American Railcar Industries, Inc.
Feb 24, 2017

American Railcar Industries, Inc. Reports Results for 2016

2016 Highlights

ST. CHARLES, Mo., Feb. 24, 2017 (GLOBE NEWSWIRE) -- American Railcar Industries, Inc. (ARI or the Company) (NASDAQ:ARII) today reported its fourth quarter and full year 2016 financial results. Jeff Hollister, President and CEO of ARI, commented, "As we navigate through this current down cycle, we rely on revenues from our lease fleet and railcar services business to partially offset the softness in the market for new railcars.  Given the strategic growth of our railcar leasing segment over the past five years, we are better positioned to weather the current market than we were during the previous downturn as we now have a lease fleet of 11,268 railcars that provide a steady stream of revenues. We remain committed to manufacturing quality hopper and tank railcars and continue to adjust our production rates as needed in an effort to align them with industry demand. In addition, we continue to monitor the FRA directive closely. After actively cooperating with the FRA and expressing our concerns with the Original Directive issued on September 30, 2016, the FRA issued a Revised Directive on November 18, 2016 that both changes and supersedes the Original Directive. While significant uncertainty in the industry still exists in connection with the Revised Directive and its implementation, we continue working with the FRA, our customers and industry groups to comply with the Revised Directive, as it is currently stated."

Fourth Quarter Revenue Summary

Total consolidated revenues were $167.5 million for the fourth quarter of 2016, a decrease of 36% when compared to $260.9 million for the same period in 2015. This decrease was due to decreased revenues in the manufacturing segment, partially offset by increased revenues in the railcar leasing and railcar services segments.

Manufacturing revenues were $114.9 million for the fourth quarter of 2016, a decrease of 45% compared to the same period in 2015.  This decrease was primarily driven by the impact of fewer railcar shipments for direct sale with a higher mix of hopper railcars sold. Given the decrease in both hopper and tank railcar demand and a shift in production to a larger mix of specialty railcars, railcar shipments have decreased while average selling prices have increased.

During the fourth quarter of 2016, ARI shipped 1,005 direct sale railcars and 307 railcars built for the Company's lease fleet, compared to 1,885 direct sale railcars and 45 railcars built for the lease fleet during the same period in 2015.  Railcars built for the lease fleet represented 23% of ARI's railcar shipments during the fourth quarter of 2016 compared to 2% for the same period in 2015.  Because revenues and earnings related to leased railcars are recognized over the life of the lease, ARI's quarterly results may vary depending on the mix of lease versus direct sale railcars that the Company ships during a given period.

Manufacturing revenues for the fourth quarter of 2016 exclude $30.8 million of estimated revenues related to a higher volume of specialty railcars built for the Company's lease fleet compared to $5.4 million for the same period in 2015.  Estimated revenues related to railcars built for the Company's lease fleet increased due to a higher quantity of railcars built for the lease fleet during the fourth quarter of 2016 compared to the same period in 2015.  Such revenues are based on an estimated fair market value of the leased railcars as if they had been sold to a third party, and are not recognized in consolidated revenues as railcar sales. Rather lease revenues are recognized in accordance with the terms of the contract over the life of the lease.

Railcar leasing revenues were $33.5 million for the fourth quarter of 2016, an increase of 2% compared to the $32.7 million for the same period in 2015. The primary reason for the increase in revenue was an increase in the number of railcars on lease, partially offset by a slight decline in weighted average lease rates compared to the same period in 2015. ARI had 11,268 railcars in its lease fleet at the end of 2016 compared to 10,362 railcars in its lease fleet at the end of 2015.

Railcar services revenues for the fourth quarter of 2016 were $19.1 million, an increase of 8% over the $17.7 million for the same period in 2015. The primary reason for the increase in revenue was an increase in customer demand and volume associated with additional capacity resulting from the Company's expansion projects in its repair network that became operational and continued to ramp up in 2016.

Fourth Quarter Earnings Summary

Consolidated earnings from operations were $37.4 million for the fourth quarter of 2016, a decrease of 39% over $61.6 million for the same period in 2015. Consolidated operating margins decreased to 22.3% for the fourth quarter of 2016 compared to 23.6% for the same period in 2015. These decreases were primarily driven by lower earnings from operations in the Company's manufacturing segment.

Manufacturing earnings from operations were $19.5 million for the fourth quarter of 2016, compared to $42.4 million for the same period in 2015. This decrease was due to fewer overall railcar shipments for direct sale, as discussed above, more competitive pricing on both hopper and tank railcars and higher costs associated with the lower production rates at the Company's tank railcar facility. As the Company adjusts its production schedules and output of new tank railcars, it continues to monitor and control overhead spending and employee levels. Estimated profit on railcars built for the Company's lease fleet was $1.8 million and $3.3 million for the fourth quarter of 2016 and 2015, respectively, and is excluded from manufacturing earnings from operations.  Profit on railcars built for the Company's lease fleet is based on an estimated fair market value of revenues as if the railcars had been sold to a third party, less the cost to manufacture. Partially offsetting this decrease was a reduction of the loss contingency established as of September 30, 2016 of $17.0 million to $12.3 million as of December 31, 2016, for a total reduction of expense of $4.7 million, resulting in an increase to earnings per share of $0.17. This reduction in the loss contingency primarily reflects the changes made by the FRA from the Original Directive to the Revised Directive that reduced the number of railcars that are currently required to be inspected and repaired, if necessary.

Railcar leasing earnings from operations were $22.5 million for the fourth quarter of 2016 compared to $22.9 million for the same period in 2015.  This decrease was due to a slight decline in weighted average lease rates compared to 2015, partially offset by an increase in the number of railcars on lease.

Railcar services earnings from operations were $2.1 million for the fourth quarter of 2016 compared to $3.3 million for the same period in 2015.  This decrease was primarily due to an unfavorable change in the mix of work at our repair facilities during the fourth quarter of 2016, partially offset by an increase in demand and volume, as discussed above.

Selling, general and administrative expenses were $10.5 million for the fourth quarter of 2016 compared to $10.1 million for the same period in 2015. This $0.4 million increase was primarily due to increased incentive compensation expense, partially offset by lower costs for consulting and bad debt expenses.

Net earnings for the fourth quarter of 2016 were $22.3 million, or $1.16 per share, compared to $36.2 million, or $1.82 per share, in the same period of 2015. This decrease was driven primarily by decreased consolidated earnings from operations, partially offset by a reduction in the effective tax rate during the fourth quarter of 2016, resulting in an increase to earnings per share of $0.11.

EBITDA, adjusted to exclude share-based compensation and other income related to short-term investment activity (Adjusted EBITDA), was $51.8 million for the fourth quarter of 2016 compared to $75.8 million for the comparable quarter of 2015. The decrease was primarily driven by decreased earnings from operations as discussed above.  A reconciliation of the Company's net earnings to EBITDA and Adjusted EBITDA (both non-GAAP financial measures) is set forth in the supplemental disclosure attached to this press release.

Full Year 2016 Results

Consolidated revenues for 2016 were $639.1 million compared to $889.3 million in 2015.  The Company shipped 3,922 railcars for direct sale and 914 railcars for lease in 2016 compared to 6,270 railcars for direct sale and 2,633 railcars for lease in 2015. Railcars built for the lease fleet represented 19% of ARI's railcar shipments in 2016 compared to 30% in 2015.

Consolidated earnings from operations for 2016 were $130.1 million, a decrease of 43% from $226.7 million in 2015. Consolidated earnings from operations for 2016 and 2015 excluded $9.5 million and $87.7 million, respectively, of profit on railcars built for the lease fleet that is eliminated in consolidation. Consolidated operating margins were 20.4% in 2016 compared to 25.5% in 2015.  These decreases were primarily due to fewer overall direct sale shipments, with a higher mix of more hopper railcars in 2016, which generally have lower margins than tank railcars, combined with higher costs associated with the lower volumes of tank railcars.  Also contributing to these decreases was the loss contingency recognized during 2016 of $12.3 million related to the Revised Directive, as discussed above, partially offset by increased earnings due to the growth in the railcar lease fleet.

Selling, general and administrative expenses were $32.3 million in 2016 compared to $30.9 million in 2015. This $1.5 million increase was primarily due to increased consulting expenses and higher depreciation, partially offset by lower bad debt and incentive compensation expense.

Net earnings in 2016 were $72.7 million, or $3.74 per share, compared to $133.5 million, or $6.39 per share in 2015 due to decreased earnings from operations and a $0.9 million decrease in earnings from joint ventures as demand for the components our joint ventures produce is primarily tied to the industry's new railcar demand.

Adjusted EBITDA was $188.0 million in 2016, a decrease of 33% from $278.9 million in 2015.  The decrease was primarily driven by decreased consolidated earnings from operations, in addition to the decrease in earnings from joint ventures for 2016 compared to 2015.

Cash Flow and Liquidity

The Company's earnings have contributed to cash flow from operations of $180.5 million in 2016. As of December 31, 2016, ARI had working capital of $239.6 million, including $178.6 million of cash and cash equivalents.

As of December 31, 2016, the Company had $571.0 million of debt outstanding, net of unamortized debt issuance costs of $4.9 million, and borrowing availability of $200.0 million under a revolving loan.

The Company paid dividends totaling $31.0 million during 2016.  At the board meeting in February, the Company's board of directors declared a cash dividend of $0.40 per share of common stock of the Company to shareholders of record as of March 17, 2017 that will be paid on March 24, 2017.

The Company repurchased $28.6 million of shares of our common stock under its stock repurchase program during 2016.  Board authorization for approximately $164.0 million remains available for further share repurchases. 

Backlog

ARI's backlog as of December 31, 2016 was 3,813 railcars, with an estimated market value of $350.5 million. Of the total backlog, 1,637 railcars, or 43%, were subject to lease with an estimated market value of $152.2 million.

Conference Call and Webcast

ARI will host a webcast and conference call on Friday, February 24, 2017 at 10:00 am (Eastern Time) to discuss the Company's fourth quarter 2016 financial results. In conjunction with this press release, ARI has posted a supplemental information presentation to its website. To participate in the webcast, please log-on to ARI's investor relations page through the ARI website at americanrailcar.com. To participate in the conference call, please dial 877-745-9389. Participants are asked to log-on to the ARI website or dial in to the conference call approximately 10 to 15 minutes prior to the start time. An audio replay of the call will also be available on the Company's website promptly following the earnings call.

About ARI

ARI is a prominent North American designer and manufacturer of hopper and tank railcars. ARI provides its railcar customers with integrated solutions through a comprehensive set of high quality products and related services. ARI manufactures and sells railcars, custom designed railcar parts, and other industrial products. ARI and its subsidiaries also lease railcars manufactured by the Company to certain markets. In addition, ARI and its subsidiaries provide railcar repair services through its various repair facilities, including mini-shops and mobile units, offering a range of services from full to light repair.

More information about American Railcar Industries, Inc. is available on its website at americanrailcar.com or call the Investor Relations Department, 636.940.6000.

Forward Looking Statement Disclaimer

This press release contains statements relating to the Company's response to governmental directives, expected financial performance, objectives, long-term strategies and/or future business prospects, events and plans that are forward-looking statements. Forward-looking statements represent the Company's estimates and assumptions only as of the date of this press release. Such statements include, without limitation, statements regarding: various estimates we have made in preparing our financial statements, our plans, and the industry's ability, to address the Federal Railroad Administration (FRA) directive released September 30, 2016 and subsequently revised and superseded on November 18, 2016 (Directive), our plans to manage our own lease fleet and terminate our contractual agreements with ARL, expected future trends relating to our industry, products and markets, the potential impact of regulatory developments, including developments related to the Directive, anticipated customer demand for our products and services, trends relating to our shipments, leasing business, railcar services and revenues, trends related to shipments for direct sale versus lease, our strategic objectives and long-term strategies, our results of operations, financial condition and the sufficiency of our capital resources, our projects to expand our manufacturing flexibility and repair capacity, our capital expenditure plans, short- and long-term liquidity needs, ability to service our current debt obligations and future financing plans, our Stock Repurchase Program, anticipated benefits regarding the growth of our leasing business, the mix of railcars in our lease fleet and our lease fleet financings, anticipated production schedules for our products and the anticipated production schedules of our joint ventures, our backlog, our plans regarding future dividends and the anticipated performance and capital requirements of our joint ventures. These forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those anticipated. Investors should not place undue reliance on forward-looking statements, which speak only as of the date they are made and are not guarantees of future performance.  The payment of future dividends, if any, and the amount thereof, will be at the discretion of ARI's board of directors and will depend upon the Company's operating results, strategic plans, capital requirements, financial condition, provisions of its borrowing arrangements, applicable law and other factors the Company's board of directors considers relevant.  Other potential risks and uncertainties that could adversely affect our business and prospects include without limitation: our prospects in light of the cyclical nature of our business; the health of and prospects for the overall railcar industry; risks relating to our compliance with the Directive, any developments related to the Directive and any costs or loss of revenue related thereto; risks relating to transitioning our management of our railcar leasing business from ARL and managing our lease fleet leading up to and after the ARL Sale; fluctuations in commodity prices, including oil and gas; the risk of being unable to market or remarket railcars for sale or lease at favorable prices or on favorable terms or at all; the impact, costs and expenses of any warranty claims we may be subject to now or in the future; the highly competitive nature of the manufacturing, railcar leasing and railcar services industries; the variable purchase patterns of our railcar customers and the timing of completion, customer acceptance and shipment of orders, as well as the mix of railcars for lease versus direct sale; risks relating to our compliance with, and the overall railcar industry's implementation of, United States and Canadian regulations related to the transportation of flammable liquids by rail; our ability to manage overhead and variations in production rates; our ability to recruit, retain and train qualified personnel; the impact of any economic downturn, adverse market conditions or restricted credit markets; our reliance upon a small number of customers that represent a large percentage of our revenues and backlog; fluctuations in the costs of raw materials, including steel and railcar components, and delays in the delivery of such raw materials and components; fluctuations in the supply of components and raw materials we use in railcar manufacturing; the ongoing risks related to our relationship with Mr. Carl Icahn, our principal beneficial stockholder through Icahn Enterprises L.P. (IELP), and certain of his affiliates; the risks associated with ongoing compliance with environmental, health, safety, and regulatory laws and regulations, which may be subject to change; the impact, costs and expenses of any litigation we may be subject to now or in the future; the sufficiency of our liquidity and capital resources, including long-term capital needs to support the growth of our lease fleet; the impact of repurchases pursuant to our Stock Repurchase Program on our current liquidity and the ownership percentage of our principal beneficial stockholder through IELP, Mr. Carl Icahn; the risks associated with our current joint ventures and anticipated capital needs of, and production capabilities at our joint ventures; the conversion of our railcar backlog into revenues equal to our reported estimated backlog value; the risks and impact associated with any potential joint ventures, acquisitions, strategic opportunities or new business endeavors; the integration with other systems and ongoing management of our new enterprise resource planning system; the risks related to our and our subsidiaries' indebtedness and compliance with covenants contained in our and our subsidiaries' financing arrangements and the additional risk factors described in ARI's filings with the Securities and Exchange Commission. The Company expressly disclaims any duty to provide updates to any forward-looking statements made in this press release, whether as a result of new information, future events or otherwise.

 
AMERICAN RAILCAR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
 
 December 31,
 2016
 December 31,
 2015
 (unaudited)  
Assets   
Current assets:   
Cash and cash equivalents$178,571  $298,064 
Restricted cash16,714  16,917 
Short-term investments—available for sale securities8,958   
Accounts receivable, net39,727  29,018 
Accounts receivable, due from related parties4,790  9,401 
Inventories, net75,028  96,965 
Prepaid expenses and other current assets8,623  7,116 
    Total current assets332,411  457,481 
Property, plant and equipment, net177,051  176,311 
Railcars on leases, net908,010  848,717 
Goodwill7,169  7,169 
Investment in and loans to joint ventures26,332  27,397 
Other assets5,277  7,999 
   Total assets$1,456,250  $1,525,074 
Liabilities and Stockholders' Equity   
Current liabilities:    
Accounts payable29,314  36,080 
Accounts payable, due to related parties3,252  4,477 
Accrued expenses, including loss contingency of $10,127 and $0 at December 31, 2016 and 2015, respectively15,411  5,880 
Accrued income taxes payable7,660  464 
Accrued compensation11,628  11,459 
Short-term debt, including current portion of long-term debt25,588  125,784 
    Total current liabilities92,853  184,144 
Long-term debt, net of unamortized debt issuance costs of $4,863 and $5,081 as of December 31, 2016 and 2015, respectively545,392  570,756 
Deferred tax liability, net252,943  222,338 
Pension and post-retirement liabilities8,648  8,484 
Other liabilities, including loss contingency of $2,161 and $0 at December 31, 2016 and 2015, respectively6,144  3,055 
    Total liabilities905,980   988,777 
Stockholders' equity:   
Common stock, $0.01 par value, 50,000,000 shares authorized, 19,083,878 and 19,844,531 shares outstanding at December 31, 2016 and 2015, respectively213   213 
Additional paid-in capital239,609  239,609 
Retained earnings402,810  361,153 
Accumulated other comprehensive loss(6,331) (7,255)
Treasury stock(86,031) (57,423)
 Total stockholders' equity550,270  536,297 
 Total liabilities and stockholders' equity$1,456,250  $1,525,074 


 
AMERICAN RAILCAR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
 
 Three Months Ended
 December 31,
 Twelve Months Ended
 December 31,
 2016 2015 2016 2015
Revenues:       
Manufacturing (including revenues from affiliates of $21 and $837 for the three and twelve months ended December 31, 2016, respectively, and $52,114 and $269,563 for the same periods in 2015)$114,888  $210,451  $429,774  $700,061 
Railcar leasing33,470  32,739   132,245  116,714 
Railcar services (including revenues from affiliates of $5,605 and $26,781 for the three and twelve months ended December 31, 2016, respectively, and $6,692 and $24,880 for the same periods in 2015)19,149  17,705  77,114  72,561 
Total revenues167,507   260,895  639,133  889,336 
Cost of revenues:       
Manufacturing(97,366) (165,756) (360,755) (539,136)
Other operating gain (loss)4,685    (12,288)  
Railcar leasing(10,624) (9,753) (41,732) (36,161)
Railcar services(16,390) (13,641) (62,178) (56,492)
Total cost of revenues(119,695) (189,150) (476,953) (631,789)
    Gross profit47,812  71,745   162,180  257,547 
Selling, general and administrative(10,506) (10,102) (32,343) (30,866)
Net gains on disposition of leased railcars47    272  25 
Earnings from operations37,353  61,643  130,109  226,706 
Interest income (including income from related parties of $375 and $1,663 for the three and twelve months ended December 31, 2016, respectively, and $490 and $2,105 for the same periods in 2015)425  509  1,785  2,164 
Interest expense(5,587) (5,724) (22,803) (21,801)
Loss on debt extinguishment      (2,126)
Other income (loss)127  (25) 185  (11)
Earnings from joint ventures366  472  4,924  5,812  
Earnings before income taxes32,684  56,875  114,200  210,744 
Income tax expense(10,398) (20,724) (41,537) (77,291)
Net earnings$22,286  $36,151  $72,663   $133,453 
Net earnings per common share—basic and diluted$1.16  $1.82   $3.74  $6.39 
Weighted average common shares outstanding—basic and diluted19,186  19,848  19,439  20,883 
Cash dividends declared per common share$0.40  $0.40  $1.60  $1.60 


 
AMERICAN RAILCAR INDUSTRIES, INC. AND SUBSIDIARIES
SEGMENT DATA
(In thousands, unaudited)
 
 Three Months Ended December 31, 2016
 Revenues  
 External Intersegment Total Earnings (Loss)
from Operations
 (in thousands)
Manufacturing$114,888  $30,978  $145,866  $21,285 
Railcar leasing33,470    33,470  19,852 
Railcar services19,149  72  19,221  2,057 
Corporate      (6,651)
Eliminations   (31,050) (31,050) 810 
Total Consolidated$167,507  $  $167,507  $37,353 
        
 Three Months Ended December 31, 2015
 Revenues  
 External Intersegment Total Earnings (Loss)
from Operations
 (in thousands)
Manufacturing$210,451  $5,434  $215,885  $45,647 
Railcar leasing32,739    32,739  19,976 
Railcar services17,705  1,098  18,803  3,694 
Corporate      (6,835)
Eliminations  (6,532) (6,532) (839)
Total Consolidated$260,895  $  $260,895  $61,643 
        
 Twelve Months Ended December 31, 2016
 Revenues  
 External Intersegment Total Earnings (Loss)
from Operations
 (in thousands)
Manufacturing$429,774  $ 95,159  $524,933  $56,736 
Railcar leasing132,245    132,245  79,084 
Railcar services77,114  1,807  78,921  11,421 
Corporate      (18,249)
Eliminations   (96,966) (96,966) 1,117 
Total Consolidated$639,133  $  $639,133  $130,109 
        
 Twelve Months Ended December 31, 2015
 Revenues  
 External Intersegment Total Earnings (Loss)
from Operations
 (in thousands)
Manufacturing$700,061  $319,399  $1,019,460  $240,891 
Railcar leasing116,714    116,714  70,344 
Railcar services 72,561  1,936  74,497  13,898 
Corporate      (18,779)
Eliminations  (321,335) (321,335) (79,648)
Total Consolidated$889,336  $  $889,336  $226,706 


 
AMERICAN RAILCAR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
  
 For the Years Ended December 31,
 2016 2015
Operating activities:   
Net earnings$72,663  $133,453 
Adjustments to reconcile net earnings to net cash provided by operating activities:   
Depreciation52,216  45,729 
Amortization of deferred costs506  393 
(Gain) loss on disposal of property, plant, equipment and leased railcars(63 ) 154 
Earnings from joint ventures(4,924) (5,812)
Provision for deferred income taxes30,139  61,644 
Item related to investing activities:   
Dividends received from short-term investments(107)  
Realized gains on short-term investments—available for sale securities(73)  
Item related to financing activities:   
Loss on debt extinguishment  2,126 
Changes in operating assets and liabilities:   
Accounts receivable, net(10,290)  4,465 
Accounts receivable, due from affiliates4,629  23,518 
Income taxes receivable1,244  30,899 
Inventories, net21,974  19,812 
Prepaid expenses and other current assets(2,553) 1,206 
Accounts payable(6,760) (32,630)
Accounts payable, due to related parties(1,225) 1,683 
Accrued expenses and taxes16,887
  (19,105)
Other6,240  (3,032)
Net cash provided by operating activities180,503  264,503 
Investing activities:   
Purchases of property, plant and equipment(23,068) (36,614)
Grant Proceeds75   
Capital expenditures—leased railcars(90,332) (211,646)
Proceeds from the sale of property, plant, equipment and leased railcars926  122 
Purchase of short-term investments—available for sale securities(8,750)  
Proceeds from the sale of short-term investments—available for sale securities504   
Proceeds from repayments of loans and distributions from joint ventures5,907   7,500 
Net cash used in investing activities(114,738) (240,638)
Financing activities:   
Repayments of short-term and long-term debt(125,783) (432,645)
Proceeds from short-term and long-term debt  725,306 
Change in interest reserve related to long-term debt204  (9,739)
Stock repurchases(28,608) (57,423)
Payment of common stock dividends(31,006) (33,243)
Debt issuance costs(13) (5,857)
Net cash provided by financing activities(185,206) 186,399 
Effect of exchange rate changes on cash and cash equivalents(52) (309)
(Decrease) increase in cash and cash equivalents(119,493) 209,955 
Cash and cash equivalents at beginning of year298,064  88,109 
Cash and cash equivalents at end of year$178,571  $298,064 


 
AMERICAN RAILCAR INDUSTRIES, INC. AND SUBSIDIARIES
RECONCILIATION OF NET EARNINGS TO EBITDA AND ADJUSTED EBITDA
(In thousands, unaudited)
 
 Three Months Ended
 December 31,
 Twelve Months Ended
 December 31,
 2016 2015 2016 2015
Net earnings$22,286  $36,151  $72,663  $133,453 
Income tax expense10,398  20,724  41,537  77,291 
Interest expense5,587  5,724  22,803  21,801 
Loss on debt extinguishment      2,126 
Interest income(425) (509) (1,785) (2,164)
Depreciation13,487  12,544  52,216  45,729 
EBITDA$51,333  $74,634  $187,434  $278,236 
Expense related to stock appreciation rights compensation643   1,117  751  646 
Other income on short-term investment activity(180)   (180)  
Adjusted EBITDA$51,796  $75,751  $188,005  $278,882  
                

EBITDA represents net earnings before income tax expense, interest expense (income), loss on debt extinguishment and depreciation of property, plant and equipment. The Company believes EBITDA is useful to investors in evaluating ARI's operating performance compared to that of other companies in the same industry. In addition, ARI's management uses EBITDA to evaluate operating performance. The calculation of EBITDA eliminates the effects of financing, income taxes and the accounting effects of capital spending. These items may vary for different companies for reasons unrelated to the overall operating performance of a company's business. EBITDA is not a financial measure presented in accordance with U.S. generally accepted accounting principles (U.S. GAAP). Accordingly, when analyzing the Company's operating performance, investors should not consider EBITDA in isolation or as a substitute for net earnings, cash flows provided by operating activities or other statement of operations or cash flow data prepared in accordance with U.S. GAAP. The calculation of EBITDA is not necessarily comparable to that of other similarly titled measures reported by other companies.

Adjusted EBITDA represents EBITDA before share-based compensation expense related to stock appreciation rights (SARs) and other income related to our short-term investments. Management believes that Adjusted EBITDA is useful to investors in evaluating the Company's operating performance, and therefore uses Adjusted EBITDA for that purpose. The Company's SARs, which settle in cash, are revalued each period based primarily upon changes in ARI's stock price. Management believes that eliminating the expense associated with share-based compensation and income associated with short-term investments allows management and ARI's investors to understand better the operating results independent of financial changes caused by the fluctuating price and value of the Company's common stock and short-term investments. Adjusted EBITDA is not a financial measure presented in accordance with U.S. GAAP. Accordingly, when analyzing operating performance, investors should not consider Adjusted EBITDA in isolation or as a substitute for net earnings, cash flows provided by operating activities or other statements of operations or cash flow data prepared in accordance with U.S. GAAP. The Company's calculation of Adjusted EBITDA is not necessarily comparable to that of other similarly titled measures reported by other companies.

AMERICAN RAILCAR INDUSTRIES, INC.

100 Clark Street, St. Charles, Missouri 63301

americanrailcar.com

636.940.6000

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Source: American Railcar Industries, Inc.

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