FreightCar Error to Boost Income

Rail equipment supplier FreightCar America said it has been overstating its accounts payable, and will end up restating past financing reports and raising its profit levels since fourth-quarter 2007.

It’s the kind of error that can work to a company’s advantage, and the company’s stock price rose on what was largely a down day for financial markets after a new decline reported in consumer confidence http://www.joc.com/node/412605.

However, the new information puts FreightCar out of compliance with financial statement terms of two credit facilities it has with lenders, even though it has no outstanding borrowings on either. So the company said it is “actively seeking waivers of these representations and covenants from the lenders under each of these credit agreements.”

FreightCar said the errors resulted from “flaws in the design” of an internal information technology and accounting process, so that it did not properly count receipts of certain goods. Company officials finally spotted the problem when they were implementing a new reporting and management software system.

“After initial analysis the company estimates the overstatement of accounts payable will be in the range of $10 million to $14 million” as of March 31 of this year, it said.

But since errors go back several years, it will conduct a financial analysis and restate quarterly and annual reports dating back to the final 2007 period. That will also delay the company from filing the usual quarterly information to the Securities and Exchange Commission connected with earnings for this year’s April-June period.

Contact John D. Boyd at jboyd@joc.com.