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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K/A



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|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2006

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from  to

Commission File Number: 000-51728



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American Railcar Industries,
Inc.

(Exact name of Registrant as Specified in its Charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 43-1481791                             
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification Number)

100 Clark Street

St. Charles, Missouri 63301

(Address of principal executive offices,
including zip code)

Telephone (636) 940-6000



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Securities registered pursuant
to Section 12(b) of the Act: Common Stock, par value $.01 per share

Securities registered pursuant to Section 12(g) of the
Act: None



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Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes ̈No  x

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.    Yes ̈No  x

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such a shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
10-K. ̈

Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check One)

Large Accelerated Filer ̈Accelerated Filer ̈Non-Accelerated Filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes ̈No  x

The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day or the registrants most recently completed
second fiscal quarter was approximately $325 million, based on the closing sales price of $33.11 per share of such stock on The Nasdaq National Market on June 30, 2006.

As of February 9, 2007, as reported on the Nasdaq Global Market, there were 21,217,297 shares of common stock, par value $0.01 per share, of the Registrant outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the
following document are incorporated by reference in Part III of this Form 10-K Report:

(1) Proxy Statement for the Registrants 2007 Annual Meeting
of Shareholders  Items 10, 11, 12, 13 and 14.



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EXPLANATORY NOTE

American Railcar Industries, Inc. (the Company) hereby amends, as set forth below, its Report on Form 10-K filed on February 13, 2007 (the Original Report) solely with regard to Item 1,
Business, Item 1A, Risk Factors, Item 6, Selected Consolidated Financial Data, and Item 8, Financial Statements and Supplementary Data, of the Original Report.

This amendment corrects backlog information related to the year ended December 31, 2006 that was contained in Items 1 and 1A of the Original Report, to eliminate an inadvertent duplication as a result of a customer
change to an order.

Item 6 of the Original Report incorrectly contained a footnote to the selling, administrative and other line item.
This amendment to the Original Report eliminates that footnote and corrects the numbering of the remaining footnotes.

The Consolidated
Statements of Operations in Item 8 of the Original Report duplicated the stock based compensation expense line item due to typographical error. The earnings from operations number contained in the Consolidated Statements of Operations in Item 8 of
the Original Report was correct notwithstanding the typographical error. This amendment to the Original Report eliminates the duplicative appearance of stock based compensation expense in the Consolidated Statements of Operations in Item 8 of the
Original Report and corrects a typographical error in the index to the consolidated financial statements in Item 8 of the Original Report.

Items 1, 1A, 6 and 8 of the Original Report are hereby amended in their entirety, as set forth below. The Company does not hereby make any other changes to the Original Report.



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AMERICAN RAILCAR INDUSTRIES, INC.

FORM 10-K

PART I

Item 1: Business

INTRODUCTION

We are a leading North American designer, manufacturer and marketer of covered hopper and tank railcars. We also repair and refurbish railcars, provide fleet management services and design, manufacture and market certain railcar and
industrial components used in the production of our railcars as well as railcars and non-railcar industrial products produced by others. We provide our railcar customers with integrated solutions through a comprehensive set of high quality products
and related services.

Our primary customers include companies that purchase railcars for lease by third parties, or leasing companies, industrial
companies that use railcars for freight transport, or shippers, and Class I railroads. In servicing this customer base, we believe our integrated railcar repair and refurbishment and fleet management services and our railcar components manufacturing
business help us further penetrate the general railcar manufacturing market. These products and services provide us with significant cross-selling opportunities and insights into our customers railcar needs that we use to improve our products
and services and enhance our reputation. Although we build, service and manage railcars through an integrated, complementary set of products and services, unlike some of our competitors, we have chosen not to offer railcar leasing services so that
we do not compete with our leasing company customers, which represent a significant portion of our revenues. We own all of our primary railcar manufacturing complexes.

We operate in two reportable segments: manufacturing and railcar services. Financial information about our business segments for the years ended December 31, 2004, 2005 and 2006 is located in Note 18 of our
Consolidated Financial Statements.

We were incorporated in Missouri in 1988 and reincorporated in Delaware in January 2006 by way of merger. Unless the
context otherwise requires, references to our company, we, us and our, refer to us and our consolidated subsidiaries and our predecessors.

ADDITIONAL INFORMATION

Our principal executive offices are located at 100 Clark Street, Saint Charles, Missouri
63301, our telephone number is (636) 9406000 and our internet website is located at http://www.americanrailcar.com.

We are a reporting
company and file annual, quarterly, and special reports, proxy statements and other information with the Securities and Exchange Commission (SEC). You may read and copy these materials at the Public Reference Room maintained by the SEC at Room 1580,
100 F Street N.E., Washington, D.C. 20549. You may call the SEC at 1-800-SEC-0330 for more information on the operation of the public reference room. The SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding issuers that file electronically with the SEC. Copies of our annual, quarterly and special reports, Audit Committee Charter and our Corporate Governance Guidelines are available on our web site
at http://www.americanrailcar.com or free of charge by contacting our Investor Relations Department at American Railcar Industries, Inc., 100 Clark Street, Saint Charles, Missouri, 63301.

ARI®, Pressureaide®, Center Flow® and our railcar logo are our U.S. registered trademarks. Each trademark, trade name or service mark of any other company
appearing in this report belongs to its respective holder.

OUR HISTORY

Since our formation in 1988, we have grown our business from being a small provider of railcar components and maintenance services to one of North Americas leading integrated providers of railcars, railcar
components, railcar maintenance services and fleet management services. In October 1994, we acquired railcar components manufacturing and



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railcar maintenance assets from ACF Industries Incorporated (now known as ACF Industries LLC), or ACF, a company controlled by Carl C. Icahn, our principal
beneficial stockholder and the chairman of our board of directors. Through this acquisition, we also hired members of ACFs management, many of whom, including our president, remain a significant part of our current management team. These
executives brought with them established relationships with important customers and suppliers and extensive industry knowledge, as ACF and its predecessor companies have roots in the railcar manufacturing industry that trace back to 1873. Led by
this management team, we entered the railcar manufacturing business through the construction of new manufacturing facilities.

In October 1995, we produced
our first railcar at our Paragould, Arkansas manufacturing complex, where we primarily manufacture covered hopper railcars, but have the ability to manufacture many other types of railcars. The Paragould complex initially had two railcar
manufacturing lines. We added painting and lining capabilities to this complex in 1999, a third manufacturing line in 2004 and increased painting and lining capabilities to accommodate our increased production in 2005. Our Paragould complex also
features component manufacturing capabilities including a parts fabrication facility, which was added in 2005.

In January 2000, we produced our first
railcar at our Marmaduke, Arkansas manufacturing complex, where we manufacture tank railcars. The design of this complex enables us to manufacture many different types of tank railcars at the same time. In January 2007, we completed an expansion of
our tank railcar production capacity at our Marmaduke complex. We recently began construction of a new flexible railcar manufacturing plant at our Marmaduke complex.

Since 1994, we have significantly expanded our components manufacturing and railcar services operations. Our operations now include three railcar assembly, sub-assembly and fabrication complexes, three railcar and
industrial component manufacturing facilities, six railcar repair plants and four mobile repair units. Our services business has grown to include online access by customers, remote fleet management, expanded painting, lining and cleaning offerings,
regulatory consulting and engineering support. Additionally, members of our management team helped found and develop, and continue to operate, a joint venture, Ohio Castings Company, LLC, which we refer to as Ohio Castings, in which we own a
one-third interest and that manufactures and sells sideframes, bolsters, couplers and yokes for distribution to third parties and to us. We believe that our involvement in this joint venture helps us maintain our levels of production at competitive
prices, despite industry-wide shortages of these potentially capacity constraining components.

OUR BUSINESS STRENGTHS AND COMPETITIVE ADVANTAGES

We believe that the following key business strengths and competitive advantages will contribute to our growth:

Leading railcar manufacturer with focus on the covered hopper and tank railcar markets

We are a leading North American manufacturer of covered hopper and tank railcars. Over the last three years, we believe we have produced an estimated 29% of the covered hopper railcars and an estimated 14% of the tank
railcars delivered in North America. Based on a report by the Association of American Railroads, these represent the two largest segments of the North American railcar industry, with covered hopper railcars representing approximately 30% and tank
railcars representing approximately 19% of the total North American railcar fleet, based on the number of railcars in service. We believe our railcars are differentiated by their superior quality, innovation and reliability.

Modern non-union, low cost, owned railcar manufacturing complexes in strategic locations

We manufacture all of our railcars in modern, owned complexes built in the last twelve years. We believe our Paragould and Marmaduke, Arkansas railcar production complexes to be among the newest covered hopper and
tank railcar production plants in North America. We designed these complexes to provide manufacturing flexibility and allow for the production of a variety of railcar sizes and types. We strategically located these complexes in close proximity to
our main customers and suppliers. This reduces freight time and costs for the components we purchase and the time for delivery of completed railcars. Over the past several years, we have increased our production capacity and efficiency and reduced
our costs per railcar through a number of targeted operational improvements, which has also reduced the amount of raw materials necessary for production of railcars. We emphasize flexibility in our employees training and, consequently, our
employees frequently move both between locations on manufacturing lines and among our different manufacturing complexes. Currently, none of our over 1,100 employees at our Paragould and Marmaduke complexes is represented by a union. However,
employees of three of our repair facilities and one of our component manufacturing facilities, representing 10.4% of our total workforce as of December 31, 2006, are represented by unions.



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Substantial contracted backlog into 2009

As of December 31, 2006, we have 16,473 railcars in backlog with estimated value of $1,318 million. This backlog translates to over 220% of 2006 manufacturing revenues. We anticipate that approximately 50% of
this backlog will be converted to revenues by the end of 2007 and we expect that the remainder of the backlog will be produced by the end of 2009. Historically, there has been minimal variation between the number of railcars ordered and the number
of railcars actually delivered. We believe that our backlog as a percentage of revenues is substantially higher than most of our competitors driven by our reputation for quality, innovation and reliability. Our backlog does not include orders for
railcar repair and refurbishment services, components or fleet management.

Preferred access to components through in-house production, a joint venture
and strategic sourcing arrangements

We produce many of the components necessary to our railcar manufacturing business ourselves and we own a one-third
interest in, and our management team along with our venture partners operates, our Ohio Castings joint venture from which we obtain certain other components. We believe our in-house production capabilities and our involvement in this joint venture
help us maintain access to components at competitive prices, despite industry-wide shortages of these potentially capacity constraining components. We also have developed and actively maintain strategic sourcing arrangements and strong relationships
with our suppliers. These arrangements and relationships help ensure our continued access to critical components and raw materials we use to produce railcars, including steel, wheels and heavy castings. We also have agreements to diversify our
supply of steel. We believe our attention to strengthening our supply chain helps us maintain operational continuity and high production levels.

Integrated railcar repair and refurbishment and fleet management services complement railcar manufacturing

We provide a wide array of
complementary products and services to the railcar industry. Unlike some other railcar manufacturers, we also repair, maintain and provide fleet management services for existing railcars, including railcars built by others, and manufacture railcar
components for third parties and us. We believe this diverse product and service offering provides us with a competitive advantage relative to other railcar manufacturers, primarily in the form of cross-selling opportunities with respect to our
repair and fleet management services. For example, customers of our repair business that have experienced problems with our competitors railcars have transferred railcar orders to us after our repair workers were able to identify the benefits
of our railcars compared to our competitors. We also believe that our ability to address the needs of our customers throughout the lifecycle of a railcar enhances our customer relationships and provides us with additional growth opportunities
and unique insights into industry trends. As of December 31, 2006, we have approximately 62,000 railcars under management.

Strong relationships
with a long-term customer base

We believe that our customers value our products and services. Many of our major customers have been doing business with
us for a number of years, including CIT, Dow Chemical Company, GE Capital Corporation and Solvay America, Inc. Many of our customers have demonstrated a willingness to purchase several different types of our products and services over time. For
example, GE Capital Corporation purchases pressure and non-pressure tank railcars, covered hopper railcars and fleet management services from us and The CIT Group, Inc. purchases our tank railcars as well as cement, grain, sugar and plastic pellet
covered hopper railcars. Unlike some of our competitors, we do not compete with the railcar leasing businesses of our customers. We believe we deliver high quality products and services to our customers with low operating and maintenance costs,
while maintaining what we believe are low levels of warranty claims.

Strong management team with long-standing industry experience

We have an experienced senior operations management team that has an average of over 25 years of experience in the railcar and related manufacturing industries. Most of
our senior operations management team, including our president, James J. Unger, has been with us since we began manufacturing railcars. This team conceived and built our Paragould and



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Marmaduke railcar manufacturing complexes and has been responsible for growing our revenues from $80.9 million in 1994 to $646.1 million in 2006. We believe
our management successfully managed our business during the most recent cyclical downturn in the railcar manufacturing industry while positioning us to capitalize on the current upturn in our industry. Members of our management, in particular our
president, Mr. Unger, have risen to leadership roles on a number of prominent industry committees and associations, which provide us with insight into the railcar industry, trends and customer needs. We believe our active participation in
industry committees and associations strengthens our relationships with our customers and suppliers and increases our profile and reputation in the North American railcar market.

OUR STRATEGY

The key elements of our business strategy are as follows:

Maintain and expand presence in covered hopper and tank railcar markets

We intend to maintain and expand our presence in the covered hopper and tank railcar markets by continuing to deliver high quality and innovative products. We believe our excellent customer relationships have enabled us to identify market
demands that we then target through our product development and marketing efforts. We intend to continue the close collaboration between our customers and our engineering, marketing, operations and management personnel to meet demand and, where
appropriate, to selectively expand production capacity.

Continue to improve operating efficiencies

We intend to build on the success of our production initiatives at our Paragould and Marmaduke railcar manufacturing complexes and plan to continue to identify
opportunities to enhance operating efficiencies across these and our other manufacturing facilities. These opportunities include our continued streamlining of our manufacturing processes and our quality control initiatives. For example, the
additional painting and lining capabilities we constructed at our Paragould facility reduced costs and further increased our manufacturing efficiency and have speeded delivery of our products to our customers. We also intend to continue the efforts
of our design cost reduction team, formed in 2003, which has already significantly reduced our railcar production costs through standardization of components used in our railcars, implemented design changes to reduce the amount of raw material
required for our railcars, and improved manufacturing techniques that reduce our labor requirements. These efforts should allow us to reduce our costs and maintain competitive prices.

Continue to grow railcar service and fleet management businesses and increase sales of railcar and industrial components

As the existing North American railcar fleet continues to age, we anticipate increased demand for maintenance and repair services and railcar components used in the maintenance and repair of railcars. Additionally, we expect growing demand
for our fleet management services as ownership of railcars continues to shift away from the railroads and toward the shippers and leasing companies, which often outsource their fleet management activities to third-party service providers such as us.
We intend to capitalize on these trends and we believe we are well positioned to provide increased services through our strategically located network of railcar repair and service facilities.

Leverage manufacturing expertise to selectively expand product portfolio

We may seek to expand our product portfolio to other selected types of railcars. Our management designed and constructed our Paragould manufacturing facility to be able to produce most railcar types, and we believe our adaptive production
lines and flexible employees are able to shift production among various railcar types with minimal interruption to our operations. For example, we have in the past produced centerbeam platform railcars and may in the future produce other types of
railcars, including various intermodal railcars, such as the innovative platform railcar. In addition, as the existing fleet of North American railcars is aging, expansion of our product portfolio into new railcar types will allow us to grow our
business by capturing a portion of the natural replacement demand for existing railcar types. Our ability to produce other types of railcars positions us to respond to customer requests for production outside of our traditional markets and provides
us additional manufacturing flexibility in the event the covered hopper or tank railcar markets weaken.



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Selectively pursue strategic external growth opportunities

We believe that we have the financial flexibility to supplement internal growth with select acquisitions, alliances or joint ventures. We also believe our in-house
fabrication of railcar components and our Ohio Castings joint venture provide us with competitive advantages and we intend to enhance these advantages by selectively acquiring or establishing strategic relationships with railcar components
manufacturers and suppliers of critical raw materials. Successful acquisitions of or collaborations with these manufacturers and suppliers should help mitigate the risk of supply shortages of key components and raw materials we need for our
business. We have in the past engaged in preliminary discussions with certain parties regarding potential strategic acquisitions, alliances or joint ventures. As of the date of filing of this Annual Report on Form 10-K, we have no commitments to
enter into any acquisition, alliance or joint venture. We may also seek to expand our railcar components business into international markets on an opportunistic basis.

OUR PRODUCTS AND SERVICES

We design and manufacture special, customized and general purpose railcars and a wide
range of components primarily for the North American railcar and industrial markets. We also support the railcar industry through a variety of integrated railcar services, including repair, maintenance, consulting, engineering and fleet management
services.

Manufacturing

We manufacture two primary
types of railcars, covered hopper railcars and tank railcars.

Covered hopper railcars. We believe we are a leading manufacturer of covered
hopper railcars in North America. We manufacture both general service and specialty covered hopper railcars. Our general service covered hopper railcars have volumes ranging from 3,200 to 5,200 cubic feet and primarily carry cement, grain and other
food products, soda ash and other dry granular products. Our specialty covered hopper railcars, which include our Pressureaide® covered hopper railcars and plastic pellet railcars, have volumes ranging from 3,300 to 6,500 cubic feet. The
Pressureaide® railcars use air pressure to assist unloading. Our specialty covered hopper railcars primarily carry flour, clays, food, industrial grade corn starches and plastic pellets.

Revenues attributable to sales of our covered hopper railcars were approximately $84.8 million, $293.8 million and $420.1 million in 2004, 2005 and 2006, respectively.
These revenues represented 24%, 48% and 65% of our total revenues in 2004, 2005 and 2006, respectively. We sold 1,507, 4,240 and 5,625 covered hopper railcars in 2004, 2005 and 2006, respectively.

In 2006, we further expanded our railcar sub assembly and small components manufacturing capabilities through the acquisition of Custom Steel, Inc. Custom Steel operates
a facility located adjacent to our facility in Kennett, Missouri that we have successfully added into our railcar sub assembly group. This facility produces value-added fabricated steel components that primarily support our railcar manufacturing
operations.

All of our covered hopper railcars may be equipped with varying combinations of hatches, discharge outlets and protective coatings to provide
our customers with a railcar designed to perform in precise operating environments. The flexible nature of our covered hopper railcar design allows it to be quickly modified to suit changing customer needs. This flexibility can continue to provide
value after the initial purchase because our railcars may be converted for reassignment to other services or customers. We provide a range of coatings to protect the railcar and the shippers product against corrosion and product contamination.
We build carbon steel and stainless steel covered hopper railcars.

Our covered hopper railcars are specifically designed for shipping a variety of dry
bulk products, from light density products, such as plastic pellets, to high density products, such as cement. Depending upon the equipment on the railcars, they can operate in either a gravity or vacuum pneumatic unloading environment. Since its
introduction, we have improved our Center Flow® line of covered hopper railcars to provide protection for a wide range of dry bulk products and to enhance the associated loading, unloading and cleaning processes. Examples of these improvements
include new and better design of the shape of the railcars, joint designs, outlet mounting frames and loading hatches and discharge outlets, which enhance the cargo loading and unloading processes.



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We have several versions of our covered hopper railcar that target specific customers and specific loads, including:



| |  |  | Grain Railcars. These railcars are a large group of covered hopper railcars within our general service covered hopper railcar product offering. These grain
railcars service the food markets, starch markets and energy markets. For example, these railcars carry shipments of grain to animal feedstock processing plants, grain mills and ethanol facilities. The demand for grain railcars is driven by the
strong demand in the ethanol market and for railcar replacement.
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| |  |  | Cement Railcars. Cement loads are heavier than many other loads of comparable volume, and therefore cement railcars are smaller in size to compensate for the
weight. As a consequence, we can build more cement covered hopper railcars per day than we can any other railcar we manufacture. Our cement railcars typically have volumes of 3,256 cubic feet and are built with two lading compartments, compared to,
for example, our plastic pellet railcars, which typically have volumes of up to 6,224 cubic feet and are built with four compartments.
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| |  |  | Plastic Pellet Railcars. These railcars are designed to transport, load and unload plastic pellets under precise specifications to preserve the purity of the
load. Slight imperfections in the railcars transporting such goods or in the components that load and unload them can ruin an entire load. If plastic pellets within a load become tainted, the imperfection will likely persist during the conversion of
the plastic pellets into end-products. Examples of such cargo would be food grade plastic pellets used in the production of food and medical product containers.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Pressureaide® Railcars. Our Pressureaide® railcar is targeted towards the bulk powder markets. Pressureaide® railcars typically handle products
such as clays, industrial and food grade starches and flours. We build our Pressureaide® railcars in volumes ranging from 3,300 cubic feet to as large as 5,750 cubic feet. They operate with internal pressures up to 14.5 pounds per square inch,
which expedites unloading, and are equipped with several safety devices, such as pressure relief valves, a rupture disc and a vacuum relief valve.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Tank railcars. We manufacture non-pressure and high pressure tank railcars. Our tank railcars have volumes ranging from 10,000 to 33,600 gallons and are flexibly designed to enable the handling of a
variety of commodities including petroleum products, ethanol, asphalt, vegetable oil, corn syrup and other food products. Our high pressure tank railcars transport products that require a pressurized state due to their liquid, semi-gaseous or
gaseous nature, including chlorine, anhydrous ammonia, liquid propane and butane. Most of our pressure tank railcars feature a thicker pressure retaining inner shell that is separated from a jacketed outer shell by layers of insulation, thermal
protection or both. Our pressure tank railcars are made from specific grades of normalized steel that are selected for toughness and ease of welding. Most of our tank railcars feature a sloped bottom tank that improves the flow rate of the shipped
product and provides improved drainage. Many of our tank railcars feature coils that are steam-heated to decrease cargo viscosity, which improves the transported products flow rate and speeds unloading. We can alter the design of our tank
railcars to address specific customer requirements.

Revenues attributable to sales of our tank railcars were approximately $111.3 million, $151.0 million
and $117.0 million in 2004, 2005 and 2006, respectively. These revenues represented 31%, 25% and 18% of our total revenues in 2004, 2005 and 2006, respectively. We sold 1,637, 1,850 and 1,321 tank railcars in 2004, 2005 and 2006, respectively. In
April 2006, our Marmaduke, Arkansas tank railcar manufacturing complex was struck by a tornado, which destroyed and damaged equipment and some of the physical buildings. This caused our operations at Marmaduke to be shut down for over four months
and significantly impacted the amount of cars shipped and revenue recognized during 2006. We are now back to operating at full capacity at Marmaduke. We believe we recovered substantially all the lost profits associated with the tornado through our
business interruption insurance coverage.

In January 2007, we expanded by adding production capacity to our tank railcar manufacturing complex in
Marmaduke, Arkansas. Also, during the fourth quarter of 2006, we began site preparation and broke ground on a flexible railcar manufacturing plant to be built adjacent to our Marmaduke, Arkansas tank railcar manufacturing plant. We expect
construction to begin on the plant during the first quarter of 2007 and we anticipate that this new plant will be capable of producing tank, covered hopper and intermodal railcars.

Component manufacturing. We believe we are an industry leader in the design and manufacture of custom and standard railcar components. We manufacture over 300 different components for the North American
railcar industry. Our products include tank railcar components and valves, discharge outlets for covered hopper railcars, manway covers and valve body castings, outlet components and running boards for industrial and railroad customers and hitches
for the intermodal market. We manufacture a variety of outlet types for our covered hopper railcars that we also sell to other railcar manufacturers. We use these components in our own railcar manufacturing and also sell them to third parties,
including our competitors.



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We also manufacture aluminum and special alloy steel castings that we sell primarily to industrial customers. These
products include castings for the trucking, construction, mining and oil and gas exploration markets, as well as finished, machined aluminum castings, other custom machined products and commercial mixing bowls.

Railcar Services

Our primary railcar services are railcar repair and
refurbishment and railcar fleet management services. Our primary customers for these services are leasing companies and shippers. We can service the entire railcar fleets of our customers, including railcars manufactured by other companies. Some of
our customers use both our railcar repair and refurbishment business and our fleet management services. We often provide these preferred customers with expedited repair services to strengthen our overall customer relationships. Our railcar services
provide us insights into our customers railcar needs that we can use to improve our products. These services create new customer relationships and enhance relationships with our existing customers. Our revenues from our railcar services
operations were approximately $38.6 million, $43.6 million and $48.2 million in 2004, 2005 and 2006, respectively. These revenues represented 11%, 7% and 7% of our total revenues in 2004, 2005 and 2006, respectively.

Railcar repair and refurbishment. Our railcar repair and refurbishment services include light and heavy railcar repairs, exterior painting, interior lining
application and cleaning, tank and safety valve testing, railcar inspections, wheel replacement and conversion or reassignment of railcars from one purpose to another. We support our railcar repair and refurbishment services customers through a
combination of full service repair shops, mobile repair units and mini-shop locations. Our repair shops, like our manufacturing facilities, are strategically located near major rail lines used by our customers and suppliers and close to some of the
major industries we serve. Revenues attributable to our railcar repair and refurbishment service operations were approximately $33.6 million, $37.2 million and $43.6 million in 2004, 2005 and 2006, respectively. These revenues represented 10%, 6%
and 7% of our total revenues in 2004, 2005 and 2006, respectively.

Railcar fleet management. As of December 31, 2006, we manage
approximately 62,000 railcars for various customers, including approximately 21,000 for ARL, a leasing company controlled by affiliates of Carl C. Icahn. Revenues attributable to our fleet management services were approximately $5.0 million, $6.4
million and $4.6 million in 2004, 2005 and 2006, respectively. These revenues represented 1% of our total revenues in each of 2004, 2005 and 2006. In 2004 and 2005, our revenues attributable to our fleet management services included $1.2 million and
$2.0 million, respectively, of sales to subsidiaries of ARL. Costs of equal amounts were included in costs related to railcar services for 2004 and 2005. These services were provided to subsidiaries of ARL by ACF employees, and thus, this resulted
in a pass through of revenue and cost related to these sales. This arrangement ended during 2005 and thus did not impact 2006 results for our fleet management services business. Some of the principal features of our railcar fleet management services
business include mileage accounting, rolling stock taxes, regulatory compliance, engineering services, field engineering services, online service access and maintenance planning.

MANUFACTURING

Our principal railcar manufacturing complexes are located in Paragould and Marmaduke, Arkansas, which
were built in 1995 and 1999, respectively, on previously undeveloped sites. These complexes employ non-unionized work forces and are strategically located in close proximity to many of our major customers and suppliers, which decreases our freight
costs and railcar delivery times. These complexes provide us the flexibility to produce a variety of railcars and enable us to quickly shift production from one railcar type to another railcar type.

We manufacture all of our covered hopper railcars at our Paragould complex. We successfully launched a third manufacturing line at Paragould in December 2004. We
manufacture all of our tank railcars at our Marmaduke, Arkansas complex. In January 2007, we completed an expansion of the Marmaduke complex to increase production capacity. In 2006, we shipped 5,625 railcars at our Paragould complex and 1,322
railcars at our Marmaduke complex. Our shipments from our Marmaduke tank railcar manufacturing complex were negatively affected by the shut down that occurred as a result of the tornado that damaged a portion of the complex. We also have the
manufacturing ability to produce other types of railcars. For example, in the past we have manufactured centerbeam platform railcars used to transport building products.

During the fourth quarter of 2006, we began site preparation and broke ground on a flexible railcar manufacturing plant to be built adjacent to our Marmaduke, Arkansas tank railcar manufacturing plant. We expect
construction to begin on the plant during the first quarter of 2007 and we anticipate that this new plant will be capable of producing tank, covered hopper and intermodal railcars.

We believe that we sustain product quality throughout each railcar manufacturing complex by employing uniform, quality tools and equipment. Our production lines are able to produce a variety of railcars to satisfy
changing customer preferences



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and our tooling and plant layouts were constructed to enable quick changeover. We currently can manufacture up to three different types of railcars
simultaneously at our Paragould complex and many different types of tank railcars simultaneously at our Marmaduke complex. We believe our quality products, modern manufacturing processes and experienced and skilled labor force at these complexes
contribute to our low incidence of warranty claims.

We designed our Paragould and Marmaduke complexes to provide manufacturing flexibility and allow for
the production of a variety of railcar sizes and types. Examples of our production flexibility include automated processes, efficient flow of production lines, and other various techniques that provide for a smooth production cycle. In addition, we
believe our management and operation of these complexes, which included decentralized management, a proactive safety program and a flexible workforce, help reduce our operating costs.

CUSTOMERS

We have strong long-term relationships with many large purchasers of railcars. Long-term customers are
particularly important in the railcar industry, given the limited number of buyers and sellers of railcars, and railcar manufacturers desire constantly to maintain adequate backlog and manufacture at full capacity.

Our railcar customer base consists mostly of U.S. shippers, leasing companies and railroads.

In 2006, The CIT Group, Inc. accounted for approximately 41% of our revenues and ARL accounted for approximately 11% of our revenues. In 2006, sales to our top ten customers accounted for approximately 87% of our
revenues. ARL is an affiliate of Carl C. Icahn, our principal beneficial stockholder and the chairman of our board of directors.

The size and frequency of
railcar orders often results in a small number of customers representing a significant portion of our sales in a given year. We depend upon a small number of customers that represent a large percentage of our revenues. The loss of any single
customer, or a reduction in sales to any such customer, could have a material adverse effect on our business, financial condition and results of operations.

SALES AND MARKETING

We utilize an integrated marketing and sales effort to coordinate relationships in our manufacturing and services
operations. We sell and market our products in North America through our sales and marketing staff, including sales representatives who sell directly to customers, catalogs through which our customers have access to our railcar components, and our
website, through which customers can order specialty components. As of December 31, 2006, we had 18 employees devoted to sales and marketing efforts for our railcar manufacturing, components manufacturing and fleet management services who
operate from our corporate headquarters in St. Charles, Missouri and, for our railcar repair business, from a service office located in Houston, Texas. In addition, ARL and ACF, affiliates of Carl C. Icahn, in connection with their own leasing sales
activities have, from time to time, referred their customers and contacts to us that prefer to purchase, rather than lease, railcars. There is no formal arrangement with, or compensation of, ARL and ACF for any referrals that result in sales of
railcars.

The sales process for our products and services is often multi-level, involving a team comprised of individuals from sales, marketing,
engineering, operations and senior management. Each significant customer is assigned a team that engages the customer at different organizational levels to provide planning and product customization and to assure open communications and support. Our
marketing activities also include participation in trade shows, publication of articles in trade journals, participation in industry forums and distribution of sales literature.

There is significant overlap between our railcar manufacturing, railcar components and fleet services customers. Our presence in each market increases our opportunities to gain market share in each of the other
markets. Our access to competitors railcars through our components and railcar repair and maintenance businesses further increases our opportunities to identify and address customer needs.

PRODUCT DEVELOPMENT

Our engineering, marketing, operations and
management personnel have developed collaborative relationships with many of their customer counterparts and have used these relationships to identify market demands and target our product development to meet those demands. Our product development
costs are reflected in our general, selling and administrative expenses.



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From time to time, we hire additional engineers or contract projects to outside firms to work on specific product development projects. Our current product
development efforts focus on the development of an intermodal railcar. We have built a prototype of this intermodal railcar, which is currently being field-tested by target customers. With input from our customers, we continually monitor product
performance following delivery. Observation of our products and our competitors products at various stages of a railcars lifecycle and feedback from our repair shops has led to product innovations, including proprietary bulkhead
reinforcements and changes to our basic design platform. We cannot guarantee that we will be able to develop new products effectively, to enhance our existing products, or to respond effectively to technological changes or new industry standards or
developments on a timely basis, if at all.

BACKLOG

Our total backlog was $494.1 million, $1,074.4 million and $1,318.0 million as of December 31, 2004, 2005 and 2006, respectively. We estimate that approximately 50% of our December 31, 2006 backlog will be converted to revenues in
the year ending on December 31, 2007. Our backlog consists of orders for railcars. We define backlog as the number and sales value of railcars that our customers have committed in writing to purchase from us that have not been recognized as
revenues. Although we believe these orders to be firm, customer orders may be subject to cancellation, customer requests for delays in railcar delivery, inspection rights and other customary industry terms and conditions.

Our backlog includes commitments under multi-year purchase and sale agreements with some of our customers, including agreements with CIT and ARL. The longest commitments
under these agreements extend out into 2009. Under these agreements, the customers have agreed to buy a minimum number of railcars from us in each of the contract years, and typically may choose to satisfy its purchase obligations from among a
variety of railcars described in the agreement. The agreements may also permit a customer to reduce its purchase commitments under certain limited circumstances, including, for certain contracts, market related conditions, such as significant
reductions in industry backlog or pricing, that are stipulated in the contracts. Under our multi-year purchase agreements, purchase prices for railcars are subject to adjustment for changes in the cost of certain raw materials such as steel and
railcar components applicable at the time of production.

Due to the large size of railcar orders and variations in the number and mix of railcars ordered
in any given period, the size of our reported backlog at the end of any such period may fluctuate significantly. See Risk FactorsRisks related to our businessThe variable purchase patterns of our railcar customers and the timing of
completion, delivery and acceptance of customer orders may cause our revenues and income from operations to vary substantially each quarter, which could result in significant fluctuations in our quarterly results.

The following table shows our reported railcar backlog, and estimated future revenue value attributable to such backlog, at the end of the periods shown. The reported
backlog includes railcars relating to purchase obligations under our multi-year purchase contracts based upon an assumed product mix consistent with past orders. Changes in product mix from that assumed would affect the dollar amount of our backlog.



|                                                                   |  |                         |         |   |      |   |           |      |  |   |           |  
|------------------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                   |  | Year ended December 31, |        
|                                                                   |  | 2004                    |         |   | 2005 |   |           | 2006 | 
|Railcar backlog at start of period                                 |  |                         | 2,287   |   |      |   | 7,547     |      |  |   | 14,510    |  
|New railcars delivered                                             |  |                         | (4,384  | ) |      |   | (6,875    | )    |  |   | (6,947    | )
|New railcar orders                                                 |  |                         | 9,644   |   |      |   | 13,838    |      |  |   | 8,910     |  
|                                                                   |  |                         |         |   |      |   |           |      |  |   |           |  
|Railcar backlog at end of period                                   |  |                         | 7,547   |   |      |   | 14,510    |      |  |   | 16,473    |  
|                                                                   |  |                         |        
|Estimated railcar backlog value at end of period (in thousands)(1) |  | $                       | 494,107 |   |      | $ | 1,074,408 |      |  | $ | 1,318,013 |  

---

|(1) | Estimated backlog value reflects the total revenues expected to be attributable to the backlog reported at the end of the particular period as if such backlog were converted to
actual revenues. Estimated backlog does not reflect potential price increases and decreases under customer contracts that provide for variable pricing based on changes in the cost of certain raw materials and railcar components or the cancellation
or delay of railcar orders that may occur.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Included in the railcar backlog at December 31, 2006 is $384.7 million of railcars to be
sold to our affiliate, ARL, which is controlled by Carl Icahn, our principal beneficial stockholder and the chairman of our board of directors. Our ability to meet our backlog requirements as of December 31, 2006 is dependent upon our
completion of the new flexible railcar



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manufacturing facility in Marmaduke, Arkansas. We expect railcar production to begin at the new flexible railcar manufacturing facility in early 2008 and in
2006, we accepted orders to produce railcars at the new facility in 2008 and 2009. See Risk FactorsRisks related to our businessOur failure to construct our new flexible railcar manufacturing plant on time and within budget, or
failure of that plant, once constructed, to operate as anticipated, could materially adversely affect our ability to fulfill our existing railcar customer commitments and our business, financial condition and results of operations.

Historically, we have experienced little variation between the number of railcars ordered and the number of railcars actually delivered, however, our backlog is not
necessarily indicative of our future results of operations. As orders may be canceled or delivery dates extended, we cannot guarantee that our reported railcar backlog will convert to revenue in any particular period, if at all, nor can we guarantee
that the actual revenue from these orders will equal our reported backlog estimates or that our future revenue efforts will be successful. See Risk FactorsRisks related to our businessThe level of our reported railcar backlog may
not necessarily indicate what our future revenues will be and our actual revenues may fall short of the estimated revenue value attributed to our railcar backlog.

SUPPLIERS AND MATERIALS

Our business depends on the adequate supply of numerous railcar components, such as railcar
wheels, brakes, sideframes, axles, bearings, yokes, tank railcar heads, bolsters and other heavy castings, and raw materials, such as steel and normalized steel plate, used in the production of railcars. Over the last few years, many components and
raw materials suppliers have been acquired or ceased operations, which has caused the number of alternative suppliers of railcar components and raw materials to decline. The combination of industry consolidation and high demand has caused recent
industry-wide shortages of many critical components and raw materials as reliable suppliers are frequently at or near production capacity. In some cases, such as those described below, as few as one significant supplier produces the type of
component or raw material we use in our railcars. See Risk FactorsRisks related to our businessFluctuations in the supply of components and raw materials we use in manufacturing railcars could cause production delays or reductions
in the number of railcars we manufacture, which could materially adversely affect our business and results of operations.

The cost of raw materials
and railcar components represents approximately 80% to 85% of the direct manufacturing costs of most of our railcar product lines. Prices for steel, the primary component in railcars and railcar components, increased sharply in 2004 as a result of
strong worldwide demand, limited availability of scrap metal for steel processing, reduced capacity and import trade barriers. Price levels have remained elevated in 2005 and 2006 since the sharp increase that occurred in 2004 with the exception of
some brief softening periods during mid 2005 and late 2006. Domestic demand for steel continues to be strong. Raw material supply, while still volatile, was more stable during 2006 compared to recent years. As of December 31, 2006, all of our
railcar manufacturing contracts contain price variability provisions that track fluctuations in the prices of certain raw materials and railcar components, including steel, so that increases in our manufacturing costs caused by increases in the
prices of these raw materials and components are passed directly on to our customers. Conversely, if the price of those materials or components decreases, a discount is applied to reflect the decrease in cost. In our component manufacturing
business, we add a surcharge to steel casting products produced at one of our manufacturing facilities. Though we do not have similar contractual protections in connection with the aluminum we use in our manufacturing processes, we believe the risks
are much less significant primarily due to the overall lower amounts of aluminum we use in our manufacturing, the relative price of aluminum to steel and the historical range of aluminum prices.

Our customers often specify particular railcar components and the suppliers of such components. We continually monitor inventory levels to ensure adequate support of
production. We periodically make advance purchases to avoid possible shortages of material due to capacity limitations of railcar component suppliers and possible price increases. We do not often enter into binding long-term contracts with suppliers
because we rely on established relationships with major suppliers to ensure the availability of raw materials and specialty items.

In 2006, no single
supplier accounted for more than 21% of our total purchases and our top ten suppliers accounted for 64% of our total purchases.

In October 2005, we
entered into two vendor supply contracts with minimum volume commitments with suppliers of materials used at our railcar manufacturing complexes. These agreements relate to railcar components, and have terms of two and three years.



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In January 2006, we entered into an agreement with a third party vendor for a specified number of wheels and related
parts, including axles and roller bearings. We were required to prepay for a portion of the requirements under this agreement. Total purchases under this agreement amounted to $28.8 million in 2006.

In December 2006, we entered into an agreement with two parties, including one of the members of the Ohio Castings joint venture and an affiliate of this member, to
purchase a minimum of 60% of our wheel, bearing, coupler, yoke and knuckle requirements for the years 2007, 2008 and 2009.

Steel. We use both
regular and normalized steel plate to manufacture railcars. There are only two domestic suppliers of the form and size of normalized steel plate that we need for our manufacturing operations, and these suppliers are our only source of this product.
We believe we can acquire regular steel from other suppliers. Normalized steel plate is a special form of heat-treated steel that is stronger and can withstand puncture better than regular steel. Normalized steel plate is required by Federal
regulations to be used in tank railcars carrying certain types of hazardous cargo, including liquefied petroleum gas. We use normalized steel plate in the production of many of our tank railcars.

In June 2005, we entered into an agreement with one of these suppliers that constructed a facility in 2006 to manufacture normalized steel plate of the form and size we
need for our manufacturing operations to supply us with a portion of our normalized steel plate requirements. Although our arrangements with this supplier will not satisfy all of our normalized steel requirements, we expect this facility will
provide us with normalized steel plate and decrease our reliance on only one supplier of this critical raw material. We also have entered into a supply agreement with this supplier for the purchase of regular steel plate. Both agreements have a term
of five years and may be terminated by either party at any time after two years, upon twelve months prior notice. Each agreement requires us to purchase a minimum volume requirement for the steel plate covered by that agreement at prices that
fluctuate with the market.

Tank heads and floor sheet reinforcements. ACF supplies us with tank railcar heads, head blocks, head pads, floor sheet
reinforcements, wheel sets, mounting frames and sheared panels. ACF is our sole supplier of tank railcar heads and floor sheet reinforcements. See Risk FactorsRisks related to our businessCompanies affiliated with Carl C. Icahn are
important suppliers and customers.

Castings. Heavy castings we use in our railcar manufacturing primarily include bolsters, sideframes,
couplers and yokes. These castings form part of the truck assemblies upon which railcars must be placed. In 2003, our management team helped found and develop, and continues to operate Ohio Castings, a joint venture, in which we own a one-third
interest. The joint ventures operations consist of a foundry in Alliance, Ohio that produces sideframes, bolsters, couplers and yokes. We also have entered into supply agreements with one of our Ohio Castings joint venture partners to purchase
up to 33% of the production, consisting of sideframes and bolsters. Our purchase commitments under these supply agreements are dependent upon the number of car sets manufactured by this foundry, which is jointly controlled by us and the other two
members of Ohio Castings. We believe that our involvement in this joint venture helps us maintain our levels of production at competitive prices.

Wheels and brakes. In the past there have been supply constraints and shortages of wheels and brakes used in railcars. Currently, there are only two domestic suppliers of each of these components. For both wheels and brakes, we
primarily rely on one domestic supplier. However, we also import some wheels. We also obtain limited quantities of refurbished wheels from scrapped railcars. If necessary, we believe we can also obtain railcar wheels from a Chinese supplier at a
significantly higher cost.

COMPETITION

The railcar
manufacturing business is extremely competitive. We compete primarily with Trinity Industries, Inc. and National Steel Car Limited in the covered hopper railcar market and with Trinity Industries and Union Tank Car Company in the tank railcar
market.

We face intense competition in our other markets as well. Our competition for the sale of railcar components includes our competitors in the
railcar manufacturing market as well as a concentrated group of companies whose primary business focus is the production of one or more specialty components. We compete with numerous companies in our railcar services and fleet management businesses,
ranging from companies with greater resources than we have to small, local companies.



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In addition to price, competition in all our markets is based on quality, reputation, reliability of delivery, customer
service and other factors.

INTELLECTUAL PROPERTY

We
rely on a combination of investments, copyrights and patents to protect our intellectual property. Due to the change that has historically characterized the railcar manufacturing industry, we believe that the improvement of existing technology and
the development of new products may be more important than patent protection in establishing and maintaining a competitive advantage. Nevertheless, we have obtained patents and will continue to make efforts to obtain patents, when available, in
connection with product developments and designs.

We have nine U.S. patents, four pending non-U.S. patent applications, two pending U.S. patent
applications, seven U.S. and four

non-U.S. registered trademarks, and several unregistered copyrights and trade names. Our patents expire at various
times from 2009 to 2021.

EMPLOYEES

As of
December 31, 2006, we had 2,575 full-time employees in various locations throughout the United States and Canada, including 2,452 engaged in our manufacturing, railcar repair and railcar fleet management operations and 123 in various corporate
support functions. At our Longview, Texas and North Kansas City, Missouri repair facilities, and at our Longview, Texas steel foundry and components manufacturing facility, 41, 44 and 183 hourly employees, respectively, are covered by collective
bargaining agreements. These agreements expire in January 2010, September 2007 and April 2008, respectively. We are also party to a collective bargaining agreement at our Milton, Pennsylvania repair facility, which expired on June 19,
2005. The contract provisions under the agreement provide that the contract would remain in effect under the old terms until terminated by either party with 60 days notice. At the present time, there are no workers at Milton, as the site is idled.

REGULATION

The Federal Railroad Administration, or
FRA, administers and enforces U.S. federal laws and regulations relating to railroad safety. These regulations govern equipment and safety compliance standards for railcars and other rail equipment used in interstate commerce. The Association of
American Railroads, or AAR, promulgates a wide variety of rules and regulations governing safety and design of equipment, relationships among railroads with respect to railcars in interchange and other matters. The AAR also certifies railcar
manufacturers and component manufacturers that provide equipment for use on railroads in the United States. New products must generally undergo AAR testing and approval processes. As a result of these regulations, we must maintain certifications
with the AAR as a railcar manufacturer, and products that we sell must meet AAR and FRA standards. We must comply with the rules of the U.S. Department of Transportation, or DOT, and we are also subject to oversight by Transport Canada. To the
extent that we expand our business internationally, we will increasingly be subject to the regulations of other non-U.S. jurisdictions.

Due to the health
and safety risks posed by several types of hazardous cargo transported by pressure tank railcars, including liquefied petroleum gas, chlorine and anhydrous ammonia, pressure tank railcars are subject to regulations to which many other types of
railcars are not subject. For example, in response to general safety and homeland security concerns, there are currently proposals pending by governmental and non-governmental railcar authorities that address, among other things, the impact
resistance of the steel used in the manufacture of pressure tank railcars. These proposals may result in additional regulation concerning the required use of normalized steel, and the testing of its impact resistance, in pressure tank railcars.
Prior to 1989, normalized steel was not typically used in the manufacture of pressure tank railcars. Because normalized steel is used to form railcars shells, it is generally not feasible to retrofit railcars with normalized steel. We believe
we are well positioned to take advantage of any increased demand for new pressure tank railcars that could result from regulations requiring the increased use of normalized steel in pressure tank railcars or the removal of any pre-1989 pressure tank
railcars from the U.S. railcar fleet.

ENVIRONMENTAL MATTERS

We are subject to comprehensive federal, state, local and international environmental laws and regulations relating to the release or discharge of materials into the environment, the management, use, processing, handling, storage, transport
or disposal of hazardous materials and wastes, or otherwise relating to the protection of human health and the environment.



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These laws and regulations expose us to liability for the environmental condition of our current or formerly owned or operated facilities and our own
negligent acts, and also may expose us to liability for the conduct of others or for our actions that were in compliance with all applicable laws at the time these actions were taken. In addition, these laws may require significant expenditures to
achieve compliance, and are frequently modified or revised to impose new obligations. Civil and criminal fines and penalties and other sanctions may be imposed for non-compliance with these environmental laws and regulations. Our operations that
involve hazardous materials also raise potential risks of liability under the common law.

Environmental operating permits are, or may be, required for our
operations under these laws and regulations. These operating permits are subject to modification, renewal and revocation. We regularly monitor and review our operations, procedures and policies for compliance with permits, laws and regulations.
Despite these compliance efforts, risk of environmental liability is inherent in the operation of our businesses, as it is with other companies engaged in similar businesses. Many of our properties were transferred to us by ACF in 1994. We are
involved in investigation and remediation activities at properties that we now own or lease to address historic contamination and potential contamination by third parties. We are also involved with state agencies in the cleanup of two sites under
these laws. These investigations are in process but it is too early to be able to make a reasonable estimate, with any certainty, of the timing and extent of remedial actions that may be required, and the costs that would be involved in such
remediation. Substantially all of the issues identified relate to the use of the properties prior to their transfer to us in 1994 by ACF and for which ACF has retained liability for environmental problems that may have existed at the time of their
transfer to us and ACF has also agreed to indemnify us for any cost that might be incurred with those existing problems. However, if ACF fails to honor its obligations to us, we would be responsible for the cost of such remediation.

In connection with its ongoing obligations, ACF, in consultation with us, is investigating and, as appropriate, remediating those sites that it transferred to us. We
have been advised that ACF estimates that it will spend approximately $0.3 million and $0.2 million, respectively, in 2007 and 2008 on environmental investigation, relating to contamination that existed at properties prior to their transfer to us
and for which ACF has retained liability and agreed to indemnify us. We believe that our operations and facilities are in substantial compliance with applicable laws and regulations and that any noncompliance is not likely to have a material adverse
effect on our operations or financial condition.

Future events, such as new environmental regulations or changes in or modified interpretations of
existing laws and regulations or enforcement policies, or further investigation or evaluation of the potential health hazards of products or business activities, may give rise to additional compliance and other costs that could have a material
adverse effect on our financial conditions and operations. In addition, we have in the past conducted investigation and remediation activities at properties that we own to address historic contamination. To date, such costs have not been material.
Although we believe we have satisfactorily addressed all known material contamination through our remediation activities, there can be no assurance that these activities have addressed all historic contamination. The discovery of historic
contamination or the release of hazardous substances into the environment at our current or formerly owned or operated facilities could require us in the future to incur investigative or remedial costs or other liabilities that could be material or
that could interfere with the operation of our business.

In addition to environmental laws, the transportation of commodities by railcar raises potential
risks in the event of a derailment or other accident. Generally, liability under existing law in the United States for a derailment or other accident depends on the negligence of the party, such as the railroad, the shipper or the manufacturer of
the railcar or its components. However, for certain hazardous commodities being shipped, strict liability concepts may apply.

Item 1A: Risk Factors

RISKS RELATED TO OUR BUSINESS

Due in part to the highly cyclical nature of the railcar industry, we have incurred substantial operating losses in the past and may experience declines in revenue and substantial operating losses in the future.

Historically, the North American railcar market has been highly cyclical and we expect it to continue to be highly cyclical. We believe that downturns
in the railcar manufacturing industry will occur in the future and will result in decreased demand for our products and services. The cycles in our industry result from many factors that are beyond our control, including economic conditions in the
United States. Although North American railcar production has increased since 2002, industry professionals believe that demand for railcars may have reached a peak and may not persist if favorable economic and other



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conditions are not sustained. Even if a sustained economic recovery occurs in the United States, demand for our railcars may not match or exceed expected
levels. An economic downturn may result in increased cancellations of railcar orders, which could have a material adverse effect on our ability to convert our railcar backlog into revenues. If industry backlog for railcars declines below certain
levels, one of our customers which accounts for a significant portion of our backlog as of December 31, 2006, will be permitted to cancel some of its orders with at least 180 days written notice, which could have a material adverse effect on
our business, financial condition and results of operations. In addition, an economic downturn in the United States could result in lower sales volumes, lower prices for railcars and a loss of profits for us.

A substantial number of the end users of our railcars acquire railcars through leasing arrangements with our leasing company customers. Economic conditions that result
in higher interest rates would increase the cost of new leasing arrangements, which could cause our leasing company customers to purchase fewer railcars. A reduction in the number of railcars purchased by our leasing company customers could have a
material adverse effect on our business, financial condition and results of operations.

The cost of the raw materials that we use to manufacture
railcars, particularly steel, are high and subject to escalation and surcharges and could increase. Any increase in these costs or delivery delays of these raw materials may materially adversely affect our business, financial condition and results
of operations.

The production of railcars requires substantial amounts of steel. The cost of steel and all other materials, including scrap metal, used
in the production of our railcars represents approximately 80% to 85% of our manufacturing costs. Although we have negotiated variable pricing provisions in all of our current railcar manufacturing contracts that pass certain increases or decreases
in our steel costs on to our customers, our business remains subject to risks related to price increases, including escalation and surcharge, and periodic delays in the delivery of steel and other raw materials, all of which are beyond our control.
Any fluctuations in the price or availability of steel, or any other material used in the production of our railcars, may have a material adverse effect on our business, financial condition and results of operations. In addition, if any of our raw
material suppliers were unable to continue their businesses or were to seek bankruptcy relief, the availability or price of the materials we use could be adversely affected. Deliveries of our raw materials, and the components made from those raw
materials, may also fluctuate depending on supply and demand for the raw material or governmental regulation relating to the raw material, including regulation relating to the importation of the raw material.

As prices for steel, other raw materials and components increase, we may not be able to pass on such price increases to our customers in the future, which could
adversely affect our operating margins and cash flows. Even if we are able to increase prices, any such price increases may reduce demand for our railcars. In addition, our customers may not be willing to accept contractual terms that provide for
variable pricing and our competitors, in an effort to gain market share or otherwise, have agreed in the past, and may in the future agree, to railcar supply arrangements that provide for fixed pricing. As a result, we may lose railcar orders or we
may be required to agree to supply railcars with fixed pricing provisions or be subject to less favorable contract terms, any of which could have a material adverse effect on our business, financial condition and results of operations.

Fluctuations in the supply of components and raw materials we use in manufacturing railcars, which are often only available from a limited number of suppliers,
could cause production delays or reductions in the number of railcars we manufacture, which could materially adversely affect our business, financial condition and results of operations.

Our railcar manufacturing business depends on the adequate supply of numerous components, such as railcar wheels, brakes, tank railcar heads, sideframes, axles, bearings,
yokes, bolsters and other heavy castings, and raw materials, such as normalized steel plate. Over the last few years many suppliers have been acquired or ceased operations, which has caused the number of alternative suppliers of components and raw
materials to decline. The combination of industry consolidation and high demand has caused recent industry-wide shortages of many critical components as reliable suppliers are frequently at or near production capacity. For example, with respect to
railcar wheels, there are only two significant domestic suppliers that continue to produce the type of component we use in our products. We rely on one of these domestic suppliers for most of our railcar wheels. However, we do import some wheels.
Also, a small percentage of the railcar wheels we use are refurbished and are obtained from scrapped railcars. Supply of these refurbished railcar wheels is available in limited quantities and is unpredictable because the supply of refurbished
railcar wheels depends on the level and type of railcars being scrapped in any given period. The supply of steel is similarly limited. While we receive regular steel from three suppliers, we entered into agreements in 2005 requiring us to buy a
minimum volume requirement from one supplier. In addition, there are currently only two North American suppliers of the types and sizes of normalized steel plate we use in the production of many of our tank railcars.



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Supply constraints in our industry are exacerbated because, although multiple suppliers may produce certain components,
railcar manufacturing regulations and the physical capabilities of manufacturing facilities restrict the types and sizes of components and raw materials that manufacturers may use. In addition, we do not carry significant inventories of certain
components and procure many of our components on an as needed basis. With the recent increased demand for railcars, our remaining suppliers are facing significant challenges in providing components and materials on a timely basis to all railcar
manufacturers, including to us. In the event that our suppliers of railcar components and raw materials were to stop or reduce the production of railcar components and raw materials that we use, go out of business, refuse to continue their business
relationships with us or become subject to work stoppages, our business would be disrupted. Our inability to obtain components and raw materials in required quantities or of acceptable quality could result in significant delays or reductions in
railcar shipments. Any of these events would materially and adversely affect our operating results. Furthermore, our ability to increase our railcar production to expand our business depends on our ability to obtain an increased supply of these
railcar components and raw materials.

While we believe that we may, in certain circumstances, secure alternative sources of these components and
materials, we may incur substantial delays and significant expense in doing so. The quality and reliability of alternative sources may not be the same and our operating results may be materially adversely affected. Alternative suppliers might charge
significantly higher prices for railcar components and materials than we currently pay. Even if alternative suppliers are available to us, these suppliers may be unacceptable to our customers because our customers often specify the components we may
use in railcars manufactured for them. Under such circumstances, the disruption to our business could have a material adverse impact on our customer relationships, business, financial condition and results of operations.

We operate in a highly competitive industry and we may be unable to compete successfully, which would materially adversely affect our results of operations.

We face intense competition in all of our markets. In each of our covered hopper and tank railcar manufacturing businesses, we have two principal
competitors. Both of our principal competitors in the tank railcar market, Trinity Industries, Inc. and the Union Tank Car Company, and one of our principal competitors in the covered hopper railcar market, Trinity Industries, Inc., have
substantially greater resources and produce substantially more railcars than we do. In addition, some of these and other railcar manufacturers produce railcars primarily for use in their own railcar leasing operations, competing directly with
leasing companies, some of which are our largest customers. Some of our competitors have greater financial and technological resources than we have. Our competitors may increase their participation in the railcar markets in which we compete and
other railcar manufacturers that currently do not manufacture covered hopper or tank railcars may choose to compete directly with us.

Railcar
purchasers sensitivity to price and strong price competition within the industry have historically limited our ability to increase prices to obtain better margins on our railcars. Additionally, as we selectively seek to manufacture different
types of railcars we will be competing against railcar manufacturers with significantly more experience than we have with regard to such railcar types.

Our competition for the sale of railcar components includes our competitors in the railcar manufacturing market as well as a concentrated group of companies whose primary business focus is the production of one or more specialty components.
New competitors, or alliances among existing competitors, may emerge in the railcar components industry and rapidly gain market share. We compete with numerous companies in our railcar fleet management and railcar repair services business, ranging
from companies with greater resources than we have to small, local companies.

In all our markets, in addition to price, competition is based on quality,
reputation, reliability of delivery, product performance, customer service and other factors. In particular, technological innovation by any of our existing competitors, or new competitors entering any of the markets in which we do business, could
put us at a competitive disadvantage. We may be unable to compete successfully or retain our market share in our established markets. Increased competition for the sales of our railcars, our fleet management and repair services and our railcar
components could result in price reductions, reduced margins and loss of market share, which could materially adversely affect our prospects, business, financial condition and results of operations.



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Equipment failures, delays in deliveries or extensive damage to our facilities, particularly our railcar manufacturing
complexes in Paragould or Marmaduke, Arkansas, could lead to production or service curtailments or shutdowns.

We manufacture our railcars at
manufacturing complexes in Paragould and Marmaduke, Arkansas. An interruption in manufacturing capabilities at either of these complexes, as a result of equipment failure or other reasons could reduce or prevent the production of our railcars. A
halt of production at either complex could severely delay scheduled railcar delivery dates to our customers and affect our production schedule, which would delay future production. Any significant delay in deliveries to our customers could result in
the termination of orders, cause us to lose future sales and negatively affect our reputation among our customers and in the railcar industry, all of which would materially adversely affect our business and results of operations. Additionally,
production delays or interruptions at our Jackson, St. Charles or Kennett, Missouri components manufacturing locations or at our Ohio Castings joint venture, all of which provide key components to our Paragould and Marmaduke railcar manufacturing
complexes, could contribute to delays of railcar deliveries and order cancellations. Interruptions at our repair, cleaning and maintenance facilities, including our mobile repair units, may also have a material adverse effect on our business. All of
our manufacturing and service facilities are also subject to the risk of catastrophic loss due to unanticipated events, such as fires, earthquakes, explosions, floods, tornados or weather conditions. During 2006, our Marmaduke manufacturing complex
was shut down for over four months as a result of damage from a tornado, during which time we were not able to manufacture tank railcars. We may experience plant shutdowns or periods of reduced production as a result of equipment failures, loss of
power, gray outs, delays in deliveries or extensive damage to any of our facilities, which could have a material adverse effect on our business, results of operations or financial condition.

We depend upon a small number of customers that represent a large percentage of our revenues. The loss of any single customer, or a reduction in sales to any such
customer, could have a material adverse effect on our business, financial condition and results of operations.

Railcars are typically sold pursuant to
large, periodic orders and, therefore, a limited number of customers typically represent a significant percentage of our railcar sales in any given year. Our top ten customers based on revenues represented, in the aggregate, approximately 79%, 82%
and 87% in 2004, 2005 and 2006, respectively, of our total revenues. Moreover, our top three customers based on revenues represented, in the aggregate, approximately 59%, 45% and 60% in 2004, 2005 and 2006, respectively, of our total revenues. In
2006, sales to each of these top three customers were approximately 41%, 11% and 8%, respectively, of our total revenues. In addition, one of our customers accounts for 49% of our backlog as of December 31, 2006. The loss of any significant
portion of our sales to any major customer, the loss of a single major customer or a material adverse change in the financial condition of any one of our major customers could have a material adverse effect on our business, financial condition and
financial results.

The variable purchase patterns of our railcar customers and the timing of completion, delivery and acceptance of customer orders may
cause our revenues and income from operations to vary substantially each quarter, which could result in significant fluctuations in our quarterly results.

Most of our individual railcar customers do not make railcar purchases every year because they do not need to replace or replenish their railcar fleets on a yearly basis. Many of our customers place orders for railcars on an as-needed
basis, sometimes only once every few years. As a result, the order levels for railcars, the mix of railcar types ordered and the railcars ordered by any particular customer have varied significantly from quarterly period to quarterly period in the
past and may continue to vary significantly in the future. Railcar sales comprised approximately 75%, 82% and 83% of our total revenue in 2004, 2005 and 2006, respectively, and our results of operations in any particular quarterly period may be
significantly affected by the number and type of railcars manufactured and delivered in any given quarterly period. The delivery and acceptance of our railcars determines when we record the revenues associated with our railcar sales and, as a
result, will cause fluctuations in our quarterly results. As a result of these fluctuations, we believe that comparisons of our sales and operating results between quarterly periods within the same fiscal year and between quarterly periods within
different fiscal years may not be meaningful and, as such, these comparisons should not be relied upon as indicators of our future performance.



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Our failure to complete our capital expenditure projects, including the construction of our new flexible railcar
manufacturing plant, on time and within budget, or the failure of these projects, once constructed, to operate as anticipated, could materially adversely affect our ability to fulfill our existing railcar customer commitments and our business,
financial condition and results of operations.

Our construction plans, including that of our new flexible railcar plant are subject to a number of
risks and contingencies over which we may have little control and which may adversely affect the cost and timing of the completion of those projects, or the capacity or efficiencies of those projects once constructed. Such risks and contingencies
may include shortages of, or delays or inability to obtain labor, materials or equipment, defects in such materials or equipment, the inability of the construction contractors or subcontractors to perform under their contracts, strikes and adverse
weather conditions. We have accepted contractual commitments to deliver railcars that we plan to produce at this new manufacturing plant. If our new flexible railcar manufacturing plant is not completed on a timely basis or does not achieve the
capacity anticipated, we may not be able to satisfy our contractual commitments on a timely basis, if at all. Any significant delay in deliveries to our customers as a result of our failure to complete this new plant on a timely basis could result
in the termination of orders or long-term purchase contracts, result in additional costs under those orders or contracts, cause us to lose future sales and negatively affect our reputation among our customers and in the railcar industry. If we are
not able to complete the construction of our new flexible railcar manufacturing plant, or any of our other projects on time or within budget, or if those projects do not achieve the capacity or efficiencies anticipated, our business, financial
condition and results of operations could be materially and adversely affected.

If we lose any of our executive officers or key employees, our
operations and ability to manage the day-to-day aspects of our business may be materially adversely affected.

We believe our success depends to a
significant degree upon the continued contributions of our executive officers and key employees, both individually and as a group. Our future performance will substantially depend on our ability to retain and motivate them. If we lose any of our
executive officers or key employees or are unable to recruit qualified personnel, our ability to manage the day-to-day aspects of our business may be materially adversely affected. It would be difficult to replace any of our executive officers or
key employees without materially adversely affecting our business operations because our executive officers and key employees have many years of experience with our company and within the railcar industry and other manufacturing industries and
strong personal ties with many of our important customers and suppliers. The loss of the services of one or more of our executive officers or key employees could have a material adverse effect on our business, financial condition and results of
operations. We do not currently maintain key person life insurance.

If we face labor shortages or increased labor costs, our growth and
results of operations could be materially adversely affected.

Due to the cyclical nature of the demand for our products, we have had to reduce and then
rebuild our workforce as our business has gone through downturns followed by upturns in business activity. Due to the competitive nature of the labor markets in which we operate, this type of employment cycle increases our risk of not being able to
retain, recruit and train the personnel we require in our railcar manufacturing and other businesses, particularly in periods of economic expansion. Our Paragould and Marmaduke complexes are located in sparsely populated communities and we have
experienced a high turnover rate at these locations among newly hired employees. Moreover, we are currently constructing a new flexible railcar manufacturing plant at our Marmaduke complex, which will require additional employees to operate. Our
inability to recruit, retain and train adequate numbers of qualified personnel on a timely basis could materially adversely affect our ability to operate our businesses, our financial condition and our results of operations.

The level of our reported railcar backlog may not necessarily indicate what our future revenues will be and our actual revenues may fall short of the estimated
revenue value attributed to our railcar backlog.

We define backlog as the number of railcars, and the revenue value in dollars attributed to these
railcars, to which our customers have committed in writing to purchase from us that have not yet been recognized as revenues. Our competitors may not define railcar backlog in the same manner as we do, which could make comparisons of our railcar
backlog with theirs misleading. In this annual report, we have disclosed our railcar backlog for various periods and the estimated revenue value in dollars that would be attributed to this railcar backlog once the railcar backlog is converted to
actual sales. We consider railcar backlog to be an indicator of future revenues. However, our reported railcar backlog may not be converted into revenues in any particular period, if at all, and the actual revenues from such sales may not equal our
reported estimates of railcar backlog value. In addition, our railcar manufacturing business relies on third-party suppliers for heavy castings, wheels and other components and raw materials and if these third parties were to stop or reduce their
supply of components or raw materials, our production could decline and our actual revenues could fall short of the estimated revenue value attributed to our railcar backlog. Our ability to fulfill all of our backlog will also be affected by our
ability to complete timely the construction and start-up of our new flexible railcar manufacturing plant being constructed at our Marmaduke complex.



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Customer orders may be subject to cancellation, inspection rights and other customary industry terms, all of which could affect our recognition of revenue
currently reflected in our December 31, 2006 backlog. If industry backlog for railcars declines below certain levels, one of our customers, which accounts for 49% of our December 31, 2006 backlog, will be permitted to cancel some of its
orders after at least 180 days written notice, which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, delivery dates may be subject to deferral, thereby delaying the date on which we
will deliver the associated railcars and realize revenues attributable to such railcar backlog. Therefore, our current level of reported railcar backlog may not necessarily represent the level of revenues that we may generate in any future period.
Furthermore, any contract included in our reported railcar backlog that actually generates revenues may not be profitable.

We may pursue acquisitions
or joint ventures that involve inherent risks, any of which may cause us not to realize anticipated benefits, and we may have difficulty integrating the operations of any companies that we acquire, which may adversely affect our results of
operations.

Our business strategy includes the potential acquisition of businesses and entering into joint ventures and other business combinations
that we expect will complement and expand our business. We may not be able to successfully identify suitable acquisition or joint venture opportunities or complete any particular acquisition, combination, joint venture or other transaction on
acceptable terms. Our identification of suitable acquisition candidates and joint venture opportunities and the integration of acquired business operations involves risks inherent in assessing the values, strengths, weaknesses, risks and
profitability of these opportunities, including their effects on our business, diversion of our managements attention and risks associated with unanticipated problems or unforeseen liabilities, and may require significant financial resources
that would otherwise be used for the ongoing development of our business. The difficulties of integration may be increased by the necessity of coordinating geographically dispersed organizations, integrating personnel with disparate business
backgrounds and combining different corporate cultures. In addition, we may not be effective in retaining key employees or customers of the combined businesses. We may face integration issues pertaining to the internal controls and operations
functions of the acquired companies and we also may not realize cost efficiencies or synergies that we anticipated when selecting our acquisition candidates. Any of these items could adversely affect our results of operations. Our failure to
identify suitable acquisition or joint venture opportunities may restrict our ability to grow our business. If we are successful in pursuing future acquisitions or joint ventures, we may be required to expend significant funds, incur additional debt
or issue additional securities, which may materially adversely affect our results of operations and be dilutive to our stockholders. If we spend significant funds or incur additional debt, our ability to obtain financing for working capital or other
purposes could decline and we may be more vulnerable to economic downturns and competitive pressures.

Lack of acceptance of our new railcar offerings
by our customers could materially adversely affect our business.

Our strategy depends in part on our continued development and sale of new railcar
designs to expand or maintain our market share in the railcar markets in which we currently compete. The investment required by us in connection with the development of new railcar designs is considerable and we usually make decisions to develop and
market new railcars and railcars with modified designs without firm indications of customer acceptance. New or modified railcar designs may require customers to alter their existing business methods or displace existing equipment in which these
customers may have a substantial capital investment. Additionally, many railcar purchasers prefer to maintain a standardized fleet of railcars and railcar purchasers with established railcar fleets are generally resistant to railcar design changes.
Therefore, any new or modified railcar designs that we develop may not gain widespread acceptance in the marketplace and any such products may not be able to compete successfully with existing railcar designs or new railcar designs that may be
introduced by our competitors.

We are subject to a variety of environmental, health and safety laws and regulations and the cost of complying, or our
failure to comply, with such requirements may have a material adverse effect on our business, financial condition and results of operations.

We are
subject to a variety of federal, state and local environmental laws and regulations relating to the release or discharge of materials into the environment, the management, use, processing, handling, storage, transport or disposal of hazardous
materials, or otherwise relating to the protection of public and employee health, safety and the environment. These laws and regulations expose us to liability for the environmental condition of our current or formerly owned or operated facilities,
and also may expose us to liability for the conduct of others or for our actions that were in compliance with all applicable laws at the time these actions were taken. They also may expose us to liability for claims of personal injury or property
damage related to alleged exposure to hazardous or toxic materials. Despite our intention to be in compliance, we cannot guarantee that we will at all times be in compliance with all



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such requirements. The cost of complying with these requirements may also increase substantially in future years. If we violate or fail to comply with these
requirements, we could be fined or otherwise sanctioned by regulators. In addition, these requirements are complex, change frequently and may become more stringent over time, which could have a material adverse effect on our business. We are also
required to maintain a variety of environmental permits. Our failure to maintain and comply with these permits could result in fines or penalties or other sanctions and have a material adverse effect on our operations or results. Future events, such
as new environmental regulations or changes in or modified interpretations of existing laws and regulations or enforcement policies, newly discovered information or further investigation or evaluation of the potential health hazards of products or
business activities, may give rise to additional compliance and other costs that could have a material adverse effect on our business, financial conditions and operations.

In addition to environmental, health and safety laws, the transportation of commodities by railcar raises potential risks in the event of a derailment or other accident. Generally, liability under existing law in the
United States for a derailment or other accident depends on the negligence of the party, such as the railroad, the shipper, or the manufacturer of the railcar or its components. However, for certain hazardous commodities being shipped, strict
liability concepts may apply.

As a public company we are required to comply with the reporting obligations of the Exchange Act and will be required to
comply with Section 404 of the Sarbanes-Oxley Act. If we fail to comply with the reporting obligations of the Exchange Act and Section 404 of the Sarbanes-Oxley Act for our fiscal year ending December 31, 2007, or if we fail to
achieve and maintain adequate internal controls over financial reporting, our business, results of operations and financial condition, and investors confidence in us, could be materially adversely affected.

As a public company, we are required to comply with the periodic reporting obligations of the Exchange Act, including preparing annual reports, quarterly reports and
current reports. Our failure to prepare and disclose this information in a timely manner could subject us to penalties under federal securities laws, expose us to lawsuits and restrict our ability to access financing. In addition, we are required
under applicable law and regulations to integrate our systems of internal controls over financial reporting.

We have dedicated significant management,
financial and other resources in connection to our efforts to be compliant with Section 404 of the Sarbanes-Oxley Act. In October 2005, we hired an organization to assist with a review and testing of our existing internal control structure.
During 2006, we have documented and tested significant processes in place throughout the company. We cannot be certain at this time that we will be able to comply with all of our reporting obligations and successfully complete the procedures,
certification and attestation requirements of Section 404 of the Sarbanes-Oxley Act by the time that we are required to file our Annual Report on Form 10-K for the year ended December 31, 2007. If we fail to achieve and maintain the
adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover, effective internal
controls are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act on a timely basis could result in the
loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our common stock.

Our relationships with our partners in our Ohio Castings joint venture may not be successful, which could materially adversely affect our business.

On January 1, 2005, we acquired from ACF Industries Holding Corp., an affiliate of Carl C. Icahn, our principal beneficial stockholder and the chairman of our board of directors, its one-third ownership interest
in Ohio Castings, our joint venture with affiliates of Amsted Industries Inc., a railcar components manufacturing company, and The Greenbrier Companies, a railcar manufacturer and leasing company. We acquired this joint venture interest in order to
increase our supply alternatives for heavy castings, which are critical components for the manufacture of railcars. Although the allocation of castings that we receive from Ohio Castings does not provide us with all of our castings requirements, the
joint venture does provide us with a committed source for a critical portion of the castings that we require for the successful operation of our business. If Ohio Castings is unable to provide us with our allocation of castings on a timely basis or
at all, our manufacturing costs could increase and we may have to delay or cancel the production of ordered railcars, all of which could materially adversely affect our business, financial condition and results of operations.



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Rapid growth could strain our operations and require us to incur costs to upgrade our infrastructure.

During 2004, 2005 and 2006, we experienced rapid growth in our operations, facilities, number of our employees and our product offerings. We expect our rapid growth to
continue through 2007, including with respect to our planned capital expenditures including our new flexible railcar manufacturing plant that is currently under construction. Our growth places a significant strain on our management, operations and
financial systems and also on our ability to retain employees. Our future operating results will depend in part on our ability to continue to implement and improve our operating and financial controls and management information systems. If we fail
to manage our growth effectively, our business, financial condition and results of operations could be materially adversely affected.

Companies
affiliated with Carl C. Icahn are important suppliers and customers.

We manufacture railcars and railcar components and provide railcar services for
companies affiliated with Carl C. Icahn, our principal beneficial stockholder and the chairman of our board of directors. To the extent our relationships with affiliates of Mr. Icahn change due to the sale of his interest in us or otherwise,
our business, results of operations and financial condition may be materially adversely affected.

Affiliates of Mr. Icahn have accounted for
approximately 24%, 11% and 11% of our revenues in 2004, 2005 and 2006, respectively. This revenue is primarily attributable to our sale of railcars. ARL, a railcar leasing company owned by affiliates of Mr. Icahn, currently purchases all of its
railcars from us. However, ARL could, in the future, purchase railcars from our competitors. In addition, we have a railcar servicing agreement through June 30, 2007 with ARL, under which we provide fleet management services for the entire
railcar fleet of ARL and its subsidiaries. These railcars represented approximately 34% of the railcars for which we provided fleet management services as of December 31, 2006. This agreement is terminable by either party at the end of any
contract year upon six months prior notice or by mutual agreement and ARL is not restricted from using the services of our competitors for its existing fleet of railcars or any other railcars it may purchase. A significant change in the nature of
the business relationship with ARL and other affiliates of Mr. Icahn could have a material adverse effect on our business, financial condition and results of operations.

We also purchase railcar and industrial components from ACF, another entity affiliated with Mr. Icahn. ACF has been the supplier of approximately $31.3 million, $76.4 million and $81.5 million of our inventory
purchases in 2004, 2005 and 2006, respectively. Currently, ACF is our sole supplier of tank railcar heads and one of a limited number of suppliers for other important railcar components that we use in our manufacturing operations. These railcar
components are manufactured and sold to us under a supply agreement that is terminable by ACF at the end of any contract year on six months prior notice. We cannot guarantee that we would be able to obtain alternative supplies of these railcar
components on a timely basis and on comparable terms if we were no longer able to purchase these railcar components from ACF. A failure to obtain component supplies from ACF could materially adversely affect our business, financial condition and
results of operations.

Services being provided to us by ARL, an entity controlled by Carl C. Icahn, may not be sufficient to meet our needs, which may
require us to incur additional costs.

During 2006, we used certain outsourced information technology and administrative services from ARL, an entity
controlled by Mr. Icahn. During 2006, we also subleased our headquarters office space in St. Charles, Missouri from ARL. Throughout 2006, we transitioned most of these services to be performed by ARI employees. This arrangement may be
terminated by either ARL or us upon six months notice or by mutual agreement and, if the sublease service was terminated, we would be required to relocate our office headquarters. As this agreement was negotiated with ARL, an entity affiliated with
us, the prices and rates charged to us under this agreement may be lower than the prices and rates that may be charged by unaffiliated third parties for an office sublease. We cannot assure you that, if this agreement is terminated, we will be able
to replace the sublease in a timely manner or on terms and conditions, including cost, as favorable as those we are currently receiving. Additional expenses incurred in relocation of our office facilities could materially adversely affect our
business, financial condition and results of operations.

As a public company, we may have reduced access to resources of, and benefits provided by,
entities affiliated with Carl C. Icahn.

We believe that our relationship with entities affiliated with Mr. Icahn have, in many cases, provided us
with a competitive advantage in identifying opportunities for sales of our products and identifying and attracting partners for critical supply arrangements. For example, we participate in product and service purchasing arrangements with entities
controlled by Mr. Icahn, which we believe may provide us with favorable pricing as a result of larger aggregate purchases by the Icahn-affiliated



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buying group. If we were unable to participate in these buying group arrangements our manufacturing costs could increase and our results of operations and
financial condition may be materially adversely affected. Also, lease sales agents of ARL and ACF, in connection with their own leasing sales activities have, from time to time, referred their customers or contacts to us if the customer or contact
prefers to purchase rather than lease railcars, which has, in some cases, led to us selling railcars to these customers or contacts. There is no formal arrangement under which referral services are provided and we do not compensate ARL, ACF or any
of their leasing sales agents for any railcar sales that we may make as a result of these referrals. To the extent that ARL or ACF discontinue referring potential customers to us, or require us to compensate them for these referrals, our business,
results of operations and financial condition may be adversely affected.

We are involved in investigation and remediation activities relating to
facilities previously owned by ACF, which may have a material adverse effect on our business, financial condition and results of operations if significant liabilities relating to these activities arise and ACF is not able to honor the obligations.

We are involved in investigation and remediation activities at properties that we now own or lease to address historic contamination and potential
contamination by third parties. We are also involved with state agencies in the cleanup of two sites under these laws. These investigations are in process, but it is too early to be able to make a reasonable estimate, with any certainty, of the
timing and extent of remedial actions that may be required, and the costs that would be involved in such remediation. Substantially all of the issues identified relate to the use of the properties prior to their transfer to us in 1994 by ACF and for
which ACF has retained liability and agreed to indemnify us. However, if ACF fails to honor its obligations to us, we would be responsible for the cost of such remediation. We have been advised that ACF estimates that it will spend approximately
$0.3 million and $0.2 million, respectively, in 2007 and 2008 on environmental investigation, relating to contamination that existed at properties prior to their transfer to us in 1994 and for which ACF has retained liability and agreed to indemnify
us. We expense all costs associated with environmental investigation and remediation relating to our properties even if we receive indemnification from ACF. ACFs indemnification is not treated as an offset to that expense, but rather as an
additional capital contribution. The discovery of historic contamination or the release of substances into the environment at our current or formerly owned or operated facilities could require ACF or us in the future to incur investigative or
remedial costs or other liabilities that could be material or that could interfere with the operation of our business. Any environmental liabilities that we may incur that are not covered by adequate insurance or indemnification will also increase
our costs and have a negative impact on our profitability.

Some of our railcar services and component manufacturing employees belong to labor unions
and strikes or work stoppages by them or unions formed by some or all of our other employees in the future could adversely affect our operations.

We
are a party to collective bargaining agreements with labor unions at our Longview, Texas, North Kansas City, Missouri and our Milton, Pennsylvania repair facilities and at our Longview, Texas steel foundry and components manufacturing facility. As
of December 31, 2006, the covered employees at these sites collectively represent approximately 10.4% of our total workforce. Disputes with regard to the terms of these agreements or our potential inability to negotiate acceptable contracts
with these unions in the future could result in, among other things, strikes, work stoppages or other slowdowns by the affected workers. We cannot guarantee that our relations with our railcar services workforce will remain positive. We cannot
guarantee that union organizers will not be successful in future attempts to organize our railcar manufacturing employees or our other employees at some of our other facilities. If our workers were to engage in a strike, work stoppage or other
slowdown, or other employees were to become unionized or the terms and conditions in future labor agreements were renegotiated, we could experience a significant disruption of our operations and higher ongoing labor costs. In addition, we could face
higher labor costs in the future as a result of severance or other charges associated with layoffs, shutdowns or reductions in the size and scope of our operations.

Changes in assumptions or investment performance of pension and other postretirement benefit plans that we sponsor could materially adversely affect our financial condition and results of operations.

We sponsor two defined benefit plans that cover certain employees at designated repair facilities. One defined benefit plan, which covers certain
salaried and hourly employees, is frozen. The second defined benefit plan is active and covers only certain of our union employees. We are also the sponsor of an unfunded supplemental executive retirement plan (SERP), in which several of its
employees are participants. We will be responsible for making funding contributions to the plans, including the frozen pension plan, and would be liable for any unfunded liabilities that may exist at the time the plans are terminated. Under certain
circumstances, such liability could be senior to the notes. Our liability and resulting costs for these plans may increase or decrease based upon a number of factors,



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including actuarial assumptions used, the discount rate used in calculating the present value of future liabilities, and investment performance. An adverse
change or result in one or more of these factors could have a material adverse effect on our financial condition and results of operations.

We also
provide certain postretirement health care and life insurance benefits for certain of our salaried and hourly employees and retirees. Our postretirement benefit obligations and related expense with respect to these postretirement benefits also
increase or decrease based on several factors, including changes in health care cost trend rates, and could similarly be materially adversely affected by adverse changes in these factors.

Our manufacturers warranties expose us to potentially significant claims.

We warrant the workmanship and materials of many of our products under express limited warranties. Accordingly, we may be subject to significant warranty claims in the future such as multiple claims based on one
defect repeated throughout our mass production process or claims for which the cost of repairing the defective component is highly disproportionate to the original cost of the part. These types of warranty claims could result in costly product
recalls, significant repair costs and damage to our reputation, which could materially adversely affect our business, financial condition and results of operations. Unresolved warranty claims could result in users of our products bringing legal
actions against us. For example, we have been named as the defendant in a lawsuit in which the plaintiff claims we were responsible for the damage caused by allegedly defective railcars that were manufactured by us. The plaintiff alleges that
failures in certain components caused the contents transported by these railcars to spill out of the railcars causing property damage, clean-up costs, monitoring costs, testing costs and other costs and damages.

Our revolving credit facility, as amended, contains, and any additional financing we may obtain could contain, covenants that restrict our ability to engage in
certain transactions and may impair our ability to respond to changing business and economic conditions.

Our revolving credit facility, as amended,
contains various covenants that we will be required to comply with certain covenants. These covenants will restrict our ability to engage in certain transactions and may impair our ability to respond to changing business and economic conditions.
Complying with these covenants may limit our managements discretion by restricting our ability to:



| |  |  | incur additional debt;
| | - |  | ----------------------



| |  |  | redeem our capital stock;
| | - |  | -------------------------



| |  |  | enter into certain transactions with affiliates;
| | - |  | ------------------------------------------------



| |  |  | pay dividends and make other distributions;
| | - |  | -------------------------------------------



| |  |  | make investments and other restricted payments; and
| | - |  | ---------------------------------------------------



| |  |  | create liens.
| | - |  | -------------

Any additional financing we may
obtain could contain similar or more restrictive covenants. Our ability to comply with any covenants may be affected by general economic conditions, political decisions, industry conditions and other events beyond our control. As a result, we cannot
assure you that we will be able to comply with these covenants when and if they become applicable to us. Our failure to comply with these covenants should they become applicable to us, could result in an event of default, which could materially and
adversely affect our operating results and our financial condition.

If there were an event of default under our revolving credit facility, as amended, or
any other financing arrangement, and amounts were then outstanding thereunder, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately. We cannot assure you that our assets or
cash flow would be sufficient to fully repay amounts due under any of our financing arrangements if accelerated upon an event of default, or that we would be able to repay, refinance or restructure the payments under any such arrangements.



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Our production of new future railcar product lines may not be initially profitable, if at all, and may result in
financial losses.

Our strategy includes developing new railcars and selectively expanding beyond the covered hopper and tank railcar markets. When we
begin production of a new railcar product line, we usually experience higher initial costs of production due to training and labor and operating inefficiencies associated with new manufacturing processes. Due to pricing pressures in our industry,
the pricing for new railcars in customer contracts usually does not reflect the initial additional costs, and our costs of production may exceed the anticipated revenues until we are able to gain labor efficiencies. For example, in 2004 and 2005, we
used a portion of the railcar production capacity at our Paragould complex, which we primarily use to manufacture covered hopper railcars, to manufacture centerbeam platform railcars. This was the first time we manufactured centerbeam platform
railcars and primarily as a result of initial training and start-up costs along with increased steel costs, we incurred a loss on this product. In 2006, we produced an intermodal railcar as a test product. To the extent that the total costs of
production significantly exceed our anticipated costs of production, we may incur a loss on our sale of new railcar product lines.

If we are unable to
protect our intellectual property and prevent its improper use by third parties, our ability to compete in the market may be harmed.

We rely on patent
protection and a combination of copyright, trade secret and trademark laws to protect our proprietary technology and prevent others from duplicating our products. However, these means afford only limited protection and may not prevent our
competitors from duplicating our products or gaining access to our proprietary information and technology. These means also may not permit us to gain or maintain a competitive advantage.

Any of our patents may be challenged, invalidated, circumvented or rendered unenforceable. We cannot guarantee that we will be successful should one or more of our patents be challenged for any reason. If our patent
claims are rendered invalid or unenforceable, or narrowed in scope, the patent coverage afforded our products could be impaired, which could significantly impede our ability to market our products, negatively affect our competitive position and
materially adversely affect our business and results of operations.

We cannot assure you that any pending or future patent applications held by us will
result in an issued patent, or that if patents are issued to us, that such patents will provide meaningful protection against competitors or against competitive technologies. The issuance of a patent is not conclusive as to its validity or its
enforceability. The United States federal courts may invalidate our patents or find them unenforceable. Competitors may also be able to design around our patents. Our patents and patent applications cover particular aspects of our products. Other
parties may develop and obtain patent protection for more effective technologies, designs or methods. If these developments were to occur, it could have an adverse effect on our sales. If our intellectual property rights are not adequately
protected, we may not be able to commercialize our technologies, products or services and our competitors could commercialize our technologies, which could result in a decrease in our sales and market share and could materially adversely affect our
business, financial condition and results of operations.

Our products could infringe the intellectual property rights of others, which may lead to
litigation that could itself be costly, could result in the payment of substantial damages or royalties, and could prevent us from using technology that is essential to our products.

We cannot guarantee you that our products, manufacturing processes or other methods do not infringe the patents or other intellectual property rights of third parties. Infringement and other intellectual property
claims and proceedings brought against us, whether successful or not, could result in substantial costs and harm our reputation. Such claims and proceedings can also distract and divert management and key personnel from other tasks important to the
success of our business. In addition, intellectual property litigation or claims could force us to do one or more of the following:



| |  |  | cease selling or using any of our products that incorporate the asserted intellectual property, which would adversely affect our revenue;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | pay substantial damages for past use of the asserted intellectual property;
| | - |  | ---------------------------------------------------------------------------



27



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| |  |  | obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | redesign or rename, in the case of trademark claims, our products to avoid infringing the intellectual property rights of third parties, which may not be possible
and could be costly and time-consuming if it is possible to do.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In the event of an adverse determination in an intellectual property
suit or proceeding, or our failure to license essential technology, our sales could be harmed and our costs could increase, which could materially adversely affect our business, financial condition and results of operations.

Increasing insurance claims and expenses could lower profitability and increase business risk.

The nature of our business subjects us to product liability, property damage and personal injury claims, especially in connection with our manufacture and repair of products that transport hazardous or volatile
materials, such as pressure tank railcars. We maintain reserves and liability insurance coverage at levels based upon commercial norms in the industries in which we operate and our historical claims experience. Over the last several years, insurance
carriers have raised premiums for many companies operating in our industry. Increased premiums may further increase our insurance expense as coverages expire or cause us to raise our self-insured retention. If the number or severity of claims within
our self-insured retention increases, we could suffer costs in excess of our reserves. An unusually large liability claim or a series of claims based on a failure repeated throughout our mass production process may exceed our insurance coverage or
result in direct damages if we were unable or elected not to insure against certain hazards because of high premiums or other reasons. In addition, the availability of, and our ability to collect on, insurance coverage is often subject to factors
beyond our control. Moreover, any accident or incident involving us, even if we are fully insured or not held to be liable, could negatively affect our reputation among customers and the public, thereby making it more difficult for us to compete
effectively, and could materially adversely affect the cost and availability of insurance in the future.

Our failure to comply with regulations imposed
by federal and foreign agencies could negatively affect our financial results.

Our railcar operations are subject to extensive regulation by
governmental regulatory and industry authorities and by federal and foreign agencies. These organizations establish rules and regulations for the railcar industry, including construction specifications and standards for the design and manufacture of
railcars; mechanical, maintenance and related standards; and railroad safety. New regulatory rulings and regulations from these federal or foreign agencies may impact our financial condition and results of operations. If we fail to comply with the
requirements and regulations of these agencies, we may face sanctions and penalties that could materially adversely affect our results of operations.

Further consolidation of the railroad industry may materially adversely affect our business.

Over the past ten years, there has been a
consolidation of railroad carriers operating in North America. Railroad carriers are large purchasers of railcars and represent a significant portion of our historical customer base. With fewer railroad carriers, each railroad carrier will have
proportionately greater buying power and operating efficiency. This may intensify competition among railcar manufacturers to retain customer relationships with the consolidated railroad carriers and cause our prices to decline. Future consolidation
of railroad carriers may materially adversely affect our sales and reduce our income from operations.

Reductions in the availability of energy supplies
or an increase in energy costs may increase our operating costs.

We use electricity and natural gas at our manufacturing facilities and to operate our
equipment. Over the past three years, prices for electricity and natural gas have fluctuated significantly. An outbreak or escalation of hostilities between the United States and any foreign power and, in particular, a prolonged armed conflict in
the Middle East, or a natural disaster such as the hurricanes and related flooding in 2005 in the oil producing region of the Gulf Coast of the United States, could result in a real or perceived shortage of petroleum and/or natural gas, which could
result in an increase in the cost of electricity or energy generally. Future limitations on the availability or consumption of petroleum products and/or an increase in energy costs, particularly electricity for plant operations, could have a
materially adverse effect upon our business and results of operations.



28



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We may be required to reduce our inventory carrying values, which could materially adversely affect our financial
condition and results of operations.

We are required to record our inventories at the lower of cost or market. In assessing the ultimate realization of
inventories, we are required to make judgments as to future demand requirements and compare them with the current or committed inventory levels. We have recorded reductions in inventory carrying values in recent periods due to the discontinuance of
product lines and changes in market conditions due to changes in demand requirements. We may be required to reduce inventory carrying values in the future due to a decline in market conditions in the railcar business, which could have a material
adverse effect on our financial condition and results of operations.

We may be required to reduce the value of our long-lived assets and/or goodwill,
which could materially adversely affect our financial condition and results of operations.

We periodically evaluate the carrying values of our
long-lived assets for potential impairment. The carrying value of a long-lived asset is considered impaired when the carrying value is not recoverable through undiscounted future cash flows and the fair value of the asset is less than the carrying
value reduced by the estimated cost to dispose of the asset. In addition, we are required, at least annually, to evaluate goodwill related to acquired businesses for potential impairment indicators that are based primarily on market conditions in
the United States and the operational performance of our reporting units. Future events could cause us to conclude that impairment indicators exist and that goodwill associated with our acquired businesses is impaired. Any resulting impairment loss
related to reductions in the value of our long-lived assets or our goodwill could materially adversely affect our financial condition and results of operations.

The price of our common stock is subject to volatility.

Various factors, such as general economic changes in the financial markets,
announcements or significant developments with respect to the railcar industry, actual or anticipated variations in our or our competitors quarterly or annual financial results, the introduction of new products or technologies by us or our
competitors, changes in other conditions or trends in our industry or in the markets of any of our significant customers, changes in governmental regulation, our financial results failing to meet expectations of analysts or investors, or changes in
securities analysts estimates of our future performance or of that of our competitors or our industry, could cause the market price of our common stock to fluctuate substantially. In addition, our customers practice of placing large,
periodic orders for products on an as needed basis makes our quarterly sales and operating results difficult to predict and could cause our operating results in some quarters to vary from market expectations and also lead to volatility in our stock
price.

Our stock price may decline due to sales of shares by Carl C. Icahn and other stockholders.

Sales of substantial amounts of our common stock, or the perception that these sales may occur, may adversely affect the price of our common stock and impede our ability
to raise capital through the issuance of equity securities in the future. Of our outstanding shares of common stock, approximately 53% are beneficially owned by our principal beneficial stockholder and the Chairman of our Board of Directors, Carl C.
Icahn. All of our other outstanding shares of common stock are subject to restrictions applicable to our affiliates, as that term is defined in Rule 144 of the Securities Act of 1933 (Securities Act).

In November 2005 we entered into a letter agreement with Mr. Unger, our president and chief executive officer, pursuant to which he was issued 285,714 shares of our
common stock upon the closing of our initial public offering. Pursuant to that letter agreement, we registered 114,286 of these shares for resale by Mr. Unger on a Form S-8 (File No. 333-136680) on August 16, 2006. We have agreed to
include the remaining 171,428 shares in any registration statement we file on behalf of Mr. Icahn with regard to the registration for sale of our shares held by Mr. Icahn, provided the contractual restrictions of these shares has lapsed.

Certain stockholders under our registration rights agreement are entitled, subject to certain exceptions, to exercise their demand registration rights to
register their shares under the Securities Act. If this right is exercised, holders of any of our common stock subject to the registration rights agreement will be entitled to participate in such registration. By exercising their registration
rights, and selling a large number of shares, these holders could cause the price of our common stock to decline. Approximately 11.4 million shares of common stock are subject to our registration rights agreement and Mr. Ungers
letter agreement.



29



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Carl C. Icahn exerts significant influence over us.

Mr. Icahn controls approximately 53% of the voting power of our capital stock and is able to control or exert substantial influence over us, including the election of our directors, and controlling most matters
requiring board or shareholder approval, including:



| |  |  | any determination with respect to our business strategy and policies;
| | - |  | ---------------------------------------------------------------------



| |  |  | mergers or other business combinations involving us;
| | - |  | ----------------------------------------------------



| |  |  | our acquisition or disposition of assets;
| | - |  | -----------------------------------------



| |  |  | future issuances of common stock or other securities by us;
| | - |  | -----------------------------------------------------------



| |  |  | our incurrence of debt or obtaining other sources of financing; and
| | - |  | -------------------------------------------------------------------



| |  |  | the payment of dividends on our common stock.
| | - |  | ---------------------------------------------

In
addition, the existence of a controlling stockholder may have the effect of making it difficult for, or may discourage or delay, a third party from seeking to acquire, a majority of our outstanding common stock, which may adversely affect the market
price of the stock.

Mr. Icahns interests may conflict with the interest of our stockholders.

Mr. Icahn owns and controls and has an interest in a wide array of companies, some of which, such as ARL and ACF as described below, may compete directly or
indirectly with us. As a result, his interests may not always be consistent with our interests or the interests of our other stockholders. For example, ARL, a railcar leasing company owned by Mr. Icahn, competes directly with our other
customers that are in the railcar leasing business and ACF, which supplies us with critical components, also provides components to our competitors. ACF has also previously manufactured railcars and may do so in the future. Mr. Icahn and
entities controlled by him may also pursue acquisitions or business opportunities that may be complementary to our business. Our certificate of incorporation allows Mr. Icahn, entities controlled by him, and any director, officer, member,
partner, stockholder or employee of Mr. Icahn or entities controlled by him, to take advantage of such corporate opportunities without first presenting such opportunities to us, unless such opportunities are expressly offered to any such party
solely in, and as a direct result of, his or her capacity as our director, officer or employee. As a result, corporate opportunities that may benefit us may not be available to us in a timely manner, or at all. To the extent that conflicts of
interest may arise between us and Mr. Icahn and his affiliates, those conflicts may be resolved in a manner adverse to us or to you or other holders of our securities.

We are a controlled company within the meaning of the NASDAQ Global Market rules and therefore we are not subject to all of the NASDAQ Global Market corporate governance requirements.

Mr. Icahn controls approximately 53% of the voting power of our capital stock and we are a controlled company within the meaning of the corporate
governance standards of the NASDAQ Global Market. Under these rules, a controlled company may elect, and we have elected, not to comply with certain NASDAQ Global Market corporate governance requirements, including requirements that a
majority of the board of directors consist of independent directors; compensation of officers be determined or recommended to the board of directors by a majority of its independent directors or by a compensation committee that is composed entirely
of independent directors; and director nominees be selected or recommended for selection by a majority of the independent directors or by a nominating committee composed solely of independent directors. As a result, we do not have a majority of
independent directors and we do not have a nominating committee nor do we have a compensation committee consisting of independent members.



30



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Payments of cash dividends on our common stock may be made only at the discretion of our board of directors and
Delaware law may restrict, and the agreements governing our revolving credit facility, as amended, contain provisions that limit, our ability to pay dividends.

Our board declared dividends on our common stock of $0.03 per share of common stock payable each quarter of 2006. Our board of directors may, in its discretion, refuse to declare further dividends and any payment of further dividends will
depend upon our operating results, strategic plans, capital requirements, financial condition, provisions of our borrowing arrangements and other factors our board of directors considers relevant. In addition, the agreements governing our amended
and restated revolving credit facility restrict our ability to declare and pay dividends on our capital stock. Furthermore, Delaware law imposes restrictions on our ability to pay dividends. For example, our board of directors may declare dividends
only to the extent of our surplus (which is defined as total assets at fair market value minus total liabilities, minus statutory capital), or if there is no surplus, out of our net profits for the then current and/or immediately
preceding fiscal years. Accordingly, we may not be able to pay dividends in any given amount in the future, or at all.



31



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Item 6: Selected Consolidated Financial Data.

The following table sets forth our selected consolidated
financial data for the periods presented. The consolidated statements of operations and cash flow data as at and for the years ended December 31, 2004, 2005 and 2006 and the consolidated balance sheet data as of December 31, 2006 are derived from
our audited consolidated financial statements and related notes included elsewhere in this annual report. See Index to consolidated financial statements.

You should read this information together with Managements discussion and analysis of financial condition and results of operations and our consolidated financial statements and the related notes
thereto included elsewhere in this annual report.



|                                                     |  |                                          |          |   |      |   |          |      |  |   |          |   |  |          |          |   |  |   |          |  
|---------------------------------------------------- |  | ---------------------------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | - |  | -------- | -------- | - |  | - | -------- | -
|                                                     |  | Years ended December 31,                 |         
|                                                     |  | 2002                                     |          |   | 2003 |   |          | 2004 |  |   | 2005     |   |  | 2006 (8) |         
|                                                     |  | (in thousands, except per share amounts) |         
|Consolidated statement of operations data:           |  |                                          |          |   |      |   |          |      |  |   |          |   |  |          |          |   |  |   |          |  
|Revenues                                             |  |                                          |          |   |      |   |          |      |  |   |          |   |  |          |          |   |  |   |          |  
|Manufacturing operations (1)                         |  | $                                        | 138,441  |   |      | $ | 188,119  |      |  | $ | 316,432  |   |  | $        | 564,513  |   |  | $ | 597,913  |  
|Railcar services (2)                                 |  |                                          | 30,387   |   |      |   | 29,875   |      |  |   | 38,624   |   |  |          | 43,647   |   |  |   | 48,139   |  
|                                                     |  |                                          |          |   |      |   |          |      |  |   |          |   |  |          |          |   |  |   |          |  
|Total revenues                                       |  |                                          | 168,828  |   |      |   | 217,994  |      |  |   | 355,056  |   |  |          | 608,160  |   |  |   | 646,052  |  
|Cost of goods sold                                   |  |                                          |          |   |      |   |          |      |  |   |          |   |  |          |          |   |  |   |          |  
|Cost of manufacturing operations (3)                 |  |                                          | (134,363 | ) |      |   | (174,629 | )    |  |   | (306,283 | ) |  |          | (518,063 | ) |  |   | (537,344 | )
|Cost of railcar services (4)                         |  |                                          | (29,533  | ) |      |   | (29,762  | )    |  |   | (34,473  | ) |  |          | (38,041  | ) |  |   | (38,020  | )
|                                                     |  |                                          |          |   |      |   |          |      |  |   |          |   |  |          |          |   |  |   |          |  
|Total cost of goods sold                             |  |                                          | (163,896 | ) |      |   | (204,391 | )    |  |   | (340,756 | ) |  |          | (556,104 | ) |  |   | (575,364 | )
|                                                     |  |                                          |          |   |      |   |          |      |  |   |          |   |  |          |          |   |  |   |          |  
|Gross profit                                         |  |                                          | 4,932    |   |      |   | 13,603   |      |  |   | 14,300   |   |  |          | 52,056   |   |  |   | 70,688   |  
|Pension settlement expense                           |  |                                          |         |   |      |   |         |      |  |   |         |   |  |          | (8,878   | ) |  |   |         |  
|Income related to insurance recoveries, net          |  |                                          |         |   |      |   |         |      |  |   |         |   |  |          |         |   |  |   | 9,946    |  
|Gain on asset conversion, net                        |  |                                          |         |   |      |   |         |      |  |   |         |   |  |          |         |   |  |   | 4,323    |  
|Selling, administrative and other                    |  |                                          | (9,505   | ) |      |   | (10,340  | )    |  |   | (10,334  | ) |  |          | (16,476  | ) |  |   | (20,473  | )
|Stock based compensation expense                     |  |                                          |         |   |      |   |         |      |  |   |         |   |  |          |         |   |  |   | (7,926   | )
|                                                     |  |                                          |          |   |      |   |          |      |  |   |          |   |  |          |          |   |  |   |          |  
|Operating earnings (loss)                            |  |                                          | (4,573   | ) |      |   | 3,263    |      |  |   | 3,966    |   |  |          | 26,702   |   |  |   | 56,558   |  
|Interest income (5)                                  |  |                                          | 3,619    |   |      |   | 3,161    |      |  |   | 4,422    |   |  |          | 1,658    |   |  |   | 1,504    |  
|Interest expense (6)                                 |  |                                          | (4,853   | ) |      |   | (3,616   | )    |  |   | (3,667   | ) |  |          | (4,846   | ) |  |   | (1,372   | )
|Income (loss) from joint venture                     |  |                                          |         |   |      |   | (604     | )    |  |   | (609     | ) |  |          | 610      |   |  |   | (734     | )
|                                                     |  |                                          |          |   |      |   |          |      |  |   |          |   |  |          |          |   |  |   |          |  
|Earnings (loss) before income tax benefit (expense)  |  |                                          | (5,807   | ) |      |   | 2,204    |      |  |   | 4,112    |   |  |          | 24,124   |   |  |   | 55,956   |  
|Income tax benefit (expense)                         |  |                                          | 1,894    |   |      |   | (1,139   | )    |  |   | (2,191   | ) |  |          | (9,356   | ) |  |   | (20,752  | )
|                                                     |  |                                          |          |   |      |   |          |      |  |   |          |   |  |          |          |   |  |   |          |  
|Net earnings (loss)                                  |  | $                                        | (3,913   | ) |      | $ | 1,065    |      |  | $ | 1,921    |   |  | $        | 14,768   |   |  | $ | 35,204   |  
|Less preferred dividends                             |  |                                          | (7,139   | ) |      |   | (9,690   | )    |  |   | (13,241  | ) |  |          | (13,251  | ) |  |   | (568     | )
|                                                     |  |                                          |          |   |      |   |          |      |  |   |          |   |  |          |          |   |  |   |          |  
|Net earnings (loss) available to common shareholders |  | $                                        | (11,052  | ) |      | $ | (8,625   | )    |  | $ | (11,320  | ) |  | $        | 1,517    |   |  | $ | 34,636   |  
|                                                     |  |                                          |          |   |      |   |          |      |  |   |          |   |  |          |          |   |  |   |          |  
|Weighted average shares outstanding basic (7)        |  |                                          | 9,328    |   |      |   | 9,328    |      |  |   | 10,143   |   |  |          | 11,147   |   |  |   | 20,667   |  
|Net earnings (loss) per common share basic (7)       |  | $                                        | (1.18    | ) |      | $ | (0.92    | )    |  | $ | (1.12    | ) |  | $        | 0.14     |   |  | $ | 1.68     |  
|                                                     |  |                                          |          |   |      |   |          |      |  |   |          |   |  |          |          |   |  |   |          |  
|Weighted average shares outstanding diluted (7)      |  |                                          | 9,328    |   |      |   | 9,328    |      |  |   | 10,143   |   |  |          | 11,147   |   |  |   | 20,756   |  
|Net earnings (loss) per common share diluted (7)     |  | $                                        | (1.18    | ) |      | $ | (0.92    | )    |  | $ | (1.12    | ) |  | $        | 0.14     |   |  | $ | 1.67     |  
|                                                     |  |                                          |          |   |      |   |          |      |  |   |          |   |  |          |          |   |  |   |          |  
|Dividends declared per common share                  |  |                                          |         |   |      |   |         |      |  |   |         |   |  |          |         |   |  | $ | 0.12     |  
|                                                     |  |                                          |          |   |     
|Consolidated balance sheet data (at period end):     |  |                                          |          |   |      |   |          |      |  |   |          |   |  |          |          |   |  |   |          |  
|Cash and cash equivalents                            |  | $                                        | 183      |   |      | $ | 65       |      |  | $ | 6,943    |   |  | $        | 28,692   |   |  | $ | 40,922   |  
|Net working capital                                  |  |                                          | 16,065   |   |      |   | 15,084   |      |  |   | 46,565   |   |  |          | 25,768   |   |  |   | 126,086  |  
|Net property, plant and equipment                    |  |                                          | 75,746   |   |      |   | 71,230   |      |  |   | 76,951   |   |  |          | 92,985   |   |  |   | 130,293  |  
|Total assets                                         |  |                                          | 187,590  |   |      |   | 196,508  |      |  |   | 356,840  |   |  |          | 268,580  |   |  |   | 338,926  |  
|Total liabilities                                    |  |                                          | 98,463   |   |      |   | 190,704  |      |  |   | 221,817  |   |  |          | 161,820  |   |  |   | 88,746   |  
|Total shareholders equity                           |  |                                          | 89,127   |   |      |   | 5,804    |      |  |   | 135,023  |   |  |          | 106,760  |   |  |   | 250,180  |  
|                                                     |  |                                          |          |   |     
|Consolidated cash flow data:                         |  |                                          |          |   |      |   |          |      |  |   |          |   |  |          |          |   |  |   |          |  
|Net cash provided by (used in) operating activities  |  | $                                        | 10,611   |   |      | $ | (1,639   | )    |  | $ | (17,082  | ) |  | $        | 41,571   |   |  | $ | 29,967   |  
|Net cash used in investing activities                |  |                                          | (535     | ) |      |   | (2,251   | )    |  |   | (11,037  | ) |  |          | (22,580  | ) |  |   | (51,704  | )
|Net cash provided by (used in ) financing activities |  |                                          | (11,369  | ) |      |   | 3,772    |      |  |   | 34,997   |   |  |          | 2,758    |   |  |   | 33,967   |  

---

|(1) | Includes revenues from transactions with affiliates of $63.6 million, $62.9 million, $64.4 million, $47.2 million and $50.0 million in 2002, 2003, 2004, 2005 and 2006, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



35



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|(2) | Includes revenues from transactions with affiliates of $12.8 million, $11.0 million, $19.4 million, $20.6 million and $18.9 million in 2002, 2003, 2004, 2005 and 2006, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Including costs from transactions with affiliates of $55.7 million, $54.4 million, $59.1 million, $44.1 million and $43.4 million in 2002, 2003, 2004, 2005 and 2006, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes costs from transactions with affiliates of $12.2 million, $10.1 million, $15.5 million, $16.2 million and $14.7 million in 2002, 2003, 2004, 2005 and 2006, respectively.
2005 also includes $2.0 million charge for pension settlement.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes interest income from affiliates of $3.4 million, $3.0 million, $3.9 million, $1.0 million and zero in 2002, 2003, 2004, 2005 and 2006, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Includes interest expense to affiliates of $1.5 million, $2.1 million and $0.1 million in 2006, respectively.
|--- | -------------------------------------------------------------------------------------------------------------

|(7) | Share and per share data have been restated to give effect to the merger, as discussed in Note 21 of our Financial Statements.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(8) | Includes the acquisition of Custom Steel effective as of March 31, 2006, which provided cost savings during 2006 within our cost of goods sold cost of manufacturing operations.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



36



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Item 8: Financial Statements and Supplementary Data

American Railcar Industries, Inc.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                                    |  |     
|----------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                    |  | Page
|Report of Grant Thornton LLP Independent Registered Public Accounting Firm                                                          |  | 59  
|Consolidated Balance Sheets as of December 31, 2005 and 2006                                                                        |  | 60  
|Consolidated Statements of Operations for the years ended December 31, 2004, 2005 and 2006                                          |  | 62  
|Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2005 and 2006                                          |  | 63  
|Consolidated Statement of Shareholders Equity and Comprehensive Income (Loss) for the years ended December 31, 2004, 2005 and 2006 |  | 64  
|Notes to Consolidated Financial Statements                                                                                          |  | 65  



58



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

American Railcar Industries, Inc.

We have audited the accompanying
consolidated balance sheets of the manufacturing and railcar services operations of American Railcar Industries, Inc. and subsidiaries (the Company) as of December 31, 2006 and 2005, and the related consolidated statements of
operations, stockholders equity and comprehensive income (loss), and cash flows for the periods ended December 31, 2006, 2005 and 2004. These financial statements are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 financial statements referred to above present fairly, in all material respects, the financial position of the manufacturing and railcar services operations of American Railcar Industries, Inc. and
subsidiaries as of December 31, 2006 and 2005, and the consolidated results of its operations and cash flows for the periods ended December 31, 2006, 2005 and 2004, in conformity with accounting principles generally accepted in the United
States of America.

/s/ Grant Thornton LLP

Chicago,
Illinois

February 12, 2007



59



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CONSOLIDATED BALANCE SHEETS

(In thousands)



|                                         |  |                    |         |      |   |        
|---------------------------------------- |  | ------------------ | ------- | ---- | - | -------
|                                         |  | As of December 31,
|                                         |  | 2005               |         | 2006
|Assets                                   |  |                    |         |      |   |        
|Current assets                           |  |                    |         |      |   |        
|Cash and cash equivalents                |  | $                  | 28,692  |      | $ | 40,922 
|Accounts receivable, net                 |  |                    | 38,273  |      |   | 34,868 
|Accounts receivable, due from affiliates |  |                    | 5,110   |      |   | 9,632  
|Inventories, net                         |  |                    | 88,001  |      |   | 103,510
|Prepaid expenses                         |  |                    | 2,523   |      |   | 5,853  
|Deferred tax asset                       |  |                    | 1,967   |      |   | 2,089  
|                                         |  |                    |         |      |   |        
|Total current assets                     |  |                    | 164,566 |      |   | 196,874
|Property, plant and equipment            |  |                    |         |      |   |        
|Buildings                                |  |                    | 84,255  |      |   | 102,737
|Machinery and equipment                  |  |                    | 68,187  |      |   | 93,060 
|                                         |  |                    |         |      |   |        
|                                         |  |                    | 152,442 |      |   | 195,797
|Less accumulated depreciation            |  |                    | 65,398  |      |   | 75,204 
|                                         |  |                    |         |      |   |        
|                                         |  |                    | 87,044  |      |   | 120,593
|Construction in process                  |  |                    | 3,759   |      |   | 6,835  
|Land                                     |  |                    | 2,182   |      |   | 2,865  
|                                         |  |                    |         |      |   |        
|Net property, plant and equipment        |  |                    | 92,985  |      |   | 130,293
|                                         |  |                   
|Debt issuance costs                      |  |                    | 591     |      |   | 235    
|Other assets                             |  |                    |        |      |   | 37     
|Deferred offering costs                  |  |                    | 4,860   |      |   |       
|Goodwill                                 |  |                    |        |      |   | 7,169  
|Investment in joint venture              |  |                    | 5,578   |      |   | 4,318  
|                                         |  |                    |         |      |   |        
|Total assets                             |  | $                  | 268,580 |      | $ | 338,926
|                                         |  |                    |         |      |   |        

See notes to the consolidated financial statements



60



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CONSOLIDATED BALANCE SHEETS - Continued

(In thousands, except for share and per share amounts)



|                                                                                                                                                                                                          |  |                    |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                                                          |  | As of December 31, |        
|                                                                                                                                                                                                          |  | 2005               |         |   | 2006 |  
|Liabilities and Shareholders Equity                                                                                                                                                                      |  |                    |         |   |      |   |         |  
|Current liabilities:                                                                                                                                                                                      |  |                    |         |   |      |   |         |  
|Current portion of long-term debt                                                                                                                                                                         |  | $                  | 33,294  |   |      | $ | 88      |  
|Accounts payable                                                                                                                                                                                          |  |                    | 55,793  |   |      |   | 54,962  |  
|Accounts payable, due to affiliate                                                                                                                                                                        |  |                    | 3,078   |   |      |   | 1,689   |  
|Accrued expenses and taxes                                                                                                                                                                                |  |                    | 7,675   |   |      |   | 3,131   |  
|Accrued compensation                                                                                                                                                                                      |  |                    | 7,243   |   |      |   | 10,282  |  
|Accrued dividends                                                                                                                                                                                         |  |                    | 11,336  |   |      |   | 636     |  
|Note payable to affiliate - current                                                                                                                                                                       |  |                    | 19,000  |   |      |   |        |  
|Other amounts due to affiliates - current                                                                                                                                                                 |  |                    | 1,379   |   |      |   |        |  
|                                                                                                                                                                                                          |  |                    |         |   |      |   |         |  
|Total current liabilities                                                                                                                                                                                 |  |                    | 138,798 |   |      |   | 70,788  |  
|                                                                                                                                                                                                          |  |                   
|Long - term debt, net of current portion                                                                                                                                                                  |  |                    | 7,076   |   |      |   | 8       |  
|Deferred tax liability                                                                                                                                                                                    |  |                    | 5,364   |   |      |   | 7,042   |  
|Pension and post-retirement liabilities                                                                                                                                                                   |  |                    | 10,522  |   |      |   | 10,859  |  
|Other liabilities                                                                                                                                                                                         |  |                    | 59      |   |      |   | 49      |  
|Mandatory redeemable preferred stock, stated value $1,000, 99,000 shares authorized, 1 share issued and outstanding at December 31, 2005,
none outstanding at December 31, 2006                           |  |                    | 1       |   |      |   |        |  
|                                                                                                                                                                                                          |  |                    |         |   |      |   |         |  
|Total liabilities                                                                                                                                                                                         |  |                    | 161,820 |   |      |   | 88,746  |  
|                                                                                                                                                                                                          |  |                   
|Commitments and contingencies                                                                                                                                                                             |  |                    |        |   |      |   |        |  
|                                                                                                                                                                                                          |  |                   
|Shareholders equity:                                                                                                                                                                                     |  |                    |         |   |      |   |         |  
|New preferred stock, $.01 par value per share, stated value $1,000 per share, 500,000 shares authorized, 82,055 shares issued and outstanding
at December 31, 2005, none outstanding at December 31, 2006 |  |                    | 82,055  |   |      |   |        |  
|Common stock, $.01 par value, 50,000,000 shares authorized, 11,147,059 and 21,207,773 shares issued and outstanding at December 31, 2005
and 2006, respectively                                           |  |                    | 111     |   |      |   | 212     |  
|Additional paid-in capital                                                                                                                                                                                |  |                    | 41,667  |   |      |   | 235,768 |  
|Retained earnings (accumulated deficit)                                                                                                                                                                   |  |                    | (15,442 | ) |      |   | 16,649  |  
|Accumulated other comprehensive loss                                                                                                                                                                      |  |                    | (1,631  | ) |      |   | (2,449  | )
|                                                                                                                                                                                                          |  |                    |         |   |      |   |         |  
|Total shareholders equity                                                                                                                                                                                |  |                    | 106,760 |   |      |   | 250,180 |  
|                                                                                                                                                                                                          |  |                    |         |   |      |   |         |  
|Total liabilities and shareholders equity                                                                                                                                                                |  | $                  | 268,580 |   |      | $ | 338,926 |  
|                                                                                                                                                                                                          |  |                    |         |   |      |   |         |  

See notes to the consolidated financial statements



61



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CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)



|                                                                                                                                      |  |                         |          |   |      |   |          |      |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                                                                      |  | Year Ended December 31, |         
|                                                                                                                                      |  | 2004                    |          |   | 2005 |   |          | 2006 | 
|Revenues:                                                                                                                             |  |                         |          |   |      |   |          |      |  |   |          |  
|Manufacturing operations (including revenues from affiliates of $64,372, $47,195 and $50,003 in 2004, 2005 and 2006,
respectively)    |  | $                       | 316,432  |   |      | $ | 564,513  |      |  | $ | 597,913  |  
|                                                                                                                                      |  |                         |         
|Railcar services (including revenues from affiliates of $19,429, $20,645 and $18,923 in 2004, 2005, 2006, respectively)               |  |                         | 38,624   |   |      |   | 43,647   |      |  |   | 48,139   |  
|                                                                                                                                      |  |                         |          |   |      |   |          |      |  |   |          |  
|Total revenues                                                                                                                        |  |                         | 355,056  |   |      |   | 608,160  |      |  |   | 646,052  |  
|                                                                                                                                      |  |                         |         
|Cost of goods sold:                                                                                                                   |  |                         |          |   |      |   |          |      |  |   |          |  
|Manufacturing operations (including costs related to affiliates of $59,052, $44,077 and $43,399 in 2004, 2005 and 2006,
respectively) |  |                         | (306,283 | ) |      |   | (518,063 | )    |  |   | (537,344 | )
|                                                                                                                                      |  |                         |         
|Railcar services (including costs related to affiliates of $15,539, $16,200 and $14,675 in 2004, 2005, and 2006, respectively)        |  |                         | (34,473  | ) |      |   | (38,041  | )    |  |   | (38,020  | )
|                                                                                                                                      |  |                         |          |   |      |   |          |      |  |   |          |  
|Total cost of goods sold                                                                                                              |  |                         | (340,756 | ) |      |   | (556,104 | )    |  |   | (575,364 | )
|Gross profit                                                                                                                          |  |                         | 14,300   |   |      |   | 52,056   |      |  |   | 70,688   |  
|                                                                                                                                      |  |                         |         
|Pension settlement expense                                                                                                            |  |                         |         |   |      |   | (8,878   | )    |  |   |         |  
|Income related to insurance recoveries, net                                                                                           |  |                         |         |   |      |   |         |      |  |   | 9,946    |  
|Gain on asset conversion, net                                                                                                         |  |                         |         |   |      |   |         |      |  |   | 4,323    |  
|Selling, administrative and other                                                                                                     |  |                         | (10,334  | ) |      |   | (16,476  | )    |  |   | (20,473  | )
|Stock based compensation                                                                                                              |  |                         |         |   |      |   |         |      |  |   | (7,926   | )
|                                                                                                                                      |  |                         |          |   |      |   |          |      |  |   |          |  
|Earnings from operations                                                                                                              |  |                         | 3,966    |   |      |   | 26,702   |      |  |   | 56,558   |  
|                                                                                                                                      |  |                         |         
|Interest income (including interest income from affiliates of $3,885, $1,008 and zero in 2004, 2005 and 2006, respectively)           |  |                         | 4,422    |   |      |   | 1,658    |      |  |   | 1,504    |  
|Interest expense (including interest expense to affiliates of $1,524, $2,063 and $98 in 2004, 2005 and 2006, respectively)            |  |                         | (3,667   | ) |      |   | (4,846   | )    |  |   | (1,372   | )
|(Loss) earnings from joint venture                                                                                                    |  |                         | (609     | ) |      |   | 610      |      |  |   | (734     | )
|                                                                                                                                      |  |                         |          |   |      |   |          |      |  |   |          |  
|Earnings before income tax expense                                                                                                    |  |                         | 4,112    |   |      |   | 24,124   |      |  |   | 55,956   |  
|Income tax expense                                                                                                                    |  |                         | (2,191   | ) |      |   | (9,356   | )    |  |   | (20,752  | )
|                                                                                                                                      |  |                         |          |   |      |   |          |      |  |   |          |  
|Net earnings                                                                                                                          |  | $                       | 1,921    |   |      | $ | 14,768   |      |  | $ | 35,204   |  
|                                                                                                                                      |  |                         |          |   |      |   |          |      |  |   |          |  
|Less preferred dividends                                                                                                              |  |                         | (13,241  | ) |      |   | (13,251  | )    |  |   | (568     | )
|                                                                                                                                      |  |                         |          |   |      |   |          |      |  |   |          |  
|Earnings (loss) available to common shareholders                                                                                      |  |                         | (11,320  | ) |      |   | 1,517    |      |  |   | 34,636   |  
|                                                                                                                                      |  |                         |         
|Net earnings (loss) per common share - basic                                                                                          |  | $                       | (1.12    | ) |      | $ | 0.14     |      |  | $ | 1.68     |  
|Net earnings (loss) per common share - diluted                                                                                        |  | $                       | (1.12    | ) |      | $ | 0.14     |      |  | $ | 1.67     |  
|Weighted average common shares outstanding - basic                                                                                    |  |                         | 10,143   |   |      |   | 11,147   |      |  |   | 20,667   |  
|Weighted average common shares outstanding - diluted                                                                                  |  |                         | 10,143   |   |      |   | 11,147   |      |  |   | 20,756   |  

See notes to the consolidated financial statements.



62



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CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                             |  |                         |          |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                             |  | Year Ended December 31, |         
|                                                                                             |  | 2004                    |          |   | 2005 |   |         | 2006 | 
|Operating activities:                                                                        |  |                         |          |   |      |   |         |      |  |   |         |  
|Net earnings                                                                                 |  | $                       | 1,921    |   |      | $ | 14,768  |      |  | $ | 35,204  |  
|Adjustments to reconcile net earnings to net cash (used in) provided by operating activities |  |                         |          |   |      |   |         |      |  |   |         |  
|Depreciation and amortization                                                                |  |                         | 6,247    |   |      |   | 6,807   |      |  |   | 10,801  |  
|Loss on the write-off of property, plant and equipment                                       |  |                         |         |   |      |   |        |      |  |   | 4,393   |  
|Expense related to assumption of pension plan                                                |  |                         |         |   |      |   | 8,335   |      |  |   |        |  
|Insurance compensation for assets and storm clean-up                                         |  |                         |         |   |      |   |        |      |  |   | (9,938  | )
|Write-off of deferred financing costs                                                        |  |                         |         |   |      |   |        |      |  |   | 566     |  
|Stock based compensation                                                                     |  |                         |         |   |      |   |        |      |  |   | 8,116   |  
|Change in joint venture investment as a result of loss (earnings)                            |  |                         | 609      |   |      |   | (610    | )    |  |   | 734     |  
|Expense relating to pre-recapitalization liabilities                                         |  |                         | 1,431    |   |      |   | 1,061   |      |  |   |        |  
|Curtailment gain                                                                             |  |                         | (59      | ) |      |   |        |      |  |   |        |  
|Provision for deferred income taxes                                                          |  |                         | 1,740    |   |      |   | 5,606   |      |  |   | (154    | )
|Provision for losses on accounts receivable                                                  |  |                         | 209      |   |      |   | 323     |      |  |   | 383     |  
|Long-lived asset impairment charges                                                          |  |                         |         |   |      |   |        |      |  |   | 400     |  
|Changes in operating assets and liabilities:                                                 |  |                         |          |   |      |   |         |      |  |   |         |  
|Accounts receivable, net                                                                     |  |                         | (11,983  | ) |      |   | (13,413 | )    |  |   | 3,020   |  
|Accounts receivable, due from affiliate                                                      |  |                         |         |   |      |   |        |      |  |   | (4,522  | )
|Inventories, net                                                                             |  |                         | (28,718  | ) |      |   | (14,076 | )    |  |   | (11,672 | )
|Prepaid expenses                                                                             |  |                         | (365     | ) |      |   | (2,256  | )    |  |   | (3,317  | )
|Accounts payable                                                                             |  |                         | 12,048   |   |      |   | 32,993  |      |  |   | (831    | )
|Accounts payable, due to affiliate                                                           |  |                         |         |   |      |   |        |      |  |   | (1,292  | )
|Accrued expenses and taxes                                                                   |  |                         | 1,966    |   |      |   | 4,871   |      |  |   | (1,532  | )
|Other                                                                                        |  |                         | (2,128   | ) |      |   | (2,838  | )    |  |   | (392    | )
|                                                                                             |  |                         |          |   |      |   |         |      |  |   |         |  
|Net cash (used in) provided by operating activities                                          |  |                         | (17,082  | ) |      |   | 41,571  |      |  |   | 29,967  |  
|                                                                                             |  |                         |         
|Investing activities:                                                                        |  |                         |          |   |      |   |         |      |  |   |         |  
|Purchases of property, plant and equipment                                                   |  |                         | (11,441  | ) |      |   | (22,841 | )    |  |   | (44,916 | )
|Property insurance advance on Marmaduke tornado damage                                       |  |                         |         |   |      |   |        |      |  |   | 9,938   |  
|Proceeds from repayment of note receivable from affiliate (Ohio Castings LLC)                |  |                         | 404      |   |      |   | 261     |      |  |   | 494     |  
|Acquisitions                                                                                 |  |                         |         |   |      |   |        |      |  |   | (17,220 | )
|                                                                                             |  |                         |          |   |      |   |         |      |  |   |         |  
|Net cash used in investing activities                                                        |  |                         | (11,037  | ) |      |   | (22,580 | )    |  |   | (51,704 | )
|                                                                                             |  |                         |         
|Financing activities:                                                                        |  |                         |          |   |      |   |         |      |  |   |         |  
|Issuance of common stock                                                                     |  |                         | 42,500   |   |      |   |        |      |  |   |        |  
|Issuance of preferred stock                                                                  |  |                         | 67,500   |   |      |   |        |      |  |   |        |  
|Effect of ARL spin off                                                                       |  |                         | (25,000  | ) |      |   |        |      |  |   |        |  
|Advance to affiliate under notes receivable                                                  |  |                         | (165,000 | ) |      |   |        |      |  |   |        |  
|Proceeds from sale of common stock                                                           |  |                         |         |   |      |   |        |      |  |   | 205,275 |  
|Offering costs                                                                               |  |                         |         |   |      |   |        |      |  |   | (14,605 | )
|Preferred stock redemption                                                                   |  |                         |         |   |      |   |        |      |  |   | (82,056 | )
|Preferred stock dividends                                                                    |  |                         |         |   |      |   |        |      |  |   | (11,904 | )
|Common stock dividends                                                                       |  |                         |         |   |      |   |        |      |  |   | (1,908  | )
|Proceeds from issuance of notes payable to affiliates                                        |  |                         | 137,000  |   |      |   |        |      |  |   |        |  
|Increase in amount due from affiliate                                                        |  |                         |         |   |      |   | (5,110  | )    |  |   |        |  
|Increase (decrease) in amount due to affiliate                                               |  |                         | 18,219   |   |      |   | (17,790 | )    |  |   | (20,476 | )
|Majority shareholder capital contribution                                                    |  |                         |         |   |      |   |        |      |  |   | 275     |  
|Finance fees related to new credit facility                                                  |  |                         |         |   |      |   |        |      |  |   | (360    | )
|Proceeds from debt issuance                                                                  |  |                         |         |   |      |   | 31,852  |      |  |   |        |  
|Deferred offering costs                                                                      |  |                         |         |   |      |   | (4,860  | )    |  |   |        |  
|Repayment of debt                                                                            |  |                         | (40,222  | ) |      |   | (1,334  | )    |  |   | (40,274 | )
|                                                                                             |  |                         |          |   |      |   |         |      |  |   |         |  
|Net cash provided by financing activities                                                    |  |                         | 34,997   |   |      |   | 2,758   |      |  |   | 33,967  |  
|                                                                                             |  |                         |          |   |      |   |         |      |  |   |         |  
|Increase in cash and cash equivalents                                                        |  |                         | 6,878    |   |      |   | 21,749  |      |  |   | 12,230  |  
|Cash and cash equivalents at beginning of year                                               |  |                         | 65       |   |      |   | 6,943   |      |  |   | 28,692  |  
|                                                                                             |  |                         |          |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents at end of year                                                     |  | $                       | 6,943    |   |      | $ | 28,692  |      |  | $ | 40,922  |  
|                                                                                             |  |                         |          |   |      |   |         |      |  |   |         |  

See notes to the consolidated financial statements.



63



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STATEMENT OF STOCKHOLDERS EQUITY & COMPREHENSIVE INCOME (LOSS)

(In thousands)



|                                                                                                                           |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   |          |  
|-------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------------------ | - | ------- | ------------------------- |  | - | ----------------- | - |  | ------------------ | ------- | ----------- |  | ------------------------- |  | - | --------------------------------- |  | - | ------------------------ | - |  | - | ------ | - |  | - | -------- | -
|                                                                                                                           |  | Comprehensiveincome (loss) |        |   | Retainedearnings(accumulateddeficit) |   |         | New PreferredStock-Shares |  |   | Newpreferredstock |   |  | CommonStock-Shares |         | Commonstock |  | Additionalpaid-in capital |  |   | Accumulatedothercomprehensiveloss |  |   | Totalshareholdersequity |  
|January 1, 2004                                                                                                            |  |                            |        |   |                                      | $ | (4,889  | )                         |  |   |                  |   |  | $                  |        |             |  | 9,328                     |  | $ | 93                                |  | $ | 11,484                   |   |  | $ | (884   | ) |  | $ | 5,804    |  
|Net earnings                                                                                                               |  | $                          | 1,921  |   |                                      |   | 1,921   |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   | 1,921    |  
|Currency translation adjustment                                                                                            |  |                            | 14     |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   | 14     |   |  |   | 14       |  
|Minimum pension liability adjustment, net of tax effect of $109                                                            |  |                            | (193   | ) |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   | (193   | ) |  |   | (193     | )
|                                                                                                                           |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   |          |  
|Comprehensive income                                                                                                       |  | $                          | 1,742  |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   |          |  
|                                                                                                                           |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   |          |  
|Dividends on preferred stock                                                                                               |  |                            |        |   |                                      |   | (13,241 | )                         |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   | (13,241  | )
|Transfer mandatorily redeemable PIK preferred to New Preferred Stock                                                       |  |                            |        |   |                                      |   |         |                           |  |   | 95,517            |   |  |                    | 95,517  |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   | 95,517   |  
|Conversion of PIK Preferred Dividends                                                                                      |  |                            |        |   |                                      |   |         |                           |  |   | 654               |   |  |                    | 654     |             |  | 1,819                     |  |   | 18                                |  |   | (18                      | ) |  |   |        |   |  |   | 654      |  
|Capital contributions                                                                                                      |  |                            |        |   |                                      |   |         |                           |  |   | 102,000           |   |  |                    | 102,000 |             |  |                           |  |   |                                   |  |   | 42,500                   |   |  |   |        |   |  |   | 144,500  |  
|Net adjustments relating to spin off of ARL (Note 1)                                                                       |  |                            |        |   |                                      |   |         |                           |  |   | (86,486           | ) |  |                    | (86,486 | )           |  |                           |  |   |                                   |  |   | (14,148                  | ) |  |   |        |   |  |   | (100,634 | )
|Deemed distribution related to decrease in Castings book value                                                             |  |                            |        |   |                                      |   | (750    | )                         |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   | (750     | )
|Capital contributions for expenses relating to precapitalization liabilities retained by ACF                               |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   | 1,431                    |   |  |   |        |   |  |   | 1,431    |  
|                                                                                                                           |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   |          |  
|Balance December 31, 2004                                                                                                  |  |                            |        |   |                                      | $ | (16,959 | )                         |  |   | 111,685           |   |  | $                  | 111,685 |             |  | 11,147                    |  | $ | 111                               |  | $ | 41,249                   |   |  | $ | (1,063 | ) |  | $ | 135,023  |  
|                                                                                                                           |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   |          |  
|Net earnings                                                                                                               |  | $                          | 14,768 |   |                                      |   | 14,768  |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   | 14,768   |  
|Currency translation adjustment                                                                                            |  |                            | 16     |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   | 16     |   |  |   | 16       |  
|Minimum pension liability adjustment, net of tax effect of $362                                                            |  |                            | (584   | ) |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   | (584   | ) |  |   | (584     | )
|                                                                                                                           |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   |          |  
|Comprehensive income                                                                                                       |  | $                          | 14,200 |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   |          |  
|                                                                                                                           |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   |          |  
|Dividends on preferred stock                                                                                               |  |                            |        |   |                                      |   | (13,251 | )                         |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   | (13,251  | )
|Net adjustments relating to spin off of ARL (Note 1)                                                                       |  |                            |        |   |                                      |   |         |                           |  |   | (29,630           | ) |  |                    | (29,630 | )           |  |                           |  |   |                                   |  |   | (2,023                   | ) |  |   |        |   |  |   | (31,653  | )
|Capital contributions for expenses relating to precapitalization liabilities retained by ACF and other related adjustments |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   | 2,441                    |   |  |   |        |   |  |   | 2,441    |  
|                                                                                                                           |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   |          |  
|Balance December 31, 2005                                                                                                  |  |                            |        |   |                                      | $ | (15,442 | )                         |  |   | 82,055            |   |  | $                  | 82,055  |             |  | 11,147                    |  | $ | 111                               |  | $ | 41,667                   |   |  | $ | (1,631 | ) |  | $ | 106,760  |  
|                                                                                                                           |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   |          |  
|Net earnings                                                                                                               |  | $                          | 35,204 |   |                                      |   | 35,204  |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   | 35,204   |  
|Currency translation adjustment                                                                                            |  |                            | (13    | ) |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   | (13    | ) |  |   | (13      | )
|Minimum pension liability adjustment, net of tax effect of $480                                                            |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   |          |  
|                                                                                                                           |  |                            | (805   | ) |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   | (805   | ) |  |   | (805     | )
|                                                                                                                           |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   |          |  
|Comprehensive income                                                                                                       |  | $                          | 34,386 |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   |          |  
|                                                                                                                           |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   |          |  
|Dividends on preferred stock                                                                                               |  |                            |        |   |                                      |   | (568    | )                         |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   | (568     | )
|IPO proceeds, net of related costs of $6,185                                                                               |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  | 9,775                     |  |   | 98                                |  |   | 185,713                  |   |  |   |        |   |  |   | 185,811  |  
|Purchase preferred stock                                                                                                   |  |                            |        |   |                                      |   |         |                           |  |   | (82,055           | ) |  |                    | (82,055 | )           |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   | (82,055  | )
|Dividends on common stock                                                                                                  |  |                            |        |   |                                      |   | (2,545  | )                         |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   | (2,545   | )
|Restricted stock grant                                                                                                     |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  | 286                       |  |   | 3                                 |  |   | 5,697                    |   |  |   |        |   |  |   | 5,700    |  
|Stock option expense                                                                                                       |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   | 2,416                    |   |  |   |        |   |  |   | 2,416    |  
|Capital contribution by majority shareholder                                                                               |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   | 275                      |   |  |   |        |   |  |   | 275      |  
|                                                                                                                           |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   |          |  
|                                                                                                                           |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   |          |  
|Balance December 31, 2006                                                                                                  |  |                            |        |   |                                      | $ | 16,649  |                           |  | $ |                  |   |  | $                  |        |             |  | 21,208                    |  | $ | 212                               |  | $ | 235,768                  |   |  | $ | (2,449 | ) |  | $ | 250,180  |  
|                                                                                                                           |  |                            |        |   |                                      |   |         |                           |  |   |                   |   |  |                    |         |             |  |                           |  |   |                                   |  |   |                          |   |  |   |        |   |  |   |          |  

See notes to the consolidated financial statements.



64



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2004, 2005 and 2006

Note 1Description of the Business

The accompanying
consolidated financial statements include the manufacturing and railcar services operations of American Railcar Industries, Inc. and its wholly owned subsidiaries (collectively the Company or ARI). As further described below,
the Company purchased Castings, LLC (Castings) on January 1, 2005. In accordance with accounting principles generally accepted in the United States of America, assets and liabilities from an affiliate company transferred between
entities under common control are accounted for at historical cost in a manner similar to a pooling of interests, and the financial statements of previously separate companies for periods prior to the acquisition are presented as if the transfer
occurred at the beginning of the year. The consolidated income statement and statement of cash flows also include the activity of Castings for all periods after its formation in June 2003 as if it were owned for these periods. All significant
intercompany balances and transactions have been eliminated.

ARI manufactures railcars, custom designed railcar parts for industrial companies, railroads,
and other industrial products, primarily aluminum and special alloy steel castings, for non-rail customers. ARI also provides railcar maintenance services for railcar fleets, including that of its affiliate, American Railcar Leasing LLC
(ARL). In addition, ARI provides fleet management and maintenance services for railcars owned by selected customers. Such services include inspecting and supervising the maintenance and repair of such railcars. The Companys
operations are located in the United States and Canada. The Company operates a small railcar repair facility in Sarnia, Ontario Canada. Canadian revenues were 0.5%, 0.4% and 0.3% of total consolidated revenues for 2004, 2005 and 2006, respectively.
Canadian assets were 0.4% and 0.3% of total consolidated assets as of December 31, 2005 and 2006, respectively.

ARI was recapitalized on
October 1, 1994 when ACF Industries LLC (ACF), the former holder of ARIs common stock, transferred to ARI the old common stock of ARI along with the assets and liabilities of ACFs railcar maintenance and railcar parts manufacturing
businesses. In exchange, ACF received 57,306 shares of ARIs newly issued mandatorily redeemable preferred stock. New shares of ARIs common stock were issued to Carl C. Icahn, Chairman of the Board of ACF, in exchange for cash of $6.4
million. In October 1998, ARI redeemed 57,305 shares of the preferred stock and the remaining share of preferred stock was transferred to Mr. Icahn.

In 2003, ACF Industries Holding Corp. (ACF Holding), an affiliate of ARI, formed a wholly-owned subsidiary, Castings. Castings has a one-third ownership interest in Ohio Castings Company, LLC (Ohio Castings), a
limited liability company formed to run two foundries, which cast railcar sideframes and bolsters for use or sale, by the ownership group. ARI has purchased bolsters and sideframes produced by Ohio Castings since 2003. In June 2005, ARI purchased
Castings from ACF Holding. The transaction was consummated on January 1, 2005. The cost of the acquisition was $12.0 million represented by a demand note that the Company expects to pay in 2006. However, as Castings was owned by an entity with
ownership common to ARI, the investment in subsidiary is recorded at the date of Castings inception, June 20, 2003 at book value. The purchase price is recorded at full value as a payable to the affiliate and the excess of fair value over cost,
totaling $5.6 million, is presented as a distribution from equity. Interest is accrued on the note payable to the affiliate as of January 1, 2005, as that is the date the purchase was effective.

On July 20, 2004, ARI formed ARL, a wholly owned subsidiary. ARLs primary business is the leasing of railcars. The subsidiary was capitalized through the
issuance of common and preferred stock. ARIs investment in ARL was $151.7 million at June 30, 2005. Preferred stock of ARL was issued to affiliated companies in exchange for contributions of cash or railcars totaling $102.7 million. In
January 2005, ARI obtained an additional $35 million of ARL common stock resulting in a carrying value of $151.7 million.

On June 30, 2005, in
anticipation of its public offering, ARI sold its common interest in ARL for $125.0 million to affiliated companies in return for the preferred stock investment, valued at $116.1 million, plus accrued dividends of $8.9 million that those affiliates
held in ARI. At December 31, 2004, ARIs investment in ARL was $116.7 million. This investment was eliminated as of December 31, 2004 in order to present ARI on a stand-alone basis. New preferred stock of $86.5 million plus accrued
dividends of $3.5 million were eliminated from ARIs equity and a charge of $26.7 million was recorded to additional paid in capital to reflect the difference between the final transfer price of $125 million and the ultimate carrying value of
ARIs investment in ARL of $151.7 million. The 2005 financial statements reflect a reduction of New Preferred Stock of $29.6 million plus accrued dividends of $5.4 million to eliminate the additional investment of $35 million made in



65



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that period. ARI retained no liabilities or other interests in ARL as a result of this sale. The presentation of ARIs operations has been prepared on a
standalone basis excluding ARLs operations for all periods. Any differences related to the amounts originally capitalized and the amount paid for ARL in the sale have been recorded through adjustments to shareholders equity, including
certain tax benefits that ARI received as a result of utilizing ARLs previously incurred tax losses. ARI recorded a deferred tax asset of $12.5 million and $2.0 million in 2004 and 2005, respectively, for those net operating loss carry
forwards, as ARI has the legal right to utilize them for tax purposes.

The following table discloses the preferred stock transactions and the effect on
additional paid-in-capital reflecting the elimination of ARIs investment in ARL for the years ended December 31, 2004 and 2005.



|                                                                                  |  |                    |         |   |                           |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ------------------------- | - | ------- | -
|                                                                                  |  | New preferredstock |         |   | Additional paid incapital |  
|                                                                                  |  | (in thousands)     |        
|January 1, 2004                                                                   |  | $                  |        |   |                           | $ | 11,484  |  
|New preferred stock issued in exchange for mandatorily redeemable preferred stock |  |                    | 95,517  |   |                           |   |        |  
|Capital contribution                                                              |  |                    | 102,654 |   |                           |   | 42,482  |  
|Exchange of common interest in ARL for new preferred stock                        |  |                    | (86,486 | ) |                           |   | (26,670 | )
|ARL deferred tax assets                                                           |  |                    |        |   |                           |   | 12,522  |  
|Other                                                                             |  |                    |        |   |                           |   | 1,431   |  
|                                                                                  |  |                    |         |   |                           |   |         |  
|December 31, 2004                                                                 |  | $                  | 111,685 |   |                           | $ | 41,249  |  
|                                                                                  |  |                    |         |   |                           |   |         |  
|Exchange of common interest in ARL for new preferred stock                        |  | $                  | (29,630 | ) |                           |   |        |  
|Tax benefit of ARL NOL                                                            |  |                    |        |   |                           |   | (2,023  | )
|Other                                                                             |  |                    |        |   |                           |   | 2,441   |  
|                                                                                  |  |                    |         |   |                           |   |         |  
|December 31, 2005                                                                 |  | $                  | 82,055  |   |                           | $ | 41,667  |  
|                                                                                  |  |                    |         |   |                           |   |         |  

Acquisition

On March 31, 2006, the Company acquired all of the common stock of Custom Steel, Inc. (Custom Steel), a subsidiary of Steel Technologies, Inc. Custom Steel operates a facility located adjacent to our component manufacturing
facility in Kennett, Missouri, which produces value-added fabricated parts that primarily support our railcar manufacturing operations. Prior to the acquisition, ARI was Custom Steels primary customer. The purchase price was
$17.2 million, which resulted in goodwill of $7.2 million.

The fair value of the assets and acquired liabilities that resulted in goodwill for
the acquisition were $3.8 million of inventory, $8.0 million of property, plant and equipment, and $1.8 million of a deferred tax liability.

The
acquisition was accounted for under the purchase method of accounting, with the purchase price being allocated to the assets acquired based on relative fair values. Accordingly, the related results of operations of Custom Steel have been included in
the condensed consolidated statement of operations after March 31, 2006.

Note 2Summary of Significant Accounting Policies

Significant accounting policies are described below.

Cash and cash
equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.



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Revenue recognition

Revenues from railcar sales are recognized following completion of manufacturing, inspection, customer acceptance and shipment, which is when title and risk for any damage or loss with respect to the railcars passes to the customer. In some
cases, paint and lining work may be outsourced and, as a result, the sale for the railcar may be recorded after customer acceptance when it leaves the manufacturing plant and the sale for the lining work may be separately recorded following
completion of that work by the independent contractor, customer acceptance and final shipment. Revenues from railcar and industrial parts and components are recorded at the time of product shipment, in accordance with our contractual terms. Revenue
for railcar maintenance services is recognized upon completion and shipment of railcars from our plants. The Company does not bundle railcar service contracts with new railcar sales. Revenue for fleet management services is recognized as performed.

The Company records amounts billed to customers for shipping and handling as part of sales in accordance with Emerging Issues Task Force (EITF) Abstract
00-10, Accounting for Shipping and Handling Fees and Costs, and records related costs in cost of sales.

Accounts receivable, net

The Company carries its accounts receivable at cost, less an allowance for doubtful accounts. On a routine basis, the Company evaluates its account receivable and
establishes an allowance for doubtful accounts, based on a history of past write-offs and collections and current credit conditions. Accounts are placed for collection on a limited basis once all other methods of collection have been exhausted. Once
it has been determined that the customer is no longer in business and/or refuses to pay, the accounts are written off.

Inventories

Inventories are stated at the lower of cost or market on a first-in, first-out basis, and include the cost of materials, direct labor and manufacturing overhead.

Property, plant and equipment

Land, buildings,
machinery and equipment are carried at cost, including interest on funds borrowed to finance construction. Maintenance and repair costs are charged directly to earnings. Tooling is generally capitalized and amortized over a period of approximately
five years.

Buildings are depreciated over estimated useful lives that range from 15 to 39 years. The estimated useful lives of other depreciable assets,
including machinery and equipment, vary from 2 to 25 years. Depreciation is calculated on the straight-line method for financial reporting purposes and on accelerated methods for tax purposes.

Debt issuance costs

Debt issuance costs were incurred in connection
with ARIs issuance of long-term debt as described in Note 6, and are amortized over the term of the related debt, utilizing the effective interest method.

Goodwill

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, Goodwill and Other Intangible
Assets. This standard requires that goodwill and other intangible assets with indefinite useful lives shall not be amortized but shall be tested for impairment at least annually by comparing the fair value of the asset to its carrying value. The
Company adopted this standard upon the acquisition of Custom Steel, which resulted in goodwill of $7.2 million, as described in Note 1. The Company plans to perform the goodwill impairment test required by SFAS No. 142 as of March 1
of each year.

Ohio Castings joint venture

The Company
uses the equity method to account for its investment in Ohio Castings, owned by its subsidiary, Castings. Under the equity method, the Company recognizes its share of the earnings and losses of the joint venture as they accrue instead of when they
are realized. Advances and distributions are charged and credited directly to the investment account. Ohio Castings produces railcar parts that are sold to one of the joint venture partners. The joint venture partner sells these



67



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parts to outside third parties at current market prices and to the Company and the other joint venture partner in Ohio Castings at cost plus a licensing fee.
Ohio Castings closed its Chicago Castings facility effective June 30, 2006, in connection with a consolidation of its operations. Ohio Castings is responsible for the exit liabilities of this closure. This closing did not have a material
financial impact on the Company.

The Company has determined that, although the joint venture is a variable interest entity (VIE), the Company is not the
primary beneficiary and the joint venture should not be consolidated in the Companys financial statements. The risk of loss to Castings and the Company is limited to its investment in the VIE and its one third share of a portion of Ohio
Castings debt, which the Company has guaranteed. The one-third share of Ohio Castings debt was $5.1 million and $4.1 million at December 31, 2005 and 2006, respectively. The fair market value of the guarantee was approximately $0.1 million at
both December 31, 2005 and 2006.

The carrying amount of the investment in Ohio Castings by Castings was $5.6 million and $4.3 million, respectively
at December 31, 2005 and 2006, respectively.

The cost of railcar manufacturing for the years ended December 31, 2004, 2005 and 2006 included
$19.9 million, $30.9 million and $37.1 million, respectively, in products produced by Ohio Castings.

Inventory at December 31, 2005 and 2006 includes
approximately $3.0 million and $4.1 million, respectively, of purchases from Ohio Castings. Approximately $0.1 million of costs were eliminated at December 31, 2006 from our income from joint venture as it represented profit from Ohio Castings
for inventory still on hand.

Summary combined financial information for Ohio Castings, the investee company, as of December 31, 2005 and 2006,
respectively, are as follows:



|                                    |  |                          |        |      |   |       
|----------------------------------- |  | ------------------------ | ------ | ---- | - | ------
|                                    |  | Years Ended December 31,
|                                    |  | 2005                     |        | 2006
|                                    |  | (in thousands)          
|Financial position                  |  |                          |        |      |   |       
|Current assets                      |  | $                        | 18,302 |      | $ | 13,650
|Property, plant, and equipment, net |  |                          | 15,380 |      |   | 15,297
|                                    |  |                          |        |      |   |       
|Total assets                        |  |                          | 33,682 |      |   | 28,947
|                                    |  |                          |        |      |   |       
|Current liabilities                 |  |                          | 14,540 |      |   | 15,855
|Long-term debt                      |  |                          | 11,663 |      |   | 7,659 
|                                    |  |                          |        |      |   |       
|Total liabilities                   |  |                          | 26,203 |      |   | 23,514
|                                    |  |                          |        |      |   |       
|Members equity                     |  | $                        | 7,479  |      | $ | 5,433 
|                                    |  |                          |        |      |   |       

Summary combined results of operations for Ohio Castings, the investee company, for the years ended
December 31, 2004, 2005 and 2006, respectively, are as follows:



|                          |  |                          |        |   |      |   |         |  |   |         |  
|------------------------- |  | ------------------------ | ------ | - | ---- | - | ------- |  | - | ------- | -
|                          |  | Years Ended December 31, |       
|                          |  | 2004                     |        |   | 2005 |   | 2006    | 
|                          |  | (in thousands)           |        |   |     
|Results of operations     |  |                          |        |   |      |   |         |  |   |         |  
|Sales                     |  | $                        | 76,789 |   |      | $ | 119,008 |  | $ | 108,849 |  
|                          |  |                          |        |   |      |   |         |  |   |         |  
|Operating (loss) earnings |  |                          | (1,770 | ) |      |   | 1,562   |  |   | (2,502  | )
|                          |  |                          |        |   |      |   |         |  |   |         |  
|Net (loss) earnings       |  | $                        | (1,827 | ) |      | $ | 1,830   |  | $ | (2,046  | )
|                          |  |                          |        |   |      |   |         |  |   |         |  



68



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The joint venture experienced a significant loss in 2006 due to recording a reserve of $3.69 million ($1.23 million being
ARIs share of that charge) related to potentially defective castings that were produced by one of the Ohio Castings facilities. It was Ohio Castings managements decision to replace all castings produced that were potentially
defective even though testing only showed approximately 20% of the castings produced were defective.

Long-lived assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. The criteria
for determining impairment for such long-lived assets to be held and used is determined by comparing the carrying value of these long- lived assets to be held and used to managements best estimate of future undiscounted cash flows expected to
result from the use of the assets. If the assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. The estimated fair value of
the assets is measured by estimating the present value of the future discounted cash flows to be generated.

Income taxes

ARI accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial reporting basis and the tax basis of ARIs assets and liabilities at enacted tax rates expected to be in effect when such amounts are recovered or settled.

Pension plans and other postretirement benefits

Certain ARI
employees participate in noncontributory, defined benefit pension plans and a supplemental executive retirement plan. Benefits for the salaried employees are based on salary and years of service, while those for hourly employees are based on
negotiated rates and years of service.

ARI also sponsors defined contribution retirement plans, health care and life insurance plans covering certain
employees. Benefit costs are accrued during the years employees render service.

Fair value of financial instruments

The carrying amounts of cash and cash equivalents, accounts receivable, due to/from affiliates and accounts payable approximate fair values because of the short-term
maturity of these instruments. The fair value of long-term debt is discussed in Note 9. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision.

Foreign currency translation

Balance sheet amounts from the Companys Canadian operation are translated at the exchange rates in effect at year-end, and operations statement
amounts are translated at the average rates of exchange prevailing during the year. Currency translation adjustments are included in Stockholders Equity as part of accumulated other comprehensive income (loss).

Comprehensive income (loss)

Comprehensive income (loss) is defined
as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income (loss) consists of net earnings (loss), foreign currency translation adjustment and
the Companys minimum pension liability adjustments, which are shown net of tax.

Retained earnings

ARI was recapitalized on October 1, 1994, when ACF Industries LLC (ACF), the former holder of ARIs common stock, transferred to ARI the old common stock of ARI
along with the assets and liabilities of ACFs railcar maintenance and railcar parts manufacturing businesses (the 1994 ACF asset transfer). In exchange, ACF received 57,306 shares of ARIs newly



69



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issued mandatorily redeemable preferred stock. New shares of ARIs common stock were issued to Carl C. Icahn, Chairman of the Board of ACF, in exchange
for cash of $6.4 million. In October 1998, ARI redeemed 57,305 shares of the preferred stock and the remaining share of preferred stock was transferred to Mr. Icahn. As ARI and ACF are entities under common control, accounting principles
generally accepted in the United States of America require that ARIs initial carrying value of assets transferred to it from ACF and the purchase of Castings be equal to ACFs historical net book value at the time of transfer. The excess
of the fair value paid over the net book value of assets and liabilities transferred to ARI is reflected as a distribution of retained earnings and has the effect of reducing shareholders equity by $24.8 million as of December 31, 2005.
Of that amount, $19.2 million was recorded at the formation of ARI, and $5.6 million was recorded in 2003 from the acquisition of Castings. In 2004, the Company recorded a $0.75 million return of capital from Castings.

Earnings (loss) per share

Basic earnings (loss) per share are
calculated as net earnings (loss) attributable to common shareholders divided by the weighted-average number of common shares outstanding during the respective period. Diluted earnings (loss) per share are calculated by dividing net earnings (loss)
attributable to common shareholders by the weighted-average number of shares outstanding plus dilutive potential common shares outstanding during the year.

Use of estimates

Management of ARI has made a number of estimates and assumptions relating to the reporting of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Significant items subject to estimates
and assumptions include deferred taxes, workers compensation accrual, valuation allowances for accounts receivable and inventory obsolescence, depreciable lives of assets and the reserve for warranty claims. Actual results could differ from those
estimates.

Stock-based compensation

The Company
applies the provisions of SFAS No. 123(R), Share-Based Payments ( SFAS 123(R)), to stock option awards issued. The compensation cost recorded for these awards will be based on their grant-date fair value required by SFAS
123(R).

Recent accounting pronouncements

In
July 2006, the FASB issued FIN 48, to create a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to
meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The Company will adopt FIN 48 as of January 1, 2007, as required. The Company has estimated that its potential impact to retained earnings is expected to be no greater than $1.0 million.

In September 2006, the SEC issued SAB 108, to address diversity in practice in quantifying financial statement misstatements. SAB 108 requires that the Company quantify
misstatements based on their impact on each of its financial statements and related disclosures. SAB 108 is to become effective for fiscal years ending after November 15, 2006. The Company has adopted SAB 108 effective as of December 31,
2006. The adoption of this bulletin did not have a material impact on its financial position and results of operations.

In September 2006, the FASB issued
FAS 157, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that
require or permit fair value measurements and, accordingly, FAS 157 does not require any new fair value measurements. The Company is currently evaluating the impact this standard will have on its operating income and statement of financial position.
This statement is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company will adopt FAS 157 as of January 1, 2008, as required.

In September 2006, the FASB issued FSP No. AUG AIR-1, Accounting for Planned Major Maintenance Activities. This guidance eliminates one of the accounting methods
used to plan for major maintenance activities. This FSP should be applied



70



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to the first fiscal year beginning after December 15, 2006. The Company plans to adopt this FSP on January 1, 2007. The Company does not expect
that the adoption of this FSP will have a significant impact on its financial position and results of operations.

In September 2006, the FASB issued FAS
158. FAS 158 requires that the Company recognize the overfunded or underfunded status of its defined benefit and retiree medical plans (the Plans) as an asset or liability in the 2006 year end balance sheet, with changes in the funded status
recognized through comprehensive income in the year in which they occur. FAS 158 also requires the Company to measure the funded status of the Plans as of the year end balance sheet date not later that December 31, 2008. The impact of adopting
FAS 158 resulted in an increase in the pension liabilities and a decrease in other comprehensive income of approximately $1.3 million, prior to any deferred tax adjustment.

Note 3  Initial Public Offering

On January 24, 2006, the Company completed the sale of 9,775,000 shares
of common stock to the public pursuant to an effective registration statement at a price of $21.00 per share. The offering resulted in gross proceeds to the Company of $205.3 million. Expenses related to the offering were $13.3 million for
underwriting discounts and commissions. The Company received net proceeds of $192.0 million in the offering.

The net proceeds from the offering were
applied as follows (in millions):



|                                                                 |  |   |      
|---------------------------------------------------------------- |  | - | -----
|Redemption of all outstanding shares of preferred stock          |  | $ | 94.0 
|Repayment of notes due to affiliates                             |  |   | 20.5 
|Repayment of all industrial revenue bonds                        |  |   | 8.6  
|Repayment of amounts outstanding under revolving credit facility |  |   | 32.3 
|Acquisition of Custom Steel                                      |  |   | 17.2 
|Payment of payables in connection with acquisition               |  |   | 5.3  
|Investment in plant, property and equipment                      |  |   | 12.7 
|Offering costs paid during the first quarter                     |  |   | 1.4  
|                                                                 |  |   |      
|Total uses                                                       |  | $ | 192.0
|                                                                 |  |   |      

Note 4  Marmaduke Storm Damage Insurance Claim (Income related to insurance recoveries)

On April 2, 2006, a tornado struck the Marmaduke, Arkansas area. This tornado resulted in damage to the companys tank railcar manufacturing complex in
Marmaduke, Arkansas. While the majority of the Marmaduke tank railcar complex suffered only minor damage, the portion of the factory that processed inbound material, equipment associated with material handling, plate steel blasting and sheet rolling
as well as some inventory was destroyed by the storm. The tornado also destroyed an empty building that was nearing completion to receive inbound material and store inventory. The manufacturing complex was closed from April 2, 2006 through
August 6, 2006 due to the storm. The Company recommenced operations at the manufacturing complex on August 7, 2006 when the repairs related to the tornado damage were substantially complete.

The Company has property insurance covering wind and rain damage to its property, as well as incremental costs and operating expenses it incurred due to damage caused by
the tornado. In addition, the Company has insurance for business interruption as a direct result of the insured damage. The Company has deductibles on these policies of $0.1 million for property insurance and a five-day equivalent time element
business interruption deductible, which equated to $0.6 million. The business interruption deductible was ratably recognized over the course of the five-month period during the period of the plant was shut down.

The Company settled both the property damage claim and the business interruption insurance claim. The final property damage claim amounted to $11.2 million (prior to the
deductible) covering clean up costs, repair costs and asset replacement costs. The final business interruption claim amounted to $16.0 million (prior to the deductible) covering continuing expenses, employee wages and estimated lost profits for
April through August 2006.



71



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ARI received proceeds of $11.1 million from the insurance carrier related to the property damage claim. This cash has
been classified as cash received for investing activities and cash received for operating activities in the consolidated statement of cash flows. ARI received proceeds of $15.4 million related to the business interruption claim. This cash has been
classified as cash received for operating activities as the advances were for ongoing normal business operations and lost profits.

The Company had assets
with a net book value of $4.3 million damaged or destroyed by the tornado. Other costs incurred related to the tornado damage included clean up for the temporary shutdown of the complex. The write off of assets and associated cleanup costs have been
netted against the insurance settlement of the property damage claim to arrive at the gain on asset conversion, net.

The amounts recorded in the statement
of operations relating to business interruption insurance recoveries is set forth as follows:



|                                                |  |                              |        |  
|----------------------------------------------- |  | ---------------------------- | ------ | -
|                                                |  | Year Ended December 31, 2006 |       
|Business interruption insurance claim           |  | $                            | 15,968 |  
|Business interruption claim deductible          |  |                              | (600   | )
|                                                |  |                              |        |  
|Business interruption insurance settlement, net |  | $                            | 15,368 |  
|                                                | 
|Continuing expenses                             |  |                              | (5,430 | )
|Deductible adjustment                           |  |                              | 8      |  
|                                                |  |                              |        |  
|Income related to insurance recoveries, net     |  | $                            | 9,946  |  
|                                                |  |                              |        |  

The amounts recorded in the statement of operations relating to our property damage insurance recoveries is set
forth as follows:



|                                             |  |                            |        |  
|-------------------------------------------- |  | -------------------------- | ------ | -
|                                             |  | Year EndedDecember 31,2006 |       
|                                             |  | (inthousands)              |       
|Property damage insurance claim              |  | $                          | 11,160 |  
|Property damage claim deductible             |  |                            | (100   | )
|                                             |  |                            |        |  
|Property damage insurance settlement, net    |  |                            | 11,060 |  
|Assets damaged, clean up costs, repair costs |  |                            | (6,737 | )
|                                             |  |                            |        |  
|Gain on asset conversion, net                |  | $                          | 4,323  |  
|                                             |  |                            |        |  



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Note 5Accounts Receivable, Net

The allowance for doubtful accounts consists of the following:



|                  |  |                          |      |   |      |   |     |      |  |   |       |  
|----------------- |  | ------------------------ | ---- | - | ---- | - | --- | ---- |  | - | ----- | -
|                  |  | Years Ended December 31, |     
|                  |  | 2004                     |      |   | 2005 |   |     | 2006 | 
|                  |  | (in thousands)           |     
|Beginning Balance |  | $                        | 572  |   |      | $ | 510 |      |  | $ | 849   |  
|Provision         |  |                          | 209  |   |      |   | 323 |      |  |   | 384   |  
|Write-offs        |  |                          | (271 | ) |      |   | (23 | )    |  |   | (220  | )
|Recoveries        |  |                          |     |   |      |   | 39  |      |  |   | 4     |  
|                  |  |                          |      |   |      |   |     |      |  |   |       |  
|Ending Balance    |  | $                        | 510  |   |      | $ | 849 |      |  | $ | 1,017 |  
|                  |  |                          |      |   |      |   |     |      |  |   |       |  

Note 6Inventories, Net

Inventories consist of the following:



|                       |  |                          |        |      |   |        
|---------------------- |  | ------------------------ | ------ | ---- | - | -------
|                       |  | Years Ended December 31,
|                       |  | 2005                     |        | 2006
|                       |  | (in thousands)          
|Raw materials          |  | $                        | 49,246 |      | $ | 67,258 
|Work-in-process        |  |                          | 26,301 |      |   | 23,623 
|Finished products      |  |                          | 14,772 |      |   | 15,358 
|                       |  |                          |        |      |   |        
|Total inventories      |  |                          | 90,319 |      |   | 106,239
|Less reserves          |  |                          | 2,318  |      |   | 2,729  
|                       |  |                          |        |      |   |        
|Total inventories, net |  | $                        | 88,001 |      | $ | 103,510
|                       |  |                          |        |      |   |        

Inventory reserves consist of the following:



|                  |  |                          |       |   |      |   |       |      |  |   |       |  
|----------------- |  | ------------------------ | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                  |  | Years Ended December 31, |      
|                  |  | 2004                     |       |   | 2005 |   |       | 2006 | 
|                  |  | (in thousands)           |      
|Beginning Balance |  | $                        | 2,310 |   |      | $ | 2,679 |      |  | $ | 2,318 |  
|Provision         |  |                          | 559   |   |      |   | 273   |      |  |   | 597   |  
|Write-offs        |  |                          | (190  | ) |      |   | (634  | )    |  |   | (186  | )
|                  |  |                          |       |   |      |   |       |      |  |   |       |  
|Ending Balance    |  | $                        | 2,679 |   |      | $ | 2,318 |      |  | $ | 2,729 |  
|                  |  |                          |       |   |      |   |       |      |  |   |       |  

Note 7Long-Lived Asset Impairment and Other Charges

The Company reduced the carrying value of equipment purchased under a lease agreement from an unrelated third party by $0.4 million during 2006. This was for its
manufacturing operations and is reflected in the consolidated statement of operations under costs of manufacturing operations. No impairment losses were recorded in the years ended December 31, 2004 and 2005.

Note 8  Depreciation Expense and Net Property, Plant and Equipment

Depreciation expense was $10.7 million, $6.8 million and $5.9 million for 2006, 2005 and 2004, respectively.

The significant increase in Net
property, plant and equipment was driven by new assets that were purchased due to the replacement of certain destroyed assets or the repair of certain damaged assets as a result of the storm that damaged the Marmaduke tank railcar manufacturing
complex.



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Note 9Long-Term Debt

Long-term debt at December 31, 2005 and 2006 consists of:



|                                                                                                                                                                                                                               |  |                          |        |      |   |   
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------ | ------ | ---- | - | --
|                                                                                                                                                                                                                               |  | Years Ended December 31,
|                                                                                                                                                                                                                               |  | 2005                     |        | 2006
|                                                                                                                                                                                                                               |  | (in thousands)          
|Revolving line of credit                                                                                                                                                                                                       |  | $                        | 31,852 |      | $ |  
|Industrial revenue bonds secured by certain buildings and manufacturing equipment and guaranteed by ACF and ACF Holding, with effective
interest rates ranging from 6.75% to 8.5%, principal amounts due through the year 2011 |  |                          | 8,340  |      |   |  
|Other                                                                                                                                                                                                                          |  |                          | 178    |      |   | 96
|                                                                                                                                                                                                                               |  |                          |        |      |   |   
|Total debt                                                                                                                                                                                                                     |  |                          | 40,370 |      |   | 96
|Less current portion of debt                                                                                                                                                                                                   |  |                          | 33,294 |      |   | 88
|                                                                                                                                                                                                                               |  |                          |        |      |   |   
|Total long-term debt, net of current portion                                                                                                                                                                                   |  | $                        | 7,076  |      | $ | 8 
|                                                                                                                                                                                                                               |  |                          |        |      |   |   

Aggregate maturities of long-term debt over the next five years, as of December 31, 2006, are as follows (in
thousands):



|                    |  |   |   
|------------------- |  | - | --
|2007                |  | $ | 88
|2008                |  |   | 8 
|2009                |  |   |  
|2010                |  |   |  
|2011 and thereafter |  |   |  
|                    |  |   |   
|                    |  | $ | 96
|                    |  |   |   

The company repaid industrial revenue bonds of $1.2 million, $1.3 million and $8.3 million in 2004, 2005 and 2006,
respectively.

On March 10, 2005, ARI entered into a $50.0 million revolving credit facility secured by receivables and inventory. The note bears
interest at various rates based on LIBOR or prime. The term of the original credit facility was one year. Debt covenants under the original agreement required ARI to maintain certain debt-to-earnings and coverage ratios. In addition, the revolving
credit facility provides that the payment of dividends triggers a demand right in favor of ARIs lenders unless ARI meets certain financial covenants and provides advance notice of the dividend to its lenders.

Concurrent with the completion of the initial public offering in January 2006, the Company entered into an Amended and Restated Credit Agreement (the revolving
credit agreement) providing for the terms of the Companys revolving credit facility with North Fork Business Capital Corporation, as administrative agent for various lenders. Prior to the amendment in October 2006, the revolving credit
facility had a total commitment of the lesser of (i) $75.0 million or (ii) an amount equal to a percentage of eligible accounts receivable plus a percentage of eligible raw materials and finished goods inventory. In addition, the revolving
credit facility included a $15.0 million capital expenditure sub-facility based on a percentage of the costs related to capital projects the Company may undertake. The revolving credit facility was initially for a three-year term. Borrowings under
the revolving credit facility are collateralized by substantially all of the assets of the Company. The revolving credit facility has both affirmative and negative covenants, including, without limitation, a fixed charge coverage ratio, a maximum
total debt leverage ratio and limitations on capital expenditures and dividends.

During October 2006, the Company entered into a First Amendment to its
revolving credit agreement. This first amendment provided that the revolving credit facility have a total commitment of the lesser of (i) $100 million or (ii) an amount equal to a percentage of eligible accounts receivable plus a
percentage of eligible raw materials, work in process and finished goods inventory. Furthermore, the first amendment increased the capital expenditure sub-facility to $30 million based on the percentage of the costs related to equipment the Company
may acquire. As amended by the first amendment, the revolving credit facility expires on October 5, 2009. At December 31, 2006 the Company had $80.1 million of availability under the revolving credit facility and no borrowings outstanding.
As of December 31, 2006, the Company was in compliance with all of its covenants under the revolving credit agreement.



74



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As of December 31, 2006, the interest rate on the borrowings under the revolving credit facility was 7.75% and was based on the U.S. prime rate at that
time.

The Company declared dividends of $0.03 per share every quarter during the year ended December 31, 2006, which did not break any covenants as
defined in the revolving credit agreement during 2006.

The fair value of long-term debt was approximately $40.4 million and $0.1 million at
December 31, 2005 and 2006, respectively, as calculated by discounting cash flows through maturity using ARIs current rate of borrowing for similar liabilities.

Note 10Income Taxes

Income tax expense consists of:



|                         |  |                          |       |   |      |   |       |      |  |   |        |  
|------------------------ |  | ------------------------ | ----- | - | ---- | - | ----- | ---- |  | - | ------ | -
|                         |  | Years Ended December 31, |      
|                         |  | 2004                     |       |   | 2005 |   |       | 2006 | 
|                         |  | (in thousands)           |      
|Current:                 |  |                          |       |   |      |   |       |      |  |   |        |  
|Federal                  |  | $                        | 332   |   |      | $ | 3,119 |      |  | $ | 17,249 |  
|State and local          |  |                          | 48    |   |      |   | 495   |      |  |   | 2,610  |  
|Foreign                  |  |                          | 71    |   |      |   | 136   |      |  |   | 101    |  
|                         |  |                          |       |   |      |   |       |      |  |   |        |  
|Total current            |  |                          | 451   |   |      |   | 3,750 |      |  |   | 19,960 |  
|Deferred                 |  |                          |       |   |      |   |       |      |  |   |        |  
|Federal                  |  |                          | 1,504 |   |      |   | 4,841 |      |  |   | 685    |  
|State and local          |  |                          | 237   |   |      |   | 769   |      |  |   | 123    |  
|Foreign                  |  |                          | (1    | ) |      |   | (4    | )    |  |   | (16    | )
|                         |  |                          |       |   |      |   |       |      |  |   |        |  
|Total deferred           |  |                          | 1,740 |   |      |   | 5,606 |      |  |   | 792    |  
|                         |  |                          |       |   |      |   |       |      |  |   |        |  
|Total income tax expense |  | $                        | 2,191 |   |      | $ | 9,356 |      |  | $ | 20,752 |  
|                         |  |                          |       |   |      |   |       |      |  |   |        |  



75



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Income tax expense attributable to earnings from operations differed from the amounts computed by applying the U.S.
Federal statutory income tax rate of 35% to earnings from operations by the following amounts:



|                                                  |  |                          |       |   |      |   |       |      |  |   |        |   
|------------------------------------------------- |  | ------------------------ | ----- | - | ---- | - | ----- | ---- |  | - | ------ | --
|                                                  |  | Years Ended December 31, |      
|                                                  |  | 2004                     |       |   | 2005 |   |       | 2006 | 
|                                                  |  | (in thousands)           |      
|Computed income tax expense                       |  | $                        | 1,439 |   |      | $ | 8,443 |      |  | $ | 19,585 |   
|State and local taxes, net of federal tax expense |  |                          | 185   |   |      |   | 822   |      |  |   | 1,777  |   
|Non-deductible expenses                           |  |                          | 566   |   |      |   | 79    |      |  |   | (654   | ) 
|Other, net                                        |  |                          | 1     |   |      |   | 12    |      |  |   | 44     |   
|                                                  |  |                          |       |   |      |   |       |      |  |   |        |   
|Total income tax expense                          |  | $                        | 2,191 |   |      | $ | 9,356 |      |  | $ | 20,752 |   
|                                                  |  |                          |       |   |      |   |       |      |  |   |        |   
|                                                  | 
|                                                  |  | Years Ended December 31, |      
|                                                  |  | 2004                     |       |   | 2005 |   |       | 2006 | 
|Computed income tax expense                       |  |                          | 35.0  | % |      |   | 35.0  | %    |  |   | 35.0   | % 
|State and local taxes, net of federal tax expense |  |                          | 4.5   | % |      |   | 3.4   | %    |  |   | 3.2    | % 
|Non-deductible expenses                           |  |                          | 13.8  | % |      |   | 0.3   | %    |  |   | (1.2   | %)
|Other, net                                        |  |                          |      |   |      |   | 0.1   | %    |  |   | 0.1    | % 
|                                                  |  |                          |       |   |      |   |       |      |  |   |        |   
|Effective income tax rate                         |  |                          | 53.3  | % |      |   | 38.8  | %    |  |   | 37.1   | % 
|                                                  |  |                          |       |   |      |   |       |      |  |   |        |   

The tax effects of temporary differences that have given rise to deferred tax assets and liabilities are presented
below:



|                                     |  |                    |        |   |      |   |         |  
|------------------------------------ |  | ------------------ | ------ | - | ---- | - | ------- | -
|                                     |  | As of December 31, |       
|                                     |  | 2005               |        |   | 2006 |  
|                                     |  | (in thousands)     |       
|Current deferred tax assets          |  |                    |        |   |      |   |         |  
|Provisions not currently deductible  |  | $                  | 1,967  |   |      | $ | 2,204   |  
|Non-current deferred tax assets      |  |                    |        |   |      |   |         |  
|Provisions not currently deductible  |  |                    | 538    |   |      |   | 703     |  
|Pensions and post retirement         |  |                    | 3,708  |   |      |   | 4,291   |  
|                                     |  |                    |        |   |      |   |         |  
|Total non-current deferred tax asset |  | $                  | 4,246  |   |      | $ | 4,994   |  
|                                     |  |                    |        |   |      |   |         |  
|Total deferred tax asset             |  | $                  | 6,213  |   |      | $ | 7,198   |  
|                                     |  |                    |        |   |      |   |         |  
|Current deferred tax liability       |  |                    |        |   |      |   |         |  
|Stock options                        |  | $                  |       |   |      | $ | (115    | )
|Non-current deferred tax liabilities |  |                    |        |   |      |   |         |  
|Property, plant and equipment        |  |                    | (9,610 | ) |      |   | (12,036 | )
|                                     |  |                    |        |   |      |   |         |  
|Total deferred tax liability         |  | $                  | (9,610 | ) |      | $ | (12,151 | )
|                                     |  |                    |        |   |      |   |         |  



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The net deferred tax asset (liability) is classified in the balance sheet as follows:



|                                                 |  |                    |        |   |      |   |         |  
|------------------------------------------------ |  | ------------------ | ------ | - | ---- | - | ------- | -
|                                                 |  | As of December 31, |       
|                                                 |  | 2005               |        |   | 2006 |  
|                                                 |  | (in thousands)     |       
|Current deferred tax assets                      |  | $                  | 1,967  |   |      | $ | 2,204   |  
|Current deferred tax liability                   |  |                    |       |   |      |   | (115    | )
|                                                 |  |                    |        |   |      |   |         |  
|Current deferred tax assets (liability), net     |  | $                  | 1,967  |   |      | $ | 2,089   |  
|                                                 |  |                   
|Non-current deferred tax assets                  |  | $                  | 4,246  |   |      | $ | 4,994   |  
|Non-current deferred tax liability               |  |                    | (9,610 | ) |      |   | (12,036 | )
|                                                 |  |                    |        |   |      |   |         |  
|Non-current deferred tax assets (liability), net |  | $                  | (5,364 | ) |      | $ | (7,042  | )
|                                                 |  |                   
|Current deferred tax asset, net                  |  | $                  | 1,967  |   |      | $ | 2,089   |  
|Non-current deferred tax liability, net          |  |                    | (5,364 | ) |      |   | (7,042  | )
|                                                 |  |                    |        |   |      |   |         |  
|Net deferred tax liability                       |  | $                  | (3,397 | ) |      | $ | (4,953  | )
|                                                 |  |                    |        |   |      |   |         |  

In the consolidated balance sheets, these deferred tax assets and liabilities are classified as either current or
non-current 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 taxes related to
carryforwards, is classified according to the expected reversal date of the temporary differences as of the end of the year.

There was a valuation
allowance against deferred tax assets related to Castings book tax basis differences of approximately $1.8 million as of January 1, 2005. The valuation allowance was not required after the spin off of ARL on June 30, 2005 (Note 1). The
deferred tax assets of $1.8 million related to the Castings acquisition will be recognized as they are realized. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be
realized. No valuation allowances have been recorded at December 31, 2006, as management believes that it is more likely than not that all deferred tax assets will be fully realized based on the expectation of taxable income in future years.
There were no net operating loss carryforwards at December 31, 2005 and 2006.

Note 11Warranties

The Company records a liability for an estimate of costs that it expects to incur under its basic limited warranty, which is typically a range from one year for parts and
services to five years on new railcars, when manufacturing revenue is recognized. Factors affecting the Companys warranty liability include the number of units sold and historical and anticipated rates of claims and costs per claim. The
Company assesses the adequacy of its warranty liability based on changes in these factors.

Changes in the Companys warranty reserves, which is
reflected on the balance sheet in accrued expenses, are as follows:



|                             |  |                          |       |   |      |   |       |      |  |   |        |  
|---------------------------- |  | ------------------------ | ----- | - | ---- | - | ----- | ---- |  | - | ------ | -
|                             |  | Years Ended December 31, |      
|                             |  | 2004                     |       |   | 2005 |   |       | 2006 | 
|                             |  | (in thousands)           |      
|Liability, beginning of year |  | $                        | 1,436 |   |      | $ | 1,630 |      |  | $ | 1,237  |  
|Provision                    |  |                          | 336   |   |      |   | 191   |      |  |   | 2,063  |  
|Claims                       |  |                          | (142  | ) |      |   | (584  | )    |  |   | (1,547 | )
|                             |  |                          |       |   |      |   |       |      |  |   |        |  
|Liability, end of year       |  | $                        | 1,630 |   |      | $ | 1,237 |      |  | $ | 1,753  |  
|                             |  |                          |       |   |      |   |       |      |  |   |        |  



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Note 12Earnings per Share

The shares used in the computation of the Companys basic and diluted earnings per common share are reconciled as follows:



|                                                   |  |                          |  |            |  |           
|-------------------------------------------------- |  | ------------------------ |  | ---------- |  | ----------
|                                                   |  | Years Ended December 31,
|                                                   |  | 2004                     |  | 2005       |  | 2006      
|Weighted average basic common shares outstanding   |  | 10,143,143               |  | 11,147,059 |  | 20,666,599
|Dilutive effect of employee stock options (1)      |  |                         |  |           |  | 89,018    
|                                                   |  |                          |  |            |  |           
|Weighted average diluted common shares outstanding |  | 10,143,143               |  | 11,147,059 |  | 20,755,617
|                                                   |  |                          |  |            |  |           

---

|(1) | Stock options to purchase 75,000 shares granted during the second quarter of 2006 were not included in the calculation for diluted earnings per share for the year ended
December 31, 2006. These options would have resulted in an antidilutive effect to the earnings per share calculation. There were no stock options granted prior to 2006.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 13Stock Based Compensation

In December 2004, the FASB
issued SFAS 123R, which establishes the accounting for transactions in which an entity exchanges its equity instruments or certain liabilities based upon the entitys equity instruments for goods or services. The revision to SFAS No. 123
generally requires that publicly traded companies measure the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost will be recognized over the period
during which an employee is required to provide service in exchange for the award, which is usually the vesting period.

In March 2005, the Securities and
Exchange Commission issued Staff Accounting Bulletin (SAB) 107, Share-Based Payment, to provide additional guidance to public companies in applying the provisions of Statement 123R. During 2005, the FASB issued three FASB Staff
Positions (FSP): FSP FAS 123R-1, Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123(R), FSP FAS 123R-2, Practical
Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123R, and FSP FAS 123R-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards. The Company has adopted the
provisions of SAB 107 in conjunction with the adoption of Statement 123R and also considers the guidance provided in the FSPs. The revised provisions of SFAS No. 123 became effective for the Company on January 19, 2006 in connection with
the initial public offering and stock option plan created in 2005 (discussed below).

Net income for the year ended December 31, 2006 includes $8.1
million of compensation expense related to our stock based compensation arrangements. No stock based compensation expenses were recognized in 2004 or 2005. Approximately $0.2 million is classified as cost of sales for the year ended
December 31, 2006. The remaining amount of $7.9 million is classified as selling, administrative and other expense for the year ended December 31, 2006. Net income for the year ended December 31, 2006 included $3.0 million of income
tax benefits related to our stock-based compensation arrangements.

Stock Options

Concurrent with the initial public offering, the Company granted options to purchase a total of 484,876 shares of common stock under the 2005 equity incentive plan (the 2005 Plan). These options were
granted at an exercise price equal to the initial public offering price of $21.00 per share. The options have a term of five years and vest in equal annual installments over a three-year period. The Company determined that the stock option expense
for these options will total approximately $3.5 million (2006 expense recognized was $2.15 million) over the three year vesting period using a Black-Scholes calculation based on the following assumptions: stock volatility of 35%; 5-year term;
interest rate of 4.35%; and dividend yield of 1%. The Company accounts for the 2005 Plan under the recognition and measurement principles of SFAS No. 123R, and its related provisions. As there was no history with the stock prices of the
Company, the stock volatility rate was determined using volatility rates for several other similar companies within the railcar industry. The five year term represents the expiration of each option. The interest rate used was the five year
government T  Bill rate on the date of grant. Dividend yield was determined from an average of other companies in the industry, as the Company did not have a history of dividend rates.

On April 3, 2006, the Company issued options to purchase a total of 75,000 shares of common stock under the 2005 Plan. These options were granted at an exercise
price of $35.69 per share. The Company determined the stock option expense for these options will total approximately $1.0 million (2006 expense recognized was $0.26 million) over the four year vesting period using the same assumptions and
methodology to determine the value of these options as was used for the options issued in connection with the Companys initial public offering.



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The 2005 Plan permits the Company to issue stock and grant stock options, restricted stock, stock units and other equity
interests to purchase or acquire up to 1.0 million shares of our common stock. Awards covering no more than 300,000 shares may be granted to any person during any fiscal year. Options are subject to certain vesting provisions as designated
by the board of directors and generally have an expiration that ranges from 5 to 10 years. Options granted under the 2005 Plan must have an exercise price at or above the fair market value on the date of grant. If any award expires, or is
terminated, surrendered or forfeited, then shares of common stock covered by the award will again be available for grant under the 2005 Plan. The 2005 Plan is administered by the Companys board of directors or a committee of the board. Options
granted pursuant to the requirements of SFAS No. 123R are expensed on a graded vesting method over the vesting period of the option.

The Company
recognized $2.4 million of compensation expense during the year ended December 31, 2006 related to stock option grants made under the 2005 plan. The Company recognized $0.9 million of income tax benefits related to stock options during the year
ended December 31, 2006.

The following is a summary of option activity under the 2005 plan as of December 31, 2006, and changes during each
quarter of fiscal year 2006 through December 31, 2006:



|                                                          |  |         |  |                              |       |                                         |           |                                                      |   |                               |  |   |      
|--------------------------------------------------------- |  | ------- |  | ---------------------------- | ----- | --------------------------------------- | --------- | ---------------------------------------------------- | - | ----------------------------- |  | - | -----
|                                                          |  | Shares  |  | WeightedAverageExercisePrice |       | WeightedAverageRemainingContractualLife |           | WeightedAverageGrant-dateFair Valueof OptionsGranted |   | AggregateIntrinsicValue($000)
|Outstanding at the beginning of the year, January 1, 2006 |  |        |  | $                            |      |                                         |           |                                                      |   |                               |  |   |      
|Granted                                                   |  | 559,876 |  | $                            | 22.97 |                                         |           |                                                      | $ | 8.05                          |  |   |      
|                                                          |  |         |  |                              |       |                                         |           |                                                      |   |                               |  |   |      
|Outstanding at the end of the year, December 31, 2006     |  | 559,876 |  | $                            | 22.97 |                                         | 48 months |                                                      | $ | 8.05                          |  | $ | 6,199
|                                                          |  |         |  |                              |       |                                         |           |                                                      |   |                               |  |   |      
|Exercisable at end of the year, December 31, 2006         |  |        |  |                              |       |                                         |           |                                                      |   |                               |  |   |      
|                                                          |  |         |  |                              |       |                                         |           |                                                      |   |                               |  |   |      

Restricted Stock Award

As part of the employment agreement entered in November 2005, the Company issued 285,714 restricted shares of the Companys common stock to Mr. Unger, its Chief Executive Officer, on the date of the initial public offering. These
restricted shares were granted with an issuance price of $21.00 per share, resulting in a fair value of $6.0 million on the date of grant. This restricted stock grant vested 40% on the date of the grant while the remaining 60% vested in January
2007. The Company recorded compensation expense of $2.4 million on the date of the grant for this restricted stock. The remaining expense was recognized over the one-year vesting period. 114,286 of these shares became transferable without
contractual restrictions by Mr. Unger six months after issuance. An additional 85,714 of these shares became transferable without contractual restrictions by Mr. Unger twelve months after issuance. The remaining 85,714 shares will be
transferable without contractual restrictions by Mr. Unger eighteen months after issuance.

The Company recognized $5.7 million of compensation
expense during the year ended December 31, 2006 for this restricted stock grant. The Company recognized $2.1 million of income tax benefits in the year ended December 31, 2006, for this restricted stock grant.



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The following is a summary of the status of non-vested shares as of December 31, 2006, and changes during each
quarter of fiscal year 2006 through December 31, 2006:



|                                                     |  |                        |   |  |                                      |      
|---------------------------------------------------- |  | ---------------------- | - |  | ------------------------------------ | -----
|                                                     |  | Non-vestedStock Awards |   |  | WeightedAverage GrantDate Fair Value
|Non-vested at beginning of the year, January 1, 2006 |  |                       |   |  | $                                    |     
|Granted                                              |  | 285,714                |   |  |                                      | 21.00
|Vested                                               |  | (114,286               | ) |  |                                      | 21.00
|                                                     |  |                        |   |  |                                      |      
|Non-vested at the end of the year, December 31, 2006 |  | 171,428                |   |  | $                                    | 21.00
|                                                     |  |                        |   |  |                                      |      

Future stock compensation expense and shares available

As of December 31, 2006, unrecognized compensation costs related to the unvested portion of restricted stock were approximately $0.3 million and are expected to be
recognized during January 2007. As of December 31, 2006, unrecognized compensation costs related to the unvested portion of stock options were approximately $2.1 million and are expected to be recognized over a weighted average period of
approximately 29 months.

As of December 31, 2006, an aggregate of 440,124 shares were available for issuance in connection with future grants under
the Companys 2005 Plan.

Shares issued under the 2005 Plan may consist in whole or in part of authorized but unissued shares or treasury shares. The
1,000,000 shares covered by the Plan were registered for issuance to the public with the SEC on a Form S-8 on August 16, 2006. Within the same filing, we registered 114,286 shares of restricted stock that vested in January 2006.

Note 14Related Party Transactions

As part of the 1994
recapitalization described in Note 1, ACF retained certain liabilities existing as of the recapitalization date, including employee benefits, workers compensation, litigation, environmental and others. If ACF were unable to honor or meet these
obligations, ARI would be responsible for such liabilities. In the opinion of management, ACF has the present ability to meet these obligations. This liability totaled approximately $11.1 million at December 31, 2004, consisting primarily of
pension and postretirement liabilities. This liability was reduced to $0.3 million as of December 31, 2005 consisting mainly of environmental liabilities, as a result of the pension plan swap discussed below.

Effective December 1, 2005, ARI entered into an agreement with ACF which released ARI from all employee benefit reimbursement obligations under the 1994 Asset
Transfer Agreement in exchange for ARI assuming sponsorship and all obligations of the Shippers Car Line Pension Plan, including obligations related to ACF participants in the Plan, and a cash payment to ACF of approximately $9.2 million to
settle all of its obligations related to ARI employees included in the ACF Retirement Plan. The settlement was based on the actuarial valuation of liabilities at December 1, 2005, and the market value of assets at that time. The Shippers
Car Line Pension Plan has an unfunded liability of $4.0 million, which has become the obligation of ARI. ACF will continue to be responsible for the ACF Retirement Plan and is responsible for all obligations of that plan including obligations
related to ARI employees who are in the Plan. The ACF Retirement Plan was curtailed in April 2004.

The assets, liabilities and unfunded liability of the
Shippers Car Line Plan based on 2005 actuarial valuations were:



|                             |  |   |      |  |        
|---------------------------- |  | - | ---- |  | -------
|Projected benefit obligation |  | $ | 12.4 |  | million
|Assets at fair value         |  | $ | 8.4  |  | million
|Underfunded status           |  | $ | 4.0  |  | million

The Shippers Car Line Plan assets consist mainly of equity and debt securities.



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ARI also assumed sponsorship of a Retiree Medical and Retiree Life Insurance plan for retirees of ARI and for active ARI
employees who will receive this benefit in the future. The post retirement liability related to this obligation was at the time of the transfer $3.9 million based on the 2005 APBO valuation. ACF paid ARI approximately $2.9 million in exchange for
assuming the portion of this liability that relates to years prior to 1994. The 2007 projected expense and cash spending estimates related to these benefits are $0.1 million and $0.3 million, respectively.

The total amount of the obligations assumed by ARI was $14.2 million. ARI had previously accrued an estimated liability related to this settlement of $3.2 million. In
December 2005, ARI recorded an increase in the estimated liability of $10.9 million and a loss on the settlement of the same amount, of which $2.0 million has been recorded in cost of goods sold with the remaining amount being shown on the statement
of operations as pension settlement expense. The net cash payment to ACF related to this transaction, and included in the numbers above, was approximately $6.3 million ($9.2 million related to pension, less $2.9 million related to post-retirement,
medical and life benefits).

In connection with the 1994 ACF asset transfer, the Company entered into the following administrative and operating agreements
with ACF, effective as of October 1, 1994:

Manufacturing services agreement

Under the manufacturing services agreement, ACF agreed to manufacture and distribute, at the Companys instruction, various products using certain
assets that the Company acquired pursuant to the 1994 ACF asset transfer agreement. In consideration for these services, the Company agreed to pay ACF based on agreed upon rates. Components supplied to ARI by ACF include tank railcar heads, wheel
sets and various structural components. In the years ended December 31, 2004, 2005 and 2006, ARI purchased inventory of $31.3 million, $76.4 million and $81.5 million, respectively, of components from ACF. The agreement automatically renews
unless written notice is provided by the Company or ACF.

Administration Agreement

Under this agreement, ACF agreed to provide the Company with office facilities and administrative services, primarily information technology services. In
exchange for the facilities and services, the Company agreed to pay ACF based on agreed upon rates. Management believes that these allocation methods are reasonable for the relevant costs. Total amounts incurred under this agreement totaled $0.8
million and $0.4 million for the years ended December 31, 2004 and 2005, respectively. The agreement was terminated on April 1, 2005. The facility lease amounts, included in the amounts incurred, have been included in the total lease
expense discussion within this footnote.

Until October 2004, ACF received the majority of ARIs cash receipts and disbursed cash on
its behalf. ARI maintained a receivable/payable from affiliates bearing interest at ACFs internal cost of funds in accordance with this agreement.

At the time of ARIs formation in 1994, when this Administrative Agreement was entered into, ARI and ACF contemplated that ARI would generally need funds to build its facilities, acquire assets and provide for
working capital needs. ACF has provided financing to ARI and ARI has repaid these amounts through an affiliate account based on ARIs cash flow needs from month to month. ARI has classified its transactions with ACF through its affiliate
account as financing activities on the accompanying statements of cash flows. From time to time this account has had a due from balance but ARI does not believe that this changes the basic nature of the financing relationship.

Railcar Servicing Agreement

Under
this agreement, the Company agreed to provide ACF with railcar repair and maintenance services, fleet management services and consulting services on safety and environmental matters for railcars owned or managed by ACF. ACF agreed to compensate the
Company based on agreed upon rates. Revenue recorded under this arrangement totaled $12.7 million for the year ended December 31, 2004, and is included under revenue from affiliates on the statement of operations. The Agreement was terminated
on April 1, 2005. No amounts were recorded for the years ended December 31, 2005 and 2006.



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Supply Agreement

Under this agreement, ARI agreed to manufacture and sell to ACF specified components at cost plus mark-up or on terms not less favorable than the terms on which the Company sold the same products to third parties.
Revenue recorded under this arrangement totaled $0.7 million, $0.1 million and $0.1 million for the years ended December 31, 2004, 2005 and 2006, respectively, and is included under revenue from affiliates on the statement of operations.

In 2004, the Company entered into the following agreements with ARL and its subsidiaries:

Railcar Management Agreements

Under
this agreement, the Company provided ARI First and ARI Third, subsidiaries of ARL, with marketing, leasing, administration, maintenance, record keeping and insurance services for railcars owned by ARI First and ARI Third. In exchange for these
services, ARI First and ARI Third paid the Company a management fee, which totaled $1.2 million, $2.0 million and for the years ended December 31, 2004 and 2005, respectively, which is included under revenue from affiliates on the statement of
operations. This arrangement was terminated on July 1, 2005, when ARI assigned its management agreements for ARI First LLC and ARI Third LLC to ARL.

ACF Administration Agreement

The ACF Administration agreement was entered into with ACF and ARL.
Under the agreement, ACF agreed to provide certain management services, which were required under the railcar management agreement with ARI First and ARI Third described above. Fees paid to ACF under this agreement were equal to the fees the Company
charged to ARI First and Third under the railcar management agreement and totaled $1.2 million and $2.0 million for the years ended December 31, 2004 and 2005, respectively, which is included under cost related to affiliates on the statement of
operations. This arrangement was terminated on April 1, 2005.

The Company currently has the following agreements in place with ARL and its
subsidiaries:

ARL Railcar Services Agreement

Under this agreement, ARL provided the Company with railcar services, which the Company was required to provide to ARI First and ARI Third under the railcar management agreement. The Company paid ARL an amount equal
to the amounts paid to the Company by ARI First and ARI Third under the railcar management agreement which totaled $2.0 million for the year ended December 31, 2005 and it is included under cost of goods sold on the statement of
operations. This agreement was terminated on July 1, 2005.

ARL Railcar Servicing Agreement

Under this agreement, the Company agreed to provide ARL with railcar repair and maintenance services, fleet management services and consulting services on
safety and environmental matters for railcars owned or managed by ARL and leased or held for lease by ARL. ARL agreed to compensate the Company based on agreed upon rates. Revenue of $5.5 million, $18.6 million and $18.9 million for the years ended
December 31, 2004, 2005 and 2006, were recorded under this arrangement, which is included under revenue from affiliates on the statement of operations. The agreement extends through June 30, 2007 and automatically renews for one-year
periods unless either party provides at least six months prior notice of termination or if an agreement is reached to terminate the contract. Termination by the Company would result in a fee payable to ARL of $0.5 million.

ARL Services Agreement

Under this
agreement, ARL agreed to provide the Company certain information technology services, rent and building services and limited administrative services. The rent and building services includes the use of certain facilities owned by Mr. Unger,
which is further described in Note 16. Under the agreement, the Company agreed to provide purchasing and engineering services to ARL. Consideration exchanged between the Companies is based on agreed upon fixed annual fee. Total fees paid to ARL were
$1.7 million and $2.0 million, respectively, for the years ended December 31, 2005 and 2006. Amounts billed to ARL totaled $0.2 million and zero, respectively, for the years ended December 31, 2005 and 2006. These balances are
included in revenues from affiliates, costs related to affiliates and selling, administrative and other on the statement of operations. Either party may terminate any of these services, and the associated costs for these services, on at least six
months prior notice at any time prior to the termination of the agreement on December 31, 2007 or if an agreement is reached to terminate the contract.



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Trademark License Agreement

Under this agreement, which is effective as of June 30, 2005, ARI granted a nonexclusive, perpetual, worldwide license to ARL to use ARIs
common law trademarks American Railcar and the diamond shape logo. ARL may only use the licensed trademarks in connection with the railcar leasing business. ARI receives annual fees of $1,000 in exchange for this license.

ARL Sales Contracts

On March 31, 2006, the Company entered into an agreement with ARL for the Company to manufacture and ARL to purchase 1,000 tank railcars in 2007. The Company has in the past manufactured and sold railcars to ARL on a purchase order
basis. When the Company entered into this agreement, it planned to produce these tank railcars with new manufacturing capacity that the Company expected to have available beginning in January 2007. The agreement also included options for ARL to
purchase up to 300 covered hopper railcars in 2007, should additional capacity become available and not be called for by other rights of first refusal, and 1,000 tank railcars and 400 covered hopper railcars in 2008. The options to purchase 1,000
tank railcars and 400 covered hopper railcars in 2008 were exercised by ARL. Similar to other customers, the storm damage in April 2006 at Marmaduke and resulting temporary plant shutdown will impact the timing of delivery of the railcars that ARL
has ordered.

On September 25, 2006, the Company entered into an agreement with ARL for the Company to manufacture and ARL to purchase
500 tank railcars in both 2008 and 2009.

Additional Agreements with ACF

As part of ARIs recapitalization, ACF retained the liabilities for unfunded pension and other postretirement liabilities and workers compensation liabilities as of October 1, 1994 for employees who
transferred from ACF to ARI at that date and for environmental liabilities as of that date. Although ACF is legally responsible for any costs associated with their liabilities at the recapitalization date, related expenses which have accrued since
the recapitalization have been reflected in ARIs financial statements in order to reflect the Companys full cost of doing business. Expenses paid by ACF, relating to pre-recapitalization liabilities, are recorded as capital contributions
by ARI and included in additional paid-in capital.

ARI recorded total expenses relating to benefits and environmental liabilities of $4.0 million, $13.3
million and $0.7 million in the years ended December 31, 2004, 2005 and 2006, respectively. The December 31, 2005 balance also included $10.9 million of expenses incurred relating to the pension settlement agreement, noted above. Included
in the total expenses incurred were amounts related to pre-capitalization liabilities retained by ACF, which are reflected as additional paid-in capital, totaling $1.4 million and $1.1 million in 2004 and 2005, respectively. As previously described
in this note, we separated pension and post retirement obligations from ACF, effective December 1, 2005. As such, pre-recapitalization expenses related to pension and post retirement benefits will no longer be paid by ACF on our behalf.

In October 1998, ARI advanced $57.2 million to ACF under a promissory note secured by the stock of an affiliate. ARI assigned $14.9 million of this note
to an affiliate, with the remaining $42.3 million of the note repaid in October 2004. The Company recorded interest income on this note of $1.8 million in the year ended December 31, 2004.

In 2001, ARI entered into a derivative instrument in the form of an interest rate swap contract with an underlying initial notional amount of $49.0 million, terminating
in February 2005. Concurrent with the execution of this swap agreement, ARI assigned its rights and obligations under this contract to ACF. ARI includes the fair value of the contract as a liability on its balance sheet, with an equal amount
included in amounts due from ACF to reflect the assignment of the contract. The fair value of the contract was $0.1 million at December 31, 2004. Interest expense is not reflected in ARIs results of operations due to ACFs assumption
of the contract.

ARI entered into a note payable with ACF Holding, an affiliate, for $12.0 million effective January 1, 2005 in connection with the
purchase of Castings (Note 1). The note bears interest at prime (7.00% at December 31, 2006) plus 0.5% and is due on demand. Interest expense on this note was $0.8 million for the year ended December 31, 2005. This note was paid off in
full in connection with the initial public offering, as discussed in Note 3.



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In April 2005, the Company entered into a consulting agreement with ACF in which both parties agreed to provide labor
litigation, labor relations support and consultation, and labor contract interpretation and negotiation services to one another. In addition, the Company has agreed to provide ACF with engineering and consulting advice. Fees paid to one another are
based on agreed upon rates. No services were rendered and no amounts were paid during the years ended December 31, 2005 and 2006.

During 2006, ARI
entered into two inventory storage agreements with ACF to store designated inventory that ARI had purchased under its manufacturing services agreement with ACF at ACFs Huntington facility. Under these agreements, ACF holds the inventory at its
facility in segregated locations until such time that the inventory is shipped to ARI.

During 2006, ARI entered into an agreement that provided that ARI
would procure, purchase and own the raw material components for wheel sets. These wheel set components are those that are being used in the assembly of wheel sets for ARI under the ARI/ACF manufacturing services agreement. Under the manufacturing
services agreement with ACF, which remains unchanged, ARI will continue to pay ACF for its services, specifically labor and overhead, in assembling the wheel sets.

Agreements with Affiliated Parties

During 2004, ARI advanced $165.0 million to Mr. Icahn under a secured note due in 2007, which bore
interest at prime plus 1.75%. Interest income on the note was $2.0 million and $0.8 million for the years ended December 31, 2004 and 2005, respectively. On January 26, 2005, the ARL operating agreement was amended and an assignment and
assumption agreement was executed whereby ARI transferred its interest in the $165.0 million secured note receivable from Mr. Icahn to ARL in exchange for 35,000 A Units of ARL and in satisfaction of the $130.0 million note issued to ARL, as
discussed below.

During 2004, ARL advanced $130.0 million to ARI under a note due in 2007, which bore interest at prime plus 1.5%. Interest expense on the
note was $1.5 million and $0.6 million for the years ended December 31, 2004 and 2005, respectively. As discussed above, this note was fully satisfied on January 26, 2005.

On December 17, 2004, ARI borrowed $7.0 million under a note payable to Arnos Corp., an affiliate. The note bore interest at prime plus 1.75% and is payable on demand. Interest expense on the note was $0.6
million for the year ended December 31, 2005. No interest expense was recorded for the year ended December 31, 2004, as interest did not start accruing until January 1, 2005. This note was paid off in full in connection with the
initial public offering, as discussed in Note 3.

In September 2003, Castings loaned Ohio Castings $3.0 million under a promissory note, which was due
January 2004. The note was renegotiated in 2005 with a new principal amount of $2.2 million and bears interest at 4.0%. Payments of principal and interest are due quarterly with the last payment due in November 2008. This note receivable is included
in Investment in joint venture on the accompanying balance sheet. Total amounts due from Ohio Castings under this note were $1.8 million and $1.5 million at December 31, 2005 and 2006, respectively.

During April 2006, the Companys chairman and majority stockholder, Carl C. Icahn, contributed $0.3 million as a capital contribution to pay the weekly payroll and
fringe benefits of the Marmaduke manufacturing complex. This was done to help bridge the gap until the Company received funds from its insurance policies to continue to pay full wages and benefits to all employees working for the tank railcar
operations at Marmaduke, Arkansas.

Financial Information for Transactions with Affiliates

As of December 31, 2005, amounts due from affiliates were $5.1 million, representing receivables from ACF, Ohio Castings and ARL. As of December 31, 2006,
amounts due from affiliates were $9.6 million, representing receivables from ACF, Ohio Castings and ARL.

As of December 31, 2005, amounts due to
affiliates represented $23.5 million in accounts payable and notes payable to ACF and its affiliates. As of December 31, 2006, amounts due to affiliates were $1.7 million, representing accounts payable to ACF.



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Cost of railcar manufacturing for the years ended December 31, 2004, 2005 and 2006 includes $19.9 million, $30.9
million and $37.1 million, respectively, in railcar products produced by Ohio Castings, which is partially owned by Castings, as described in Note 1. Expenses of $3.2 million, $2.8 million and $0.1 million paid to Castings under a supply agreement
are included in the cost of railcar manufacturing for the years ended December 31, 2004, 2005 and 2006, respectively. Inventory at December 31, 2005 and 2006 includes approximately $3.0 million and $4.1 million, respectively, of purchases
from Ohio Castings.

Note 15Pension Plans

ARI is
the sponsor of two defined benefit plans that cover certain employees at designated repair facilities. One defined benefit plan, which covers certain salaried and hourly employees, is frozen and no additional benefits are accruing thereunder. The
second defined benefit plan is active and covers only certain of the Companys union employees. The Company is also sponsor of an unfunded supplemental executive retirement plan (SERP) in which several of its employees are participants. The
participants benefits in the SERP vested prior to the SERP being frozen on March 31, 2004. No additional benefits are accruing under the SERP. The Company uses a measurement date of October 1 for all pension plans. The plans
assets are held by independent trustees and consist primarily of equity and fixed income securities.

The Company also provides certain postretirement
health care and life insurance benefits for certain of its salaried and hourly retired employees. The measurement date for the post-retirement plan is October 1. 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.

Costs of
benefits relating to current service for those employees to whom the Company is responsible to provide benefits are expensed currently. Pension expense for the year ended December 31, 2004 includes a $0.1 million curtailment gain caused by the
elimination of future benefit accruals for service credit for salaried employees as of April 1, 2004 and a reduction in service hours for hourly employees at one plant location.

As of December 31, 2006, the Company adopted FAS 158, which requires the recognition of the overfunded or underfunded status of its defined benefit and retiree medical plans as an asset or liability, with changes
in the funded status recognized through comprehensive income in the year they occur. The Company recognized the liability for the funded status in its balance sheet as shown in its statement of financial position at December 31, 2006.
Retroactive application of the standard is not permitted.

The change in benefit obligation and change in plan assets for the years ended December 31,
2005 and 2006 and the funded status as of December 31, 2005 and 2006 is as follows:



|                                       |  |                  |        |   |                         |   |        |      |  |   |       |   |  |   |       |  
|-------------------------------------- |  | ---------------- | ------ | - | ----------------------- | - | ------ | ---- |  | - | ----- | - |  | - | ----- | -
|                                       |  | Pension Benefits |        |   | Postretirement Benefits |  
|                                       |  | 2005             |        |   | 2006                    |   |        | 2005 |  |   | 2006  |  
|                                       |  | (in thousands)   |       
|Change in benefit obligation           |  |                  |        |   |                         |   |        |      |  |   |       |   |  |   |       |  
|Benefit obligation - Beginning of year |  | $                | 3,378  |   |                         | $ | 16,981 |      |  | $ |      |   |  | $ | 3,909 |  
|Plan transfer                          |  |                  | 12,362 |   |                         |   |       |      |  |   | 3,912 |   |  |   |      |  
|Service cost                           |  |                  | 21     |   |                         |   | 179    |      |  |   | 1     |   |  |   | 11    |  
|Interest cost                          |  |                  | 202    |   |                         |   | 797    |      |  |   | 18    |   |  |   | 208   |  
|Plan amendment                         |  |                  |       |   |                         |   |       |      |  |   |      |   |  |   | 139   |  
|Actuarial (gain) loss                  |  |                  | 1,051  |   |                         |   | 312    |      |  |   | (11   | ) |  |   | 1,137 |  
|Assumed administrative expenses        |  |                  | (21    | ) |                         |   | (111   | )    |  |   |      |   |  |   |      |  
|Employee contributions                 |  |                  |       |   |                         |   |       |      |  |   | 5     |   |  |   | 44    |  
|Benefits paid                          |  |                  | (12    | ) |                         |   | (901   | )    |  |   | (16   | ) |  |   | (127  | )
|                                       |  |                  |        |   |                         |   |        |      |  |   |       |   |  |   |       |  
|Benefit obligation - End of year       |  | $                | 16,981 |   |                         | $ | 17,257 |      |  | $ | 3,909 |   |  | $ | 5,321 |  
|                                       |  |                  |        |   |                         |   |        |      |  |   |       |   |  |   |       |  



85



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|                                        |  |                  |        |   |                         |   |        |      |  |   |      |   |  |   |      |  
|--------------------------------------- |  | ---------------- | ------ | - | ----------------------- | - | ------ | ---- |  | - | ---- | - |  | - | ---- | -
|                                        |  | Pension Benefits |        |   | Postretirement Benefits |  
|                                        |  | 2005             |        |   | 2006                    |   |        | 2005 |  |   | 2006 |  
|                                        |  | (in thousands)   |       
|Change in plan assets                   |  |                  |        |   |                         |   |        |      |  |   |      |   |  |   |      |  
|Plan assets - Beginning of year         |  | $                | 1,776  |   |                         | $ | 10,380 |      |  | $ |     |   |  | $ |     |  
|Plan transfer                           |  |                  | 8,354  |   |                         |   |       |      |  |   |     |   |  |   |     |  
|Actual return on plan assets            |  |                  | 221    |   |                         |   | 874    |      |  |   |     |   |  |   |     |  
|Administrative expenses                 |  |                  | (41    | ) |                         |   | (153   | )    |  |   |     |   |  |   |     |  
|Employee contributions                  |  |                  |       |   |                         |   |       |      |  |   | 5    |   |  |   | 44   |  
|Employer contributions                  |  |                  | 82     |   |                         |   | 1,069  |      |  |   | 11   |   |  |   | 83   |  
|Benefits paid                           |  |                  | (12    | ) |                         |   | (900   | )    |  |   | (16  | ) |  |   | (127 | )
|                                        |  |                  |        |   |                         |   |        |      |  |   |      |   |  |   |      |  
|Plan assets at fair value - End of year |  | $                | 10,380 |   |                         | $ | 11,270 |      |  | $ |     |   |  | $ |     |  
|                                        |  |                  |        |   |                         |   |        |      |  |   |      |   |  |   |      |  



|                                            |  |                  |        |   |                         |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------- |  | ---------------- | ------ | - | ----------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                            |  | Pension Benefits |        |   | Postretirement Benefits |  
|                                            |  | 2005             |        |   | 2006                    |   |        | 2005 |  |   | 2006   |  
|                                            |  | (in thousands)   |       
|Funded status                               |  |                  |        |   |                         |   |        |      |  |   |        |   |  |   |        |  
|Benefit obligation in excess of plan assets |  | $                | (6,601 | ) |                         | $ | (5,986 | )    |  | $ | (3,909 | ) |  | $ | (5,321 | )
|Contributions in the fourth quarter         |  |                  |       |   |                         |   | 444    |      |  |   |       |   |  |   | 4      |  
|Unrecognized prior service cost             |  |                  | (6     | ) |                         |   |       |      |  |   |       |   |  |   |       |  
|Unrecognized net actuarial loss (gain)      |  |                  | 2,744  |   |                         |   |       |      |  |   | (12    | ) |  |   |       |  
|                                            |  |                  |        |   |                         |   |        |      |  |   |        |   |  |   |        |  
|Net amount recognized at December 31        |  | $                | (3,863 | ) |                         | $ | (5,542 | )    |  | $ | (3,921 | ) |  | $ | (5,317 | )
|                                            |  |                  |        |   |                         |   |        |      |  |   |        |   |  |   |        |  

Amounts recognized in the balance sheet at December 31, 2006 is as follows:



|                                           |  |                  |        |   |                         |   |        |  
|------------------------------------------ |  | ---------------- | ------ | - | ----------------------- | - | ------ | -
|                                           |  | Pension Benefits |        |   | Postretirement Benefits |  
|Accrued benefit liability - short term     |  | $                | (1     | ) |                         | $ | (258   | )
|Accrued benefit liability - long term      |  |                  | (5,541 | ) |                         |   | (5,059 | )
|                                           |  |                  |        |   |                         |   |        |  
|Net amount recognized at December 31, 2006 |  | $                | (5,542 | ) |                         | $ | (5,317 | )
|                                           |  |                  |        |   |                         |   |        |  

Amounts recognized in accumulated other comprehensive loss (pre-tax) at December 31, 2006 are as follows:



|                       |  |                  |       |   |                         |   |      
|---------------------- |  | ---------------- | ----- | - | ----------------------- | - | -----
|                       |  | Pension Benefits |       |   | Postretirement Benefits
|Net actuarial loss     |  | $                | 2,759 |   |                         | $ | 1,125
|Net prior service cost |  |                  | (5    | ) |                         |   | 140  
|                       |  |                  |       |   |                         |   |      
|                       |  | $                | 2,754 |   |                         | $ | 1,265
|                       |  |                  |       |   |                         |   |      



86



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Amounts recognized in the balance sheet at December 31, 2005 are as follows:



|                                               |  |                  |        |   |                         |   |        |  
|---------------------------------------------- |  | ---------------- | ------ | - | ----------------------- | - | ------ | -
|                                               |  | Pension Benefits |        |   | Postretirement Benefits |  
|Accrued benefit liability - short term         |  | $                |       |   |                         | $ |       |  
|Accrued benefit liability - long term          |  |                  | (6,601 | ) |                         |   | (3,921 | )
|Accumulated other comprehensive loss (pre-tax) |  |                  | 2,738  |   |                         |   |       |  
|                                               |  |                  |        |   |                         |   |        |  
|Net amount recognized at December 31, 2005     |  | $                | (3,863 | ) |                         | $ | (3,921 | )
|                                               |  |                  |        |   |                         |   |        |  

Prior to adoption of FAS 158, the Company recognized an additional minimum liability of $20, and corresponding
charge to accumulated other comprehensive loss ($13 net of tax effect of $7) in relation to the pension benefit plans, as required by FAS 87. The total minimum liability recognized on the pension benefit plans prior to the adoption of FAS 158 was
$2,754. The effect of the adoption of FAS 158 on the balance sheet was as follows:



|                                                                 |  |                  |    |   |                         |   |        |  
|---------------------------------------------------------------- |  | ---------------- | -- | - | ----------------------- | - | ------ | -
|                                                                 |  | Pension Benefits |    |   | Postretirement Benefits |  
|Accrued benefit liability - short term                           |  | $                | (1 | ) |                         | $ | (258   | )
|Accrued benefit liability - long term                            |  |                  | 1  |   |                         |   | (1,007 | )
|Accumulated other comprehensive loss (net of tax effect of $467) |  |                  |   |   |                         |   | 792    |  

The following amounts are estimated to be amortized into earnings from accumulated other comprehensive loss during
fiscal year 2007:



|                                              |  |                  |     |   |                         |   |   
|--------------------------------------------- |  | ---------------- | --- | - | ----------------------- | - | --
|                                              |  | Pension Benefits |     |   | Postretirement Benefits
|                                              |  | (in thousands)  
|Accumulated (loss) gain                       |  | $                | 206 |   |                         | $ | 50
|Prior service (cost) credit                   |  |                  | (1  | ) |                         |   | 18
|                                              |  |                  |     |   |                         |   |   
|Accumulated other comprehensive income (loss) |  | $                | 205 |   |                         | $ | 68
|                                              |  |                  |     |   |                         |   |   

The accumulated benefit obligation for all defined benefit pension plans at October 1, 2005 and 2006 (the
measurement dates) was $17.0 million and $17.3 million, respectively.

The components of net periodic benefit cost for the years ended December 31,
2004, 2005 and 2006 are as follows:



|                                        |  |                  |      |   |                         |   |      |      |  |   |      |   |      |   |      |  |   |    |  |   |    
|--------------------------------------- |  | ---------------- | ---- | - | ----------------------- | - | ---- | ---- |  | - | ---- | - | ---- | - | ---- |  | - | -- |  | - | ---
|                                        |  | Pension Benefits |      |   | Postretirement Benefits
|                                        |  | 2004             |      |   | 2005                    |   |      | 2006 |  |   | 2004 |   | 2005 |   | 2006
|                                        |  | (in thousands)  
|Components of net periodic benefit cost |  |                  |      |   |                         |   |      |      |  |   |      |   |      |   |      |  |   |    |  |   |    
|Service cost                            |  | $                | 34   |   |                         | $ | 21   |      |  | $ | 179  |   |      | $ |     |  | $ | 1  |  | $ | 11 
|Interest cost                           |  |                  | 188  |   |                         |   | 202  |      |  |   | 796  |   |      |   |     |  |   | 18 |  |   | 208
|Expected return on plan assets          |  |                  | (156 | ) |                         |   | (193 | )    |  |   | (727 | ) |      |   |     |  |   |   |  |   |   
|Curtailment gain                        |  |                  | (59  | ) |                         |   |     |      |  |   |     |   |      |   |     |  |   |   |  |   |   
|Recognized actuarial loss               |  |                  |     |   |                         |   |     |      |  |   | 191  |   |      |   |     |  |   |   |  |   |   
|Amortization of prior service gain      |  |                  |     |   |                         |   | (1   | )    |  |   | (1   | ) |      |   |     |  |   |   |  |   |   
|Amortization of unrecognized net loss   |  |                  | 77   |   |                         |   | 82   |      |  |   |     |   |      |   |     |  |   |   |  |   |   
|                                        |  |                  |      |   |                         |   |      |      |  |   |      |   |      |   |      |  |   |    |  |   |    
|                                        |  | $                | 84   |   |                         | $ | 111  |      |  | $ | 438  |   |      | $ |     |  | $ | 19 |  | $ | 219
|                                        |  |                  |      |   |                         |   |      |      |  |   |      |   |      |   |      |  |   |    |  |   |    



87



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Effective December 1, 2005, ARI entered into an agreement with ACF, as described in Note 14, whereby ARI assumed
sponsorship of the Shippers Car Line Pension Plan. ARI also assumed sponsorship of a Retiree Medical and Retiree Life Insurance plan for retirees of ARI and for active ARI employees who will receive this benefit in the future. Thus, in regards
to these two plans, only one month of costs were recognized during 2005. Since ARI was the sponsor of these two plans for the full year in 2006, various components of net periodic benefit costs, particularly service cost, interest cost and expected
return on plan assets, increased in 2006.

Additional information

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:



|          |  |                  |       |                         |   |      
|--------- |  | ---------------- | ----- | ----------------------- | - | -----
|          |  | Pension Benefits |       | Postretirement Benefits
|          |  | (in thousands)  
|2007      |  | $                | 957   |                         | $ | 258  
|2008      |  |                  | 973   |                         |   | 269  
|2009      |  |                  | 976   |                         |   | 308  
|2010      |  |                  | 1,081 |                         |   | 349  
|2011      |  |                  | 1,081 |                         |   | 387  
|2012-2016 |  |                  | 5,418 |                         |   | 2,631

The Company expects to contribute $1.8 million to its pension plans in 2007.

The assumptions used to determine end of year benefit obligations are shown in the following table:



|                                        |  |                  |   |  |                         |   |  |      |   |  |      |  
|--------------------------------------- |  | ---------------- | - |  | ----------------------- | - |  | ---- | - |  | ---- | -
|                                        |  | Pension Benefits |   |  | Postretirement Benefits |  
|                                        |  | 2005             |   |  | 2006                    |   |  | 2005 |   |  | 2006 |  
|Discount rate                           |  | 5.50             | % |  | 5.75                    | % |  | 5.50 | % |  | 5.75 | %
|Rate of increase in compensation levels |  | N/A              |   |  | N/A                     |   |  | N/A  |   |  | N/A  |  

The assumptions used in the measurement of net periodic cost are shown in the following table:



|                               |  |                  |   |  |      |   |                        |      |   |  |      |  |      |   |  |      |  
|------------------------------ |  | ---------------- | - |  | ---- | - | ---------------------- | ---- | - |  | ---- |  | ---- | - |  | ---- | -
|                               |  | Pension Benefits |   |  |      |   | PostretirementBenefits |     
|                               |  | 2004             |   |  | 2005 |   |                        | 2006 |   |  | 2004 |  | 2005 |   |  | 2006 |  
|Discount rate                  |  | 6.00             | % |  | 6.00 | % |                        | 5.50 | % |  | N/A  |  | 5.50 | % |  | 5.50 | %
|Expected return on plan assets |  | 8.50             | % |  | 8.00 | % |                        | 8.00 | % |  | N/A  |  | N/A  |   |  | N/A  |  

Assumed health care cost trend rates for the post retirement benefits plan at December 31 are set forth
below:



|                                                   |  |      |  |      |   |  |      |  
|-------------------------------------------------- |  | ---- |  | ---- | - |  | ---- | -
|                                                   |  | 2004 |  | 2005 |   |  | 2006 |  
|Health care cost trend rate assigned for next year |  | N/A  |  | 12.0 | % |  | 11.0 | %
|Rate to which cost trend is assumed to decline     |  | N/A  |  | 5.0  | % |  | 5.0  | %
|Year the rate reaches the ultimate trend rate      |  | N/A  |  | 2013 |   |  | 2013 |  

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:



|                                             |  |                      |     |   |          |   |      |  
|-------------------------------------------- |  | -------------------- | --- | - | -------- | - | ---- | -
|                                             |  | One Percentage Point |    
|                                             |  | (in thousands)       |    
|                                             |  | Increase             |     |   | Decrease |  
|Effect on total of service and interest cost |  | $                    | (3  | ) |          | $ | (1   | )
|Effect on postretirement benefit obligation  |  | $                    | 369 |   |          | $ | (334 | )



88



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The Companys pension plans investment policy, weighted average asset allocations at December 31, 2005
and 2006, and target allocations for 2007, by asset category, are as follows:



|                  |  |                             |   |  |                   |   |  |      |  
|----------------- |  | --------------------------- | - |  | ----------------- | - |  | ---- | -
|                  |  | Plan Assets at December 31, |   |  | Target Allocation |  
|                  |  | 2005                        |   |  | 2006              |   |  | 2007 |  
|Asset Category    |  |                             |   |  |                   |   |  |      |  
|Equity securities |  | 61                          | % |  | 57                | % |  | 60   | %
|Debt securities   |  | 39                          | % |  | 43                | % |  | 40   | %
|                  |  |                             |   |  |                   |   |  |      |  
|                  |  | 100                         | % |  | 100               | % |  | 100  | %
|                  |  |                             |   |  |                   |   |  |      |  

The objective of the pension plan investment policy is to grow assets in relation to liabilities, while prudently
managing the risk of a decrease in the pension plans assets. The pension plan management committee has established a target investment mix with upper and lower limits for investments in equities, fixed-income and other appropriate investments.
Assets will be re-allocated among asset classes from time-to-time to maintain the target investment mix. The committee has established a target investment mix of 60% equities and 40% fixed-income for the plan.

The expected return on plan assets is based on our asset allocation mix and our historical return, taking into account current and expected market conditions.

The Company also maintains qualified defined contribution plans, which provide benefits to its employees based on employee contributions, years of
service, and employee earnings with discretionary contributions allowed. Expenses related to these plans were $0.7 million, $0.7 million and $0.8 million for the years ended December 31, 2004, 2005, and 2006, respectively. Selected ARI salaried
employees participated in the ACF Industries, Inc. Savings and Investment Plan, and the expense is included above.

Note 16  Commitments and
Contingencies

As of December 31, 2006, future minimum rental payments required under noncancellable operating leases for property and equipment
leased by the Company with lease terms longer than one year are as follows:



|           |  |                |      
|---------- |  | -------------- | -----
|           |  | (in thousands)
|2007       |  | $              | 1,874
|2008       |  |                | 514  
|2009       |  |                | 500  
|2010       |  |                | 406  
|2011       |  |                | 314  
|Thereafter |  |                | 4,255

The Company leases certain facilities from an entity owned by its Chief Executive Officer, certain affiliates of
ARI and third parties. Total rent expense on all leases was approximately $6.6 million, $7.0 million and $4.1 million for the years ended December 31, 2004, 2005 and 2006, respectively. Expenses to related parties included in total rent expense
were $0.8 million, annually for the years ended December 31, 2004, 2005 and 2006.

The Company is subject to comprehensive federal, state, local and
international environmental laws and regulations relating to the release or discharge of materials into the environment, the management, use, processing, handling, storage, transport or disposal of hazardous materials and wastes, or otherwise
relating to the protection of human health and the environment. These laws and regulations not only expose ARI to liability for the environmental condition of its current or formerly owned or operated facilities, and its own negligent acts, but also
may expose ARI to liability for the conduct of others or for ARIs actions that were in compliance with all applicable laws at the time these actions were taken. In addition, these laws may require significant expenditures to achieve
compliance, and are frequently modified or revised to impose new obligations. Civil and criminal fines and penalties and other sanctions may be imposed for non-compliance with these environmental laws



89



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and regulations. ARIs operations that involve hazardous materials also raise potential risks of liability under common law. ARI is involved in
investigation and remediation activities at properties that it now owns or leases to address historical contamination and potential contamination by third parties. The Company is also involved with state agencies in the cleanup of two sites under
these laws. These investigations are in process but it is too early to be able to make a reasonable estimate, with any certainty, of the timing and extent of remedial actions that may be required, and the costs that would be involved in such
remediation. Substantially all of the issues identified relate to the use of the properties prior to their transfer to ARI in 1994 by ACF and for which ACF has retained liability for environmental contamination that may have existed at the time of
transfer to ARI. ACF has also agreed to indemnify ARI for any cost that might be incurred with those existing issues. However, if ACF fails to honor its obligations to ARI, ARI would be responsible for the cost of such remediation. The Company
believes that its operations and facilities are in substantial compliance with applicable laws and regulations and that any noncompliance is not likely to have a material adverse effect on its operations or financial condition.

When it is possible to make a reasonable estimate of the liability with respect to such a matter, a provision will be made as appropriate. Actual cost to be incurred in
future periods may vary from these estimates. Based on facts presently known, ARI does not believe that the outcome of these proceedings will have a material adverse effect on its future liquidity, results of operations or financial position.

ARI is a party to collective bargaining agreements with labor unions at its Longview, Texas and North Kansas City, Missouri repair facilities and at its
Longview, Texas steel foundry and components manufacturing facility. These agreements expire in January 2010, September 2007, and April 2008, respectively. ARI is also party to a collective bargaining agreement at our Milton, Pennsylvania
repair facility, which expired on June 19, 2005. The contract provisions under the agreement provide that the contract would remain in effect under the old terms until terminated by either party with 60 days notice. At the present time, there
are no workers at Milton, as the site is idled.

The Company has been named as the defendant in a lawsuit in which the plaintiff, OCI Chemical Company,
claims that the Company is responsible for the damage caused by allegedly defective railcars that were manufactured by the Company. The plaintiffs allege that failures in certain components caused the contents transported by these railcars to spill
out of the railcars causing property damage, clean-up costs, monitoring costs, testing costs and other costs and damages. The Company believes that it is not responsible for the spills and has meritorious defenses against liability.

Certain claims, suits and complaints arising in the ordinary course of business have been filed or are pending against ARI. In the opinion of management, all such
claims, suits, and complaints arising in the ordinary course of business are without merit or would not have a significant effect on the future liquidity, results of operations or financial position of ARI if disposed of unfavorably.

The Company entered into two vendor supply contracts with minimum volume commitments in October 2005 with suppliers of materials used at our railcar production
facilities. The agreements have terms of two and three years respectively. The Company has agreed to purchase a combined total of $65.7 million from these two suppliers over three years. In 2007 and 2008, ARI expects to purchase $26.3 million and
$24.0 million respectively under these agreements.

ARI entered into supply agreements on January 28, 2005 and on June 8, 2005 with a supplier
for two types of steel plates. The agreement is for five years and is cancelable by either party, with proper notice after two years. The agreement commits ARI to buy a minimum volume requirement from this supplier at prices that fluctuate with
market.

In January 2006, we entered into an agreement with a third party vendor for a specified number of wheels and related parts, including axles and
roller bearings. We were required to prepay for a portion of the requirements under this agreement. We expect to purchase $7.8 million from this vendor in 2007 under this agreement.

In 2006, we entered into an agreement with two parties, including one of the members of the Ohio Castings joint venture and an affiliate of one of the members of the Ohio Castings joint venture to purchase a minimum
of 60% of our wheel, bearing, coupler, yoke and knuckle requirements for the years 2007, 2008 and 2009.

In August 2005, the Company entered into an
employment agreement with its Chief Financial Officer (CFO). Under the terms of the agreement, the CFO will receive a one-time special cash bonus of $0.5 million on April 22, 2007. This bonus is recorded as called for in the agreement as the
Company issued its common stock to the public in an offering registered with the SEC.



90



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Note 17Common Stock, Mandatorily Redeemable Preferred Stock, Mandatorily Redeemable Payment-in-Kind Preferred
Stock, New Preferred Stock, Additional Paid in Capital and Shareholders Equity

In January 2001, ARI issued to ACF 15,000 shares of a new class of
mandatorily redeemable payment-in-kind preferred stock (PIK Preferred Stock) in exchange for $15.0 million in cash. In November 2001, ACF sold these 15,000 shares to an affiliated entity, Vegas Financial Corp. (Vegas)(an entity owned by
Mr. Icahn) for $15.0 million plus accrued dividends of $1.6 million. The PIK Preferred Stock is redeemable within 30 days after the full repayment of amounts outstanding under the senior secured credit facilities, but no earlier than
February 1, 2006. The PIK Preferred Stock provides for cumulative dividends at 12.5% per year on the liquidation price of $1,000 per share, payable in the form of additional shares of PIK Preferred Stock.

In 2001, 2002 and 2003, ARI issued additional shares of PIK Preferred Stock to Vegas in exchange for cash. In August 2001, ARI issued to Vegas 30,000 shares of PIK
Preferred Stock in exchange for cash of $30.0 million. In the second quarter of 2002, ARI issued 15,000 shares of PIK Preferred Stock in exchange for cash of $15.0 million. In the year ended December 31, 2003, ARI issued 10,000 shares of PIK
Preferred Stock in exchange for cash of $10.0 million.

On July 20, 2004, ARIs PIK Preferred Stock was converted into a new issue of preferred
stock (New Preferred Stock). As a result of this conversion, 95,517 shares of PIK Preferred Stock held by Vegas were converted into New Preferred Stock. Additionally, ARI issued Vegas 654 shares of New Preferred Stock in consideration for accrued
PIK Preferred dividends at the date of conversion. Vegas invested an additional $67.5 million in New Preferred Stock in exchange for cash on July 20, 2004.

On July 20, 2004, ACF transferred its ownership in ACF Lease Administrators, Inc. to ARI in exchange for 2,000 shares of New Preferred Stock. On the same date, ARI contributed its ownership in ACF Lease Administrators, Inc. to ARL in
exchange for 2,000 A Units of ARL.

On December 22, 2004, Shippers Second transferred its ownership in Shippers Third to ARI in exchange for 32,500
shares of ARI New Preferred Stock. On the same date, ARI contributed its ownership in Shippers Third to ARL in exchange for 32,500 A Units of ARL.

Included in other Additional Paid in Capital are amounts related to expenses paid by ACF for precapitalization liabilities under the 1994 asset transfer agreement and adjustments related to carryover basis differences.

The New Preferred Stock is entitled to cumulative dividends at the rate of 9.25% per annum, payable solely in cash on a semi-annual basis. Holders of the New
Preferred Stock are entitled to vote on matters submitted to the holders of shares of common stock based on a percentage of the combined number of shares of common stock and New Preferred Stock.

On July 20, 2004, ARI issued 1,818,976 shares of common stock to Hopper Investments LLC, an entity controlled by Mr. Icahn, in exchange for cash of $42.5
million.

On January 24, 2006, the Company completed the sale of 9,775,000 shares of common stock to the public pursuant to an effective registration
statement at a price of $21.00 per share. In connection with the offering, the Company redeemed all mandatorily redeemable preferred stock and new preferred stock, including accrued dividends of $11.9 million, for a total of $94.0 million.

In February 2006, the Board of Directors of the Company declared a cash dividend of $0.03 per share of common stock of the Company to shareholders of
record at the close of business on March 22, 2006. These dividends were paid on April 6, 2006.

In June 2006, the Board of Directors of the
Company declared a cash dividend of $0.03 per share of common stock of the Company to shareholders of record at the close of business on June 29, 2006. These dividends were paid on July 14, 2006.

In September 2006, the Board of Directors of the Company declared a cash dividend of $0.03 per share of common stock of the Company to shareholders of record at the
close of business on October 6, 2006. These dividends were paid on October 20, 2006.



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In December 2006, the Board of Directors of the Company declared a cash dividend of $0.03 per share of common stock of
the Company to shareholders of record at the close of business on January 8, 2007. Dividends of $0.6 million were accrued as of December 31, 2006. These dividends were paid on January 19, 2007.

Note 18Operating Segment and Sales/Credit Concentrations

We
operate in two segments: manufacturing operations and railcar services. Manufacturing operations consists of railcar manufacturing and railcar and industrial component manufacturing. Railcar services consist of railcar repair and refurbishment
services and fleet management services. ARI operates in two reportable segments: manufacturing and railcar services. The accounting policies of the segments are the same as those described in Note 2. Performance is evaluated based on revenue and
operating profit. Intersegment sales and transfers are accounted for as if sales or transfers were to third parties.

The information in the following
table is derived from the segments internal financial reports used for corporate management purposes.



|                                               |  |                          |          |   |                  |   |         |                       |  |   |              |   |  |        |        |   |  |   |         |  
|---------------------------------------------- |  | ------------------------ | -------- | - | ---------------- | - | ------- | --------------------- |  | - | ------------ | - |  | ------ | ------ | - |  | - | ------- | -
|As of and for the year ended December 31, 2004 |  | Manufacturing Operations |          |   | Railcar Services |   |         | Corporate & all other |  |   | Eliminations |   |  | Totals |       
|                                               |  | (in thousands)           |         
|Revenues from external customers               |  | $                        | 316,432  |   |                  | $ | 38,624  |                       |  | $ |             |   |  | $      |       |   |  | $ | 355,056 |  
|Intersegment revenues                          |  |                          | 2,574    |   |                  |   | 3,003   |                       |  |   |             |   |  |        | (5,577 | ) |  |   |        |  
|Cost of goods sold - external customers        |  |                          | (306,283 | ) |                  |   | (34,473 | )                     |  |   |             |   |  |        |       |   |  |   | 340,756 |  
|Cost of intersegment sales                     |  |                          | (2,307   | ) |                  |   | (2,527  | )                     |  |   |             |   |  |        | 4,834  |   |  |   |        |  
|                                               |  |                          |          |   |                  |   |         |                       |  |   |              |   |  |        |        |   |  |   |         |  
|Gross profit                                   |  |                          | 10,416   |   |                  |   | 4,627   |                       |  |   |             |   |  |        | (743   | ) |  |   | 14,300  |  
|Selling, administration and other              |  |                          | (4,210   | ) |                  |   | (2,225  | )                     |  |   | (3,899       | ) |  |        |       |   |  |   | (10,334 | )
|                                               |  |                          |          |   |                  |   |         |                       |  |   |              |   |  |        |        |   |  |   |         |  
|Earnings (loss) from operations                |  | $                        | 6,206    |   |                  | $ | 2,402   |                       |  | $ | (3,899       | ) |  | $      | (743   | ) |  | $ | 3,966   |  
|                                               |  |                          |          |   |                  |   |         |                       |  |   |              |   |  |        |        |   |  |   |         |  
|Total assets                                   |  | $                        | 142,445  |   |                  | $ | 33,034  |                       |  | $ | 181,361      |   |  |        |       |   |  | $ | 356,840 |  
|Capital expenditures                           |  |                          | 11,062   |   |                  |   | 379     |                       |  |   |             |   |  |        |       |   |  |   | 11,441  |  
|Depreciation and amortization                  |  |                          | 3,955    |   |                  |   | 1,959   |                       |  |   | 333          |   |  |        |       |   |  |   | 6,247   |  



|                                               |  |                         |          |   |                 |   |         |                      |  |   |              |   |  |        |        |   |  |   |          |  
|---------------------------------------------- |  | ----------------------- | -------- | - | --------------- | - | ------- | -------------------- |  | - | ------------ | - |  | ------ | ------ | - |  | - | -------- | -
|As of and for the year ended December 31, 2005 |  | ManufacturingOperations |          |   | RailcarServices |   |         | Corporate& all other |  |   | Eliminations |   |  | Totals |       
|                                               |  | (in thousands)          |         
|Revenues from external customers               |  | $                       | 564,513  |   |                 | $ | 43,647  |                      |  | $ |             |   |  | $      |       |   |  | $ | 608,160  |  
|Intersegment revenues                          |  |                         | 1,762    |   |                 |   | 2,474   |                      |  |   |             |   |  |        | (4,236 | ) |  |   |         |  
|Cost of goods sold - external customers        |  |                         | (518,063 | ) |                 |   | (38,041 | )                    |  |   |             |   |  |        |       |   |  |   | (556,104 | )
|Cost of intersegment sales                     |  |                         | (1,522   | ) |                 |   | (1,917  | )                    |  |   |             |   |  |        | 3,439  |   |  |   |         |  
|                                               |  |                         |          |   |                 |   |         |                      |  |   |              |   |  |        |        |   |  |   |          |  
|Gross profit                                   |  |                         | 46,690   |   |                 |   | 6,163   |                      |  |   |             |   |  |        | (797   | ) |  |   | 52,056   |  
|Selling, administration and other              |  |                         | (5,502   | ) |                 |   | (1,981  | )                    |  |   | (17,871      | ) |  |        |       |   |  |   | (25,354  | )
|                                               |  |                         |          |   |                 |   |         |                      |  |   |              |   |  |        |        |   |  |   |          |  
|Earnings (loss) from operations                |  | $                       | 41,188   |   |                 | $ | 4,182   |                      |  | $ | (17,871      | ) |  | $      | (797   | ) |  | $ | 26,702   |  
|                                               |  |                         |          |   |                 |   |         |                      |  |   |              |   |  |        |        |   |  |   |          |  
|Total assets                                   |  | $                       | 185,652  |   |                 | $ | 34,171  |                      |  | $ | 48,757       |   |  | $      |       |   |  | $ | 268,580  |  
|Capital expenditures                           |  |                         | 21,693   |   |                 |   | 686     |                      |  |   | 462          |   |  |        |       |   |  |   | 22,841   |  
|Depreciation and amortization                  |  |                         | 4,773    |   |                 |   | 2,011   |                      |  |   | 23           |   |  |        |       |   |  |   | 6,807    |  



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|                                               |  |                          |          |   |                  |   |         |                      |  |   |              |   |  |        |        |   |  |   |          |  
|---------------------------------------------- |  | ------------------------ | -------- | - | ---------------- | - | ------- | -------------------- |  | - | ------------ | - |  | ------ | ------ | - |  | - | -------- | -
|As of and for the year ended December 31, 2006 |  | Manufacturing Operations |          |   | Railcar Services |   |         | Corporate& all other |  |   | Eliminations |   |  | Totals |       
|                                               |  | (in thousands)           |         
|Revenues from external customers               |  | $                        | 597,913  |   |                  | $ | 48,139  |                      |  | $ |             |   |  | $      |       |   |  | $ | 646,052  |  
|Intersegment revenues                          |  |                          | 1,854    |   |                  |   | 1,362   |                      |  |   |             |   |  |        | (3,216 | ) |  |   |         |  
|Cost of goods sold - external customers        |  |                          | (537,344 | ) |                  |   | (38,020 | )                    |  |   |             |   |  |        |       |   |  |   | (575,364 | )
|Cost of intersegment sales                     |  |                          | (1,946   | ) |                  |   | (1,033  | )                    |  |   |             |   |  |        | 2,979  |   |  |   |         |  
|                                               |  |                          |          |   |                  |   |         |                      |  |   |              |   |  |        |        |   |  |   |          |  
|Gross profit                                   |  |                          | 60,477   |   |                  |   | 10,448  |                      |  |   |             |   |  |        | (237   | ) |  |   | 70,688   |  
|Selling, administration and other              |  |                          | (5,990   | ) |                  |   | (1,845  | )                    |  |   | (12,638      | ) |  |        |       |   |  |   | (20,473  | )
|Income related to insurance recoveries, net    |  |                          | 9,946    |   |                  |   |        |                      |  |   |             |   |  |        |       |   |  |   | 9,946    |  
|Gain on asset conversion, net                  |  |                          | 4,323    |   |                  |   |        |                      |  |   |             |   |  |        |       |   |  |   | 4,323    |  
|Stock based compensation                       |  |                          |         |   |                  |   |        |                      |  |   | (7,926       | ) |  |        |       |   |  |   | (7,926   | )
|                                               |  |                          |          |   |                  |   |         |                      |  |   |              |   |  |        |        |   |  |   |          |  
|Earnings (loss) from operations                |  | $                        | 68,756   |   |                  | $ | 8,603   |                      |  | $ | (20,564      | ) |  | $      | (237   | ) |  | $ | 56,558   |  
|                                               |  |                          |          |   |                  |   |         |                      |  |   |              |   |  |        |        |   |  |   |          |  
|Total assets                                   |  | $                        | 255,169  |   |                  | $ | 33,764  |                      |  | $ | 49,993       |   |  | $      |       |   |  | $ | 338,926  |  
|Capital expenditures                           |  |                          | 43,415   |   |                  |   | 1,318   |                      |  |   | 183          |   |  |        |       |   |  |   | 44,916   |  
|Depreciation and amortization                  |  |                          | 8,747    |   |                  |   | 1,905   |                      |  |   | 149          |   |  |        |       |   |  |   | 10,801   |  

Manufacturing operations

Revenues from affiliates were 18%, 8% and 8% of total consolidated revenues for the years ended December 31, 2004, 2005 and 2006, respectively.

Revenues from one significant customer totaled 20%, 20% and 41% of total consolidated revenues for the years ended December 31, 2004, 2005 and 2006, respectively. Revenues from two significant customers were 36%,
32% and 49% of total consolidated revenues for the years ended December 31, 2004, 2005 and 2006, respectively.

Receivables from one significant
customer were 21% and 10% of total consolidated accounts receivable at December 31, 2005 and 2006, respectively. Receivables from two significant customers were 21% and 19% of total consolidated accounts receivable at December 31, 2005 and
2006, respectively.

Railcar services

Revenues from
affiliates were 5%, 3% and 3% of total consolidated revenues for the years ended December 31, 2004, 2005 and 2006, respectively. No single customer for railcar services accounted for more than 10% of total consolidated revenue for the years
ended December 31, 2004, 2005 and 2006. No single customer for railcar services accounted for more than 10% of total consolidated receivables for the years ended December 31, 2005 and 2006.



93



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Note 19Selected Quarterly Financial Data (unaudited)



|                                                     |  |                                       |         |   |               |   |              |  |               |         |  |              |         |   |  |   |        
|---------------------------------------------------- |  | ------------------------------------- | ------- | - | ------------- | - | ------------ |  | ------------- | ------- |  | ------------ | ------- | - |  | - | -------
|                                                     |  | Firstquarter                          |         |   | Secondquarter |   | Thirdquarter |  | Fourthquarter |         |  | Year to Date
|                                                     |  | (in thousands, except per share data)
|2005                                                 |  |                                       |         |   |               |   |              |  |               |         |  |              |         |   |  |   |        
|Sales                                                |  | $                                     | 130,753 |   |               | $ | 160,890      |  | $             | 150,505 |  | $            | 166,012 |   |  | $ | 608,160
|Gross profit                                         |  |                                       | 6,490   |   |               |   | 15,662       |  |               | 15,277  |  |              | 14,627  |   |  |   | 52,056 
|Net earnings (loss) available to common shareholders |  |                                       | (1,983  | ) |               |   | 1,930        |  |               | 3,414   |  |              | (1,844  | ) |  |   | 1,517  
|                                                     |  |                                       |         |   |              
|Net earnings (loss) per common share, basic          |  | $                                     | (0.18   | ) |               | $ | 0.17         |  | $             | 0.31    |  | $            | (0.16   | ) |  | $ | 0.14   
|Net earnings (loss) per common share, diluted        |  | $                                     | (0.18   | ) |               | $ | 0.17         |  | $             | 0.31    |  | $            | (0.16   | ) |  | $ | 0.14   



|                                              |  |                                       |         |               |   |              |  |               |         |              |   |         |  |   |        
|--------------------------------------------- |  | ------------------------------------- | ------- | ------------- | - | ------------ |  | ------------- | ------- | ------------ | - | ------- |  | - | -------
|                                              |  | Firstquarter                          |         | Secondquarter |   | Thirdquarter |  | Fourthquarter |         | Year to Date
|                                              |  | (in thousands, except per share data)
|2006                                          |  |                                       |         |               |   |              |  |               |         |              |   |         |  |   |        
|Sales                                         |  | $                                     | 178,729 |               | $ | 151,550      |  | $             | 150,454 |              | $ | 165,319 |  | $ | 646,052
|Gross profit                                  |  |                                       | 20,260  |               |   | 17,985       |  |               | 15,725  |              |   | 16,718  |  |   | 70,688 
|Net earnings available to common shareholders |  |                                       | 6,693   |               |   | 10,821       |  |               | 10,994  |              |   | 6,128   |  |   | 34,636 
|Net earnings per common share basic           |  | $                                     | 0.35    |               | $ | 0.51         |  | $             | 0.52    |              | $ | 0.29    |  | $ | 1.68   
|Net earnings per common share, diluted        |  | $                                     | 0.35    |               | $ | 0.51         |  | $             | 0.52    |              | $ | 0.29    |  | $ | 1.67   

Note 20Supplemental Cash Flow Information

ARI received interest income of $4.4 million, $1.4 million and $1.5 million for the years ended December 31, 2004, 2005 and 2006, respectively.

ARI paid interest expense of $1.8 million, $3.0 million and $3.8 million for the years ended December 31, 2004, 2005 and 2006, respectively.

ARI paid taxes of $0.2 million, $2.0 million and $23.4 million for the years ended December 31, 2004, 2005 and 2006, respectively.

During the year ended December 31, 2004, ARI recorded a non-cash charge to additional paid-in-capital of $26.7 million, representing the excess of the book value of
its investment in ARL over fair market value on the date of the transfer of the investment in ARL to its affiliates. The 2005 financial statements reflect a reduction of New Preferred Stock of $29.6 million plus accrued dividends of $5.4 million to
eliminate the additional investment of $35 million made in that period. In addition, $12.5 million representing certain tax benefits that ARI received as a result of utilizing ARLs previously incurred tax losses is also being recorded through
additional paid-in-capital as ARI will receive the benefit of these tax losses in the future. The net non-cash effect of these transactions was a charge to additional paid-in-capital of $14.1 million (see Note 1).

In January 2005, ARI exchanged the $165.0 million secured note with Mr. Icahn to ARL in satisfaction of the $130.0 million note owed to ARL plus $35.0 million of
common interest in ARL.

In the year ended December 31, 2006, the Company incurred stock based compensation expense of $5.7 million in connection with
the initial public offering for the issuance of restricted shares of common stock to the Companys Chief Executive Officer. The Companys stock option expense for the year ended December 31, 2006 was $2.4 million.

In January 2006, in connection with the initial public offering, the Company incurred compensation expense of $0.5 million related to a bonus for one of our senior
officers that is payable in 2007.

During 2006, the Board of Directors declared a common stock dividend each quarter of $0.03 per share to shareholders.



94



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Note 21Stock Split

On December 23, 2005, ARIs board of directors approved the reincorporation of ARI from Missouri to Delaware in connection with its initial public offering, which was completed on January 24, 2006 (see Note 3). To accomplish
this reincorporation, the board approved a merger of ARI, immediately prior to the closing of the offering, with and into ARIs wholly owned subsidiary, American Railcar Industries, Inc., a Delaware corporation incorporated on November 16,
2005 by ARI for this purpose. As a part of this merger, ARI exchanged all of its shares of common stock for shares of the subsidiarys common stock on a 9,328.083-for-1 basis. In addition, ARI exchanged all of its new preferred stock for shares
of the subsidiarys new preferred stock on a 1-for-1 basis. The subsidiary survived the merger and was named American Railcar Industries, Inc. All references to common stock amounts, shares and per share data included in the financial
statements and related notes have been adjusted to give retroactive effect to the stock split.

Note 22Subsequent Events

On February 12, 2007, the Board of Directors of the Company declared a cash dividend of $0.03 per share of common stock of the Company to shareholders of record at the
close of business of March 22, 2007. These dividends are payable on April 6, 2007.

On February 12, 2007 the Company entered into a second amendment to its
revolving credit facility, as amended. As further amended, the revolving credit facility provides that, when excess availability under the revolving credit facility is less than $30.0 million (or has been less than $30.0 million at any time during
the prior 90 days), the payment of dividends triggers a demand right in favor of the administrative agent and the Companys lenders to accelerate all of the Companys obligations under the revolving credit facility, as amended, unless the
payment would not cause the adjusted fixed charge coverage ratio (fixed charges, pursuant to the amended and restated revolving credit facility, include any dividends paid or payable on the Companys common stock) to be less than 1.2 to 1.0 or
the adjusted ratio of indebtedness to earnings before interest, taxes, depreciation and amortization, after giving effect to any debt incurred to pay any such dividend, to be greater than 4.0 to 1.0, each on a quarterly and/or annual basis, as
defined in the revolving credit facility, as amended.



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Item 15: Exhibits and Financial Statement Schedules

(a) (1) Financial Statements.

See Item 8.

(2) Exhibits

See Index to Exhibits for a listing of Exhibits, which are filed herewith or incorporated herein by reference to the location indicated.



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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this report on Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized.



|                        |  |                                   |  |                                                  
|----------------------- |  | --------------------------------- |  | -------------------------------------------------
|                        |  | American Railcar Industries, Inc.
|                        |  |                                  
|Date: February 15, 2007 |  | By:                               |  | /s/ William P. Benac                             
|                        |  | Name:                             |  | William P. Benac                                 
|                        |  | Title:                            |  | Senior Vice President and Chief Financial Officer





112



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Exhibit index



|            |  |                                                                                                                         
|----------- |  | ------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                  
|            | 
|31.1        |  | Rule 13a-15(e) and 15d-15(e) Certification of the Chief Executive Officer.*                                             
|            | 
|31.2        |  | Rule 13a-15(e) and 15d-15(e) Certification of the Chief Financial Officer.*                                             
|            | 
|32.1        |  | Certification pursuant to 18U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

---

|* | Filed herewith
|- | --------------