MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



GENERAL
The Company  conducts its business  through two  operating  segments  within the
transportation industry: the truck components segment, a leading manufacturer of
wheel-end  components,  seating,  steerable  drive  axles,  gearboxes  and other
castings for the  heavy-duty  truck  industry;  and the freight car  segment,  a
leading manufacturer and lessor of new and rebuilt freight cars used for hauling
coal, intermodal  containers,  highway trailers,  automobiles,  agricultural and
mining products.

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.

Freight  car  segment  sales are  driven  principally  by the number and type of
freight cars  delivered in any given  period.  Due to the large size of customer
orders,  the  specific  time frame for  delivery  of freight  cars  ordered  and
variations in the mix of cars  ordered,  the number and type of cars produced in
any given period may fluctuate greatly.  As a result, the Company's revenues and
results of operations and cash flows from operations may fluctuate as well.


RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1998 AND 1997
TOTAL REVENUE
Total revenue in 1998  increased  48.6% to $966.1 million from $650.3 million in
1997.  The revenue  increase was primarily due to an increase in the freight car
segment  of  126.9%  from  $234.7  million  in 1997 to $532.5  million  in 1998.
Shipments of new and rebuilt freight cars in 1998 were 9,155,  compared to 4,507
freight cars in 1997. As of December 31, 1998, the Company's  backlog of new and
rebuilt  freight cars was 9,462,  more than double the year  earlier  backlog of
4,201 freight cars. The truck  component  segment  revenues  increased 4.3% from
$415.6 million in 1997 to $433.6 million in 1998.

At December 31, 1998,  the  Company's  freight car segment had 1,041 cars in its
leasing  fleet,  and its leasing  business  generated $8.3 million in revenue in
1998 and $2.5 million in operating income before a $1.2 million gain on the sale
of leased freight cars. In 1997, the leasing business  generated $7.6 million in
revenue and $3.5 million in operating  income  before a $0.8 million gain on the
sale of leased freight cars.

COST OF SALES-MANUFACTURING AND GROSS PROFIT
Cost of  sales-manufacturing  for 1998 as a percent of  manufacturing  sales was
85.7% in 1998  compared to 85.9% in 1997.  Related  gross profits were 14.3% and
14.1%,  respectively.  The increase in gross profit margins  resulted  primarily
from higher  gross  profit  margins in the freight car segment due to  increased
volume, better pricing and operational improvements throughout 1998.

SELLING, GENERAL, ADMINISTRATIVE AND AMORTIZATION EXPENSES
Selling,  general and  administrative  expenses as a percentage of total revenue
were  5.5% and 7.1% in 1998 and 1997,  respectively.  On a  percentage  of total
revenue  basis,  selling,  general  and  administrative  expenses  in the  truck
components segment were relatively unchanged,  but were reduced significantly in
the  freight  car segment due to  significantly  higher  revenues.  Amortization
expense was $8.6 million in both 1998 and 1997.

OPERATING INCOME
Operating  income was $98.3 million in 1998,  compared to $54.4 million in 1997,
an increase of $43.9 million  primarily due to increased  gross profits of $46.2
million offset by $6.8 million of increased selling,  general and administrative
expenses.  Operating  income was also  affected in 1998 by a gain on the sale of
leased  freight cars of $1.2 million,  a freight car patent  lawsuit  settlement
gain of $16.8 million and a truck  component  pension  termination  gain of $1.7
million.  Operating  income in 1997 was affected by a reduction of environmental
reserves of $14.3 million in the truck component  segment and a gain on the sale
of leased freight cars of $0.8 million.

                                       1




<PAGE>
OTHER
Interest  expense was $31.2  million in 1998  compared to $33.6 million in 1997.
Interest  expense in 1998 was lower than 1997 due primarily to the prepayment of
$35.0 million of Tranche B term debt. Interest  expense-leasing was $1.2 million
in 1998  compared to $2.4 million in 1997.  The  reduction  in leasing  interest
expense was due primarily to the prepayment of $19.5 million in leasing business
debt funded  from the sale of 380 of its owned  freight  cars in February  1998.
Interest  income in 1998 was $2.1  million in 1998  compared to $0.6  million in
1997. The increase in interest income is due to increased levels of cash.

In  conjunction  with the $35  million of senior debt  prepayments,  the Company
recorded an  extraordinary  charge of $1.1  million  net of tax,  related to the
write-off of unamortized deferred financing costs.

Net income and diluted earnings per share for 1998 were $37.9 million and $3.74,
respectively,  compared  to net income and  diluted  earnings  per share of $7.5
million and $0.76, respectively, for 1997.

RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997 AND 1996
TOTAL REVENUE
Total revenue in 1997  increased  16.1% to $650.3 million from $560.0 million in
1996.  The  revenue  increase  of $90.3  million  was due to an  increase at the
Company's  truck  components  segment of $53.9  million  and an  increase in the
freight car segment of $36.4  million.  In 1997,  shipments of freight cars were
4,507 (including 290 cars sold to the Company's lease fleet),  compared to 3,470
freight cars  (including 98 cars sold to the Company's  lease fleet) in 1996. As
of December 31, 1997,  the  Company's  backlog of new and rebuilt cars was 4,201
compared with 774 new and rebuilt cars at December 31, 1996.

At December 31, 1997,  the Company's  freight car segment had 1,673 freight cars
on lease,  and its leasing  business  generated $7.6 million in revenue and $3.5
million in  operating  income  before a $0.8  million gain on the sale of leased
freight cars in 1997. The 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 in the prior year.

COST OF SALES - MANUFACTURING AND GROSS PROFIT
Cost of  sales-manufacturing  for 1997 as a percent of  manufacturing  sales was
85.9%,  compared to 85.0% in 1996.  Related  gross profits were 14.1% and 15.0%,
respectively.  The decrease in gross profits resulted primarily from lower gross
profit  margins in the freight  car  segment due to reduced  volume in the first
half of the year and pricing  pressure  throughout the year offset  partially by
increased profit margins in the Company's truck component segment.

SELLING, GENERAL, ADMINISTRATIVE AND AMORTIZATION EXPENSES
Selling,  general and  administrative  expenses as a percentage of total revenue
were 7.1% and 8.3% in 1997 and 1996,  respectively.  Actual selling, general and
administrative  expenses  declined  $0.4 million from 1996 levels as a result of
cost  reduction  measures  undertaken  at the  Company's  freight  car  segment,
partially  offset by the  truck  component  segment  volume  related  increases.
Amortization expenses as a percentage of total revenue was 1.3% and 1.8% in 1997
and 1996 respectively.  Amortization expense decreased by $1.6 million from 1996
levels due  primarily to a decrease in  amortization  expense in the freight car
segment of $1.5 million due to certain intangible items being fully amortized in
late 1996.

OPERATING INCOME
Operating income was $54.4 million in 1997, compared with $30.4 million in 1996,
an increase of $24.0  million.  The Company  increased its  operating  income by
improving gross profits by $8.2 million over 1996 levels.  Selling,  general and
administrative  expenses  declined by $0.4  million,  and  amortization  expense
declined by $1.6 million.  Additionally,  a reduction of environmental  reserves
for the truck components segment of $14.3 million offset by a decline in gain on
sale of leased freight cars of $0.5 million  accounted for the remaining  change
in operating income.

OTHER
Interest  expense,  net,  was $35.4  million in 1997  compared to $35.8 in 1996.
Interest expense in 1997 and 1996 resulted from borrowings under the Senior Bank
Facilities and the Senior  Subordinated  Notes, as well as from the JAIX Leasing
loans  which were used to finance  the  addition  of freight  cars for the lease
fleet.

In  conjunction  with the 1997  issuance  of $80.0  million  of Senior  Notes to
refinance  $80.0  million  of  Tranche A term  debt,  the  Company  recorded  an
extraordinary  charge  of $2.0  million  after  tax,  primarily  related  to the
write-off of $3.4 million of unamortized deferred financing costs.

Net income and diluted  earnings per share for 1997 were $7.5 million and $0.76,
respectively,  compared to a net loss and diluted loss per share of $5.4 million
and $0.55, respectively, for 1996.


                                       2
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
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 working capital
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.

For the year ended December 31, 1998, the Company  provided cash from operations
of $56.7  million  (including  $16.8  million  from  the  settlement  of  patent
lawsuits)  compared  with $26.7  million  for 1997.  The Company  provided  $8.0
million of net cash from  investing  activities  during  1998,  including  $24.3
million  provided  from the sale of 380  leased  freight  cars , offset by $11.5
million of capital  expenditures  and $4.9 million of leasing  asset  additions.
Cash used for financing  activities  was $56.5 million for 1998,  which included
$36.7  million in payments of Tranche B term debt and  payments of JAIX  Leasing
debt of $20.0 million,  partially  offset by proceeds from the exercise of stock
options.

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  5 and  6 of  the  Consolidated  Financial
Statements  for a description of the Senior Bank  Facilities  and the Notes.  On
August 12,  1997 the  Company  issued  $80  million of  additional  Notes,  with
substantially  the same terms as the  original  Notes.  As of December 31, 1998,
there was $56.6 million of Tranche B term loan outstanding under the Senior Bank
Facilities,  $182.3 million of Notes outstanding and no borrowings under the $75
million  revolving  credit line under the Senior Bank  Facilities.  Availability
under the revolving credit line after  consideration  of outstanding  letters of
credit of $14.1 million, was $60.9 million.

Interest  payments on the Notes and under the Senior Bank  Facilities  represent
significant  near-term  cash  requirements  for the Company.  The Notes  require
semiannual  interest payments of approximately  $10.6 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 $56.6  million of  outstanding  Tranche B term loans  require
periodic principal payments through their maturities.

At December 31, 1998,  JAIX Leasing  owned or leased 1,041  freight  cars.  JAIX
Leasing has a 10-year term loan  facility,  which as of December 31, 1998, had a
balance of $9.2 million  outstanding.  See Note 5 of the Consolidated  Financial
Statements for a description of this facility.

The Company believes that the cash flow generated from its operations,  together
with amounts  available under the revolving credit line, 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, 1998, the Company had cash of $39.1 million.

YEAR 2000
The Year  2000  issue is the  result  of  date-sensitive  devices,  systems  and
computer programs that were deployed using two digits rather than four to define
the applicable year. Any such technology may recognize a year containing "00" as
the year 1900  rather than the year 2000.  This issue  could  result in a system
failure or miscalculations  causing disruptions of operations  including,  among
other things, a temporary inability to process transactions or engage in similar
normal business activities.


                                       3
<PAGE>
In 1996,  the  Company  initiated  a  comprehensive  program to ensure  that its
various business systems continue to function  properly in the year 2000. By the
end of 1998,  all  critical  business  systems at each  operating  unit had been
reviewed,  modified if necessary, and tested. Many non-critical business systems
had also been  reviewed,  modified  and  tested.  All  non-critical  systems are
expected to be fully tested by mid 1999.  Assessment of manufacturing  processes
and facility  management systems is underway and is expected to be substantially
completed by mid 1999.

Additionally,  the Company is currently assessing readiness for the year 2000 by
key  suppliers  and other third  parties with whom it has  significant  business
relationships.  Information requests have been distributed and replies have been
received.  If the risk is deemed  material,  the  Company is  performing  onsite
visits to verify the adequacy of the information received.

Based upon the  accomplishments to date, no contingency plans are expected to be
needed  and  therefore  none  have  been  developed.  However,  because  of  the
substantial  progress to date,  we believe  adequate  time will be  available to
insure  alternatives  can be developed,  assessed and  implemented if necessary,
prior  to the  Year  2000  issue  having  a  material  impact  on the  Company's
operations.  If however,  systems of the Company or its key  suppliers  or other
third parties with whom it has significant  business  relationships are not Year
2000  compliant on a timely basis and a  contingency  plan is not developed on a
timely basis,  the Year 2000 issue could have a material  adverse  effect on the
Company's operations and financial condition.

Beginning  in  1996,  as  part  of  the  Company's  ongoing  information  system
improvement  process,  its  enterprise  systems were upgraded,  which  partially
mitigated the impact of the Year 2000  problem.  Excluding the cost of upgrading
the enterprise systems, the pretax cost incurred to date of becoming "Year 2000"
compliant  has been  approximately  $0.5  million and is not expected to be more
than $0.7 million for the total  project.  Such costs are being  funded  through
operating cash flows.

The cost of the project and expected  completion are based on management's  best
estimates,  which were derived  using  numerous  assumptions  of future  events,
including the continued  availability  of certain  resources and other  factors.
However,  there can be no guarantee  that these  estimates  will be achieved and
actual results could differ materially from those anticipated.  Specific factors
that might cause such material  differences include, but are not limited to, the
availability  and cost of personnel  trained in this area, the ability to locate
and  correct  all   relevant   computer   codes,   and  similar   uncertainties.
Additionally,  there can be no guarantee that the systems of other  companies on
which the Company's systems rely will be timely converted,  or that a failure to
convert  by another  company,  or a  conversion  that is  incompatible  with the
Company's systems, would not have a material adverse effect on the Company.

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 have arranged for the disposal of foundry and other wastes.

Such matters include five situations in which the Company, through certain truck
components  segment  businesses 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
truck components segment facilities at which soil and groundwater  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.  As a result of a private  party  settlement  of
certain pending litigation with a prior owner of Gunite, TCI and Gunite will not
be  responsible  (through a  contractual  undertaking  by the former  owner) for
certain  liabilities  and costs  resulting from Gunite's waste disposal prior to
the acquisition of Gunite by TCI in September 1987 at certain of such sites. The
Company has been notified,  however,  by certain other  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.

                                       4
<PAGE>

As of December 31, 1998, the Company has a $10.7 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  $0.8  million per year in 1999 through  2003 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.  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  underway.  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.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's  market risk  sensitive  instruments do not subject the Company to
material  market risk  exposures  except as such risks  relate to interest  rate
fluctuations.   As  of  December  31,  1998,  the  Company  has  long-term  debt
outstanding with a carrying value of $255.0 million. The estimated fair value of
this debt is $264.0 million. Fixed interest rate debt outstanding as of December
31, 1998 represents 76% of total debt, carries an average interest rate of 11.6%
and matures as follows:  $0.5  million in fiscal  1999,  $0.5  million in fiscal
2000,  $0.6 million in fiscal 2001, $0.6 million in fiscal 2002, $0.7 million in
fiscal  2003  and  $193.4  million  thereafter.   Variable  interest  rate  debt
outstanding as of December 31, 1998 had an average interest rate at that date of
8.2% and matures as follows: $8.8 million in fiscal 1999, $8.0 million in fiscal
2000,  $11.4 million in fiscal 2001, $14.7 million in fiscal 2002, $13.7 million
in fiscal 2003 and $5.0 million thereafter.

The Company has an interest  rate  protection  agreement to fix a portion of its
variable  rate Senior Bank debt.  At December 31, 1998,  the notional  principal
amount of this  contract was $25 million at a 6.14% fixed rate of interest  plus
the applicable  borrowing margins. The contract matures in August 2000 and has a
market value of $(0.4) million.

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

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 and Exchange Commission reports.

                                       5

<PAGE>
<TABLE>

                                        CONSOLIDATED STATEMENTS OF INCOME



<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,                                                          1998             1997            1996
                                                                                  ----             ----            ----
<S>                                                                           <C>              <C>             <C>
Net manufacturing sales                                                       $957,762         $642,764        $555,510
Leasing revenue                                                                  8,296            7,583           4,462
------------------------------------------------------------------------------------------------------------------------
Total revenue                                                                  966,058          650,347         559,972
Cost of sales - manufacturing                                                  821,005          552,360         472,054
Cost of leasing                                                                  4,895            4,005           2,104
------------------------------------------------------------------------------------------------------------------------
Gross profit                                                                   140,158           93,982          85,814
Selling, general and administrative expense                                     53,005           46,187          46,605
Amortization expense                                                             8,557            8,554          10,174
Gain on sale of leased freight cars                                             (1,223)            (824)         (1,354)
Pension termination gain                                                        (1,688)              --              --
Patent lawsuit settlement                                                      (16,750)              --              --
Reduction of environmental reserves                                                 --          (14,300)             --
------------------------------------------------------------------------------------------------------------------------
Operating income                                                                98,257           54,365          30,389
Interest income                                                                 (2,094)            (625)           (624)
Interest expense                                                                31,189           33,616          33,639
Interest expense - leasing                                                       1,228            2,389           2,821
------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary item                        67,934           18,985          (5,447)
Provision (benefit) for income taxes                                            28,933            9,511             (76)
------------------------------------------------------------------------------------------------------------------------
Net income (loss) before extraordinary item                                     39,001            9,474          (5,371)
Extraordinary item, net of income taxes                                         (1,146)          (2,008)             --
------------------------------------------------------------------------------------------------------------------------
Net income (loss) and comprehensive income (loss)                              $37,855           $7,466         $(5,371)
------------------------------------------------------------------------------------------------------------------------
Basic earnings per share:
Income (loss) before extraordinary item                                        $  3.96           $ 0.97         $ (0.55)
Extraordinary item                                                               (0.11)           (0.21)             --
------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share                                                    $  3.85           $ 0.76         $ (0.55)
------------------------------------------------------------------------------------------------------------------------
Basic weighted average shares outstanding                                        9,838            9,761           9,790
------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Income (loss) before extraordinary item                                        $  3.85           $ 0.96         $ (0.55)
Extraordinary item                                                               (0.11)           (0.20)             --
------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share                                                    $  3.74           $ 0.76         $ (0.55)
------------------------------------------------------------------------------------------------------------------------
Diluted weighted average equivalents and shares outstanding                     10,122            9,856           9,794
------------------------------------------------------------------------------------------------------------------------


                                       6

<PAGE>



                          CONSOLIDATED BALANCE SHEETS



(IN THOUSANDS EXCEPT PER SHARE DATA)
------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31,                                                                                  1998           1997
                                                                                                    ----           ----
ASSETS:
Cash and cash equivalents                                                                        $39,112        $30,875
Accounts receivable, net                                                                          81,740         60,484
Inventories                                                                                       66,678         58,674
Deferred income tax assets                                                                        13,688         13,521
Prepaid expenses and other current assets                                                          2,514          4,047
------------------------------------------------------------------------------------------------------------------------
Total current assets                                                                             203,732        167,601
Property, plant and equipment, net                                                               115,193        118,063
Leasing business assets, net                                                                      19,523         38,430
Deferred financing costs, net                                                                      7,526         11,594
Intangible assets, net                                                                           238,380        243,150
------------------------------------------------------------------------------------------------------------------------
Total assets                                                                                    $584,354       $578,838
------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Accounts payable                                                                                 $65,583        $55,246
Accrued payroll and employee benefits                                                             27,287         22,666
Other current liabilities                                                                         43,556         35,967
Current maturities of long-term debt and capital lease                                             9,511          4,783
------------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                        145,937        118,662
Long-term debt and capital lease, less current maturities                                         63,197        124,799
Senior subordinated notes                                                                        182,338        182,691
Deferred income tax liabilities                                                                   34,571         36,373
Other long-term liabilities                                                                       47,594         45,293
------------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                                473,637        507,818
------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Preferred stock, par $.01,  20,000 shares  authorized,  none outstanding  Common
stock, par $.01, 201,000 shares authorized, 9,900 and 9,768
  issued and outstanding as of December 31, 1998 and 1997, respectively                               99             98
Paid-in capital                                                                                   56,892         55,066
Retained earnings                                                                                 53,741         15,886
Employee receivables for stock purchase                                                              (15)           (30)
------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                                       110,717         71,020
------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                                      $584,354       $578,838
------------------------------------------------------------------------------------------------------------------------


                                       7

<PAGE>



                      CONSOLIDATED STATEMENTS OF CASH FLOWS



(IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,                                                       1998              1997              1996
                                                                               ----              ----              ----
OPERATING ACTIVITIES:
Net income (loss)                                                           $37,855            $7,466           $(5,371)
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities -
Depreciation                                                                 14,947            15,009            14,772
Amortization                                                                 11,374            11,617            14,498
Deferred income tax expense                                                      96             5,937                58
Provision for postretirement benefits                                         2,825             2,169             1,671
Gain on sale of leased freight cars                                          (1,223)             (824)           (1,354)
Pension termination gain                                                     (1,688)               --                --
Reduction of environmental reserves                                              --           (14,300)                --
Extraordinary item, net of income tax                                         1,146             2,008                --
Change in operating assets and liabilities:
Accounts receivable                                                         (21,256)          (11,137)           10,613
Inventories                                                                  (8,004)           (9,085)           (5,689)
Prepaid expenses and other current assets                                     1,698             (829)            14,091
Accounts payable                                                             10,337            11,921             3,677
Accrued payroll and employee benefits                                         2,415               758            (5,177)
Other assets and liabilities                                                  6,188             6,038            (5,411)
------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                    56,710            26,748            36,378
INVESTING ACTIVITIES:
Capital expenditures                                                        (11,537)           (8,246)           (9,919)
Leasing business asset additions                                             (4,875)          (27,639)           (5,438)
Proceeds from sale of leased freight cars                                    24,320            10,182            18,113
Change in restricted cash and other                                             141               631               786
------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities                          8,049           (25,072)            3,542
FINANCING ACTIVITIES:
Payments of term loans and capital lease                                    (36,899)          (90,170)          (16,812)
Net (payments) borrowings of JAIX Leasing debt                              (19,976)           15,577            (8,799)
Issuance of long-term debt                                                       --            82,823                --
Payment of deferred financing costs and other                                   353            (3,566)           (1,413)
------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities                        (56,522)            4,664           (27,024)
------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents                                     8,237             6,340            12,896
Cash and cash equivalents, beginning of year                                 30,875            24,535            11,639
------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                                      $39,112           $30,875           $24,535
------------------------------------------------------------------------------------------------------------------------

</TABLE>

                                       8

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Johnstown  America  Industries,  Inc. (the  Company) has two operating  segments
within the transportation  industry: truck components, a leading manufacturer of
wheel end  components,  seating,  steerable  drive  axles,  gearboxes  and other
castings  for the  heavy-duty  truck  industry;  and  freight  cars,  a  leading
manufacturer  and lessor of new and rebuilt  freight cars used for hauling coal,
intermodal containers,  highway trailers,  automobiles,  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 .

The Company  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.  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 the Company 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 66% and 60 %
of the Company's inventories as of December 31, 1998 and 1997, respectively, was
determined  on the  first-in,  first-out  (FIFO)  method,  with  the cost of the
remaining inventories,  representing certain inventories in the truck components
segment, determined on the last-in, first-out method (LIFO). Had all inventories
been  determined on the FIFO method at December 31, 1998 and 1997,  the reported
value of such  inventories  would have been  increased  by $1.1 million and $0.7
million, respectively.

PROPERTY, PLANT AND EQUIPMENT
Property,  plant and equipment is stated at cost less accumulated  depreciation.
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.

                                       9
<PAGE>

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 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.

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 should an impairment be identified,  a
loss would be recognized to the extent that the carrying  value exceeds the fair
value. 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,   except  pension  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
     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  nondiscounted
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 adopted by the Company  with minimal  impact in 1997.
This SOP provides  authoritative guidance on specific accounting issues that are
present  in  the  recognition,   measurement  and  disclosure  of  environmental
remediation liabilities.

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. 130, "Reporting Comprehensive Income" was issued in July 1997. This new
pronouncement  establishes  standards for reporting and display of comprehensive
income and its  components.  There were no other  comprehensive  income items to
report other than net income for 1998, 1997 and 1996.


                                       10
<PAGE>

SFAS  No.  131,  "Disclosures  about  Segments  of  an  Enterprise  and  Related
Information"   introduces  a  new  model  for  segment  reporting,   called  the
"management  approach."  The  management  approach  is based on the way that the
chief operating  decision maker organizes segments within the company for making
operating decisions and assessing performance. The Company adopted this standard
in 1998. See Note 13 for segment information.

SFAS No. 132,  "Employers'  Disclosure  about Pensions and other  Postretirement
Benefits"  was issued in February  1998 and was  adopted by the  Company  during
1998. This new pronouncement  requires the Company to standardize disclosure for
pension and other postretirement benefits. See Note 7.

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was
issued in June 1998 and must be  adopted by the  Company by the year 2000.  This
new pronouncement  will require the Company to record derivatives on the balance
sheet as  assets  or  liabilities,  measured  at fair  value and gains or losses
resulting  from the changes in the values of those  derivatives  to be accounted
for  depending on the use of the  derivative  and whether it qualifies for hedge
accounting.  The Company is  evaluating  the  standard and does not expect it to
have a material  impact on the  financial  results or  condition  of the Company
because the use of derivatives at the Company is not significant.

SOP 98-5,  "Reporting on Costs of Start-Up  Activities" was issued in April 1998
and was adopted by the Company in late 1998. The new pronouncement requires that
companies expense the costs of start-up  activities as those costs are incurred.
Previously,  such costs could have been  capitalized  and amortized and any such
unamortized  capitalized  costs  must  be  expensed  upon  adoption  of the  new
standard.  The adoption of this  standard did not have a material  impact on the
Company's financial position or results of operations.

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


--------------------------------------------------------------------------------
NOTE 3.  DETAIL OF CERTAIN ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
<TABLE>

<CAPTION>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,                                              1998                1997                 1996
                                                                      ----                ----                 ----
<S>                                                                 <C>                 <C>                  <C>
Balance at beginning of year                                        $2,294              $1,883               $1,690
Provision for doubtful accounts                                        673               1,904                  538
Net write-offs                                                      (1,188)             (1,493)                (345)
--------------------------------------------------------------------------------------------------------------------
Balance at end of year                                              $1,779              $2,294               $1,883
--------------------------------------------------------------------------------------------------------------------

INVENTORIES
(IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31,                                                                        1998                 1997
                                                                                          ----                 ----
Raw materials and purchased components                                                 $11,605              $10,894
Work in progress and finished goods                                                     55,073               47,780
--------------------------------------------------------------------------------------------------------------------
Inventories                                                                            $66,678              $58,674
--------------------------------------------------------------------------------------------------------------------


                                       11
<PAGE>


PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31,                                                                        1998                 1997
                                                                                          ----                 ----
Land                                                                                    $4,975               $4,683
Buildings and improvements                                                              30,748               28,615
Machinery and equipment                                                                127,487              121,081
Construction in progress                                                                 5,401                3,969
--------------------------------------------------------------------------------------------------------------------
                                                                                       168,611              158,348
Accumulated depreciation                                                                53,418               40,285
--------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net                                                    $115,193             $118,063
--------------------------------------------------------------------------------------------------------------------


LEASING BUSINESS ASSETS
(IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31,                                                                        1998                 1997
                                                                                          ----                 ----
Leasing business assets                                                                $20,747              $39,763
Accumulated depreciation                                                                 1,224                1,333
--------------------------------------------------------------------------------------------------------------------
Leasing business assets, net                                                           $19,523              $38,430
--------------------------------------------------------------------------------------------------------------------


INTANGIBLE ASSETS
(IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------
                                              ORIGINAL         ACCUMULATED                    NET BALANCE
                                                                          ------------------------------------------
AS OF DECEMBER 31,                                COST        AMORTIZATION                1998                 1997
                                       ---------------- -------------------               ----                 ----
Excess cost over net assets acquired          $204,520             $18,229            $186,291             $191,404
Trademarks                                      26,988               2,325              24,663               25,360
Technologies                                    20,722               2,735              17,987               18,807
Patents                                         17,278              11,718               5,560                7,320
Pension asset                                    3,879                  --               3,879                   --
Organization costs                                 742                 742                  --                  259
--------------------------------------------------------------------------------------------------------------------
Intangible assets                             $274,129             $35,749            $238,380             $243,150
--------------------------------------------------------------------------------------------------------------------


OTHER CURRENT LIABILITIES
(IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31,                                                                        1998                 1997
                                                                                          ----                 ----
Accrued interest                                                                        $9,166               $9,336
Accrued workers' compensation                                                            5,458                5,281
Current portion of postretirement
  and pension benefit reserves                                                           3,000                3,655
Accrued warranty                                                                         6,198                3,847
Other                                                                                   19,734               13,848
--------------------------------------------------------------------------------------------------------------------
Other current liabilities                                                              $43,556              $35,967
--------------------------------------------------------------------------------------------------------------------


                                       12
<PAGE>


OTHER LONG-TERM LIABILITIES
(IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31,                                                                        1998                 1997
                                                                                          ----                 ----
Postretirement and pension benefit reserves                                            $32,690              $29,880
Environmental reserves                                                                   9,904               10,402
Other                                                                                    5,000                5,011
--------------------------------------------------------------------------------------------------------------------
Other long-term liabilities                                                            $47,594              $45,293
--------------------------------------------------------------------------------------------------------------------


--------------------------------------------------------------------------------
NOTE 4.  SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------

(IN THOUSANDS)
-------------------------------------------------------------------------------------------------------------------
                                                COMMON        PAID-IN       RETAINED       EMPLOYEE
                                                 STOCK        CAPITAL       EARNINGS    RECEIVABLES          TOTAL
                                         -------------- -------------- -------------- -------------- --------------
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
Options exercised                                   --             17             --             --             17
Net income for year                                 --             --          7,466             --          7,466
-------------------------------------------------------------------------------------------------------------------
Balance-December 31, 1997                           98         55,066         15,886            (30)        71,020
Collection of employee receivables                  --             --             --             15             15
Options exercised                                    1          1,512             --             --          1,513
Common stock issued                                 --            314             --             --            314
Net income for year                                 --             --         37,855             --         37,855
-------------------------------------------------------------------------------------------------------------------
Balance-December 31, 1998                          $99        $56,892        $53,741           $(15)      $110,717
-------------------------------------------------------------------------------------------------------------------

</TABLE>

COMMON AND PREFERRED STOCK
The Company 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.

                                       13
<PAGE>

--------------------------------------------------------------------------------
NOTE 5.  LONG-TERM DEBT
--------------------------------------------------------------------------------

Long-term debt consisted of the following:
(IN THOUSANDS)
--------------------------------------------------------------------------------
AS OF DECEMBER 31,                         1998                 1997
                                           ----                 ----
Revolving credit line                    $   --              $    --
Tranche B term loan                      56,632               93,340
Industrial revenue bond                   5,300                5,300
Capital lease                             1,593                1,783
JAIX leasing debt                         9,183               29,159
---------------------------------------------------------------------
Total debt                               72,708              129,582
Current maturities                       (9,511)              (4,783)
---------------------------------------------------------------------
Long-term debt                          $63,197             $124,799
---------------------------------------------------------------------


Maturities of long-term debt are as follows:
(IN THOUSANDS)
----------------------------------------------------
AS OF DECEMBER 31, 1998
1999                                    $9,511
2000                                     8,792
2001                                    12,200
2002                                    15,512
2003                                    14,418
Thereafter                              12,275
----------------------------------------------------


SENIOR BANK FACILITIES
The Company entered into a credit  facility ( Senior Bank  Facilities) on August
23,  1995.  The  revolving  credit line  portion of the Senior  Bank  Facilities
provides for up to $75 million of outstanding  borrowings and letters of credit,
limited by the level of eligible  accounts  receivable  and  inventories.  As of
December  31,  1998,   availability  under  the  revolving  credit  line,  after
consideration  of  outstanding  letters  of credit of $14.1  million,  was $60.9
million.

At the Company's  election,  interest  rates per annum for the revolving  credit
line 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
range  between  1.50% and 2.50% for LIBOR loans and between  0.50% 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 loan 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,  1998  and  1997,  the  weighted  average  interest  rate  of  all
outstanding  loans  under the  Senior  Bank  Facilities  was  8.84%  and  9.01%,
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.  During  1998,  the Company  prepaid $35 million of the
Tranche B loan and  during  1997,  the  Company  retired  the  Tranche A loan in
conjunction  with the issuance of debt described in Note 6. As a result of these
prepayments, the Company recorded extraordinary charges, net of income taxes, of
$1.1 million and $2.0 million in 1998 and 1997,  respectively,  representing the
non-cash writeoff of related unamortized deferred financing costs. The revolving
credit line  matures on March 31,  2002 and the  Tranche B Term Loan  matures on
March 31, 2003.


                                       14

<PAGE>

The Senior Bank Facilities contain various financial covenants including capital
expenditure  limitations,  maximum leverage ratio,  interest coverage ratio, and
minimum  net  worth.  It also  restricts  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 (4.3% as of December 31, 1998) and can be redeemed by the Company
at any time.  The bonds are secured by a letter of credit issued by the Company.
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 credit line portion of the Senior Bank Facilities.

JAIX LEASING DEBT
On June 14, 1996, JAIX Leasing refinanced its then existing debt with a ten year
term loan. This debt is secured by JAIX Leasing's leases and assets and contains
various  covenants.  During 1998, the loan was prepaid by $19.5 million from the
proceeds of the sale of 380 JAIX  Leasing's  freight  cars. At December 31, 1998
and 1997, the average interest rate on the then outstanding  balances were 9.32%
and 8.78%, respectively.

OTHER
During 1997, 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 were $25 million and $75 million as of December 31,
1998 and 1997, respectively. The fixed rates of interest on these contracts were
6.14% as of December  31, 1998 and ranged from 5.98% to 6.32% as of December 31,
1997. The remaining  contract matures in August 2000. The impact of fixed versus
variable  interest  rates is recorded as  incurred,  as a component  of interest
expense. Costs associated with obtaining the Senior Bank Facilities,  the Senior
Subordinated Notes described in Note 6 and other indebtedness aggregated to $8.7
million as of December 31, 1998.  Such costs are amortized  over the term of the
related debt. Amortization of deferred financing costs amounted to $1.9 million,
$2.2 million and $3.2 million for the years ended  December 31, 1998,  1997, and
1996,  respectively.  As of December 31, 1998 and 1997, accumulated amortization
of such costs was $4.3 million and $4.0 million, respectively.


--------------------------------------------------------------------------------
NOTE 6.  SENIOR SUBORDINATED NOTES
--------------------------------------------------------------------------------

In conjunction  with the  acquisition of TCI, the Company issued $100 million of
Senior  Subordinated  Notes which are due August 15, 2005. In 1997,  the Company
issued $80 million of additional  notes due August 15, 2005  (collectively,  the
Notes) with substantially  identical terms to the already outstanding notes at a
$3.6  million  premium,  for an  effective  rate of 10.8%.  These  Notes have an
interest  rate of 11.75% per annum and are  guaranteed  on a  unsecured,  senior
subordinated  joint and  several  basis by each of the  Guarantor  Subsidiaries.
Pursuant to the  settlement of separate  interest rate  contracts in effect when
each portion of the Notes was issued,  the Company  realized a $0.8 million loss
and a $2.6 million gain upon the 1997 and 1995 issuances, respectively. The gain
and the loss are being amortized as an offset to interest  expense over the term
of the Notes.  The Notes have  customary  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.

                                       15
<PAGE>

--------------------------------------------------------------------------------
NOTE 7.  EMPLOYEE BENEFIT PLANS
--------------------------------------------------------------------------------

PENSION 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.  The plans'  assets  are held by  independent
trustees and consist primarily of equity and fixed income securities.

Pension  benefits  for  certain  JAC  employees  which  accrued  as a result  of
pre-acquisition  service  remain the  responsibility  of  Bethlehem  Steel.  The
Company initiated new pension plans for such employees for service subsequent to
the acquisition  date which  essentially  provide benefits similar to the former
plans.  Following the  acquisition of TCI, a certain TCI plan was frozen and was
replaced with a defined  contribution plan. The Company,  after consideration of
previously unrecognized amounts,  recognized a $1.7 million non-cash gain on the
termination of the plan in 1998.

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 JAC, the 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 Company does not offer any other significant postretirement benefits.

<TABLE>


The following table sets forth the plans' funded status:
<CAPTION>
(IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------
                                                              PENSION BENEFITS           POSTRETIREMENT BENEFITS
                                                        ------------------------------------------------------------
AS OF DECEMBER 31,                                                1998           1997           1998           1997
                                                                  ----           ----           ----           ----
<S>                                                            <C>            <C>            <C>            <C>
Benefit obligation at beginning of year                        $39,820        $32,144        $25,128        $19,732

CHANGE IN BENEFIT OBLIGATION
Service cost                                                     2,071          1,744          1,094            725
Interest cost                                                    2,781          2,371          1,796          1,660
Plan amendment                                                   5,155             --             --             --
Actuarial loss                                                     965          4,330            747          3,885
Special termination benefit loss                                   223             --             --             --
Settlement gain                                                 (1,688)            --             --             --
Benefits paid                                                   (5,977)          (769)        (1,301)          (874)
--------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year                              $43,350        $39,820        $27,464        $25,128
--------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year                 $27,352        $20,311       $     --       $     --
Actual return on plan assets                                     3,468          3,697             --             --
Employer contribution                                            5,081          4,113             --             --
Benefits paid                                                   (5,977)          (769)            --             --
--------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year                       $29,924        $27,352       $     --       $     --
--------------------------------------------------------------------------------------------------------------------

                                       16
<PAGE>
--------------------------------------------------------------------------------------------------------------------
                                                              PENSION BENEFITS           POSTRETIREMENT BENEFITS
                                                        ------------------------------------------------------------
AS OF DECEMBER 31,                                                1998           1997           1998           1997
                                                                  ----           ----           ----           ----
Benefit obligation in excess of plan assets                   $(13,426)      $(12,468)      $(27,464)      $(25,128)
Unrecognized net gain                                             (112)           (50)           (35)          (814)
Unrecognized prior service cost                                  9,242          4,924             --             --
--------------------------------------------------------------------------------------------------------------------
Net amount recognized                                          $(4,296)       $(7,594)      $(27,499)      $(25,942)
--------------------------------------------------------------------------------------------------------------------


--------------------------------------------------------------------------------------------------------------------
ACCRUED BENEFIT OBLIGATION                                    PENSION BENEFITS           POSTRETIREMENT BENEFITS
                                                        ------------------------------------------------------------
AS OF DECEMBER 31,                                                1998           1997           1998           1997
                                                                  ----           ----           ----           ----
Accrued benefit liability                                      $(8,175)       $(7,594)      $(27,499)      $(25,942)
Intangible asset                                                 3,879             --             --             --
--------------------------------------------------------------------------------------------------------------------
Net amount recognized                                          $(4,296)       $(7,594)      $(27,499)      $(25,942)
--------------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE ASSUMPTIONS                                  PENSION BENEFITS           POSTRETIREMENT BENEFITS
                                                        ------------------------------------------------------------
AS OF DECEMBER 31,                                                1998           1997           1998           1997
                                                                  ----           ----           ----           ----
Discount rate                                                    6.75%          7.00%          6.85%          7.10%
Expected return on plan assets                                   9.00%          9.00%             --             --
Rate of compensation increase                               3.00-4.00%     3.00-4.00%             --             --
--------------------------------------------------------------------------------------------------------------------


For measurement purposes, a 7.50% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1998 decreasing  gradually to an
ultimate rate of 4.25% by the year 2004.


(In thousands)
--------------------------------------------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST                     PENSION BENEFITS             POSTRETIREMENT BENEFITS
                                                    --------------------------------- ------------------------------
YEARS ENDED DECEMBER 31,                                  1998       1997       1996       1998      1997      1996
                                                          ----       ----       ----       ----      ----      ----
Service cost                                            $2,071     $1,744     $2,189     $1,094      $725      $854
Interest cost                                            2,781      2,371      2,173      1,796     1,660     1,340
Expected return on plan assets                          (2,273)    (3,725)    (2,143)        --        --        --
Amortization of unrecognized gains and losses               63      1,824      1,208        (32)      (98)     (183)
Amortization of unrecognized prior service cost            675        389         --         --        --        --
Special termination benefit loss                           223         --         --         --        --        --
--------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost                               $3,540     $2,603     $3,427     $2,858    $2,287    $2,011
--------------------------------------------------------------------------------------------------------------------
</TABLE>


Pursuant to a union  agreement  ratified at JAC in January 1998, JAC has offered
early  retirement  benefits to certain  freight car segment union  employees who
meet  certain  criteria  and  elect  such  benefits  by the  end of the  current
agreement term (October 31, 2001). The cost of the benefits for the program will
be recognized  over the  actuarially  determined  estimated  service life of the
eligible  employees.  The Company  recognized a minimum  pension  liability  for
underfunded  plans.  The  minimum  liability  is  equal  to  the  excess  of the
accumulated  benefit  obligation  over plan assets.  A  corresponding  amount is
recognized as an intangible asset.


                                       17
<PAGE>

Assumed  health care cost trend rates have a  significant  effect on the amounts
reported  for the health care plans.  A  one-percentage-point  change in assumed
health care cost trend rates would have the following effects:

<TABLE>

<CAPTION>
(IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1998                                                1-PERCENTAGE-                  1-PERCENTAGE-
                                                                      POINT INCREASE                 POINT DECREASE
                                                      --------------------------------------------------------------
<S>                                                                            <C>                          <C>
Effect on total of service and interest cost                                    $680                         $(592)

Effect on postretirement benefit obligation                                    5,661                        (4,778)
--------------------------------------------------------------------------------------------------------------------
</TABLE>


DEFINED CONTRIBUTION PLANS
Certain  of  the  Company's   subsidiaries  also  maintain  qualified,   defined
contribution  plans which provide  benefits to their employees based on employee
contributions,  years  of  service,  employee  earnings  or  certain  subsidiary
earnings, with discretionary  contributions allowed.  Expenses relating to these
plans were $4.7 million,  $3.2 million and $3.1 million for the years 1998, 1997
and 1996, respectively.


--------------------------------------------------------------------------------
NOTE 8.  INCOME TAXES
--------------------------------------------------------------------------------

The  provision  (benefit)  for income taxes before  extraordinary  item includes
current and deferred components as follows:
<TABLE>

<CAPTION>
(IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,                                                         1998           1997           1996
                                                                                 ----           ----           ----
<S>                                                                           <C>             <C>             <C>
Current taxes:
Federal                                                                       $24,286         $2,741          $  --
State                                                                           4,551            833           (134)
--------------------------------------------------------------------------------------------------------------------
                                                                               28,837          3,574           (134)
--------------------------------------------------------------------------------------------------------------------
Deferred taxes:
Federal                                                                           533          4,969           (444)
State                                                                            (437)           968            502
--------------------------------------------------------------------------------------------------------------------
                                                                                   96          5,937             58
--------------------------------------------------------------------------------------------------------------------
Provision (benefit) for income taxes
  before extraordinary item                                                   $28,933         $9,511           $(76)
--------------------------------------------------------------------------------------------------------------------


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

(IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,                                                         1998           1997           1996
                                                                                 ----           ----           ----
Income taxes at federal statutory rate                                           35.0%          35.0%         (34.0)%
State income taxes, net of federal benefit                                        4.2            6.3           (0.1)
Nondeductible amortization expense                                                2.6            9.5           32.7
Other, net                                                                        0.8           (0.7)            --
--------------------------------------------------------------------------------------------------------------------
Effective income tax rate                                                        42.6%          50.1%          (1.4)%
--------------------------------------------------------------------------------------------------------------------

                                       18
<PAGE>

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


(IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31,                                              1998                             1997
                                                                ----                             ----
                                                  ------------------------------------------------------------------
                                                         BENEFITS      OBLIGATIONS        BENEFITS      OBLIGATIONS
                                                  ------------------------------------------------------------------
Postretirement and pension benefit reserves               $12,458        $      --         $12,042        $      --
Environmental reserve                                       4,155               --           4,388               --
Accrued workers' compensation reserve                       1,862               --           1,721               --
Warranty reserve                                            2,924               --           1,500               --
Alternative minimum tax credit carryforward                    --               --           2,110               --
Property, plant and equipment                                  --          (26,487)             --          (27,674)
Trademarks and technologies                                    --          (18,339)             --          (19,061)
Inventories                                                    --           (2,412)             --           (2,818)
Other                                                       8,375           (3,419)          7,487           (2,547)
--------------------------------------------------------------------------------------------------------------------
Deferred tax benefits (obligations)                       $29,774         $(50,657)        $29,248         $(52,100)
--------------------------------------------------------------------------------------------------------------------

</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 liability or asset for
financial reporting. A deferred tax asset or liability 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. Tax 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, in 1999 through 2007 under the current tax
laws.

A valuation  allowance  of $1.0 million and $0.3 million as of December 31, 1998
and 1997, has been recorded to offset these state tax credit  carryforwards.  As
of  December  31,  1998 and  1997,  no other  valuation  allowances  are  deemed
necessary as management expects to realize all other deferred benefits as future
tax deductions.


--------------------------------------------------------------------------------
NOTE 9.  STOCK OPTION PLANS
--------------------------------------------------------------------------------


The Company  maintains a Stock Option Plan (the Option Plan) for  management and
nonaffiliated 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
nonaffiliated 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.

                                       19
<PAGE>


Certain information  regarding stock options issued by the Company is summarized
below:
<TABLE>


<CAPTION>
(IN THOUSANDS, EXCEPT WEIGHTED AVERAGE PRICES)
--------------------------------------------------------------------------------------------------------------------
                                                               OUTSTANDING                    EXERCISABLE
                                                      --------------------------------------------------------------
                                                                           WTD. AVG.                      WTD. AVG.
                                                               SHARES    EXER. PRICE         SHARES     EXER. PRICE
<S>                                                               <C>         <C>               <C>          <C>
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
Issued                                                            209           6.54
Exercised                                                         (10)          2.79
Canceled                                                          (50)         15.40
--------------------------------------------------------------------------------------------------------------------
December 31, 1997                                                 822           8.94            651            9.74
Issued                                                             72          15.35
Exercised                                                        (102)          6.57
--------------------------------------------------------------------------------------------------------------------
December 31, 1998                                                 792          $9.79            670           $9.62
--------------------------------------------------------------------------------------------------------------------


(In thousands, except weighted average prices)
--------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1998                                   Outstanding                         Exercisable
                                            ------------------------------------------------------------------------
                                                           Wtd. Avg       Wtd. Avg.                       Wtd. Avg.
       Range of Exercise Prices     Shares          Remaining Years     Exer. Price         Shares      Exer. Price
-------------------------------- ---------- ------------------------  -------------- -------------- ----------------
$2.50 - $11.13                         543                     7.42   $        6.41            469  $          6.25
12.13 - 25.63                          249                     6.71           17.18            201            17.47
--------------------------------------------------------------------------------------------------------------------


The Company measures  compensation  cost under the intrinsic value based method.
Had  compensation  expense been determined under the fair value based method pro
forma net income and diluted earnings per share would have been as follows:


(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,                                                 1998               1997                1996
                                                                         ----               ----                ----
Pro forma net income (loss)                                     $        37.7       $        6.9       $       (6.1)
Pro forma diluted earnings (loss) per share                              3.73               0.70              (0.62)


The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes  pricing  model  assuming  an  expected  life of 10 years,  a zero
dividend yield and the following weighted average assumptions:

---------------------------------------------------------- ------------------ ------------------ -------------------
YEARS ENDED DECEMBER 31,                                                1998               1997                1996
                                                                        ----               ----                ----
Risk free interest rate                                                 5.3%               6.3%                7.1%
Volatility rate                                                        60.9%              64.9%               56.6%
---------------------------------------------------------- ------------------ ------------------ -------------------
</TABLE>

--------------------------------------------------------------------------------
NOTE 10.  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 have arranged for the disposal of foundry and other wastes.

                                     20
<PAGE>

Such matters  include five  situations in which the Company,  through certain of
its truck components segment businesses 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 truck  components  segment  facilities  at which soil and
groundwater 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.  As a result of a private  party  settlement  of
certain pending litigation with a prior owner of Gunite, TCI and Gunite will not
be  responsible  (through a  contractual  undertaking  by the former  owner) for
certain  liabilities  and costs  resulting from Gunite's waste disposal prior to
the acquisition of Gunite by TCI in September 1987 at certain of such sites. The
Company has been notified,  however,  by certain other  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, 1998, the Company has a $10.7 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  $0.8  million per year in 1999 through  2003 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.  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.


--------------------------------------------------------------------------------
NOTE 11.  CONTINGENCIES
--------------------------------------------------------------------------------


In December 1992, JAC commenced a patent  infringement  lawsuit  against Trinity
Industries,  Inc.  (Trinity) in the United States District Court for the Western
District of Pennsylvania  alleging  infringement of JAC's patent for its BethGon
Coalporter(R)  freight car. The suit involved  Trinity's  manufacture,  sale and
offering  for sale of its  Aluminator  II coal freight car in  competition  with
JAC's BethGon  Coalporter(R) freight car, the tubs of which are covered by JAC's
patent.


                                       21
<PAGE>

In  April  1998,  JAC  settled  this  litigation.  Pursuant  to  the  settlement
agreement,  Trinity  paid  $16.75  million  in cash  as  damages  for  Trinity's
infringement.  In addition,  the settlement agreement provides that Trinity will
not market, manufacture, use, sell or lease its infringing Aluminator II freight
car  through  the  expiration  of the patent in November  1999.  The  settlement
agreement  further provides that the Company will covenant not to sue Trinity in
connection with Trinity's  marketing,  manufacturing,  using, selling or leasing
its single tub coal gondola freight car as presently designed and manufactured.

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.

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 12.  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, 1998, are as follows:
<TABLE>


<CAPTION>
(IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------
                                                                             CAPITAL LEASE         OPERATING LEASES
                                                                      ---------------------  -----------------------
<S>                                                                                 <C>                     <C>>
1999                                                                                  $395                   $5,191
2000                                                                                   395                    2,814
2001                                                                                   395                    1,968
2002                                                                                   281                    1,261
2003                                                                                   125                      861
Thereafter                                                                           2,003                    2,220
--------------------------------------------------------------------------------------------------------------------
Total minimum lease payments                                                         3,594                  $14,315
Less: Amount representing interest                                                   2,001
--------------------------------------------------------------------------------------------------------------------
Present value of minimum lease payments                                              1,593
Less: Current portion of obligation under capital lease                                212
--------------------------------------------------------------------------------------------------------------------
Noncurrent obligation under capital lease                                           $1,381
--------------------------------------------------------------------------------------------------------------------

</TABLE>


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.

Accumulated  depreciation of this asset was $0.4 million and $0.3 million as of
December 31, 1998 and 1997, respectively.

Total rental expense for the years 1998, 1997 and 1996 amounted to $7.4 million,
$6.5 million and $3.7 million, respectively.

                                       22
<PAGE>

--------------------------------------------------------------------------------
NOTE 13.  BUSINESS SEGMENT INFORMATION
--------------------------------------------------------------------------------

The  Company is engaged  in the  transportation  industry  and  operates  in two
business  segments.  Both  segments  operate  in  North  America.  There  are no
intersegment sales.

The Company's  reportable  segments are its strategic  business units that serve
separate  markets.  They are managed  separately  because each segment  serves a
different sector in the  transportation  field. The freight car segment consists
of Johnstown  America  Corporation,  Freight Car Services and JAIX Leasing.  The
truck components  segment consists of Gunite  Corporation,  Brillion Iron Works,
Bostrom Seating and Fabco Automotive.

The Company  accumulates  its  expenses  for the  Corporate  headquarters  which
provide  services to each of the operating  segments.  These costs are partially
allocated to the segments based primarily on the sales of each unit.

In each of 1998, 1997 and 1996 a different  customer  accounted for 10%, 12% and
13% of the Company's total revenue.  The particular customer sales were recorded
in the freight car segment's  revenues.  No other customer accounted for greater
than 10% of the Company's total revenue during these periods.

The accounting  policies of the segments are the same as those  described in the
summary of significant  accounting policies.  The Company evaluates performances
based on operating  income or loss before interest and income taxes, and also on
operating cash flow defined as operating  income or loss plus  depreciation  and
amortization.

<TABLE>


Segment information for the years 1998, 1997, 1996 is as follows:
<CAPTION>
(IN MILLIONS)                                     OPERATING     IDENTIFIABLE      DEPRECIATION          CAPITAL
                             NET SALES        INCOME (LOSS)           ASSETS  AND AMORTIZATION     EXPENDITURES
                       ---------------- --------------------  --------------------------------------------------
<S>                             <C>                   <C>             <C>               <C>               <C>
1998
Freight Car                     $532.5                $49.7(1)        $125.7              $6.7             $2.5(4)
Truck Components                 433.6                 49.8(2)         398.9              18.2              8.9
Corporate                          0.0                 (1.2)            59.8               1.4              0.1
--------------------------------------------------------------------------------------------------------------------
Total                           $966.1                $98.3           $584.4             $26.3            $11.5
1997
Freight Car                     $234.7                $(5.1)          $130.8              $6.5             $1.6(4)
Truck Components                 415.6                 60.6(3)         406.9              18.0              6.5
Corporate                          0.0                 (1.1)            41.1               2.1              0.1
--------------------------------------------------------------------------------------------------------------------
Total                           $650.3                $54.4           $578.8             $26.6             $8.2
1996
Freight Car                     $198.3                $(3.9)          $104.6              $8.1             $2.9(4)
Truck Components                 361.7                 35.5            409.4              18.0              6.8
Corporate                          0.0                 (1.2)            41.3               3.2              0.2
--------------------------------------------------------------------------------------------------------------------
Total                           $560.0                $30.4           $555.3             $29.3             $9.9
--------------------------------------------------------------------------------------------------------------------

(1)Includes favorable settlement of patent lawsuit litigation of $16.8 million.
(2)Includes pension termination gain of $1.7 million from former pension plan at Gunite Corporation.
(3)Includes reduction of environmental reserves of $14.3 million as a result of a settlement of litigation.
(4)JAIX Leasing  purchases of new or rebuilt freight cars for its leased fleet are excluded.  Such purchases
   aggregated to $4.9 million,  $27.6 million and $5.4 million in 1998, 1997 and 1996, respectively.
</TABLE>


                                       23
<PAGE>

--------------------------------------------------------------------------------
NOTE 14.  UNAUDITED QUARTERLY INFORMATION
--------------------------------------------------------------------------------
<TABLE>

<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------------------------------------------
1998                                                            FIRST         SECOND          THIRD          FOURTH
                                                              QUARTER        QUARTER        QUARTER         QUARTER
                                                      --------------------------------------------------------------
<S>                                                            <C>            <C>            <C>             <C>
Total revenue                                                  $231.2         $238.2         $242.8          $253.9
Gross profit                                                     30.5           33.0           37.2            39.4
Net income                                                       14.0            6.2            8.0             9.7
Diluted earnings per share                                       1.40           0.61           0.78            0.96
--------------------------------------------------------------------------------------------------------------------


1997                                                            FIRST         SECOND          THIRD          FOURTH
                                                              QUARTER        QUARTER        QUARTER         QUARTER
                                                      --------------------------------------------------------------
Total revenue                                                  $115.7         $158.2         $186.8          $189.6
Gross profit                                                     19.0           22.4           24.7            27.8
Net income (loss)                                                (1.9)          (0.5)           8.1             1.8
Diluted earnings (loss) per share                               (0.19)         (0.05)          0.83            0.18
--------------------------------------------------------------------------------------------------------------------

</TABLE>
--------------------------------------------------------------------------------
NOTE 15.  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  illustrate the composition of the Parent Company,
Guarantor Subsidiaries, and JAIX Leasing. 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 principal  elimination entries eliminate the Parent Company's  investment in
subsidiaries and intercompany balances and transactions.


                                       24

<PAGE>

                      CONDENSED CONSOLIDATING BALANCE SHEET

<TABLE>


(IN MILLIONS)
-----------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1998                                     PARENT     GUARANTOR           JAIX
                                                           COMPANY  SUBSIDIARIES        LEASING   ELIMINATIONS  CONSOLIDATED
<S>                                                          <C>          <C>              <C>         <C>             <C>
Cash and cash equivalents                                    $47.4        $(13.5)          $5.2        $    --         $39.1
Accounts receivable, net                                        --          81.3            0.4             --          81.7
Inventories                                                     --          66.7             --             --          66.7
Prepaid expenses and other                                     3.1          12.0            1.1             --          16.2
-----------------------------------------------------------------------------------------------------------------------------
Total current assets                                          50.5         146.5            6.7             --         203.7
Property, plant and equipment, net                             2.4         114.4           18.2           (0.3)        134.7
Other assets                                                 168.1         238.5            0.3         (160.9)        246.0
-----------------------------------------------------------------------------------------------------------------------------
Total assets                                                $221.0        $499.4          $25.2        $(161.2)       $584.4
-----------------------------------------------------------------------------------------------------------------------------
Accounts payable                                            $   --         $65.4           $0.2        $    --         $65.6
Other current liabilities                                    (16.0)         93.9            2.4             --          80.3
-----------------------------------------------------------------------------------------------------------------------------
Total current liabilities                                    (16.0)        159.3            2.6             --         145.9
Noncurrent liabilities                                          --          78.8            3.5             --          82.3
Long-term debt, less
  current maturities and intercompany
  advances (receivables)                                     126.3         110.5            8.7             --         245.5
Total shareholders' equity                                   110.7         150.8           10.4         (161.2)        110.7
-----------------------------------------------------------------------------------------------------------------------------
Total liabilities and
  shareholders' equity                                      $221.0        $499.4          $25.2        $(161.2)       $584.4
-----------------------------------------------------------------------------------------------------------------------------




                   CONDENSED CONSOLIDATING STATEMENT OF INCOME

(IN MILLIONS)
-----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998                                PARENT     GUARANTOR           JAIX
                                                           COMPANY  SUBSIDIARIES        LEASING   ELIMINATIONS  CONSOLIDATED
Total revenue                                              $    --        $957.8           $8.3        $    --        $966.1
Cost of sales                                                   --         821.0            4.9             --         825.9
-----------------------------------------------------------------------------------------------------------------------------
Gross profit                                                    --         136.8            3.4             --         140.2
Selling, general, administrative
  and amortization expenses                                    1.2          59.5            0.9             --          61.6
Gain on sale of leased freight cars                             --            --           (1.2)            --          (1.2)
Patent lawsuit settlement                                       --          (1.7)            --             --          (1.7)
Pension termination gain                                        --         (16.8)            --             --         (16.8)
-----------------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                       (1.2)         95.8            3.7             --          98.3
Interest expense, net                                         12.6          16.9            0.9             --          30.4
Equity (earnings) of subsidiaries                            (47.4)           --             --           47.4            --
Provision (benefit) for income taxes                          (5.4)         33.2            1.1             --          28.9
-----------------------------------------------------------------------------------------------------------------------------
Net income (loss) before
  extraordinary item                                          39.0          45.7            1.7          (47.4)         39.0
Extraordinary item, net of tax                                (1.1)           --             --             --          (1.1)
-----------------------------------------------------------------------------------------------------------------------------
Net income (loss)                                            $37.9         $45.7           $1.7         $(47.4)        $37.9
-----------------------------------------------------------------------------------------------------------------------------


                                       25
<PAGE>



                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS


(IN MILLIONS)
-----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998                            PARENT       GUARANTOR           JAIX
                                                       COMPANY    SUBSIDIARIES        LEASING    ELIMINATIONS   CONSOLIDATED
Cash flows from (used for)
  operating activities                                  $(29.6)          $82.4           $3.9         $    --          $56.7
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from (used for) investing activities:
Capital expenditures                                      (0.1)          (11.4)            --              --          (11.5)
Leasing business asset additions                            --              --           (4.9)             --           (4.9)
Proceeds from sale of leased assets                         --              --           24.3              --           24.3
Changes in restricted
  cash/other                                               0.2            (0.1)            --              --            0.1
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from (used for)
  investing activities                                     0.1           (11.5)          19.4              --            8.0
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from (used for)
financing activities:
Payments of term loans and
  capital lease                                          (36.7)           (0.2)            --              --          (36.9)
Net payments of JAIX
  Leasing debt                                              --              --          (20.0)             --          (20.0)
Intercompany advances                                     88.0           (88.0)            --              --             --
Payment of deferred financing
  costs and other                                          0.5              --           (0.1)             --            0.4
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from (used for)
financing  activities                                     51.8           (88.2)         (20.1)             --          (56.5)
Net increase (decrease) in cash
and cash equivalents                                      22.3           (17.3)           3.2              --            8.2
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
  beginning of year                                       25.1             3.8            2.0              --           30.9
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
  end of year                                            $47.4          $(13.5)          $5.2         $    --          $39.1
-----------------------------------------------------------------------------------------------------------------------------



                                       26


<PAGE>



                      CONDENSED CONSOLIDATING BALANCE SHEET

(In millions)
------------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1997                                    PARENT      GUARANTOR           JAIX
                                                          COMPANY   SUBSIDIARIES        LEASING   ELIMINATIONS   CONSOLIDATED
Cash and cash equivalents                                   $25.1           $3.8           $2.0        $    --          $30.9
Accounts receivable, net                                       --           60.5             --             --           60.5
Inventories                                                    --           58.7             --             --           58.7
Prepaid expenses and other                                    2.6           13.9            1.0             --           17.5
------------------------------------------------------------------------------------------------------------------------------
Total current assets                                         27.7          136.9            3.0             --          167.6
Property, plant and equipment, net                            2.6          117.3           36.9           (0.3)         156.5
Other assets                                                124.7          242.8            0.8         (113.6)         254.7
------------------------------------------------------------------------------------------------------------------------------
Total assets                                               $155.0         $497.0          $40.7        $(113.9)        $578.8
------------------------------------------------------------------------------------------------------------------------------
Accounts payable                                             $0.5          $54.7        $    --        $    --          $55.2
Other current liabilities                                     2.7           60.2            0.5             --           63.4
------------------------------------------------------------------------------------------------------------------------------
Total current liabilities                                     3.2          114.9            0.5             --          118.6
Noncurrent liabilities                                         --           78.2            3.5             --           81.7
Long-term debt, less
  current maturities and intercompany
  advances (receivables)                                     80.8          198.8           27.9             --          307.5
Total shareholders' equity                                   71.0          105.1            8.8         (113.9)          71.0
------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
  shareholders' equity                                     $155.0         $497.0          $40.7        $(113.9)        $578.8
------------------------------------------------------------------------------------------------------------------------------



                   CONDENSED CONSOLIDATING STATEMENT OF INCOME

(In millions)
-----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997                            PARENT       GUARANTOR           JAIX
                                                       COMPANY    SUBSIDIARIES        LEASING    ELIMINATIONS   CONSOLIDATED
Total revenue                                          $    --          $642.8           $7.6         $    --         $650.4
Cost of sales                                               --           552.4            4.0              --          556.4
-----------------------------------------------------------------------------------------------------------------------------
Gross profit                                                --            90.4            3.6              --           94.0
Selling, general, administrative
  and amortization expenses                                1.1            53.5            0.1              --           54.7
Gain on sale of leased freight cars                         --              --           (0.8)             --           (0.8)
Reduction of environmental reserves                         --           (14.3)            --              --          (14.3)
-----------------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                   (1.1)           51.2            4.3              --           54.4
Interest expense, net                                     12.3            20.9            2.2              --           35.4
Equity (earnings) of subsidiaries                        (17.6)             --             --            17.6             --
Provision (benefit) for income taxes                      (5.3)           14.2            0.6              --            9.5
-----------------------------------------------------------------------------------------------------------------------------
Net income (loss) before
  extraordinary item                                       9.5            16.1            1.5           (17.6)           9.5
Extraordinary item, net of tax                            (2.0)             --             --              --           (2.0)
-----------------------------------------------------------------------------------------------------------------------------
Net income (loss)                                         $7.5           $16.1           $1.5          $(17.6)          $7.5
-----------------------------------------------------------------------------------------------------------------------------


                                       27
<PAGE>



                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(IN MILLIONS)
-----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997                            PARENT       GUARANTOR           JAIX
                                                       COMPANY    SUBSIDIARIES        LEASING    ELIMINATIONS   CONSOLIDATED
Cash flows from (used for)
  operating activities                                   $(5.2)          $29.5           $2.4         $    --          $26.7
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from (used for) investing activities:
Capital expenditures                                      (0.1)           (8.2)            --              --           (8.3)
Leasing business asset additions                            --              --          (27.6)             --          (27.6)
Proceeds from sale of leased assets                        3.1              --            7.1              --           10.2
Changes in restricted
  cash/other                                                --             0.6             --              --            0.6
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from (used for)
  investing activities                                     3.0            (7.6)         (20.5)             --          (25.1)
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from (used for) financing activities:
Issuance of long-term debt                                82.8              --             --              --           82.8
Payments of term loans and
  capital lease                                          (90.0)           (0.1)            --              --          (90.1)
Net proceeds from JAIX
  Leasing debt                                              --              --           15.6              --           15.6
Intercompany advances                                     19.4           (19.4)            --              --             --
Payment of deferred financing
  costs and other                                         (3.0)             --           (0.5)             --           (3.5)
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from (used for)
  financing  activities                                    9.2           (19.5)          15.1              --            4.8
Net increase (decrease) in cash
  and cash equivalents                                     7.0             2.4           (3.0)             --            6.4
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
  beginning of year                                       18.1             1.4            5.0              --           24.5
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
  end of year                                            $25.1            $3.8           $2.0         $    --          $30.9
-----------------------------------------------------------------------------------------------------------------------------


                                       28
<PAGE>



                   CONDENSED CONSOLIDATING STATEMENT OF INCOME

(IN MILLIONS)
-----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996                            PARENT       GUARANTOR           JAIX
                                                       COMPANY    SUBSIDIARIES        LEASING    ELIMINATIONS   CONSOLIDATED
Total revenue                                          $    --          $555.6           $4.4         $    --         $560.0
Cost of sales                                               --           472.1            2.1              --          474.2
-----------------------------------------------------------------------------------------------------------------------------
Gross profit                                                --            83.5            2.3              --           85.8
Selling, general, administrative
  and amortization expenses                                1.2            55.6             --              --           56.8
Gain on sale of leased freight cars                         --              --           (1.4)              --          (1.4)
-----------------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                   (1.2)           27.9            3.7              --           30.4
Interest expense, net                                     11.4            21.7            2.7              --           35.8
Equity (earnings) of subsidiaries                         (2.0)             --             --             2.0             --
Provision (benefit) for income taxes                      (5.2)            4.8            0.4              --             --
-----------------------------------------------------------------------------------------------------------------------------
Net income (loss)                                        $(5.4)           $1.4           $0.6           $(2.0)         $(5.4)
-----------------------------------------------------------------------------------------------------------------------------



                                       29
<PAGE>



                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(IN MILLIONS)
-----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996                            PARENT       GUARANTOR           JAIX
                                                       COMPANY    SUBSIDIARIES        LEASING    ELIMINATIONS   CONSOLIDATED
Cash flows from (used for)
  operating activities                                   $(5.0)          $40.1           $1.3         $    --          $36.4
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from (used for) investing activities:
Capital expenditures                                      (0.2)           (9.7)            --              --           (9.9)
Leasing business asset additions                          (4.9)            0.3           (0.8)             --           (5.4)
Proceeds from sale of leased freight cars                   --              --           18.1              --           18.1
Changes in restricted
  cash/other                                                --             0.8             --              --            0.8
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from (used for)
  investing activities                                    (5.1)           (8.6)          17.3              --            3.6
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from (used for) financing activities:
Payments of term loans and
  capital lease                                          (16.6)           (0.2)            --              --          (16.8)
Net payments of JAIX
  Leasing debt                                              --              --           (8.8)             --           (8.8)
Intercompany advances                                     27.1           (23.7)          (3.4)             --             --
Dividends received/ (paid)                                 1.6              --           (1.6)             --             --
Payment of deferred financing
  costs                                                   (0.8)             --           (0.7)             --           (1.5)
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from (used for)
  financing  activities                                   11.3           (23.9)         (14.5)             --          (27.1)
Net increase in cash
  and cash equivalents                                     1.2             7.6            4.1              --           12.9
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
  beginning of year                                       16.9            (6.2)           0.9              --           11.6
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
  end of year                                            $18.1            $1.4           $5.0         $    --          $24.5
-----------------------------------------------------------------------------------------------------------------------------

</TABLE>

                                       30

<PAGE>
--------------------------------------------------------------------------------
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  total  debt,
including JAIX Leasing,  was  approximately  $264 million and $327 million as of
December 31, 1998 and 1997,  respectively.  No quoted  market value is available
except for the Notes which had a market value of approximately  $190 million and
$196  million as of  December  31,  1998,  and 1997,  respectively.  Outstanding
interest  rate  contracts,  based on  current  market  pricing  models,  have an
estimated  discounted  fair market  value of negative  $0.4 million and negative
$0.2 million as of December 31, 1998 and 1997, respectively. JAIX Leasing's debt
has  approximate  fair market  value of $10.2  million  and $30.1  million as of
December 31, 1998 and 1997, respectively. All other financial instruments of the
Company have fair market values which approximate  carrying value as of December
31, 1998 and 1997.


--------------------------------------------------------------------------------
NOTE 18.  SUPPLEMENTAL CASH FLOWS
--------------------------------------------------------------------------------

(IN THOUSANDS)
--------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,                         1998         1997         1996
                                                 ----         ----         ----
Cash paid for:
Interest                                      $31,040      $30,157      $31,487
Income taxes                                   28,914          952        1,382
--------------------------------------------------------------------------------



                                       31
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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. and Subsidiaries as of December 31, 1998 and 1997, and
the  related  consolidated  statements  of income and cash flows for each of the
three years in the period ended December 31, 1998. 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, 1998 and 1997,  and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31,  1998,  in  conformity  with  generally  accepted
accounting principles.


/s/ARTHUR ANDERSEN LLP
---------------------------
ARTHUR ANDERSEN LLP

Chicago, Illinois
January 27, 1999


                                       32
<PAGE>



REPORT OF MANAGEMENT


The management of Johnstown  America  Industries,  Inc. is  responsible  for the
fairness and accuracy of the consolidated financial statements. The consolidated
financial  statements have been prepared in accordance  with generally  accepted
accounting  principles,  using  management's best estimates and judgements where
appropriate. The financial information throughout this report is consistent with
our consolidated financial statements.

Management  has  established  a  system  of  internal   controls  that  provides
reasonable assurance that assets are adequately safeguarded and transactions are
recorded accurately,  in all material respects,  in accordance with management's
authorization.  Our internal  controls  provide for  appropriate  separation  of
duties  and  responsibilities,  and  there  are  documented  policies  regarding
utilization of company  assets and proper  financial  reporting.  These formally
stated and regularly  communicated  policies  demand highly ethical conduct from
all employees.

The Audit  Committee of the Board of Directors meets regularly to determine that
management  and  independent  auditors  are  properly  discharging  their duties
regarding internal control and financial reporting. The independent auditors and
employees have full and free access to the Audit Committee at any time.

Arthur Andersen LLP,  independent public accountants,  are retained to audit the
consolidated financial statements.


/s/THOMAS M. BEGEL                             /S/ANDREW M. WELLER
-----------------------                        -----------------------------
Thomas M. Begel                                Andrew M. Weller
Chairman, President and                        Executive Vice President and
Chief Executive Officer                        Chief Financial Officer



January 27, 1999