Level 1
Level 2
Level 3
Total
Domestic and international equity mutual funds
Fixed income mutual funds
Real estate mutual funds
Other (cash and cash equivalents)
$27,143 $ —
17,706
1,848
$ —
— —
—
—
—
55 —
Total
$46,752 $ —
$ —
$27,143
17,706
1,848
55
$46,752
Pension Plan Assets
As of December 31, 2009
Level 1
Level 2
Level 3
Total
Domestic and international equity mutual funds
Fixed income mutual funds
Real estate mutual funds
Other (cash and cash equivalents)
Total
$21,887 $ —
—
—
—
21,437
2,563
29
$45,916 $ —
$ —
—
—
—
$ —
$21,887
21,437
2,563
29
$45,916
The Company also maintains qualified defined contribution plans, which provide benefits to their employees based
on employee contributions, years of service, employee earnings or certain subsidiary earnings, with discretionary
contributions allowed. Expenses related to these plans were $706, $1,007 and $1,628 for the years ended December
31, 2010, 2009 and 2008, respectively.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
Note 13 - Income Taxes
The provision (benefit) for income taxes for the periods indicated includes current and deferred components as
follows:
Year Ended December 31,
2010
2009
2008
Current taxes
Federal ....................................................................................... $ (643)
(910)
State ...........................................................................................
Deferred taxes
Federal .......................................................................................
State ...........................................................................................
(1,553)
(6,705)
(1,033)
(7,738)
Interest expense, gross of related tax effects .............................
(220)
$ (10,729)
(769)
(11,498)
12,358
(572)
11,786
(40)
$
3,234
2,046
5,280
1,823
(992)
831
658
Total ................................................................................. $ (9,511)
$ 248
$ 6,769
The provision (benefit) for income taxes for the periods indicated differs from the amounts computed by applying
the federal statutory rate as follows:
Year Ended December 31,
2010
2009
2008
Statutory U.S. federal income tax rate ..............................................
State income taxes, net of federal tax benefit ...................................
Valuation allowance .........................................................................
Goodwill amortization ......................................................................
Manufacturing deduction ..................................................................
Nondeductible expenses ...................................................................
Rate change on deferred taxes ..........................................................
Other .................................................................................................
35.0%
6.3 %
10.0%
2.7%
(1.4)%
(0.2)%
(11.0)%
1.1%
35.0%
(13.9)%
3.2%
(12.1)%
—
0.7%
(8.7)%
0.7%
35.0%
(2.8)%
7.7%
(3.3)%
(0.4)%
0.3%
—
0.7%
Effective income tax rate .........................................................
42.5%
4.9%
37.2%
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
Deferred income taxes result from temporary differences in the financial and tax basis of assets and liabilities.
Components of deferred tax assets (liabilities) consisted of the following:
Description
Assets
Liabilities
Assets
Liabilities
December 31, 2010
December 31, 2009
Accrued postretirement and pension benefits-long-term ......... $
Intangible assets ......................................................................
Accrued workers’ compensation costs ....................................
Accrued warranty costs ...........................................................
IRC Section 481(a) ..................................................................
Accrued vacation .....................................................................
Accrued contingencies ............................................................
Accrued severance ...................................................................
Inventory valuation .................................................................
Property, plant and equipment and railcars on operating
leases ..................................................................................
Net operating loss carryforwards ............................................
Stock compensation expense ...................................................
Other ........................................................................................
Valuation allowance ................................................................
29,552
—
572
3,514
—
419
2,598
832
2,440
$
— $
(755)
—
—
(745)
—
—
—
—
32,868 $
—
747
3,941
103
491
4,289
1,206
2,847
—
(212)
—
—
—
—
—
—
—
—
21,728
986
116
(19,290)
—
—
—
62,757
(4,960)
(20,790)
—
—
4,545
1,014
319
(16,240)
—
—
—
52,370
(7,195)
(16,452)
—
45,175 $ (16,452)
158
$
$
Deferred tax assets (liabilities) ................................................ $
57,797 $ (20,790)
Increase (decrease) in valuation allowance ............................. $
(2,235)
In the consolidated balance sheets, these deferred tax assets and liabilities are classified as current or noncurrent,
based on the classification of the related asset or liability for financial reporting. A deferred tax asset or liability that
is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, is
classified according to the expected reversal date of the temporary differences as of the end of the year. A valuation
allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be
realized.
In evaluating whether it is more likely than not that the net deferred tax assets will be realized, we considered both
positive and negative evidence including the Company’s three year cumulative pre-tax income position, the reversal
of existing taxable temporary differences, taxable income in prior carryback years if carryback is permitted under
the tax law and such taxable income has not previously been used for carryback, future taxable income exclusive of
reversing temporary differences and carryforwards based on near-term and longer-term projections of operating
results and the length of the carryforward period. The railcar industry is in the midst of an extended cyclical
downturn. However, the railcar market has an established history of cyclicality based on significant swings in
customer demand. Industry projections forecast this trend to continue, with a recovery in demand in 2011-2012 and
continuing for several years thereafter. Although realization of our net deferred assets is not certain, management
has concluded that, based on the positive and negative evidence considered and the expected improvement in railcar
demand and, therefore, operating results, we will more likely than not realize the full benefit of the deferred tax
assets except for our deferred tax assets in certain states. The Company has certain state net operating loss
carryforwards of $109,790, which will expire between 2015 and 2030, of which $57,451 have a full valuation
allowance recorded. In addition to the state valuation allowances, the Company also has provided a valuation
allowance against net operating losses associated with the foreign jurisdictions in which it operates. These are early
stage operations for which it cannot yet be demonstrated that it is more likely than not the deferred tax assets will be
realized. The losses associated with these jurisdictions will begin to expire in 2014.
The Company has federal net operating loss carryforwards of $43,348 which will expire in 2030. The Company
also has additional net operating loss carryforwards of $52,339 in certain states that will begin to expire in 2015.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
A reconciliation of the beginning and ending gross amounts of unrecognized tax benefits for the years ended
December 31, 2010 and 2009, were as follows:
2010
2009
2008
Beginning of year balance ...................................................$
4,008
$
4,352
$ 2,821
Increases in prior period tax positions .................................
Decreases in prior period tax positions ................................
Increases in current period tax positions ..............................
Decreases relating to expiring statutes of limitations ..........
27
(1,117)
—
(774)
17
—
—
(361)
End of year balance ............................................................. $ 2,144 $ 4,008
163
—
1,368
—
$ 4,352
The total estimated unrecognized tax benefit that, if recognized, would affect the Company’s effective tax rate was
approximately $1,897 and $2,643 as of December 31, 2010 and 2009, respectively. It is expected that the amount of
unrecognized tax benefits will change in the next twelve months. Due to the nature of the Company’s unrecognized
tax benefits, the Company does not expect changes in its unrecognized tax benefit reserve in the next twelve months
to have a material impact on its financial statements. The Company’s income tax provision included $168 of benefit
(net of a federal tax expense of $52) and $23 of benefit (net of a federal tax expense of $17) related to interest and
penalties for the years ended December 31, 2010 and 2009, respectively. The Company records interest and
penalties with tax expense. Such expenses brought the balance of accrued interest and penalties to $1,255 and
$1,476 at December 31, 2010 and 2009, respectively.
The Company and/or its subsidiaries file income tax returns with the U.S. Federal government and in various state
and foreign jurisdictions. A summary of tax years that remain subject to examination is as follows:
Jurisdiction
U.S. Federal ...........................................................................................................................
States:
Pennsylvania ....................................................................................................................
Virginia ............................................................................................................................
Illinois ..............................................................................................................................
Foreign:
India .................................................................................................................................
Mauritius ..........................................................................................................................
Note 14 - Stock-Based Compensation
Earliest Year
Open To
Examination
2007
2000
2007
2007
2008
2009
On April 11, 2005, the Company adopted an incentive compensation plan titled “The 2005 Long Term Incentive
Plan” (the “Incentive Plan”). Amendments to the Incentive Plan were approved by the Company’s board of
directors on March 28, 2008 and the Incentive Plan (as restated to incorporate all amendments) was ratified by the
stockholders at the Company’s annual stockholders’ meeting on May 14, 2008. The Incentive Plan is intended to
provide incentives to attract, retain and motivate employees and directors, to provide for competitive compensation
opportunities, to encourage long-term service, to recognize individual contributions and reward achievement of
performance goals. The Company believes that the Incentive Plan promotes the creation of long-term value for its
stockholders by better aligning the interests of its employees and directors with those of its stockholders. The
Incentive Plan provides for the grant to eligible persons of stock options, share appreciation rights, or SARs,
restricted shares, restricted share units, or RSUs, performance shares, performance units, dividend equivalents and
other share-based awards, referred to collectively as the awards. Option awards generally vest based on one to three
years of service and have 10 year contractual terms. Share awards generally vest over one to three years. Certain
option and share awards provide for accelerated vesting if there is a change in control (as defined in the Incentive
Plan). The Incentive Plan was effective April 5, 2005 and will terminate as to future awards on April 5, 2015.
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
Under the Incentive Plan, 1,659,616 shares of common stock have been reserved for issuance (from either
authorized but unissued shares or treasury shares), of which 805,346 were available for issuance at December 31,
2010.
The Company recognizes stock compensation expense based on the fair value of the award on the grant date using
the Black-Scholes option valuation model.
Stock-based compensation expense of $1,675, $1,829 and $2,852 is included within selling, general and
administrative expense for the years ended December 31, 2010, 2009 and 2008, respectively. The total income tax
benefit recognized on the income statement for share-based compensation arrangements was $629, $689 and $1,070
for the years ended December 31, 2010, 2009 and 2008, respectively.
On February 23, 2010, the Company awarded 74,310 non-qualified stock options to certain employees of the
Company pursuant to its 2005 Long Term Incentive Plan. The stock options will vest in three equal annual
installments beginning on February 23, 2011 and have a contractual term of 10 years. The exercise price of each
option is $20.69, which was the fair market value of the Company’s stock on the date of the grant. The estimated
fair value of $9.52 per option will be recognized over the period during which an employee is required to provide
service in exchange for the award, which is usually the vesting period. The following assumptions were used to
value the February 23, 2010 stock options: expected lives of the options of 6 years; expected volatility of 51.81%;
risk-free interest rate of 2.37%; and expected dividend yield of 1.16%.
On January 26, 2010, the Company awarded 200,000 non-qualified stock options to the Chief Executive Officer of
the Company pursuant to its 2005 Long Term Incentive Plan. The stock options vest in two equal annual
installments beginning on December 18, 2010 and have a contractual term of 10 years. The exercise price of each
option is $19.96, which was the fair market value of the Company’s stock on the date of the grant. The estimated
fair value of $9.02 per option will be recognized over the period during which the employee is required to provide
service in exchange for the award, which is usually the vesting period. The following assumptions were used to
value the January 26, 2010 stock options: expected lives of the options of 5.75 years; expected volatility of 51.96%;
risk-free interest rate of 2.38%; and expected dividend yield of 1.21%.
On May 12, 2009, the Company awarded 1,000 non-qualified stock options to an employee of the Company
pursuant to its 2005 Long Term Incentive Plan. The stock options will vest in three equal annual installments
beginning on May 12, 2010 and have a contractual term of 10 years. The exercise price of each option is $17.84,
which was the fair market value of the Company’s stock on the date of the grant. The estimated fair value of $8.13
per option will be recognized over the period during which the employee is required to provide service in exchange
for the award, which is usually the vesting period. The following assumptions were used to value the May 12, 2009
stock options: expected lives of the options of 6 years; expected volatility of 53.17%; risk-free interest rate of
2.02%; and expected dividend yield of 1.37%.
On January 13, 2008, the Company awarded 190,100 non-qualified stock options to certain employees of the
Company pursuant to its 2005 Long Term Incentive Plan. The stock options will vest in three equal annual
installments beginning on January 13, 2009 and have a contractual term of 10 years. The exercise price of each
option is $30.47, which was the fair market value of the Company’s stock on the date of the grant. The estimated
fair value of $12.36 per option will be recognized over the period during which an employee is required to provide
service in exchange for the award, which is usually the vesting period. The following assumptions were used to
value the January 13, 2008 stock options: expected lives of the options of 6 years; expected volatility of 40.78%;
risk-free interest rate of 3.08%; and expected dividend yield of 0.79%.
Expected life in years for all stock options awards was determined using the simplified method. Expected volatility
was based on the historical volatility of the Company’s stock. The risk-free interest rate was based on the U.S.
Treasury bond rate for the expected life of the option. The expected dividend yield was based on the latest
annualized dividend rate and the current market price of the underlying common stock on the date of the grant.
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
A summary of the Company’s stock options activity and related information at December 31, 2010 and 2009, and
changes during the years then ended, is presented below:
December 31,
2010
2009
Outstanding at the beginning of the year
Granted ...................................................
Exercised ................................................
Forfeited or expired ................................
Outstanding at the end of the
year ...........................................
Options
Outstanding
68,660
274,310
—
(21,970)
321,000
Exercisable at the end of the year ...........
140,336
Weighted-
Average
Exercise
Price
(per share)
$
33.12
20.16
—
26.33
22.51
24.34
$
$
Weighted-
Average
Exercise
Price
(per share)
$
31.69
17.84
—
30.47
33.12
37.12
Options
Outstanding
159,240
1,000
—
(91,580)
68,660
29,227
$
$
A summary of the Company’s stock options outstanding as of December 31, 2010 is presented below:
Weighted-
Average
Remaining
Contractual
Term
(in years)
Weighted-
Average
Exercise
Price
(per share)
Aggregate
Intrinsic
Value
Options
Outstanding
Options outstanding ................................
Vested or expected to vest ......................
Options exercisable .................................
321,000
318,013
140,336
8.7
8.7
8.3
$
$
$
22.51
22.52
24.34
$
$
$
2,343
2,319
902
There were no stock options exercised during each of the years ended December 31, 2010 and December 31, 2009.
As of December 31, 2010, there was $1,405 of total unrecognized compensation expense related to nonvested
options, which will be recognized over the average remaining requisite service period of 1 year.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
A summary of the Company’s nonvested restricted shares as of December 31, 2010 and 2009, and changes during
the years then ended is presented below:
Nonvested at the beginning of the
year ....................................................
Granted ...................................................
Vested .....................................................
Forfeited .................................................
Nonvested at the end of the year .............
Expected to vest ......................................
Shares
73,499
25,924
(48,989)
(15,607)
34,827
34,669
December 31,
2010
2009
Weighted-
Average
Grant Date
Fair Value
(per share)
$ 29.61
27.26
33.33
24.53
$ 25.75
$ 25.93
Weighted-
Average
Grant Date
Fair Value
(per share)
$ 42.25
17.95
44.29
28.57
$ 29.61
$ 29.61
Shares
78,774
41,589
(35,592)
(11,272)
73,499
73,499
The fair value of stock awards vested during the years ended December 31, 2010 and 2009, was $1,264 and $781,
respectively, based on the value at vesting date. The actual tax benefit realized for the tax deductions from vesting of
stock awards was $476 and $255 for the years ended December 31, 2010 and 2009, respectively, of which $(108)
and $(355), respectively was recorded to additional paid in capital as (tax deficiency)/excess tax benefit from stock-
based compensation. As of December 31, 2010, there was $488 of total unrecognized compensation expense related
to nonvested restricted stock awards, which will be recognized over the average remaining requisite service period
of 2 years.
Note 15 - Risks and Contingencies
The Company is involved in various warranty and repair claims and related threatened and pending 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 financial condition, results of operations or cash flows.
The Company relies upon third-party suppliers for railcar heavy castings, wheels and other components for its
railcars. In particular, it purchases a substantial percentage of its railcar heavy castings and wheels from subsidiaries
of one entity. The Company also relies upon a single supplier to manufacture all of its roll formed center sills for its
railcars. Any inability by these suppliers to provide the Company with components for its railcars, any significant
decline in the quality of these components or any failure of these suppliers to meet the Company’s planned
requirements for such components may have a material adverse impact on the Company’s financial condition and
results of operations. While the Company believes that it could secure alternative manufacturing sources for these
components, the Company may incur substantial delays and significant expense in doing so, the quality and
reliability of these alternative sources may not be the same and the Company’s operating results may be significantly
affected.
On September 29, 2008, Bral Corporation, a supplier of certain railcar parts to the Company, filed a complaint
against the Company in the U.S. District Court for the Western District of Pennsylvania (the “Pennsylvania
Lawsuit”). The complaint alleges that the Company breached an exclusive supply agreement with Bral by
purchasing parts from CMN Components, Inc. (“CMN”). On December 14, 2007, Bral sued CMN in the U.S.
District Court for the Northern District of Illinois, alleging among other things that CMN interfered in the business
relationship between Bral and the Company (the “Illinois Lawsuit”). On October 22, 2008, the Company entered
into an Assignment of Claims Agreement with CMN under which CMN assigned the Company its counterclaims
against Bral in the Illinois Lawsuit and the Company agreed to defend and indemnify CMN against Bral’s claims in
that lawsuit. While the ultimate outcome of the Pennsylvania Lawsuit and the Illinois Lawsuit cannot be determined
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
at this time, it is the opinion of management that the resolution of these lawsuits will not have a material adverse
effect, in excess of the estimated amounts previously accrued in 2007, on the Company’s financial condition and
results of operations.
On a quarterly basis, the Company evaluates the potential outcome of all significant contingencies utilizing guidance
provided in ASC 450 Contingencies. As required by ASC 450, the Company estimates the likelihood that a future
event or events will confirm the loss of an asset or incurrence of a liability. When information available prior to
issuance of the Company’s financial statements indicates that in management’s judgment, it is probable that an asset
had been impaired or a liability had been incurred at the date of the financial statements and the amount of loss can
be reasonably estimated, the contingency is accrued by a charge to income.
In addition to the foregoing, the Company is involved in certain other threatened and pending legal proceedings,
including commercial disputes and workers’ compensation and employee matters arising out of the conduct of its
business. While the ultimate outcome of these other legal proceedings cannot be determined at this time, it is the
opinion of management that the resolution of these other actions will not have a material adverse effect on the
Company’s financial condition, results of operations or cash flows.
Note 16 - Other Commitments
The Company leases certain property and equipment under long-term operating leases expiring at various dates
through 2016. The leases generally contain specific renewal options at lease-end at the then fair market amounts.
Future minimum lease payments at December 31, 2010 are as follows:
2011 ............................................................................................................................................................ $
2012 ............................................................................................................................................................
2013 ............................................................................................................................................................
2014 ............................................................................................................................................................
2015 ............................................................................................................................................................
Thereafter ...................................................................................................................................................
2,658
2,680
2,539
2,318
685
375
$ 11,255
The Company is liable for maintenance, insurance and similar costs under most of its leases and such costs are not
included in the future minimum lease payments. Total rental expense for the years ended December 31, 2010, 2009
and 2008, was approximately $2,594, $2,332 and $2,184, respectively.
The Company is party to certain non-cancelable fixed price agreements to purchase fixed amounts of materials used
in the manufacturing process. These purchase commitments are typically entered into after a customer places an
order for railcars and at December 31, 2010, these purchase commitments totaled $1,081 for 2011.
In addition, the Company has other non-cancelable agreements with its suppliers to purchase certain materials used
in the manufacturing process. The estimated commitments may vary based on the actual quantities ordered and be
subject to the actual price when ordered. At December 31, 2010, the Company had purchase commitments under
these agreements of $23,718, $26,214, $26,450 and $18,142 for 2011, 2012, 2013 and 2014, respectively.
Purchases related to these agreements were approximately $27,061, $37,310 and $51,099 for the years ended
December 31, 2010, 2009 and 2008, respectively.
The Company has employment agreements with certain members of management which provide for base
compensation, bonus, incentive compensation, employee benefits and severance payments under certain
circumstances. The employment agreements generally have terms that range between two and three years and
automatically extend for one-year periods until terminated prior to the end of the term by either party upon 90 days
notice. Annual base compensation for the executives with employment agreements ranges between $228 and $340.
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
Certain of the executives are entitled to participate in management incentive plans and other benefits as made
available to the Company’s executives.
Note 17 – Earnings Per Share
The weighted average common shares outstanding are as follows:
0
Weighted average common
shares outstanding ............
Dilutive effect of employee
stock options and
restricted share awards .....
Weighted average diluted
common shares
outstanding .......................
Year Ended December 31,
2010
2009
2008
11,896,148
11,861,366
11,788,400
—
8,984
44,732
11,896,148
11,870,350
11,833,132
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. Because the Company had a
net loss for the year ended December 31, 2010, all stock options and shares of nonvested share awards were anti-
dilutive and not included in the above calculation for that period. For the years ended December 31, 2009 and 2008,
41,129 and 103,037 shares, respectively, were not included in the weighted average common shares outstanding
calculation as they were anti-dilutive.
Note 18 - Operating Segment and Concentration of Sales
The Company’s operations consist of a single reporting segment. The following table sets forth the Company’s sales
resulting from various revenue sources for the periods indicated below:
Year Ended December 31,
2010
2009
2008
New railcar sales ...................................... $
Used railcar sales ......................................
Parts sales .................................................
Leasing revenues ......................................
Maintenance, repair and rebuild
revenues ...............................................
Other sales ................................................
112,413
7,849
12,423
5,384
4,648
172
$
217,046
818
17,406
5,812
3,446
3,934
$
712,432
14,368
14,798
2,955
1,837
—
$
142,889
$
248,462
$
746,390
Due to the nature of its operations, the Company is subject to significant concentration of risks related to business
with a few customers. Sales to the Company’s top three customers accounted for 63%, 10% and 5%, respectively,
of revenues for the year ended December 31, 2010. Sales to the Company’s top three customers accounted for
15%, 15% and 14%, respectively, of revenues for the year ended December 31, 2009. Sales to the Company’s top
three customers accounted for 22%, 21% and 10%, respectively, of revenues for the year ended December 31, 2008.
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
Note 19 - Labor Agreements
A collective bargaining agreement at one of the Company’s facilities covered approximately 36% and 29% of the
Company’s active labor force at December 31, 2010 and 2009, respectively, under an agreement that expires in
October 2012.
An additional collective bargaining agreement at a different facility covered approximately 1% of the Company’s
active labor force at December 31, 2010. The facility was idled in July 2009 and at December 31, 2010, was
preparing to resume production in 2011. The agreement was ratified on April 1, 2010 and expires on March 31,
2013.
Note 20- Selected Quarterly Financial Data (Unaudited)
(Dollar amounts in thousands except per share data)
Quarterly financial data is as follows:
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2010
2009
Revenues .......................................... $ 19,530
Net income (loss) attributable to
$ 30,999
$ 41,330
$ 51,030
FreightCar America .....................
(3,294)
(1,305)
(4,696)
(3,476)
Net income (loss) per common
share attributable to FreightCar
America— basic .......................... $ (0.28)
Net income (loss) per common
share attributable to FreightCar
America— diluted ....................... $ (0.28)
Revenues .......................................... $ 39,563
10,295
Gross profit ......................................
Net income (loss) attributable to
$ (0.11)
$ (0.39)
$ (0.29)
$ (0.11)
$
(0.39)
$ (0.29)
$ 104,328
15,983
$ 55,131
6,879
$ 49,440
3,365
FreightCar America .....................
2,397
7,022
1,069
(5,548)
Net income (loss) per common
share attributable to FreightCar
America— basic .......................... $ 0.20
Net income (loss) per common
share attributable to FreightCar
America— diluted ....................... $ 0.20
$ 0.59
$ 0.09
$ (0.47)
$ 0.59
$
0.09
$ (0.47)
Note 21- Business Acquisition
On November 1, 2010, the Company acquired (through FCRS) the business assets of DTE Rail Services Inc., a non-
regulated subsidiary of DTE Energy Company, Inc., for cash of approximately $23,319. The transaction was funded
with cash from operations. FCRS provides repair and maintenance, inspections and fleet management services for
all types of freight-carrying railcars. FCRS has operations in Colorado, Indiana and Nebraska and services freight
cars and unit coal trains utilizing key rail corridors in the Midwest and Western regions of the United States. The
expansion of the Company’s railcar services activities is intended to diversify the Company’s revenue sources and
lessen the cyclicality of the railcar market on its revenues. The acquired business added approximately 130 skilled
employees to the Company.
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands, except share and per share data)
The Company has recorded a preliminary allocation of the purchase price to the tangible and identifiable intangible
assets acquired and liabilities assumed based on their fair values as of November 1, 2010. Goodwill has been
recorded based on the amount by which the purchase price exceeds the fair value of the net assets acquired and is
deductible for tax purposes. Acquisition costs of $674 are included in “Selling, general and administrative
expenses” on the Company’s Consolidated Statement of Operations for the year ended December 31, 2010.
The preliminary purchase price allocation is as follows (dollar amounts in thousands):
Accounts receivable ............................................. $
Inventories ............................................................
Other current assets ..............................................
Property, plant and equipment, net.......................
Customer related intangibles ................................
Goodwill ..............................................................
Accounts payable .................................................
3,698
3,261
39
15,469
1,300
531
(979)
$
23,319
Pro Forma Results (Unaudited)
FCRS had revenues of $4,442 since the acquisition date of November 1, 2010, which are included in the Company’s
Consolidated Statements of Operations, and a minimal impact on 2010 net loss. Selected pro forma consolidated
results of operations of the Company for the years ended December 31, 2010 and 2009, assuming that the
acquisition had occurred as of January 1, 2009 are presented for comparative purposes below (dollar amounts in
thousands, except per share amounts):
Year Ended December 31,
2010
2009
Revenues
$ 164,273
$ 275,629
Net (loss) income attributable to FreightCar
America
$ (12,337)
$ 5,480
Per share data:
Net (loss) income per common share
attributable to FreightCar America –
basic ...........
Net (loss) income per share common
attributable to FreightCar America –
diluted ........
$ (1.04)
$
0.46
$ (1.04)
$
0.46
65
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer,
management evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)), as of the end of the period covered by our annual report on Form 10-K for the fiscal year ended December
31, 2010 (the “Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to
ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange
Commission’s rules and forms.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management, under the supervision of the Chief Executive Officer and the Chief Financial Officer, is responsible
for establishing and maintaining adequate internal control over financial reporting. Internal control over financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, is a process designed
by, or under the supervision of, the Chief Executive Officer and Chief Financial Officer and effected by the board of
directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external reporting purposes in accordance with GAAP.
Internal control over financial reporting includes those policies and procedures that:
• Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the Company;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP;
• Provide reasonable assurance that receipts and expenditures of the Company are being made only in
accordance with appropriate authorization of management and the board of directors; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the Company’s assets that could have a material effect on the financial statements.
As of the end of the Company’s 2010 fiscal year, management conducted an evaluation of the effectiveness of the
Company’s internal control over financial reporting based on the framework established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). This assessment excluded the internal control over financial reporting at FreightCar Rail Services, LLC
(“FCRS”), which was formed to acquire the business assets of DTE Rail Services, Inc. (“DTE”), on November 1,
2010 as described in Note 21 of the Notes to Consolidated Financial Statements. The FCRS financial statements
constitute 8% of total assets, 3% of revenues, and had an immaterial impact on net loss of the consolidated financial
statement amounts as of and for the year ended December 31, 2010. Management’s election to exclude FCRS was a
result of the Company needing additional time to properly evaluate and transition FCRS’s existing internal controls
over financial reporting and disclosures.
The Company’s system of internal control over financial reporting is designed to provide reasonable assurance to
the Company’s management and board of directors regarding the reliability of financial records used in preparation
of the Company’s published financial statements. As all internal control systems have inherent limitations, even
systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation. Based on its assessment, management has concluded that the Company maintained an
effective system of internal control over financial reporting as of December 31, 2010.
66
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2010 has been
audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report
appearing herein.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There has been no change in our internal control over financial reporting during the last fiscal quarter of 2010 that
has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information required to be disclosed by this item is hereby incorporated by reference to the information under the
captions “Governance of the Company,” “Stock Ownership,” “Section 16(a) Beneficial Ownership Reporting
Compliance” and “Executive Compensation” in our definitive Proxy Statement to be filed pursuant to Regulation
14A, which Proxy Statement is anticipated to be filed with the Securities and Exchange Commission within 120
days after the end of our fiscal year ended December 31, 2010.
Item 11. Executive Compensation.
Information required to be disclosed by this item is hereby incorporated by reference to the information under the
captions “Executive Compensation”, “Board of Directors”, “Compensation Discussion and Analysis” and “Director
Compensation” in our definitive Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statement is
anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year
ended December 31, 2010.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Information required to be disclosed by this item is hereby incorporated by reference to the information under the
captions “Stock Ownership” and “Equity Compensation Plan Information” in our definitive Proxy Statement to be
filed pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed with the Securities and Exchange
Commission within 120 days after the end of our fiscal year ended December 31, 2010.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information required to be disclosed by this item is hereby incorporated by reference to the information under the
captions “Certain Transactions” and “Board of Directors” in our definitive Proxy Statement to be filed pursuant to
Regulation 14A, which Proxy Statement is anticipated to be filed with the Securities and Exchange Commission
within 120 days after the end of our fiscal year ended December 31, 2010.
Item 14. Principal Accounting Fees and Services.
Information required to be disclosed by this item is hereby incorporated by reference to the information under the
caption “Fees of Independent Registered Public Accounting Firm and Audit Committee Report” in our definitive
Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed with the
Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2010.
67
PART IV
Item 15. Exhibits, Financial Statement Schedules.
Exhibits
(a)
Documents filed as part of this report:
The following financial statements are included in this Form10-K:
1. Consolidated Financial Statements of FreightCar America, Inc. and Subsidiaries
Management’s Report on Internal Control Over Financial Reporting.
Report of Independent Registered Public Accounting Firm.
Consolidated Balance Sheets as of December 31, 2010 and 2009.
Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008.
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2010, 2009
and 2008.
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedule
The following financial statement schedule is a part of this Form 10-K and should be read in conjunction
with our audited consolidated financial statements.
Schedule II — Valuation and Qualifying Accounts
All other financial statement schedules are omitted because such schedules are not required or the
information required has been presented in the aforementioned financial statements.
3. The exhibits listed on the “Exhibit Index” to this Form 10-K are filed with this Form 10-K or incorporated by
reference as set forth below.
(b) The exhibits listed on the “Exhibit Index” to this Form 10-K are filed with this Form 10-K or incorporated
by reference as set forth below.
(c)
Additional Financial Statement Schedules
None.
68
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date: March 15, 2011
By:
/s/ EDWARD J. WHALEN
Edward J. Whalen, President and
Chief Executive Officer
FREIGHTCAR AMERICA, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ EDWARD J. WHALEN
Edward J. Whalen
/s/ JOSEPH E. MCNEELY
Joseph E. McNeely
President and Chief Executive Officer
(principal executive officer) and Director
March 11, 2011
Vice President, Finance, Chief Financial
Officer and Treasurer (principal financial
officer and principal accounting officer)
March 11, 2011
March 11, 2011
March 11, 2011
March 11, 2011
March 11, 2011
March 11, 2011
March 11, 2011
/s/ THOMAS M. FITZPATRICK
Thomas M. Fitzpatrick
Chairman of the Board and
Director
/s/ JAMES D. CIRAR
James D. Cirar
/s/ WILLIAM D. GEHL
William D. Gehl
/s/ THOMAS A. MADDEN
Thomas A. Madden
/s/ S. CARL SODERSTROM, JR.
S. Carl Soderstrom
/s/ ROBERT N. TIDBALL
Robert N. Tidball
Director
Director
Director
Director
Director
69
FreightCar America, Inc. and Subsidiaries
Schedule II – Valuation and Qualifying Accounts
For the Years Ended December 31, 2010, 2009 and 2008
(in thousands)
Balance at
Beginning of
Period
Additions Charged
to Costs and
Expenses
Deductions,
Accounts Charged
Off and Recoveries
of Amounts
Previously Written
Off
Balance at End of
Period
Year Ended December 31, 2010
Allowance for doubtful accounts $
Deferred tax assets valuation
240
$
27
$
(51)
$
allowance ...............................
7,195
—
(2,235)
Inventory reserve ........................
1,168
200
$ (455)
Year Ended December 31, 2009
Allowance for doubtful accounts $
Deferred tax assets valuation
330
$
56
$
(146)
$
allowance ...............................
7,037
158
—
Inventory reserve ........................
150
1,168
$ (150)
Year Ended December 31, 2008
Allowance for doubtful accounts $
Deferred tax assets valuation
223
$
107
$
—
$
allowance ...............................
3,585
3,452
—
Inventory reserve ........................
1,177
—
$
(1,027)
216
4,960
913
240
7,195
1,168
330
7,037
150
70
2.1
3.1
3.2
4.1
10.1
10.2
10.3
EXHIBIT INDEX
Asset Purchase Agreement, dated September 7, 2010, by and among FreightCar Rail Services, LLC,
FreightCar America, Inc., Cornhusker Railways, LLC, DTE Rail Services, Inc. and DTE Energy
Resources, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form
8-K filed with the Commission on September 8, 2010).
Certificate of Ownership and Merger of FreightCar America, Inc. into FCA Acquisition Corp., as
amended (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K
filed with the Commission on September 7, 2006).
Third Amended and Restated By-laws of FreightCar America, Inc. (incorporated by reference to
Exhibit 3.1 to the Company’s Current Report filed on Form 8-K filed with the Commission on
September 28, 2007).
Form of Registration Rights Agreement, by and among FreightCar America, Inc., Hancock
Mezzanine Partners, L.P., John Hancock Life Insurance Company, Caravelle Investment Fund,
L.L.C., Trimaran Investments II, L.L.C., Camillo M. Santomero, III, and the investors listed on
Exhibit A attached thereto (incorporated by reference to Exhibit 4.3 to Registration Statement Nos.
333-123384 and 333-123875 filed with the Commission on April 4, 2005).
Employment agreement of Laurence M. Trusdell dated as of June 11, 2007, by and between
FreightCar America, Inc. and Laurence M. Trusdell (incorporated by reference to Exhibit 10.4 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the
Commission on March 15, 2010)
Employment agreement of Thomas P. McCarthy dated as of June 4, 2007, by and between
FreightCar America, Inc. and Thomas P. McCarthy.
Amendment to employment agreement of Laurence M. Trusdell dated as of December 29, 2008
(incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2008 filed with the Commission on March 13, 2009).
10.4
Amendment to employment agreement of Thomas P. McCarthy dated as of December 29, 2008.
10.5
10.6
10.7
10.8
10.9
Letter agreement regarding Terms of Employment dated January 26, 2010 by and between
FreightCar America, Inc. and Edward J. Whalen (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed with the Commission on January 29, 2010).
Letter agreement regarding Terms of Employment dated August 27, 2010 by and between
FreightCar America, Inc. and Joseph E. McNeely (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed with the Commission on August 27, 2010).
FreightCar America, Inc. 2005 Long Term Incentive Plan (Restated to incorporate all Amendments)
(incorporated by reference to Appendix I to the Company’s Proxy Statement for the annual meeting
of stockholders held on May 14, 2008 filed with the Commission on April 8, 2008).
Form of Restricted Share Award Agreement for the Company’s employees (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission
on December 12, 2005).
Form of Restricted Share Award Agreement for the Company’s independent directors (incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
Commission on January 27, 2006).
71
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
21
23
31.1
31.2
Form of Restricted Share Award Agreement for the Company’s employees (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission
on January 15, 2008).
Form of Stock Option Award Agreement for the Company’s employees (incorporated by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on
January 15, 2008).
Lease Agreement, dated as of December 20, 2004, by and between Norfolk Southern Railway
Company and Johnstown America Corporation (the “Lease Agreement”) (incorporated by reference
to Exhibit 10.27 to Registration Statement Nos. 333-123384 and 333-123875 filed with the
Commission on April 4, 2005).*
Amendment to the Lease Agreement, dated as of December 1, 2005 (incorporated by reference to
Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the year ended December 31,
2005).*
Second Amendment to the Lease Agreement, dated as of February 1, 2008, by and between Norfolk
Southern Railway Company and Johnstown America Corporation (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2008 filed with the Commission on May 12, 2008).
Loan and Security Agreement, dated as of July 29, 2010, by and among FreightCar America, Inc.,
Johnstown America Corporation, Freight Car Services, Inc., JAC Operations, Inc., FreightCar
Roanoke, Inc. and Fifth Third Bank (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed with the Commission on July 30, 2010).
Management Incentive Plan of Johnstown America Corporation (incorporated by reference to
Exhibit 10.29 to Registration Statement Nos. 333-123384 and 333-123875 filed with the
Commission on March 17, 2005).
FreightCar America, Inc. Executive Severance Plan (and Summary Plan Description) (incorporated
by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the
Commission on September 30, 2009).
Form of Letter of Resignation (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed with the Commission on December 19, 2006).
Form of Letter of Resignation (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed with the Commission on December 20, 2009).
Form of Indemnification Agreement between FreightCar America, Inc. and each of its current
directors (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed with the Commission on March 24, 2010).
Subsidiaries of FreightCar America, Inc.
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
72
32
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Confidential treatment has been granted for the redacted portions of this exhibit. A complete copy of the
exhibit, including the redacted portions, has been filed separately with the Securities and Exchange
Commission.
73
SUBSIDIARIES OF FREIGHTCAR AMERICA, INC.
Exhibit 21
Name of Subsidiary
JAC Operations Inc.
Johnstown America Corporation
Freight Car Services, Inc.
JAIX Leasing Company
JAC Patent Company
FreightCar Roanoke, Inc.
FreightCar Rail Services, LLC
FreightCar Short Line, Inc.
Titagarh FreightCar Private Limited
FreightCar Mauritius Ltd.
Percent Ownership
by Registrant
100%
100%
100%
100%
100%
100%
100%
100%
51%
100%
All subsidiaries are Delaware corporations except Titagarh FreightCar Private Limited, which is incorporated in
India, FreightCar Mauritius Ltd., which is incorporated in Mauritius, and FreightCar Rail Services, LLC., which is a
Delaware limited liability company.
74
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-131981 on Form S-8 of our reports
dated March 15, 2011, relating to the financial statements and financial statement schedule of FreightCar America,
Inc. and subsidiaries, and the effectiveness of FreightCar America, Inc. and subsidiaries’ internal control over
financial reporting, appearing in this Annual Report on Form 10-K of FreightCar America, Inc. for the year ended
December 31, 2010.
Exhibit 23
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
March 15, 2011
75
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.1
I, Edward J. Whalen, certify that:
1.
I have reviewed this Annual Report on Form 10-K of FreightCar America, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
2.
a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
3.
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
4.
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined by Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
5.
internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: March 15, 2011
By:
/s/ EDWARD J. WHALEN
Edward J. Whalen
President and Chief Executive Officer
76
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2
I, Joseph E. McNeely, certify that:
1.
I have reviewed this Annual Report on Form 10-K of FreightCar America, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
2.
a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
3.
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
4.
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined by Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
5.
internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: March 15, 2011
By:
/s/ JOSEPH E. MCNEELY
Joseph E. McNeely
Vice President, Finance,
Chief Financial Officer and Treasurer
77
Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32
In connection with the Annual Report of FreightCar America, Inc. (the “Company”) on Form 10-K for the year
ending December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
we, Edward J. Whalen, President and Chief Executive Officer, and Joseph E. McNeely, Vice President, Finance,
Chief Financial Officer and Treasurer, respectively, of the Company, certify pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:
(1) the Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: March 15, 2011
By:
Date: March 15, 2011
By:
/s/ EDWARD J. WHALEN
Edward J. Whalen
President and Chief Executive Officer
/s/ JOSEPH E. MCNEELY
Joseph E. McNeely
Vice President, Finance,
Chief Financial Officer and Treasurer
A signed copy of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been
provided to the Company and will be retained by the Company and furnished to the Securities and Exchange
Commission or its staff upon request.
78
shareholder information
BoArd oF direCtors
Thomas M. Fitzpatrick
Chairman
James D. Cirar
Director
William D. Gehl
Director and Chairman of the Strategy and
Growth Committee
Thomas A. Madden
Director and Chairman of the
Compensation Committee
S. Carl Soderstrom, Jr.
Director and Chairman of the Audit Committee
Robert N. Tidball
Director and Chairman of the
Nominating and Corporate Governance Committee
Edward J. Whalen
Director
CorporAte oFFiCers
Theodore W. Baun
Senior Vice President, Marketing and Sales
Michael D. MacMahon
Vice President, Business Development
and Strategy
Thomas P. McCarthy
Senior Vice President, Human Resources
Joseph E. McNeely
Vice President, Finance, Chief Financial Officer
and Treasurer
Laurence M. Trusdell
General Counsel and Corporate Secretary
Edward J. Whalen
President and Chief Executive Officer
independent registered
puBliC ACCounting Firm
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
registrAr And trAnsFer Agent
Computershare
P.O. Box 43078
Providence, Rhode Island 02940
www.computershare.com/investor
stoCk listing
Nasdaq National Market
Ticker Symbol: RAIL
AnnuAl meeting oF stoCkHolders
Wednesday, May 11, 2011 at 10:00 a.m.
(Local Time)
Union League Club
65 West Jackson Boulevard
Chicago, Illinois 60604
investor inquiries
To receive copies of reports filed with
the Securities and Exchange Commission,
recent press releases, quarterly and annual
reports and additional information about
FreightCar America, please visit our website
at www.freightcaramerica.com or contact
Investor Relations at Two North Riverside Plaza,
Suite 1250, Chicago, Illinois 60606.
m
o
c
.
s
r
o
n
n
o
c
-
n
a
r
r
u
c
.
w
w
w
/
.
c
n
I
,
s
r
o
n
n
o
C
&
n
a
r
r
u
C
y
b
n
g
i
s
e
D
t
r
o
p
e
R
l
a
u
n
n
A
FreightCar America
FreightCar America
Two North Riverside Plaza
Two North Riverside Plaza
Suite 1250
Suite 1250
Chicago, Illinois 60606
Chicago, Illinois 60606
800.458.2235
800.458.2235
www.freightcaramerica.com
w w w.f r e i g htc a ra m e r i c a .co m