OVERVIEW

You should read the following discussion in conjunction with our unaudited 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 believe we are the leading manufacturer of aluminum-bodied railcars and coal-carrying railcars in North America, based on the number of railcars delivered. We also manufacture other types of railcars, refurbish and rebuild railcars, and sell forged, cast and fabricated parts for the railcars we produce as well as those manufactured by others, provide general railcar repair and maintenance, inspections, railcar fleet management services for all types of freight railcars and provide freight cars for lease. Our primary customers are railroads, shippers and financial institutions.

Our operating activities are divided into two reportable segments, Manufacturing and Services. Our Manufacturing segment includes new railcar manufacturing, used railcar sales, railcar leasing and major railcar rebuilds. Our Services segment includes general railcar repair and maintenance, inspections, parts sales and railcar fleet management services. Corporate includes selling, general and administrative expenses not related to production of goods and services, such as retiree pension and other postretirement benefit costs, and all other non-operating activity.

Our railcar manufacturing facilities are located in Danville, Illinois and Roanoke, Virginia. Both facilities have the capability to manufacture a variety of types of railcars, including aluminum-bodied and steel-bodied railcars. We have repair and maintenance and inspection facilities in Clinton, Indiana, Grand Island, Nebraska and Hastings, Nebraska.

Total orders for railcars in the second quarter of 2012 were 961 units, consisting of 600 new railcars and 361 used railcars, compared to 1,244 units, consisting of 1,164 new railcars and 80 used railcars ordered in the first quarter of 2012 and 1,089 units, all of which were new railcars, ordered in the second quarter of 2011. Railcar deliveries totaled 2,786 units, consisting of 1,815 new railcars, 361 used railcars sold and 610 leased railcars in the second quarter of 2012, compared to 2,613 units, consisting of 2,146 new railcars, 80 used railcars sold and 387 leased railcars, delivered in the first quarter of 2012 and 1,309 units, consisting of 1,219 new railcars and 90 leased railcars, delivered in the second quarter of 2011. Total backlog of unfilled orders was 5,109 units, consisting of 1,809 new railcars and 3,300 rebuilt railcars, at June 30, 2012, compared to 8,303 units, consisting of 5,003 new railcars and 3,300 rebuilt railcars, at December 31, 2011.

Coal demand for the second quarter of 2012 reflects decreased power generation due to low industrial production, the mild winter and low natural gas prices, all of which are softening coal demand and therefore coal car demand. Second quarter 2012 North America coal loadings were 10.6% lower than in the second quarter of 2011 and coal cars in storage increased to 33,000 railcars as of June 30, 2012.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2012 compared to Three Months Ended June 30, 2011

Revenues

Our consolidated revenues for the three months ended June 30, 2012 were $181.2 million compared to $97.6 million for the three months ended June 30, 2011. Manufacturing segment revenues for the second quarter of 2012 were $171.8 million compared to $88.3 million for the second quarter of 2011. The increase in Manufacturing segment revenues for the 2012 period compared to the 2011 period reflects the increase in the number of railcars delivered and higher revenue per railcar. Our Manufacturing segment delivered 2,786 units, consisting of 1,815 new railcars, 361 used railcars sold and 610 leased railcars in the second quarter of 2012, compared to 1,309 units, consisting of 1,219 new railcars and 90 leased railcars delivered in the second quarter of 2011. Services segment revenues for the three months ended June 30, 2012 were $9.4 million compared to $9.3 million for the three months ended June 30, 2011.

Gross Profit

Our consolidated gross profit for the three months ended June 30, 2012 was $17.0 million compared to $4.0 million for the three months ended June 30, 2011. The increase in our consolidated gross profit for the second quarter of 2012 compared to the second quarter of 2011 reflects an increase in gross profit from our Manufacturing segment of $13.8 million, which was partially offset by a decrease in gross profit from our Services segment of $0.4 million and an increase in Corporate costs of $0.3 million. The increase in gross profit for our Manufacturing segment for the second quarter of 2012 compared to the second quarter of 2011 is due to a higher number of railcars delivered, higher revenue per railcar and improved utilization of our manufacturing capacity during 2012. The decrease in gross profit for our Services segment for the second quarter of 2012 compared to 2011 reflects lower parts sales volume, an unfavorable parts sales mix and increased operating costs in our repair business. Our consolidated gross margin rate was 9.4% for the three months ended June 30, 2012 compared to 4.1% for the three months ended June 30, 2011.

Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses for the three months ended June 30, 2012 were $7.6 million compared to $6.9 million for the three months ended June 30, 2011. The increase reflects increases in compensation of $0.7 million and external services costs of $0.8 million, which were partially offset by decreases in product development costs of $0.7 million. Manufacturing segment selling, general and administrative expenses for the three months ended June 30, 2012 were $1.4 million compared to $1.7 million for the three months ended June 30, 2011. Services segment selling, general and administrative expenses were $0.9 million for each of the three months ended June 30, 2012 and 2011. Corporate selling, general and administrative expenses for the three months ended June 30, 2012 were $5.3 million compared to $4.3 million for the three months ended June 30, 2011.

Gain on Sale of Railcars Available for Lease

Gain on sale of railcars available for lease for the three months ended June 30, 2011 was $1.0 million and represented the gain on sale of leased railcars with a net book value of $5.5 million.

Operating Income (Loss)

Our consolidated operating income for the three months ended June 30, 2012 was $9.4 million, compared to an operating loss of $1.9 million for the three months ended June 30, 2011. Operating income for the Manufacturing segment was $15.3 million for the three months ended June 30, 2012 compared to $2.1 million for the three months ended June 30, 2011. The improvement in operating income for the Manufacturing segment reflects increased deliveries, higher revenue per railcar and improved utilization of our manufacturing capacity. Services segment operating income was $0.7 million for the three months ended June 30, 2012 compared to $1.2 million for the three months ended June 30, 2011. The decrease in Services segment operating income was primarily due to lower parts sales volume and an unfavorable parts sales mix as well as increased operating costs in our repair business. Corporate costs were $6.6 million for the three months ended June 30, 2012 compared to $5.2 million for the three months ended June 30, 2011. The increase in Corporate costs was primarily due to increases in compensation and external services costs.

Interest Expense, Net

Interest expense, net (consisting of commitment fees on our revolving credit facility and letter of credit fees) was $0.1 million for each of the three months ended June 30, 2012 and 2011.

Income Taxes

The income tax provision was $3.8 million for the three months ended June 30, 2012, compared to an income tax benefit of $2.2 million for the three months ended June 30, 2011. The effective tax rates for the three months ended June 30, 2012 and 2011, were 40.3% and 109.0%, respectively. The effective tax rate for the three months ended June 30, 2012 was higher than the statutory U.S. federal income tax rate of 35% primarily due to a 4.2% blended state tax rate and other permanent adjustments, partially offset by 1.7% for the impact of tax-deductible goodwill. The effective tax rate for the three months ended June 30, 2011 was higher than the statutory U.S. federal income tax rate of 35% primarily due to the addition of the blended state tax rate and an increase for tax-deductible goodwill. The impact of goodwill amortization provides additional tax benefit to the Company, increasing its effective tax rate in periods of loss and reducing its effective tax rate during periods of profitability. As forecasted pre-tax earnings approach break even, this impact is magnified and slight changes in full-year taxable earnings can significantly change our effective tax rate in any one quarter.

Net Income (Loss) Attributable to FreightCar America

As a result of the foregoing, net income attributable to FreightCar America was $5.6 million for the three months ended June 30, 2012, reflecting an increase of $5.4 million from net income attributable to FreightCar America of $0.2 million for the three months ended June 30, 2011. For the three months ended June 30, 2012, our basic and diluted net income per share was $0.47 and $0.46, respectively, on basic and diluted shares outstanding of 11,931,565 and 11,983,901, respectively. For the three months ended June 30, 2011, our basic and diluted net income per share was $0.02, on basic and diluted shares outstanding of 11,914,883 and 11,994,460, respectively.

Six Months Ended June 30, 2012 compared to Six Months Ended June 30, 2011

Revenues

Our consolidated revenues for the six months ended June 30, 2012 were $400.3 million compared to $169.8 million for the six months ended June 30, 2011. Manufacturing segment revenues for the first half of 2012 were $382.2 million compared to $151.5 million for the first half of 2011. The increase in Manufacturing segment revenues for the 2012 period compared to 2011 reflects the increase in the number of railcars delivered and higher revenue per railcar. Our Manufacturing segment delivered 5,399 units, consisting of 3,961 new railcars, 441 used railcars sold and 997 railcars leased, in the first half of 2012, compared to 2,184 units, consisting of 2,077 new railcars, 17 used railcars sold and 90 railcars leased, in the first half of 2011. Services segment revenues for the six months ended June 30, 2012 were $18.1 million compared to $18.4 million for the six months ended June 30, 2011. The decrease in Services segment revenues for the 2012 period compared to 2011 is primarily due to lower parts sales.

Gross Profit

Our consolidated gross profit for the six months ended June 30, 2012 was $40.8 million compared to $6.2 million for the six months ended June 30, 2011, representing an increase of $34.6 million. The increase in our consolidated gross profit for the first half of 2012 compared to the first half of 2011 reflects an increase in gross profit from our Manufacturing segment of $35.4 million, which was partially offset by a decrease in gross profit from our Services segment of $0.7 million. Corporate costs were flat for the first half of 2012 compared to the first half of 2011. The increase in gross profit for our Manufacturing segment for the six months ended June 30, 2012 compared to the six months ended June 30, 2011 is due to a higher number of railcars delivered, higher revenue per railcar and improved utilization of our manufacturing capacity during 2012. The decrease in gross profit for our Services segment for the first half of 2012 compared to the first half of 2011 reflects lower parts sales volume and higher operating costs for our repair business. Our consolidated gross margin rate was 10.2% for the six months ended June 30, 2012 compared to 3.7% for the six months ended June 30, 2011.

Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses for the six months ended June 30, 2012 were $16.3 million compared to $12.9 million for the six months ended June 30, 2011. The increase reflects increases in compensation of $2.3 million, external services costs of $1.5 million and legal fees of $0.5 million, which were partially offset by decreases in product development costs of $1.1 million. Manufacturing segment selling, general and administrative expenses for the six months ended June 30, 2012 were $2.9 million compared to $3.1 million for the six months ended June 30, 2011. Services segment selling, general and administrative expenses were $1.9 million for the first half of 2012 compared to $1.7 million for the first half of 2011. Corporate selling, general and administrative expenses for the six months ended June 30, 2012 were $11.6 million compared to $8.0 million for the six months ended June 30, 2011.

Gain on Sale of Railcars Available for Lease

Gain on sale of railcars available for lease for the six months ended June 30, 2012 was $1.0 million and represented the gain on sale of leased railcars with a net book value of $10.4 million. Gain on sale of railcars available for lease for the six months ended June 30, 2011 was $1.0 million and represented the gain on sale of leased railcars with a net book value of $5.5 million.

Operating Income (Loss)

Our consolidated operating income for the six months ended June 30, 2012 was $25.4 million, compared to an operating loss of $5.7 million for the six months ended June 30, 2011. Operating income for the Manufacturing segment was $37.9 million for the six months ended June 30, 2012 compared to $2.3 million for the six months ended June 30, 2011. The improvement in operating income for the Manufacturing segment reflects increased deliveries, higher revenue per railcar, gain on sale of railcars available for lease and improved utilization of our manufacturing capacity. Services segment operating income was $1.4 million for the six months ended June 30, 2012 compared to $2.3 million for the six months ended June 30, 2011. The decrease in Services segment operating income was primarily due to lower parts sales volume, higher operating costs for our repair business and an increase in selling, general and administrative expenses for the 2012 period compared to the 2011 period. Corporate costs were $13.9 million for the six months ended June 30, 2012 compared to $10.3 million for the six months ended June 30, 2011. The increase in Corporate costs was primarily due to increases in compensation and external services.

Interest Expense, Net

Interest expense, net (consisting of commitment fees on our revolving credit facility and letter of credit fees) was $0.2 million for the six months ended June 30, 2012 compared to $0.1 million for the six months ended June 30, 2011.

Income Taxes

The income tax provision was $9.9 million for the six months ended June 30, 2012, compared to an income tax benefit of $4.7 million for the six months ended June 30, 2011. The effective tax rates for the six months ended June 30, 2012 and 2011, were 39.3% and 81.1%, respectively. The effective tax rate for the six months ended June 30, 2012 was higher than the statutory U.S. federal income tax rate of 35% primarily due to a 4.6% blended state tax rate and other permanent items, partially offset by 1.9% for the impact of tax deductible goodwill. The effective tax rate for the six months ended June 30, 2011 was higher than the statutory U.S. federal income tax rate of 35% primarily due to the addition of the blended state tax rate and an increase for tax deductible goodwill. The impact of goodwill amortization provides additional tax benefit to the Company, increasing its effective tax rate in periods of loss and reducing its effective tax rate during periods of profitability.

Net Income (Loss) Attributable to FreightCar America

As a result of the foregoing, net income attributable to FreightCar America was $15.3 million for the six months ended June 30, 2012, reflecting an increase of $16.4 million from a net loss attributable to FreightCar America of $1.1 million for the six months ended June 30, 2011. For the six months ended June 30, 2012, our basic and diluted net income per share was $1.28, on basic and diluted shares outstanding of 11,927,992 and 11,992,808, respectively. For the six months ended June 30, 2011, our basic and diluted net loss per share was $0.09, on basic and diluted shares outstanding of 11,911,469.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity for the six months ended June 30, 2012 and 2011, were our cash and cash equivalent balances on hand and our revolving credit facility. On July 29, 2010, we entered into a $30.0 million senior secured revolving credit facility pursuant to a Loan and Security Agreement dated as of July 29, 2010 (the "Revolving Loan Agreement") among the Company and certain of its subsidiaries, as borrowers (collectively, the "Borrowers"), and Fifth Third Bank, as lender. The proceeds of the revolving credit facility can be used for general corporate purposes, including working capital. The Revolving Loan Agreement also contains a sub-facility for letters of credit not to exceed $20.0 million. As of each of June 30, 2012 and December 31, 2011, we had no borrowings or outstanding letters of credit under the revolving credit facility.

The Revolving Loan Agreement has a term ending on July 29, 2013 and revolving loans outstanding thereunder will bear interest at a rate of LIBOR plus an applicable margin of 2.50% or at prime, as selected by the Borrowers. We are required to pay a non-utilization fee of 0.35% on the unused portion of the revolving loan commitment. Borrowings under the Revolving Loan Agreement are secured by our accounts receivable, inventory and certain other assets, and borrowing availability is tied to a borrowing base of eligible accounts receivable and inventory. The Revolving Loan Agreement has both affirmative and negative covenants, including, without limitation, a minimum tangible net worth covenant and limitations on indebtedness, liens and investments. The minimum tangible net worth covenant effectively limits potential dividends to $67.8 million as of June 30, 2012. The Revolving Loan Agreement also provides for customary events of default. As of June 30, 2012, we had borrowing capacity of $30.0 million under the Revolving Loan Agreement and we were in compliance with all of the covenants contained in the agreement.

Our restricted cash balance was $17.0 million as of June 30, 2012 and $1.8 million as of December 31, 2011, and consisted of cash used to collateralize standby letters of credit with respect to purchase price payment guarantees and performance guarantees and to support our worker's compensation insurance claims. The standby letters of credit outstanding as of June 30, 2012 are scheduled to expire at various dates through December 2015. We expect to establish restricted cash balances in future periods to minimize bank fees related to standby letters of credit while maximizing our ability to borrow under the revolving credit facility.

As of June 30, 2012, the value of inventory on lease and railcars available for lease totaled $67.1 million. We may continue to offer railcars for lease to certain customers and pursue opportunities to sell leased railcars in our portfolio. Additional railcars available for lease may be funded by cash flows from operations or we may pursue a new credit facility or both, as we evaluate our liquidity and capital resources.

Based on our current level of operations and known changes in planned volume based on our backlog, we believe that our proceeds from operating cash flows and our cash balances, together with amounts available under our revolving credit facility, will be sufficient to meet our expected liquidity needs. 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 working capital, organic growth opportunities, including new plant and equipment and development of railcars, joint ventures, international expansion and acquisitions, and these capital requirements could be substantial. Management continuously evaluates manufacturing facility requirements based on market demand and may elect to make capital investments at higher levels in the future.

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. Benefits under our pension plans are now frozen and will not be impacted by increases due to future service. 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. As of December 31, 2011, our benefit obligation under our defined benefit pension plans and our postretirement benefit plan was $62.4 million and $65.1 million, respectively, which exceeded the fair value of plan assets by $14.1 million and $65.1 million, respectively. We made contributions of $1.6 million to our defined benefit pension plans during the first half of 2012 and expect to make approximately $2.6 million in total contributions to our defined benefit pension plans during 2012. Our defined benefit pension plans are in compliance with the minimum funding levels established in the Pension Protection Act of 2006. 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 made payments to our postretirement benefit plan of $2.5 million during the first half of 2012, and expect to make approximately $5.1 million in total payments to our postretirement benefit plan in 2012. We anticipate funding pension plan contributions and postretirement benefit plan payments with cash from operations and available cash.

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 June 30, 2012,
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
                                                                 2-3          4-5        After
  Contractual Obligations             Total        1 Year       Years        Years      5 Years
                                                           (In thousands)
  Operating leases                   $ 16,756     $  3,301     $  5,725     $ 2,644     $  5,086
  Material and component purchases     60,754       30,234       30,520          -            -

  Total                              $ 77,510     $ 33,535     $ 36,245     $ 2,644     $  5,086

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 $3.6 million related to a reserve for unrecognized tax benefits and accrued interest and penalties at June 30, 2012 because the timing of the payout of these amounts cannot be determined.

We are also required to make minimum contributions to our pension and postretirement welfare plans. See Note 13 to the unaudited condensed consolidated financial statements regarding our expected contributions to our pension plans and our expected postretirement welfare benefit payments for 2012.

Cash Flows

The following table summarizes our net cash provided by (used in) operating
activities, investing activities and financing activities for the six months
ended June 30, 2012 and 2011:



                                                   Six Months Ended
                                                       June 30,
                                                  2012          2011
                                                    (In thousands)
              Net cash provided by (used in):
              Operating activities              $ 14,872      $ (16,763 )
              Investing activities                (7,820 )        6,117
              Financing activities                (1,480 )          (65 )

              Total                             $  5,572      $ (10,711 )

Operating Activities. Our net cash provided by or used in operating activities reflects net income or loss adjusted for non-cash charges and changes in operating 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 payments to our suppliers. 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.

Our net cash provided by operating activities for the six months ended June 30, 2012 was $14.9 million compared to net cash used in operating activities of $16.8 million for the six months ended June 30, 2011. Net cash provided by operating activities for the six months ended June 30, 2012 includes our income from operations and increases in cash due to changes in account and contractual payables of $9.2 million, deferred income taxes of $8.9 million and accounts receivable of $2.9 million, which were partially offset by the cost of inventory on lease of $23.1 million. Net cash used in operating activities for the six . . .