RESULTS OF OPERATIONS
Three Months Ended September 30, 2008 compared to Three Months Ended September 30, 2007
Sales
Our sales revenue for the third quarter of 2008 was $238.0 million compared to $162.1 million for the same period in 2007. The increase is attributed primarily to higher demand for coal cars. Railcar deliveries totaled 3,082 units in the quarter, including delivery of 2,460 cars sold (new and used) and delivery of 622 leased cars, compared to 1,921 units in the same period of 2007. The railcar sector was affected by aggressive pricing competition as well as below market lease rates. Average selling prices decreased in the third quarter of 2008 compared with the third quarter of 2007 reflecting a shift in our product mix to car types with different material costs and pricing pressures dictated by the current market conditions.
Gross Profit
Our gross margin for the quarter was $18.4 million, compared to $19.4 million for the third quarter of 2007, a decrease of $1.0 million. The corresponding margin rate was 7.7%, compared with 12.0% generated in the third quarter of 2007. The change in margin rate was driven primarily by the recent sharp cost increases on raw material inputs and the aggressive pricing environment in which we are operating.
Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months ended September 30, 2008 were $7.2 million compared to $7.6 million for the three months ended September 30, 2007, representing a decrease of $0.4 million. Selling, general and administrative expenses were 3.0% of our sales for the three months ended September 30, 2008 compared to 4.7% for the three months ended September 30, 2007. The decrease in selling, general and administrative expenses for the three months ended September 30, 2008 compared to the 2007 period is primarily attributable to reductions in employee compensation costs and decreases in outside professional services costs. Special Charges
Special charges for the three months ended September 30, 2008 represent the incremental costs associated with of our decision, in December 2007, to close our Johnstown, Pennsylvania manufacturing facility. These costs include charges related to professional fees relative to the employee termination and related plant closure. See Note 16 to the condensed consolidated financial statements. Interest Expense/Income
Total interest expense was $0.3 million and $0.2 million for the three months ended September 30, 2008 and 2007, respectively. For the three months ended September 30, 2008 and 2007, interest expense consisted of third-party interest expense and amortization of deferred financing costs. Interest income for the three months ended September 30, 2008 was $0.9 million, compared to $1.9 million for the three months ended September 30, 2007. Interest income represents income earned on cash equivalent balances, which decreased compared to the three months ended September 30, 2007, and income earned on notes receivable, which increased over the same time period. Interest income for the three months ended September 30, 2008 was also negatively impacted by lower interest rates for the 2008 period compared to the same period of 2007. Income Taxes
The provision for income taxes was $4.2 million for the three months ended September 30, 2008, compared to $4.9 million for the three months ended September 30, 2007. The effective tax rate for the three months ended September 30, 2008 was 36.2% compared to an effective tax rate of 35.9% for the three months ended September 30, 2007. The effective tax rate for the three months ended September 30, 2008 was higher than the statutory U.S. federal income tax rate of 35% due to the addition of a 3.8% blended state rate less 1.9% effect for domestic manufacturing deductions and less a 0.7% effect from other permanent differences. The effective tax rate for the three months ended September 30, 2007 was higher than the statutory U.S. federal income tax rate of 35% due to the addition of a 2.9% blended state rate less a 2.3% effect for domestic manufacturing deductions and plus a 0.3% effect from other permanent differences.

Net Income (Loss)
As a result of the foregoing, net income was $7.4 million for the three months ended September 30, 2008, compared to net income of $8.7 million for the three months ended September 30, 2007. For the three months ended September 30, 2008, our basic and diluted net income per share was $0.63 and $0.62, respectively, on basic and diluted shares outstanding of 11,809,024 and 11,841,221, respectively. For the three months ended September 30, 2007, our basic and diluted net income per share was $0.73, on basic and diluted shares outstanding of 11,918,890 and 11,955,827, respectively.
Nine Months Ended September 30, 2008 compared to Nine Months Ended September 30, 2007
Sales
Our sales revenue for the nine months ended September 30, 2008 was $474.4 million compared to $679.9 million for the same period in 2007. The decrease is attributed primarily to lower industry volume, as well as lower demand for coal cars. In addition, the railcar sector was affected by aggressive pricing competition as well as below market lease rates. Railcar deliveries totaled 6,695 units for the nine months ended September 30, 2008, including delivery of 4,858 new cars sold and delivery of 1,527 leased cars as well as delivery of 237 used cars sold and 73 rebuild/refurbishment cars sold, compared to 8,677 units in the same period of 2007. Gross Profit
Our gross margin for the nine months ended September 30, 2008 was $34.3 million, compared to $88.2 million for the nine months ended September 30, 2007, a decrease of $53.9 million. The corresponding margin rate was 7.2%, compared with 13.0% generated in the first nine months of 2007. The change in margin rate was driven primarily by the recent sharp cost increases on raw material inputs, lower volume and related leverage and the aggressive pricing environment in which we are operating. Prices for aluminum, steel and related components rose sharply during the second quarter of 2008 and remain volatile. Material price increases and surcharges have caused the total cost of certain railcars under fixed price sales contracts to exceed the amounts originally anticipated and, in some cases, the actual contractual sales price of the railcar. When the anticipated loss on the production of railcars in the backlog is both probable and estimatable, we accrue a loss contingency. A loss contingency reserve of $2.3 million related to these cost increases is accrued as of September 30, 2008.
Selling, General and Administrative Expenses Selling, general and administrative expenses for the nine months ended September 30, 2008 were $23.1 million compared to $26.5 million for the nine months ended September 30, 2007, representing a decrease of $3.4 million. Selling, general and administrative expenses were 4.9% of our sales for the nine months ended September 30, 2008 compared to 3.9% for the nine months ended September 30, 2007. The decrease in selling, general and administrative expenses for the nine months ended September 30, 2008 compared to the 2007 period is primarily attributable to reductions in management transition expenses of $1.8 million, decreases in outside professional services costs of $1.0 million and decreases in insurance costs of $0.5 million. Special Charges
Special charges for the nine months ended September 30, 2008 represent the incremental costs associated with our decision, in December 2007, to close our Johnstown, Pennsylvania manufacturing facility. As a result of the tentative global settlement discussed above, total plant shut down costs incurred to date as of September 30, 2008 were $51.0 million. These costs include charges arising under our pension and postretirement benefit plans as well as employee termination and related closure costs. See Note 16 to the condensed consolidated financial statements.
Interest Expense/Income
Total interest expense was $0.5 million and $0.6 million for the nine months ended September 30, 2008 and 2007, respectively. For the nine months ended September 30, 2008 and 2007, interest expense consisted of third-party interest expense and amortization of deferred financing costs. Interest income for the nine months ended September 30, 2008 was $3.0 million, compared to $6.6 million for the nine months ended September 30, 2007. Interest income represents income earned on cash equivalent balances, which decreased compared to the nine months ended September 30, 2008, and income earned on notes receivable, which increased over the same time period. Interest income for the nine months ended September 30, 2008 was also negatively impacted by lower interest rates for the 2008 period compared to the same period of 2007.

Income Taxes
The provision for income taxes was a benefit of $2.6 million for the nine months ended September 30, 2008, as compared to a provision of $24.6 million for the nine months ended September 30, 2007. The effective tax rate for the nine months ended September 30, 2008 was 41.6% compared to 36.4% for the nine months ended September 30, 2007. The effective tax rate for the nine months ended September 30, 2008 was higher than the statutory U.S. federal income tax rate of 35% due to the addition of a 6.4% blended state rate and a 6.1% effect from a discrete item, less a 2.8% effect for goodwill, less a 1.9% effect for domestic manufacturing deductions and less a 1.2% effect from other permanent differences. The discrete item for the nine months ended September 30, 2008 represented the tax effect of the incremental special charges described above. The effective tax rate for the nine months ended September 30, 2007 was higher than the statutory U.S. federal income tax rate of 35% due to the addition of a 3.3% blended state rate and a 0.1% effect from other differences, less a 2.0% deduction from domestic manufacturing deductions. Net Income (Loss)
As a result of the foregoing, net loss was $(3.7) million for the nine months ended September 30, 2008, reflecting a decrease of $46.8 million from net income of $43.1 million for the nine months ended September 30, 2007. For the nine months ended September 30, 2008, our basic and diluted net loss per share was $(0.32) on basic and diluted shares outstanding of 11,776,503. For the nine months ended September 30, 2007, our basic and diluted net income per share was $3.52 and $3.49, respectively, on basic and diluted shares outstanding of 12,245,504 and 12,332,345, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of liquidity for the nine months ended September 30, 2008 and 2007 was our cash generated by cash flows from operations in prior periods. See "Cash Flows."
On September 30, 2008, we entered into the First Amendment to the Second Amended and Restated Credit Agreement. The Credit Agreement Amendment amends the Original Credit Agreement, by: (1) reducing the Lenders' commitments to a $50.0 million senior secured revolving credit facility, including a sub-facility for a swing line loan to be made by LaSalle in an amount not to exceed $5.0 million; (2) increasing the interest rate to LIBOR plus an applicable margin of between 1.50% and 2.25% depending on Revolving Loan Availability (as defined in the Credit Agreement); and (3) releasing JAIX as a Co-Borrower under the Credit Agreement and the collateral pledged by JAIX to secure the commitments of the Lenders under the Credit Agreement. We were required to pay an amendment fee of 0.20% of each Lender's commitment. Borrowings under the Credit Agreement remain collateralized by substantially all of our assets. Additionally, JAIX guaranteed the Revolving Credit Facility.
The proceeds of the revolving credit facility are available to finance our working capital requirements through direct borrowings and the issuance of stand-by-letters of credit. The amount available under the revolving credit facility is based on the lesser of (1) $50.0 million or (2) an amount equal to a percentage of eligible accounts receivable plus a percentage of eligible finished inventory plus a percentage of semi-finished inventory. The revolving credit facility has a term ending on May 31, 2012. We are required to pay an annual commitment fee of between 0.175% and 0.25% based on Revolving Loan Availability. The Credit Agreement Amendment has both affirmative and negative covenants, including, a minimum fixed charge coverage ratio and limitations on debt, liens, dividends, investments, acquisitions and capital expenditures. As of September 30, 2008 and December 31, 2007, we had no borrowings under the revolving credit facility. We had $15.6 million and $8.8 million in outstanding letters of credit under the letter of credit sub-facility as of September 30, 2008 and December 31, 2007, respectively and the ability to borrow $34.4 million under the revolving credit facility as of September 30, 2008. Under the revolving credit facility, our subsidiaries are permitted to pay dividends and transfer funds to the Company without restriction.
Also on September 30, 2008, JAIX entered into a Credit Agreement (the "JAIX Credit Agreement") to be used to fund our leasing operations. The JAIX Credit Agreement consists of a $60 million senior secured revolving credit facility. The JAIX Credit Agreement has a term ending on March 31, 2012 and bears interest at the Eurodollar Loan Rate (as defined in the JAIX Credit Agreement) plus 2.00% for the first two years of the JAIX Credit Agreement (the "Revolving Period") and plus 2.50% for the remainder of the term until the termination date. JAIX is required to pay an annual commitment fee of 0.30% during the Revolving Period. Borrowings under the JAIX Credit Agreement are collateralized by substantially all of the assets of JAIX. Additionally, FCA guaranteed the JAIX Revolving Credit Facility.

Availability under the JAIX Revolving Credit Facility is based on a percentage of the Eligible Railcar Leases (as defined in the agreement) held under the JAIX Revolving Credit Facility. For the first two years the facility requires interest only payments, thereafter the amount drawn on each group of Eligible Railcars under lease is required to be repaid in equal installments at the 6, 12 and 18 month anniversaries of such leases The Revolving Credit Agreement has both affirmative and negative covenants, including, without limitation, a minimum fixed charge coverage ratio, a minimum tangible net worth, a requirement to deposit restricted cash and limitations on debt, liens, dividends, investments, acquisitions and capital expenditures. The JAIX Credit Agreement also provides for customary events of default. As of September 30, 2008 we had no borrowings under the JAIX Revolving Credit Agreement.
As of September 30, 2008, we were in compliance with all covenant requirements under our revolving credit facilities.
Based on our current level of operations, we believe that our proceeds from operating cash flows and our cash balances, together with amounts available under our revolving credit facilities, will be sufficient to meet our anticipated liquidity needs for 2008. Our long-term liquidity is contingent upon future operating performance and our ability to continue to meet financial covenants under our revolving credit facilities and any other indebtedness. We may also require additional capital in the future to fund organic growth opportunities and cost reduction programs, including new plant and equipment, development of railcars, joint ventures and acquisitions, and these capital requirements could be substantial. Management continuously evaluates manufacturing facility requirements based upon market demand and may elect to make capital investments at higher levels in the future. We are also exploring product diversification initiatives and international and other opportunities. 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 and expected return on pension plan assets. 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. As of December 31, 2007, our benefit obligation under our defined benefit pension plans and our postretirement benefit plan was $55.4 million and $53.1 million, respectively, which exceeded the fair value of plan assets by $10.4 million and $53.1 million, respectively. As disclosed in Note 13 to the condensed consolidated financial statements, as of September 30, 2008, we have made contributions relating to our defined benefit pension plans of approximately $6.8 million in 2008. 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. In August 2006, President Bush signed the Pension Protection Act of 2006 into law. Included in this legislation are changes to the method of valuing pension plan assets and liabilities for funding purposes, as well as minimum funding levels required by 2008. Our defined benefit pension plans are in compliance with the minimum funding levels established in the Pension Protection Act. Funding levels will be affected by future contributions, investment returns on plan assets, growth in plan liabilities and interest rates. Assuming that the plans are fully funded as that term is defined in the Pension Protection Act, we will be required to fund the ongoing growth in plan liabilities on an annual basis. We anticipate funding pension contributions with cash from operations.
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 results of operations and financial condition.
Contractual Obligations
The following table summarizes our contractual obligations as of September 30, 2008, and the effect that these obligations and commitments would be expected to have on our liquidity and cash flow in future periods:

                                                                         Payments Due by Period
                                                          Less than 1               1-3                3-5            More than
Contractual Obligations                   Total              Year                  Years              Years            5 Years
                                                                              (In thousands)
Capital leases from long-term debt      $      45        $          45        $             -        $      -        $         -
Operating leases                           15,396                2,103                  4,569           4,763              3,961
Material and component purchases          195,679               42,585                 83,370          62,212              7,512

Total                                   $ 211,120        $      44,733        $        87,939        $ 66,975        $    11,473

Material and component purchases consist of non-cancelable agreements with suppliers to purchase materials used in the manufacturing process. Purchase commitments for aluminum are made at a fixed price and are typically entered into after a customer places an order for railcars. The estimated amounts above may vary based on the actual quantities and price.
The above table excludes $3.8 million of long-term liabilities for unrecognized tax benefits and accrued interest and penalties at September 30, 2008 because the timing of the payout of these liabilities cannot be determined. Cash Flows
The following table summarizes our net cash (used in) provided by operating activities, investing activities and financing activities for the nine months ended September 30, 2008 and 2007:

                                                   Nine Months Ended
                                                     September 30,
                                                  2008          2007
                                                    (In thousands)
              Net cash (used in) provided by:
              Operating activities              $ (26,906 )   $  18,089
              Investing activities                (39,554 )      (5,181 )
              Financing activities                 (2,529 )     (49,596 )

              Total                             $ (68,989 )   $ (36,688 )

Operating Activities. Our net cash used in 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 accept delivery of new railcars in train-set quantities, 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 used in operating activities for the nine months ended September 30, 2008 was $26.7 million, compared to net cash provided by operating activities of $18.1 million for the nine months ended September 30, 2007. The . . .