Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEW
All of the financial information presented in this Item 2 has been adjusted to reflect the restatement of our condensed consolidated financial statements for the three months and six months ended June 30, 2008. The restatement is more fully described in Note 17 to the condensed consolidated financial statements. 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 and coal-carrying railcars in North America, based on the number of railcars delivered over the past decade. 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. Our primary customers are shippers, railroads and financial institutions.
Our manufacturing facilities are located in Danville, Illinois and Roanoke, Virginia. Each of our manufacturing facilities has the capability to manufacture a variety of types of railcars, including aluminum-bodied and steel-bodied railcars. In response to reduced industry demand for railcars over the short-term, our Roanoke manufacturing facility ceased production of new railcars in July 2009 but remains in operation for related activities with a limited work force. We do not anticipate additional costs related to this reduction in force and expect to resume production of new railcars at our Roanoke facility in the future as industry demand improves.
Net orders for new railcars totaled 694 units in the second quarter of 2009 compared to 538 units ordered (new orders of 1,438 units less cancelled orders of 900 units) in the second quarter of 2008 and orders of 339 units for the first quarter of 2009. Railcar deliveries totaled 1,207 units in the second quarter of 2009, compared to 2,326 units delivered in the second quarter of 2008 and 974 units delivered in the first quarter of 2009. Railcar deliveries do not include 360 railcars sold in the second quarter of 2009 that were previously under lease. There were no railcars sold in the second quarter of 2008 or the first quarter of 2009 that were previously under lease. Total backlog of unfilled orders was 1,472 units at June 30, 2009, compared with 1,985 units at March 31, 2009 and 2,620 units at December 31, 2008.
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. 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. Despite the decline in our backlog, we expect the demand for coal cars to improve once the current recessionary pressures are behind us. Roughly half of our nation's electrical power is generated from coal and there are approximately 23 new power plants, representing around 14,600 megawatts of coal-fired capacity, currently under construction. The U.S. Energy Information Administration has projected continued growth in domestic coal consumption for electric power generation through 2030. Factors such as these suggest that our main products and services should be in demand for the foreseeable future. However, future government policies and the potential of a long-term shift away from coal, the primary fuel source for electric power generation, would mitigate this demand.
During 2008, management, after a thorough evaluation of the Company's current information technology systems and its future needs, determined to upgrade the Company's existing information technology system to a fully integrated ERP system to be provided by Oracle Corporation. The Company's new enterprise-wide financial reporting system went live on August 1, 2009. In addition to the implementation of the ERP system and in connection with the restatement of our consolidated financial statements for the years ended December 31, 2008 and 2007, and our condensed consolidated financial statements for the three months ended March 31, 2009 and 2008, there have been changes in our internal control over financial reporting as more fully described in Item 4 of this quarterly report on Form 10-Q.
Restatement of Consolidated Financial Statements On July 28, 2009, we announced that we had identified historical accounting errors relating to accounts payable. The accounting errors have resulted in the understatement of cumulative net earnings since the fourth quarter of 2007. The accounting errors did not result from any changes in our accounting policies or misapplication of Generally Accepted Accounting Principles ("GAAP"). We undertook a review to determine the total amount of the errors and the accounting periods in which the errors occurred. Our review determined that the errors were attributable to flaws in the design of internal IT and accounting processes to account for receipt of certain goods that were implemented in the fourth quarter of

---

Table of Contents

2007. These flaws represented material weaknesses in the Company's internal controls relating to changes in information systems, inventory valuation and account reconciliations
Our review was overseen by the Audit Committee with the assistance of management, and legal counsel, IT consultants and forensic accountants engaged by management. After analyzing the size and timing of the errors, we determined that, in aggregate, the errors were material and would require us to restate certain of our previously issued financial statements. On September 16, 2009, we filed an amended annual report on Form 10-K/A with the Securities and Exchange Commission ("SEC") to restate our financial statements for the years ended December 31, 2008 and 2007, and for the quarterly periods ended March 31, 2008, June 30, 2008 and September 30, 2008. On that date, we also filed an amended quarterly report on Form 10-Q/A with the SEC to restate our quarterly financial statements for the period ended March 31, 2009. In addition, we have restated our interim condensed consolidated statements of operations and cash flows for the six month period ended June 30, 2008, as reported in this quarterly report on Form 10-Q.
The effects of the restatement on selected statement of operations line items for the three and six month periods ended June 30, 2008, are as follows: