RAIL

FreightCar America, Inc. 2006 Annual Report Summary

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended December 31, 2006. FreightCar America, Inc. is the leading manufacturer of aluminum-bodied railcars in North America, specializing in coal-carrying railcars which represented 96% of deliveries in 2006. The company operates manufacturing facilities in Danville, Illinois; Johnstown, Pennsylvania; and Roanoke, Virginia. Its primary customers are financial institutions (49% of sales), shippers (41%), and railroads (10%).

Key Financial Metrics

Note: The company repaid all significant debt following its 2005 IPO. As of December 31, 2006, total debt consisted primarily of minimal capital lease obligations.

Material Changes vs. Prior Period

• Revenue Growth: Sales increased 56% to $1.44 billion, driven by a 44% increase in railcar deliveries (18,764 units in 2006 vs. 13,031 in 2005) and higher pricing.
• Profitability: Net income increased 182% to $128.7 million. Operating leverage and improved productivity contributed to a gross margin expansion from 11.5% to 16.2%.
• Backlog Decline: Despite record deliveries, the backlog of firm orders decreased 55% from 20,729 units ($1.4 billion value) in 2005 to 9,315 units ($697 million value) in 2006.
• Interest Expense: Interest expense dropped significantly to $0.7 million from $11.1 million in 2005, as the company no longer carried the high-cost debt and acquisition rights liabilities present in the prior year.

Guidance, Outlook, and Risks

Outlook and Strategy: Management expects the long-term outlook for railcar demand to remain positive due to fleet replacement cycles and increased rail traffic. The company announced a $50 million share repurchase program in January 2007. Capital expenditures for 2007 are expected to be approximately $7.2 million, primarily for facility maintenance and equipment updates.

Risks and Contingencies:

• Raw Material Costs: Prices for steel and aluminum remain historically high. While 98% of 2006 deliveries included variable pricing clauses to pass costs to customers, rapid price increases could impact margins if contracts do not allow for pass-through.
• Supplier Concentration: The company relies on a single supplier for cold-rolled center sills and a limited number of suppliers for wheels and other components. Supply shortages could limit production capacity.
• Customer Concentration: The top ten customers accounted for 77% of total revenue in 2006. The loss of a major customer could materially affect results.
• Pension Obligations: The company has significant unfunded pension and postretirement benefit obligations ($52.9 million unfunded postretirement liability). Future contributions depend on investment performance and interest rates.
• Cyclicality: The railcar industry is highly cyclical, and demand is sensitive to U.S. economic conditions and coal prices.

Key Facts for Investor Verification

• Backlog Conversion: Verify the conversion rate of the $697 million backlog into actual revenue in 2007, noting that backlog estimates do not account for potential cancellations or delays.
• Raw Material Hedging: Confirm the extent to which future contracts include variable pricing clauses to mitigate the risk of rising steel and aluminum costs.
• Supplier Reliability: Monitor the supply chain status of the single-source supplier for cold-rolled center sills and the availability of wheels from Amsted Industries.
• Pension Funding: Track the company's ability to meet the $5.4 million expected pension contribution for 2007 and the impact of the Pension Protection Act of 2006 on future funding requirements.
• Share Repurchase Execution: Monitor the execution of the $50 million share repurchase program announced in January 2007.