RAIL

Business Context and Reporting Period

Company: FreightCar America, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2007
Business Overview: The Company is the leading manufacturer of aluminum-bodied railcars in North America, specializing in coal-carrying railcars (86% of 2007 deliveries). Operations are conducted through facilities in Danville, Illinois; Roanoke, Virginia; and Johnstown, Pennsylvania. The Company also refurbishes railcars and sells parts.

Key Financial Metrics

Liquidity: The Company maintains a strong cash position with $197.0 million in cash and cash equivalents. It has a $100.0 million senior secured revolving credit facility with no borrowings outstanding as of year-end, though $8.8 million in letters of credit were issued.

Material Changes vs. Prior Period

• Revenue Decline: Sales decreased 43% to $817.0 million, driven by a 45% drop in railcar deliveries (10,282 units in 2007 vs. 18,764 in 2006) due to lower industry volume and reduced demand for coal cars.
• Profitability Compression: Net income fell 79% to $26.5 million. This was caused by lower volume, reduced operating leverage, and a decline in average selling prices.
• One-Time Charges: The Company recorded $30.8 million in curtailment and impairment charges in Q4 2007 related to the planned closure of the Johnstown, Pennsylvania facility. This included $27.7 million in pension/postretirement benefit costs and $2.2 million in employee termination benefits.
• Backlog Reduction: Firm order backlog decreased 42% to 5,399 railcars (estimated value $422 million) from 9,315 railcars ($697 million) in 2006.
• Share Repurchases: The Company repurchased 1,048,300 shares for approximately $50.0 million during the first three quarters of 2007.

Guidance, Outlook, and Risks

Management Commentary: Management expects the long-term outlook for railcar demand to remain positive due to increased rail traffic and the replacement of aging fleets. However, the Company noted that the North American railcar market is highly cyclical. The closure of the Johnstown facility was a strategic move to optimize production at lower-cost facilities.

Key Risks and Contingencies:

• Labor Disputes: A class-action lawsuit filed by the United Steelworkers of America (USWA) alleges the Company laid off workers to prevent pension eligibility. A preliminary injunction was issued and subsequently stayed pending appeal. The outcome is uncertain and could materially affect operations.
• Supply Chain Constraints: The industry faces shortages of wheels and other components. While availability improved in 2007, reliance on a single supplier for cold-rolled center sills presents a concentration risk.
• Raw Material Costs: Prices for steel and aluminum remain at historically high levels. While the Company passed on cost increases for 80% of 2007 deliveries, competitive pressures may limit future pass-throughs.
• Pension Obligations: The Company's defined benefit pension plans are underfunded by $10.4 million. Expected contributions for 2008 are approximately $6.8 million.

Investor Verification Checklist

• Johnstown Closure Impact: Verify the final costs associated with the Johnstown facility closure and the status of the USWA litigation regarding pension eligibility.
• Backlog Conversion: Monitor the conversion of the $422 million backlog into revenue in 2008, noting risks of order cancellations or delays.
• Raw Material Hedging: Assess the Company's ability to pass through rising steel and aluminum costs in a competitive pricing environment.
• Pension Funding: Track actual cash contributions to pension plans against the projected $6.8 million for 2008.
• Customer Concentration: Review sales concentration, as the top three customers accounted for 37% of total revenue in 2007.