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What changed in FreightCar America, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FreightCar America, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+158 added−205 removedSource: 10-K (2024-03-18) vs 10-K (2023-03-27)

Top changes in FreightCar America, Inc.'s 2023 10-K

158 paragraphs added · 205 removed · 124 edited across 4 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeIn the last seven years, we have added 22 new or redesigned products to our portfolio, including various covered hopper car products with cubic capacities from 3,282 cubic foot to 6,250 cubic foot; 52’ and 66’ mill gondolas; (longitudinal trough and 5, 7, 9, and 10 transverse trough) coil gondolas; woodchip gondolas; triple hoppers and hybrid aluminum/stainless steel railcars; ore hopper and gondola railcars; ballast hopper cars; aggregate hopper cars (with manual, independent or fully automatic transverse or longitudinal door systems); intermodal flats (including the 3-unit, 53-foot well cars) and non-intermodal flat cars (including slab, hot slab and bulkhead flats).
Biggest changeIn the last seven years, we have added 22 new or redesigned products to our portfolio, including box cars in 50’ and 60’ lengths; various covered hopper cars with cubic capacities from 3,282 to 6,500 cubic feet; open top hopper car designs for ballast, ore and coke with manual or automatic door systems; Versaflood II ™ open top hoppers in all steel and hybrid configurations (aluminum/stainless steel) with a patented automatic door system; 52’ and 66’ mill gondolas in multiple cubic capacities; rotary and non-rotary aggregate gondolas; triple hoppers in all steel and hybrid configurations; intermodal flats (including single unit, 2 unit and 3 unit, 53’ well cars) and non-intermodal flat cars including 64’ - 89’ length for general purpose, steel slab (hot and cold); and bulkhead flats.
Our Castaños manufacturing facility began production during the third quarter of 2020 and provides a solid platform from which to pursue a broad range of commodity carrying railcar business including intermodal well cars, non-intermodal flat cars and various open-top hopper, covered hopper and gondola cars. Our manufacturing process involves four basic steps: fabrication, assembly, finishing and inspection.
Our Castaños Facility began production during the third quarter of 2020 and provides a solid platform from which to pursue a broad range of commodity carrying railcar business including intermodal well cars, non-intermodal flat cars and various open-top hopper, covered hopper and gondola cars. 4 Our manufacturing process involves four basic steps: fabrication, assembly, finishing and inspection.
We design and manufacture a broad variety of railcar types for transportation of bulk commodities and containerized freight products primarily in North America, including open top hoppers, covered hoppers, and gondolas along with intermodal and non-intermodal flat cars. We and our predecessors have been manufacturing railcars since 1901.
We design and manufacture a broad variety of railcar types for transportation of bulk commodities and containerized freight products primarily in North America, including box cars, open top hoppers, covered hoppers, and gondolas along with intermodal and non-intermodal flat cars. We and our predecessors have been manufacturing railcars since 1901.
Costs associated with research and development are expensed as incurred. BACKLOG We define backlog as the value of those products or services which our customers have committed in writing to purchase or lease from us when built, but which have not yet been recognized as sales.
Costs associated with research and development are expensed as incurred. BACKLOG We define backlog as the value of those products or services which our customers have committed in writing to purchase from us when built, but which have not yet been recognized as sales.
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. 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.
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. Once we have completed the finishing process, our employees, along with representatives of the customer purchasing the particular railcars, inspect railcars for adherence to specifications.
We rebuild and convert railcars and sell forged, cast and fabricated parts for all of the railcars we produce, as well as those manufactured by others. Many of 3 our railcars are produced using a patented one-piece center sill, the main longitudinal structural component of the railcar.
We rebuild and convert railcars and sell forged, cast and fabricated parts for all of the railcars we produce, as well as those manufactured by others. Many of our railcars are produced using a patented one-piece center sill, the main longitudinal structural component of the railcar.
We continually monitor key talent metrics including employee engagement and employee turnover. Our employee benefits programs strive to deliver competitive benefits that are effective in attracting and retaining talent, that create a culture of well-being and inclusiveness, and that meet the 7 diverse needs of our employees.
We continually monitor key talent metrics including employee engagement and employee turnover. Our employee benefits programs strive to deliver competitive benefits that are effective in attracting and retaining talent, that create a culture of well-being and inclusiveness, and that meet the diverse needs of our employees.
OUR PRODUCTS AND SERVICES We design and manufacture a broad variety of freight cars including covered hoppers, open top hoppers, gondolas, intermodal and non-intermodal flat cars that transport numerous types of dry bulk and containerized freight products.
OUR PRODUCTS AND SERVICES We design and manufacture a broad variety of freight cars including box cars, covered hoppers, open top hoppers, gondolas, intermodal and non-intermodal flat cars that transport numerous types of dry bulk and containerized freight products.
Our coal car product offerings include aluminum-bodied flat-bottom gondola railcars and steel or stainless steel-bodied triple hopper railcars for coal, metallurgical coke and petroleum coke service. 4 • Other Railcar Types .
Our coal car product offerings include aluminum-bodied flat-bottom gondola railcars and steel or stainless steel-bodied triple hopper railcars for coal, metallurgical coke and petroleum coke service. • Other Railcar Types .
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.
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. 5 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 (in thousands).
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.
We use mechanical fastening in the fitting and assembly of our aluminum-bodied and hybrid railcars, 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.
Item 1. Business . OVERVIEW FreightCar America, Inc., a Delaware corporation (“FCA”) and its subsidiaries (the “Company”, “we”, “us”, and “our” refers to FCA and its subsidiaries) are a diversified manufacturer of railcars and railcar components.
Item 1. Business . OVERVIEW FreightCar America, Inc., a Delaware corporation (“FCA”), with its subsidiaries (the “Company”, “we”, “us”, and “our” refers to FCA and its subsidiaries), is a diversified manufacturer of railcars and railcar components.
Our covered hopper railcar product offerings encompass a wide range of cubic foot (cf) capacity designs for shipping dry bulk commodities of varying densities including: 3,282 cf covered hopper cars for cement, sand and roofing granules; 4,300 cf covered hopper cars for potash or similar commodities; 5,200 cf, 5,400 cf and 5700 cf covered hopper cars for grain and other agricultural products; and 5,800 cf and 6,250 cf covered hopper cars for plastic pellets. • DynaStack Series .
Our covered hopper railcar product offerings encompass a wide range of cubic foot (“cf”) capacity designs for shipping dry bulk commodities of varying densities including: 3,282 cf covered hopper cars for cement, sand and roofing granules; 4,300 cf covered hopper cars for potash or similar commodities; 5,200 cf, 5,400 cf, 5,450 cf, 5,700 cf and 3 5,800 cf-covered hopper cars for grain and other agricultural products; and 5,850 cf and 6,500 cf covered hopper cars for plastic pellets. • DynaStack Series .
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.
We are also subject to oversight in other jurisdictions by foreign regulatory agencies and to the extent that we expand our business internationally, we may be subject to the laws and regulations of other non-U.S. jurisdictions.
MANUFACTURING Our railcar production facility in Castaños is certified by the Association of American Railroads (the “AAR”), which sets railcar manufacturing industry standards for quality control.
MANUFACTURING Our railcar production facility in Castaños, Coahuila, Mexico (the “Castaños Facility”) is certified by the Association of American Railroads (the “AAR”), which sets railcar manufacturing industry standards for quality control.
Aluminum prices generally are not fixed at the time a railcar order is accepted due to our infrequent usage and subsequent low volume purchases of aluminum. Our primary steel suppliers are Feralloy Corporation and Reibus International. Steel prices generally are not fixed at the time a railcar order is accepted due to fluctuations in market prices.
Aluminum prices generally are not fixed at the time a railcar order is accepted due to our infrequent usage and subsequent low volume purchases of aluminum from our two primary suppliers. Steel prices generally are not fixed at the time a railcar order is accepted due to fluctuations in market prices.
Our total backlog of firm orders for railcars increased from 2,323 railcars as of December 31, 2021 to 2,445 railcars as of December 31, 2022. Our backlog as of December 31, 2022 includes a variety of railcar types and the estimated sales value of the backlog is $288 million. Our Internet website is www.freightcaramerica.com.
Our total backlog of firm orders for railcars increased from 2,445 railcars as of December 31, 2022 to 2,914 railcars as of December 31, 2023. Our backlog as of December 31, 2023 includes a variety of railcar types and the estimated sales value of the backlog is $348 million. Our website is www.freightcaramerica.com.
(2) Estimated revenue from backlog reflects the total revenue attributable to the backlog reported at the end of the period as if such backlog were converted to actual sales. Estimated revenue from backlog as of December 31, 2022 includes $40.6 million that is not expected to be converted to sales within one year.
(2) Estimated revenue from backlog reflects the total revenue attributable to the backlog reported at the end of the period as if such backlog were converted to actual sales. Estimated revenue from backlog as of December 31, 2023 includes $14,850 that is not expected to be converted to sales within one year.
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 Ryerson Metals and Hydro Extrusions.
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.
As a result of these regulations, we must maintain certifications with the AAR as a freight railcar manufacturer and products that we sell must meet AAR and FRA standards.
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 products that we sell must meet AAR and FRA standards.
We believe that our customers’ preference for reliable, high-quality products, our engineering design expertise, 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.
We believe that our customers’ preference for reliable, high-quality products, our engineering design expertise, 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 2023, revenue from the Company’s top three customers accounted for 19%, 16% and 15%, respectively, of total revenue.
Year Ended December 31, 2022 2021 Railcar backlog at start of period 2,323 1,389 Net railcar orders received 3,306 2,665 Railcars delivered (3,184 ) (1,731 ) Railcar backlog at end of period (1) 2,445 2,323 Estimated revenue from backlog at end of period (in thousands) (2) $ 287,969 $ 240,160 (1) Railcar backlog includes 423 and 605 rebuilt railcars as of December 31, 2022 and 2021, respectively.
Year Ended December 31, 2023 2022 Railcar backlog at start of period 2,445 2,323 Net railcar orders received 3,491 3,306 Railcars delivered (3,022 ) (3,184 ) Railcar backlog at end of period (1) 2,914 2,445 Estimated revenue from backlog at end of period (in thousands) (2) $ 348,229 $ 287,969 (1) Railcar backlog includes 190 and 423 rebuilt railcars as of December 31, 2023 and 2022, respectively.
The protection of our intellectual property is important to our business. HUMAN CAPITAL Employees As of December 31, 2022, we had 1,435 employees, of which 319 were salaried and 1,116 were hourly wage earners. As of December 31, 2022, 1,381 of our employees were based in Mexico, 52 were based in the U.S. and 2 were based in China.
As of December 31, 2022, we had 1,435 employees, of whom 319 were salaried and 1,116 were hourly wage earners. As of December 31, 2022, 1,381 of our employees were based in Mexico, 52 were based in the U.S. and 2 were based in China.
Our total package of benefits is designed to support the physical, mental, and financial health of our employees, and we currently provide access to medical, dental, vision, life insurance and retirement benefits, as well as disability benefits. Safety We are committed to providing a safe and healthy work environment for all employees.
Our total package of benefits is designed to support the physical, mental, and financial health of our employees, and we currently provide access to medical, dental, vision, life insurance and retirement benefits, as well as disability benefits.
In the year ended December 31, 2022, we delivered 3,184 railcars, including 2,281 new railcars and 903 rebuilt railcars, compared to 1,731 railcars, including 1,354 new railcars and 377 rebuilt railcars, delivered in the year ended December 31, 2021.
In the year ended December 31, 2023, we delivered 3,022 railcars, including 2,707 new railcars and 315 rebuilt railcars, compared to 3,184 railcars, including 2,281 new railcars and 903 rebuilt railcars, delivered in the year ended December 31, 2022.
The VPs are responsible for developing and closing new business and managing customer relationships. Our contract administrators are responsible for preparing proposals and other inside sales activities. Our director of field support is responsible for after-sale follow-up, technical support, training, and in-field product performance reviews.
Our contract administrator is responsible for preparing proposals and other inside sales activities. Our director of field support is responsible for after-sale follow-up, technical support, training, and in-field product performance reviews and warranty.
Our top ten suppliers accounted for 62% and 80% of our total purchases in 2022 and 2021, respectively. COMPETITION We operate in a highly competitive marketplace especially in periods of low market demand resulting in excess manufacturing capacity and face substantial competition from established competitors in the railcar industry in North America.
COMPETITION We operate in a competitive marketplace, especially in periods of low market demand resulting in excess manufacturing capacity and face substantial competition from established competitors in the railcar industry in North America.
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. 5 SALES AND MARKETING Our direct sales group is organized by customer and geography and consists of vice presidents of sales (“VPs”), contract administrators, a manager of customer service, a director of field support, and support staff.
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.
In 2022, revenue from three customers, Union Pacific Railroad, Vulcan Materials Company and Infinity Transportation, accounted for approximately 20%, 19% and 16%, respectively, of total revenue. In 2022, sales to our top five customers accounted for approximately 76% of total revenue.
In 2023, sales to our top five customers accounted for approximately 69% of total revenue. In 2022, revenue from the Company’s top three customers accounted for approximately 20%, 19% and 16%, respectively, of total revenue. In 2022, sales to our top five customers accounted for approximately 76% of total revenue.
Other suppliers provide brake systems, castings, bearings and various other components. The railcar industry is periodically subject to supply constraints for some of the key railcar components. Except as described above, there are usually at least two suppliers for each of our raw materials and specialty components.
The railcar industry is periodically subject to supply constraints for some of the key railcar components. Except as described above, there are usually at least two suppliers for each of our raw materials and specialty components. Our top ten suppliers accounted for 60% and 62% of our total purchases in 2023 and 2022, respectively.
Many of our customers do not purchase railcars every year because 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.
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.
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.
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.
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. Our key patent includes our hopper railcar with automatic individual door system.
INTELLECTUAL PROPERTY 6 We have several U.S. and international patents and pending applications, registered trademarks, copyrights and trade names. Our key patent includes our hopper railcar with automatic individual door system. The protection of our intellectual property is important to our business.
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 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.
As of December 31, 2021, we had 997 employees, of whom 223 were salaried and 774 were hourly wage earners. As of December 31, 2021, 941 of our employees were based in Mexico, 54 were based in the U.S. and 2 were based in China.
HUMAN CAPITAL Employees As of December 31, 2023, we had 2,023 employees, of which 398 were salaried, and 1,625 were hourly wage earners represented by unions in the United States and Mexico. As of December 31, 2023, 1,961 of our employees were based in Mexico, 60 were based in the U.S. and 2 were based in China.
COMMITMENT TO SUSTAINABILITY Consistent with our vision, we are committed to growing our business in a sustainable and socially responsible manner. Our Nominating and Corporate Governance Committee has undertaken a comprehensive review of our governance policies in light of recent trends relating to environmental, social and governance (“ESG”) topics and disclosure.
COMMITMENT TO CORPORATE RESPONSIBILITY We are committed to growing our business in a sustainable and socially responsible manner with strong governance principles in place. The Nominating and Corporate Governance Committee of our Board has oversight of, and periodically reviews, our policies and programs related to environmental stewardship, social responsibility and governance matters.
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.
We use a sole supplier of our roll-formed center sills, which were used in 27% and 53% of our new railcars produced in 2023 and 2022, respectively. 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.
The Nominating and Corporate Governance Committee meets periodically with senior management to develop, assess and prioritize ESG topics that are important to our business and all of our stockholders and to improve both the measurement and transparency of our ESG disclosures and practices. The Nominating and Corporate Governance Committee has primary oversight responsibility for our developing ESG efforts.
The Nominating and Corporate Governance Committee meets periodically with senior management to develop, assess and prioritize key corporate responsibility topics that enhance long-term value for the Company and our stakeholders.
Our priorities include fostering an inclusive and collaborative workplace, promoting opportunities for professional development, improving the well-being of our employees and other stakeholders, and contributing to the communities in which we operate. Governance Our goal is to promote the long-term interests of stakeholders, strengthen accountability, and inspire trust.
Social Responsibility We continuously strive to improve the health, safety and well-being of our employees, foster an inclusive and collaborative workplace, promote opportunities for professional development, and actively contribute to the communities in which we operate.
In addition to price, competition is based on delivery timing, product performance and technological innovation, reputation for product quality and customer service and support. We have three principal competitors in the North American railcar market that primarily manufacture railcars for third-party customers, which are Trinity Industries, Inc., The Greenbrier Companies, Inc. and National Steel Car Limited.
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. In addition to price, competition is based on delivery timing, product performance and technological innovation, reputation for product quality and customer service and support.
We also rebuild and convert railcars and sell forged, cast and fabricated parts for all of the railcars we produce, as well as those manufactured by others. Our primary customers are shippers, railroads, and financial institutions which represented 38%, 36% and 22%, respectively, of our total sales attributable to each type of customer for the year ended December 31, 2022.
Over the last several years, we have introduced a number of new or redesigned railcar types as we continue to diversify our product portfolio. Our primary customers are shippers, railroads, and financial institutions which represented 33%, 16% and 47%, respectively, of our total sales attributable to each type of customer for the year ended December 31, 2023.
The scrap materials are used to support a more environmentally friendly steel manufacturing process and the reuse of key components including wheels and castings results in reduced energy consumption and greenhouse gas emissions. We believe railcars are a more environmentally-friendly way than other modes of transportation to fuel the North American supply chain.
Our conversion and rebody projects use scrap materials from underutilized and inefficient railcar assets to support a more sustainable steel manufacturing process and the reuse of key components, contributing to reduced energy consumption and greenhouse gas emissions.
Our Board and senior management teams are also committed to the Company’s continued respect for human rights throughout all our operations. 8 GOVERNMENTAL REGULATION Railcar Industry The Federal Railroad Administration, or FRA, administers and enforces U.S. federal laws and regulations relating to railroad safety.
GOVERNMENTAL REGULATION Railcar Industry The Federal Railroad Administration (“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.
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Over the last several years, we have introduced a number of new or redesigned railcar types as we continue to diversify our product portfolio. During 2019, we entered into a joint venture arrangement with Fabricaciones y Servicios de México, S.A. de C.V.
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We did not have any railcar sales to customers outside the United States in 2023 and 2022. Many of our customers do not purchase railcars every year because railcar fleets are not necessarily replenished or augmented every year.
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(“Fasemex”), a Mexican company with operations in both Mexico and the United States, to manufacture railcars in Castaños, Coahuila, Mexico (“Castaños”), in exchange for a 50% interest in the operation. Production of railcars at the facility began during the third quarter of 2020. On October 16, 2020, we acquired Fasemex’s 50% ownership in the joint venture.
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SALES AND MARKETING Our direct sales group is organized by customer and geography and consists of vice presidents of sales (“VPs”), a contract administrator, a manager of customer service, a director of field support, and support staff. The VPs are responsible for developing and closing new business and managing customer relationships.
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As of March 2021, we moved all of our production to the Castaños facility. We ceased operations at our Roanoke, Virginia manufacturing facility (the “Roanoke Facility”) and vacated the facility as of March 31, 2020.
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In 2023 we completed the build out of our fabrication shop at our Castaños Facility. Roughly 60% of fabricated parts were produced internally with the balance being sourced from local suppliers. Our primary component suppliers supply us with truck components, brake components, and couplers, wheels and axles.
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On September 10, 2020, we announced our plan to permanently close our manufacturing facility in Cherokee, Alabama (the “Shoals Facility”) in light of the cyclical industry downturn, which was magnified by the COVID-19 pandemic. The closure reduced costs and aligned our manufacturing capacity with the current railcar market. We ceased production at the Shoals Facility in February 2021.
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Our center sill is formed into its final shape without heating by passing steel plate through a series of rollers. A change in mix explains the decrease year-over-year as not all car types use a roll formed center sill. Other suppliers provide brake systems, castings, bearings and various other components.
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We lease freight cars through our leasing entities, including JAIX Leasing Company, and FreightCar America Leasing 1, LLC. 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.
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Safety, Well-Being and Human Rights The safety and well-being of our employees is paramount to our business and we are committed to protecting our employees everywhere we operate.
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In 2021, revenue from three customers, TTX Company, CIT Rail and Union Pacific Railroad, accounted for approximately 46%, 12% and 8%, respectively, of total revenue. In 2021, sales to our top five customers accounted for approximately 78% of total revenue. We did not have any railcar sales to customers outside the United States in 2022 and 2021.
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Our Code of Business Conduct and Ethics establishes the baseline requirements of our compliance program and promotes an environment where everyone is treated ethically and with respect, including but not limited to, our employees, suppliers, and customers.
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In 2022 we primarily bought fabrications from local suppliers, with Fasemex being the largest of the local suppliers. In the third quarter of 2022, we initiated the process of opening our fabrication shop at our Castaños Facility. However, we continued to buy fabrications from our local suppliers during this time.
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Environmental Stewardship To minimize the environmental impact of our business, we have introduced lighter weight freight cars which require less energy to manufacture and offer higher capacity than the freight cars they replace. We are also a leader in the railcar conversion and rebody space, with over 14,000 conversion and rebody projects completed over the last decade.
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Our primary component suppliers include Wabtec, Amsted, Standard Steel, SKF, and Metalex, who supply us with truck components, brake components, couplers, wheels & axles, bearings, and running boards, respectively. Roll Form Group is the sole supplier of our roll-formed center sills, which were used in 53% and 20% of our new railcars produced in 2022 and 2021, respectively.
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Workplace safety is a top priority for the Company and we are focused on improving our safety performance with a goal of zero injuries and incidents.
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We seek to protect the well-being of our employees through comprehensive health and safety policies and procedures that include the identification and mitigation of health and safety risks, operations management, health and safety training, emergency preparedness, performance auditing, program certification, and improvement targets.
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Our safety performance is regularly monitored by our senior leadership team, our CEO, and our Board. 7 Governance Our governance structure is designed to provide accountability for responsible business practices, facilitate transparency and ultimately promote the long-term interests of our stakeholders. We strive to ensure that all our employees act ethically and with integrity in all aspects of their work.
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Human Rights We are committed to respecting human rights throughout all our operations, and seek to provide respect, dignity, and all basic needs to employees and contractors.
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A majority of our Board includes diverse and/or independent Board members with extensive experience and expertise in a variety of industries. Our Board provides counsel to and oversight of the senior management team to ensure that our business strategies align with our corporate responsibility goals.
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We are committed to promoting human rights and strive to ensure that the products and services provided by the Company and our third-party business partners are ethically sourced and do not breach human rights laws in countries in which they originate.
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Environmental Matters Our business operations are subject to various federal, state and local environmental laws, regulations, and permit requirements administered by authorities in jurisdictions where we do business, mainly, the United States and Mexico, including those governing air quality and the handling, disposal and remediation of waste products, fuel products and hazardous substances.
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Environmental Stewardship We are committed to contributing to a more resource-efficient economy and embedding climate change mitigation into our business strategy to help confront challenges such as energy management, fuel economy and efficiency, and materials sourcing. We aim to operate our business in a manner that minimizes the impact on natural resources and the environment.
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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, and our business and railcar fleet may be adversely impacted by new rules or regulations, or changes to existing rules or regulations, which could require additional maintenance or substantial modification or refurbishment of our railcars, or could make certain types of railcars inoperable or obsolete or require them to be phased out prior to the end of their useful lives.
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For decades, FCA has been a leader in introducing lighter weight freight car designs that require less energy to manufacture and offer higher capacity than the freight cars they replace. Our offering of “conversion” railcars, eliminates underutilized and older inefficient railcar assets by scraping the car body and reusing key steel and cast components.
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In addition, violations of these rules and regulations can result in substantial fines and penalties, including potential limitations on operations or forfeitures of assets. Item 1B. Unresolved Staff Comments. None.
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Railroads produce far fewer greenhouse gas emissions than certain other modes of commercial transportation, such as trucks. We strive to responsibly support customers’ products at each stage of the product lifecycle, including recycling the railcar through scrap and salvage at the end of its useful life.
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Social Responsibility We actively engage stakeholders across our environmental, health and safety initiatives to continually improve processes and performance as we operate our businesses with a goal of zero injuries and incidents. We strive to attract and retain a diverse and empowered workforce.
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We have focused our governance practices to promote best-in-class leadership, diversity, independence and stockholder-aligned incentive practices at the most senior levels. Our Board includes an independent Chairman and diverse and independent Board members who help ensure that our business strategies and programs, including our compensation program, are aligned with stakeholder interests.
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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.
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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.
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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.
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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.
Removed
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.
Removed
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.
Removed
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.
Removed
In addition, we have in the past conducted investigation and remediation activities at properties that we own to address historic contamination. To date, the costs of such activities 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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following table presents information on our primary leased and owned operating properties as of December 31, 2022: Use Location Size Leased or Owned Lease Expiration Date Corporate headquarters Chicago, Illinois 8,800 square feet Leased November 30, 2031 Railcar assembly and component manufacturing Castaños, Mexico 488,725 square feet on 40.7 acres of land Leased September 30, 2040 Administrative and parts warehouse Johnstown, Pennsylvania 86,000 square feet Leased December 31, 2023 Sourcing office Qingdao, China 1,485 square feet Leased October 31, 2023
Biggest changeThe following table presents information on our primary leased and owned operating properties as of December 31, 2023: Use Location Size Leased or Owned Lease Expiration Date Corporate headquarters Chicago, Illinois 8,800 square feet Leased November 30, 2031 Railcar assembly and component manufacturing Castaños, Mexico 658,128 square feet Leased September 30, 2040 Administrative and parts warehouse Johnstown, Pennsylvania 86,000 square feet Leased December 31, 2028 Sourcing office Qingdao, China 1,485 square feet Leased October 31, 2025

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 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.
Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock, par value $0.01 per share (the “Common Stock”) has been quoted on the Nasdaq Global Market under the symbol “RAIL” since April 6, 2005.
The ability of our Board to declare a dividend on our common stock is limited by Delaware law. Item 6. Reserved 10
The ability of our Board to declare a dividend on our Common Stock is limited by Delaware law. Item 6. Reserved 9
As of March 16, 2023, there were approximately 65 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.
As of March 14, 2024, there were approximately 66 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.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThese risks and uncertainties relate to, among other things, the cyclical nature of our business, the competitive nature of our industry, our reliance upon a small number of customers that represent a large percentage of our sales, the variable purchase patterns of our customers and the timing of completion, delivery and customer acceptance of orders, fluctuating costs of raw materials, including steel and aluminum, delays in the delivery of raw materials, the risk of lack of acceptance of our new railcar offerings, the potential financial and operational impacts of the COVID-19 pandemic, and other competitive factors.
Biggest changeThese potential risks and uncertainties relate to, among other things, the cyclical nature of our business; adverse economic and market conditions; material disruption in the movement of rail traffic for deliveries; fluctuating costs of raw materials, including steel and aluminum; delays in the delivery of raw materials; our ability to maintain relationships with our suppliers of railcar components; the competitive nature of our industry, our reliance upon a small number of customers that represent a large percentage of our sales; the variable purchase patterns of our customers and the timing of completion; delivery and customer acceptance of orders; potential financial and operational impacts of the COVID-19 pandemic; the competitive nature of our industry; fluctuating costs of raw materials, including steel and aluminum, delays in the delivery of raw materials, the risk of lack of acceptance of our new railcar offerings by our customers; and other competitive factors.
Performance obligations are typically completed and revenue is recognized for the sale of new and rebuilt railcars when the finished railcar is transferred to a specified railroad connection point. In certain sales contracts, revenue is recognized when a certificate of acceptance has been issued by the customer and control has been transferred to the customer.
Performance obligations are typically completed and revenue is recognized for the sale of new and rebuilt railcars when the finished railcar is transferred to a specified railroad connection point. In certain sales contracts, revenue is recognized when a certificate of acceptance has been issued by the customer and control has been transferred to the customer.
At that time, the customer directs the use of, and obtains substantially all of the remaining benefits from, the asset.
At that time, the customer directs the use of, and obtains substantially all of the remaining benefits, from the asset.
When a railcar sales contract contains multiple performance obligations, we allocate the transaction price to the performance obligations based on the relative stand-alone selling price of the performance obligation determined at the inception of the contract based on an observable market price, expected cost plus margin or market price of similar items.
When a railcar sales contract contains multiple performance obligations, we allocate the transaction price to the performance obligations based on the relative stand-alone selling price of the performance obligation determined at the inception of the contract based on an observable market price, expected cost plus margin or market price of similar items.
Our net cash provided by operating activities for the year ended December 31, 2022 reflects changes in working capital, including a decrease in VAT receivable of $24.9 million due to the Company’s receipt of VAT refunds, partially offset by an increase in inventory of $8.5 million to meet production needs for the start-up of several new railcar orders.
Our net cash provided by operating activities for the year ended December 31, 2022 reflects changes in working capital, including a decrease in VAT receivable of $24.9 million due to the Company’s receipt of VAT refunds, partially offset by an increase in inventory of $8.5 million to meet production needs for the start-up of several new railcar orders. Investing Activities.
Our long-term liquidity is contingent upon future operating performance and our ability to continue to meet financial covenants under our revolving credit 17 facilities, our Credit Agreement and any other indebtedness and the availability of additional financing if needed.
Our long-term liquidity is contingent upon future operating performance and our ability to continue to meet financial covenants under our revolving credit facilities, our Credit Agreement and any other indebtedness and the availability of additional financing if needed.
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 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.
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 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, the length of the carryforward period, and tax planning strategies.
We recognize operating lease revenue on Railcars Available for Lease on a straight-line basis over the contract term. We recognize revenue from the sale of Railcars Available for Lease on a net basis as Gain (Loss) on Sale of Railcars Available for Lease since the sale represents the disposal of a long-term operating asset.
We recognize operating lease revenue on Railcars Available for Lease on a straight-line basis over the contract term. We recognize proceeds from the sale of Railcars Available for Lease on a net basis as Gain (Loss) on Sale of Railcars Available for Lease since the sale represents the disposal of a long-term operating asset.
We recognize a loss against related inventory when we have a contractual commitment to manufacture railcars at an estimated cost in excess of the contractual selling price. 21 RECENT ACCOUNTING PRONOUNCEMENTS (See Note 2, Summary of Significant Accounting Policies, to our Consolidated Financial Statements) 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 recognize a loss against related inventory when we have a contractual commitment to manufacture railcars at an estimated cost in excess of the contractual selling price. 18 RECENT ACCOUNTING PRONOUNCEMENTS (See Note 2, Summary of Significant Accounting Policies, to our Consolidated Financial Statements) 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.
Net cash used in investing activities for the year ended December 31, 2022 was $7.8 million primarily as a result of capital expenditures.
Net cash used in investing activities for the year ended December 31, 2022 was $7.8 million primarily as a result of capital expenditures. Financing Activities.
The 2020 Warrant, 2021 Warrant, and 2022 Warrant collectively are referred to herein as the “Warrant”. The following schedule shows the change in fair value of the Warrant as of December 31, 2022.
The 2020 Warrant, 2021 Warrant, 2022 Warrant, and 2023 Warrant collectively are referred to herein as the “Warrant”. The following schedule shows the change in fair value of the Warrant as of December 31, 2023.
However, forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements.
However, forward-looking statements inherently involve potential risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements.
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. 22
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. 19
We are not required to make any contributions to our pension plan during 2023. 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.
We are not required to make any contributions to our pension plan during 2024. 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 Company used the base mortality table Pri-2012 projected generationally using a modified MP-2021 with Endemic COVID adjustment for purposes of measuring its pension obligations at December 31, 2022. For the years ended December 31, 2022 and 2021, we recognized consolidated pre-tax pension benefit cost (income) of $(0.6) million and $(0.8) million, respectively.
The Company used the base mortality table Pri-2012 projected generationally using a modified MP-2021 with Endemic COVID adjustment for purposes of measuring its pension obligations at December 31, 2023. For the years ended December 31, 2023 and 2022, we recognized consolidated pre-tax pension benefit cost (income) of $0.4 million and $(0.6) million, respectively.
In July 2021, the Revolving Loan Parties and the Revolving Loan Lender entered into an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan and Security Agreement”), which amended and restated the terms and conditions of the Siena Loan Agreement, including, among other things, an increase of $25.0 million to the Maximum Revolving Facility Amount.
In July 2021, the Revolving Loan Parties and the Revolving Loan Lender entered into an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan and Security Agreement”), which amended and restated the terms and conditions of the Siena Loan Agreement, including, among other things, an increase of $25,000 to the Maximum Revolving Facility Amount.
A change of one hundred basis points in the discount rates used during the year ended December 31, 2022 would have the following effect: 1% Increase 1% Decrease (in thousands) Effect on net periodic benefit cost $ 41 $ (78) Effect on pension settlement (698) 798 In October 2021, the Society of Actuaries issued base mortality table Pri-2012 which is split by retiree and contingent survivor tables and includes mortality improvement assumptions for U.S. plans, scale (MP-2021 with COVID adjustment), which reflects additional data that the Social Security Administration has released since prior assumptions (MP-2020) were developed.
A change of one hundred basis points in the discount rates used during the year ended December 31, 2023 would have the following effect: 1% Increase 1% Decrease (in thousands) Effect on net periodic benefit cost $ (2) $ (4) Effect on pension settlement (40) 41 In October 2021, the Society of Actuaries issued base mortality table Pri-2012 which is split by retiree and contingent survivor tables and includes mortality improvement assumptions for U.S. plans, scale (MP-2021 with COVID adjustment), which reflects additional data that the Social Security Administration has released since prior assumptions (MP-2020) were developed.
We have used the words “may,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “likely,” “unlikely,” “intend” and similar expressions in this Annual Report on Form 10-K to identify forward-looking statements. We have based these forward-looking statements on our current views with respect to future events and financial performance.
We have used the words “may,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “likely,” “unlikely,” “intend” and similar expressions in this report to identify forward-looking statements. We have based these forward-looking statements on our current views with respect to future events and financial performance.
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.
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.
The factors listed above are not exhaustive. Other sections of this Form 10-K include additional factors that could materially and adversely affect our business, financial condition and results of operations.
The factors listed above are not exhaustive. Other sections of this Annual Report on Form 10-K include additional factors that could materially and adversely affect our business, financial condition and results of operations.
Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements. See “Forward-Looking Statements.” We are a diversified manufacturer of railcars and railcar components. We design and manufacture a broad variety of railcar types for transportation of bulk commodities and containerized freight products primarily in North America.
Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements. See “Forward-Looking Statements.” We are a diversified manufacturer of railcars and railcar components. We design and manufacture a broad variety of railcar types for transportation of bulk commodities and containerized freight products primarily in North America. We have been manufacturing railcars since 1901.
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. In 2022, we assumed that the expected long-term rate of return on pension plan assets would be 5.00%.
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. In 2023, we assumed that the expected long-term rate of return on pension plan assets would be 3.00%.
The 2022 Warrant was issued on April 4, 2022 with an exercise price of $0.01 and a term of ten (10) years. As of December 31, 2022 and 2021, the 2022 Warrant was exercisable for an aggregate of 1,473,726 and zero (0) shares of Common Stock, respectively with a per share exercise price of $0.01.
The 2022 Warrant was issued on April 4, 2022 with an exercise price of $0.01 and a term of ten (10) years. As of December 31, 2023 and 2022, the 2022 Warrant was exercisable for an aggregate of 1,894,047 and 1,473,726 shares of Common Stock, respectively with a per share exercise price of $0.01.
A change of one hundred basis points in the expected long-term rate of return on plan assets would have the following effect for the year ended December 31, 2022: 1% Increase 1% Decrease (in thousands) Effect on net periodic benefit cost $ (329) $ 329 Effect on pension settlement 183 (183) At the end of each year, we determine the discount rate to be used to calculate the present value of our pension plan liability.
A change of one hundred basis points in the expected long-term rate of return on plan assets would have the following effect for the year ended December 31, 2023: 16 1% Increase 1% Decrease (in thousands) Effect on net periodic benefit cost $ (106) $ 106 Effect on pension settlement 6 (6) At the end of each year, we determine the discount rate to be used to calculate the present value of our pension plan liability.
The 2021 Warrant has an exercise price of $0.01 and a term of ten years. As of December 31, 2022 and 2021, the 2021 Warrant was exercisable for an aggregate of 1,473,726 and 1,325,699 shares of Common Stock, respectively with a per share exercise price of $0.01.
The 2021 Warrant has an exercise price of $0.01 and a term of ten years. As of December 31, 2023 and 2022, the 2021 Warrant was exercisable for an aggregate of 1,894,047 and 1,473,726 shares of Common Stock, respectively with a per share exercise price of $0.01.
Restricted deposits of $0.3 million as of each of December 31, 2022 and 2021, respectively, relate to a customer deposit for purchase of railcars. Restricted deposits of $3.6 million and $4.7 million as of December 31, 2022 and 2021, respectively, are used to collateralize standby letters of credit with respect to performance guarantees.
Restricted deposits of $0.3 million as of each of December 31, 2023 and 2022, respectively, relate to a customer deposit for purchase of railcars. Restricted deposits of $0.1 million and $3.6 million as of December 31, 2023 and 2022, respectively, are used to collateralize standby letters of credit with respect to performance guarantees.
Corporate and Other revenues for the year ended December 31, 2022 were $11.9 million compared to $10.2 million for the year ended December 31, 2021, reflecting higher parts sales. Gross Profit Our consolidated gross profit for the year ended December 31, 2022 was $25.8 million compared to $11.5 million for the year ended December 31, 2021.
Corporate and Other revenues for the year ended December 31, 2023 were $12.2 million compared to $11.9 million for the year ended December 31, 2022, reflecting higher parts sales. Gross Profit Our consolidated gross profit for the year ended December 31, 2023 was $41.8 million compared to $25.8 million for the year ended December 31, 2022.
Gain (loss) on Change in Fair Market Value of Warrant Liability Gain on change in fair market value of warrant liability was $1.5 million for the year ended December 31, 2022 compared to loss on change in fair market value of warrant liability of $14.9 million for the year ended December 31, 2021.
(Loss) Gain on Change in Fair Market Value of Warrant Liability Loss on change in fair market value of warrant liability was $2.2 million for the year ended December 31, 2023 compared to gain on change in fair market value of warrant liability of $1.5 million for the year ended December 31, 2022.
Our total backlog of firm orders for railcars increased from 2,323 railcars as of December 31, 2021 to 2,445 railcars as of December 31, 2022. The estimated sales value of the backlog was $288 million and $240 million, respectively, as of December 31, 2022 and 2021.
Our total backlog of firm orders for railcars increased from 2,445 railcars as of December 31, 2022 to 2,914 railcars as of December 31, 2023. The estimated sales value of the backlog was $348 million and $288 million, respectively, as of December 31, 2023 and 2022.
The Cash Fee shall be equal to $1.0 million, provided that, in the quarter in which the Maximum Equity is issued, such fee shall be equitably reduced by the value of any Equity Fee issued by the Company that quarter.
The Cash Fee (as defined below) shall be equal to $1,000, provided that, in the quarter in which the Maximum Equity is issued, such fee shall be equitably reduced by the value of any Equity Fee (as defined below) issued by the Company that quarter.
As of December 31, 2022 and 2021, the 2020 Warrant was exercisable for an aggregate of 6,799,139 and 6,098,217 shares, respectively, of Common Stock with a per share exercise price of $0.01.
As of December 31, 2023 and 2022, the 2020 Warrant was exercisable for an aggregate of 8,712,618 and 6,799,139 shares, respectively, of Common Stock with a per share exercise price of $0.01.
This analysis indicated that the carrying value exceeded the estimated undiscounted cash flows, and therefore, we were required to measure the fair value of our fleet of small cube covered hopper railcars and determine the amount of an impairment loss, if any.
This analysis indicated that the carrying value exceeded the estimated undiscounted cash flows, and therefore, we were required to measure the fair value of these railcars and determine the amount of an impairment loss, if any.
Our net cash provided by operating activities for the year ended December 31, 2022 was $11.5 million compared to net cash used in operating activities of $55.4 million for the year ended December 31, 2021.
Our net cash provided by operating activities for the year ended December 31, 2023 was $4.8 million compared to net cash provided by operating activities of $11.5 million for the year ended December 31, 2022.
The Company incurred $1.1 million in deferred financing costs related to the Siena Loan Agreement during the fourth quarter of 2020 and incurred $1.0 million in additional deferred financing costs related to the Amended and Restated Loan and Security Agreement during the third quarter of 2021.
The Company incurred $1,101 in deferred financing costs related to the Siena Loan Agreement during the fourth quarter of 2020, $1,037 in additional deferred financing costs related to the Amended and Restated Loan and Security Agreement during the third quarter of 2021, and $352 in additional deferred financing costs related to the Third Amendment to the Amended and Restated Loan and Security Agreement in 2023.
Cash Fee The Company shall pay to the Agent, for the account of the Lender or a designee thereof a cash fee (the “Cash Fee”) which shall be due and payable in cash quarterly beginning on the date that the Maximum Equity has been issued and thereafter on the business day immediately succeeding the last business day of the applicable Measurement Period.
Reimbursement Agreement 12 The Company was party to a Reimbursement Agreement dated as of July 30, 2021, pursuant to which the Company shall pay to the Agent (as defined below), for the account of the Lender (as defined below) or a designee thereof a cash fee (the “Cash Fee”) which shall be due and payable in cash quarterly beginning on the date that the Maximum Equity (as defined below) has been issued and thereafter on the business day immediately succeeding the last business day of the applicable Measurement Period (as defined below).
Consolidated selling, general and administrative expenses for the year ended December 31, 2022 were 7.7% of revenue, compared to 13.6% of revenue for the year ended December 31, 2021. Manufacturing segment selling, general and administrative expenses for the year ended December 31, 2022 were $2.8 million compared to $2.6 million for the year ended December 31, 2021.
Manufacturing segment selling, general and administrative expenses for the year ended December 31, 2023 were $2.1 million compared to $2.8 million for the year ended December 31, 2022. Manufacturing segment selling, general and administrative expenses for the year ended December 31, 2023 were 0.6% of revenue compared to 0.8% of revenue for the year ended December 31, 2022.
Manufacturing segment revenues for the year ended December 31, 2022 were $352.9 million compared to $192.8 million for the year ended December 31, 2021.
Manufacturing segment revenues for the year ended December 31, 2023 were $345.9 million compared to $352.9 million for the year ended December 31, 2022.
Our consolidated gross margin was 7.1% for the year ended December 31, 2022 compared to 5.6% for the year ended December 31, 2021. Manufacturing segment gross profit for the year ended December 31, 2022 was $22.2 million compared to $8.5 million for the year ended December 31, 2021.
Our consolidated gross margin was 11.7% for the year ended December 31, 2023 compared to 7.1% for the year ended December 31, 2022. Manufacturing segment gross profit for the year ended December 31, 2023 was $37.2 million compared to $22.2 million for the year ended December 31, 2022.
As of December 31, 2022, we had deferred tax assets of $82.6 million for which there was a valuation allowance of $67.8 million and we had total net deferred tax assets of $0.07 million. Product warranties Warranty terms are based on the negotiated railcar sales contracts.
As of December 31, 17 2023, we had deferred tax assets of $87.7 million for which there was a valuation allowance of $71.6 million and we had total net deferred tax assets of $3.8 million. Product warranties Warranty terms are based on the negotiated railcar sales contracts.
As of December 31, 2022, the Company had $33.8 million in outstanding debt under the Siena Loan Agreement and remaining borrowing availability of zero. As of December 31, 2021, the Company had $24.0 million in outstanding debt under the Siena Loan Agreement and remaining borrowing availability of $0.1 million.
As of December 31, 2022, the Company had $33,825 in outstanding debt under the Siena Loan Agreement and remaining borrowing availability of zero.
Pursuant to the Siena Loan Agreement, the Revolving Loan Lender provided an asset backed credit facility, in the maximum aggregate principal amount of up to $20.0 million (the “Maximum Revolving Facility Amount”) consisting of revolving loans (the “Revolving Loans”).
Pursuant to the Siena Loan Agreement, the Revolving Loan Lender provided an asset backed credit facility, in the maximum aggregate principal amount of up to $20,000 (the “Maximum Revolving Facility Amount”) consisting of revolving loans (the “Revolving Loans”), subject to certain borrowing base requirements set forth in the Siena Loan Agreement.
Railcar deliveries totaled 3,184 railcars, consisting of 2,281 new railcars and 903 rebuilt railcars, for the year ended December 31, 2022, compared to 1,731 railcars delivered in the year ended December 31, 2021, consisting of 1,354 new railcars and 377 rebuilt railcars.
Railcar deliveries totaled 3,022 railcars, consisting of 2,707 new railcars and 315 rebuilt railcars, for the year ended December 31, 2023, compared to 3,184 railcars delivered in the year ended December 31, 2022, consisting of 2,281 new railcars and 903 rebuilt railcars.
The results of our analysis indicated an estimated fair value of the asset group of approximately $7.8 million, in comparison to the asset group's carrying amount of $12.3 million. As a result of this analysis we recorded a pre-tax non-cash impairment charge of $4.5 million related to our small cube covered hopper railcars during the fourth quarter of 2022.
The results of our analysis indicated an estimated fair value of the asset group of approximately $2.8 million, in comparison to the asset group's carrying amount of $6.9 million. As a result of this analysis we recorded a pre-tax non-cash impairment charge of $4.1 million related to our triple hopper aggregate railcars during the fourth quarter of 2023.
The $14.3 million increase in consolidated gross profit and $13.7 million increase in Manufacturing segment gross profit reflect a favorable volume variance and improved margins per car. Selling, General and Administrative Expenses Consolidated selling, general and administrative expenses for the year ended December 31, 2022 were $28.2 million compared to $27.5 million for the year ended December 31, 2021.
The $16 million increase in consolidated gross profit and $15 million increase in Manufacturing segment gross profit reflect favorable product mix and improved margins per car. Selling, General and Administrative Expenses Consolidated selling, general and administrative expenses for the year ended December 31, 2023 were $27.5 million compared to $28.2 million for the year ended December 31, 2022.
Impairment on Leased Railcars For the year ended December 31, 2022, we recorded a pre-tax non-cash impairment charge related to our small cube covered hopper railcars of $4.5 million due to a proposal to purchase a portion of the railcars in the first quarter of 2023.
During the year ended December 31, 2022, we recorded a pre-tax non-cash impairment charge of $4.5 million related to our small cube covered hopper railcars due to a proposal to purchase a portion of the railcars. See Note 7 – Leased Railcars to our consolidated financial statements.
Corporate and Other selling, general and administrative expenses for the year ended December 31, 2022 included increases in insurance expenses of $1.0 million and corporate incentive plan bonus expenses of $0.9 million, which were partially offset by decreases in legal expenses of $1.4 million.
Corporate and Other selling, general and administrative expenses for the year ended December 31, 2023 included decreases in legal expenses of $1.0 million and stock-based compensation expenses of $0.9 million, offset by increases in corporate incentive plan bonus expenses of $1.0 million and consulting expenses of $0.3 million.
Operating Income (Loss) Our consolidated operating loss for the year ended December 31, 2022 was $15.0 million compared to $22.8 million for the year ended December 31, 2021. Operating income for the Manufacturing segment was $14.8 million for the year ended December 31, 2022 compared to operating loss of $0.8 million for the year ended December 31, 2021.
Operating Income (Loss) Our consolidated operating income for the year ended December 31, 2023 was $10.5 million compared to consolidated operating loss of $15.0 million for the year ended December 31, 2022.
We may also require additional capital in the future to fund working capital as demand for railcars increases, payments for contractual obligations, organic growth opportunities, including new plant and equipment and development of railcars, joint ventures, international expansion and acquisitions, and these capital requirements could be substantial.
We may also require additional capital in the future to fund working capital as demand for railcars increases, payments for contractual obligations, organic growth opportunities, including new plant and equipment and development of railcars, joint ventures, international expansion and acquisitions, and these capital requirements could be substantial. 14 Based upon our operating performance and capital requirements, we may, from time to time, be required to raise additional funds through additional offerings of our equity or debt and through long-term borrowings.
Net Loss As a result of the foregoing, our net loss was $38.8 million for the year ended December 31, 2022, compared to a net loss of $41.4 million for the year ended December 31, 2021.
Our effective tax rate for the year ended December 31, 2023 was (6.8)% compared to (6.3)% for the year ended December 31, 2022. Net Loss As a result of the foregoing, our net loss was $23.6 million for the year ended December 31, 2023, compared to a net loss of $38.8 million for the year ended December 31, 2022.
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, 2022 and 2021: 2022 2021 (In thousands) Net cash (used in) provided by: Operating activities $ 11,503 $ (55,397 ) Investing activities (7,816 ) (1,675 ) Financing activities 7,985 29,265 Total $ 11,672 $ (27,807 ) Operating Activities.
Cash Flows The following table summarizes our net cash provided by or used in operating, investing, and financing activities for the years ended December 31, 2023 and 2022: 2023 2022 (In thousands) Net cash provided by (used in): Operating activities $ 4,769 $ 11,503 Investing activities (4,366 ) (7,816 ) Financing activities 2,245 7,985 Total $ 2,648 $ 11,672 Operating Activities.
Warrant liability as of December 31, 2021 $ 32,514 Change in fair value (1,486 ) Warrant liability as of December 31, 2022 $ 31,028 The change in fair value of the Warrant is reported on a separate line in the consolidated statements of operations.
Warrant liability as of December 31, 2022 $ 31,028 Warrant issued $ 3,544 Change in fair value 2,229 Warrant liability as of December 31, 2023 $ 36,801 The change in fair value of the Warrant is reported on a separate line in the consolidated statements of operations.
Manufacturing segment selling, general and administrative expenses for the year ended December 31, 2022 were 0.8% of revenue compared to 1.3% of revenue for the year ended December 31, 2021. Corporate and Other selling, general and administrative expenses were $25.4 million for the year ended December 31, 2022 compared to $24.9 million for the year ended December 31, 2021.
Corporate and Other selling, general and administrative expenses were $25.4 million for the year ended December 31, 2023 compared to $25.4 million for the year ended December 31, 2022.
At December 31, 2022, we determined this rate on our pension plan to be 5.22%, an increase of 2.38% from the 2.84% rate used at December 31, 2021.
At December 31, 2023, we determined this rate on our pension plan to be 5.01%, a decrease of 0.21% from the 5.22% rate used at December 31, 2022.
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. 11 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.
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.
We anticipate capital expenditures during 2023 to be between approximately $11.0 million and $12.0 million. CRITICAL ACCOUNTING POLICIES AND ESTIMATES We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”).
CRITICAL ACCOUNTING POLICIES AND ESTIMATES We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”).
Corporate and Other operating loss was $29.8 million for the year ended December 31, 2022 compared to $22.0 million for the year ended December 31, 2021.
Operating income for the Manufacturing segment was $31.6 million for the year ended December 31, 2023 compared to operating income of $14.8 million for the year ended December 31, 2022. Corporate and Other operating loss was $21.1 million for the year ended December 31, 2023 compared to $29.8 million for the year ended December 31, 2022.
The increase in the gain was primarily driven by depreciation in the Company’s stock price during the year ended December 31, 2022 which is the primary driver in the valuation of the warrants. Gain on Extinguishment of Debt There were no gains or losses on extinguishment of debt in the year ended December 31, 2022.
The increase in the loss was primarily driven by appreciation in the Company’s stock price during the year ended December 31, 2023 which is the primary driver in the valuation of the warrants.
In February 2022, the Revolving Loan Parties and the Revolving Loan Lender entered into a First Amendment to Amended and Restated Loan and Security Agreement (the “First Amendment to Amended and Restated Loan and Security Agreement”), pursuant to which, among other things, the Maximum Revolving Facility Amount was increased to $35.0 million.
Revolving Loans outstanding under the Amended and Restated Loan and Security Agreement bear interest, subject to the provisions of the Amended and Restated Loan and Security Agreement, at an interest rate of 2% per annum in excess of the Base Rate (as defined in the Siena Loan Agreement). 13 In February 2022, the Revolving Loan Parties and the Revolving Loan Lender entered into a First Amendment to Amended and Restated Loan and Security Agreement (the “First Amendment to Amended and Restated Loan and Security Agreement”), pursuant to which, among other things, the Maximum Revolving Facility Amount was increased to $35,000.
Consolidated selling, general and administrative expenses for the year ended December 31, 2022 included increases in insurance expenses of $1.0 million, corporate incentive plan bonus expenses of $0.7 million, and bad debt expenses of $0.6 million, which were partially offset by a decrease in legal expenses of $1.5 million.
Consolidated selling, general and administrative expenses for the year ended December 31, 2023 included a decrease in legal expenses of $1.1 million. Consolidated selling, general and administrative expenses were 7.7% of revenue for the years ended December 31, 2023 and December 31, 2022.
Our income tax provision for the year ended December 31, 2022 reflects pre-tax income for our Mexico subsidiary. Our effective tax rate for the year ended December 31, 2022 was (6.3)% compared to (3.5)% for the year ended December 31, 2021.
There was no loss on extinguishment of debt for the year ended December 31, 2022. Income Taxes Our income tax provision was $1.5 million for the year ended December 31, 2023 compared to $2.3 million for the year ended December 31, 2022. Our income tax provision for the year ended December 31, 2023 reflects pre-tax income for our Mexico subsidiary.
The deferred financing costs are presented as an asset and amortized to interest expense on a straight-line basis over the term of the Siena Loan Agreement.
The deferred financing costs are presented as an asset and amortized to interest expense on a straight-line basis over the term of the Siena Loan Agreement. Additional Liquidity Factors Our restricted cash, restricted cash equivalents and restricted certificates of deposit balances were $1.0 million and $4.1 million as of December 31, 2023 and 2022, respectively.
As of December 31, 2022, the interest rate on outstanding debt under the Amended and Restated Loan and Security Agreement was 9.00% and under the First Amendment to Amended and Restated Loan and Security Agreement was 9.50%.
As of December 31, 2023, the interest rate on outstanding debt under the Amended and Restated Loan and Security Agreement was 10% and under the First Amendment to Amended and Restated Loan and Security Agreement was 10.5%. As of December 31, 2023, the Company had $29,415 in outstanding debt under the Siena Loan Agreement and remaining borrowing availability of $10,853.
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. 20 As of December 31, 2022 and 2021, we concluded that, based on evaluation of the positive and negative evidence, primarily our history of operating losses, it is not more likely than not that we will realize the benefit of our deferred tax assets.
As of December 31, 2023 and 2022, we concluded that, based on evaluation of the positive and negative evidence, primarily our history of operating losses, it is not more likely than not that we will realize the benefit of our deferred tax assets.
Operating loss Operating loss represents revenues less cost of sales, loss on pension settlement, and selling, general and administrative expenses. RESULTS OF OPERATIONS Year Ended December 31, 2022 compared to Year Ended December 31, 2021 Revenues Our consolidated revenues for the year ended December 31, 2022 were $364.8 million compared to $203.1 million for the year ended December 31, 2021.
RESULTS OF OPERATIONS Year Ended December 31, 2023 compared to Year Ended December 31, 2022 10 Revenues Our consolidated revenues for the year ended December 31, 2023 were $358.1 million compared to $364.8 million for the year ended December 31, 2022.
Based upon our operating performance and capital requirements, we may, from time to time, be required to raise additional funds through additional offerings of our equity or debt 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.
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.
As of December 31, 2022, our benefit obligation under our defined benefit pension plan was $12.4 million, which exceeded the fair value of plan assets by $1.0 million. We made no contributions to our defined benefit pension plan during 2022 and are not required to make any contributions to our defined benefit pension plan in 2023.
The most significant assumptions used in determining our net periodic benefit costs are the discount rate used on our pension obligations and expected return on pension plan assets. As of December 31, 2023, our benefit obligation under our defined benefit pension plan was $11.4 million, which exceeded the fair value of plan assets by $1.0 million.
Our net cash used in operating activities for the year ended December 31, 2021 reflects changes in working capital, including increases in VAT receivable of $24.7 million due to production increases and delays in receiving VAT refunds and inventory of $12.4 million to meet production needs for the start-up of several new railcar orders. Investing Activities.
Our net cash provided by operating activities for the year ended December 31, 2023 reflects changes in working capital, including an increase in inventory of $61.0 million to meet production needs for the start-up of several new railcar orders, offset by an increase in accounts payable of $39.9 million related to those purchases of inventory.
Net cash used in investing activities for the year ended December 31, 2021 was $1.7 million and primarily represented capital expenditures of $2.3 million which were partially offset by the $0.2 million maturity of restricted certificates of deposit and $0.4 million proceeds from sale of property. Financing Activities.
Net cash used in investing activities for the year ended December 31, 2023 was $4.4 million primarily as a result of $12.7 million capital expenditures, offset by $8.4 million proceeds from the sale of railcars available for lease.
For the year ended December 31, 2022 our net loss per share was $1.56 compared to net loss per share of 2.00 for the year ended December 31, 2021. LIQUIDITY AND CAPITAL RESOURCES Our primary sources of liquidity are our cash and cash equivalent balances on hand and our credit and debt facilities outlined below.
LIQUIDITY AND CAPITAL RESOURCES (In thousands, except for share and per share data and unless otherwise noted) Our primary sources of liquidity are our cash and cash equivalent balances on hand and our credit and debt facilities outlined below.
The standby letters of credit outstanding as of December 31, 2022 are a requirement as long as the performance guarantees are in place.
The standby letters of credit outstanding as of December 31, 2023 are a requirement as long as the performance guarantees are in place. Restricted deposits of $0.3 million and $0.2 million as of December 31, 2023 relate to an employee savings fund paid biannually in Mexico.
Our management is focused on mitigating the impact of the COVID-19 pandemic on our business and the risk to our employees. FINANCIAL STATEMENT PRESENTATION Revenues Our Manufacturing segment revenues are generated primarily from sales of the railcars that we manufacture.
FINANCIAL STATEMENT PRESENTATION (In thousands, except for share and per share data and unless otherwise noted) Revenues Our Manufacturing segment revenues are generated primarily from sales of the railcars that we manufacture.
The increase in Manufacturing segment revenues for 2022 compared to 2021 reflects an increase in the number of railcars delivered from 1,731 railcars in 2021 to 3,184 railcars in 2022, as well as a higher average selling price for new railcars.
The decrease in Manufacturing segment revenues for 2023 compared to 2022 reflects a decrease in the number of railcars delivered from 3,184 railcars in 2022 to 3,022 railcars in 2023, primarily attributed to disruption in the movement of railcars between country borders.
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.
Our failure to raise capital if and when needed could have a material adverse effect on our results of operations and financial condition. Benefits under our pension plan are frozen and will not be impacted by increases due to future service and compensation increases.
During the year ended December 31, 2021, we recorded a pre-tax non-cash impairment charge of $0.2 million related to our small cube covered hopper railcars due to the renegotiation of certain leases and our settlement agreement with the lender for our leasing companies.
Impairment on Leased Railcars For the year ended December 31, 2023, we recorded a pre-tax non-cash impairment charge related to our steel triple hopper aggregate railcars of $4.1 million due to management’s recoverability assessment in the fourth quarter of 2023.
Net cash provided by financing activities for the year ended December 31, 2021 was $29.3 million and primarily represented proceeds from the issuance of long-term debt of $16.0 million and net borrowings on revolving line of credit of $15.0 million which were partially offset by deferred financing costs of $1.7 million. 18 Capital Expenditures Our capital expenditures were $8.5 million for the year ended December 31, 2022 compared to $2.3 million for the year ended December 31, 2021 and primarily related to the expansion of the Castaños Facility.
Capital Expenditures 15 Our capital expenditures were $12.7 million for the year ended December 31, 2023 compared to $7.8 million for the year ended December 31, 2022 and primarily related to the expansion of the Castaños Facility. We anticipate capital expenditures during 2024 to be approximately $5.0 million to $7.0 million.
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.
As permitted under ASC 715, Compensation - Retirement Benefits , the assumed long-term rate of return on assets is applied to the fair value of assets. We review the expected return on plan assets annually and would revise it if conditions should warrant.
Our cost of sales also includes labor, utilities, freight, manufacturing depreciation and other operating costs. A portion of the contracts covering our backlog at December 31, 2022 are fixed-rate contracts.
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.
Removed
We and our predecessors have been manufacturing railcars since 1901. Over the last several years, we have introduced a number of new or redesigned railcar types as we continue to diversify our product portfolio.
Added
Given steel prices are subject to volatility and make up a large portion of our cost of sales, we typically use supplier commitment and/or price escalation clauses to reduce the impact of steel volatility on our operating results. We manage material price increases by locking in prices where possible.
Removed
In September 2020, we announced our plan to permanently close the Shoals Facility in light of the cyclical industry downturn, which was magnified by the global pandemic. The closure reduced costs and aligned our manufacturing capacity with the current railcar market. We ceased production at the Shoals Facility in February 2021.

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