American Railcar Industries, Inc.
American Railcar Industries, Inc. (Form: 8-K, Received: 10/31/2017 08:29:21)


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 31, 2017
 
 
  AMERICAN RAILCAR INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
 
 
North Dakota
 
000-51728
 
43-1481791
(State or other jurisdiction
 
(Commission
 
(IRS Employer
of incorporation)
 
File Number)
 
Identification No.)
 
100 Clark Street
 
 
St. Charles, Missouri
 
63301
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (636) 940-6000
N/A
(Former name or former address, if changed since last report.)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2):
q
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
q
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
q
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
q
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



 






Item 2.02 Results of Operations and Financial Condition.
On October 31, 2017 , American Railcar Industries, Inc. (“ARI” or the “Company”) issued a press release announcing its financial results for the third quarter ended September 30, 2017 . A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein in its entirety by reference. In conjunction with the press release, ARI has posted a supplemental information presentation to its website (americanrailcar.com) and a copy of the presentation is attached hereto as Exhibit 99.2 and is incorporated herein in its entirety by reference.
Limitation on Incorporation by Reference.  The information furnished in this Item 2.02, including the press release attached hereto as Exhibit 99.1 and the presentation attached hereto as Exhibit 99.2, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (the Securities Act), or the Exchange Act, except as expressly set forth by specific reference in such a filing.
Cautionary Note Regarding Forward-Looking Statements. Except for historical information contained in the press release and presentation attached as Exhibits 99.1 and 99.2 hereto, the press release and presentation contain forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these statements. Please refer to the cautionary notes in the press release and presentation, respectively, regarding these forward-looking statements.
Item 9.01 Financial Statements and Exhibits.
(d)
Exhibits
 
 
 
Exhibit Number
  
Description
 
 
Exhibit 99.1
  
Press release dated October 31, 2017 of American Railcar Industries, Inc. announcing financial results for the third quarter of 2017
Exhibit 99.2
 
Supplemental Information Presentation for the period ended September 30, 2017





SIGNATURE
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.  
Date: October 31, 2017
 
 
American Railcar Industries, Inc.
 
 
 
 
 
By:
/s/ Luke M. Williams
 
 
Name:
Luke M. Williams
 
 
Title:
Senior Vice President, Chief Financial Officer and Treasurer






Exhibit Number
  
Description
 
 
  
Press release dated October 31, 2017 of American Railcar Industries, Inc. announcing financial results for the third quarter of 2017
 
Supplemental Information Presentation for the period ended September 30, 2017





Exhibit 99.1
 
P RESS  R ELEASE
ARIILOGOA01A01A01A20.JPG
  
AMERICAN RAILCAR INDUSTRIES, INC.
100 Clark Street, St. Charles, Missouri 63301
americanrailcar.com
 
 
 
636.940.6000
 
FOR RELEASE:
October 31, 2017
 
 
  
 
  
 
 
 
 
 
  
 
  
 
 
 
 
 
  
 
  
 

AMERICAN RAILCAR INDUSTRIES, INC.
REPORTS THIRD QUARTER 2017 RESULTS
Third Quarter 2017 Highlights
 
Quarterly revenue of $120.7 million
Quarterly net earnings of $8.9 million , or $0.46 per share
Quarterly adjusted EBITDA of $34.6 million , or 28.7% of revenue
Lease fleet of 12,749 railcars as of September 30, 2017 vs. 10,961 railcars as of September 30, 2016, with 338 railcars added during the third quarter
Current liquidity of $306.2 million , including $200.0 million available under revolving credit facility
St. Charles, MO, October 31, 2017 - American Railcar Industries, Inc. (ARI or the Company) (NASDAQ: ARII) today reported its third quarter 2017 financial results. Jeff Hollister, President and CEO of ARI, commented, "While we continue to adapt to the challenging and competitive conditions in today's railcar market, we remain committed to manufacturing quality hopper and tank railcars and to maintaining a disciplined approach to navigating the competitive environment that comes along with downturns in the railcar industry. We have built up a diversified lease fleet of approximately 12,750 railcars to help provide a steady stream of revenues, cash flows and earnings to weather the cycles of the new railcar market.

We have spent the past several months transitioning the management of our leasing business in-house, and our increased sales force and lease management teams are in place. These experienced groups are working with our current and prospective customers to provide a complete suite of railcar solutions over the life cycle of the railcar to meet customers' needs through new railcars via direct sale or lease and through repair services. Our network of railcar services facilities continues to support both our customers and our growing, internal lease fleet and can perform retrofit work and larger project work for tank railcars at our Marmaduke facility. We are confident that the products and services we offer, along with the strong teams we have in place at ARI, will continue to help drive our business forward."
Third Quarter Revenue Summary
Total consolidated revenues were $120.7 million for the third quarter of 2017 , a decrease of 17% when compared to $145.0 million for the same period in 2016 . 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 $68.4 million for the third quarter of 2017 , a decrease of 27% compared to $93.5 million for the same period in 2016 . This decrease was primarily driven by fewer railcar shipments for direct sale for both hopper and tank railcars, a higher percentage of railcar shipments going to our lease fleet, and more competitive pricing during the third quarter of 2017 compared to the same period in 2016.
During the third quarter of 2017 , ARI shipped 618 railcars for direct sale and 338 railcars for lease compared to 855 railcars for direct sale and 322 railcars for lease during the same period in 2016 . Railcars built for the lease fleet represented 35% of ARI’s railcar shipments during the third quarter of 2017 compared to 27% for the same period in 2016 . This quarterly rate is closer to our historical average than we experienced during the first half of 2017, and is consistent with our strategy to continue to invest in and grow our lease fleet as demand dictates in certain railcar types. Shipments and orders for railcars on long-term leases not only help us to maintain a steady level of production during the manufacturing period, but also provide a steady stream of future cash flows. Because revenues and earnings related to leased railcars are recognized over the life of the lease, our quarterly results may vary depending on the mix of lease versus direct sale railcars that we ship during a given period.





Manufacturing revenues for the third quarter of 2017 , on a consolidated basis, exclude $33.3 million of revenues related to railcars built for the Company's lease fleet compared to $31.3 million for the same period in 2016 . Revenues related to railcars built for the Company's lease fleet increased due to a slightly higher volume of railcars shipped for lease. 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 $33.4 million for the third quarter of 2017 , an increase of 2% over the $32.8 million for the comparable period in 2016 . The primary reason for the increase in revenue was an increase in the number of railcars on lease, partially offset by a decline in weighted average lease rates. ARI had 12,749 railcars in its lease fleet as of September 30, 2017 compared to 10,961 railcars as of September 30, 2016 .
Railcar services revenues were $18.9 million for the third quarter of 2017 , an increase of 1% compared to $18.6 million for the same period in 2016 . The primary reasons for the increase in revenue were increased demand and additional capacity from our mobile repair operations and repair work performed at our tank railcar manufacturing facility, partially offset by decreased demand for tank railcar qualifications and tank railcar exterior paint and interior linings at certain shops. Our tank railcar manufacturing facility provides us the flexibility not only to produce new railcars, but also to perform repair and retrofit services in a production line set-up. The Company also saw increased intercompany repair work, for which the revenue is eliminated in consolidation, for our lease fleet during 2017 as certain railcars in ARI's lease fleet were inspected, tested, and if necessary repaired, pursuant to the FRA's Railworthiness Directive No. 2016-01 [Revised] (the Revised Directive).
Consolidated earnings from operations were $19.5 million for the third quarter of 2017 , an increase of 22% from the $16.1 million for the same period in 2016 . Consolidated operating margins increased to 16.2% for the third quarter of 2017 compared to 11.1% for the same period in 2016 . These increases were primarily driven by the impact of the loss contingency reserve related to the Revised Directive recognized by the manufacturing segment of $17.0 million during the third quarter of 2016, partially offset by lower earnings from operations in the manufacturing and railcar services segment during 2017 and higher selling, general and administrative costs in 2017 compared to 2016.
Manufacturing earnings from operations on a consolidated basis were $0.5 million for the third quarter of 2017 compared to a loss of $6.0 million for the same period in 2016 . As discussed above, the increase was primarily due to the prior period impact of the loss contingency reserve related to the Revised Directive recognized by the manufacturing segment of $17.0 million. This increase was partially offset by higher costs associated with lower production volumes and more competitive pricing for both tank and hopper railcars. Profit on railcars built for the Company’s lease fleet was $3.3 million and $3.2 million for the third quarter of 2017 and 2016 , respectively, and is excluded from consolidated 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.
Railcar leasing earnings from operations on a consolidated basis were $22.0 million for both the third quarter of 2017 and the same period in 2016 . The Company had an increase in the number of railcars in our lease fleet in 2017, but this increase was offset by increased costs due to maintenance and services related to lease re-assignments and lower lease rates on certain renewed leases.
Railcar services earnings from operations on a consolidated basis were $1.7 million for the third quarter of 2017 compared to $2.8 million for the same period in 2016 . This decrease was primarily due to an unfavorable mix of work, as well as an increase in services performed on railcars in our lease fleet related to the Revised Directive, which is eliminated in consolidation, partially offset by an increase in demand from our mobile repair operations.
Selling, general and administrative expenses were $9.3 million for the third quarter of 2017 compared to $6.6 million for the same period in 2016 . This $2.7 million increase was primarily due to increased compensation costs relating to additional personnel hired in connection with the Company's ongoing transition of lease fleet management in-house and increasing our own sales and marketing team, higher legal expenses, and the impact of a reduction in incentive compensation expenses during the third quarter of 2016, all partially offset by decreased consulting expenses.
Net earnings for the third quarter of 2017 were $8.9 million , or $0.46 per share compared to $7.7 million , or $0.40 per share, in the same period in 2016 . This increase was driven largely by the prior period impact of the loss contingency related to the Revised Directive, partially offset by lower earnings from operations as discussed above and lower earnings from the Company's joint ventures due to decline in industry demand.
EBITDA, adjusted to exclude share-based compensation expense and other income related to short-term investment activity (Adjusted EBITDA), was $34.6 million for the third quarter of 2017 compared to $31.3 million for the comparable quarter in 2016 . The increase resulted primarily from increased earnings from operations as discussed above, partially offset by lower





earnings from the Company's joint ventures 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.
Year-to-Date Results
Consolidated revenues for the first  nine  months of  2017  were  $344.4 million  compared to  $471.6 million  for the comparable period in  2016 . The Company shipped  1,698  direct sale railcars and  1,485  railcars built for the Company's lease fleet during the first  nine months of  2017  compared to  2,917  direct sale railcars and  607  railcars built for the lease fleet during the same period in  2016 . Railcars built for the lease fleet represented  47%  of ARI's railcar shipments in the first  nine  months of  2017  compared to  17%  for the same period in  2016 .
Consolidated earnings from operations for the first  nine  months of  2017  were  $63.6 million , a decrease of  31%  from  $92.8 million  for the comparable period in  2016 . Consolidated earnings from operations for the first  nine  months of  2017  and  2016  excluded  $14.2 million  and  $7.7 million , respectively, of profit on railcars built for the lease fleet that is eliminated in consolidation. The decrease in consolidated earnings from operations was primarily driven by lower earnings from operations in the Company's manufacturing segment, as the Company had less direct sale railcar shipments in the first nine months of 2017 with 47% of ARI's railcars shipped for lease during that time, combined with higher costs associated with lower production volumes and more competitive pricing during 2017. This was combined with lower earnings from operations in the railcar leasing and railcar services segments and higher selling, general and administrative costs.
Operating margins were  18.5%  for the first  nine  months of  2017  compared to  19.7%  for the same period of  2016 .
Net earnings for the first  nine  months of  2017  were  $30.3 million , or  $1.59  per share compared to  $50.4 million , or  $2.58  per share, for the comparable period in  2016 , primarily due to decreased earnings from operations as discussed above, lower earnings from ARI's joint ventures due to a decline in industry demand, both partially offset by an increase in other income driven by gains on sales of investments.

Adjusted EBITDA was  $107.7 million  for the first  nine  months of  2017 , a decrease of  $28.5 million  from  $136.2 million for the comparable period in  2016 . The decrease resulted primarily from 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.
Cash Flow and Liquidity
The Company’s earnings have contributed to cash flow from operations in the first nine months of 2017 of $91.1 million . As of September 30, 2017 , ARI had working capital of $161.4 million , including $106.2 million of cash and cash equivalents.
As of September 30, 2017 , the Company had $552.0 million of debt outstanding, net of unamortized debt issuance costs of $4.7 million , and borrowing availability of $200.0 million under a revolving loan.
The Company paid dividends totaling $22.9 million during the first nine months of 2017. On October 27, 2017, 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 December 8, 2017 that will be paid on December 22, 2017 .
The Company has not repurchased any shares of its common stock thus far in 2017 under its stock repurchase program. Board authorization for approximately $164.0 million remains available for further stock repurchases.
Backlog
ARI's backlog as of September 30, 2017 was 2,683 railcars with an estimated market value of $248.0 million . Of the total backlog, we currently expect 657 railcars, or 25% , having an estimated market value of $62.9 million , will be placed into the Company's lease fleet.
Conference Call and Webcast
ARI will host a webcast and conference call on Tuesday, October 31, 2017 at 10:00 am (Eastern Time) to discuss the Company’s third quarter 2017 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, and ARI has begun managing these lease railcars in-house. 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 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: our plans to continue to transition the management of our lease fleet from ARL to in-house and terminate our contractual agreements with ARL, various estimates we have made in preparing our financial statements, expected future trends relating to our industry, products and markets, anticipated customer demand for our products and services, trends relating to our shipments, leasing business, railcar services, revenues, profit margin, capacity, financial condition, and results of operations, trends related to shipments for direct sale versus lease, our backlog and any implication that our backlog may be indicative of our future revenues, our strategic objectives and long-term strategies, our results of operations, financial condition and the sufficiency of our capital resources, 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 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; 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 highly competitive nature of the manufacturing, railcar leasing and railcar services industries; risks relating to our compliance with the FRA directive released September 30, 2016 and subsequently revised and superseded on November 18, 2016 (the Revised Directive) and the settlement agreement related thereto, any developments related to the Revised Directive and the settlement agreement related thereto and any costs or loss of revenue related thereto; risks relating to the ongoing transition of the management of our railcar leasing business from ARL to in-house management following completion of the sale of ARL; fluctuations in commodity prices, including oil and gas; the impact, costs and expenses of any warranty claims we may be subject to now or in the future; the risks associated with ongoing compliance with transportation, environmental, health, safety, and regulatory laws and regulations, which may be subject to change; 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; our ability to recruit, retain and train qualified personnel; our ability to manage overhead and variations in production rates; 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 impact, costs and expenses of any litigation we may be subject to now or in the future; the risks associated with our current joint ventures and anticipated capital needs of, and production capabilities at our joint ventures; 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 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, dispositions 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)
 
 
September 30,
2017
 
December 31,
2016
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
106,176

 
$
178,571

Restricted cash
16,541

 
16,714

Short-term investments—available for sale securities

 
8,958

Accounts receivable, net
34,091

 
39,727

Accounts receivable, due from related parties
1,263

 
4,790

Inventories, net
72,675

 
75,028

Prepaid expenses and other current assets
9,019

 
8,623

Total current assets
239,765

 
332,411

Property, plant and equipment, net
165,919

 
177,051

Railcars on lease, net
1,014,238

 
908,010

Income Tax Receivable
13,525

 
234

Goodwill
7,169

 
7,169

Investments in and loans to joint ventures
23,417

 
26,332

Other assets
3,725

 
5,043

Total assets
$
1,467,758

 
$
1,456,250

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
25,408

 
$
29,314

Accounts payable, due to related parties
18

 
3,252

Accrued expenses, including loss contingency of $7,359 and $10,127 at September 30, 2017 and December 31, 2016, respectively
15,480

 
15,411

Accrued income taxes payable

 
7,660

Accrued compensation
11,807

 
11,628

Short-term debt, including current portion of long-term debt
25,649

 
25,588

Total current liabilities
78,362

 
92,853

Long-term debt, net of unamortized debt issuance costs of $4,701 and $4,863 at September 30, 2017 and December 31, 2016, respectively
526,395

 
545,392

Deferred tax liability
287,788

 
252,943

Pension and post-retirement liabilities
8,652

 
8,648

Other liabilities, including loss contingency of $1,936 and $2,161 at September 30, 2017 and December 31, 2016, respectively
7,688

 
6,144

Total liabilities
908,885

 
905,980

Stockholders’ equity:
 
 
 
Common stock, $0.01 par value, 50,000,000 shares authorized, 19,083,878 shares outstanding as of both September 30, 2017 and December 31, 2016
213

 
213

Additional paid-in capital
239,609

 
239,609

Retained Earnings
410,235

 
402,810

Accumulated other comprehensive loss
(5,153
)
 
(6,331
)
Treasury Stock
(86,031
)
 
(86,031
)
Total stockholders’ equity
558,873

 
550,270

Total liabilities and stockholders’ equity
$
1,467,758

 
$
1,456,250







AMERICAN RAILCAR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Manufacturing (including revenues from affiliates of $188 and $325 for the three and nine months ended September 30, 2017, respectively, and $40 and $816 for the three and nine months ended September 30, 2016, respectively)
$
68,442

 
$
93,546

 
$
184,255

 
$
314,886

Railcar leasing (including revenues from affiliates of $231 and $678 for the three and nine months ended September 30, 2017, respectively, and $28 for both the three and nine months ended September 30, 2016)
33,440

 
32,798

 
100,992

 
98,775

Railcar services (including revenues from affiliates of $1,156 and $11,729 for the three and nine months ended September 30, 2017, respectively, and $5,933 and $21,176 for the three and nine months ended September 30, 2016, respectively)
18,864

 
18,618

 
59,200

 
57,965

Total revenues
120,746

 
144,962

 
344,447

 
471,626

Cost of revenues:
 
 
 
 
 
 
 
Manufacturing
(64,235
)
 
(79,671
)
 
(169,915
)
 
(263,389
)
Other operating (loss) income
(924
)
 
(16,973
)
 
140

 
(16,973
)
Railcar leasing
(10,856
)
 
(10,577
)
 
(34,532
)
 
(31,108
)
Railcar services
(16,023
)
 
(15,131
)
 
(49,559
)
 
(45,788
)
Total cost of revenues
(92,038
)
 
(122,352
)
 
(253,866
)
 
(357,258
)
Gross profit
28,708

 
22,610

 
90,581

 
114,368

Selling, general and administrative
(9,263
)
 
(6,583
)
 
(27,084
)
 
(21,837
)
Net gains on disposition of leased railcars
102

 
58

 
115

 
225

Earnings from operations
19,547

 
16,085

 
63,612

 
92,756

Interest income (including income from related parties of $280 and $922 for the three and nine months ended September 30, 2017, respectively, and $404 and $1,288 for the three and nine months ended September 30, 2016)
405

 
429

 
1,146

 
1,360

Interest expense
(5,441
)
 
(5,632
)
 
(16,460
)
 
(17,216
)
Other income
393

 
57

 
2,314

 
58

Earnings from joint ventures
232

 
1,614

 
1,578

 
4,558

Earnings before income taxes
15,136

 
12,553

 
52,190

 
81,516

Income tax expense
(6,278
)
 
(4,864
)
 
(21,865
)
 
(31,139
)
Net earnings
$
8,858

 
$
7,689

 
$
30,325

 
$
50,377

Net earnings per common share—basic and diluted
$
0.46

 
$
0.40

 
$
1.59

 
$
2.58

Weighted average common shares outstanding—basic and diluted
19,084

 
19,397

 
19,084

 
19,524

Cash dividends declared per common share
$
0.40

 
$
0.40

 
$
1.20

 
$
1.20







AMERICAN RAILCAR INDUSTRIES, INC. AND SUBSIDIARIES
SEGMENT DATA
(In thousands, unaudited)

 
Three Months Ended September 30, 2017
 
Revenues
 
 
 
External
 
Intersegment
 
Total
 
Earnings (Loss) from Operations
 
(in thousands)
Manufacturing (1)
$
68,442

 
$
33,625

 
$
102,067

 
$
3,733

Railcar leasing
33,440

 

 
33,440

 
19,029

Railcar services
18,864

 
976

 
19,840

 
1,941

Corporate

 

 

 
(4,603
)
Eliminations

 
(34,601
)
 
(34,601
)
 
(553
)
Total Consolidated
$
120,746

 
$

 
$
120,746

 
$
19,547

 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2016
 
Revenues
 
 
 
External
 
Intersegment
 
Total
 
Earnings (Loss) from Operations
 
(in thousands)
Manufacturing (1)
$
93,546

 
$
31,283

 
$
124,829

 
$
(2,773
)
Railcar leasing
32,798

 

 
32,798

 
19,320

Railcar services
18,618

 
167

 
18,785

 
2,797

Corporate

 

 

 
(2,649
)
Eliminations

 
(31,450
)
 
(31,450
)
 
(610
)
Total Consolidated
$
144,962

 
$

 
$
144,962

 
$
16,085

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2017
 
Revenues
 
 
 
External
 
Intersegment
 
Total
 
Earnings (Loss) from Operations
 
(in thousands)
Manufacturing (1)
$
184,255

 
$
149,171

 
$
333,426

 
$
20,183

Railcar leasing
100,992

 

 
100,992

 
56,529

Railcar services
59,200

 
3,191

 
62,391

 
6,986

Corporate

 

 

 
(13,828
)
Eliminations

 
(152,362
)
 
(152,362
)
 
(6,258
)
Total Consolidated
$
344,447

 
$

 
$
344,447

 
$
63,612

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
Revenues
 
 
 
External
 
Intersegment
 
Total
 
Earnings (Loss) from Operations
 
(in thousands)
Manufacturing (1)
$
314,886

 
$
64,180

 
$
379,066

 
$
35,451

Railcar leasing
98,775

 

 
98,775

 
59,232

Railcar services
57,965

 
1,735

 
59,700

 
9,364

Corporate

 

 

 
(11,598
)
Eliminations

 
(65,915
)
 
(65,915
)
 
307

Total Consolidated
$
471,626

 
$

 
$
471,626

 
$
92,756

(1)—
The earnings (loss) from operations for the manufacturing segment include the impact of the loss contingency reserve related to the FRA Revised Directive, which is recognized by the manufacturing segment. The impact of the loss contingency reserve was $(0.9) million and 0.1 million for the three and nine months ended September 30, 2017, respectively, and $(17.0) million for both the three and nine months ended September 30, 2016.





AMERICAN RAILCAR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
Nine Months Ended
 
September 30,
 
2017
 
2016
Operating activities:
 
 
 
Net earnings
$
30,325

 
$
50,377

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation
42,746

 
38,729

Amortization of deferred costs
377

 
379

Gain on disposal of property, plant, equipment and leased railcars
(113
)
 
(16
)
Earnings from joint ventures
(1,578
)
 
(4,558
)
Provision for deferred income taxes
34,862

 
19,342

Items related to investing activities:
 
 
 
Realized gain on short-term investments - available for sale securities
(2,216
)
 

Dividends received from short-term investments

 
(50
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
5,741

 
4,414

Accounts receivable, due from related parties
3,542

 
3,520

Income taxes receivable
(14,194
)
 
1,055

Inventories, net
2,444

 
12,248

Prepaid expenses and other current assets
519

 
(1,327
)
Accounts payable
(3,933
)
 
1,208

Accounts payable, due to related parties
(3,233
)
 
(2,582
)
Accrued expenses and taxes
(7,432
)
 
23,572

Other
3,239

 
2,389

Net cash provided by operating activities
91,096

 
148,700

Investing activities:
 
 
 
Purchases of property, plant and equipment
(4,812
)
 
(16,021
)
Grant Proceeds

 
75

Capital expenditures - leased railcars
(132,388
)
 
(69,387
)
Proceeds from the disposal of property, plant, equipment and leased railcars
417

 
879

Purchase of short-term investments - available for sale securities

 
(8,750
)
Proceeds from sale of short-term investments - available for sale securities
10,535

 

Proceeds from repayments of loans by joint ventures
4,430

 
4,430

Net cash used in investing activities
(121,818
)
 
(88,774
)
Financing activities:
 
 
 
Repayments of debt
(19,101
)
 
(119,288
)
Change in restricted cash related to long-term debt
173

 
159

Stock repurchases

 
(17,402
)
Payment of common stock dividends
(22,901
)
 
(23,373
)
Debt issuance costs

 
(13
)
Net cash used in financing activities
(41,829
)
 
(159,917
)
Effect of exchange rate changes on cash and cash equivalents
156

 
(24
)
Decrease in cash and cash equivalents
(72,395
)
 
(100,015
)
Cash and cash equivalents at beginning of period
178,571

 
298,064

Cash and cash equivalents at end of period
$
106,176

 
$
198,049







AMERICAN RAILCAR INDUSTRIES, INC. AND SUBSIDIARIES
RECONCILIATION OF NET EARNINGS TO EBITDA AND ADJUSTED EBITDA
(In thousands, unaudited)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Net earnings
$
8,858

 
$
7,689

 
$
30,325

 
$
50,377

Income tax expense
6,278

 
4,864

 
21,865

 
31,139

Interest expense
5,441

 
5,632

 
16,460

 
17,216

Interest income
(405
)
 
(429
)
 
(1,146
)
 
(1,360
)
Depreciation
14,572

 
13,113

 
42,746

 
38,729

EBITDA
$
34,744

 
$
30,869

 
$
110,250

 
$
136,101

Expense (Income) related to stock appreciation rights compensation
246

 
395

 
(226
)
 
108

Other Income on short-term investment activity
$
(393
)
 

 
$
(2,314
)
 

Adjusted EBITDA
$
34,597

 
$
31,264

 
$
107,710

 
$
136,209


EBITDA represents net earnings before income tax expense, interest expense (income) 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 (income) 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 (income) 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.



Q3 2017 Supplemental Information Investor Contact: 636.940.6000 Website: americanrailcar.com American Railcar Industries, Inc. Exhibit 99.2


 
Forward Looking Disclaimer Safe Harbor Statement This presentation contains statements relating to our expected financial performance, objectives, long-term strategies and/or future business prospects, events and plans that are forward-looking statements. Forward-looking statements represent our estimates and assumptions only as of the date of this presentation. Such statements include, without limitation, statements regarding: our plans to continue to transition the management of our lease fleet from ARL to in-house and terminate our contractual agreements with ARL, our plans to address the Federal Railroad Administration (FRA) directive released September 30, 2016 and subsequently revised and superseded on November 18, 2016 (Directive) and the settlement we entered into related thereto, various estimates we have made in preparing our financial statements, expected future trends relating to our industry, products and markets, 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 capital expenditure plans, short- and long-term liquidity needs, ability to service our current debt obligations and future financing plans, anticipated benefits regarding the growth of our leasing business, the mix of railcars, customers and commodities 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, 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. Potential risks and uncertainties that could adversely affect our business and prospects include, among other things: our prospects in light of the cyclical nature of our business; the health of and prospects for the overall railcar industry; 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 highly competitive nature of the manufacturing, railcar leasing and railcar services industries; risks relating to our compliance with the Directive and the settlement related thereto, any developments related to the Directive and the settlement agreement related thereto or other regulatory actions and any costs or loss of revenue related thereto; risks relating to the ongoing transition of the management of our railcar leasing business from ARL to in-house management following completion of the ARL Sale; fluctuations in commodity prices, including oil and gas; the impact, costs and expenses of any warranty claims to which we may be subject now or in the future; the risks associated with our ongoing compliance with transportation, environmental, health, safety, and regulatory laws and regulations, which may be subject to change; 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; our ability to recruit, retain and train qualified personnel; our ability to manage overhead and variations in production rates; 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 that 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 impact, costs and expenses of any litigation to which we may be subject now or in the future; the risks associated with our current joint ventures and anticipated capital needs of and production capabilities at our joint ventures; the sufficiency of our liquidity and capital resources, including long-term capital needs to further 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 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; 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 our filings with the Securities and Exchange Commission. We expressly disclaim any duty to provide updates to any forward-looking statements made in this presentation, whether as a result of new information, future events or otherwise. 2


 
ARI – Successful and Diversified Business Model Complete life cycle solutions for the railcar industry. Railcars Components Manufacturing Railcar Repair Services Railcar Leasing 3


 
Strategic Developments • Integration of strong sales force and fleet management group • Transitioning the management of our lease fleet in-house gives us the opportunity to streamline processes and realize synergies and cost savings in integrating with the rest of our organization • Our sales and marketing strategy begins with listening to our customers and finding solutions to fit their needs • ARI has now evolved into a one-stop shop with product offerings including manufacturing, leasing and railcar services • With all of these pieces in place, and with this fully integrated business model, “It’s all here” 4


 
ARI Locations Added strategically placed sales force to cover all of our customers’ needs 5


 
ARI Key Railcar Markets - Two Largest Product Segments in the Railcar Industry* TANK RAILCARS • Product offerings include general service, pressurized, coiled, lined and insulated carbon steel or stainless steel railcars that are capable of transporting: • Chemicals • Ethanol • Food Products • Natural Gas Liquids • Crude Oil HOPPER RAILCARS • Product offerings include general service and specialty carbon steel or stainless steel railcars that are capable of transporting: • Plastic Pellets • Food Products • Grain • Sand • Specialty Chemical Products • Cement * Based upon backlog as of 9/30/17 per the Railway Supply Institute, Inc ARCI 2017 – 3rd Quarter Reporting Statistics (issued October 2017) 6


 
7 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Dec 2016 Sep 2017 Railcar backlog for lease - - - 2,200 1,810 2,330 2,844 1,452 1,637 657 Railcar backlog for direct sale 4,240 550 1,050 4,330 5,250 6,230 8,888 5,629 2,176 2,026 - 2,000 4,000 6,000 8,000 10,000 12,000 14,000 T otal Ra il c ar Ba c k lo g 1,050 6,530 7,060 8,560 11,732 7,081 4,240 550 3,813 2,683 ARI’s Railcar Backlog


 
8 • Flexible and labor efficient manufacturing facilities able to respond to customer delivery demands • Strategic locations near customers and major rail lines • Vertical integration from joint ventures and component manufacturing helps us to be cost competitive • Experienced core group of employees • Numerous product offerings/designs that can be manufactured for direct sale or lease -10% -5% 0% 5% 10% 15% 20% 25% 30% $- $200 $400 $600 $800 $1,000 $1,200 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q3 2017 TTM Revenue Operating Margin % ^ (millions) ^: Manufacturing segment revenues and operating margin % presented above include an estimate of revenue and profit, respectively, for railcars built for our lease fleet. Such revenues and profit are based on an estimated fair market value of the leased railcars as if they had been sold to a third party, less the cost to manufacture for operating margin %. Estimated revenues related to railcars built for our lease fleet are eliminated in consolidation. Broad manufacturing base allows ARI to be competitive and provide quality railcars and components Manufacturing Segment Manufacturing core competency allows ARI to be competitive and provide low cost, quality railcars and components


 
9 - 2,000 4,000 6,000 8,000 10,000 12,000 14,000 $- $20 $40 $60 $80 $100 $120 $140 $160 2012 2013 2014 2015 2016 Q3 2017 TTM Revenue Lease Fleet(millions) • Disciplined lease strategy balancing mix of customers, commodities, acceptable market rates, and staggered lease terms • Relatively young lease fleet with low maintenance expense • Began in-house management of the railcar leasing business as a result of the ARL sale on June 1, 2017 • Added to our existing sales force and established lease fleet management group • Further integration of ARI’s business model • ARI obtained and is using software and data owned and used by ARL to manage leased railcars • Further fleet growth expected to come from existing liquidity and future railcar leveraged financing(s) • Unencumbered leased railcars available to borrow against Diversifying and supplementing our business with revenue streams generated over the life of the railcar Railcar Leasing Segment


 
10 0% 5% 10% 15% 20% 25% $- $10 $20 $30 $40 $50 $60 $70 $80 $90 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q3 '17 TTM Revenue Operating Margin % (millions) Supporting both ARI’s lease fleet and customers' railcar needs, while gaining valuable industry insight Railcar Services Segment Supporting both ARI’s lease fleet and customers' railcar needs, while gaining valuable industry insight TRADITIONAL REPAIR • Railcar qualifications and inspections • Light/heavy railcar repairs • Exterior and interior coatings • Cleaning • Valve replacement and testing • Wheel and axle replacement • Additional offerings for mini-shops and mobile on-site customer repairs TANK RAILCAR RETROFITTING • Tank railcar manufacturing facility offers retrofit capabilities along with traditional repair services ARI’s repair network is capable and responding to the Revised Directive with an inspection plan reviewed by the FRA.


 
FRA Railworthiness Directive No. 2016-01 [Revised] SETTLEMENT In August 2017, ARI entered into a settlement agreement with the Federal Railroad Administration (“FRA”) • Settlement applies to railcars owned by ARI and certain of its affiliates and provides regulatory clarity • Extends deadline for completing inspection and testing of 15% highest mileage tank railcars to December 31, 2017 • Provides that all other directive tank railcars are inspected, tested, and if necessary repaired at the earlier of the next qualification, scheduled maintenance, shopping or repair event, or December 31, 2025 • Provides flexibility if the FRA imposes, or fails to impose, requirements on the other owners of the directive tank railcars • Modifies and clarifies inspection protocol • ARI dismissed its lawsuit against the FRA 11


 
12 $808.8 $423.4 $273.6 $519.4 $711.7 $750.6 $733.0 $889.3 $639.1 $512.0 $0.0 $200.0 $400.0 $600.0 $800.0 $1,000.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q3 2017 TTM ^ Revenues related to railcars built for the Company's lease fleet are not recognized in consolidated revenues as railcar sales, but rather as lease revenues in accordance with the terms of the contract over the life of the lease. $31.4 $15.5 ($27.0) $4.3 $63.8 $86.9 $99.5 $133.5 $72.7 $52.6 $78.8 $40.0 $4.5 $50.5 $149.5 $181.1 $209.0 $278.9 $188.0 $159.6 ($50.0) $0.0 $50.0 $100.0 $150.0 $200.0 $250.0 $300.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q3 2017 TTM Net Earnings Adj. EBITDA** * Please see reconciliation of net earnings (loss) to Adj. EBITDA on Exhibit A. Consolidated Revenue ($ mil) ^ Net Earnings & Adj. EBITDA ($ mil) Our Financial History


 
13 $10.4 $0.0 $0.0 $29.4 $185.9 $162.1 $307.7 $211.6 $90.3 $153.3 $0.0 $50.0 $100.0 $150.0 $200.0 $250.0 $300.0 $350.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q3 2017 TTM Lease Railcar CAPEX ($ mil) # Operational CAPEX ($ mil) $42.0 $15.0 $6.1 $6.2 $20.0 $22.0 $20.1 $36.6 $23.0 $11.9 $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q3 2017 TTM Our Financial History (continued) # Includes effect of leased railcars in process.


 
14 $263.8 $192.0 $172.7 $260.9 $176.2 $150.5 $145.0 $167.5 $114.7 $109.0 $120.7 $0.0 $50.0 $100.0 $150.0 $200.0 $250.0 $300.0 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 ^ Revenues related to railcars built for the Company's lease fleet are not recognized in consolidated revenues as railcar sales, but rather as lease revenues in accordance with the terms of the contract over the life of the lease. $35.0 $33.0 $29.4 $36.2 $22.8 $19.9 $7.7 $22.3 $10.6 $10.9 $8.9 $72.0 $68.5 $62.6 $75.8 $54.5 $50.4 $31.3 $51.8 $36.1 $37.0 $34.6 $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 $70.0 $80.0 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Net Earnings Adjusted EBITDA * * Please see reconciliation of net earnings (loss) to Adj. EBITDA on Exhibit A. Net Earnings & Adj. EBITDA ($ mil) Consolidated Revenue ($ mil) ^ Quarterly Financial Comparison


 
15 $5.0 $10.4 $11.1 $10.1 $4.4 $6.7 $4.8 $7.1 $1.6 $1.8 $1.4 $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 $48.1 $84.5 $77.7 $1.3 $20.6 $12.8 $36.0 $20.9 $55.9 $47.9 $28.6 $0.0 $20.0 $40.0 $60.0 $80.0 $100.0 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 # Includes effect of leased railcars in process. Operational CAPEX ($ mil) Lease Railcar CAPEX ($ mil) # Quarterly Financial Comparison (continued)


 
16 In Thousands, unaudited Exhibit A – Adj. EBITDA Reconciliation


 
Exhibit A – Adj. EBITDA Reconciliation EBITDA represents net earnings before income tax expense, interest expense (income) 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 (loss), cash flows provided by operating activities or other statements 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 (income) 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 (income) 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. 17


 
A Tradition of Industry Leadership 18