Management's Discussion and Analysis of
Financial condition and Results of Operations

GENERAL
The Company completed the acquisition of Truck Components Inc. ("TCI") on August
23,  1995 and Bostrom  Seating,  Inc.  ("Bostrom")  on January  13,  1995.  Both
acquisitions  were  accounted for under the purchase  method of accounting  and,
accordingly,  their  operating  results were included in the Company's  reported
results from their respective acquisition dates. Such results have a significant
impact on the comparative discussions below.  Additionally,  the Company through
it's wholly owned subsidiary  Freight Car Services,  Inc. ("FCS")  completed the
purchase of the  Danville,  Illinois  facility and began  operations  in October
1995.

The Company's sales are affected to a significant  degree by the freight car and
Class 8 truck  markets.  Both the freight car and the Class 8 truck  markets are
subject to significant  fluctuations due to economic conditions,  changes in the
alternative  methods  of  transportation  and  other  factors.  There  can be no
assurance  that  fluctuations  in such markets will not have a material  adverse
effect on the results of operations or financial condition of the Company.

RESULTS OF OPERATIONS 
Years Ended December 31, 1996 and 1995 
Total  Revenue  Total  revenue in 1996  decreased  16.2% to $560.0  million from
$668.6  million  in 1995.  The total  revenue  decrease  of $108.6  million  was
primarily due to the decrease in freight car sales of $294.7  million (3,470 new
and  rebuilt  cars in 1996 vs 9,157  new and  rebuilt  cars in 1995)  and a $9.6
million  decrease in truck related sales volume at Bostrom.  The decreases  were
offset in part by the inclusion of TCI for all of 1996 versus  inclusion for the
partial year of 1995,  an increase of $195.7  million.  As of December 31, 1996,
the Company's  backlog of new and rebuilt freight cars was 774 compared to 1,204
new and rebuilt freight cars at December 31, 1995.

At December  31, 1996 the  Company had 1,067  freight  cars on lease and leasing
business  generated $4.5 million in revenue and $2.4 million in operating income
before a $1.4 million gain on the sale of leased freight cars for the year ended
1996 as compared to $2.6 million  revenue and $1.9 million  operating  income in
the prior year.

COST OF SALES-MANUFACTURING AND GROSS PROFIT
Cost of  sales-manufacturing  for 1996 as a percent of  manufacturing  sales was
85.0%,  compared to 91.3% in 1995.  Related  gross  profits were 15.0% and 8.7%,
respectively.  The  improvement  in gross  profit  resulted  primarily  from the
acquisition of TCI in August 1995. TCI has  historically  generated higher gross
profits than the freight car business.  Partially  mitigating  this increase was
the decrease of gross profit at JAC. JAC's gross profit  percentage for 1996 was
down from the prior year  approximately  1 percentage  point,  and the aggregate
dollar  gross  profit was down due to the  significant  decrease  in freight car
revenues mentioned above.

SELLING, GENERAL, ADMINISTRATIVE AND
AMORTIZATION EXPENSES
Selling, general and administrative expense as a percentage of total revenue was
8.3% and 4.2% in 1996 and 1995,  respectively.  The increase in selling, general
and administrative  expense is related to the acquisition and the integration of
TCI which has higher selling,  general and administrative levels as a percent of
revenue  compared to the freight car business,  and to increased MIS and product
development  costs at the  freight  car  operations.  Amortization  expense as a
percentage of total revenue was 1.8% and 1.0% for the years ended 1996 and 1995,
respectively.  The increase in  amortization  expense as a  percentage  of total
revenue is related to certain  intangible assets of TCI and the excess cost over
net assets acquired in the acquisition.

OPERATING INCOME
Operating  income was $30.4 million in 1996,  compared to $25.0 million in 1995.
The increase was primarily due to including the operating  income of TCI for all
of 1996 versus  inclusion for the partial year of 1995 more than  offsetting the
drop in operating income at JAC.

OTHER
Interest  expense,  net was $35.8  million in 1996  compared to $14.7 million in
1995.  Higher interest expense in 1996 resulted from borrowings under the Senior
Bank  Facilities  and the issuance of Notes to finance the  acquisition  of TCI,
1995.  In  addition,  JAIX  Leasing  had  increased  debt  levels to finance the
additional freight cars for the lease fleet.


                                       8
<PAGE>




Net loss and loss per share for 1996 were $5.4  million and $.55,  respectively,
compared  to net  income  and  earnings  per  share of $5.6  million  and  $.57,
respectively, for 1995.


YEARS ENDED DECEMBER 31, 1995 AND 1994 
TOTAL REVENUE  
Total revenue in 1995  increased  42.7% to $668.6 million from $468.5 million in
1994. The total revenue increase of $200.1 million was primarily  related to the
acquisition of TCI in August 1995 (58% of the increase),  and the acquisition of
Bostrom in January 1995 (30% of the  increase),  while  revenue from JAC and FCS
account for 12% of the increase,  collectively.  This increase resulted from the
start-up  of  operations  of FCS and a change in product mix at JAC to cars with
higher  selling  values,  offsetting  lower  production  (9,157 new and  rebuilt
freight cars in 1995 versus 10,707 new freight cars in 1994). As of December 31,
1995, the Company's backlog of new freight cars was 1,204 as compared with 7,180
on December 31, 1994.

At December 31, 1995 the Company had 600 freight cars on lease,  and the leasing
business  generated $2.6 million in revenue and $1.9 million in operating income
for the year ended 1995  compared  with $.5  million  revenue and $.3 million in
operating income in the prior year.

COST OF SALES-MANUFACTURING AND GROSS PROFT
Cost of  sales-manufacturing  for 1995 as a percent of  manufacturing  sales was
91.3%,  compared to 94.4% in 1994.  Related  gross  profits  were 8.7% and 5.6%,
respectively.  The  improvement  in gross  profit  resulted  primarily  from the
acquisitions  of  Bostrom  in  January  1995  and  TCI  in  August  1995,  which
historically  have generated higher gross profits than the freight car business.
Gross profits percentages were slightly lower at JAC in 1995 compared to 1994.

SELLING, GENERAL, ADMINISTRATIVE AND
AMORTIZATION EXPENSES
Selling,  general and  administrative  expense as a percentage  of total revenue
were 4.2% and 2.8% in 1995 and 1994,  respectively.  The  increase  in  selling,
general  and  administrative  expenses  is  related to the  acquisition  and the
integration  of  Bostrom  and  TCI,  which  have  higher  selling,  general  and
administrative  levels as a percent of revenue  compared to JAC. The increase in
amortization  expense  as a  percentage  of total  revenue is related to certain
intangible assets of TCI and Bostrom and excess cost over net assets acquired in
those acquisitions.

OPERATING INCOME
Operating income was $25.0 million in 1995,  compared with $9.7 million in 1994.
The increase was primarily due to the  acquisition of TCI in August 1995,  while
operating income at JAC in 1995 remained approximately the same as in 1994.

OTHER
Interest  expense,  net was $14.7  million in 1995  compared with $.3 million in
1994. Interest expense in 1995 resulted from increased borrowings to finance the
acquisition  of Bostrom in January 1995,  from  increased  borrowings  under the
Senior Bank  Facilities and the issuance of Notes to finance the  acquisition of
TCI and the refinancing of its debt in August 1995, as well as from JAIX Leasing
debt which was used to finance the addition of freight cars for the lease fleet.

Net  income  and  earnings  per  share  for 1995  were  $5.6  million  and $.57,
respectively,  compared  with net income and  earnings per share of $5.7 million
and $.58, respectively for 1994.

LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1996, the Company  provided cash from operations
of $36.4 million  compared with $52.1  million for 1995.  The Company  generated
$3.5 million of net cash from investing  activities  during 1996;  $18.1 million
from the sale of leased  freight  cars offset by $9.2  million  used for capital
expenditures and other, $5.4 million used for leased asset additions.  Cash used
for  financing  activities  was $27.0  million  for 1996  primarily  related  to
payments on term debt of $16.8  million and net decreases on in the JAIX Leasing
debt of $8.8 million.

The Company's freight car sales are characterized by large order sizes, specific
customer delivery schedules,  and related vendor receipts and payment schedules,
all of which can combine to create  significant  fluctuations in

                                       9
<PAGE>



working  capital   accounts  when  comparing  end  of  period   balances.   Such
fluctuations tend to be of short duration,  and the Company considers this to be
a normal part of its  operating  cycle which does not  significantly  impact its
financial flexibility and liquidity.

On  August  23,  1995,  in  conjunction  with  the  acquisition  of TCI  and the
refinancing  of the existing debt of the Company,  the Company and the Guarantor
Subsidiaries  entered into the $300 million  Senior Bank  Facilities  and issued
$100  million  of  Notes.  See  Notes  6 and  7 of  the  Consolidated  Financial
Statements for a description of the Senior Bank Facilities and the Notes.

As of December  31,  1996,  there was $183.3  million of term loans  outstanding
under the Senior  Bank  Facilities,  $100  million of Notes  outstanding  and no
borrowings  under the $100 million  revolving  credit line under the Senior Bank
Facilities.  Availability  under  the  Revolving  Loan  after  consideration  of
outstanding letters of credit of $17.6 million was $44.9 million.

Interest  payments on the Notes and interest and  principal  payments  under the
Senior Bank Facilities represent  significant cash requirements for the Company.
The Notes will require semiannual interest payments of approximately $6 million.
Borrowings  under the Senior Bank Facilities bear interest at floating rates and
require  interest  payments on varying  dates  depending  upon the interest rate
option  selected by the Company.  The $183.3 million of  outstanding  term loans
will require periodic principal payments through their maturities. See Note 6 of
the Consolidated Financial Statements.

The  Company  formed a leasing  business  in 1994 to lease  freight  cars.  This
leasing  division  was formed into a wholly  owned  subsidiary  JAIX  Leasing in
January 1995 and currently owns and has under  management 1,067 freight cars. In
May 1995,  JAIX Leasing  entered into a loan facility to finance its freight car
leasing activities.  In June 1996, this debt was refinanced with a $27.7 million
ten-year term loan. See Note 6 of the  Consolidated  Financial  Statements for a
description of this facility.  As of December 31, 1996,  there was $13.6 million
outstanding  under this facility.  In January 1997, JAIX Leasing sold 85 freight
cars generating  $4.5 million in cash and further  reducing JAIX Leasing debt by
$3.6 million.

The Company believes that the cash flow generated from its operations,  together
with amounts  available under the Revolving Loans,  should be sufficient to fund
its debt  service  requirements,  working  capital  needs,  anticipated  capital
expenditures and other operating expenses  (including  expenditures  required by
applicable  environmental laws and regulations).  The Company's future operating
performance  and  ability  to service  or  refinance  the Notes and to extend or
refinance  the  Senior  Bank  Facilities  will be  subject  to  future  economic
conditions  and to  financial,  business  and other  factors,  many of which are
beyond the Company's control.

As of December 31, 1996,  the  Company's  balance  sheet  included cash of $24.5
million.

ENVIRONMENTAL AND LEGAL MATTERS
The Company is subject to comprehensive and frequently  changing federal,  state
and local environmental laws and regulations,  and will incur additional capital
and  operating  costs in the future to comply with  currently  existing laws and
regulations,  new regulatory requirements arising from recently enacted statutes
and possible new statutory  enactments.  In addition to environmental  laws that
regulate the Company's  subsidiaries' ongoing operations,  the subsidiaries also
are  subject  to  environmental   remediation   liability.   Under  the  federal
Comprehensive  Environmental  Response,  Compensation and Liability Act (CERCLA)
and analogous state laws, the Company's  subsidiaries  may be liable as a result
of  the  release  or  threatened  release  of  hazardous   substances  into  the
environment.  The  Company's  subsidiaries  are  currently  involved  in several
matters relating to the investigation  and/or remediation of locations where the
subsidiaries have arranged for the disposal of foundry and other wastes.

Such matters  include  five  situations  in which the  Company,  through its TCI
subsidiaries  and their  predecessors,  have been  named or are  believed  to be
potentially  responsible  parties  (PRPs)  in the  contamination  of the  sites.
Additionally,  environmental  remediation  may be  required  at  two of the  TCI
facilities at which soil and ground water contamination has been identified. The
Company  believes  that it has  valid  claims  for  contractual  indemnification
against prior owners for certain of the investigatory and remedial costs at each
of the above mentioned sites.

                                       10
<PAGE>



The Company has been notified, however, by all contractual indemnitors that they
will not honor future claims for  indemnification.  Accordingly,  the Company is
litigating  indemnification  claims  and  there  is no  assurance  that  even if
successful  in any such  claims,  any  judgments  against the  indemnitors  will
ultimately be recoverable.  In addition,  the Company believes it is likely that
it has incurred  some  liability at various  sites for  activities  and disposal
following acquisition which would not in any event be covered by indemnification
by prior owners.

As of December 31, 1996, the Company has a $26.4 million environmental  reserve.
This reserve is based on current cost  estimates  and does not reduce  estimated
expenditures to net present value. The Company  currently  anticipates  spending
approximately  $500,000 per year for the next three years and  approximately  $1
million per year in years 2000 and 2001 for monitoring the various environmental
sites  associated  with  the  environmental  reserve,   including  attorney  and
consultant  costs for strategic  planning and  negotiations  with regulators and
other PRPs, and payment of remedial  investigation costs. The Company expects to
fund such  expenditures  with the cash flow  generated  from its  operations and
amounts  available under its Revolving  Loans.  These sites are generally in the
early investigatory stages of the remediation process and thus it is anticipated
that significant cash payments for remediation will not be incurred for at least
several years. After the evaluation and investigation  period, the investigation
and remediation costs will likely increase because the actual remediation of the
various  environmental  sites  associated  with the  environmental  reserve will
likely be under  way.  Any cash  expenditures  required  by the  Company  or its
subsidiaries to comply with applicable  environmental laws and/or to pay for any
remediation  efforts will not be reduced or otherwise  affected by the existence
of the environmental reserve. Due to the early stage of investigation of many of
the sites and potential  remediations  referred to above,  there are significant
uncertainties  as to waste  quantities  involved,  the  extent and timing of the
remediation which will be required, the range of acceptable solutions,  costs of
remediation and the number of PRPs  contributing to such costs.  Based on all of
the  information  presently  available  to it,  the  Company  believes  that the
environmental  reserve will be adequate to cover its future costs related to the
sites associated with the environmental  reserve,  and that any additional costs
will not have a material adverse effect on the financial condition or results of
operations  of the Company.  However,  the discovery of  additional  sites,  the
modification  of  existing  laws or  regulations,  the  imposition  of joint and
several  liability  under  CERCLA or the  uncertainties  referred to above could
result in such a material adverse effect.

FORWARD-LOOKING STATEMENTS
The foregoing  outlook  contains  forward-looking  statements  that are based on
current  expectations  and are  subject to a number of risks and  uncertainties.
Actual results could differ materially from current expectations due to a number
of factors,  including  general  economic  conditions;  competitive  factors and
pricing  pressures;  shifts  in  market  demand,  the  performance  and needs of
industries served by the Company's businesses; and the risks described from time
to time in the Company's Securities & Exchange Commission reports.

EFFECTS OF INFLATION
General price inflation has not had a material  impact on the Company's  results
of operations.

                                       11
<PAGE>




                        CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<S>                                                                    <C>         <C>          <C>


(In thousands, except per share data)

Years Ended December 31,                                                     1996        1995        1994
---------------------------------------------------------------------------------------------------------
Net manufacturing sales                                                 $ 555,510   $ 666,028   $ 468,070
Leasing revenue                                                             4,462       2,573         455
        Total revenue                                                     559,972     668,601     468,525
Cost of sales - manufacturing                                             472,054     608,328     442,020
Cost of leasing                                                             2,104         654         133
        Gross profit                                                       85,814      59,619      26,372

Selling, general and administrative expenses                               46,605      28,117      13,144
Amortization expense                                                       10,074       6,478       3,573
Gain on sale of leased freight cars                                        (1,354)         --          --
        Operating income                                                   30,389      25,024       9,655

Interest expense, net                                                      33,015      13,782         266
Interest expense - leasing                                                  2,821         920          --
        Income (loss) before income taxes                                  (5,447)     10,322       9,389
Provision (benefit) for income taxes                                          (76)      4,737       3,692
        Net income (loss)                                             $    (5,371)  $   5,585   $   5,697
---------------------------------------------------------------------------------------------------------

Income (loss) per common share:                                       $      (.55)  $     .57   $     .58
---------------------------------------------------------------------------------------------------------

Weighted average common and common
   equivalent shares outstanding                                            9,794       9,799       9,844
---------------------------------------------------------------------------------------------------------

</TABLE>


                                       12
<PAGE>




                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<S>                                                                               <C>         <C>

(In thousands, except per share data)

As of December 31,                                                                      1996        1995
---------------------------------------------------------------------------------------------------------
ASSETS:
     Cash and cash equivalents                                                     $  24,535   $  11,639
     Accounts receivable, net                                                         49,346      59,959
     Inventories                                                                      49,589      43,900
     Deferred income tax assets                                                       16,143      14,157
     Prepaid expenses and other current assets                                         3,217       8,778
Total current assets                                                                 142,830     138,433
     Property, plant and equipment, net                                              123,859     128,770
     Leasing business assets, net                                                     23,255      35,655
     Restricted cash                                                                     578       1,364
     Deferred financing costs, net                                                    13,099      15,110
     Intangible assets, net                                                          251,662     259,493
Total assets                                                                       $ 555,283   $ 578,825
========================================================================================================
LIABILITIES:
     Accounts payable                                                              $  43,325   $  39,647
     Accrued payroll and employee benefits                                            20,220      26,101
     Other current liabilities                                                        34,830      31,175
     Current maturities of long-term debt and capital lease                           17,236      16,813
Total current liabilities                                                            115,611     113,736
     Long-term debt and capital lease, less current maturities                       186,939     212,973
     Senior subordinated notes                                                       100,000     100,000
     Deferred income tax liabilities                                                  29,214      28,136
     Other long-term liabilities                                                      59,982      55,106
Total liabilities                                                                    491,746     509,951

SHAREHOLDERS' EQUITY:
     Preferred stock, $.01 par, 20,000 shares authorized, none outstanding                --          --
     Common stock, $.01 par, 201,000 shares authorized, 9,754 and 9,731
        issued and outstanding as of December 31, 1996 and 1995, respectively             98          98
     Paid-in capital                                                                  55,049      55,015
     Retained earnings                                                                 8,420      13,791
     Employee receivables for stock purchase                                             (30)        (30)
Total shareholders' equity                                                            63,537      68,874
Total liabilities and shareholders' equity                                         $ 555,283   $ 578,825
========================================================================================================

</TABLE>


See accompanying notes to the consolidated financial statements.
                                       13
<PAGE>




                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<S>                                                                    <C>          <C>          <C>

(In thousands)

Years Ended December 31,                                                     1996        1995        1994
---------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income (loss)                                                      $   (5,371)  $   5,585    $  5,697
Adjustments to reconcile net income (loss) to net cash
   provided by (used for) operating activities -
     Depreciation                                                          14,772       7,656       2,813
     Amortization                                                          14,498       8,235       3,532
     Deferred income tax expense (benefit)                                     58       2,563         (40)
     Provision for postretirement benefits                                  1,671       1,987       1,580
     Gain on sale of leased freight cars                                   (1,354)         --          --
                                                                           24,274      26,026      13,582
Change in operating assets and liabilities,
  net of effect of acquired businesses:                                                                   
     Accounts receivable                                                   10,613      26,689      (5,612)
     Inventories                                                           (5,689)     34,101     (30,112)
     Prepaid expenses and other current assets                             14,091       4,481         787
     Accounts payable                                                       3,677     (29,447)     15,872
     Accrued payroll and employee benefits                                 (5,177)     18,066         333
     Other assets and liabilities                                          (5,411)    (27,784)      4,004
Net cash provided by (used for) operating activities                       36,378      52,132      (1,146)

INVESTING ACTIVITIES:
     Capital expenditures                                                  (9,919)    (14,954)     (7,295)
     Leasing business asset additions                                      (5,438)    (31,377)     (4,842)
     Proceeds from sale of leased freight cars                             18,113          --          --
     Acquisition of TCI, less cash acquired                                    --    (266,081)         --
     Acquisition of Bostrom, less cash acquired                                --     (32,444)         --
     Change in restricted cash/other                                          786      (1,364)        201
Net cash provided by (used for) investing activities                        3,542    (346,210)    (11,936)

FINANCING ACTIVITIES:
     Payments of term loans and capital lease                             (16,812)        (46)         --
     Net (payments) borrowings of JAIX Leasing debt                        (8,799)     22,381          --
     Net (payments) borrowings under revolving loans                           --      (7,600)      7,600
     Issuance of long-term debt                                                --     305,300          --
     Proceeds from the issuance of common stock, net                           35          45         100
     Payment of deferred financing costs                                   (1,448)    (16,117)         --
Net cash provided by (used for) financing activities                      (27,024)    303,963       7,700
Net increase (decrease) in cash and cash equivalents                       12,896       9,885      (5,382)
Cash and cash equivalents, beginning of year                               11,639       1,754       7,136
Cash and cash equivalents, end of year                                  $  24,535   $  11,639   $   1,754

</TABLE>

See accompanying notes to the consolidated financial statements.
                                       14
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.  ORGANIZATION
-------------------------------------------------------------------------------


Johnstown America Industries,  Inc. (JAII) has three operating groups within the
transportation  industry:  truck components and assemblies operations, a leading
manufacturer  of wheel end components,  seating,  steerable drive axles and gear
boxes for the  heavy-duty  truck  industry;  iron castings  operations,  a major
producer of complex iron  castings for a wide range of  industries;  and freight
car  operations,  a leading  manufacturer  and lessor of new and rebuilt freight
cars  used  for  hauling  coal,   intermodal   containers,   highway   trailers,
agricultural and mining products.

On October 28,  1991,  Johnstown  America  Corporation,  (JAC),  wholly owned by
Johnstown  America  Industries,  Inc., a Delaware  corporation,  consummated the
purchase of the former Freight Car Division of Bethlehem Steel Corporation.

JAII  completed  the  acquisition  of  Truck   Components  Inc.  (TCI)  and  its
subsidiaries (Gunite Corporation, Brillion Iron Works, Inc. and Fabco Automotive
Corporation) on August 23, 1995, and Bostrom Seating,  Inc. (Bostrom) on January
13, 1995.  Both  acquisitions  were  accounted for under the purchase  method of
accounting and accordingly,  the operating results of these acquired  businesses
are  included  herein  from  their  respective  acquisition  dates.   Operations
commenced on October 2, 1995, at the Freight Car Services, Inc. facility.


NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------------------------------


The accompanying  consolidated  financial  statements reflect the application of
the following significant accounting policies:

PRINCIPLES OF CONSOLIDATION
The  consolidated  financial  statements  include  the  accounts of JAII and its
wholly  owned  subsidiaries.   All  significant  intercompany  transactions  and
accounts  have  been  eliminated  in  the  accompanying  consolidated  financial
statements.

CASH EQUIVALENTS
The Company  considers all short-term  investments  with original  maturities of
three months or less when acquired to be cash equivalents.

INVENTORIES
Inventories are stated at the lower of cost or market. The cost of 53 % and 47 %
of the Company's inventories as of December 31, 1996 and 1995, respectively, was
determined  on the  first-in,  first-out  (FIFO)  method,  with  the cost of the
remaining  inventories,  representing  certain  inventories  at TCI and Bostrom,
determined on the last-in,  last-out method. Had all inventories been determined
on the FIFO method at December  31, 1996 and 1995,  the  reported  value of such
inventories   would  have  been  increased  by  $1.0  million  and  $.1  million
respectively.

PROPERTY, PLANT AND EQUIPMENT
Property,  plant and equipment is stated at cost less accumulated  depreciation.
The  cost of  property,  plant  and  equipment  acquired  as part of a  business
acquisition  represents the fair market value of such assets at the  acquisition
date typically as determined by independent appraisal.  Depreciation is provided
using the  straight-line  method by making  periodic  charges to income over the
estimated useful lives of the assets, which are as follows:

-------------------------------------------------------------------------------

Buildings and improvements                                           10-40 years
Machinery and equipment                                               3-12 years
-------------------------------------------------------------------------------

Property,  plant and  equipment  under  capital  leases are  amortized  over the
shorter of the estimated useful life of the asset or the term of the lease.

Maintenance  and  repairs  are  charged  to  expense as  incurred,  while  major
replacements  and  improvements  are  capitalized.   The  cost  and  accumulated
depreciation of items sold or retired are removed from the property accounts and
any gain or loss is recorded currently in the consolidated statements of income.

RESEARCH AND DEVELOPMENT
Costs associated with research and development are expensed as incurred.

LEASING BUSINESS ASSETS
Leasing business assets,  which primarily consist of freight cars, are stated at
cost, which is the fully absorbed cost for those assets  self-constructed by the
Company, less accumulated depreciation. Freight cars are being depreciated using
the straight-line method over the estimated useful life of 20-30 years.


                                       15
<PAGE>



INTANGIBLE ASSETS
The excess of purchase costs over amounts  allocated to identifiable  assets and
liabilities of businesses  acquired (goodwill) is amortized on the straight-line
method over 40 years.  Should events or  circumstances  occur  subsequent to the
acquisition  of a business  which bring into  question the  realizable  value or
impairment  of the related  goodwill,  the Company will  evaluate the  remaining
useful  life and  balance of  goodwill  and make  appropriate  adjustments.  The
Company's  principle   considerations  in  determining  impairment  include  the
strategic  benefit to the  Company of the  particular  business  as  measured by
undiscounted current and expected future operating cash flows of that particular
business.

Other  intangible  assets are amortized on the  straight-line  method over their
estimated useful lives, which are as follows:

-------------------------------------------------------------------------------

    Trademarks                                                          40 years
    Technologies                                                     13-40 years
    Patents                                                              8 years
    Noncompete agreement                                                 5 years
    Organization costs                                                   5 years
-------------------------------------------------------------------------------


ENVIRONMENTAL RESERVES
The Company is subject to comprehensive and frequently  changing federal,  state
and local environmental laws and regulations,  and will incur additional capital
and  operating  costs in the future to comply with  currently  existing laws and
regulations,  new regulatory requirements arising from recently enacted statutes
and possible new statutory  enactments.  In addition to environmental  laws that
regulate  the  Company's  ongoing  operations,  the  Company is also  subject to
environmental  remediation liability.  It is the Company's policy to provide and
accrue for the estimated  cost of  environmental  matters,  on a  non-discounted
basis,  when it is probable that a liability has been incurred and the amount of
the liability can be reasonably estimated.  Such provisions and accruals exclude
claims for recoveries from insurance carriers or other third parties.  

Statement of Position (SOP) 96-1,  "Environmental  Remediation  Liabilities" was
issued in October 1996 and will be adopted by the Company in 1997.  This new SOP
provides  authoritative  guidance on specific accounting issues that are present
in the  recognition,  measurement  and disclosure of  environmental  remediation
liabilities.  Management  does not believe that the impact,  if any, of adopting
this SOP will have a material  effect on the  Company's  financial  position  or
results of operations.

INCOME TAXES
The Company  provides for deferred  income taxes on differences  that arise when
items are reported for  financial  statement  purposes in years  different  from
those for income  tax  reporting  purposes  in  conformance  with  Statement  of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."

REVENUE RECOGNITION
Revenues on new and rebuilt freight cars are recognized when individual cars are
completed  and  accepted by the  customer's  inspector.  Revenue from leasing is
recognized  ratably during the lease term. All other revenue is recognized  when
the products are shipped.

USE OF ESTIMATES
The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates

NEW ACCOUNTING PRONOUNCEMENTS
SFAS No.  121,  "Accounting  for the  Impairment  of  LongLived  Assets  and for
Long-Lived  Assets to be Disposed  Of," was issued in March 1995 and was adopted
by the Company in 1996. This new pronouncement  establishes standards on when to
review  long-lived  assets  and  certain  identifiable   intangible  assets  for
impairment and how to measure that impairment. The adoption of this standard had
an  immaterial  effect  on the  Company's  financial  position  and  results  of
operations.  SFAS No. 123, "Accounting for Stock-Based Compensation," was issued
in October 1995. This new  pronouncement  establishes  financial  accounting and
reporting  standards for stockbased  employee  compensation plans and requires a
fair value based method to determine  the  compensation  cost of such plans.  As
allowed  by the  standard,  the  Company  has  provided  supplemental  pro forma
disclosure of the effect of such adoption in Note 10.

RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts to conform to the
current year presentation.

                                       16
<PAGE>



NOTE 3.  ACQUISITIONS
-------------------------------------------------------------------------------


BOSTROM SEATING INC.
On January 13, 1995, the Company acquired Bostrom.  The total purchase price was
approximately  $32.4 million and was funded by the Company's  previous borrowing
facility.

FREIGHT CAR SERVICES, INC.-DANVILLE FACILITY
On January 27, 1995,  the Company  purchased a freight car rebuilding and repair
facility in Danville,  Illinois for $2.5 million and spent additional capital of
$2.6 million through 1996 for  refurbishment.  The Company started operations at
this facility in October 1995.

TRUCK COMPONENTS, INC.
On August 23, 1995, the Company  completed the  acquisition of TCI,  whereby the
Company acquired all outstanding shares of common stock of TCI (including shares
subject to options) for a cash purchase price of approximately $166 million. The
Company also made a tender offer for the $82 million of TCI's outstanding senior
notes and  purchased  such notes for $94  million.  The  acquisition  and tender
offer,  as well as the repayment of the  Company's and TCI's  existing bank debt
(excluding  the JAIX Leasing  facility)  and the payment of various  transaction
fees and expenses were financed by borrowings  under the Senior Bank  Facilities
and the  proceeds  of the  issuance  of the  Notes  (see  Notes 6 & 7).  Certain
transactions  related to the  acquisition  resulted  in  significant  income tax
refunds for TCI which were reflected as prepaid expenses and other assets in the
accompanying balance sheet as of December 31, 1995 and were collected in 1996.

The Bostrom and TCI  acquisitions  were accounted for as purchases for financial
reporting purposes. Accordingly,  certain assets and liabilities of the acquired
companies  were recorded at estimated  fair values as of the  acquisition  date,
based on  management's  best  judgement and available  information  at the time.
Changes  to the  original  estimates,  some of which  were made in 1996 were not
material.

The  operating  results of the  acquired  companies  have been  included  in the
Company's  reported  results of  operations  from their  respective  acquisition
dates.

The Company's pro forma  unaudited  consolidated  results of operations  for the
years ended December 31, 1995 and 1994 were prepared as though the  acquisitions
of Bostrom and TCI and the related financing transactions occurred on January 1,
of the applicable year. Pro forma data is are as follows:

(In thousands, except per share data)
--------------------------------------------------------------------------------
                                                                 1995       1994
--------------------------------------------------------------------------------
Total revenues                                              $ 900,924  $ 837,983
Gross profit                                                  108,976    102.138
Net income                                                     10,068      7,617
Net income per share                                        $    1.03  $    0.77
--------------------------------------------------------------------------------


The pro forma operating results include each acquiree's  pre-acquisition results
of operations for the indicated years with  adjustments to reflect  amortization
of excess cost over net assets acquired and other identified  intangible assets,
additional  depreciation  on the increase to fair market value of fixed  assets,
interest  expense on the  acquisition  borrowings and the effect of income taxes
thereon. The pro forma information given above does not purport to be indicative
of the results that  actually  would have been obtained if the  operations  were
combined during the periods  presented and is not intended to be a projection of
future results or trends.


NOTE 4.  DETAIL OF CERTAIN ASSETS AND LIABILITIES
--------------------------------------------------------------------------------


ALLOWANCE FOR DOUBTFUL ACCOUNTS
(In thousands)
<TABLE>
<S>                                                                          <C>          <C>

Years Ended December 31,                                                            1996            1995
--------------------------------------------------------------------------------------------------------
Balance at beginning of year                                                  $    1,690       $      --
     Provision for doubtful accounts                                                 538              60
     Net write-offs                                                                 (345)             --
     Allowances for doubtful accounts from acquired businesses                        --           1,630
Balance at end of year                                                        $    1,883       $   1,690
--------------------------------------------------------------------------------------------------------

                                       17
<PAGE>


INVENTORIES
(In thousands)

As of December 31,                                                                  1996            1995
--------------------------------------------------------------------------------------------------------
     Raw materials and purchased components                                   $   10,289      $   14,287
     Work in progress and finished goods                                          39,300          29,613
Inventories                                                                   $   49,589      $   43,900
--------------------------------------------------------------------------------------------------------



PROPERTY, PLANT AND EQUIPMENT
(In thousands)

As of December 31,                                                                  1996            1995
--------------------------------------------------------------------------------------------------------
     Land                                                                     $    4,466     $     4,144
     Buildings and improvements                                                   26,310          24,665
     Machinery and equipment                                                     114,820         108,953
     Construction in progress                                                      4,722           4,176
                                                                                 150,318         141,938
     Accumulated depreciation                                                     26,459          13,168
Property, plant and equipment, net                                            $  123,859     $   128,770
--------------------------------------------------------------------------------------------------------



LEASING BUSINESS ASSETS
(In thousands)

As of December 31,                                                                  1996            1995
--------------------------------------------------------------------------------------------------------
     Leasing business assets                                                  $   23,884     $    36,080
     Accumulated depreciation                                                        629             425
Leasing business assets, net                                                  $   23,255     $    35,655
--------------------------------------------------------------------------------------------------------

</TABLE>
<TABLE>
<S>                                              <C>        <C>                <C>              <C>


INTANGIBLE ASSETS
(In thousands)
--------------------------------------------------------------------------------------------------------
                                                 Original     Accumulated               Net Balance
As of December 31, 1996                              Cost    Amortization           1996            1995
--------------------------------------------------------------------------------------------------------
     Excess cost over net assets  acquired      $ 204,520       $   7,955      $ 196,565       $ 199,470
     Trademarks                                    26,988             931         26,057          26,755
     Technologies                                  20,722           1,094         19,628          20,448
     Patents                                       17,278           8,217          9,061          10,891
     Noncompete agreement                           8,625           8,625             --           1,437
     Organization costs                               742             391            351             492
Intangible assets                               $ 278,875        $ 27,213      $ 251,662       $ 259,493
--------------------------------------------------------------------------------------------------------
</TABLE>
                                       18
<PAGE>
<TABLE>
<S>                                                                          <C>             <C>

OTHER CURRENT LIABILITIES
(In thousands)

As of December 31,                                                                  1996            1995
--------------------------------------------------------------------------------------------------------
     Accrued interest                                                         $    7,039     $     6,212
     Accrued workers' compensation                                                 5,456           5,875
     Current portion of postretirement
       and pension benefit reserves                                                3,536           4,576
     Accrued warranty                                                              4,090           3,810
     Other                                                                        14,709          10,702
Other current liabilities                                                     $   34,830      $   31,175
--------------------------------------------------------------------------------------------------------



OTHER LONG-TERM LIABILITIES
(In thousands)

As of December 31,                                                                  1996            1995
--------------------------------------------------------------------------------------------------------
     Postretirement and pension benefit reserves                              $   29,414      $   28,676
     Environmental reserves                                                       25,568          24,290
     Other                                                                         5,000           2,140
Other long-term liabilities                                                   $   59,982      $   55,106
--------------------------------------------------------------------------------------------------------

</TABLE>



NOTE 5.  SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------

<TABLE>
<S>                                                    <C>        <C>      <C>             <C>        <C>           <C>

(In thousands)

                                                         Common   Paid-in     Warrants     Retained       Employee
                                                          Stock   Capital  Outstanding     Earnings    Receivables      Total
------------------------------------------------------ ----------------------------------------------------------------------
Balance-December 31, 1993                              $    93   $ 53,986      $   938    $   2,509      $   (291)  $  57,235
     Collection of employee receivables                     --         --           --           --           201         201
     Options exercised                                       1         97           --           --            --          98
     Warrants exercised                                      4        937         (938)          --            --           3
     Net income for year                                    --         --           --        5,697            --       5,697
-----------------------------------------------------------------------------------------------------------------------------
Balance-December 31, 1994                                   98     55,020           --        8,206           (90)     63,234
     Collection of employee receivables                     --         --           --           --            10          10
     Options exercised                                      --         45           --           --            --          45
     Stock subscription cancellation                        --        (50)          --           --            50          --
     Net income for year                                    --         --           --        5,585            --       5,585
-----------------------------------------------------------------------------------------------------------------------------
Balance-December 31, 1995                                   98     55,015           --       13,791           (30)     68,874
     Options exercised                                      --         34           --           --            --          34
     Net loss for year                                      --         --           --       (5,371)           --      (5,371)
-----------------------------------------------------------------------------------------------------------------------------
Balance-December 31, 1996                              $    98  $  55,049      $    --    $   8,420      $    (30)  $  63,537
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                       19
<PAGE>


COMMON AND PREFERRED STOCK
The  Company  has  authorized  200,000,000  shares  of  Common  Stock  (voting),
1,000,000 shares of Class B Common Stock  (non-voting) and 20,000,000  shares of
preferred stock. No Class B Common Stock or preferred stock has been issued.

In October  1995,  the Board of Directors of the Company  adopted a  Shareholder
Rights Plan and declared a dividend of one right ("Right") for each  outstanding
share of the Company's  common stock held by  shareholders  of record on October
16,  1995.  When  exercisable,  each Right  entitles  shareholders  of record to
purchase  from the  Company  one  one-thousandth  of a share of  Series A Junior
Participating Preferred Stock at an exercise price of $32.00, subject to certain
adjustments. The Company authorized 20,000 shares of such stock pursuant to this
plan. The Rights will become  exercisable,  and will trade  separately  from the
common  stock,  only if a person or group  acquires 15% or more of the Company's
outstanding  common  stock or  commences a tender or  exchange  offer that would
result in that person or group owning 15% or more of the  Company's  outstanding
common stock.  Subsequently,  upon the occurrence of certain events,  holders of
Rights will be entitled to purchase common stock of the Company or a third-party
acquiror  at an amount  equal to twice the  Right's  exercise  price.  Until the
Rights become  exercisable,  they may be redeemed at the  Company's  option at a
price of one cent per Right. The Rights expire on October 4, 2005.



NOTE 6.  LONG-TERM DEBT
--------------------------------------------------------------------------------


Long-term debt consisted of the following:
(In thousands)

As of December 31                                               1996       1995
--------------------------------------------------------------------------------
     Revolving Loan                                       $       --  $      --
     Tranche A Term Loan                                      86,670    100,000
     Tranche B Term Loan                                      96,670    100,000
Total Senior Bank Facilities                                 183,340    200,000
     Industrial Revenue Bond                                   5,300      5,300
     Capital lease                                             1,953      2,105
     JAIX Leasing debt                                        13,582     22,381
--------------------------------------------------------------------------------
Total debt                                                   204,175    229,786
     Current maturities                                      (17,236)   (16,813)
--------------------------------------------------------------------------------
Long-term debt                                            $  186,939  $ 212,973
--------------------------------------------------------------------------------


Maturities of long-term debt as of December 31, 1996 are as follows:

(In thousands)
--------------------------------------------------------------------------------

     1997                                                            $    17,236
     1998                                                                 20,623
     1999                                                                 27,347
     2000                                                                 34,087
     2001                                                                 34,012
     Thereafter                                                      $    70,870
--------------------------------------------------------------------------------


SENIOR BANK FACILITIES
The Company entered into a credit  facility ( Senior Bank  Facilities) on August
23,  1995,  in  conjunction   with  the  acquisition  of  TCI  and  the  related
transactions described in Note 3. The Revolving Loans portion of the Senior Bank
Facilities provides for up to $100 million of outstanding borrowings and letters
of credit, limited by the level of eligible accounts receivable and inventories.
As  of  December  31,  1996,  availability  under  the  Revolving  Loans,  after
consideration  of  outstanding  letters  of credit of $17.6  million,  was $44.9
million.
                                       20
<PAGE>


At the Company's election,  interest rates per annum for the Revolving Loans and
Tranche A Term Loan are fluctuating  rates of interest  measured by reference to
either (a) an adjusted London  inter-bank  offered rate (LIBOR) plus a borrowing
margin or (b) an  alternate  base  rate  (ABR)  plus a  borrowing  margin.  Such
borrowing  margins  shall  range  between  1.50% and  2.50% for LIBOR  loans and
between  .50% and 1.50% for ABR loans,  fluctuating  within  each range in 0.25%
increments based on the Company achieving certain  financial  results.  Interest
rates per annum  applicable  to Tranche B Term Loans are either (a) LIBOR plus a
margin of 3.00% or (b) ABR plus 2.00%.  Additionally,  various  fees  related to
unused  commitments,  letters of credit and  administration  of the facility are
incurred by the Company. As of December 31, 1996, and 1995, the weighted average
interest  rate of all  outstanding  loans under the Senior Bank  Facilities  was
9.21% and 9.40%,  respectively.  Borrowings under the Senior Bank Facilities are
guaranteed  by each of the Company's  subsidiaries  other than JAIX Leasing (the
Guarantor  Subsidiaries)  and are secured by the assets and stock of the Company
and its Guarantor Subsidiaries.

The term loans under the Senior Bank Facilities  began  amortizing  quarterly on
March 31, 1996. The Tranche A Term Loan and the Revolving  Loans mature on March
31, 2002 and the Tranche B Term Loan matures on March 31, 2003.

The Senior Bank Facilities contain various financial covenants including capital
expenditure  limitations,  minimum  leverage  and interest  coverage  ratios and
minimum  net  worth,  and also  restrict  the  Company  from  paying  dividends,
repurchasing   common   stock  and  making   other   distributions   in  certain
circumstances.

INDUSTRIAL REVENUE BOND
The Company,  through its wholly owned subsidiary,  Freight Car Services,  Inc.,
issued an  Industrial  Revenue Bond for $5.3 million  which bears  interest at a
variable  rate (4.5% as of December 31, 1996) and can be redeemed by the Company
at any time.  The bonds are  secured by a letter of credit  issued by  Johnstown
America  Industries,  Inc. The bonds have no amortization and mature on December
1, 2010.  The bonds are also subject to a weekly "put"  provision by the holders
of the bonds.  In the event that any or all of the bonds are put to the  Company
under the  provision,  the Company would  effectively  refinance such bonds with
additional  borrowings  under the  Revolving  Loans  portion of the Senior  Bank
Facilities.

In connection with the Industrial  Revenue Bond, the Company has restricted cash
at December 31, 1996 of $.6 million from the initial  proceeds of $5.3  million.
The  restricted  cash  is  held  in  trust  and  will  be  used  for  additional
improvements and expansion of the Freight Car Services Inc., Danville facility.

JAIX LEASING DEBT
On May 12, 1995, JAIX Leasing entered into a three-year term loan agreement.  On
June 14,  1996,  JAIX  Leasing  refinanced  this debt with a $27.7  million  (as
amended)  ten-year term loan which bears interest at an average interest rate of
9.32%.  At December 31, 1996, the balance of this debt after scheduled and other
prepayments  was  $13.6  million.  This  debt is  secured  the by  JAIX  Leasing
underlying lease and assets and contains various covenants.

OTHER
During 1996 and 1995, the Company  entered into various  interest rate contracts
to fix a portion of the cost of its variable rate Senior Bank Facilities.  These
contracts  limit the  effect  of market  fluctuations  on the  interest  cost of
floating rate debt.  The notional  principal  amounts  outstanding  covering the
current  period on the interest rate contracts was $140 million and $165 million
as of December 31, 1996 and 1995,  respectively.  The fixed rates of interest on
these  contracts  ranged  from  5.98% to 6.32%  (plus the  applicable  borrowing
margin) as of December 31, 1996 and 1995, respectively.  The maturities on these
contracts  range from May 1997,  through August 1998. The impact of fixed versus
variable  interest  rates is recorded as  incurred,  as a component  of interest
expenses. Costs associated with obtaining the Senior Bank Facilities, the Senior
Subordinated Notes described in Note 7 and other indebtedness aggregate to $17.2
million.  Such costs are amortized over the term of the related debt. Previously
deferred  financing  costs,  which  were not  material,  were  written  off when
proceeds from the Senior Bank  Facilities  were used to retire the related debt.
Amortization  of  deferred  financing  costs  amounted  to $3.2  million and $.9
million  for the years ended  December  31,  1996 and 1995,  respectively.  Such
amortization  was not  material  in 1994.  As of  December  31,  1996 and  1995,
accumulated  amortization  of such  costs  was  $4.1  million  and $.9  million,
respectively.

                                       21
<PAGE>


NOTE 7.  SENIOR SUBORDINATED NOTES
--------------------------------------------------------------------------------

In conjunction  with the  acquisition of TCI, the Company issued $100 million of
Senior Subordinated Notes (the Notes) which are due August 15, 2005. These Notes
have a interest  rate of 11.75% per annum and are  guaranteed  on an  unsecured,
senior   subordinated   joint  and  several  basis  by  each  of  the  Guarantor
Subsidiaries.  Pursuant to the settlement of an interest rate contract in effect
when the Notes were issued,  the Company  realized a $2.6 million gain upon such
issuance.  The gain is being amortized as an offset to interest expense over the
term of the Notes.  The Notes have  customary  restrictive  covenants  including
restrictions on incurrence of additional indebtedness,  payment of dividends and
redemption of capital  stock.  The Notes are  subordinated  to all  indebtedness
under the Senior Bank Facilities and cross-default  provisions do exist.  Except
in  certain  limited  circumstances,  the  Notes  are not  subject  to  optional
redemption by the Company prior to August 15, 2000,  and  thereafter are subject
to optional redemption by the Company at declining redemption premiums. Upon the
occurrence of a change in control (as defined), the Company is required to offer
to repurchase the Notes at a price equal to 101% of the principal amount thereof
plus accrued interest.

The Company's future  operating  performance and ability to service or refinance
the Notes and to extend or refinance the Senior Bank  Facilities will be subject
to future economic conditions and to financial, business and other factors, many
of which are beyond the Company's control.


NOTE 8.  EMPLOYEE BENEFIT PLANS
--------------------------------------------------------------------------------

PENSIONS BENEFITS
Certain of the Company's  subsidiaries  have  qualified,  defined  benefit plans
covering  substantially  all of their  employees.  Company  contributions to the
plans were made based  upon the  minimum  amounts  required  under the  Employee
Retirement  Income  Security  Act  (ERISA).   The  plans'  assets  are  held  by
independent   trustees  and  consist   primarily  of  equity  and  fixed  income
securities.

In  conjunction  with the  purchase  of the freight  car  business,  the accrued
pension benefits for employees of the freight car business for service up to the
acquisition  date remain the  responsibility  of  Bethlehem  Steel.  The Company
initiated new pension plans for service subsequent to the acquisition date which
essentially  provide  benefits  similar  to  the  former  plans.  Following  the
acquisition  of TCI,  certain  TCI plans were  frozen and were  replaced  with a
defined contribution plan.

The following table summarizes total pension expense:
<TABLE>
<S>                                                                   <C>          <C>           <C>

(In thousands)

Years Ended December 31,                                                     1996        1995       1994
--------------------------------------------------------------------------------------------------------
     Current service cost                                              $    2,189   $    1,68   $  1,487
     Interest cost on projected benefit obligation                          2,173       1,714        789
     Expected return on assets                                            (2,143)     (1,896)       (375)
     Amortization of unrecognized gains and losses                          1,208       1,571        140
Net pension cost                                                       $    3,427   $   3,070   $  2,041
--------------------------------------------------------------------------------------------------------

</TABLE>
                                       22
<PAGE>


The following table sets forth the plans' funded status:
<TABLE>
<S>                                                                               <C>           <C>

(In thousands)

As of December 31,                                                                       1996        1995
---------------------------------------------------------------------------------------------------------
     Vested benefits                                                               $   20,508   $  17,658
     Nonvested benefits                                                                 3,380       5,006
Accumulated benefits obligation                                                        23,888      22,664
     Effect of projected future compensation levels                                     8,256      11,071
---------------------------------------------------------------------------------------------------------
Projected benefits obligation                                                          32,144      33,735
     Plan assets at fair value                                                         20,311      14,177
---------------------------------------------------------------------------------------------------------
Projected benefits obligation in excess of plan assets                                 11,833      19,558
     Unrecognized net (loss) gain                                                       2,569      (3,739)
     Unrecognized prior service cost                                                   (5,298)     (5,673)
---------------------------------------------------------------------------------------------------------
Net pension reserves recorded in the accompanying                                   $   9,104   $  10,146
   balance sheets
---------------------------------------------------------------------------------------------------------


Actuarial assumptions used in developing the above data were:                            1996        1995
---------------------------------------------------------------------------------------------------------
     Discount rate                                                                      7.75%       7.50%
     Rate of expected return on plan assets                                             9.00%       9.00%
     Rate of increases in compensation                                             3.00-4.00%  4.00-6.00%
---------------------------------------------------------------------------------------------------------

</TABLE>


DEFINDED CONTRIBUTION PLANS
Certain  of  the  Company's   subsidiaries  also  maintain  qualified,   defined
contribution  plans which provide  benefits to its salaried  employees  based on
employee  contributions,   years  of  service,   employee  earnings  or  certain
subsidiary earnings, with discretionary contributions allowed. Expenses relating
to these plans were $3.1  million,  $2.4  million and $1.6 million for the years
ended December 31, 1996, 1995 and 1994, respectively.

POSTRETIREMENT BENEFITS
The Company  provides  health care  benefits  for  certain  salaried  and hourly
retired  employees.  Employees  may become  eligible for health care benefits if
they  retire  after  attaining  specified  age and service  requirements.  These
benefits  are  subject  to   deductibles,   co-payment   provisions   and  other
limitations.

In connection  with the purchase of the freight car business,  the expected cost
of  postretirement  benefits  of  employees  over  age 43 at the  purchase  date
remained the  responsibility  of Bethlehem Steel.  Costs of benefits relating to
current service are expensed currently.


The following table summarizes postretirement benefits expense:
<TABLE>
<S>                                                                  <C>           <C>          <C>

(in thousands)

Years Ended December 31,                                                     1996        1995        1994
---------------------------------------------------------------------------------------------------------
     Current service cost                                              $       85    $  1,043    $    998
     Interest cost on accumulated benefit obligation                        1,340       1,001         582
     Amortization of unrecognized gains                                      (183)        (57)         --
Net postretirement benefit costs                                       $   2 ,011    $  1,987    $  1,580
---------------------------------------------------------------------------------------------------------

</TABLE>
                                       23
<PAGE>

The following table sets forth the plans funded status:

(in thousands)

As of December 31,                                              1996        1995
--------------------------------------------------------------------------------
     Retirees                                              $   6,308   $   6,329
     Other fully eligible plan participants                    4,828       3,208
     Other active plan participants                            7,712      11,650
Accumulated benefits obligation                            $  18,848      21,187
     Unrecognized net gain                                     4,998       1,919
--------------------------------------------------------------------------------
Net postretirement benefits reserve recorded in the
  accompanying balance sheets                              $  23,846   $  23,106
--------------------------------------------------------------------------------

The discount  rates used in developing the above data ranged from 7.50% to 8.00%
in 1996, from 7.25% to 7.75% in 1995 and was 9.00% in 1994.

Medical trend rate  assumptions were 5.25% to 9.00% for 1996, 8.00% to 9.50% for
1995 and 10.25% in 1994,  incrementally decreasing to and remaining at 5.00% for
2001 and later.  Were the assumed  medical trend rates to be increased by 1% for
each future year, the effect of this change would be to increase the accumulated
postretirement benefit by $4.0 million and $4.4 million at December 31, 1996 and
1995,  respectively,  and the aggregate  service and interest cost components by
$.6 million,  $.7 million and $.6 million for the years ended December 31, 1996,
1995 and 1994, respectively.

The Company does not offer any other significant post employment benefits.



NOTE 9.  INCOME TAXES
--------------------------------------------------------------------------------

The  provision   (benefit)  for  income  taxes  includes  current  and  deferred
components as follows:

(In thousands)

Years Ended December 31,                       1996         1995        1994
--------------------------------------------------------------------------------
Current taxes:
     Federal                             $       --   $    1,853  $    2,929
     State                                     (134)         321         803
                                               (134)       2,174       3,732
--------------------------------------------------------------------------------
Deferred taxes:
     Federal                                   (444)       2,227         (54)
     State                                      502          336          14
                                                 58        2,563         (40)
Provision (benefit) for income taxes     $      (76)  $    4,737  $     3,692
--------------------------------------------------------------------------------

                                       24
<PAGE>

The provision  (benefit)  for income taxes differs from the amounts  computed by
applying the federal statutory rate as follows:


Years Ended December 31,                        1996        1995        1994
--------------------------------------------------------------------------------
Income taxes at federal statutory rate       (34.0)%       34.0%       34.0%
State income taxes, net of federal benefit    (0.1)         4.2         4.3
Nondeductible amortization expense            32.7          7.2         0.7
Other, net                                      --          0.5         0.3
--------------------------------------------------------------------------------
Effective income tax rate                     (1.4)%       45.9%       39.3%
--------------------------------------------------------------------------------



Components of deferred tax benefits (obligations) consist of the follows:

<TABLE>
<S>                                                             <C>          <C>            <C>        <C>

(In thousands)

                                                                          1996                     1995
----------------------------------------------------------------------------------------    ----------------------
Description                                                     Benefits     Obligations    Benefits   Obligations
Postretirement and pension benefit reserves                     $ 13,257     $       --     $ 13,495   $       --
Environmental reserve                                             10,299             --        9,801           --
Deferred employee compensation                                     3,787             --        5,684           --
Accrued workers' compensation reserve                              2,128             --        2,201           --
Warranty reserve                                                   1,595             --        1,486           --
Alternative minimum tax credit carryforward                        4,042             --        1,116           --
Property, plant and equipment                                         --        (28,104)          --      (28,297)
Trademarks and technologies                                           --        (19,776)          --      (20,526)
Inventories                                                           --         (2,973)          --       (3,381)
Other                                                              4,182         (1,508)       5,325         (883)
----------------------------------------------------------------------------------------    ----------------------
     Deferred tax benefits (obligations)                        $ 39,290     $  (52,361)    $ 39,108   $  (53,087)
----------------------------------------------------------------------------------------    ----------------------

</TABLE>

In the  consolidated  balance  sheets,  these  deferred  benefits  and  deferred
obligations  are classified as deferred income tax assets or deferred income tax
liabilities,  based on the  classification of the related asset or liability for
financial reporting. A deferred tax liability or asset that is not related to an
asset or  liability  for  financial  reporting,  including  deferred  tax assets
related to carryforwards, are classified according to the expected reversal date
of the  temporary  difference  as of the end of the year.  Credit  carryforwards
primarily  consist of alternative  minimum taxes,  which can be carried  forward
indefinitely,  and certain  state tax net  operating  losses  subject to various
limitations  which  expire,  if  unused,  primarily  in 1998 and 1999  under the
current tax laws.

A valuation  allowance  of $2.1  million and $.3 million as of December 31, 1996
and 1995, has been recorded to offset these state tax credit  carryforwards.  As
of  December  31,  1996 and  1995,  no other  valuation  allowances  are  deemed
necessary as management expects to realize all other deferred benefits as future
tax deductions.


                                       25
<PAGE>

NOTE 10.  STOCK OPTION PLANS
--------------------------------------------------------------------------------

The Company  maintains a Stock Option Plan (the Option Plan) for  management and
non-affiliated  directors  of the Company  and has  reserved  989,000  shares of
common stock for issuance under such plan.  Options are granted to management at
the discretion of the Company's  directors and pursuant to an option program for
non-affiliated  company  directors.   Options  granted  under  the  Option  Plan
generally  have an  exercise  price  equal to the  closing  market  value of the
Company's  common stock as of the date of grant,  and become  exercisable  under
various vesting periods of up to three years.


<TABLE>
<S>                                  <C>            <C>         <C>                <C>           <C>

(In thousands, except weighted average prices)


                                                         Outstanding                     Exercisable
                                                                  Wtd. Avg.                      Wtd. Avg.
                                                     Shares     Exer. Price         Shares     Exer. Price
----------------------------------------------------------------------------------------------------------
December 31, 1993                                       178       $    3.72            178       $    3.72
     Issued                                             109           20.07
     Exercised                                         (60)            2.50
December 31, 1994                                       227           11,89            210            4.31
     Issued                                             399           10.88
     Exercised                                         (18)            2.50
     Canceled                                          (25)            4.90
December 31, 1995                                       583           11.79            277           11.18
     Issued                                             178            4.82
     Exercised                                         (14)            2.50
     Canceled                                          (74)           12.17
----------------------------------------------------------------------------------------------------------
December 31, 1996                                       673       $   10.10            472       $   10.82
==========================================================================================================


(In thousands, except lives and prices)

                                     Outstanding - December 31, 1996         Exercisable - December 31,1996
                                     -------------------------------         ------------------------------
                                                    Wtd. Avg.       Wtd. Avg.                      Wtd. Avg.
Range of Exercise Prices               Shares  Remaining Yrs    Exer. Price          Shares    Exer. Price
-----------------------------------------------------------------------------------------------------------
$2.50 - $12.00                            434           8.67        $   6.08             301       $   6.42
$12.00 - $25.63                           239           7.80           17.42             171          18.57
===========================================================================================================

</TABLE>


The Company measures  compensation cost under the intrinsic  value-based method.
Had compensation cost been determined on the fair market value-based  accounting
method for  options  granted  in 1996 and 1995,  pro forma net loss and loss per
share for 1996  would have been $6.1  million  and $.62,  respectively,  and pro
forma net income and  earnings  per share for 1995 would have been $5.1  million
and $.52,  respectively.  The weighted  average fair value of options granted in
1996 and 1995 was $2.34 and $8.44 for December 31, 1996 and 1995,  respectively.
The fair  value of each  option  is  estimated  on the date of grant  using  the
Black-Scholes  option  pricing  model with the following  assumptions:  weighted
average risk-free interest rate of 7.1% and 6.9%; weighted average volatility of
56.6% and 60.0%; expected lives of 10 years and zero dividend yield for 1996 and
1995, respectively.


                                       26

<PAGE>



NOTE 11.  ENVIRONMENTAL MATTERS
--------------------------------------------------------------------------------

The Company is subject to comprehensive and frequently  changing federal,  state
and local environmental laws and regulations,  and will incur additional capital
and  operating  costs in the future to comply with  currently  existing laws and
regulations,  new regulatory requirements arising from recently enacted statutes
and possible new statutory  enactments.  In addition to environmental  laws that
regulate the Company's  subsidiaries' ongoing operations,  the subsidiaries also
are  subject  to  environmental   remediation   liability.   Under  the  federal
Comprehensive  Environmental  Response,  Compensation and Liability Act (CERCLA)
and analogous state laws, the Company's  subsidiaries  may be liable as a result
of  the  release  or  threatened  release  of  hazardous   substances  into  the
environment.  The  Company's  subsidiaries  are  currently  involved  in several
matters relating to the investigation  and/or remediation of locations where the
subsidiaries had arranged for the disposal of foundry and other wastes.

Such matters  include  five  situations  in which the  Company,  through its TCI
subsidiaries  and their  predecessors,  have been  named or are  believed  to be
potentially  responsible  parties  (PRPs)  in the  contamination  of the  sites.
Additionally,  environmental  remediation  may be  required  at  two of the  TCI
facilities at which soil and ground water contamination has been identified.

The Company  believes that it has valid claims for  contractual  indemnification
against prior owners for certain of the investigatory and remedial costs at each
of the above mentioned  sites.  The Company has been notified,  however,  by all
contractual   indemnitors   that  they  will  not  honor   future   claims   for
indemnification.  Accordingly,  the Company is litigating indemnification claims
and  there is no  assurance  that even if  successful  in any such  claims,  any
judgments  against the indemnitors will ultimately be recoverable.  In addition,
the Company believes it is likely that it has incurred some liability at various
sites for activities and disposal  following  acquisition which would not in any
event be covered by indemnification by prior owners.

As of December 31, 1996, the Company has a $26.4 million environmental  reserve.
This reserve is based on current cost  estimates  and does not reduce  estimated
expenditures to net present value. The Company  currently  anticipates  spending
approximately  $500,000 per year for the next three years and  approximately  $1
million per year in years 2000 and 2001 for monitoring the various environmental
sites  associated  with  the  environmental  reserve,   including  attorney  and
consultant  costs for strategic  planning and  negotiations  with regulators and
other PRPs, and payment of remedial  investigation costs. The Company expects to
fund such  expenditures  with the cash flow  generated  from its  operations and
amounts  available under its Revolving  Loans.  These sites are generally in the
early investigatory stages of the remediation process and thus it is anticipated
that significant cash payments for remediation will not be incurred for at least
several years. After the evaluation and investigation  period, the investigation
and remediation costs will likely increase because the actual remediation of the
various  environmental  sites  associated  with the  environmental  reserve will
likely be under  way.  Any cash  expenditures  required  by the  Company  or its
subsidiaries to comply with applicable  environmental laws and/or to pay for any
remediation  efforts will not be reduced or otherwise  affected by the existence
of the environmental reserve. Due to the early stage of investigation of many of
the sites and potential  remediations  referred to above,  there are significant
uncertainties  as to waste  quantities  involved,  the  extent and timing of the
remediation which will be required, the range of acceptable solutions,  costs of
remediation and the number of PRPs  contributing to such costs.  Based on all of
the  information  presently  available  to it,  the  Company  believes  that the
environmental  reserve will be adequate to cover its future costs related to the
sites associated with the environmental  reserve,  and that any additional costs
will not have a material adverse effect on the financial condition or results of
operations  of the Company.  However,  the discovery of  additional  sites,  the
modification  of  existing  laws or  regulations,  the  imposition  of joint and
several  liability  under  CERCLA or the  uncertainties  referred to above could
result in such a material adverse effect.

                                       27
<PAGE>


NOTE 12.  CONTINGENCIES
--------------------------------------------------------------------------------

The Company is  involved in certain  threatened  and pending  legal  proceedings
including  workers'  compensation  claims  arising  out  of the  conduct  of its
businesses.  In the opinion of  management,  the ultimate  outcome of such legal
proceedings will not have a material adverse effect on the financial position or
results of operations of the Company.

The patent infringement lawsuit commenced by Johnstown America Corporation (JAC)
in  December  1992  against  Trinity   Industries,   Inc.   (Trinity)   alleging
infringement of JAC's patent for its BethGon Coalporter(R) freight car was tried
in 1996 with the trial court entering an order upholding a jury verdict that the
patent,  though valid, was not infringed by Trinity's Aluminator II freight car.
In addition,  JAC was not held to be liable for any of the counterclaims alleged
by  Trinity.  JAC  thereafter  made  motions to the trial court to set aside the
verdict as not being  consistent with the facts or the law and enter judgment in
favor of JAC or, alternatively, to order a new trial, which motions were denied.
JAC has appealed the case to the United  States Court of Appeals for the Federal
Circuit.  JAC expects the appeal to be decided in mid to late 1997. Although the
chances of success of the appeal cannot be predicted,  the Company  continues to
believe that the order entered by the trial court  upholding the jury's  verdict
and several prior orders are not  consistent  with the facts or the law and that
the trial court erred in applying the law in this case.  In any event,  although
neither  the  outcome  of the  action  nor the  effect  of such  outcome  can be
predicted  with  certainty,  in the opinion of  management  of the Company,  the
outcome of the action will not have a material  adverse  effect on the financial
condition or results of operations of the Company.

Additionally, the Company is involved in various warranty and repair claims with
its  customers  as a normal  course of business.  In the opinion of  management,
accrued warranty costs relating to these obligations are adequate.



NOTE 13.  COMMITMENTS
--------------------------------------------------------------------------------

The Company leases certain real property and equipment  under  long-term  leases
expiring at various dates through 2032. The leases  generally  contain  specific
renewal or purchase options at the then fair market value.

Future minimum lease payments at December 31, 1996, are as follows:
<TABLE>
<S>                                                                     <C>          <C>

(In thousands)

                                                                          Capital      Operating
                                                                            Lease         Leases
------------------------------------------------------------------------------------------------
1997                                                                    $     395     $    3,484
1998                                                                          395          3,135
1999                                                                          395          2,850
2000                                                                          395          2,653
2001                                                                          395          2,130
Thereafter                                                                  2,408         25,384
     Total minimum lease payments                                       $   4,383     $   39,636
Less: Amount representing interest                                          2,430
     Present value of minimum lease                                         1,953
Less: Current portion of obligation under capital lease                       170
Noncurrent obligation under capital lease                               $   1,783
------------------------------------------------------------------------------------------------

</TABLE>
                                       28
<PAGE>


While the Company is liable for  maintenance,  insurance and similar costs under
most of its  leases,  such costs are not  included in the future  minimum  lease
payments.

The Company  assumed the capital  lease in its  acquisition  of TCI. The related
asset  balance of $1.9  million is  included  as a component  of  buildings  and
improvements.  Accumulated  depreciation  of this asset was $.2  million and $.1
million as of December 31, 1996 and 1995, respectively.

Total rental  expense for the years ended December 31, 1996 and 1995 amounted to
$3.7 million and $2.0 million,  respectively.  Rental expense for the year ended
December 31, 1994 was not material.



NOTE 14.  MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT
--------------------------------------------------------------------------------

In each of 1996, 1995 and 1994, a different  customer accounted for 13%, 17% 31%
of the Company's total revenue.

A small  number of  customers  often  represent a  significant  portion of JAC's
revenues,  in a given  year,  due to the large  average  size of orders from the
freight car business.  With the  acquisition  of TCI and Bostrom,  the Company's
revenue base is less concentrated.



NOTE 15.  UNAUDITED QUARTERLY INFORMATION
--------------------------------------------------------------------------------

(In thousands, except per share data)

                                      First      Second       Third      Fourth
     1996                           Quarter     Quarter     Quarter     Quarter
--------------------------------------------------------------------------------
Total revenue                    $  152,339   $ 133,290   $ 140,845   $ 133,498
Gross profit                         23,211      21,482      20,533      20,588
Net income (loss)                      (728)     (1,224)     (1,563)     (1,856)
     Net income (loss) per share $    (0.07)  $   (0.13)  $   (0.16)  $   (0.19)
--------------------------------------------------------------------------------
     1995
--------------------------------------------------------------------------------
Total revenue                    $  178,438   $ 166,731   $ 166,881   $ 156,551
Gross profit                         11,327      13,946      14,077      20,269
Net income (loss)                     3,022       3,356         198        (991)
--------------------------------------------------------------------------------
     Net income (loss) per share $     0.31   $    0.34   $    0.02   $   (0.10)
--------------------------------------------------------------------------------



NOTE 16.  GUARANTOR SUBSIDIARIES
--------------------------------------------------------------------------------

The Notes and the  obligations  under the Senior Bank  Facilities  are fully and
unconditionally  guaranteed  on an  unsecured,  senior  subordinated,  joint and
several basis by each of the  Guarantor  Subsidiaries.  The following  condensed
consolidating  financial data illustrates the composition of the Parent Company,
Guarantor Subsidiaries,  and JAIX Leasing as of and for the years ended December
31, 1996 and 1995.  Separate  complete  financial  statements of the  respective
Guarantors  Subsidiaries would not provide additional information which would be
useful in assessing the financial composition of the Guarantor  Subsidiaries and
thus, are not presented.

Investments  in  subsidiaries  are  accounted  for by the Parent  Company on the
equity  method for  purposes  of the  supplemental  consolidating  presentation.
Earnings of  subsidiaries  are,  therefore,  reflected  in the Parent  Company's
investment  accounts and earnings.  The principle  elimination entries eliminate
the Parent Company's  investment in subsidiaries  and intercompany  balances and
transactions.



                                       29
<PAGE>



CONDENSED CONSOLIDATING STATEMENT OF INCOME
for the year ended December 31, 1996

<TABLE>
<S>                                               <C>            <C>            <C>            <C>           <C>


(In thousands)                                         Parent       Guarantor
                                                      Company    Subsidiaries   JAIX Leasing   Eliminations  Consolidated
-------------------------------------------------------------------------------------------------------------------------
Total revenue                                     $       114    $   555,509    $   4,349      $        --   $   559,972
Cost of sales                                              42        472,053        2,063               --       474,158
Gross profit                                               72         83,456        2,286               --        85,814
Selling, general, administrative
  and amortization expenses                             1,202         55,577           --               --        56,779
Gain on sale of lease freight cars                         --             --       (1,354)              --        (1,354)
-------------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                (1,030)        27,879        3,640               --        30,389
Interest expense, net                                  11,421         21,697        2,718               --        35,836
Equity (earnings) of subsidiaries                      (1,947)            --           --            1,947            --
Provision (benefit) for income taxes                   (5,233)         4,789          368               --           (76)
Net income (loss)                                 $    (5,371)   $     1,393    $     554      $    (1,947)   $   (5,371)
-------------------------------------------------------------------------------------------------------------------------



CONDENSED CONSOLIDATING BALANCE SHEET
as of December 31, 1996


(In thousands)                                         Parent       Guarantor
                                                      Company    Subsidiaries   JAIX Leasing   Eliminations  Consolidated
-------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents                           $  18,060    $     1,483    $    4,992      $       --    $   24,535
Accounts receivable, net                                   28         49,162           156              --        49,346
Inventories                                                --         49,589            --              --        49,589
Prepaid expenses and other                              2,979         16,008           373              --        19,360
Total current assets                                   21,067        116,242         5,521              --       142,830
Property, plant and equipment, net                      7,577        123,128        16,960            (551)      147,114
Other assets                                          108,822        255,913           401         (99,797)      265,339
Total assets                                        $ 137,466    $   495,283    $   22,882      $ (100,348)    $ 555,283
------------------------------------------------------------------------------------------------------------------------

Accounts payable                                    $     201    $    42,993    $      131      $       --     $  43,325
Other current liabilities                              18,390         55,835        (1,728)           (211)       72,286
Total current liabilities                              18,591         98,828        (1,597)           (211)      115,611
Noncurrent liabilities                                     --         85,716         3,480              --        89,196
Long-term debt, less current
   maturities and intercompany
   advances (receivables)                              55,338        218,425        13,176              --       286,939
Total shareholders' equity                             63,537         92,314         7,823        (100,137)       63,537
Total liabilities and
   shareholders equity                              $ 137,466    $   495,283    $   22,882      $ (100,348)    $ 555,283
-------------------------------------------------------------------------------------------------------------------------




                                       30
<PAGE>




CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the year ended December 31, 1996




(In thousands)                                         Parent       Guarantor
                                                      Company    Subsidiaries   JAIX Leasing   Eliminations  Consolidated
-------------------------------------------------------------------------------------------------------------------------
Cash Flows provided by
   Operating Activities                             $  (4,989)    $   40,087    $   1,280      $        --    $   36,378
Cash Flows from
   Investing Activities:
Capital expenditures                                     (206)        (9,713)          --               --        (9,919)
Leased assets                                          (4,905)           279         (812)              --        (5,438)
Cash from sale of leased assets                            --             --       18,113               --        18,113
Changes in restricted cash                                 --            786           --               --           786
-------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) investing activities       (5,111)        (8,648)      17,301               --         3,542
Cash Flows from
   Financing Activities:
Net payments under term loans                         (16,660)          (152)          --               --       (16,812)
Issuance (payment) JAIX Leasing debt, net                  --             --       (8,799)              --        (8,799)
Change in intercompany advances                        27,071        (23,634)      (3,437)              --            --
Dividends received (paid)                               1,600             --       (1,600)              --            --
Deferred financing costs paid                            (782)           (14)        (652)              --        (1,448)
Other                                                      35             --           --               --            35
-------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for)
   financing activities                                11,264        (23,800)     (14,488)              --       (27,024)
Net increase (decrease) in cash
   and cash equivalents                                 1,164          7,639        4,093               --        12,896
-------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents,
   beginning of year                                   16,896         (6,156)         899               --        11,639
-------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents,
   end of year                                       $ 18,060     $    1,483    $   4,992    $          --    $   24,535
-------------------------------------------------------------------------------------------------------------------------



                                       31
<PAGE>




CONDENSED CONSOLIDATING STATE OF INCOME
for the year ended December 31, 1995


(In thousands)                                         Parent       Guarantor
                                                      Company    Subsidiaries   JAIX Leasing   Eliminations  Consolidated
-------------------------------------------------------------------------------------------------------------------------
Total revenue                                       $     80     $   666,695    $   1,826      $        --    $  668,601
Cost of sales                                             (7)        608,491          498               --       608,982
     Gross profit                                         87          58,204        1,328               --        59,619
Selling, general, administrative
  and amortization expenses                            4,181          30,414           --               --        34,595
-------------------------------------------------------------------------------------------------------------------------
     Operating income (loss)                          (4,094)         27,790        1,328               --        25,024
Interest expense, net                                  2,186          11,615          901               --        14,702
Equity (earnings) of subsidiaries                    (10,062)             --           --           10,062            --
Provision (benefit) for income taxes                  (1,803)          6,376          164               --         4,737
Net income (loss)                                   $  5,585     $     9,799    $     263      $   (10,062)    $   5,585
-------------------------------------------------------------------------------------------------------------------------




CONDENSED CONSOLIDATING BALANCE SHEET
as of December 31, 1995


(In thousands)                                         Parent       Guarantor
                                                      Company    Subsidiaries   JAIX Leasing   Eliminations  Consolidated
-------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents                          $  16,896    $    (6,156)    $      899     $       --     $   11,639
Accounts receivable, net                                  --         59,814            145             --         59,959
Inventories                                               --         43,900             --             --         48,900
Prepaid expenses and other                             5,320         17,218            437            (40)        22,935
     Total current assets                             22,216        114,776          1,481            (40)       138,433
Property, plant and equipment, net                     2,446        128,275         33,993           (289)       164,425
Other assets                                         112,988        257,538            226        (94,785)       275,967
Total assets                                       $ 137,650    $   500,589     $   35,700     $  (95,114)    $  578,825
-------------------------------------------------------------------------------------------------------------------------

Accounts payable                                   $  1,836     $    37,807     $        4     $       --     $   39,647
Other current liabilities                            22,973          51,169             92           (145)        74,089
Total current liabilities                            24,809          88,976             96           (145)       113,736
Noncurrent liabilities                                   --          82,326            916             --         83,242
Long-term debt, less current
   maturities and intercompany
   advances (receivables)                            43,967         242,042         26,964             --        312,973
Total shareholders' equity                           68,874          87,245          7,724        (94,969)        68,874
Total liabilities and
   shareholders equity                            $ 137,650     $   500,589     $   35,700     $  (95,114)     $ 578,825
-------------------------------------------------------------------------------------------------------------------------




                                       32
<PAGE>




CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the year ended December 31, 1995



(In thousands)                                         Parent       Guarantor
                                                      Company    Subsidiaries   JAIX Leasing   Eliminations  Consolidated
-------------------------------------------------------------------------------------------------------------------------
Cash Flows provided by
   Operating Activities                          $    1,571       $   49,372    $    1,189     $        --     $  52,132
Cash Flows from Investing Activities:
Capital expenditures                                    (42)         (14,912)           --              --       (14,954)
Leased assets                                        (1,951)          (4,573)     (33,999)              --       (31,377)
Acquisition of TCI, less cash  acquired                  --         (266,081)           --              --      (266,081)
Acquisition of Bostrom, less cash acquired               --          (32,444)           --              --       (32,444)
Increase in restricted cash/other                        10           (1,364)           --              --        (1,364)
-------------------------------------------------------------------------------------------------------------------------
Cash (used for) investing activities                 (1,983)        (310,228)     (33,999)              --      (346,210)
Cash Flows from Financing Activities:
Revolving loan, net                                  (7,600)              --           --               --        (7,600)
Issuance of long-term debt                          300,000            5,300           --               --       305,300
Issuance of JAIX Leasing debt                            --               --       22,381               --        22,381
Intercompany advances                              (259,393)         247,773       11,620               --            --
Deferred financing costs paid/other                 (15,658)            (168)        (292)              --       (16,118)
-------------------------------------------------------------------------------------------------------------------------
Cash provided by
   financing activities                              17,349          252,905       33,709              --        303,963
Net increase (decrease) in cash
   and cash equivalents                              16,937           (7,951)         899              --          9,885
-------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents,
   beginning of year                                   (41)            1,795           --              --          1,754
-------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents,
   end of year                                   $  16,896        $   (6,156)   $     899     $        --     $   11,639
-------------------------------------------------------------------------------------------------------------------------
</TABLE>


NOTE 17.  FAIR VALUE OF FINANCIAL INSTRUMENTS
--------------------------------------------------------------------------------

Based on borrowing rates currently  available to the Company for borrowings with
similar  terms  and  maturities,  the  fair  value  of the  Company's  debt  was
approximately  $297  million and $320  million as of December 31, 1996 and 1995,
respectively.  No quoted  market value is available  except for the $100 million
Notes which had a market value of approximately $97.5 million and $90 million as
of December 31, 1996 and 1995.  Outstanding  interest rate  contracts,  based on
current market pricing models, have an estimated discounted fair market value of
negative $.6 million and negative $3.4 million as of December 31, 1996 and 1995,
respectively.  All other  financial  instruments of the Company have fair market
values which approximate carrying value as of December 31, 1996 and 1995.



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<PAGE>




NOTE 18.  SUPPLEMENTAL CASH FLOWS AND NON-CASH TRANSACTIONS DISCLOSURES
--------------------------------------------------------------------------------
(In thousands)

Years Ended December 31,                      1996         1995        1994
Cash paid for:
     Interest                          $    31,487$   $   7,718    $    259
     Income taxes                            1,382        6,011       2,380
Business acquisitions:
     Cash paid                         $        --    $ 300,624    $     --
     Assets received                            --      412,634          --
--------------------------------------------------------------------------------
     Liabilities assumed               $        --    $ 112,010    $     --
--------------------------------------------------------------------------------



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<PAGE>



To the Board of Directors and Shareholders of
Johnstown America Industries, Inc.:



We have  audited  the  accompanying  consolidated  balance  sheets of  Johnstown
America  Industries,  Inc.  (a  Delaware  corporation)  and  Subsidiaries  as of
December 31, 1996 and 1995,  and the related  consolidated  statements of income
and cash flows for each of the three  years in the  period  ended  December  31,
1996. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining on a test basis,  evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of Johnstown America
Industries,  Inc. and  Subsidiaries  as of December  31, 1996 and 1995,  and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31,  1996,  in  conformity  with  generally  accepted
accounting principles.


/s/ Arthur Andersen LLP

ARTHUR ANDERSEN LLP

Chicago, Illinois
January 27, 1997



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