FreightCar America, Inc. - Quarter Report: 2006 March (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the Quarterly Period Ended March 31, 2006

or

Commission file number: 000-51237

FREIGHTCAR AMERICA, INC.

(Exact name of registrant as specified in its charter)

(800) 458-2235

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨            Accelerated filer  ¨            Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

As of April 28, 2006, there were 12,570,275 shares of the registrant’s common stock outstanding.

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FREIGHTCAR AMERICA, INC.

INDEX TO FORM 10-Q

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PART I – FINANCIAL INFORMATION

FreightCar America, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

See Notes to Condensed Consolidated Financial Statements.

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FreightCar America, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

See Notes to Condensed Consolidated Financial Statements.

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FreightCar America, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See Notes to Condensed Consolidated Financial Statements.

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FreightCar America, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands except share and per share data)

Note 1 — Description of the Business

FreightCar America, Inc. (“America”), through its direct and indirect wholly owned subsidiaries, JAC Intermedco, Inc. (“Intermedco”), JAC Operations, Inc. (“Operations”), Johnstown America Corporation (“JAC”), Freight Car Services, Inc. (“FCS”), JAIX Leasing Company (“JAIX”), JAC Patent Company (“JAC Patent”) and FreightCar Roanoke, Inc. (“FCR”) (herein collectively referred to as the “Company”), manufactures, rebuilds, repairs, sells and leases railroad freight cars used for hauling coal, other bulk commodities, steel and other metals, forest products, intermodal containers and automobiles and trucks. The Company has manufacturing facilities in Danville, Illinois, Roanoke, Virginia and Johnstown, Pennsylvania. The Company’s operations comprise one operating segment. The Company and its direct and indirect wholly owned subsidiaries are all Delaware corporations.

Note 2 — Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of America, Intermedco, Operations, JAC, FCS, JAIX, JAC Patent and FCR. All significant intercompany accounts and transactions have been eliminated in consolidation. The foregoing financial information has been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”) and rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. The results of operations for the three months ended March 31, 2006 are not necessarily indicative of the results to be expected for the full year. The accompanying interim financial information is unaudited; however, the Company believes the financial information reflects all adjustments (consisting of items of a normal recurring nature) necessary for a fair presentation of financial position, results of operations and cash flows in conformity with GAAP. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with GAAP have been condensed or omitted. These interim financial statements should be read in conjunction with the audited financial statements contained in the Company’s Form 10-K for the year ended December 31, 2005.

Note 3 — Stock-Based Compensation

In December 2004, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (R), Share-Based Payment, which establishes the accounting for transactions in which an entity exchanges its equity instruments or certain liabilities based upon the entity’s equity instruments for goods or services. The revision to SFAS No. 123 generally requires that publicly traded companies measure the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award, which is usually the vesting period. The Company adopted SFAS No. 123 (R) effective January 1, 2006 using the modified prospective method and, as such, results for prior periods have not been restated.

On April 11, 2005, the Company adopted a stock option plan titled “The 2005 Long-Term Incentive Plan” (the “Plan”). The Plan is intended to provide incentives to attract, retain and motivate employees and directors. The Company believes that such awards better align the interests of its employees and directors with those of its shareholders. The Plan provides for the grant to eligible persons of stock options, share appreciation rights, or SARs, restricted shares, restricted share units, or RSUs, performance shares, performance units, dividend equivalents and other share-based awards, referred to collectively as the awards. The Plan was effective April 11, 2005 and will terminate as to future awards on April 11, 2015. Under the Plan, 659,616 shares of common stock have been reserved for issuance. Prior to January 1, 2006, the Company accounted for the Plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related interpretations. Prior to January 1, 2006, compensation expense was recognized for stock option grants that had an exercise price less than fair market value on the date of grant and restricted stock awards were expensed by the Company over the vesting period.

Stock-based compensation expense of $689 is included within selling, general and administrative expense for the three months ended March 31, 2006. The total income tax benefit recognized on the income statement for share-based compensation arrangements was $253 for the three months ended March 31, 2006.

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The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. The following assumptions were used to value the 2005 stock options: expected lives of the options ranging between 5.5 and 6.5 years, expected volatility of 35%, risk-free interest rates ranging between 4.17% and 4.24% and an expected dividend yield of 0.5%. Expected life in years is determined by using the simplified method allowed by the Securities and Exchange Commission in accordance with Staff Accounting Bulletin No. 107. Expected volatility is based on the historical volatility of stock for comparable public companies and the implied volatility is derived from current publicly traded call option prices of comparable public companies. The risk-free interest rate is based on the U.S. Treasury bond rate for the expected life of the option. The expected dividend yield is based on the latest annualized dividend rate and the current market price of the underlying common stock.

For the three months ended March 31, 2005, there would have been no effect on net income and earnings per share if the Company had applied the fair value method of SFAS No. 123, Accounting for Stock-Based Compensation to stock-based compensation, prior to January 1, 2006.

Stock Option Activity

A summary of the Company’s stock options as of March 31, 2006 and changes during the three months then ended is presented below:

Nonvested Stock Activity

A summary of the Company’s nonvested shares as of March 31, 2006 and changes during the three months then ended is presented below:

As of March 31, 2006, there were $2,338 and $1,256 of total unrecognized compensation expense related to nonvested options and nonvested stock awards, respectively, which will be recognized over the average remaining requisite service period of 2.1 years.

Note 4 — Recent Accounting Pronouncement

In November 2004, the FASB issued Statement SFAS No. 151, Inventory Costs—An Amendment of ARB No. 43, Chapter 4, which requires the recognition of costs of idle facilities, excessive spoilage, double freight and rehandling costs as a component of current-period expenses. The provisions of SFAS No. 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS 151 had no material impact on our financial statements.

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Note 5 — Initial and Secondary Public Offerings

On April 5, 2005, the Company’s registration statement on Form S-1 (Registration No. 333-123384) was declared effective and, on that same date, the Company filed a registration statement on Form S-1 pursuant to Rule 462(b) under the Securities Act (Registration No. 333-123875) (collectively, the “Registration Statement”). Pursuant to the Registration Statement, as amended, the Company registered 9,775,000 shares of common stock (5,100,000 shares offered by the Company and 4,675,000 shares offered by selling stockholders, including 1,275,000 shares offered by selling stockholders pursuant to the exercise of the underwriters’ over-allotment option), par value $0.01 per share, with an aggregate offering price of $185,725. On April 11, 2005, the Company and the selling stockholders completed the sale of 9,775,000 shares of common stock to the public at a price of $19.00 per share and the offering was completed. The Company did not receive any proceeds from the sale of shares by the selling stockholders. UBS Securities LLC, Jefferies & Company, Inc., CIBC World Markets Corp. and LaSalle Debt Capital Markets acted as underwriters for the offering. The stock offering resulted in gross proceeds to the Company of $96,900. Expenses related to the offering are as follows: $6,783 for underwriting discounts and commissions and $4,811 for other expenses, for total expenses of $11,594. None of the expenses resulted in direct or indirect payments to any of the Company’s directors, officers or their associates, to persons owning 10% or more of the Company’s common stock or to any of the Company’s affiliates. The Company received net proceeds of approximately $85,306 in the offering.

The proceeds of the offering and available cash were used as follows: $48,361 was used for the repayment of the Senior Notes, $34,963 was used for payment under the rights to additional acquisition consideration, $13,000 was used for the redemption of the redeemable preferred stock, $5,371 was used for the repayment of the term loan, $5,232 was used for the repayment of the industrial revenue bonds and $900 was used for payments related to the termination of management services and other agreements. In conjunction with these payments, early termination fees of $110 and a write-off of deferred financing costs of $439 were recorded in April 2005 related to the term loan repayment. In addition, in April 2005, the Company recorded charges of $766 related to unamortized discount on the senior notes and $4,617 related to the rights to additional acquisition consideration.

In September 2005, the Company completed a secondary offering of its common stock whereby the selling stockholders, including all of the Company’s executive officers and certain of the Company’s directors, offered and sold 2,626,317 shares (including 342,563 shares following the exercise of the underwriters’ over-allotment option) at a price of $40.50 per share. The Company did not sell any shares and did not receive any proceeds from the sale of shares by the selling stockholders. The Company incurred $834 of expenses in connection with the secondary offering which were recognized in the consolidated statement of operations.

Note 6 — Inventories

Inventories are stated at the lower of first-in, first-out cost or market and include material, labor and manufacturing overhead. The components of inventories are as follows:

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Note 7 — Property, Plant and Equipment

Property, plant and equipment consists of the following:

Note 8 — Goodwill and Intangible Assets

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which became effective for the Company on January 1, 2002. This standard requires that goodwill and intangible assets with indefinite useful lives shall not be amortized but shall be tested for impairment at least annually by comparing the fair value of the asset to its related carrying value.

The Company performs the goodwill impairment test required by SFAS No. 142 as of January 1 of each year. The valuation uses a combination of methods to determine the fair value of the Company (which consists of one reporting unit) including prices of comparable businesses, a present value technique and recent transactions involving businesses similar to the Company. There was no adjustment required based on the annual impairment tests for 2005 and 2006.

Intangible assets consist of the following:

Patents are being amortized over their remaining legal life from the date of acquisition on a straight-line method. The weighted average remaining life of the Company’s patents is 11 years. Amortization expense related to patents, which is included in cost of sales, was $148 and $147 for the three months ended March 31, 2006 and 2005, respectively. The Company estimates amortization expense for each of the five years in the period ending December 31, 2010 will be approximately $590.

Note 9 — Product Warranties

Warranty terms are based on the negotiated railcar sales contracts and typically are for periods of one to five years. Historically, the majority of warranty claims occur in the first three years of the warranty period. The changes in the warranty reserve for the three months ended March 31, 2006 and 2005, are as follows:

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Note 10 — Borrowing Arrangements

Total debt consists of the following:

Revolving Credit Facility

On April 11, 2005, the Company entered into an Amended and Restated Credit Agreement (the “revolving credit agreement”) with LaSalle Bank National Association and the lenders party thereto providing for the terms of the Company’s revolving credit facility (the “revolving credit facility”). The proceeds of the revolving credit facility will be used to finance the working capital requirements of the Company through direct borrowings and the issuance of stand-by letters of credit. The revolving credit facility has a total commitment of the lesser of (i) $50,000 or (ii) an amount equal to a percentage of eligible accounts receivable plus a percentage of eligible finished inventory plus a percentage of semi-finished inventory with a sub-facility for letters of credit totaling $30,000. The revolving credit facility has a three-year term ending on April 11, 2008 and bears interest at a rate of LIBOR plus an applicable margin of between 1.75% and 3.00% depending on the Company’s ratio of consolidated senior debt to consolidated EBITDA (as defined in the revolving credit agreement). Borrowings under the revolving credit facility are collateralized by substantially all of the assets of the Company. The revolving credit facility has both affirmative and negative covenants, including, without limitation, a maximum senior debt leverage ratio, a maximum total debt leverage ratio, a minimum interest coverage ratio, a minimum tangible net worth and limitations on capital expenditures and dividends. As of March 31, 2006, the Company had no borrowings under the revolving credit facility, $8,238 in letters of credit under the letter of credit sub-facility and the ability to borrow $41,762 under the revolving credit facility. Under the revolving credit facility, the Company’s subsidiaries are permitted to pay dividends and transfer funds to the Company without restriction.

Note 11 — Comprehensive Income

Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income consists of net income and the minimum pension liability adjustment, which is shown net of tax. Comprehensive income was $21,373 and $1,914 for the three months ended March 31, 2006 and 2005, respectively.

Note 12 — Employee Benefit Plans

The Company has qualified, defined benefit pension plans covering substantially all of the employees of JAC, Operations and JAIX. The Company uses a measurement date of December 31 for all of its employee benefit plans. Generally, contributions to the plans are made based upon the minimum amounts required under the Employee Retirement Income Security Act. The plans’ assets are held by independent trustees and consist primarily of equity and fixed income securities.

The Company also provides certain postretirement health care benefits for certain of its salaried and hourly retired employees. Employees may become eligible for health care benefits if they retire after attaining specified age and service requirements. These benefits are subject to deductibles, co-payment provisions and other limitations.

The components of net periodic benefit cost for the three months ended March 31, 2006 and 2005, are as follows:

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The Company made contributions to the Company’s defined benefit pension plan of $986 and $699, respectively, for the three months ended March 31, 2006 and 2005. Total contributions to the Company’s defined benefit pension plan in 2006 are expected to be up to approximately $21,288, which includes the required minimum contribution of $10,174 and an expected additional contribution up to approximately $11,114. The Company made payments to the Company’s postretirement benefit plan of approximately $976 and $708, respectively, for the three months ended March 31, 2006 and 2005. Total payments to the Company’s postretirement benefit plan in 2006 are expected to be approximately $3,309.

The Company also maintains qualified defined contribution plans which provide benefits to employees based on employee contributions, years of service, employee earnings or certain subsidiary earnings, with discretionary contributions allowed. Expenses related to these plans were $493 and $253 for the three months ended March 31, 2006 and 2005, respectively.

Note 13 — Risks and Contingencies

The Company is involved in various warranty and repair claims and related threatened and pending legal proceedings with its customers in the normal course of business. In the opinion of management, the Company’s potential losses in excess of the accrued warranty provisions, if any, are not expected to be material to the Company’s financial position, results of operations or cash flows.

The Company relies upon third-party suppliers for railcar heavy castings, wheels and other components for its railcars. In particular, it purchases a substantial percentage of its railcar heavy castings and wheels from subsidiaries of one entity. The Company also relies upon a single supplier to manufacture all of its cold-rolled center sills for its railcars. Any inability by these suppliers to provide the Company with components for its railcars, any significant decline in the quality of these components or any failure of these suppliers to meet the Company’s planned requirements for such components may have a material adverse impact on the Company’s financial condition and results of operations. While the Company believes that it could secure alternative manufacturing sources, the Company may incur substantial delays and significant expense in finding an alternative source and its results of operations may be significantly affected.

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Note 14 — Earnings Per Share

Shares used in the computation of the Company’s basic and diluted earnings per common share are reconciled as follows:

Weighted average diluted common shares outstanding include the incremental shares that would be issued upon the assumed exercise of stock options and the assumed vesting of nonvested share awards. No options were anti-dilutive.

Note 15 — Operating Segment and Concentration of Sales

The Company’s operations consist of a single reporting segment. The Company’s sales include new railcars, used railcars, leasing and other. Sales for the three months ended March 31, 2006 and 2005, were as follows:

Due to the nature of its operations, the Company is subject to significant risks related to concentration of business with a few customers. Sales to four customers accounted for 32%, 20%, 14% and 13%, respectively, of revenues for the three months ended March 31, 2006. Sales to two customers accounted for 34% and 17%, respectively, of revenues for the three months ended March 31, 2005.

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OVERVIEW

You should read the following discussion in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements that are based on management’s current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.”

We are the leading manufacturer of aluminum-bodied railcars in North America, based on the number of railcars delivered, and we believe that we are the leading North American manufacturer of coal-carrying railcars. We also refurbish and rebuild railcars and sell forged, cast and fabricated parts for the railcars we produce, as well as those manufactured by others. We have chosen not to offer significant railcar leasing services, as we have made a strategic decision not to compete with our customers that provide railcar leasing services, which represent a significant portion of our revenue. Our primary customers are financial institutions, railroads and shippers.

Our manufacturing facilities are located in Danville, Illinois, Johnstown, Pennsylvania and Roanoke, Virginia. All of our manufacturing facilities have the capability to manufacture a variety of types of railcars.

In the three months ended March 31, 2006, we delivered 3,966 new railcars, compared to our delivery of 2,321 new railcars in the three months ended March 31, 2005. Our total backlog of firm orders for new railcars increased by approximately 26%, from 14,146 railcars as of March 31, 2005 to 17,794 railcars as of March 31, 2006. While our backlog declined during the first quarter of 2006, orders in the railcar industry tend to be uneven and our business prospects remain strong. The backlog as of March 31, 2005 represented estimated sales of $929 million, while the backlog as of March 31, 2006 represents estimated sales of $1,244 million. Approximately 98% of our backlog as of March 31, 2006 consisted of coal-carrying railcars.

Prices for steel and aluminum, the primary raw material components of our railcars, and surcharges on steel and railcar components remain at relatively high levels when compared to historical levels. Notwithstanding fluctuations in the cost of raw materials, a substantial majority of the contracts covering our current backlog include provisions that allow for variable pricing to protect us against future changes in the cost of raw materials. We were able to pass on increased material costs to our customers with respect to all of our railcar deliveries in the three months ended March 31, 2006.

With respect to the supply of components, while the availability of railcar components has continued to improve during 2006, the railcar industry continues to be adversely impacted by shortages of wheels and other components as a result of reorganization and consolidation of domestic suppliers, increased demand for new railcars and railroad maintenance requirements. Currently, we believe that these shortages will not significantly impact our ability to meet our delivery requirements as supply of these components is sourced worldwide.

The North American railcar market is highly cyclical and the trends in the railcar industry are closely related to the overall level of economic activity. In an improving economy, we expect railroads and utilities to continue to upgrade their fleets of aging steel-bodied coal-carrying railcars to lighter and more durable aluminum-bodied coal-carrying railcars. We believe that the near-term outlook for railcar demand is positive due to current growth in the U.S. economy, which we believe is resulting in increased rail traffic, the replacement of aging railcar fleets, and an increasing demand for electricity. We also believe that the near-term outlook for our business, including the demand for our coal-carrying railcars, is positive, based on the increased demand for railcars, our current backlog, our product portfolio and our operational efficiency in manufacturing railcars. However, U.S. economic conditions may not continue to improve in the future or result in a sustained economic recovery, and our business is subject to significant other risks that may cause our current positive outlook to change.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2006 compared to Three Months Ended March 31, 2005

Sales

Our sales for the three months ended March 31, 2006 were $292.8 million as compared to $165.8 million for the three months ended March 31, 2005, representing an increase of $127.0 million. The increase in sales was primarily due to our delivery of an additional 1,645 railcars in the three months ended March 31, 2006 compared to the same period in 2005,

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representing an increase of 71% in deliveries. The increased volume of railcar deliveries reflects increased demand for our coal-carrying railcars. Deliveries of our coal-carrying railcars comprised 100% of our total railcar deliveries for the three months ended March 31, 2006.

Gross Profit

Gross profit for the three months ended March 31, 2006 was $41.1 million as compared to $13.4 million for the three months ended March 31, 2005, representing an increase of $27.7 million. The increase in gross profit was primarily due to our increased sales volume, operating leverage attributable to higher volume, favorable pricing and cost control. For the three months ended March 31, 2006, we were able to pass on increases in raw material costs to our customers with respect to 100% of our railcar deliveries. During the three months ended March 31, 2005, our gross profit margin was adversely impacted by higher manufacturing costs of approximately $1.5 million associated with increased material, labor and other costs related to the completion of a contract to manufacture box cars, which were partially offset by cost reduction initiatives that generated approximately $1.0 million of cost savings during the first quarter of 2005.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31, 2006 were $8.3 million as compared to $6.4 million for the three months ended March 31, 2005, representing an increase of $1.9 million. Selling, general and administrative expenses were 2.8% of our sales for the three months ended March 31, 2006 compared to 3.9% for the three months ended March 31, 2005. The increase in selling, general and administrative expenses is primarily attributable to increased expenses of $1.1 million relating to our employee incentive programs, expenses of $0.6 million associated with increased costs of being a public company and $0.2 million of increased research and development costs.

Interest Expense

Total interest expense for the three months ended March 31, 2006 was $0.2 million as compared to $3.8 million for the three months ended March 31, 2005, representing a decrease of $3.6 million. For the three months ended March 31, 2006, interest expense consisted of third party interest expense and the amortization of deferred financing costs. The reduction reflects the impact of the repayment of the senior notes, term loan and industrial revenue bonds with the proceeds of the initial public offering during the second quarter of 2005. Interest income for the three months ended March 31, 2006 was $0.7 million, compared to $0.1 million for the three months ended March 31, 2005.

Income Taxes

The provision for income taxes was $12.0 million for the three months ended March 31, 2006, as compared to a provision of $1.3 million for the three months ended March 31, 2005. The effective tax rates for the three months ended March 31, 2006 and 2005, were 36.0% and 40.0%, respectively. The effective tax rate for the three months ended March 31, 2006 was higher than the statutory U.S. federal income tax rate of 35% due to the addition of a 3.9% blended state rate less a 1.9% effect for other permanent differences and less a 1.0% effect for domestic manufacturing deductions. The effective tax rate for the three months ended March 31, 2005 was higher than the statutory U.S. federal income tax rate of 35% due to the addition of a 3.0% blended state rate and a 1.9% effect for then-nondeductible interest expense on the rights to additional acquisition consideration.

Net Income

As a result of the foregoing, net income was $21.4 million for the three months ended March 31, 2006, reflecting an increase of $19.5 million from net income of $1.9 million for the three months ended March 31, 2005. Net income attributable to common stockholders was $21.4 million for the three months ended March 31, 2006, as compared to net income of $1.6 million attributable to common stockholders for the same period in 2005. Our basic net income per share was $1.71 for the three months ended March 31, 2006 on basic shares of 12,534,188. Diluted net income per share was $1.67 for the three months ended March 31, 2006 on diluted shares of 12,772,000. For the three months ended March 31, 2005, our basic and diluted net income per share was $0.22 per share on weighted average basic and diluted shares of 7,432,700.

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LIQUIDITY AND CAPITAL RESOURCES

Our primary source of liquidity for the three months ended March 31, 2006 and 2005 was cash generated from operations. From the three months ended March 31, 2005 to the three months ended March 31, 2006, we had an increase in net cash provided by operating activities of $13.5 million primarily due to our increased sales volume. See “— Cash Flows.”

On April 11, 2005, we entered into an Amended and Restated Credit Agreement (the “revolving credit agreement”) providing for the terms of the Company’s revolving credit facility (the “revolving credit facility”) with LaSalle Bank National Association, as administrative agent, and the lenders party thereto. The revolving credit facility replaced our former $20.0 million revolving credit facility with LaSalle Bank National Association. The revolving credit facility provides for a $50.0 million revolving credit line, including a letter of credit sub-facility that may not exceed $30.0 million. The revolving credit facility has a term of three years. Our assets and the assets of our subsidiaries serve as collateral for borrowings under the revolving credit facility. The Borrowing Base, as defined in the revolving credit agreement, is the lesser of the $50.0 million revolving commitment or an amount equal to a percentage of eligible accounts receivable plus percentages of eligible finished inventory and eligible semi-finished inventory, respectively. Borrowings under the revolving credit facility bear interest at the LIBOR rate plus an applicable margin of between 1.75% and 3.00%, which is determined based on the ratio of our consolidated senior debt to consolidated EBITDA (as defined in the revolving credit agreement). We pay a commitment fee of between 0.25% per year and 0.50% per year on the unused portion of the revolving credit facility. As of March 31, 2006, we had no outstanding borrowings under the revolving credit facility, $8.2 million in letters of credit under the letter of credit sub-facility and the ability to borrow $41.8 million under the revolving credit facility.

The revolving credit agreement has both affirmative and negative covenants, including, without limitation, a maximum senior debt leverage ratio, a maximum total debt leverage ratio, a minimum interest coverage ratio, a minimum tangible net worth and limitations on capital expenditures and dividends.

Based on our current level of operations and our anticipated growth, we believe that our proceeds from operating cash flows, together with amounts available under our revolving credit facility, will be sufficient to meet our anticipated liquidity needs for the remainder of 2006. Our long-term liquidity is contingent upon future operating performance and our ability to continue to meet financial covenants under our revolving credit facility and any other indebtedness. We may also require additional capital in the future to fund capital investments, acquisitions or development of railcars, and these capital requirements could be substantial. In response to the current demand for our railcars, we are considering the addition of another manufacturing facility and exploring other opportunities to increase our low-cost production capacity. We are also exploring product diversification initiatives and international opportunities. We expect that these additional business activities may result in capital requirements of approximately $60.0 million to $80.0 million within the next 12 to 24 months, which we expect to fund through cash provided by operating activities.

Our long-term liquidity needs also depend to a significant extent on our obligations related to our pension and welfare benefit plans. We provide pension and retiree welfare benefits to certain salaried and hourly employees upon their retirement. The most significant assumptions used in determining our net periodic benefit costs are the discount rate used on our pension and postretirement welfare obligations, expected return on pension plan assets and the health care cost trend rate for our postretirement welfare obligations. As of December 31, 2005, our accumulated benefit obligation under our defined benefit pension plans and our postretirement benefit plan exceeded the fair value of plan assets by $27.2 million and $51.4 million, respectively. Our management expects that any future obligations under our pension plans that are not currently funded will be funded out of our future cash flow from operations. Relating to our defined benefit pension plan, we made contributions of $1.0 million for the three months ended March 31, 2006 and expect to make contributions up to approximately $21.3 million in 2006, which includes our required minimum contribution of $10.2 million and an expected additional contribution up to approximately $11.1 million. However, we may elect to adjust the level of contributions to our pension plans based on a number of factors, including performance of pension investments, changes in interest rates and changes in workforce compensation.

Based upon our operating performance, capital requirements and obligations under our pension and welfare benefit plans, we may, from time to time, be required to raise additional funds through additional offerings of our common stock and through long-term borrowings. There can be no assurance that long-term debt, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders and debt financing, if available, may involve restrictive covenants. Our failure to raise capital if and when needed could have a material adverse effect on our business, results of operations and financial condition.

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Contractual Obligations

The following table summarizes our contractual obligations as of March 31, 2006, and the effect that these obligations and commitments would be expected to have on our liquidity and cash flow in future periods:

Wheels and axles purchase commitments consist of a non-cancelable agreement with one of our suppliers to purchase materials used in the manufacturing process. The quantity commitment is based on the industry backlog published by the American Railway Car Institute and the pricing is based on the Producer Price Index. The estimated amounts above may vary based on the actual quantities and price.

Aluminum purchase commitments consist of non-cancelable agreements to purchase fixed amounts of materials used in the manufacturing process. Purchase commitments are made at a fixed price and are typically entered into after a customer places an order for railcars.

Cash Flows

The following table summarizes our net cash provided by or used in operating activities, investing activities and financing activities for the three months ended March 31, 2006 and 2005:

Operating Activities. Our net cash provided by operating activities reflects net income adjusted for non-cash charges and changes in net working capital (including non-current assets and liabilities). Cash flows from operating activities are affected by several factors, including fluctuations in business volume, contract terms for billings and collections, the timing of collections on our contract receivables, processing of bi-weekly payroll and associated taxes, and payment to our suppliers. Our working capital accounts also fluctuate from quarter to quarter due to the timing of certain events, such as the payment or non-payment for our railcars. As some of our customers make large orders, consisting on average of 120 to 135 railcars, variations in our sales lead to significant fluctuations in our operating profits and cash from operating activities. We do not usually experience business credit issues, although a payment may be delayed pending completion of closing documentation, and a typical order of railcars may not yield cash proceeds until after the end of a reporting period.

Our net cash provided by operating activities for the three months ended March 31, 2006 was $22.4 million as compared to net cash provided by operating activities of $9.0 million for the three months ended March 31, 2005. The increase in net cash provided by operating activities was primarily due to the addition of $15.5 million in net income adjusted for non-cash items, the additional use of $6.4 million attributable to accounts receivable and inventories, net of accounts payable, a reduction in cash of $5.6 million applicable to payroll, pensions and postretirement obligations, an increase in cash of $7.6 million attributable to income taxes payable and a net increase of $2.3 million in cash from other operating activities.

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Investing Activities. Net cash used in investing activities for the three months ended March 31, 2006 was $1.3 million as compared to $2.1 million for the three months ended March 31, 2005. Net cash used in investing activities for the three months ended March 31, 2006 and 2005, consisted primarily of capital expenditures. For the three months ended March 31, 2005, $1.8 million of the $2.1 million of total capital expenditures was used for the expansion of production capacity at our manufacturing facility in Roanoke, Virginia.

Financing Activities. Net cash used in financing activities for the three months ended March 31, 2006 was $0.4 million as compared to $1.8 million for the three months ended March 31, 2005. Net cash used in financing activities for the three months ended March 31, 2006 included cash dividends paid to stockholders of $0.4 million. Cash used for financing activities for the three months ended March 31, 2005 included equal monthly payments on the term loan totaling $0.5 million and deferred financing and costs of the initial public offering in the amount of $1.3 million.

Capital Expenditures

Our capital expenditures were $1.3 million in the three months ended March 31, 2006 as compared to $2.0 million in the three months ended March 31, 2005. For the three months ended March 31, 2006, $0.9 million of the $1.3 million was comprised of expenditures for machinery and equipment at our Danville production facility, while $0.4 million was comprised of expenditures for machinery and equipment at our Roanoke production facility and our Johnstown production facility. For the three months ended March 31, 2005, $1.8 million of the $2.0 million total capital expenditures was used for the expansion of production capacity at our manufacturing facility in Roanoke, Virginia. The remaining $0.2 million of capital expenditures for the three months ended March 31, 2005 was comprised of expenditures for machinery and equipment at our Johnstown production facility and our Danville production facility.

We expect that capital expenditures relating to the maintenance of our existing facilities will be approximately $4.5 million in 2006. Management continuously evaluates the capacity of our manufacturing facilities based upon market demand and monitors the cost effectiveness of those facilities. In response to the current demand for our railcars, we are considering the addition of another manufacturing facility and exploring other opportunities to increase our low-cost production capacity. We are also exploring product diversification initiatives and international opportunities. In November 2002, we discontinued railcar production at our Shell plant in Johnstown, Pennsylvania and we are currently evaluating various options with respect to this facility.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q contains or incorporates by reference forward-looking statements, in particular, statements about our plans, strategies and prospects. Forward-looking statements typically are identified by the use of terms, such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend” and similar expressions, although some forward-looking statements are expressed differently. We have based our forward-looking statements on our current views with respect to future events and financial performance. Our actual results could differ materially from those projected in the forward-looking statements.

Our forward-looking statements are subject to risks and uncertainties, including:

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Our actual results could be different from the results described in or anticipated by our forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections and may be better or worse than anticipated. Given these uncertainties, you should not rely on forward-looking statements. Forward-looking statements represent our estimates and assumptions only as of the date that they were made. We expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, in order to reflect changes in circumstances or expectations or the occurrence of unanticipated events except to the extent required by applicable securities laws. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under Item 1A. “Risk Factors.” in our Form 10-K for the year ended December 31, 2005 filed with the Securities and Exchange Commission.

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We have a $50.0 million revolving credit facility which provides for financing of our working capital requirements and contains a $30.0 million sub-facility for letters of credit. As of March 31, 2006, there were no borrowings under the revolving credit facility and we had issued approximately $8.2 million in letters of credit under the sub-facility for letters of credit. We are exposed to interest rate risk on the borrowings under the revolving credit facility and do not plan to enter into swaps or other hedging arrangements to manage this risk, because we do not believe this interest rate risk to be significant. On an annual basis, a 1% change in the interest rate in our revolving credit facility will increase or decrease our interest expense by $10,000 for every $1.0 million of outstanding borrowings.

We are exposed to price risks associated with the purchase of raw materials, especially aluminum and steel. The cost of aluminum, steel and all other materials used in the production of our railcars represents a significant component of our direct manufacturing costs. Given the significant increases in the price of raw materials since November 2003, this exposure can affect our costs of production. We currently do not plan to enter into any hedging arrangements to manage the price risks associated with raw materials. Instead, we have either renegotiated existing contracts or entered into new contracts with a substantial majority of our customers that allow for variable pricing to protect us against future changes in the cost of raw materials. As a result, a substantial majority of our contracts for railcars in our backlog at March 31, 2006 permit us to pass through charges related to increases in the cost of raw materials to our customers. However, we may not always be able to pass on these increases in the future. In particular, when raw material prices increase rapidly or to levels significantly higher than normal, we may not be able to pass price increases through to our customers, which could adversely affect our operating margins and cash flows. In the event that we are able to increase the prices of our railcars, any such price increases may reduce demand for our railcars. The current high cost of the raw materials that we use to manufacture railcars, especially aluminum and steel, and delivery delays associated with these raw materials may adversely affect our financial condition and results of operations.

To the extent that we are unsuccessful in passing on increases in the cost of aluminum and steel to our customers, a 1% increase in the cost of aluminum and steel would increase our average cost of sales by approximately $210 per railcar, which, for the three months ended March 31, 2006, would have reduced income before income taxes by approximately $0.8 million.

We are not exposed to any significant foreign currency exchange risks as our policy is to denominate foreign sales and purchases in U.S. dollars.

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report on Form 10-Q (the “Evaluation Date”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There has been no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

We are involved in certain threatened and pending legal proceedings, including workers’ compensation and employee matters arising out of the conduct of our business. Additionally, we are involved in various warranty and repair claims and related threatened and pending legal proceedings with our customers in the normal course of business. While the ultimate outcome of such legal proceedings cannot be determined at this time, it is the opinion of management that the resolution of these actions will not have a material adverse effect on our financial condition or results of operations.

None.

None.

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None.

None.

None.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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EXHIBIT INDEX

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