e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-51728
American Railcar Industries, Inc.
(Exact name of Registrant as Specified in its Charter)
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North Dakota
(State or Other Jurisdiction of Incorporation or Organization)
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43-1481791
(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
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
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 o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
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 Registrants 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. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See definition of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check One)
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Large Accelerated Filer o
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Accelerated Filer þ
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Non-Accelerated Filer o
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Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The aggregate market value of the voting stock held by non-affiliates of the registrant as of the
last business day or the registrants most recently completed second fiscal quarter was
approximately $114 million, based on the closing sales price of $12.08 per share of such stock on
The NASDAQ Global Select Market on June 30, 2010.
As of February 28, 2011, as reported on the NASDAQ Global Select Market, there were 21,352,297
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 Registrants 2011 Annual Meeting of Shareholders Items 10, 11,
12, 13 and 14.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this report are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
(Exchange Act). These statements involve known and unknown risks, uncertainties and other factors,
which may cause our or our industrys actual results, performance, or achievements to be materially
different from any future results, performance or achievements expressed or implied by the
forward-looking statements. Forward-looking statements include, but are not limited to, statements
regarding:
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any financial or other information included herein based upon or otherwise incorporating judgments or
estimates based upon future performance or events; |
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the impact of the current economic downturn, adverse market conditions and restricted credit markets and
the impact of the continuation of these conditions; |
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our reliance upon a small number of customers that represent a large percentage of our revenues and backlog; |
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the health of and prospects for the overall railcar industry; |
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our prospects in light of the cyclical nature of our business and the current economic environment; |
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anticipated trends relating to our shipments, revenues, financial condition or results of operations; |
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our ability to manage overhead and variations in production rates; |
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the highly competitive nature of the railcar manufacturing industry; |
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fluctuations in the costs of raw materials, including steel and railcar components, and delays in the
delivery of such raw materials and components; |
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fluctuations in the supply of components and raw materials we use in railcar manufacturing; |
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anticipated production schedules for our products and the anticipated financing needs, construction and
production schedules of our joint ventures; |
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the risks associated with potential joint ventures, acquisitions or new business endeavors; |
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the risks associated with international operations and joint ventures; |
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the risk of the lack of acceptance of new railcar offerings by our customers and the risk of initial
production costs for our new railcar offerings being significantly higher than expected; |
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the risk of the lack of customers entering into new railcar leases; |
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the sufficiency of our liquidity and capital resources; |
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the conversion of our railcar backlog into revenues; |
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compliance with covenants contained in our unsecured senior notes; |
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the impact and anticipated benefits of any acquisitions we may complete; |
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the impact and costs and expenses of any litigation we may be subject to now or in the future; and |
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the ongoing benefits and risks related to our relationship with Mr. Carl Icahn (the chairman of our board
of directors and, through Icahn Enterprises L.P. (IELP), our principal beneficial stockholder) and certain
of his affiliates. |
In some cases, you can identify forward-looking statements by terms such as may, will,
should, could, would, expects, plans, anticipates, believes, estimates, projects,
predicts, potential and similar expressions intended to identify forward-looking statements.
Our actual results could be different from the results described in or anticipated by our
forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections
and may be materially better
or worse than anticipated. Given these uncertainties, you should not place undue reliance on these
forward-looking statements. Forward-looking statements represent our estimates and assumptions only
as of the date of this report. We expressly disclaim any duty to provide updates to forward-looking
statements, and the estimates and assumptions associated with them, after the date of this report,
in order to reflect changes in circumstances or expectations or the occurrence of unanticipated
events except to the extent required by applicable securities laws. All of the forward-looking
statements are qualified in their entirety by reference to the factors discussed above and under
Risk Factors set forth in Part I Item 1A of this report, as well as the risks and uncertainties
discussed elsewhere in this report. We qualify all of our forward-looking statements by these
cautionary statements. We caution you that these risks are not exhaustive. We operate in a
continually changing business environment and new risks emerge from time to time.
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AMERICAN RAILCAR INDUSTRIES, INC.
FORM 10-K
TABLE OF CONTENTS
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AMERICAN RAILCAR INDUSTRIES, INC.
FORM 10-K
PART I
INTRODUCTION
We are a leading North American designer and manufacturer of hopper and tank railcars. We also
lease, repair and refurbish railcars, provide fleet management services and design and manufacture
certain railcar and industrial components. 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 and those that use railcars for freight transport, or
shippers, and Class I railroads. In servicing this customer base, we believe our integrated railcar
repair, refurbishment and fleet management services and our railcar components manufacturing
business help us further penetrate the general railcar manufacturing market. In addition, we offer
our customers the opportunity to lease railcars. These products and services provide us with
cross-selling opportunities and insights into our customers railcar needs that we use to improve
our products and services and enhance our reputation.
We operate in two reportable segments: manufacturing operations and railcar services. Manufacturing
operations consist of railcar manufacturing, railcar leasing and railcar and industrial component
manufacturing. Railcar services consists of railcar repair, refurbishment and fleet management
services. Financial information about our business segments for the years ended December 31, 2010,
2009 and 2008 is set forth in Note 21 of our Consolidated Financial Statements.
We were incorporated in Missouri in 1988, reincorporated in Delaware in January 2006 and
reincorporated again in North Dakota in June 2009. 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, 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, special reports, Audit Committee Charter, Code of Business Conduct and Code of Ethics
for Senior Financial Officers 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®, CenterFlow® 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 Americas leading integrated providers of
railcars, railcar components, railcar maintenance services and fleet management services.
At our Paragould, Arkansas manufacturing complex, we primarily manufacture hopper railcars, but
have the ability to manufacture many other types of railcars. At our Marmaduke, Arkansas
manufacturing complex, we primarily manufacture tank railcars, but have the ability to produce
other railcar types. We are currently performing railcar repair and refurbishment at these
manufacturing complexes, in addition to railcar manufacturing.
Our operations now include three railcar assembly, sub-assembly and fabrication complexes, three
railcar and industrial component manufacturing facilities, six railcar repair plants and ten mobile
repair and mini-shop locations. 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.
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We are party to three joint ventures. Our Ohio Castings Company, LLC (Ohio Castings) joint venture
is able to manufacture various railcar parts for sale, through one of the joint venture partners,
to third parties and the other joint venture partners. Ohio Castings was temporarily idled in June
2009 due to the weak railcar market and remained temporarily idled at December 31, 2010. Our Axis,
LLC (Axis) joint venture manufactures and sells axles to the joint venture partners for use and
distribution both domestically and internationally. Axis began production in the third quarter of
2009. Our Amtek Railcar Industries Private Limited (Amtek Railcar) joint venture will manufacture
and sell railcars for distribution to third parties in India following the construction of a
manufacturing facility. For further discussion of our joint ventures refer to Note 1 to our
Consolidated Financial Statements.
OUR PRODUCTS AND SERVICES
We design, manufacture and lease 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 Operations
We primarily manufacture two types of railcars, hopper railcars and tank railcars, but have the
ability to produce additional railcar types. We offer our customers the option to lease these
railcars from us. We also manufacture various components for railcar and industrial markets.
Hopper railcars
We manufacture both general service and specialty hopper railcars at our Paragould complex. All of
our 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 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.
Our 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 a gravity, positive pressure or
vacuum pneumatic unloading environment. Since its introduction, we have improved our CenterFlow®
line of 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 designs of the shape of the railcars, joint designs, outlet mounting frames, loading hatches
and discharge outlets, which enhance the cargo loading and unloading processes.
We have several versions of our hopper railcar that target specific customers and specific loads,
including:
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Grain Railcars. These railcars are a large group of hopper railcars within our general
service 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. |
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Cement and Sand Railcars. Cement and sand loads are heavier than many other loads of
comparable volume, and therefore cement and sand railcars are smaller to compensate for the
weight. |
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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. Examples
of such cargo would be food grade plastic pellets used in the production of food and
medical product containers. |
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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. 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 and a rupture disc. |
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Ore Railcars. These railcars are designed to transport heavy ore mineral loads. |
Tank railcars
We manufacture non-pressure and high pressure tank railcars at our Marmaduke complex. Our tank
railcars are 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. 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 provides improved drainage. Many of our tank railcars feature coils that are
steam-heated to decrease cargo viscosity, which speeds unloading. We can alter the design of our
tank railcars to address specific customer requirements.
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Other railcar types
We have the ability to produce other railcar types including intermodal, gondola and aluminum coal
railcars with bottom and rotary discharge.
Railcar leasing
We offer customers the option to lease our railcars through various leasing options, including full
service leases. Maintenance of leased railcars could be provided, in part, through our railcar
repair and refurbishment facilities.
Component manufacturing
In addition to manufacturing railcars, we also manufacture custom and standard railcar components.
Our products include tank railcar components and valves, tank heads, discharge outlets for 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 use these components in
our own railcar manufacturing and sell certain of these products to third parties, including our
competitors.
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 and other custom machined
products.
Railcar Services
Our primary railcar services are repair, refurbishment and 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. Our railcar services
provide us insight into our customers railcar needs that we can use to improve our products. These
services also may create new customer relationships and enhance relationships with our existing
customers.
Repair and refurbishment
Our 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.
Fleet management
Some of the principal features of our fleet management services business include maintenance
planning, project management, tracking and tracing, engineering services, field engineering
services, regulatory compliance, mileage audit, rolling stock taxes and online service access.
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 and
catalogs through which our customers have access to our railcar and industrial components. Our
marketing activities also include participation in trade shows, participation in industry forums
and distribution of sales literature.
In 2010, sales to our top ten customers accounted for approximately 76.2% of our revenues. In 2010,
our top three customers American Railcar Leasing LLC (ARL), GATX Corporation and Canadian National
Railway Company accounted for approximately 35.4%, 13.3% and 9.5% of our consolidated revenues,
respectively. ARL is an affiliate of Mr. Carl Icahn, the chairman of our board of directors and,
through Icahn Enterprises L.P. (IELP), our principal beneficial stockholder.
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BACKLOG
We define backlog as the number and sales value of railcars that our customers have committed in
writing to purchase or lease from us that have not been recognized as revenues. Our total backlog
as of December 31, 2010 and 2009 was $87.6 million and $49.5 million, respectively. We estimate
that 100.0% of our December 31, 2010 backlog will be converted to revenues during 2011. Included in
the railcar backlog at December 31, 2010 was $1.2 million of railcars to be sold to our affiliate,
ARL. Customer orders may be subject to requests for delays in deliveries, inspection rights and
other customary industry terms and conditions, which could prevent or delay backlog from being
converted into revenues. Our December 31, 2010 railcar backlog did not include any railcars to be
leased by us.
The following table shows our reported railcar backlog, and estimated future revenue value
attributable to such backlog, at the end of the period shown. The reported backlog includes
railcars relating to purchase obligations based upon an assumed product mix consistent with past
orders. Changes in product mix from what is assumed would affect the dollar amount of our backlog.
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Years ended December 31, |
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2010 |
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2009 |
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Railcar backlog at January 1 |
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550 |
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4,240 |
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New railcars delivered |
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(2,090 |
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(3,690 |
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New railcar orders |
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2,590 |
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Railcar backlog at December 31 |
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1,050 |
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550 |
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Estimated railcar backlog
value at end of period (in
thousands) (1) |
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87,573 |
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49,501 |
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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 reflects known price adjustments for material cost changes
but does not reflect a projection of any future material price adjustments that are provided
for in certain customer contracts. |
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 delivery dates could be extended on certain orders, 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 orders will equal our reported backlog
estimates or that our future revenue efforts will be successful.
SUPPLIERS AND MATERIALS
Our business depends on the adequate supply of numerous railcar components, such as railcar wheels,
brakes, axles, bearings, yokes, tank railcar heads, sideframes, bolsters and other heavy castings,
and raw materials, such as steel and normalized steel plate, used in the production of railcars.
Due to our vertical integration efforts, including through our involvement in joint ventures, we
have the current capability to produce axles, tank railcar heads and assemble wheel sets along with
numerous other railcar components.
The cost of raw materials and railcar components represents more than half of the direct
manufacturing costs of most of our railcar product lines. Certain of our railcar manufacturing
contracts contain provisions for price adjustments 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 on to our
customers. Conversely, if the price of those materials or components decreases, a discount is
applied to reflect the decrease in cost.
Our customers often specify particular railcar components and the suppliers of such components. We
continually monitor inventory levels to support production.
In 2010, no single supplier accounted for more than 11.2% of our total purchases and our top ten
suppliers accounted for approximately 51.0% of our total purchases.
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Steel
We use hot rolled steel coils, as-rolled steel plate and normalized steel plate to manufacture
railcars. We can acquire hot rolled steel coils and as-rolled steel plate from several suppliers.
There are a limited number of qualified 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. Normalized steel plate is a special form of heat-treated steel that is stronger and
is more resistant to puncture than as-rolled steel plate. 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.
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 are mounted. We
obtained a significant portion of our castings requirements from our joint venture, Ohio Castings,
until production was temporarily idled in June 2009. When production idled, we began purchasing all
of our castings requirements from third party vendors.
Wheels and brakes
In the past, there have been supply constraints and shortages of wheels and brakes used in
railcars. Currently, there are a limited number of domestic suppliers for each of these components.
In the past, we have also imported some wheels. We also obtain limited quantities of refurbished
wheels from scrapped railcars.
Axles
Axles have historically been capacity constrained critical components of manufacturing railcars.
Our joint venture, Axis, produces railcar axles and is our primary supplier of new axles.
COMPETITION
The railcar manufacturing industry has historically been extremely competitive and has become even
more so due to the current economic environment driven by increased pricing pressures from
customers. We compete primarily with Trinity Industries, Inc. (Trinity), The Greenbrier Companies,
Inc. (Greenbrier) and National Steel Car Limited (National Steel) in the hopper railcar market and
with Trinity, Greenbrier and Union Tank Car Company (Union Tank) in the tank railcar market.
Competitors have and may continue to expand their capabilities into our focused railcar markets.
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 businesses, ranging from
companies with greater resources than we have to small, local companies.
In addition to price, competition in all of our markets is based on quality, reputation,
reliability of delivery, customer service and other factors.
INTELLECTUAL PROPERTY
We believe that manufacturing expertise, 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 several patents and will continue to make
efforts to obtain patents, when available, in connection with our product development and design
activities.
EMPLOYEES
As of December 31, 2010, we had 1,598 full-time employees in various locations throughout the
United States and Canada of which 18.0% were covered by domestic collective bargaining agreements
at two of our repair facilities and at our Texas steel foundry. Two of these collective bargaining
agreements covering 6.7% of our full-time employees expired during 2010 and new collective
bargaining agreements were successfully negotiated. A collective bargaining agreement covering
11.3% of our full-time employees will expire in April 2011.
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. Because 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 subject
to oversight by Transport Canada that also requires certification. To the extent that we expand our
business internationally, we will increasingly be subject to the regulations of other non-U.S.
jurisdictions.
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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. These laws and
regulations expose us to liability for the environmental condition of our current or formerly owned
or operated facilities and negligent acts, and also may expose us to liability for the conduct of
others or for our actions that complied 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 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.
Certain real property we acquired from ACF Industries LLC (ACF) in 1994 has been involved in
investigation and remediation activities to address contamination. ACF is an affiliate of Mr. Carl
Icahn, the chairman of our board of directors and, through IELP, our principal beneficial
stockholder. Substantially all of the issues identified relate to the use of this property prior to
its transfer to us by ACF and for which ACF has retained liability for environmental contamination
that may have existed at the time of transfer to us. ACF has also agreed to indemnify us for any
cost that might be incurred with those existing issues. As of the date of this report, we do not
believe we will incur material costs in connection with any investigation or remediation activities
relating to these properties, but we cannot assure that this will be the case. If ACF fails to
honor its obligations to us, we could be responsible for the cost of such remediation.
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 condition and
operations. In addition, we have historically 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 past 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 and we could face environmental claims for
railcars that we sell or lease to others. 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 hazardous
commodities being shipped, strict liability concepts may apply.
9
RISKS RELATED TO OUR BUSINESS
The highly cyclical nature of the railcar industry and restricted credit markets may result in
lower revenues during economic downturns.
The North American railcar market has been, and we expect it to continue to be highly cyclical,
resulting in volatility in demand for our products and services. The recent worldwide financial
turmoil and associated economic downturn has adversely affected the overall railcar industry as
well as sales of our railcars and other products and caused us to slow our production rates
significantly in 2010. For example, over approximately the past three and a half years, we
experienced a decrease in demand and an increase in pricing pressures in our railcar markets, and
over the past four years our new railcar orders have fluctuated from approximately 2,510 in 2007,
to approximately 280 in 2008, none in 2009 and approximately 2,590 in 2010. We estimate that 100.0%
of our December 31, 2010 backlog will be converted to revenues during 2011 and, as a result, if we
are unable to obtain new orders it would have a material adverse effect on our business and
financial condition.
Most of the end users of our railcars acquire them through leasing arrangements with our leasing
company customers. The current economic environment and restricted credit markets have resulted in
stricter borrowing conditions and, in some cases, higher interest rates for new borrowings, either
of which could increase the cost of, or potentially deter, new leasing arrangements. These factors
have caused and could continue to cause our leasing company customers to purchase fewer railcars.
In addition, the slow-down of the United States economy has reduced and may continue to reduce
requirements for the transport of products carried by the railcars we manufacture. These factors
have resulted and may continue to result in decreased demand and increased pricing pressures on the
sales of railcars. Sales of other of our industrial products have also been and may continue to be
adversely affected by the slowdown in industrial output. All of these factors could have a material
adverse effect on our 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 our railcar manufacturing business we have
four primary competitors. Any of these competitors may, from time to time, have greater resources
than we do. Our current competitors may increase their participation, or new competitors may enter
into, the railcar markets in which we compete. Strong competition within the industry, which has
been exacerbated by the recent economic downturn, has led to pricing pressures and could limit our
ability to maintain or increase prices or obtain better margins on our railcars. These pressures
may intensify if consolidation among our competitors occurs. If we produce any types of railcars
other than what we currently produce, we will be competing with other manufacturers that may have
more experience with that railcar type.
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 businesses, ranging from companies with greater resources
than we have to small, local companies.
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 and could cause us to
lose market share. 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.
We depend upon a small number of customers that represent a large percentage of our revenues. The
loss of any single significant customer, a reduction in sales to any such significant customer or
any such significant customers inability to pay us in a timely manner 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 represented approximately 76.2%, 89.0% and 90.7% of our total consolidated
revenues in 2010, 2009 and 2008, respectively. Moreover, our top three customers accounted for
approximately 58.2%, 84.4% and 82.0% of our total consolidated revenues in 2010, 2009 and 2008,
respectively. 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
results of operations. If one of our significant customers was unable to pay due to financial
conditions, it could materially adversely affect our business, financial condition and 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 to which our customers have committed in writing to
purchase and lease. The estimated backlog value in dollars is the anticipated revenue on the
railcars included in the backlog for purchase and the estimated fair market value of the railcars
included in the backlog for lease. 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.
Customer orders may be subject to requests for delays in deliveries, inspection rights and other
customary industry terms and conditions, which could prevent or delay our railcar backlog from
being converted into revenues. 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.
10
To the extent we expand internationally through joint ventures or otherwise, we will increase our
exposure to international economic and political risks.
Conducting business outside the United States, for example through our joint venture in India,
subjects us to various risks, including changing economic, legal and political conditions, work
stoppages, exchange controls, currency fluctuations, terrorist activities directed at U.S.
companies, armed conflicts and unexpected changes in the United States and the laws of other
countries relating to tariffs, trade restrictions, transportation regulations, foreign investments
and taxation. If the joint ventures fail to obtain and maintain certifications of their railcars
and railcar parts in the various countries where they may operate, they may be unable to market and
sell their railcars in those countries.
In addition, unexpected changes in regulatory requirements, tariffs and other trade barriers, more
stringent rules relating to labor or the environment, adverse tax consequences and price exchange
controls could limit the joint ventures operations and make the manufacturing and distribution of
its products internationally more difficult. Furthermore, any material changes in the quotas,
regulations or duties on imports imposed by the U.S. government and agencies or on exports by
non-U.S. governments and their respective agencies could adversely affect the joint ventures
ability to import railcar parts or manufacture railcars. The uncertainty of the legal environment
in countries such as India could also limit our ability to enforce effectively our rights related
to our investment in our international joint venture.
The cost of raw materials and components that we use to manufacture railcars, particularly steel,
are 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 cost of raw materials, including steel, and components, including scrap metal, used in the
production of our railcars, represents more than half of our direct manufacturing costs per
railcar. We have provisions in certain of our current railcar manufacturing sales orders that allow
us to pass on to our customers price fluctuations in and surcharges related to certain raw
materials, including steel, as well as certain components. The number of customers to which we are
not able to pass on price increases may increase in the future, and any such increase could
adversely affect our operating margins and cash flows. Any fluctuations in the price or
availability of steel, or any other material or component used in the production of our railcars,
may have a material adverse effect on our business, financial condition and results of operations.
Such price increases could reduce demand for our railcars. If we are not able to buy raw materials
at fixed prices, or pass on price increases to our customers, we may lose railcar orders or enter
into contracts with less favorable contract terms, any of which could have a material adverse
effect on our business, financial condition and results of operations.
If any of our raw material or component suppliers were unable to continue their businesses, the
availability or price of the materials we use could be adversely affected. Deliveries of our raw
materials and components may also fluctuate depending on various factors including supply and
demand for the raw material or component, or governmental regulation relating to the raw material
or component, including regulation relating to importation.
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 railcar components,
such as railcar wheels, axles, brakes, bearings, yokes, sideframes, bolsters and other heavy
castings. Some of these components are only available from a limited number of domestic suppliers.
Strong demand can cause industry-wide shortages of many critical components as reliable suppliers
could reach capacity production levels. 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. 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, or refuse to do business with us for any reason, 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 and could materially adversely affect our operating results.
If any of our significant suppliers of railcar components were to shut down operations, our
business and financial results could be affected as we may incur substantial delays and significant
expense in finding alternative sources. The quality and reliability of alternative sources may not
be the same and these alternative sources may charge significantly higher prices.
11
We may pursue joint ventures, acquisitions or new business endeavors 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, joint ventures that we form, or new
business endeavors, which may adversely affect our results of operations.
We may not be able to successfully identify suitable joint venture, acquisition or new business
endeavor opportunities or complete any particular joint venture, acquisition, business combination,
other transaction or new business endeavors on acceptable terms. Our identification of suitable
joint ventures opportunities, acquisition candidates and new business endeavors and the integration
of new and acquired business operations involve risks inherent in assessing the values, strengths,
weaknesses, risks and profitability of these opportunities. This includes their effects on our
business, diversion of our managements attention and risks associated with unanticipated problems
or unforeseen liabilities. These issues may require significant financial resources that could
otherwise be used for the ongoing development of our current operations.
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. These difficulties could be further increased to the extent we pursue
opportunities internationally, such as our joint venture in India, or in new railcar markets where
we do not have significant experience. 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 may not realize cost
efficiencies or synergies that we anticipated when selecting our acquisition candidates. In
addition, we may experience managerial or other conflicts with our joint venture partners. Any of
these items could adversely affect our results of operations.
Our failure to identify suitable joint venture, acquisition opportunities or new business endeavors
may restrict our ability to grow our business. If we are successful in pursuing such opportunities,
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.
If any of our joint ventures generate significant losses, it could adversely affect our results of
operations. For example, if our Axis joint venture is unable to operate as anticipated, incurs
significant losses or otherwise is unable to honor its obligation to us under the Axis loan, our
financial results or financial position could be adversely impacted.
Our failure, or the failure of our joint ventures, to complete capital expenditure projects on time
and within budget, or the failure of these projects, once constructed, to operate as anticipated
could materially adversely affect our business, financial condition and results of operations.
Construction plans we may have from time to time, and the current and any future construction plans
of our joint ventures are subject to a number of risks and contingencies over which we may have
little control and that may adversely affect the cost and timing of the completion of those
projects, or the capacity or efficiencies of those projects once constructed. If these capital
expenditure projects do not achieve the results anticipated, we may not be able to satisfy our
operational goals on a timely basis, if at all. If we or our joint ventures are unable to complete
the construction of any of such capital expenditure 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. For example, if Amtek Railcar
is unable to start up operations effectively and in a timely manner or incurs significant losses at
the onset of operations, our results of operations or financial position could be adversely
impacted.
Uncertainty surrounding acceptance of our new railcar offerings by our customers, and costs
associated with those new offerings, 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 our current railcar markets and new railcar markets. Any new or
modified railcar design that we develop may not gain widespread acceptance in the marketplace and
any such product may not be able to compete successfully with existing railcar designs or new
railcar designs that may be introduced by our competitors. Furthermore, we may experience
significant initial costs of production of new railcar product lines related to training, labor and
operating inefficiencies. 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.
12
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.
Our future performance will substantially depend on our ability to retain and motivate our
executive officers and key employees, both individually and as a group. If we lose any of our
executive officers or key employees, which have many years of experience with our company and
within the railcar industry and other manufacturing industries, or are unable to recruit qualified
personnel, our ability to manage the day-to-day aspects of our business may be materially adversely
affected. As a result of less demand and increased competition for some of our railcar products, we
have implemented production slowdowns and are managing our overhead costs in order to improve our
manufacturing efficiencies. We may lose the services of key employees due to production slowdowns
or otherwise, we may not be able to rehire such personnel, and suitable new key employees may not
be available, if and when our production needs later increase. The loss of the services of one or
more of our executive officers or key employees, who also have strong personal ties with customers
and suppliers, could have a material adverse effect on our business, financial condition and
results of operations. We do not currently maintain key person life insurance.
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.
An interruption in manufacturing capabilities at our complexes in Paragould or Marmaduke or at any
of our component manufacturing facilities, whether as a result of equipment failure or any other
reason, could reduce, prevent or delay production of our railcars or railcar and industrial
components, which could alter the scheduled delivery dates to our customers and affect our
production schedule. This could result in the termination of orders, the loss of future sales and a
negative impact to our reputation with our customers and in the railcar industry, all of which
could materially adversely affect our business and results of operations.
All of our facilities are subject to the risk of catastrophic loss due to unanticipated events,
such as fires, earthquakes, explosions, floods, tornados or weather conditions. We may experience
plant shutdowns or periods of reduced production as a result of equipment failures, loss of power,
delays in equipment 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.
Our entry into the railcar leasing market may deplete cash, cause us to compete directly with our
customers and adversely affect our results of operations.
We will utilize existing cash to manufacture railcars we lease to customers, while cash from lease
revenue will be received over the life of the lease or leases relating to those railcars. Depending
upon the number of railcars that we lease and the amount of cash used in other operations, our cash
balances could be depleted, which may limit our ability to support operations, maintain or expand
our existing business, or take advantage of new business opportunities. We could also experience
significant defaults on leases that could further constrain cash.
We may begin to compete with certain of our significant customers through our entry into the
railcar leasing market. Some of our railcar manufacturing competitors also produce railcars for use
in their own railcar leasing fleet, competing directly with our new railcar leasing business and
with leasing companies, some of which are our largest customers.
The failure to enter into commercially favorable railcar leases, re-lease or sell railcars upon
lease expiration and successfully manage existing leases could materially adversely affect our
business, results of operations or financial condition.
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 may expose us to liability for the conduct of others or for our actions that
complied with all applicable laws at the time these actions were taken. They may also 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 comply with all 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.
13
Our failure to maintain and comply with environmental permits that we are required to maintain
could result in fines, penalties or other sanctions and could have a material adverse effect on our
results of operations. Future events, such as new environmental regulations, 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.
The variable purchase patterns of our railcar customers and the timing of completion, customer
acceptance and shipment of orders may cause our revenues and income from operations to vary
substantially each quarter, which could result in significant fluctuations in our quarterly
results.
Railcar sales comprised approximately 62.7%, 79.1% and 86.0% of our total consolidated revenue in
2010, 2009 and 2008, respectively. Our results of operations in any particular quarterly period may
be significantly affected by the number and type of railcars manufactured and shipped in that
period, which is impacted by customer needs that vary greatly year to year, as discussed above. The
customer acceptance and title transfer or customer acceptance and shipment of our railcars
determines when we record the revenues associated with our railcar sales. Given this, the timing of
customer acceptance and title transfer or customer acceptance and shipment of our railcars could
cause fluctuations in our quarterly and annual results. The railroads could potentially go on
strike or have other service interruptions, which could ultimately create a bottleneck and
potentially cause us to slow down or halt our shipment and production schedules, which could have a
materially adverse affect on our financial results.
As a result of these fluctuations, we believe that comparisons of our sales and operating results
between quarterly periods within the same year and between quarterly periods within different years
may not be meaningful and, as such, these comparisons should not be relied upon as indicators of
our future performance.
Our unsecured senior notes contain, 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.
Complying with the covenants under our unsecured senior notes may limit our managements discretion
by restricting our ability to:
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redeem our capital stock; |
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enter into certain transactions with affiliates; |
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pay dividends and make other distributions; |
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make investments and other restricted payments; and |
Certain covenants, including those that restrict our ability to incur additional indebtedness and
issue disqualified or preferred stock, become more restrictive if our fixed charge coverage ratio,
as defined, is less than 2.0 to 1.0 as measured on a rolling four-quarter basis. Any additional
financing we may obtain could contain similar or more restrictive covenants. As of December 31,
2010, based on the Companys fixed charge coverage ratio, as defined and as measured on a rolling
four-quarter basis, certain of these covenants, including the Companys ability to incur additional
debt, have become further restricted. Our ability to comply with any covenants may be adversely
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 as they apply to us or 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, our financial condition and
liquidity.
If there were an event of default related to our outstanding unsecured senior notes, 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.
14
Companies affiliated with Mr. Carl Icahn are important to our business.
We manufacture railcars and railcar components and provide railcar services for companies
affiliated with Mr. Carl Icahn, our principal beneficial stockholder through IELP and the chairman
of our board of directors. We are currently subject to agreements, and may enter into additional
agreements, with certain of these affiliates that are important to our business. To the extent our
relationships with affiliates of Mr. Carl Icahn change due to the sale of his interest in us, such
affiliates or otherwise, our business, results of operations and financial condition may be
materially adversely affected.
An affiliate of Mr. Carl Icahn accounted for approximately 35.4%, 28.2% and 24.5% of our
consolidated revenues in 2010, 2009 and 2008, respectively. This revenue is primarily attributable
to our sale of railcars to ARL, a railcar leasing company owned by affiliates of Mr. Carl Icahn,
which currently purchases all of its railcars from us, but is not required to do so in the future.
Our railcar backlog at December 31, 2010 included $1.2 million of railcars to be sold to our
affiliate, ARL.
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.
As of December 31, 2010, the employees at our sites covered by collective bargaining agreements
collectively represent approximately 18.0% of our total workforce. A collective bargaining
agreement covering 11.3% of our full-time employees will expire in April 2011. 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 union workforce
will remain positive nor can we guarantee that union organizers will not be successful in future
attempts to organize our railcar manufacturing employees or employees at some of our other
facilities. If our workers were to engage in a strike, work stoppage or other slowdown, 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 related to pension and other postretirement
benefit plans that we sponsor could materially adversely affect our financial condition and results
of operations.
We are responsible for making funding contributions to two of our three pension plans and are
liable for any unfunded liabilities that may exist should the plans be terminated. Under certain
circumstances, such liability could be senior to our unsecured senior notes. Our liability and
resulting costs for these plans may increase or decrease based upon a number of factors, including
actuarial assumptions used, the discount rate used in calculating the present value of future
liabilities, and investment performance, which could have a material adverse effect on our
financial condition and results of operations. There is no assurance that interest rates will
remain constant or that our pension fund assets can earn the expected rate of return, and our
actual experience may be significantly more negative. Our pension expenses and funding may also be
greater than we currently anticipate if our assumptions regarding plan earnings and expenses turn
out to be incorrect.
We also provide certain postretirement 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 and could have a
similarly material adverse effect on our financial condition and results of operations due to
changes in these factors.
Our manufacturers warranties expose us to potentially significant claims.
We may be subject to significant warranty claims in the future relating to workmanship and
materials. 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.
15
Our substantial indebtedness, as a result of our outstanding unsecured senior notes, could
adversely affect our operations and financial results and prevent us from fulfilling our
obligations under the notes.
Our substantial indebtedness, consisting of our $275.0 million of unsecured senior notes, could
have important consequences to our investors. For example, it could:
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make it more difficult for us to satisfy our obligations with respect to the notes; |
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increase our vulnerability to general economic and industry conditions; |
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require us to dedicate a substantial portion of our cash flow from operations to
payments on our indebtedness, which would reduce the availability of our cash flow to fund
working capital, capital expenditures, expansion efforts and other general corporate
purposes; |
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limit our flexibility in planning for, or reacting to, changes in our business and the
industry in which we operate; |
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place us at a competitive disadvantage compared to our competitors that have less debt;
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limit, among other things, our ability to borrow additional funds for working capital,
capital expenditures, general corporate purposes or acquisitions. |
These consequences could have a significant adverse effect on our business, financial condition and
results of operations. In addition, as of December 31, 2010, based on the fixed charge coverage
ratio, as defined and as measured on a rolling four-quarter basis, certain of the covenants in the
indenture governing our unsecured senior notes, including our ability to incur additional debt,
have become further restricted. Failure to comply with covenants in the indenture could result in
an event of default, which, if not cured or waived, could have a significant adverse effect on us.
Despite our substantial indebtedness, we may still be able to incur substantially more debt, as may
our subsidiaries, which could further exacerbate the risks associated with our substantial
indebtedness.
Despite our restrictions under our unsecured senior notes, including restrictions relating to our
fixed charge coverage ratio described above, we may be able to incur future indebtedness, including
secured indebtedness, and this debt could be substantial. Any additional secured borrowings by us
and any borrowings by our subsidiaries would be senior to the notes. If new debt is added to our,
or our subsidiaries, current debt levels the related risks that we or they now face could be
magnified.
We may not be able to generate sufficient cash flow to service all of our obligations, including
our obligations under our unsecured senior notes and we may not be able to refinance our
indebtedness on commercially reasonable terms.
Our ability to make payments on and to refinance our indebtedness, including the indebtedness
incurred under our unsecured senior notes, and to fund planned capital expenditures, strategic
transactions, joint venture capital requirements or expansion efforts will depend on our ability to
generate cash in the future. This, to a certain extent, is subject to economic, financial,
competitive, legislative, regulatory and other factors that are beyond our control.
Our business may not be able to generate sufficient cash flow from operations and there can be no
assurance that future borrowings will be available to us in amounts sufficient to enable us to pay
our indebtedness as such indebtedness matures and to fund our other liquidity needs. If this is the
case, we will need to refinance all or a portion of our indebtedness on or before maturity, and we
cannot assure you that we will be able to refinance any of our indebtedness, including our
unsecured senior notes, on commercially reasonable terms, or at all. We could have to adopt one or
more alternatives, such as reducing or delaying planned expenses and capital expenditures, selling
assets, restructuring debt, or obtaining additional equity or debt financing. These financing
strategies may not be effected on satisfactory terms, if at all. Our ability to refinance our
indebtedness or obtain additional financing and to do so on commercially reasonable terms will
depend on our financial condition at the time, the indenture governing the notes, restrictions in
any agreements governing our indebtedness and other factors, including the condition of the
financial markets and the railcar industry.
If we do not generate sufficient cash flow from operations and additional borrowings, refinancings
or proceeds of asset sales are not available to us, we may not have sufficient cash to enable us to
meet all of our obligations, including payments on the unsecured senior notes.
Our investment activities are subject to risks that may adversely affect our results of operations,
liquidity and financial condition.
From time to time we may invest in marketable securities, or derivatives thereof, including higher
risk equity securities and high yield debt instruments. These securities are subject to general
credit, liquidity, market risks and interest rate fluctuations that have affected various sectors
of the financial markets and caused overall tightening of the credit markets and the decline in the
stock markets. The market risks associated with any investments we may make may have a negative
adverse effect on our results of operations, liquidity and financial condition.
Our investments at any given time also may become highly concentrated within a particular company,
industry, asset category, trading style or financial or economic market. In that event, our
investment portfolio will be more susceptible to fluctuations in value resulting from adverse
economic conditions affecting the performance of that particular company, industry, asset category,
trading style or economic market than a less concentrated portfolio would be. As a result, our
investment portfolio could become concentrated and its aggregate return may be volatile and may be
affected substantially by the performance of only one or a few holdings.
16
For reasons not necessarily attributable to any of the risks set forth in this Form 10-K (for
example, supply/demand imbalances or other market forces), the prices of the securities in which we
invest may decline substantially.
As a public company, we may have reduced access to resources of, and benefits provided by, entities
affiliated with Mr. Carl Icahn.
We believe that our relationship with entities affiliated with Mr. Carl Icahn has, in many cases,
provided us with a competitive advantage in identifying and attracting partners for critical supply
and buying arrangements. If we were unable to participate in these supply and buying group
arrangements, our manufacturing costs could increase and our results of operations and financial
condition may be materially adversely affected.
If ACF does not, or is unable to, honor its remedial or indemnity obligations to us regarding
environmental matters, such environmental matters may have a material adverse effect on our
business, financial condition or results of operations.
Certain real property we acquired from ACF in 1994 has been involved in investigation and
remediation activities to address contamination. ACF is an affiliate of Mr. Carl Icahn, the
chairman of our board of directors and, through IELP, our principal beneficial stockholder.
Substantially all of these issues identified relate to the use of this property prior to its
transfer to us by ACF and for which ACF has retained liability for environmental contamination that
may have existed at the time of transfer to us. ACF has also agreed to indemnify us for any cost
that might be incurred with those existing issues. As of the date of this report, we do not believe
we will incur material costs in connection with any investigation or remediation activities
relating to these properties, but we cannot assure that this will be the case. If ACF fails to
honor its obligations to us, we could be responsible for the cost of such remediation. 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 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.
As a public company, we are required to comply with the reporting obligations of the Exchange Act
and are 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, or if we
fail to 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.
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 Section 404 of the Sarbanes-Oxley Act. Moreover, effective
internal controls are necessary for us to produce reliable financial reports and are important to
help prevent fraud. 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.
Increasing insurance claims and expenses could lower profitability and increase business risk.
Increased insurance 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.
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.
Various patent, copyright, trade secret and trademark laws 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. As we expand internationally, through our
joint ventures or otherwise, we become subject to the risk that foreign intellectual property laws
will not protect our intellectual property rights to the same extent as intellectual property laws
in the U.S.
17
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.
Our pending or future patent applications held by us may not result in an issued patent and, if
patents are issued to us, such patents may not provide meaningful protection against competitors or
against competitive technologies. The United States Federal courts may invalidate our patents or
find them unenforceable. Competitors may also be able to design around our patents. 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, result in the payment of substantial damages or royalties,
and 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 our 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; |
|
|
|
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 be costly and time-consuming
even if possible. |
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.
Our failure to comply with regulations imposed by federal and foreign agencies could negatively
affect our financial results.
New regulatory rulings and regulations from federal or foreign regulatory agencies may impact our
financial condition and results of operations. If we fail to comply with the requirements and
regulations of these agencies that impact our manufacturing, safety and other processes we may face
sanctions and penalties that could materially adversely affect our results of operations.
Reductions in the availability of energy supplies or an increase in energy costs may increase our
operating costs.
Various factors including hostilities between the United States and foreign power or natural
disasters 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 and the energy sources we use to manufacture our
railcars. Future limitations on the availability or consumption of petroleum products or an
increase in energy costs, particularly electricity for plant operations, could have a materially
adverse effect upon our business and results of operations.
18
We may be required to reduce the value of our inventory, long-lived assets and/or goodwill, which
could materially adversely affect our financial condition and results of operations.
We may be required to reduce inventory carrying values using the lower of cost or market approach
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. 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.
We review long-lived assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of the long-lived assets may not be recoverable. As discussed in Note 9 to
our Consolidated Financial Statements, no triggering events occurred in 2010. We perform an annual
goodwill impairment test as of March 1 of each year. As discussed in Note 10, to our Consolidated
Financial Statements, no impairment loss was noted in 2010. Assumptions used in our goodwill
impairment tests regarding future operating results of our reporting units could prove to be
inaccurate. This could cause an adverse change in our valuation and thus any of our long-lived
assets or goodwill impairment tests may have been flawed. Any future impairment tests are subject
to the same risks.
If we face labor shortages or increased labor costs, our growth and results of operations could be
materially adversely affected.
Due to the competitive nature of the labor markets in which we operate and the cyclical nature of
the railcar industry, the resulting 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 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 price of our common stock is subject to volatility.
The market price for our common stock has varied between a high closing sales price of $22.31 per
share and a low closing sales price of $6.59 in the past twenty four months. This volatility may
affect the price at which you could sell our common stock. In addition, the broader stock market
has experienced price and volume fluctuations. This volatility has affected the market prices of
securities issued by many companies for reasons unrelated to their operating performance and may
adversely affect the price of our common stock. The price for our common stock is likely to
continue to be volatile and subject to price and volume fluctuations in response to market and
other factors, including the other factors discussed in these risk factors.
In the past, following periods of volatility in the market price of their stock, many companies
have been the subject of securities class action litigation. If we became involved in securities
class action litigation in the future, it could result in substantial costs and diversion of our
managements attention and resources and could harm our stock price, business, prospects, results
of operations and financial condition.
Various other factors could cause the market price of our common stock to fluctuate substantially,
including financial market and general economic changes, changes in governmental regulation,
significant railcar industry announcements or developments, the introduction of new products or
technologies by us or our competitors, and changes in other conditions or trends in our industry or
in the markets of any of our significant customers.
Other factors that could cause our stocks price to fluctuate could be actual or anticipated
variations in our or our competitors quarterly or annual financial results, financial results
failing to meet expectations of analysts or investors, changes in securities analysts estimates of
our future performance or of that of our competitors and the general health and outlook of our
industry.
Our stock price may decline due to sales of shares beneficially owned by Mr. Carl Icahn through
IELP.
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 54.3% are beneficially owned by Mr. Carl Icahn through IELP. Mr. Carl Icahn is also
the chairman of our board of directors.
Certain stockholders are contractually 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 these agreements 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
11.6 million shares of common stock are covered by such registration rights.
19
Mr. Carl Icahn exerts significant influence over us and his interests may conflict with the
interest of our other stockholders.
Mr. Carl Icahn, the chairman of our board of directors, controls approximately 54.3% of the voting
power of our capital stock, through IELP, and is able to control or exert substantial influence
over us, including the election of our directors and controlling most matters requiring board or
stockholder approval, including business strategies, mergers, business combinations, acquisitions
or dispositions of significant assets, issuances of common stock, incurrence of debt or other
financing and the payment of dividends. 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
our stock.
Mr. Carl Icahn owns, 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. Carl Icahn, competes
directly with our other customers and may compete directly with us in the railcar leasing business
and ACF has supplied us and our competitors with critical components. ACF has previously
manufactured railcars for us. Mr. Carl Icahn and entities controlled by him may also pursue
acquisitions or business opportunities that may be complementary to our business. Our articles of
incorporation allow Mr. Carl Icahn, entities controlled by him, and any director, officer, member,
partner, stockholder or employee of Mr. Carl 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 among us, Mr. Carl Icahn and his affiliates, those conflicts may be resolved
in a manner adverse to us or you.
We are a controlled company within the meaning of the NASDAQ Global Select Market rules and
therefore we are not subject to all of the NASDAQ Global Select Market corporate governance
requirements.
As we are a controlled company within the meaning of the corporate governance standards of the
NASDAQ Global Select Market, we have elected, as permitted by those rules, not to comply with
certain governance requirements. For example, our board of directors does not have a majority of
independent directors, our officers compensation is not determined by our independent directors,
and director nominees are not selected or recommended by a majority 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.
Payments of cash dividends on our common stock may be made only at the discretion of our board of
directors and may be restricted by North Dakota law. Our unsecured senior notes contain provisions
that limit our ability to pay dividends.
Our board of directors has suspended dividend payments indefinitely and may, at its discretion,
continue to refuse to declare future dividends depending 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, our unsecured senior notes
restrict our ability to declare and pay dividends on our capital stock. Furthermore, North Dakota
law imposes restrictions on our ability to pay dividends. Accordingly, we may not be able to pay
dividends in any given amount in the future, or at all.
We are governed by the North Dakota Publicly Traded Corporations Act. Interpretation and
application of this act is scarce and such lack of predictability could be detrimental to our
stockholders.
The North Dakota Publicly Traded Corporations Act, which we are governed by, was only recently
enacted and, to our knowledge no other companies are yet subject to its provisions and
interpretations of its likely application are scarce. Although the North Dakota Publicly Traded
Corporations Act specifically provides that its provisions must be liberally construed to protect
and enhance the rights of stockholders in publicly traded corporations, this lack of predictability
could be detrimental to our stockholders.
|
|
|
Item 1B: |
|
Unresolved Staff Comments |
None
20
Our headquarters is located in St. Charles, Missouri. We lease this facility from an entity owned
by Mr. James Unger, vice chairman of our board of directors pursuant to a lease agreement that
expires December 31, 2021, as described in Note 20 to our Consolidated Financial Statements.
The following table presents information about our railcar manufacturing and components
manufacturing facilities as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease |
|
|
|
|
|
Leased or |
|
Expiration |
|
Location |
|
Use |
|
Owned |
|
Date |
|
Paragould, Arkansas |
|
Railcar manufacturing |
|
Owned |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
Marmaduke, Arkansas |
|
Railcar manufacturing |
|
Owned |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
Jackson, Missouri |
|
Railcar components manufacturing |
|
Owned |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
Kennett, Missouri |
|
Railcar subassembly and small components manufacturing |
|
Owned |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
Longview, Texas |
|
Steel foundry |
|
Owned |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
St. Charles, Missouri |
|
Aluminum foundry and machining |
|
Leased |
|
|
2/28/2011 |
(1) |
|
|
|
(1) |
|
This lease was renewed during 2011 and expires on February 28, 2016. |
The following table presents information about our railcar services facilities as of December 31,
2010 where we provide railcar repair, cleaning, maintenance and other services:
|
|
|
|
|
|
|
|
|
|
|
Lease |
|
|
|
Leased or |
|
Expiration |
|
Location |
|
Owned |
|
Date |
|
Longview, Texas |
|
Owned |
|
|
N/A |
|
|
|
|
|
|
|
|
Goodrich, Texas |
|
Owned |
|
|
N/A |
|
|
|
|
|
|
|
|
North Kansas City, Missouri |
|
Owned |
|
|
N/A |
|
|
|
|
|
|
|
|
Tennille, Georgia |
|
Owned |
|
|
N/A |
|
|
|
|
|
|
|
|
Milton, Pennsylvania |
|
Owned |
|
|
N/A |
(1) |
|
|
|
|
|
|
|
La Porte, Texas |
|
Owned |
|
|
N/A |
(2) |
|
|
|
|
|
|
|
Bude, Mississippi |
|
Leased |
|
|
4/30/2011 |
(3) |
|
|
|
|
|
|
|
Sarnia, Ontario |
|
Leased |
|
|
10/31/2026 |
(4) |
|
|
|
|
|
|
|
Gonzales, Louisiana |
|
Leased |
|
|
3/31/2013 |
(5) |
|
|
|
|
|
|
|
Green River, Wyoming |
|
Leased |
|
|
12/1/2017 |
(6) |
|
|
|
(1) |
|
This facility has been idle since 2003. |
|
(2) |
|
This property was purchased during 2010 subsequent to the lease expiring. |
|
(3) |
|
The majority of the facility in Bude, Mississippi is subject to a lease from the city that
expires on April 30, 2011. This lease automatically renews on May 1, 2011, for one year, and
contains a termination clause requiring six months advance
notice. We currently intend to remain in this facility. The remaining portion of the facility in
Bude, Mississippi, is subject to a county lease that expires on February 28, 2014. |
|
(4) |
|
The land this facility is located on is subject to a lease that expires on October 31, 2026
and automatically renews for twenty years. |
|
(5) |
|
This facility is subject to a lease that expires on March 31, 2013. |
|
(6) |
|
The land this facility is located on is subject to a lease from the State that expires on
December 1, 2017. |
21
|
|
|
Item 3: |
|
Legal Proceedings |
We were named the defendant in a wrongful death lawsuit, Nicole Lerma v. American Railcar
Industries, Inc., filed on August 17, 2007 in the Circuit Court of Greene County, Arkansas Civil
Division. The court reached a verdict in our favor on May 24, 2010. The plaintiff did not appeal
the decision within the timeframe allowed.
We are from time to time party to various other legal proceedings arising out of our business. Such
proceedings, even if not meritorious, could result in the expenditure of significant financial and
managerial resources. We believe that there are no proceedings pending against us that if the
outcome was unfavorable, could have a material adverse effect on our business, financial condition
and results of operations.
PART II
|
|
|
Item 5: |
|
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities |
Market Information
Our common stock has been traded on the NASDAQ Global Select Market under the symbol ARII since
January 20, 2006. There were approximately 12 holders of record of common stock as of February 26,
2011 including multiple beneficial holders at depositories, banks and brokers listed as a single
holder of record in the street name of each respective depository, bank or broker.
The following table shows the price range of our common stock by quarter for the years ended
December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Prices |
|
Year Ended December 31, 2010 |
|
High |
|
|
Low |
|
Quarter ended March 31, 2010 |
|
$ |
12.38 |
|
|
$ |
8.90 |
|
Quarter ended June 30, 2010 |
|
|
19.03 |
|
|
|
12.06 |
|
Quarter ended September 30, 2010 |
|
|
16.13 |
|
|
|
10.39 |
|
Quarter ended December 31, 2010 |
|
|
22.31 |
|
|
|
15.01 |
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
High |
|
|
Low |
|
Quarter ended March 31, 2009 |
|
$ |
11.44 |
|
|
$ |
6.59 |
|
Quarter ended June 30, 2009 |
|
|
9.44 |
|
|
|
6.83 |
|
Quarter ended September 30, 2009 |
|
|
12.72 |
|
|
|
7.30 |
|
Quarter ended December 31, 2009 |
|
|
12.12 |
|
|
|
9.76 |
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
High |
|
|
Low |
|
Quarter ended March 31, 2008 |
|
$ |
25.51 |
|
|
$ |
15.81 |
|
Quarter ended June 30, 2008 |
|
|
22.28 |
|
|
|
16.78 |
|
Quarter ended September 30, 2008 |
|
|
23.00 |
|
|
|
15.04 |
|
Quarter ended December 31, 2008 |
|
|
15.63 |
|
|
|
6.10 |
|
Dividend Policy and Restrictions
We declared cash dividends of $0.03 per share in every quarter of 2006, 2007 and 2008 and the first
two quarters of 2009 before our board of directors suspended the dividend indefinitely. Any future
declaration and payment of dividends will be at the discretion of our board of directors and will
depend upon our operating results, strategic plans, capital requirements,
financial condition, provisions of any borrowing arrangements and other factors our board of
directors considers relevant. Additionally, the indenture relating to our unsecured senior notes
contains certain covenants that may restrict our payments of dividends if certain conditions are
present.
22
Performance Graph
The following Performance Graph and related information shall not be deemed soliciting material
or to be filed with the Securities and Exchange Commission, nor shall such information be
incorporated by reference into any future filing under the Securities Act of 1933 or Securities
Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by
reference into such filing.
The following graph illustrates the cumulative total stockholder return on our Common Stock
during the period from January 20, 2006, the date our Common Stock began trading on the NASDAQ
Global Select Market, through December 31, 2010, and compares it with the cumulative total return
on the NASDAQ Composite Index and DJ Transportation Index. The comparison assumes $100 was invested
on January 20, 2006, in our Common Stock and in each of the foregoing indices and assumes
reinvestment of dividends, if any. The performance shown is not necessarily indicative of future
performance.
Stock Performance Graph
23
|
|
|
Item 6: |
|
Selected Consolidated Financial Data. |
The following table sets forth our selected consolidated financial data for the periods presented.
The consolidated statements of operations and cash flow data as of and for the years ended December
31, 2010, 2009 and 2008 and the consolidated balance sheet data as of December 31, 2010 and 2009
are derived from our audited consolidated financial statements and related notes included elsewhere
in this annual report. The consolidated statements of operations and cash flow data for the years
ended December 31, 2007 and 2006 and the consolidated balance sheet data as of December 31, 2008,
2007 and 2006 are derived from our historical consolidated financial statements not included in
this filing. See Index to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 (7) |
|
|
|
($ in thousands, except per share data) |
|
Consolidated statement
of operations data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing operations (1) |
|
$ |
206,094 |
|
|
$ |
365,329 |
|
|
$ |
757,505 |
|
|
$ |
648,124 |
|
|
$ |
597,913 |
|
Railcar services (2) |
|
|
67,469 |
|
|
|
58,102 |
|
|
|
51,301 |
|
|
|
50,003 |
|
|
|
48,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
273,563 |
|
|
|
423,431 |
|
|
|
808,806 |
|
|
|
698,127 |
|
|
|
646,052 |
|
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing operations |
|
|
(210,269 |
) |
|
|
(329,025 |
) |
|
|
(682,744 |
) |
|
|
(568,023 |
) |
|
|
(537,344 |
) |
Railcar services |
|
|
(54,353 |
) |
|
|
(47,015 |
) |
|
|
(41,653 |
) |
|
|
(41,040 |
) |
|
|
(38,020 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
(264,622 |
) |
|
|
(376,040 |
) |
|
|
(724,397 |
) |
|
|
(609,063 |
) |
|
|
(575,364 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
8,941 |
|
|
|
47,391 |
|
|
|
84,409 |
|
|
|
89,064 |
|
|
|
70,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income related to insurance
recoveries, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,946 |
|
Gain on asset conversion, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,323 |
|
Selling, administrative and other
(3) |
|
|
(25,591 |
) |
|
|
(25,141 |
) |
|
|
(26,535 |
) |
|
|
(27,379 |
) |
|
|
(28,399 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) earnings |
|
|
(16,650 |
) |
|
|
22,250 |
|
|
|
57,874 |
|
|
|
61,685 |
|
|
|
56,558 |
|
Interest income (4) |
|
|
3,519 |
|
|
|
6,613 |
|
|
|
7,835 |
|
|
|
13,829 |
|
|
|
1,504 |
|
Interest expense |
|
|
(21,275 |
) |
|
|
(20,909 |
) |
|
|
(20,299 |
) |
|
|
(17,027 |
) |
|
|
(1,372 |
) |
Other income (5) |
|
|
394 |
|
|
|
20,869 |
|
|
|
3,657 |
|
|
|
|
|
|
|
|
|
(Loss) income from joint venture |
|
|
(7,789 |
) |
|
|
(6,797 |
) |
|
|
718 |
|
|
|
881 |
|
|
|
(734 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before income tax
expense |
|
|
(41,801 |
) |
|
|
22,026 |
|
|
|
49,785 |
|
|
|
59,368 |
|
|
|
55,956 |
|
Income tax benefit (expense) |
|
|
14,795 |
|
|
|
(6,568 |
) |
|
|
(18,403 |
) |
|
|
(22,104 |
) |
|
|
(20,752 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings |
|
$ |
(27,006 |
) |
|
$ |
15,458 |
|
|
$ |
31,382 |
|
|
$ |
37,264 |
|
|
$ |
35,204 |
|
Less preferred dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(568 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings available to
common shareholders |
|
$ |
(27,006 |
) |
|
$ |
15,458 |
|
|
$ |
31,382 |
|
|
$ |
37,264 |
|
|
$ |
34,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding-basic (6) |
|
|
21,302 |
|
|
|
21,302 |
|
|
|
21,302 |
|
|
|
21,274 |
|
|
|
20,667 |
|
Net (loss) earnings per common
share-basic (6) |
|
$ |
(1.27 |
) |
|
$ |
0.73 |
|
|
$ |
1.47 |
|
|
$ |
1.75 |
|
|
$ |
1.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding-diluted (6) |
|
|
21,302 |
|
|
|
21,302 |
|
|
|
21,302 |
|
|
|
21,357 |
|
|
|
20,733 |
|
Net (loss) earnings per common
share-diluted (6) |
|
$ |
(1.27 |
) |
|
$ |
0.73 |
|
|
$ |
1.47 |
|
|
$ |
1.74 |
|
|
$ |
1.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common
share |
|
$ |
|
|
|
$ |
0.06 |
|
|
$ |
0.12 |
|
|
$ |
0.12 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated balance
sheet data (at year end): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
318,758 |
|
|
$ |
347,290 |
|
|
$ |
291,788 |
|
|
$ |
303,882 |
|
|
$ |
40,922 |
|
Net working capital |
|
|
362,763 |
|
|
|
374,965 |
|
|
|
376,106 |
|
|
|
380,111 |
|
|
|
126,086 |
|
Property, plant and equipment, net |
|
|
181,255 |
|
|
|
199,349 |
|
|
|
206,936 |
|
|
|
175,166 |
|
|
|
130,293 |
|
Total assets |
|
|
654,367 |
|
|
|
664,364 |
|
|
|
679,654 |
|
|
|
654,384 |
|
|
|
338,926 |
|
Total liabilities |
|
|
346,591 |
|
|
|
328,724 |
|
|
|
364,929 |
|
|
|
363,396 |
|
|
|
88,746 |
|
Total shareholders equity |
|
|
307,776 |
|
|
|
335,640 |
|
|
|
314,725 |
|
|
|
290,988 |
|
|
|
250,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated cash flow data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
operating activities |
|
$ |
(12,141 |
) |
|
$ |
84,143 |
|
|
$ |
44,603 |
|
|
$ |
60,219 |
|
|
$ |
29,967 |
|
Net cash used in investing
activities |
|
|
(16,692 |
) |
|
|
(26,842 |
) |
|
|
(54,110 |
) |
|
|
(67,434 |
) |
|
|
(51,704 |
) |
Net cash provided by (used in)
financing activities |
|
|
294 |
|
|
|
(1,917 |
) |
|
|
(2,564 |
) |
|
|
270,164 |
|
|
|
33,967 |
|
Effect of exchange rate changes
on cash and cash equivalents |
|
|
7 |
|
|
|
118 |
|
|
|
(23 |
) |
|
|
11 |
|
|
|
|
|
24
You should read this information together with Managements 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.
|
|
|
(1) |
|
Includes revenues from transactions with affiliates of $81.9 million, $105.2 million, $182.8
million, $140.2 million and $50.0 million in 2010, 2009, 2008, 2007 and 2006, respectively. |
|
(2) |
|
Includes revenues from transactions with affiliates of $15.0 million, $14.4 million, $15.3
million, $16.0 million and $18.9 million in 2010, 2009, 2008, 2007 and 2006, respectively. |
|
(3) |
|
Includes costs from transactions with affiliates of $0.6 million, $0.6 million, $0.6 million,
$0.6 million and $2.0 million in 2010, 2009, 2008, 2007 and 2006, respectively. |
|
(4) |
|
Includes interest income from affiliates of $2.6 million and $1.0 million in 2010 and 2009,
respectively, and less than $0.1 million in 2008, 2007 and 2006. |
|
(5) |
|
Includes other income from affiliates of less than $0.1 million in both 2010 and 2009 and
zero in 2008, 2007 and 2006. |
|
(6) |
|
Share and per share data has been restated to give effect to the merger of American Railcar
Industries, Inc. and its wholly-owned subsidiary, American Railcar Industries, Inc. the
surviving entity in 2006. |
|
(7) |
|
Includes the acquisition of Custom Steel, effective as of March 31, 2006. |
|
|
|
Item 7: |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
You should read the following discussion in conjunction with Selected Consolidated Financial Data
and our consolidated financial statements and related notes included in this annual report. This
discussion contains forward-looking statements that are based on managements current expectations,
estimates and projections about our business and operations. Our actual results may differ
materially from those currently anticipated and expressed in such forward-looking statements,
including as a result of the factors we describe under Risk Factors and elsewhere in this annual
report. See Special note regarding forward-looking statements appearing at the beginning of this
report and Risk Factors set forth in Item 1A of this report.
OVERVIEW
We are a leading North American designer and manufacturer of hopper and tank railcars. We also
lease, repair and refurbish railcars, provide fleet management services and design and manufacture
certain railcar and industrial components. We provide our railcar customers with integrated
solutions through a comprehensive set of high quality products and related services.
We operate in two segments: manufacturing operations and railcar services. Manufacturing operations
consist of railcar manufacturing, railcar leasing and railcar and industrial component
manufacturing. Railcar services consist of railcar repair and refurbishment services and fleet
management services.
The North American railcar market has been, and we expect it to continue to be highly cyclical. The
recent economic downturn and restricted credit markets have seen modest improvements but had a
negative effect on the railcar manufacturing market in which we compete, resulting in increased
competition and significant pricing pressures in 2010. This downturn adversely affected the sales
of our railcars and other products and caused us to slow our production rates in 2010 as compared
to 2009, resulting in a significant decrease in comparable shipments and revenues. For the year
ended December 31, 2010 we reported a net loss.
Throughout 2010, railcar loadings have increased and the number of railcars in storage has
decreased, as reported by an independent third party industry analyst. Along with these
improvements, which may or may not continue, we have received an increased number of requests for
quotations and were successful in securing approximately 2,590 railcar orders in 2010. We believe
that these improvements appear to indicate that the railcar market has begun and will continue to
improve and based in part on these factors, we currently expect our railcar orders and shipments to
increase in 2011, as compared to 2010. We cannot assure you that the railcar market will continue
to improve or that our railcar orders and shipments will increase.
Our railcar services segment experienced growth due to increased volumes at railcar repair plants
and railcar repair projects completed at our railcar manufacturing facilities. These higher volumes
along with our seasoned workforce have generated additional efficiencies in completing repair
projects. We plan to continue to utilize available capacity at these facilities for certain repair
projects in 2011.
25
RESULTS OF OPERATIONS
The following table summarizes our historical operations as a percentage of revenues for the
periods shown. Our historical results are not necessarily indicative of operating results that may
be expected in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing operations |
|
|
75.3 |
% |
|
|
86.3 |
% |
|
|
93.7 |
% |
Railcar services |
|
|
24.7 |
% |
|
|
13.7 |
% |
|
|
6.3 |
% |
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing operations |
|
|
(76.8 |
%) |
|
|
(77.7 |
%) |
|
|
(84.4 |
%) |
Railcar services |
|
|
(19.9 |
%) |
|
|
(11.1 |
%) |
|
|
(5.2 |
%) |
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
(96.7 |
%) |
|
|
(88.8 |
%) |
|
|
(89.6 |
%) |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
3.3 |
% |
|
|
11.2 |
% |
|
|
10.4 |
% |
Selling, administrative and other
expenses |
|
|
(9.4 |
%) |
|
|
(5.9 |
%) |
|
|
(3.3 |
%) |
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from operations |
|
|
(6.1 |
%) |
|
|
5.3 |
% |
|
|
7.1 |
% |
Interest income |
|
|
1.3 |
% |
|
|
1.6 |
% |
|
|
1.0 |
% |
Interest expense |
|
|
(7.8 |
%) |
|
|
(4.9 |
%) |
|
|
(2.5 |
%) |
Other income |
|
|
0.1 |
% |
|
|
4.9 |
% |
|
|
0.5 |
% |
(Loss) earnings from joint venture |
|
|
(2.8 |
%) |
|
|
(1.6 |
%) |
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before income tax
expense |
|
|
(15.3 |
%) |
|
|
5.3 |
% |
|
|
6.2 |
% |
Income tax benefit (expense) |
|
|
5.4 |
% |
|
|
(1.6 |
%) |
|
|
(2.3 |
%) |
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings |
|
|
(9.9 |
%) |
|
|
3.7 |
% |
|
|
3.9 |
% |
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010 compared to year ended December 31, 2009
Revenues
Our revenues in 2010 decreased 35.4% to $273.6 million from $423.4 million in 2009. This decrease
was attributable to a decrease in revenues from manufacturing operations partially offset by an
increase in revenues from railcar services.
Our manufacturing operations revenues decreased 43.6% to $206.1 million in 2010 from $365.3 million
in 2009. The primary reasons for the decrease in revenues were a decrease in railcar shipments and
an overall decrease in average selling prices due to competitive pricing and a change in product
mix. Our shipments in 2010 were approximately 2,090 railcars as compared to approximately 3,690
railcars in 2009.
In 2010, our manufacturing operations revenues included $81.9 million, or 29.9% of our total
consolidated revenues, from transactions with ARL, compared to $105.2 million, or 24.8% of our
total consolidated revenues from transactions with ARL and ACF, in 2009. ARL and ACF are affiliated
companies controlled by Mr. Carl Icahn.
Our railcar services revenues increased 16.1% to $67.5 million in 2010 from $58.1 million in 2009.
This increase was primarily attributable to higher volumes at railcar repair plants and the
utilization of our railcar manufacturing facilities for railcar repair projects. In 2010, our
railcar services revenues included $15.0 million, or 5.5% of our total consolidated revenues, from
transactions with ARL, as compared to $14.4 million, or 3.4% of our total consolidated revenues, in
2009. ARL is an affiliated company controlled by Mr. Carl Icahn.
Gross profit
Our gross profit decreased to $8.9 million in 2010 from $47.4 million in 2009. Our gross profit
margin decreased to 3.3% in 2010 from 11.2% in 2009. This decrease in overall gross profit margin
was primarily driven by a decrease in our gross profit margins from our manufacturing operations.
Our gross profit margin for our manufacturing operations decreased to a loss of 2.0% in 2010 as
compared to a profit of 9.9% in 2009. This decrease was primarily attributable to lower shipments,
lower average selling prices and the impact of fixed costs in a low production environment.
26
Our gross profit margin for railcar services increased to 19.4% in 2010 from 19.1% in 2009. This
increase was primarily attributable to increased volumes at railcar repair plants and repair
projects performed at our railcar manufacturing facilities.
Selling, administrative and other expenses
Our selling, administrative and other expenses increased in 2010 to $25.6 million from $25.1
million in 2009. The increase of $0.5 million was primarily attributable to a $3.1 million increase
in stock based compensation expense, partially offset by a decrease in incentive compensation,
outside services and a non-recurring legal settlement recorded in 2009. The increase in stock based
compensation expense was due to increased expense related to our stock appreciation rights (SARs),
which was driven by an increase in the stock price in 2010 as compared to 2009.
Interest expense and interest income
Net interest expense for 2010 was $17.8 million, representing $3.5 million of interest income and
$21.3 million of interest expense, as compared to $14.3 million of net interest expense for 2009,
representing $6.6 million of interest income and $20.9 million of interest expense.
The $3.1 million decrease in interest income from 2009 to 2010 was primarily attributable to the
higher interest rate that was earned on corporate bonds purchased and sold in 2009, as the sale
proceeds were reinvested at a lower rate of return. The $0.4 million increase in interest expense
from 2009 to 2010 was primarily due to a decrease in capitalized interest caused by a decrease in
capital expenditures.
Other income
Other income of $0.4 million was recognized in 2010 related to realized gains on the sale of a
portion of our investment in Greenbrier common stock. During 2009, we sold our investment in
corporate bonds resulting in a realized gain of $23.9 million partially offset by a $2.9 million
other-than-temporary impairment of our investment in Greenbrier common stock and a realized loss of
less than $0.1 million on the sale of 7,000 shares of Greenbrier common stock. See further
discussion of our short-term investment activity in Note 3 to our Consolidated Financial
Statements.
(Loss) earnings from joint ventures
Loss from joint ventures was $7.8 million in 2010 as compared to $6.8 million in 2009. In 2010, due
to weak demand, Axis reported a loss, of which our share was $6.3 million, Ohio Castings reported a
loss, of which our share was $1.0 million and Amtek Railcar and US Railcar Company LLC (USRC) both
reported a loss, of which our combined share was $0.5 million. In 2009, Axis reported a loss, of
which our share was $5.0 million and Ohio Castings reported a loss, of which our share was $1.8
million. During 2009, Ohio Castings was temporarily idled due to the weak railcar market and
remained temporarily idled at December 31, 2010.
Income tax benefit (expense)
In 2010, we reported an income tax benefit of $14.8 million as compared to an income tax expense of
$6.6 million for 2009. The effective tax rate for 2010 was 35.4% as compared to 29.8% for 2009.
During 2010, we recorded a valuation allowance for a deferred tax asset that became unrealizable.
We plan to file for a loss carry-back to prior years. In 2009, we recorded a one-time $1.0 million
adjustment to accrued taxes due to certain tax benefits becoming recognizable.
Year ended December 31, 2009 compared to year ended December 31, 2008
Revenues
Our revenues in 2009 decreased 47.6% to $423.4 million from $808.8 million in 2008. This decrease
was attributable to a decrease in revenues from manufacturing operations partially offset by an
increase in revenues from railcar services.
Our manufacturing operations revenues decreased 51.8% to $365.3 million in 2009 from $757.5 million
in 2008. The primary reasons for the decrease in revenues were decreased railcar shipments due to
weak demand and a decrease in surcharges reflected in selling prices, partially offset by a change
in product mix. During 2009, we decreased our workforce and production rates at our manufacturing
plants due to reduced demand resulting in lower shipments. Our shipments in 2009 were approximately
3,690 railcars as compared to approximately 7,970 railcars in 2008. Approximately 220 of the
shipments in 2009 were related to our railcar manufacturing agreement with ACF, which generated
$19.0 million in revenues, as compared to approximately 960 railcar shipments in 2008, which
generated $100.3 million in revenues. Our agreement with ACF terminated in March 2009, as described
in Note 20 to our Consolidated Financial Statements.
27
In 2009, our manufacturing operations revenues included $105.2 million, or 24.8% of our total
consolidated revenues, from transactions with ARL and ACF, compared to $182.8 million, or 22.6% of
our total consolidated revenues, in 2008. ARL and ACF are affiliated companies controlled by Mr.
Carl Icahn.
Our railcar services revenues increased 13.3% to $58.1 million in 2009 from $51.3 million in 2008.
This increase was primarily attributable to expansions at our railcar repair facilities and the
railcar repair work performed at one of our railcar manufacturing facilities. In 2009, our railcar
services revenues included $14.4 million, or 3.4% of our total consolidated revenues, from
transactions with ARL, as compared to $15.3 million, or 1.9% of our total consolidated revenues, in
2008. ARL is an affiliated company controlled by Mr. Carl Icahn.
Gross profit
Our gross profit decreased to $47.4 million in 2009 from $84.4 million in 2008. Our gross profit
margin increased to 11.2% in 2009 from 10.4% in 2008. The increase in overall gross profit margin
was primarily driven by an increase in railcar services and effective cost management, all
partially offset by a decrease in railcar shipments.
Our gross profit margin for our manufacturing operations remained constant at 9.9% for both 2009
and 2008. This was primarily attributable to fixed overhead cost control measures and strong labor
efficiencies at most of our manufacturing locations offset by lower volumes.
Our gross profit margin for railcar services increased to 19.1% in 2009 from 18.8% in 2008. This
increase was primarily attributable to labor efficiencies, increased volume and a favorable mix of
work.
Selling, administrative and other expenses
Our selling, administrative and other expenses decreased in 2009 to $25.1 million from $26.5
million in 2008. The decrease of $1.4 million was primarily attributable to decreased workforce
and other cost cutting measures partially offset by a legal settlement and an increase in stock
based compensation expense of $0.9 million. The increase in stock based compensation expense was
due to increased expense for SARs, which was driven by a trend of increasing stock price levels in
2009 as compared to a trend of decreasing stock price levels in 2008.
Interest expense and interest income
Net interest expense for 2009 was $14.3 million, representing $6.6 million of interest income and
$20.9 million of interest expense, as compared to $12.5 million of net interest expense for 2008,
representing $7.8 million of interest income and $20.3 million of interest expense.
The $1.2 million decrease in interest income from 2008 to 2009 was primarily attributable to lower
interest rates. The $0.6 million increase in interest expense from 2008 to 2009 was due to a
decrease in capitalized interest.
Other income
During 2009, we sold corporate bonds we had invested in resulting in a realized gain of $23.9
million partially offset by a $2.9 million other-than-temporary impairment of our investment in
Greenbrier common stock and a realized loss of less than $0.1 million on the sale of 7,000 shares
of Greenbrier common stock. See further discussion of our short-term investment activity in Note 3
to our Consolidated Financial Statements.
(Loss) earnings from joint ventures
Loss from joint ventures was $6.8 million in 2009 as compared to earnings from joint ventures of
$0.7 million in 2008. In 2009, due to weak demand, Axis reported a loss, of which our share was
$5.0 million and Ohio Castings reported a loss, of which our share was $1.8 million. In 2008, Axis
reported a loss, of which our share was $1.1 million and Ohio Castings reported net income, of
which our share was $1.8 million. During 2009, Ohio Castings was temporarily idled due to the weak
railcar market.
Income tax expense
In 2009, we reported income tax expense of $6.6 million as compared to $18.4 million for 2008. The
effective tax rate for 2009 was 29.8% as compared to 37.0% for 2008. The decrease in the effective
tax rate in 2009 was primarily attributable to a one-time $1.0 million adjustment to accrued taxes
due to certain tax benefits becoming recognizable during 2009.
28
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2010, we had net working capital of $362.8 million, including $318.8 million of
cash and cash equivalents. Our cash position at December 31, 2010 consists of cash proceeds from
our unsecured senior notes issued in February 2007, net cash proceeds from our short-term
investment activity and overall cash used in operations.
Outstanding and Available Debt
Unsecured senior notes
In February 2007, we issued $275.0 million of unsecured senior fixed rate notes, which were
subsequently exchanged for registered notes in March 2007 (Notes). The offering resulted in net
proceeds to us of approximately $270.7 million. The terms of the Notes contain restrictive
covenants, including limitations on our ability to incur additional debt, issue disqualified or
preferred stock, make certain restricted payments and enter into certain significant transactions
with stockholders and affiliates. As of December 31, 2010, our fixed charge coverage ratio, as
defined and as measured on a rolling four-quarter basis, is less than 2.0 to 1.0 and based on this
ratio, certain of these covenants, including our ability to incur additional debt, have become
further restricted. As of December 31, 2010, and for the year then ended, we were in compliance
with all of our covenants under the Notes.
Commencing on March 1, 2011, the redemption price is set at 103.75% of the principal amount of our
unsecured senior notes plus accrued and unpaid interest, and declines annually until it is reduced
to 100.0% of the principal amount of our unsecured senior notes plus accrued and unpaid interest
from and after March 1, 2013. Our unsecured senior notes are due in full plus accrued unpaid
interest on March 1, 2014.
Cash Flows from Operating Activities
Cash flows from operating activities are affected by several factors, including fluctuations in
business volume, contract terms for billings and collections, the timing of collections on our
accounts receivables, processing of payroll and associated taxes and payments to our suppliers.
Our net cash used in operating activities for the year ended December 31, 2010 was $12.1 million.
Our net loss of $27.0 million was impacted by non-cash items including depreciation and
amortization expense of $24.3 million, joint venture losses of $7.8 million, stock based
compensation of $5.4 million (relating to SARs that settle in cash) and other smaller items.
Cash used in operating activities included an increase of $13.3 million of accounts receivable
(including those from affiliates), an increase of $9.9 million of inventory and an increase of
$13.2 million of income taxes receivable. Cash provided by operating activities included an
increase of $12.1 million in accounts payable (including those to affiliates), an increase in
accrued expenses and taxes of $0.5 million, a decrease of $2.2 million in prepaid expenses and
other current assets and a decrease of $0.8 million in interest receivable, due from affiliates.
The increase in accounts receivable and inventory was primarily due to increased sales and
production levels in December 2010 as compared to December 2009. The increase in income taxes
receivable was primarily due to our net loss of $27.0 million. The increase in accrued expenses and
taxes was primarily due to an increase in accrued stock based compensation (relating to SARs that
settle in cash) at December 31, 2010 compared to December 31, 2009. The increase in accounts
payable is primarily due to an increase in production and inventory levels and the timing of
payments in 2010 compared to 2009. The decrease in prepaid expenses and other current assets is
primarily due to a decrease in advances to the workers compensation insurance carrier and the
timing of corporate insurance payments in 2010 as compared to 2009. The decrease in interest
receivable is primarily attributable to the sale of corporate bonds in 2009.
Cash Flow from Investing Activities
Net cash used in investing activities was $16.7 million for the year ended December 31, 2010. This
amount includes $6.1 million of purchases of property, plant and equipment, $14.9 million of equity
contributions and loans to our Ohio Castings, Axis, Amtek Railcar and USRC joint ventures,
partially offset by a $4.2 million cash inflow from the sale of short-term investments. The $6.1
million in capital expenditures was primarily for the purchase of equipment at multiple locations
and for projects to improve operating efficiencies and maintenance activities. Some of these
purchases are described in further detail below under Capital Expenditures.
29
Capital expenditures
We continuously evaluate facility requirements based on our strategic plans, production
requirements and market demand and may elect to change our level of capital investments in the
future. These investments are all based on an analysis of the estimated rates of return and impact
on our profitability. We could pursue opportunities to reduce our costs through vertical
integration of component parts. From time to time, we may expand our business, domestically or
abroad, by acquiring other businesses or pursuing other strategic growth opportunities including,
without limitation, joint ventures.
Capital expenditures for the year ended December 31, 2010 were $6.1 million, including costs that
were capitalized related to refurbishment and replacement of existing assets and facilities,
improvements for cost reduction purposes and expansion activities at our railcar repair facilities
that were completed during 2010.
Future Liquidity
We believe that our existing cash balance of $318.8 million will provide sufficient liquidity to
meet our expected operating requirements over the next twelve months. We expect our future cash
flows from operations to be impacted by the state of the credit markets and the overall economy,
the number of our railcar orders and shipments and our production rates. Our future liquidity may
also be impacted by the number of our new railcar orders leased versus sold.
Our long-term liquidity is contingent upon future operating performance and our ability to continue
to meet financial covenants under our indenture and any other indebtedness we may enter into, and
our ability to repay or refinance our indebtedness as it becomes due. We may also require
additional capital in the future to fund capital expenditures, acquisitions or other investments.
These capital requirements could be substantial.
Our operating performance may also be affected by other matters discussed under Risk Factors, and
trends and uncertainties discussed in this discussion and analysis, as well as elsewhere in this
annual report. These risks, trends and uncertainties may also materially adversely affect our
long-term liquidity.
Our current capital expenditure plans for 2011 include projects that we expect will maintain
equipment, improve efficiencies and reduce costs and various capital expenditures related to 2010
projects that have carried over into 2011. These capital expenditure plans may also include
expenditures to further integrate our supply chain. We cannot assure that we will be able to
complete any of our projects on a timely basis or within budget, if at all.
Other potential projects, including possible strategic transactions that could complement and
expand our business units, will be evaluated to determine if the project or opportunity is right
for us. We anticipate that any future expansion of our business will be financed through existing
resources, cash flow from operations, term debt associated directly with that project or other new
financing. We cannot guarantee that we will be able to meet existing financial covenants or obtain
term debt or other new financing on favorable terms, if at all.
Dividends
During each quarter since our initial public offering in January 2006 until the second quarter of
2009, our board of directors declared cash dividends of $0.03 per share of our common stock to
stockholders of record as of a given date. The last dividend was declared in May 2009 and paid in
July 2009.
Subsequently, in August 2009, our board of directors indefinitely suspended our quarterly dividend
payments and any decision to pay future dividends will be at the discretion of our board of
directors and will depend upon our operating results, strategic plans, capital improvements,
financial condition, debt covenants and other factors, including provisions of our indenture.
30
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2010, and the effect
that these obligations and commitments are expected to have on our liquidity and cash flow in
future periods.
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Payments due by Period |
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After 5 |
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Contractual Obligations |
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Total |
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1 year |
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2-3 years |
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4-5 years |
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years |
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(in thousands) |
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Operating Lease Obligations 1 |
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$ |
13,081 |
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$ |
1,083 |
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$ |
2,047 |
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$ |
2,354 |
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$ |
7,597 |
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Purchase Obligations 2 |
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Senior Unsecured Notes 3 |
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275,000 |
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275,000 |
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Interest Payments on Senior Unsecured Notes 4 |
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72,188 |
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20,625 |
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41,250 |
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10,313 |
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Pension and Postretirement Funding 5 |
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7,924 |
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1,205 |
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2,583 |
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2,453 |
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1,683 |
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Total |
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$ |
368,193 |
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$ |
22,913 |
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$ |
45,880 |
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$ |
290,120 |
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$ |
9,280 |
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(1) |
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The operating lease commitment includes the future minimum rental payments required under
non-cancelable operating leases for property and equipment leased by us. |
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(2) |
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As of December 31, 2010, we were not party to any enforceable and legally binding agreements
to purchase goods or services that specify all significant terms. |
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(3) |
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On February 28, 2007, we issued $275.0 million of unsecured senior notes that are due on
March 1, 2014. |
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(4) |
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The interest rate on these notes is 7.5%. These notes have interest payments due semiannually
on March 1 and September 1 of every year. |
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(5) |
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Our pension funding commitments include minimum funding contributions required by law for our
two funded pension plans as well as expected benefit payments for our one unfunded pension
plan. Our postretirement benefits are also unfunded thus the participants and we must fund
premium payments. |
We have excluded from the contractual obligations table above, our gross amount of unrecognized tax
benefits of $1.6 million. While it is uncertain as to the amount, if any, of these unrecognized tax
benefits that will be settled by means of a cash payment, we do not currently expect any
significant changes to our unrecognized tax benefits within the next twelve months.
In July 2007, we entered into an agreement with Axis to purchase new railcar axles. We do not have
any minimum volume purchase requirements under this agreement.
Contingencies
In connection with our investment in Ohio Castings, we have guaranteed a $2.0 million state loan
that provides for purchases of capital equipment, of which $0.2 million was outstanding as of
December 31, 2010. The state loan is scheduled to be fully paid off in June 2011. The two other
partners of Ohio Castings have made identical guarantees of this obligation.
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. These laws and
regulations not only expose us to liability for the environmental condition of our current or
formerly owned or operated facilities, and negligent acts, but 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 common law. Certain real property we acquired from ACF in 1994
has been involved in investigation and remediation activities to address contamination. ACF is an
affiliate of Mr. Carl Icahn, the chairman of our board of directors and, through IELP, our
principal beneficial stockholder. Substantially all of the issues identified relate to the use of
this property prior to its transfer to us by ACF and for which ACF has retained liability for
environmental contamination that may have existed at the time of transfer to us. ACF has also
agreed to indemnify us for any cost that might be incurred with those existing issues. As of the
date of this report, we do not believe that we will incur material costs in connection with any
investigation or remediation activities relating to these properties, but we cannot assure that
this will be the case. If ACF fails to honor its obligations to us, we could be responsible for the
cost of
such remediation. 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.
31
We were named the defendant in a wrongful death lawsuit, Nicole Lerma v. American Railcar
Industries, Inc., filed on August 17, 2007 in the Circuit Court of Greene County, Arkansas Civil
Division. The court reached a verdict in our favor on May 24, 2010. The plaintiff did not appeal
the decision within the timeframe allowed.
We are from time to time party to various other legal proceedings arising out of our business. Such
proceedings, even if not meritorious, could result in the expenditure of significant financial and
managerial resources. We believe that there are no proceedings pending against us that if the
outcome was unfavorable, could have a material adverse effect on our business, financial condition
and results of operations.
Axis Loan
Axis entered into a credit agreement in December 2007 (as amended, the Axis Credit Agreement).
During 2009, we, through ARI Component and the other initial partner acquired this loan from the
lenders party thereto, with each party acquiring a 50.0% interest in the loan for $29.5 million,
the then outstanding principal amount of the portion of the loan we acquired. The total commitment
under the term loan is $60.0 million with an additional $10.0 million commitment under the
revolving loan. ARI Component is responsible to fund 50.0% of the loan commitments. The balance
outstanding on these loans, due to ARI Component, was $31.9 million of principal and $3.6 million
of accrued interest, both as of December 31, 2010. ARI Components share of the remaining
commitment on these loans was $3.1 million as of December 31, 2010. See Note 11 for further
information regarding this transaction and the terms of the underlying loan.
We are in discussions with Axis and the other initial partner of Axis regarding the potential
renegotiation of the term loans, as it is not currently anticipated that Axis will be able to repay
the term loans in accordance with the Axis Credit Agreement, beginning March 31, 2011. We cannot
guarantee that any renegotiation will be accomplished on commercially acceptable terms, if at all,
or in a timely manner.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
We prepare our Consolidated Financial Statements in accordance with U.S. GAAP (Generally Accepted
Accounting Principles). The preparation of our financial statements requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of sales and expenses during the reporting period. Estimates and assumptions are periodically
evaluated and may be adjusted in future periods. A summary of our significant accounting policies
are described in Note 2 to our Consolidated Financial Statements included elsewhere in this annual
report. Some of these policies involve a high degree of judgment in their application. The critical
accounting policies, in managements judgment, are those described below. If different assumptions
or conditions prevail, or if our estimates and assumptions prove to be incorrect, actual results
could be materially different from those reported.
Revenue Recognition
Revenues from railcar sales are recognized following completion of manufacturing, inspection,
customer acceptance and title transfer, which is when the risk for any damage or loss with respect
to the railcars passes to the customer. Paint and lining work may be outsourced to an independent
contractor 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 contractor, customer acceptance and final shipment.
Revenues from railcar leasing are recognized on a straight-line basis over the life of the lease.
Revenues from railcar and industrial 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. Revenue for fleet management services is
recognized as performed.
Inventory
Inventories are stated at the lower of cost or market, and include the cost of materials, direct
labor and manufacturing overhead. We allocate fixed production overheads to the costs of conversion
based on the normal capacity of our production facilities. If any of our production facilities are
not operating at normal capacity, unallocated production overheads are recognized as a current
period charge. We evaluate our ability to realize the value of our inventory based on a combination
of factors including historical usage rates, forecasted sales or usage, product end of life dates,
estimated current and future market values and new product introductions. Assumptions used in
determining our estimates of future product demand may prove to be incorrect; in which case, the
provision required for excess and obsolete inventory would have to be adjusted in the future. When
recorded, our reserves are intended to reduce the carrying value of our inventory to its net
realizable value.
32
Long-lived assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the long-lived assets may not be recoverable. During the year ended
December 31, 2010, no triggering events occurred. The criteria for determining impairment of 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 managements best estimate of future undiscounted cash
flows expected to result from the use of the long-lived assets. If the long-lived assets are
considered to be impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the long-lived assets exceeds the fair value of the long-lived assets. The
estimated fair value of the long-lived assets is measured by estimating the present value of the
future discounted cash flows to be generated.
The North American railcar market has been, and we expect it to continue to be highly cyclical,
generally fluctuating in correlation with the U.S. economy. While the economy and the railcar
market remained weak throughout 2010, we believe that this downturn is temporary, reflecting the
cyclical nature of the industry, and that railcar orders will recover in the future. Independent
third party industry analysts are also forecasting the railcar market to recover as the economy
improves. As a result, at this time, we do not believe that the decline in our shipments and
revenues, which we view as temporary, warrants an impairment analysis of our long-lived assets.
Therefore, an impairment analysis was not performed for the year ended December 31, 2010. However,
we intend to continue to monitor our long-lived assets for impairment in response to events or
changes in circumstances.
Goodwill
At December 31, 2010, we had $7.2 million of goodwill recorded in conjunction with a past business
acquisition, all allocated to a reporting unit that is part of our manufacturing operations
segment. We evaluate goodwill for impairment at least annually and whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. Whether an impairment of
goodwill is required is determined by comparing the carrying value of the assets to their fair
value, which is determined using a combination of methods, including managements best estimate of
future discounted cash flows expected to result from the business. If the estimated fair value is
less than the carrying value, goodwill is considered impaired and the impairment recognized equals
such difference. We performed the annual impairment test as of March 1, 2010, noting no adjustment
was required.
We utilized the market and income approaches and significant assumptions, discussed below, in the
March 1, 2010 impairment test.
Market Approach
The market approach produces indications of value by applying multiples of enterprise value to
revenue as well as enterprise value to earnings before depreciation, amortization, interest and
taxes. The multiples indicate what investors are willing to pay for comparable publicly held
companies. When adjusted for the risk level and growth potential of the subject company relative to
the guideline companies, these multiples are a reasonable indication of the value an investor would
attribute to the subject company.
Income Approach
The income approach considers the subject companys future sales and earnings growth potential as
the primary source of future cash flow. We prepared a five year financial projection for the
reporting unit and used a discounted net cash flow method to determine the fair value. Net cash
flow consists of after-tax operating income, plus depreciation, less capital expenditures and
working capital needs. The discounted cash flow method considers a five-year projection of net cash
flow and adds to those cash flows a residual value at the end of the projection period.
Significant estimates and assumptions used in the evaluation were forecasted revenues and profits,
the weighted average cost of capital and tax rates. Forecasted revenues of the reporting unit were
estimated based on historical trends of our plants that the reporting unit supplies parts to, which
are driven by the railcar market forecast. Forecasted margins were based on historical experience.
The reporting unit does not have a selling, administrative or executive staff, therefore, an
estimate of salaries and benefits for key employees was added to selling, administrative and other
costs. The weighted average cost of capital was calculated using our estimated cost of equity and
debt.
33
All of the above estimates and assumptions were determined by management to be reasonable based on
the knowledge and information at the time of the evaluation. As such, this carries a risk of
uncertainty. There could be significant fluctuations in
the cost of raw materials, unionization of our workforce or other factors that might significantly
affect the reporting units cost structure and negatively impact the projection of financial
performance. If the railcar industry forecasts or our market share were to change significantly,
the fair value of the reporting unit would be materially adversely impacted. Other events that
might occur that could have a negative effect would be a natural disaster that would render the
facility unusable, a significant litigation settlement, a significant workers compensation claim
or other event that would result in a production shut down or significant expense to the reporting
unit.
The March 1, 2010 evaluation equally weighted the values derived from each approach to arrive at
the fair value of the reporting unit. The resulting fair value exceeded the carrying value by over
20% resulting in no impairment.
Product Warranties
We record a liability for an estimate of costs that we expect to incur under our basic limited
warranty when manufacturing revenue is recognized. Warranty terms are based on the negotiated
railcar sales contracts and typically are for periods of up to five years. Factors affecting our
warranty liability include the number of units sold and historical and anticipated rates of claims
and costs per claim. On a quarterly basis, we assess the adequacy of our warranty liability based
on changes in these factors. Actual results differing from estimates could have a material effect
on results from operations in the event that unforeseen warranty issues were to occur.
Income Taxes
For financial reporting purposes, income tax expense or benefit is estimated based on planned tax
return filings. The amounts anticipated to be reported in those filings may change between the time
the financial statements are prepared and the time the tax returns are filed. Further, because tax
filings are subject to review by taxing authorities, there is also the risk that a position on a
tax return may be challenged by a taxing authority. If the taxing authority is successful in
asserting a position different from that taken by us, differences in a tax expense or between
current and deferred tax items may arise in future periods. Any such differences, which could have
a material impact on our financial statements, would be reflected in the consolidated financial
statements when management considers them probable of occurring and the amount reasonably
estimable.
We recognize deferred tax assets and liabilities based on the differences between the financial
statement carrying amounts and the tax basis of assets and liabilities. We regularly evaluate for
recoverability our deferred tax assets and establish a valuation allowance, if necessary, based on
historical taxable income, projected future taxable income, the expected timing of the reversals of
existing temporary differences and the implementation of tax-planning strategies. We consider
whether it is more likely than not that some portion or that all of the deferred tax assets will be
realized. As of December 31, 2010, we had approximately $4.9 million in net deferred tax
liabilities (net of $13.2 million of deferred tax assets). As of December 31, 2010, we have
established a valuation allowance of $0.8 million for one deferred tax asset that is set to expire
in 2011. For all other deferred tax assets, we consider it more likely than not that we will have
taxable income in the future that will allow us to realize our deferred tax assets, and there are
no other valuation allowances recorded at this time. It is possible that some or all of our
deferred tax assets could ultimately expire unused. As of December 31, 2010, we had $14.9 million
in current income taxes receivable and $0.2 million in long-term income taxes receivable.
Pension and Postretirement Benefits
Pension and other postretirement benefit costs and liabilities are dependent on assumptions used in
calculating such amounts. The primary assumptions include factors such as discount rates, expected
investment return on plan assets, mortality rates and retirement rates, as discussed below:
Discount rates
The discount rate assumptions used to determine the December 31, 2010 benefit obligations and the
2011 expense amounts were 5.25% for our pension plans and 5.31% for our postretirement benefit
plans. We review these rates annually and adjust them to reflect current conditions. We deemed
these rates appropriate based on the Citigroup Pension Discount curve analysis along with expected
payments to retirees.
Expected return on plan assets
Our expected return on plan assets for our funded pension plans of 7.5% for 2010 is derived from
detailed periodic studies, which include a review of asset allocation strategies, anticipated
future long-term performance of individual asset classes, risks (standard deviations) and
correlations of returns among the asset classes that comprise the plans asset mix. While the
studies give appropriate consideration to recent plan performance and historical returns, the
assumptions are primarily long-term, prospective rates of return.
34
Mortality and retirement rates
Mortality and retirement rates are based on actual and anticipated plan experience.
In accordance with GAAP, actual results that differ from the assumptions are accumulated and
amortized over future periods and, therefore, generally affect recognized expense and the recorded
obligation in future periods. While management believes that the assumptions used are appropriate,
differences in actual experience or changes in assumptions may affect our pension and
postretirement obligations and future expense.
The following information illustrates the sensitivity to a change in certain assumptions for our
pension plans:
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|
|
Effect on December 31, |
|
|
|
Effect on 2011 Pre-Tax |
|
|
2010 Projected |
|
Change in Assumption |
|
Pension Expense |
|
|
Benefit Obligation |
|
|
|
($ in thousands) |
|
1% decrease in discount rate |
|
|
171 |
|
|
|
2,463 |
|
1% increase in discount rate |
|
|
(176 |
) |
|
|
(2,243 |
) |
|
|
|
|
|
|
|
|
|
1% decrease in expected
return on assets |
|
|
132 |
|
|
|
N/A |
|
1% increase in expected
return on assets |
|
|
(132 |
) |
|
|
N/A |
|
The following information illustrates the sensitivity to a change in certain assumptions for our
postretirement benefit plan:
|
|
|
|
|
|
|
|
|
|
|
Effect on 2011 Pre-Tax |
|
|
Effect on December 31, |
|
|
|
Postretirement Service |
|
|
2010 Projected |
|
Change in Assumption |
|
Cost and Interest Cost |
|
|
Benefit Obligation |
|
|
|
($ in thousands) |
|
1% decrease in discount
rate |
|
|
|
|
|
|
13 |
|
1% increase in discount
rate |
|
|
|
|
|
|
(10 |
) |
This sensitivity analysis reflects the effects of changing one assumption. Various economic factors
and conditions often affect multiple assumptions simultaneously and the effects of changes in key
assumptions are not necessarily linear.
Environmental
Certain real property we acquired from ACF in 1994 has been involved in investigation and
remediation activities to address contamination. ACF is an affiliate of Mr. Carl Icahn, the
chairman of our board of directors and, through IELP, our principal beneficial stockholder.
Substantially all of the issues identified relate to the use of this property prior to its transfer
to us by ACF and for which ACF has retained liability for environmental contamination that may have
existed at the time of transfer to us. ACF has also agreed to indemnify us for any cost that might
be incurred with those existing issues. As of the date of this report, we do not believe that we
will incur material costs in connection with any investigation or remediation activities relating
to these properties, but we cannot assure that this will be the case. If ACF fails to honor its
obligations to us, we could be responsible for the cost of such remediation. Further, we cannot
assure that we will not become involved in future litigation or other proceedings, or that we will
be able to recover under our indemnity provisions if we were found to be responsible or liable in
any litigation or proceeding, or that such costs would not be material to us.
Stock Based Compensation
Our share-based awards have included stock options, SARs and restricted stock awards. We use the
Black-Scholes model to estimate the fair value of our equity instrument awards and other share
based awards issued under the 2005 Equity Incentive Plan. The Black-Scholes model requires
estimates of the expected term of the equity award, future volatility, dividend yield, forfeiture
rate and the risk-free interest rate. We estimate the expected term of SARs based on SEC Staff
Accounting Bulletins Official Text Topic 14D2, which addressed the expected term aspect of the
Black-Scholes model. It stated that companies that did not have adequate exercise history on equity
instruments were allowed to use the simplified method prescribed by the SEC, which called for an
average of the vesting period and the expiration period of grants with plain vanilla
characteristics. These characteristics included service based vesting, instruments granted at the
money along with certain other requirements.
35
Both our stock options and SARs have fair value estimates that are generated from the Black-Scholes
calculation. This calculation requires inputs as mentioned above that may require some judgment or
estimation. We use our best judgment at the time of the grant to estimate fair value on the stock
options to record the expense of those options over the vesting period of those options. All SARs
granted are classified as liabilities on the consolidated balance sheet, given that they settle in
cash, and thus, must be revalued every period. As such, the fair value estimates on the SARs we
granted to our employees are subject to volatility inherent in the stock price since it is based on
current market values at the end of every period. Stock based compensation on all equity awards is
expensed using a graded vesting method over the vesting period of the instrument.
As of December 31, 2010, all compensation costs related to stock options and restricted stock have
been recognized. As of December 31, 2010, unrecognized compensation costs related to the unvested
portion of outstanding SARs were approximately $2.8 million and are expected to be recognized over
a weighted average period of approximately 26 months.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, amounts 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 determined by the market close price. Fair value
estimates are made at a specific point in time, based on relevant market information about the
financial instrument. These estimates may be subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with precision.
Recent accounting pronouncements
In June 2009, the Financial Accounting Standards Board issued authoritative guidance to amend the
accounting and disclosure requirements for variable interest entities (VIE). The new guidance
requires on-going assessments to determine the primary beneficiary of a VIE and amends the primary
beneficiary assessment and disclosure requirements. This guidance was effective for the first
interim and annual reporting period that begins after November 15, 2009. This guidance did not have
a material impact on the consolidated financial statements.
OFF BALANCE SHEET ARRANGEMENTS
There were no off balance sheet arrangements in 2010.
|
|
|
Item 7A: |
|
Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to price risks associated with the purchase of raw materials, especially steel and
heavy castings. The cost of steel, heavy castings and all other materials used in the production of
our railcars represents more than half of our direct manufacturing costs per railcar. Given the
significant volatility in the price of raw materials, this exposure can affect our costs of
production. We believe that the risk to our margins and profitability has been somewhat reduced by
the variable pricing provisions in place with certain of our current railcar manufacturing
contracts. These contracts adjust the purchase prices of our railcars to reflect increases or
decreases in the cost of certain raw materials and components and, as a result, we are able to pass
on to certain of our customers any increased raw material and component costs with respect to the
railcars we plan to produce and deliver to them during 2011. We believe that we currently have
excellent supplier relationships and do not currently anticipate that material constraints will
limit our production capacity. Such constraints may exist if railcar production was to increase
beyond current levels, or other economic changes were to occur that affect the availability of our
raw materials.
36
|
|
|
Item 8: |
|
Financial Statements and Supplementary Data |
American Railcar Industries, Inc.
Index to Consolidated Financial Statements
|
|
|
|
|
|
|
Page |
|
Audited Consolidated Financial Statements of American Railcar Industries, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
41 |
|
|
|
|
|
|
|
|
|
42 |
|
|
|
|
|
|
|
|
|
43 |
|
|
|
|
|
|
|
|
|
44 |
|
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
American Railcar Industries, Inc.
We have audited American Railcar Industries, Inc. and Subsidiaries (a North Dakota Corporation)
internal control over financial reporting as of December 31, 2010, based on criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). American Railcar Industries, Inc. and Subsidiaries management is
responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility is
to express an opinion on American Railcar Industries, Inc. and Subsidiaries internal control over
financial reporting based on our audit.
We conducted our audit 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 effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, American Railcar Industries, Inc. and Subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2010, based on
criteria established in Internal ControlIntegrated Framework issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of American Railcar Industries, Inc. and
Subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of
operations, stockholders equity and comprehensive (loss) income, and cash flows for each of the
three years in the period ended December 31, 2010, and our report dated March 1, 2011 expressed an
unqualified opinion.
/s/ GRANT THORNTON LLP
St. Louis, Missouri
March 1, 2011
38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
American Railcar Industries, Inc.
We have audited the accompanying consolidated balance sheets of American Railcar Industries, Inc.
and Subsidiaries (the Company) as of December 31, 2010 and 2009, and the related consolidated
statements of operations, stockholders equity and comprehensive (loss) income, and cash flows for
each of the three years in the period ended December 31, 2010. These consolidated financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated 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 examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of American Railcar Industries, Inc. and
Subsidiaries as of December 31, 2010 and 2009, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 2010, in conformity
with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), American Railcar Industries, Inc. and Subsidiaries internal control over
financial reporting as of December 31, 2010, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 1, 2011 expressed an unqualified opinion.
/s/GRANT THORNTON LLP
St. Louis, Missouri
March 1, 2011
39
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
318,758 |
|
|
$ |
347,290 |
|
Short-term investments available for sale securities |
|
|
|
|
|
|
3,802 |
|
Accounts receivable, net |
|
|
21,002 |
|
|
|
11,409 |
|
Accounts receivable, due from affiliates |
|
|
4,981 |
|
|
|
1,356 |
|
Income taxes receivable |
|
|
14,939 |
|
|
|
1,768 |
|
Inventories, net |
|
|
50,033 |
|
|
|
40,063 |
|
Deferred tax assets |
|
|
3,029 |
|
|
|
2,018 |
|
Prepaid expenses and other current assets |
|
|
2,654 |
|
|
|
4,898 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
415,396 |
|
|
|
412,604 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
181,255 |
|
|
|
199,349 |
|
Deferred debt issuance costs |
|
|
1,951 |
|
|
|
2,568 |
|
Interest receivable, due from affiliates |
|
|
187 |
|
|
|
982 |
|
Goodwill |
|
|
7,169 |
|
|
|
7,169 |
|
Investment in and loans to joint ventures |
|
|
48,169 |
|
|
|
41,155 |
|
Other assets |
|
|
240 |
|
|
|
537 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
654,367 |
|
|
$ |
664,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
29,334 |
|
|
$ |
16,874 |
|
Accounts payable, due to affiliates |
|
|
275 |
|
|
|
576 |
|
Accrued expenses and taxes |
|
|
5,095 |
|
|
|
4,515 |
|
Accrued compensation |
|
|
11,054 |
|
|
|
8,799 |
|
Accrued interest expense |
|
|
6,875 |
|
|
|
6,875 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
52,633 |
|
|
|
37,639 |
|
|
|
|
|
|
|
|
|
|
Senior unsecured notes |
|
|
275,000 |
|
|
|
275,000 |
|
Deferred tax liability |
|
|
7,938 |
|
|
|
7,120 |
|
Pension and post-retirement liabilities, net of current |
|
|
6,707 |
|
|
|
6,279 |
|
Other liabilities |
|
|
4,313 |
|
|
|
2,686 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
346,591 |
|
|
|
328,724 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 50,000,000 shares
authorized, 21,316,296 and 21,302,296 shares issued
and outstanding at December 31, 2010 and 2009,
respectively |
|
|
213 |
|
|
|
213 |
|
Additional paid-in capital |
|
|
238,947 |
|
|
|
239,617 |
|
Retained earnings |
|
|
67,209 |
|
|
|
94,215 |
|
Accumulated other comprehensive income |
|
|
1,407 |
|
|
|
1,595 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
307,776 |
|
|
|
335,640 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
654,367 |
|
|
$ |
664,364 |
|
|
|
|
|
|
|
|
See Notes to the Consolidated Financial Statements.
40
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing operations (including revenues from affiliates of $81,905,
$105,216 and $182,760 in 2010, 2009 and 2008, respectively) |
|
$ |
206,094 |
|
|
$ |
365,329 |
|
|
$ |
757,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Railcar services (including revenues from affiliates of $15,041, $14,434
and $15,338 in 2010, 2009 and 2008, respectively) |
|
|
67,469 |
|
|
|
58,102 |
|
|
|
51,301 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
273,563 |
|
|
|
423,431 |
|
|
|
808,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing operations |
|
|
(210,269 |
) |
|
|
(329,025 |
) |
|
|
(682,744 |
) |
Railcar services |
|
|
(54,353 |
) |
|
|
(47,015 |
) |
|
|
(41,653 |
) |
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
(264,622 |
) |
|
|
(376,040 |
) |
|
|
(724,397 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
8,941 |
|
|
|
47,391 |
|
|
|
84,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, administrative and other (including costs from affiliates of
$627, $616 and $606 in 2010, 2009 and 2008, respectively) |
|
|
(25,591 |
) |
|
|
(25,141 |
) |
|
|
(26,535 |
) |
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from operations |
|
|
(16,650 |
) |
|
|
22,250 |
|
|
|
57,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (including interest income from affiliates of $2,620, $986
and $34 in 2010, 2009 and 2008, respectively) |
|
|
3,519 |
|
|
|
6,613 |
|
|
|
7,835 |
|
Interest expense |
|
|
(21,275 |
) |
|
|
(20,909 |
) |
|
|
(20,299 |
) |
Other income (including income related to affiliates of $17, $9 and zero
in 2010, 2009 and 2008, respectively) |
|
|
394 |
|
|
|
20,869 |
|
|
|
3,657 |
|
(Loss) earnings from joint ventures |
|
|
(7,789 |
) |
|
|
(6,797 |
) |
|
|
718 |
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before income tax expense |
|
|
(41,801 |
) |
|
|
22,026 |
|
|
|
49,785 |
|
Income tax benefit (expense) |
|
|
14,795 |
|
|
|
(6,568 |
) |
|
|
(18,403 |
) |
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings |
|
$ |
(27,006 |
) |
|
$ |
15,458 |
|
|
$ |
31,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share basic and diluted |
|
$ |
(1.27 |
) |
|
$ |
0.73 |
|
|
$ |
1.47 |
|
Weighted average shares outstanding basic and diluted |
|
|
21,302 |
|
|
|
21,302 |
|
|
|
21,302 |
|
See Notes to the Consolidated Financial Statements.
41
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings |
|
$ |
(27,006 |
) |
|
$ |
15,458 |
|
|
$ |
31,382 |
|
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
23,597 |
|
|
|
23,405 |
|
|
|
20,148 |
|
Amortization of deferred costs |
|
|
699 |
|
|
|
718 |
|
|
|
812 |
|
Loss on disposal of property, plant and equipment |
|
|
33 |
|
|
|
222 |
|
|
|
308 |
|
Stock based compensation |
|
|
5,358 |
|
|
|
1,174 |
|
|
|
473 |
|
Income related to reversal of stock based compensation for stock options |
|
|
|
|
|
|
|
|
|
|
(411 |
) |
Change in interest receivable, due from affiliates |
|
|
796 |
|
|
|
(982 |
) |
|
|
|
|
Change in joint venture investment as a result of loss (earnings) |
|
|
7,789 |
|
|
|
6,797 |
|
|
|
(718 |
) |
Unrealized loss (gain) on derivative assets |
|
|
|
|
|
|
88 |
|
|
|
(88 |
) |
(Benefit) provision for deferred income taxes |
|
|
(438 |
) |
|
|
1,492 |
|
|
|
1,093 |
|
Provision (adjustment) for losses on accounts receivable |
|
|
113 |
|
|
|
(101 |
) |
|
|
695 |
|
Item related to investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Realized loss (gain) on derivative assets |
|
|
|
|
|
|
10 |
|
|
|
(684 |
) |
Realized gain on sale of short-term investments available for sale securities |
|
|
(379 |
) |
|
|
(23,825 |
) |
|
|
(2,589 |
) |
Impairment of short-term investments available for sale securities |
|
|
|
|
|
|
2,884 |
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
(9,664 |
) |
|
|
28,483 |
|
|
|
(6,976 |
) |
Accounts receivable, due from affiliates |
|
|
(3,625 |
) |
|
|
8,928 |
|
|
|
6,892 |
|
Income taxes receivable |
|
|
(13,171 |
) |
|
|
(1,768 |
) |
|
|
|
|
Inventories, net |
|
|
(9,925 |
) |
|
|
57,260 |
|
|
|
(3,869 |
) |
Prepaid expenses and other current assets |
|
|
2,244 |
|
|
|
331 |
|
|
|
(215 |
) |
Accounts payable |
|
|
12,446 |
|
|
|
(25,366 |
) |
|
|
(5,667 |
) |
Accounts payable, due to affiliates |
|
|
(301 |
) |
|
|
(4,617 |
) |
|
|
2,326 |
|
Accrued expenses and taxes |
|
|
(486 |
) |
|
|
(5,517 |
) |
|
|
1,980 |
|
Other |
|
|
(221 |
) |
|
|
(931 |
) |
|
|
(289 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(12,141 |
) |
|
|
84,143 |
|
|
|
44,603 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(6,144 |
) |
|
|
(15,047 |
) |
|
|
(52,433 |
) |
Sale of property, plant and equipment |
|
|
163 |
|
|
|
71 |
|
|
|
4 |
|
Purchases of short-term investments available for sale securities |
|
|
|
|
|
|
(36,841 |
) |
|
|
(27,857 |
) |
Sales of short-term investments available for sale securities |
|
|
4,180 |
|
|
|
60,795 |
|
|
|
23,631 |
|
Realized (loss) gain on derivative assets |
|
|
|
|
|
|
(10 |
) |
|
|
684 |
|
Proceeds from repayment of note receivable from affiliate |
|
|
|
|
|
|
|
|
|
|
658 |
|
Investments in and loans to joint ventures |
|
|
(14,891 |
) |
|
|
(35,810 |
) |
|
|
(672 |
) |
Sale of investment in joint venture |
|
|
|
|
|
|
|
|
|
|
1,875 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(16,692 |
) |
|
|
(26,842 |
) |
|
|
(54,110 |
) |
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
(1,917 |
) |
|
|
(2,556 |
) |
Proceeds from stock option exercises |
|
|
294 |
|
|
|
|
|
|
|
|
|
Repayment of debt |
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
294 |
|
|
|
(1,917 |
) |
|
|
(2,564 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
7 |
|
|
|
118 |
|
|
|
(23 |
) |
(Decrease) increase in cash and cash equivalents |
|
|
(28,532 |
) |
|
|
55,502 |
|
|
|
(12,094 |
) |
Cash and cash equivalents at beginning of year |
|
|
347,290 |
|
|
|
291,788 |
|
|
|
303,882 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
318,758 |
|
|
$ |
347,290 |
|
|
$ |
291,788 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to the Consolidated Financial Statements.
42
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
Additional |
|
|
other |
|
|
Total |
|
|
|
Comprehensive |
|
|
Retained |
|
|
Stock- |
|
|
Common |
|
|
paid-in |
|
|
comprehensive |
|
|
stockholders |
|
|
|
income (loss) |
|
|
earnings |
|
|
Shares |
|
|
stock |
|
|
capital |
|
|
income (loss) |
|
|
equity |
|
January 1, 2008 |
|
|
|
|
|
$ |
51,314 |
|
|
|
21,302 |
|
|
$ |
213 |
|
|
$ |
239,621 |
|
|
$ |
(160 |
) |
|
$ |
290,988 |
|
Net earnings |
|
$ |
31,382 |
|
|
|
31,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,382 |
|
Currency translation adjustment |
|
|
(428 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(428 |
) |
|
|
(428 |
) |
Unrealized loss on short-term investment, net of tax effect of $1,673 |
|
|
(2,577 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,577 |
) |
|
|
(2,577 |
) |
Minimum pension liability adjustment, net of tax effect of $1,249 |
|
|
(1,975 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,975 |
) |
|
|
(1,975 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
26,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of pension measurement date change |
|
|
|
|
|
|
(105 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(105 |
) |
Dividends on common stock |
|
|
|
|
|
|
(2,556 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,556 |
) |
Additional paid-in capital reduction due to stock option forfeiture |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(113 |
) |
|
|
|
|
|
|
(113 |
) |
Stock option expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109 |
|
|
|
|
|
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008 |
|
|
|
|
|
$ |
80,035 |
|
|
|
21,302 |
|
|
$ |
213 |
|
|
$ |
239,617 |
|
|
$ |
(5,140 |
) |
|
$ |
314,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
15,458 |
|
|
|
15,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,458 |
|
Currency translation adjustment |
|
|
1,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,246 |
|
|
|
1,246 |
|
Effect of short-term investment activity, net of tax effect of $478 |
|
|
888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
888 |
|
|
|
888 |
|
Impairment of short-term investments, net of tax effect of $1,197 |
|
|
1,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,687 |
|
|
|
1,687 |
|
Minimum pension liability adjustment, net of tax effect of $1,509 |
|
|
2,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,914 |
|
|
|
2,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
22,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on common stock |
|
|
|
|
|
|
(1,278 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,278 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2009 |
|
|
|
|
|
$ |
94,215 |
|
|
|
21,302 |
|
|
$ |
213 |
|
|
$ |
239,617 |
|
|
$ |
1,595 |
|
|
$ |
335,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(27,006 |
) |
|
|
(27,006 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,006 |
) |
Currency translation adjustment |
|
|
511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
511 |
|
|
|
511 |
|
Minimum pension liability adjustment, net of tax effect of $243 |
|
|
(393 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(393 |
) |
|
|
(393 |
) |
Amortization of postretirement adjustment, net of tax effect of $189 |
|
|
(306 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(306 |
) |
|
|
(306 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(27,194 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock options exercises |
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
294 |
|
|
|
|
|
|
|
294 |
|
Tax deficiency related to stock option exercises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34 |
) |
|
|
|
|
|
|
(34 |
) |
Purchase of fixed assets from affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(930 |
) |
|
|
|
|
|
|
(930 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2010 |
|
|
|
|
|
$ |
67,209 |
|
|
|
21,316 |
|
|
$ |
213 |
|
|
$ |
238,947 |
|
|
$ |
1,407 |
|
|
$ |
307,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to the Consolidated Financial Statements.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2010, 2009 and 2008
Note 1 Description of the Business
The accompanying consolidated financial statements include the operations of American Railcar
Industries, Inc. and its wholly-owned subsidiaries (collectively the Company or ARI). Through its
subsidiary, Castings, LLC (Castings), the Company has a one-third ownership interest in Ohio
Castings Company, LLC (Ohio Castings), a limited liability company formed to produce various steel
railcar parts for use or sale by the ownership group. Through its wholly-owned subsidiary, ARI
Component Venture, LLC (ARI Component), the Company has a 41.9% ownership interest in Axis, LLC
(Axis), and its wholly-owned subsidiary Axis Operating Company, LLC, a limited liability company
formed to produce railcar axles, for use or sale by the ownership group. The Company has a
wholly-owned subsidiary, American Railcar Mauritius I (ARM I), that wholly-owns American Railcar
Mauritius II (ARM II). Through ARM II, the Company has a 50.0% ownership interest in Amtek Railcar
Industries Private Limited (Amtek Railcar), a joint venture in India which was formed to produce
railcars and railcar components in India for sale by the joint venture. Through its wholly-owned
subsidiary, ARI Longtrain, Inc. (Longtrain), the Company makes investments from time to time. All
intercompany transactions and balances have been eliminated.
ARI manufactures railcars, custom designed railcar parts for industrial companies and railroads,
and other industrial products, primarily aluminum and special alloy steel castings. These products
are sold to various types of companies including leasing companies, railroads, industrial companies
and other non-rail companies. ARI also offers its customers the option to lease railcars. ARI
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 certain customers. Such services include inspecting and supervising the
maintenance and repair of such railcars.
The Companys operations are located in the United States and Canada. The Company operates a small
railcar repair facility in Sarnia, Ontario, Canada. Canadian revenues were 2.0%, 0.7% and 0.4% of
total consolidated revenues for 2010, 2009 and 2008, respectively. Canadian assets were 1.7% and
1.6% of total consolidated assets as of December 31, 2010 and 2009, respectively. In addition, the
Companys subsidiaries ARM I and ARM II are located in Mauritius. Assets held by ARM I and ARM II
were 1.5% and less than 0.1% of total consolidated assets as of December 31, 2010 and December 31,
2009, respectively.
Note 2 Summary of Accounting Policies
Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of three months or
less to be cash equivalents.
The Company maintains cash balances at financial institutions in the United States of America that
are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 or the Securities
Investor Protection Corporation (SIPC) up to $500,000, including a maximum of $100,000 for free
cash balances. Effective December 31, 2010, the FDIC is providing unlimited coverage of
noninterest-bearing checking or demand deposit accounts until December 31, 2012. The Companys cash
balances on deposit exceeded the insured limits by approximately $317.1 million as of December 31,
2010. The Company has not experienced any losses on such amounts and believes it is not subject to
significant risks related to cash.
Short-term investments
The Company has held investments in equity securities and classified them as available for sale,
based upon whether it intended to hold the investment for the foreseeable future. Available for
sale securities are reported at fair value on the Companys consolidated balance sheet while
unrealized holding gains and losses on available for sale securities are excluded from earnings and
reported as a separate component of stockholders equity and when the available for sale securities
sold the unrealized gains and losses are realized in the consolidated statements of operations. For
purposes of determining gains and losses, the cost of securities was based on specific
identification.
When applicable, the Company evaluates its investments in unrealized loss positions for
other-than-temporary impairment on an annual basis or whenever events or changes in circumstances
indicated that the unit cost of the investment may not have been recoverable.
44
Derivative contracts or financial instruments
The Company has in the past entered into derivative contracts, specifically total return swap
contracts and a foreign currency option contract. The Company did not use hedge accounting and
accordingly, all realized and unrealized gains and losses on derivative contracts were reflected in
its consolidated statements of operations.
Revenue recognition
Revenues from railcar sales are recognized following completion of manufacturing, inspection,
customer acceptance and title transfer, which is when the risk for any damage or loss with respect
to the railcars passes to the customer. 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
leasing are recognized on a straight-line basis over the life of the lease. Revenues from railcar
and industrial components are recorded at the time of product shipment, in accordance with the
Companys contractual terms. Revenue for railcar maintenance services is recognized upon completion
and shipment of railcars from ARIs plants. The Company does not currently 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 and
records related costs in cost of revenue.
ARI presents any sales tax assessed by a governmental authority that is directly imposed on a
revenue-producing transaction between a seller and a customer on a net basis.
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 the 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. The Company allocates fixed
production overheads to the costs of conversion based on the normal capacity of its production
facilities. If any of the Companys production facilities are not operating at normal capacity,
unallocated production overheads are recognized as a current period charge.
Property, plant and equipment, net
Land, buildings, machinery and equipment are carried at cost, which could include capitalized
interest on borrowed funds. Maintenance and repair costs are charged directly to earnings. Tooling
is generally capitalized and depreciated 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, equipment and leased railcars vary
from 3 to 30 years. Depreciation is calculated using the straight-line method for financial
reporting purposes and on accelerated methods for tax purposes.
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
of 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 managements best estimate of future undiscounted
cash flows expected to result from the use of the long-lived assets. If the long-lived assets are
considered to be impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the long-lived assets exceeds the fair value of the long-lived assets. The
estimated fair value of long-lived assets is measured by estimating the present value of the future
discounted cash flows to be generated. For further discussion of long-lived assets refer to Note 9.
45
Debt issuance costs
Debt issuance costs were incurred in connection with ARIs issuance of long-term debt as described
in Note 13, and are amortized over the term of the related debt on a straight-line basis. Debt
issuance costs at December 31, 2010 were $2.0 million related to the Companys unsecured senior
notes and will be amortized according to the following table (in thousands):
|
|
|
|
|
2011 |
|
$ |
616 |
|
2012 |
|
|
616 |
|
2013 |
|
|
616 |
|
2014 |
|
|
103 |
|
2015 and thereafter |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,951 |
|
|
|
|
|
Goodwill
Goodwill and other intangible assets with indefinite useful lives are not amortized but are tested
for impairment at least annually and more frequently if indicators exist by comparing the fair
value of the reporting unit to its carrying value. At December 31, 2010 and 2009, the Company
reported goodwill of $7.2 million related to the acquisition of Custom Steel, as described in Note
10.
Investment in and loans to joint ventures
The Company uses the equity method to account for its investment in various joint ventures that it
is partner to as described in Note 11. Under the equity method, the Company recognizes its share of
the earnings and losses of the joint ventures as they accrue. Advances and distributions are
charged and credited directly to the investment account. From time to time, the Company also makes
loans to its joint ventures that are included in the investment account.
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 ARIs assets and liabilities at enacted
tax rates expected to be in effect when such amounts are recovered or settled. ARI also records
unrecognized tax positions, including potential interest and penalties.
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 and health care 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, amounts 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 determined by the market close price. The fair
value of the short-term investment in The Greenbrier Companies, Inc. (Greenbrier) common stock was
based upon current market data at the reporting date. 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 Companys Canadian operations are translated at the exchange rate
effective at year-end and operations statement amounts are translated at the average rate of
exchange prevailing during the year. Currency translation adjustments are included in Stockholders
Equity as part of accumulated other comprehensive income.
46
Comprehensive income
Comprehensive income 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
consists of net earnings, foreign currency translation adjustment and minimum pension liability
adjustments, which are shown net of tax and changes resulting from
unrealized gains and losses on short-term investments. Accumulated other comprehensive income,
after tax, as of December 31, 2010, consists of foreign currency translation gains of $1.6 million
and pension and postretirement charges of $0.2 million. Accumulated other comprehensive loss, after
tax, as of December 31, 2009, consists of foreign currency translation gains of $1.1 million and
pension and postretirement gains of $0.5 million.
Earnings per share
Basic earnings per share is calculated as net earnings attributable to common stockholders divided
by the weighted-average number of common shares outstanding during the respective period. Diluted
earnings per share is calculated by dividing net earnings attributable to common stockholders 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,
but are not limited to, deferred taxes, workers compensation accrual, valuation allowances for
accounts receivable and inventory obsolescence, depreciable lives of assets, goodwill impairment,
stock based compensation fair values and the reserve for warranty claims. Actual results could
differ from those estimates.
Stock based compensation
The compensation cost recorded for stock options, restricted stock and stock appreciation rights
(SARs) is based on their fair value. For further discussion of stock based compensation refer to
Note 18.
Reclassifications
Certain reclassifications of prior year presentations have been made to conform to the 2010
presentation.
Recent accounting pronouncements
In June 2009, the Financial Accounting Standards Board issued authoritative guidance to amend the
accounting and disclosure requirements for variable interest entities (VIE). The new guidance
requires on-going assessments to determine the primary beneficiary of a VIE and amends the primary
beneficiary assessment and disclosure requirements. This guidance was effective for the first
interim and annual reporting period that begins after November 15, 2009. This guidance did not have
a material impact on the consolidated financial statements.
Note 3 Short-term Investments Available for Sale Securities
During January 2008, Longtrain purchased approximately 1.5 million shares of common stock of
Greenbrier in the open market for $27.9 million. Later in 2008, Longtrain sold a majority of the
Greenbrier shares it owned. A realized gain of $2.6 million, before tax, was recorded for the year
ended December 31, 2008. In December 2009, the Company sold approximately 7,000 shares of
Greenbrier common stock for $0.1 million, resulting in a realized loss of less than $0.1 million.
During the year ended December 31, 2010, the remaining approximately 0.4 million shares of
Greenbrier common stock were sold for proceeds of $4.1 million and realized gains totaling $0.4
million. The cost basis of the shares sold was determined through specific identification.
The Company performed a review of its investment in Greenbrier common stock as of December 31, 2009
to determine if an other-than-temporary impairment existed. Factors considered in the assessment
included but were not limited to the following: the Companys ability and intent to hold the
security until loss recovery, the sale of shares at a loss, the number of quarters in an unrealized
loss position and other market conditions. Based on this analysis, the Company recorded an
impairment charge of $2.9 million related to the investment.
47
As of December 31, 2009, the market value of the remaining approximately 0.4 million shares of
Greenbrier owned by the Company was $3.8 million. There were no unrealized losses as of December
31, 2009, due to recognizing the other-than-temporary impairment charge in 2009. This investment
was classified as a short-term investment available for sale security, as the Company did not
intend on holding this investment long-term.
During 2009, Longtrain purchased corporate bonds for a total of $36.8 million and subsequently sold
all of these bonds, resulting in proceeds of $60.7 million and a realized gain of $23.9 million.
Note 4 Derivative Contracts or Financial Instruments
The Company accounted for its derivative contracts by reporting derivatives as either assets or
liabilities in the consolidated balance sheet at their fair value. The accounting for changes in
fair value depends on the intended use of the derivative and its resulting designation. As the
derivates did not qualify for hedge accounting, all unrealized gains and losses were reflected in
the Companys consolidated statements of operations and the fair value was recorded on the
consolidated balance sheets. During 2010, the Company did not have any outstanding derivative
contracts or financial instruments.
Total return swaps
During January 2008, Longtrain entered into total return swap agreements referenced to the fair
value of approximately 0.4 million shares of common stock of Greenbrier. The total notional amount
of these swap agreements was approximately $7.4 million, representing the fair market value of the
referenced shares at the time Longtrain entered into the agreements. During 2008, the Companys
other income included $0.6 million of unrealized gains relating to fully settling these swap
agreements.
Foreign currency option
The Company entered into a foreign currency option in October 2008, to purchase Canadian Dollars
(CAD) for $5.3 million U.S. Dollars (USD) from October 2008 through April 2009, with fixed exchange
rates and exchange limits each month. ARI entered into this option agreement to reduce the exposure
to foreign currency exchange risk related to capital expenditures for the expansion of the
Companys Canadian repair facility.
In 2009, the Company expended $3.3 million USD to purchase CAD under this option resulting in a
realized loss of less than $0.1 million for the year ended December 31, 2009, based on the exchange
spot rate on the various exercise dates. As of December 31, 2008, the Company had an unrealized
gain of $0.1 million and a derivative asset for $0.1 million. A gain of $0.1 million was realized
for the period ending December 31, 2008.
Note 5 Fair Value Measurements
The fair value hierarchal disclosure framework prioritizes and ranks the level of market price
observability used in measuring investments and non-recurring nonfinancial assets and nonfinancial
liabilities at fair value. Market price observability is impacted by a number of factors, including
the type of investment and the characteristics specific to the investment or nonfinancial assets
and liabilities. Investments with readily available active quoted prices or for which fair value
can be measured from actively quoted prices generally will have a higher degree of market price
observability and a lesser degree of judgment used in measuring fair value.
Financial assets and liabilities measured and reported at fair value are classified and disclosed
in one of the following categories:
|
|
|
Level 1 Quoted prices are available in active markets for
identical financial assets and/or liabilities as of the reporting
date. The type of financial assets and/or liabilities included in
Level 1 include listed equities and listed derivatives. The Company
does not adjust the quoted price for these financial assets and/or
liabilities, even in situations where they hold a large position and
a sale could reasonably impact the quoted price. |
|
|
|
|
Level 2 Pricing inputs are other than quoted prices in active
markets, which are either directly or indirectly observable as of
the reporting date, and fair value is determined through the use of
models or other valuation methodologies. Financial assets and/or
liabilities that are generally included in this category include
corporate bonds and loans, less liquid and restricted equity
securities and certain over-the-counter derivatives. |
|
|
|
|
Level 3 Pricing inputs are unobservable for the financial assets
and/or liabilities and include situations where there is little, if
any, market activity for the financial assets and/or liabilities.
The inputs into the determination of fair value require significant
management judgment or estimation. |
48
In certain cases, the inputs used to measure fair value may fall into different levels of the
fair value hierarchy. In such cases, an investments level within the fair value hierarchy is based
on the lowest level of input that is significant to the fair value measurement. ARIs assessment of
the significance of a particular input to the fair value measurement in its entirety requires
judgment and considers factors specific to the investment.
The Company has no financial assets or liabilities that were accounted for at fair value as of
December 31, 2010.
The following table summarizes the valuation of the Companys financial assets by the above fair
value hierarchy levels as of December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments available-for-sale securities |
|
$ |
3,802 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,802 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6 Accounts Receivable, net
Accounts Receivable, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Accounts receivable, gross |
|
$ |
21,770 |
|
|
$ |
12,086 |
|
Less allowance for doubtful accounts |
|
|
(768 |
) |
|
|
(677 |
) |
|
|
|
|
|
|
|
Total accounts receivable, net |
|
$ |
21,002 |
|
|
$ |
11,409 |
|
|
|
|
|
|
|
|
The allowance for doubtful accounts consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Beginning balance |
|
$ |
677 |
|
|
$ |
815 |
|
|
$ |
497 |
|
Provision (adjustment) |
|
|
113 |
|
|
|
(101 |
) |
|
|
695 |
|
Write-offs |
|
|
(22 |
) |
|
|
(43 |
) |
|
|
(379 |
) |
Recoveries |
|
|
|
|
|
|
6 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
768 |
|
|
$ |
677 |
|
|
$ |
815 |
|
|
|
|
|
|
|
|
|
|
|
Note 7 Inventories, net
Inventories, net, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Raw materials |
|
$ |
30,676 |
|
|
$ |
21,307 |
|
Work-in-process |
|
|
14,270 |
|
|
|
8,411 |
|
Finished products |
|
|
7,183 |
|
|
|
12,271 |
|
|
|
|
|
|
|
|
Total inventories |
|
|
52,129 |
|
|
|
41,989 |
|
Less reserves |
|
|
(2,096 |
) |
|
|
(1,926 |
) |
|
|
|
|
|
|
|
Total inventories, net |
|
$ |
50,033 |
|
|
$ |
40,063 |
|
|
|
|
|
|
|
|
49
Inventory reserves consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Beginning Balance |
|
$ |
1,926 |
|
|
$ |
2,649 |
|
|
$ |
2,705 |
|
Provision |
|
|
1,254 |
|
|
|
213 |
|
|
|
911 |
|
Write-offs |
|
|
(1,084 |
) |
|
|
(936 |
) |
|
|
(967 |
) |
|
|
|
|
|
|
|
|
|
|
Ending Balance |
|
$ |
2,096 |
|
|
$ |
1,926 |
|
|
$ |
2,649 |
|
|
|
|
|
|
|
|
|
|
|
Note 8 Property, Plant and Equipment, net
The following table summarizes the components of property, plant and equipment, net:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Buildings |
|
$ |
149,021 |
|
|
$ |
146,064 |
|
Machinery and equipment |
|
|
177,217 |
|
|
|
174,021 |
|
|
|
|
|
|
|
|
|
|
|
326,238 |
|
|
|
320,085 |
|
Less accumulated depreciation |
|
|
(149,304 |
) |
|
|
(126,074 |
) |
|
|
|
|
|
|
|
Net plant and equipment |
|
|
176,934 |
|
|
|
194,011 |
|
Land |
|
|
3,335 |
|
|
|
3,306 |
|
Construction in process |
|
|
986 |
|
|
|
2,032 |
|
|
|
|
|
|
|
|
Total property, plant and equipment, net |
|
$ |
181,255 |
|
|
$ |
199,349 |
|
|
|
|
|
|
|
|
Depreciation expense
Depreciation expense for the year ended December 31, 2010, 2009 and 2008 was $23.6 million, $23.4
million and $20.1 million, respectively.
Capitalized interest
In conjunction with the interest costs incurred related to the Unsecured Senior Fixed Rate Notes
offering described in Note 13, the Company began recording capitalized interest on certain
property, plant and equipment capital projects. ARI also capitalized interest related to the
investment in Axis during its developmental stage. The amount of interest capitalized for the years
ended December 31, 2010, 2009 and 2008 was less than $0.1 million, $0.7 million and $1.5 million,
respectively.
Lease agreements
During 2008, the Company entered into two agreements to lease a fixed number of railcars to third
parties for multiple years. One of the leases includes a provision that allows the lessee to
purchase any portion of the leased railcars at any time during the lease term for a stated market
price, which approximates fair value. These agreements have been classified as operating leases and
the leased railcars have been included in machinery and equipment and will be depreciated in
accordance with the Companys depreciation policy.
Note 9 Long-Lived Asset Impairment Charges
The Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the long-lived assets may not be recoverable. The Company has
determined that there are no triggering events that require an assessment for impairment of
long-lived assets, therefore no impairment charges have been recognized on any long-lived assets
during the years ended December 31, 2010, 2009 or 2008.
The North American railcar market has been, and is expected to continue to be highly cyclical,
generally fluctuating in correlation with the U.S. economy. While the economy and the railcar
market remained weak throughout 2010, ARI believes that this downturn is temporary, reflecting the
cyclical nature of the industry, and that railcar orders will recover in the future. Independent
third party industry analysts are also forecasting the railcar market to recover as the economy
improves. As a result, at this time, ARI does not believe that the decline in its shipments and
revenues, which the Company views as temporary, warrants an impairment analysis of long-lived
assets. Therefore, an impairment analysis was not performed for the year ended December 31, 2010.
However, the Company will continue to monitor long-lived assets for impairment in response to
events or changes in circumstances.
50
Note 10 Goodwill
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 operated a facility located adjacent
to the Companys component manufacturing facility in Kennett, Missouri, which produces value-added
fabricated parts that primarily support the Companys railcar manufacturing operations. Prior to
the acquisition, ARI was Custom Steels primary customer. The acquisition resulted in goodwill of
$7.2
million. The results of Custom Steel are included in the manufacturing operations segment.
Goodwill and other intangible assets with indefinite useful lives are not amortized but are tested
for impairment annually and when a triggering event occurs by comparing the fair value of the asset
to its carrying value. The Company performs the annual goodwill impairment test as of March 1 of
each year. There were no triggering events since the March 1, 2010 goodwill impairment test. The
valuation uses a combination of methods to determine the fair value of the reporting unit including
prices of comparable businesses, a present value technique and recent transactions involving
businesses similar to the Company. ARI performed the annual impairment test as of March 1, 2010 and
2009 noting no adjustment was required.
The Company utilized the market and income approaches and significant assumptions, discussed below,
in the March 1 impairment tests.
Market Approach
The market approach produces indications of value by applying multiples of enterprise value to
revenue as well as enterprise value to earnings before depreciation, amortization, interest and
taxes. The multiples indicate what investors are willing to pay for comparable publicly held
companies. When adjusted for the risk level and growth potential of the subject company relative to
the guideline companies, these multiples are a reasonable indication of the value an investor would
attribute to the subject company.
Income Approach
The income approach considers the subject companys future sales and earnings growth potential as
the primary source of future cash flow. The Company prepared a five year financial projection for
the reporting unit and used a discounted net cash flow method to determine the fair value. Net cash
flow consists of after-tax operating income, plus depreciation, less capital expenditures and
working capital needs. The discounted cash flow method considers a five-year projection of net cash
flow and adds to those cash flows a residual value at the end of the projection period.
Significant estimates and assumptions used in the evaluation were forecasted revenues and profits,
the weighted average cost of capital and tax rates. Forecasted revenues of the reporting unit were
estimated based on historical trends of ARIs plants that the reporting unit supplies parts to,
which are driven by the railcar market forecast. Forecasted margins were based on historical
experience. The reporting unit does not have a selling, administrative or executive staff,
therefore, an estimate of salaries and benefits for key employees was added to selling,
administrative and other costs. The weighted average cost of capital was calculated using ARIs
estimated cost of equity and debt.
All of the above estimates and assumptions were determined by management to be reasonable based on
the knowledge and information at the time of the evaluation. As such, this carries a risk of
uncertainty. There could be significant fluctuations in the cost of raw materials, unionization of
the Companys workforce or other factors that might significantly affect the reporting units cost
structure and negatively impact the projection of financial performance. If the railcar industry
forecasts or the Companys market share were to change significantly, the fair value of the
reporting unit would be materially adversely impacted. Other events that might occur that could
have a negative effect would be a natural disaster that would render the facility unusable, a
significant litigation settlement, a significant workers compensation claim or other event that
would result in a production shut down or significant expense to the reporting unit.
The March 1, 2010 evaluation equally weighted the values derived from each approach to arrive at
the fair value of the reporting unit. The resulting fair value exceeded the carrying value by over
20% resulting in no impairment.
Note 11 Investments in and Loans to Joint Ventures
As of December 31, 2010, the Company was party to three joint ventures; Ohio Castings, Axis and
Amtek Railcar, which are accounted for using the equity method. During the fourth quarter of 2010,
ARI dissolved US Railcar Company LLC (USRC), a joint venture that was formed with the intent to
design, manufacture and sell Diesel Multiple Units to public transit authorities and communities
upon order. Under the equity method, the Company recognizes its share of the earnings and losses of
the joint ventures as they accrue. Advances and distributions are charged and credited directly to
the investment accounts.
51
The carrying amount of investments in and loans to joint ventures are as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Carrying amount of investments in and loans to joint ventures |
|
|
|
|
|
|
|
|
Ohio Castings |
|
$ |
5,232 |
|
|
$ |
5,644 |
|
Axis |
|
|
33,436 |
|
|
|
35,511 |
|
Amtek Railcar |
|
|
9,501 |
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in and loans to joint ventures |
|
$ |
48,169 |
|
|
$ |
41,155 |
|
|
|
|
|
|
|
|
The maximum exposure to loss as a result of investments in and loans to joint ventures are as
follows:
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
|
(in thousands) |
|
Maximum exposure to loss by joint venture |
|
|
|
|
Ohio Castings |
|
|
|
|
Investment |
|
$ |
4,737 |
|
Loan guarantee 1 |
|
|
182 |
|
Note and accrued interest receivable 2 |
|
|
530 |
|
|
|
|
|
Total exposure from Ohio Castings |
|
|
5,449 |
|
Axis |
|
|
|
|
Investment |
|
|
|
|
Loans, accrued interest receivable and accrued unused line fee 2 |
|
|
35,467 |
|
|
|
|
|
Total exposure from Axis |
|
|
35,467 |
|
|
|
|
|
Amtek Railcar Investment |
|
|
9,501 |
|
|
|
|
|
Total exposure to loss due to joint ventures |
|
$ |
50,417 |
|
|
|
|
|
|
|
|
1 |
|
The Company is subject to exposure for the full amount of the loan guaranteed but
only the value of the guarantee is included in investments in and loans to joint ventures on the
consolidated balance sheet. |
|
2 |
|
Accrued interest receivable is included in interest receivable, due from affiliates
and accrued unused line fee is included in accounts receivable, due from affiliates, not
investments in and loans to joint ventures on the consolidated balance sheet. |
Ohio Castings
Ohio Castings produces railcar parts that are sold to one of the joint venture partners. The joint
venture partner sells these parts to outside third parties at current market prices and sells them
to the Company and the other joint venture partner at cost plus a licensing fee. The Company has
been involved with this joint venture since 2003.
In June 2009, Ohio Castings temporarily idled its manufacturing facility. In conjunction with the
temporary idling, Ohio Castings performed an analysis of long-lived assets. Based on this analysis,
Ohio Castings concluded that its long-lived assets were not impaired. In turn, ARI evaluated its
investment in Ohio Castings and determined there was no impairment. As of August 31, 2010, Ohio
Castings re-evaluated its analysis of its long-lived assets and concluded that no impairment
exists.
ARI updated its evaluation of its investment in Ohio Castings and determined that there was no
impairment as of September 30, 2010. Ohio Castings first reported a loss in the first quarter of
2009 and subsequently the facility was temporarily idled in the second quarter of 2009 due to the
decline in the railcar industry. Ohio Castings has continued to report losses due to its idled
state. ARI obtained Ohio Castings long-lived asset impairment analysis and reviewed it for
reasonableness. Based on that evaluation, ARI currently expects that the joint venture, pending the
approval of all joint venture partners, will restart production when the demand for new railcars
returns to sufficient levels. The assumptions used in the impairment analysis are consistent with
the market data reported by an independent third party analyst and historical financial results.
The current decline in earnings capacity is consistent with industry forecasts, as reported by an
independent third party analyst, and is considered temporary. The Company and Ohio Castings will
continue to monitor for impairment.
52
Ohio Castings also has notes payable to ARI and the other two partners, with a balance of $0.5
million each at December 31, 2010 and 2009. These notes are due February 2012. Interest will
continue to accrue but interest payments have been deferred until August 2011. Accrued interest for
this note as of December 31, 2010 and 2009, was less than $0.1 million.
The Company, along with the other members of Ohio Castings, has guaranteed a state loan issued to
Ohio Castings by the state
of Ohio, as further discussed in Note 16. The value of the guarantee was less than $0.1 million at
both December 31, 2010 and 2009. The state loan is scheduled to be fully paid off in June 2011. It
is anticipated that Ohio Castings will continue to make principal and interest payments while its
facility is temporarily idled, through equity contributions by ARI and the other partners. In 2010,
ARI made capital contributions to Ohio Castings totaling $0.6 million to fund expenses including
debt payments during the temporary plant idling. The other two partners made matching
contributions. During 2010, Ohio Castings paid off the state bonds that were guaranteed by ARI and
the other joint venture partners. In conjunction with Ohio Castings paying off the state bonds, ARI
was released from its guarantee of the state bonds while the guarantee of the state loan remains.
The Company accounts for its investment in Ohio Castings using the equity method. The Company has
determined that, although the joint venture is a VIE, this method is appropriate given that the
Company is not the primary beneficiary, does not have a controlling financial interest and does not
have the ability to individually direct the activities of Ohio Castings that most significantly
impact its economic performance. The significant factors in this determination were that neither
the Company nor Castings, has rights to the majority of returns, losses or votes, Ohio Castings
operations are temporarily idled and the risk of loss to Castings and the Company is limited to the
Companys investment through Castings, the note and related accrued interest due to ARI and Ohio
Castings subsidiarys debt with the State of Ohio, which the Company has guaranteed.
See Note 20 for information regarding financial transactions among the Company, Ohio Castings and
Castings.
Summary combined financial position information for Ohio Castings, the investee company is as
follow:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Financial position |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
1,882 |
|
|
$ |
3,508 |
|
Property, plant and equipment, net |
|
|
11,219 |
|
|
|
12,829 |
|
|
|
|
|
|
|
|
Total assets |
|
|
13,101 |
|
|
|
16,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
492 |
|
|
|
2,322 |
|
Long-term debt |
|
|
1,482 |
|
|
|
1,664 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,974 |
|
|
|
3,986 |
|
|
|
|
|
|
|
|
|
|
Members equity |
|
|
11,127 |
|
|
|
12,351 |
|
|
|
|
|
|
|
|
Total liabilities and members equity |
|
$ |
13,101 |
|
|
$ |
16,337 |
|
|
|
|
|
|
|
|
Summary combined financial results of operations for Ohio Castings, the investee company are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Results of operations |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
|
|
|
$ |
10,898 |
|
|
$ |
88,795 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
|
|
|
|
(3,335 |
) |
|
|
10,039 |
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before interest |
|
|
(2,925 |
) |
|
|
(5,399 |
) |
|
|
5,012 |
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings |
|
$ |
(3,025 |
) |
|
$ |
(5,455 |
) |
|
$ |
5,321 |
|
|
|
|
|
|
|
|
|
|
|
Axis
In June 2007, ARI, through a wholly-owned subsidiary, entered into an agreement with another
partner to form a joint venture, Axis, to manufacture and sell railcar axles. In February 2008, the
two original partners sold equal equity interests in Axis to two new minority partners. Production
began and the joint venture ceased classification as a development stage enterprise in 2009.
53
Under the terms of the joint venture agreement, ARI and the other initial partner are required, and
the other member is entitled, to contribute additional capital to the joint venture, on a pro rata
basis, of any amounts approved by the joint ventures executive committee, as and when called by
the executive committee. Further, until 2016, the seventh anniversary of
completion of the axle manufacturing facility, and subject to other terms, conditions and
limitations of the joint venture agreement, ARI and the other initial partner are also required, in
the event production at the facility has been curtailed, to contribute capital to the joint
venture, on a pro rata basis, in order to maintain adequate working capital.
During 2010, the executive committee of Axis issued a capital call. The minority partners elected
not to participate in the capital call and ARI and the other initial partner have equally
contributed the necessary capital, which amounted to $0.5 million for each as of December 31, 2010.
The capital contributions are utilized to provide working capital. The partners ownership
percentages have been adjusted accordingly. As a result, as of December 31, 2010, ARIs ownership
interest has been adjusted to 41.9%. During the third quarter of 2010, one of the minority partners
sold its interest to the other initial partner. Although the other initial partners interest in
Axis is greater than ARIs as a result of the sale, the sale did not result in the other initial
partner gaining a controlling interest in Axis.
Under a credit agreement entered into in December 2007 among Axis, Bank of America, as
administrative agent (Axis Agent), and the lenders party thereto (as amended, the Axis Credit
Agreement), the original lenders made financing available to Axis in an aggregate amount of up to
$70.0 million, consisting of up to $60.0 million in term loans and up to $10.0 million in revolving
loans. In July 2009, the Axis Agent alleged that Axis was in default under the Axis Credit
Agreement and in connection therewith proposed certain amendments to the Axis Credit Agreement.
Axis disputed the alleged default. Following discussions with the Axis Agent and Axis, effective
August 5, 2009, ARI Component and a wholly-owned subsidiary of the other initial partner acquired
the Axis Credit Agreement, with each party acquiring a 50.0% interest in the loan. The purchase
price paid by the Company for its 50.0% interest was approximately $29.5 million, which equaled the
then outstanding principal amount of the portion of the loan acquired by the Company.
Subject to certain limitations, at the election of Axis, the interest rate for the loans under the
Axis Credit Agreement is based on LIBOR or the prime rate. For LIBOR-based loans, the interest rate
is equal to the greater of 7.75% or adjusted LIBOR plus 4.75%. For prime-based loans, the interest
rate is equal to the greater of 7.75% or the prime rate plus 2.5%. In either case, the interest
rate is subject to increase upon the occurrence of certain events of default. Interest on
LIBOR-based loans is due and payable, at the election of Axis, every one, two, three or six months,
and interest on prime-based loans is due and payable quarterly. In accordance with the terms of the
agreement, in the third quarter 2010, Axis elected to satisfy interest on the term loan as of
September 30, 2010, and thereafter, by increasing the outstanding principal amount of the term loan
by the amount of interest otherwise due and payable in cash.
The commitment to make term loans under the Axis Credit Agreement expired on December 31, 2010.
Beginning on March 31, 2011, the term loans will become due and payable on the last day of each
fiscal quarter in twenty-two equal installments, with the last payment to become due on June 26,
2016. The commitment to make revolving loans under the Axis Credit Agreement will expire and the
revolving loans will become due and payable on December 28, 2012. Upon certain events described
more fully in the Axis Credit Agreement, principal and interest may become due and payable sooner
than described above.
Axis may borrow revolving loans up to $10.0 million, as described above, of which $7.0 million is
subject to borrowing base availability and the remaining $3.0 million may be borrowed without
restriction until December 31, 2010. At January 1, 2011, the $3.0 million becomes subject to
borrowing base availability.
ARI is in discussions with Axis and the other initial partner of Axis regarding the potential
renegotiation of the term loans, as it is not currently anticipated that Axis will be able to repay
the term loans in accordance with the Axis Credit Agreement, beginning March 31, 2011, as discussed
above.
ARI currently intends to fund the cash needs of Axis through loans and capital contributions
through at least March 31, 2012. The other initial joint venture partner has indicated its intent
to also fund the cash needs of Axis through loans and capital contributions through at least March
31, 2012.
The balance outstanding on these loans, due to ARI Component, was $31.9 million in principal and
$3.6 million of accrued interest as of December 31, 2010 and $31.5 million in principal and $1.0
million of accrued interest as of December 31, 2009. ARI Component is responsible for funding 50.0%
of the loan commitments. ARI Components share of the remaining commitment on these loans, term and
revolving, was $3.1 million as of December 31, 2010.
54
The Company accounts for its investment in Axis using the equity method. The Company has determined
that, although the joint venture is a VIE, this method is appropriate given that the Company is not
the primary beneficiary, does not have a controlling financial interest and does not have the
ability to individually direct the activities of Axis that most significantly impact its economic
performance. The significant factors in this determination were that the Company and its
wholly-owned subsidiary do not have the rights to the majority of votes or the rights to the
majority of returns or losses, the executive committee and board of directors of the joint venture
are comprised of one representative from each initial partner with equal
voting rights and the risk of loss to the Company and subsidiary is limited to its investment in
Axis and the loans, related accrued interest and related accrued unused line fee due to the Company
under the Axis Credit Agreement. The Company also considered the factors that most significantly
impact Axis economic performance and determined that ARI does not have the power to individually
direct the majority of those activities.
See Note 20 for information regarding financial transactions among the Company, ARI Component and
Axis.
Summary combined financial position information for Axis, the investee company is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Financial position |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
7,359 |
|
|
$ |
4,408 |
|
Property, plant and equipment, net |
|
|
60,308 |
|
|
|
68,952 |
|
Long-term assets |
|
|
183 |
|
|
|
550 |
|
|
|
|
|
|
|
|
Total assets |
|
|
67,850 |
|
|
|
73,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
16,470 |
|
|
|
1,988 |
|
Long-term debt |
|
|
58,430 |
|
|
|
64,950 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
74,900 |
|
|
|
66,938 |
|
|
|
|
|
|
|
|
|
|
Members (deficit) equity |
|
|
(7,050 |
) |
|
|
6,972 |
|
|
|
|
|
|
|
|
Total liabilities and members equity |
|
$ |
67,850 |
|
|
$ |
73,910 |
|
|
|
|
|
|
|
|
Summary combined financial results for Axis, the investee company, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Results of operations |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
18,926 |
|
|
$ |
1,927 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
(8,808 |
) |
|
|
(8,339 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(9,772 |
) |
|
|
(9,140 |
) |
|
|
(2,432 |
) |
|
|
|
|
|
|
|
|
|
|
Loss |
|
$ |
(15,022 |
) |
|
$ |
(12,361 |
) |
|
$ |
(2,905 |
) |
|
|
|
|
|
|
|
|
|
|
Axis is in its early stages and has been operating at low levels for under two years. As a
result, Axis has incurred losses since starting production in the third quarter of 2009. The new
railcar axle market is directly related to the new railcar market and the current weakness in the
railcar market is causing the axle volumes to remain low. The current downturn is consistent with
industry forecasts, as reported by an independent third party analyst, and is considered temporary.
As such, Axis has not performed a long-lived asset impairment analysis.
In the second half of 2010, an increase in volume resulted in an improvement in financial results.
As of December 31, 2010, the investment in Axis was comprised entirely of ARIs term loan,
revolver, related accrued interest and related accrued unused line fee due from Axis. Based on the
discussion above, this loan has been evaluated to currently be fully recoverable. The Company will
continue to monitor Axis for impairment.
Amtek Railcar
In June 2008, the Company, through ARM I and ARM II, entered into an agreement with a partner in
India to form a joint venture company to manufacture, sell and supply freight railcars and their
components in India and other countries to be agreed upon at a facility to be constructed in India
by the joint venture. In March 2010, the Company made a $9.8 million equity contribution to Amtek
Railcar. ARIs ownership in this joint venture is 50.0%. Amtek Railcar is considered a development
stage enterprise as it has not completed construction of its manufacturing facility nor started
production.
55
The Company accounts for its investment in Amtek Railcar using the equity method. The Company has
determined that, although the joint venture is a VIE, this method is appropriate given that the
Company is not the primary beneficiary and does not have a controlling financial interest and does
not have the ability to individually direct the activities of Amtek Railcar that most significantly
impact its economic performance. The significant factors in this determination were that Amtek
Railcar is a development stage enterprise, the Company and its wholly-owned subsidiaries do not
have the rights to the majority of returns, losses or votes and the risk of loss to the Company
and subsidiaries is limited to its investment in Amtek Railcar.
Summary financial results for Amtek Railcar, the investee company, are as follows:
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
|
(in thousands) |
|
Financial position |
|
|
|
|
Current assets |
|
$ |
9,475 |
|
Property, plant, and equipment, net |
|
|
20,149 |
|
Long-term assets |
|
|
40 |
|
|
|
|
|
Total assets |
|
|
29,664 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
6,521 |
|
Long-term debt |
|
|
4,319 |
|
Long-term liabilities |
|
|
21 |
|
|
|
|
|
Total liabilities |
|
|
10,861 |
|
|
|
|
|
|
Members equity |
|
|
18,803 |
|
|
|
|
|
Total liabilities and members equity |
|
$ |
29,664 |
|
|
|
|
|
Summary combined financial results for Amtek Railcar, the investee company, are as follows:
|
|
|
|
|
|
|
For the Year Ended |
|
|
|
December 31, |
|
|
|
2010 |
|
|
|
(in thousands) |
|
Results of operations |
|
|
|
|
Sales |
|
$ |
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
|
|
Loss before interest income |
|
|
(789 |
) |
|
|
|
|
Loss |
|
$ |
(619 |
) |
|
|
|
|
USRC
In February 2010, ARI, through its wholly-owned subsidiary, ARI DMU LLC, formed USRC, a joint
venture with two other partners that the Company expected would design, manufacture and sell DMUs
to public transit authorities and communities upon order. DMUs are self-propelled passenger
railcars in both single- and bi-level configurations. During the fourth quarter of 2010, ARI
dissolved USRC due to market conditions. The Company made equity contributions totaling $0.3
million throughout 2010 and those contributions were fully offset by losses.
Note 12 Warranties
The Company typically provides limited warranties such as up to one year for parts and services and
five years for new railcars. Factors affecting the Companys warranty liability include the number
of units sold, historical and anticipated rates of claims and historical and anticipated costs per
claim. Fluctuations in the Companys warranty provision and experience of warranty claims are the
result of variations in these factors. The Company assesses the adequacy of its warranty liability
based on changes in these factors.
56
The overall change in the Companys warranty reserve, is reflected on the consolidated balance
sheet in accrued expenses and taxes, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Liability, beginning of year |
|
$ |
1,094 |
|
|
$ |
2,595 |
|
|
$ |
2,503 |
|
Provision for warranties
issued during the year, net
of adjustments |
|
|
1,003 |
|
|
|
1,160 |
|
|
|
1,391 |
|
Provision for warranties
issued in previous years,
net of adjustments |
|
|
(208 |
) |
|
|
(1,182 |
) |
|
|
67 |
|
Warranty claims |
|
|
(738 |
) |
|
|
(1,479 |
) |
|
|
(1,366 |
) |
|
|
|
|
|
|
|
|
|
|
Liability, end of year |
|
$ |
1,151 |
|
|
$ |
1,094 |
|
|
$ |
2,595 |
|
|
|
|
|
|
|
|
|
|
|
Note 13 Long-term Debt
Revolving line of credit
Prior to its expiration, the Company had an Amended and Restated Credit Agreement in place, which
provided for the terms of the Companys revolving credit facility with Capital One Leverage Finance
Corporation, as administrative agent for various lenders. The Company had no borrowings outstanding
under this revolving credit facility since its inception in January 2006. The revolving credit
facility expired in accordance with its terms on October 5, 2009. Given the Companys cash balance
and after evaluating proposals for a new revolving credit facility, ARI elected not to replace the
credit facility.
Unsecured senior fixed rate notes
In February 2007, the Company completed the offering of $275.0 million unsecured senior fixed rate
notes, which were subsequently exchanged for registered notes in March 2007 (Notes). The fair value
of these Notes was approximately $281.5 million and $272.0 million at December 31, 2010 and 2009,
respectively, based on the closing market price as of that date which is a Level 1 input. For
definition and discussion of a Level 1 input for fair value measurement, refer to Note 5.
The Notes bear a fixed interest rate that is set at 7.5% and are due in 2014. Interest on the Notes
is payable semi-annually in arrears on March 1 and September 1. The terms of the Notes contain
restrictive covenants that limit the Companys ability to, among other things, incur additional
debt, make certain restricted payments and enter into certain significant transactions with
stockholders and affiliates. As of December 31, 2010, based on the Companys fixed charge coverage
ratio, as defined and as measured on a rolling four-quarter basis, certain of these covenants,
including the Companys ability to incur additional debt, have become further restricted. The
Company was in compliance with all of its covenants under the Notes as of December 31, 2010 and
2009.
Commencing on March 1, 2011, the redemption price is set at 103.75% of the principal amount of the
Notes plus accrued and unpaid interest, and declines annually until it is reduced to 100.0% of the
principal amount of the Notes plus accrued and unpaid interest from and after March 1, 2013. The
Notes are due in full plus accrued unpaid interest on March 1, 2014.
57
Note 14 Income Taxes
Income tax (benefit) expense consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(14,651 |
) |
|
$ |
4,739 |
|
|
$ |
14,290 |
|
State and local |
|
|
213 |
|
|
|
327 |
|
|
|
2,465 |
|
Foreign |
|
|
81 |
|
|
|
10 |
|
|
|
187 |
|
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
(14,357 |
) |
|
|
5,076 |
|
|
|
16,942 |
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
1,209 |
|
|
|
1,612 |
|
|
|
1,339 |
|
State and local |
|
|
(1,675 |
) |
|
|
(159 |
) |
|
|
121 |
|
Foreign |
|
|
28 |
|
|
|
39 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
Total deferred |
|
|
(438 |
) |
|
|
1,492 |
|
|
|
1,461 |
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) expense |
|
$ |
(14,795 |
) |
|
$ |
6,568 |
|
|
$ |
18,403 |
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense attributable to earnings from operations differed from the
amounts computed by applying the U.S. Federal statutory income tax rate of 35.0% to earnings from
operations by the following amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Computed income tax (benefit) expense |
|
$ |
(14,630 |
) |
|
$ |
7,709 |
|
|
$ |
17,424 |
|
State and local taxes, net of federal tax expense |
|
|
(950 |
) |
|
|
109 |
|
|
|
1,681 |
|
Non-deductible items |
|
|
(107 |
) |
|
|
(128 |
) |
|
|
(714 |
) |
Valuation allowance |
|
|
714 |
|
|
|
|
|
|
|
|
|
Adjustments for uncertain tax positions |
|
|
24 |
|
|
|
(806 |
) |
|
|
101 |
|
Loss of domestic production activities deduction
due to net operating loss carry back |
|
|
641 |
|
|
|
|
|
|
|
|
|
Excludable loss from foreign joint venture |
|
|
87 |
|
|
|
|
|
|
|
|
|
Other, net |
|
|
(574 |
) |
|
|
(316 |
) |
|
|
(89 |
) |
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) expense |
|
$ |
(14,795 |
) |
|
$ |
6,568 |
|
|
$ |
18,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Computed income tax (benefit) expense |
|
|
(35.0 |
%) |
|
|
35.0 |
% |
|
|
35.0 |
% |
State and local taxes, net of federal tax expense |
|
|
(2.3 |
%) |
|
|
0.5 |
% |
|
|
3.4 |
% |
Non-deductible items |
|
|
(0.3 |
%) |
|
|
(0.6 |
%) |
|
|
(1.4 |
%) |
Valuation allowance |
|
|
1.7 |
% |
|
|
|
|
|
|
|
|
Adjustments for uncertain tax positions |
|
|
(0.1 |
%) |
|
|
(3.7 |
%) |
|
|
0.2 |
% |
Loss of domestic production activities deduction
due to net operating loss carry back |
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
Excludable loss from foreign joint venture |
|
|
0.2 |
% |
|
|
|
|
|
|
|
|
Other, net |
|
|
(1.1 |
%) |
|
|
(1.4 |
%) |
|
|
(0.2 |
%) |
|
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
|
(35.4 |
%) |
|
|
29.8 |
% |
|
|
37.0 |
% |
|
|
|
|
|
|
|
|
|
|
58
The tax effects of temporary differences that have given rise to deferred tax assets and
liabilities are presented below:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Current deferred tax assets |
|
|
|
|
|
|
|
|
Provisions not currently deductible |
|
$ |
2,667 |
|
|
$ |
2,018 |
|
Tax credits |
|
|
536 |
|
|
|
|
|
|
|
|
|
|
|
|
Total gross current deferred tax asset |
|
|
3,203 |
|
|
|
2,018 |
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
(174 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total current deferred tax asset |
|
$ |
3,029 |
|
|
$ |
2,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets |
|
|
|
|
|
|
|
|
Provisions not currently deductible |
|
|
3,294 |
|
|
|
4,271 |
|
Stock based compensation |
|
|
2,505 |
|
|
|
1,346 |
|
Investments in partnerships |
|
|
|
|
|
|
87 |
|
Investments in available-for-sale securities |
|
|
|
|
|
|
1,009 |
|
Net operating loss carryforwards state |
|
|
1,736 |
|
|
|
348 |
|
Tax credits state |
|
|
|
|
|
|
258 |
|
Pensions and post retirement |
|
|
3,220 |
|
|
|
3,338 |
|
|
|
|
|
|
|
|
Total gross non-current deferred tax asset |
|
|
10,755 |
|
|
|
10,657 |
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
(582 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset |
|
$ |
13,202 |
|
|
$ |
12,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax liability |
|
|
|
|
|
|
|
|
Unrealized gain on financial instruments |
|
$ |
|
|
|
$ |
|
|
Non-current deferred tax liabilities |
|
|
|
|
|
|
|
|
Investment in joint ventures |
|
|
(1,827 |
) |
|
|
(781 |
) |
Property, plant and equipment |
|
|
(16,189 |
) |
|
|
(16,996 |
) |
Other |
|
|
(95 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liability |
|
$ |
(18,111 |
) |
|
$ |
(17,777 |
) |
|
|
|
|
|
|
|
The net deferred tax asset (liability) is classified in the consolidated balance sheet as
follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Current deferred tax assets |
|
$ |
3,029 |
|
|
$ |
2,018 |
|
Current deferred tax liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax assets, net |
|
|
3,029 |
|
|
|
2,018 |
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets |
|
|
10,173 |
|
|
|
10,657 |
|
Non-current deferred tax liability |
|
|
(18,111 |
) |
|
|
(17,777 |
) |
|
|
|
|
|
|
|
Non-current deferred tax liability, net |
|
|
(7,938 |
) |
|
|
(7,120 |
) |
|
|
|
|
|
|
|
|
|
Current deferred tax asset, net |
|
|
3,029 |
|
|
|
2,018 |
|
Non-current deferred tax liability, net |
|
|
(7,938 |
) |
|
|
(7,120 |
) |
|
|
|
|
|
|
|
Net deferred tax liability |
|
$ |
(4,909 |
) |
|
$ |
(5,102 |
) |
|
|
|
|
|
|
|
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.
ARI considers its Canadian earnings to be indefinitely reinvested, and therefore has not recorded a
provision for U.S. income tax or foreign withholding taxes on the cumulative undistributed earnings
of its Canadian subsidiary. Such undistributed earnings from ARIs Canadian subsidiary have been
included in consolidated retained earnings in the amount of $1.2 million as of December 31, 2010.
If ARI changed its intentions and such earnings were remitted to the U.S., these earnings would be
subject to U.S. income taxes. However, as of December 31, 2010 foreign tax credits would be
available to offset these taxes such that the U.S. tax impact would be insignificant.
59
As of December 31, 2010, the Company had state net operating losses in the amount of $40.7 million,
which expire between 2014 and 2030. The Company also had federal net operating losses of $44.1
million that it intends to carry back to prior years
taxable income. The Company had state credits of $0.5 million that it will carry back and utilize
on state returns. A valuation allowance in the amount of $0.8 million was established for one
deferred tax asset set to expire in 2011. No other valuation allowances were recorded by the
Company 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. In 2009, ARI had state
net operating loss carry forwards of $8.1 million and state tax credits of $0.3 million.
The Companys unrecognized tax benefits were $1.6 million, of which $1.2 million would impact the
effective tax rate if reversed, as of December 31, 2010. The Companys unrecognized tax benefits
were $2.0 million, of which $1.1 million would impact the effective tax rate if reversed, as of
December 31, 2009.
The aggregate changes in the balance of unrecognized tax benefits were as follows:
|
|
|
|
|
Gross unrecognized tax benefits at January 1, 2009 |
|
$ |
(2,082 |
) |
|
|
|
|
|
Increases in tax positions for prior years |
|
|
(371 |
) |
Decreases in tax positions for prior years |
|
|
58 |
|
Increases in tax positions for current years |
|
|
(594 |
) |
Lapses in statutes |
|
|
965 |
|
|
|
|
|
|
|
|
|
|
Liability activity, net |
|
|
58 |
|
|
|
|
|
|
|
|
|
|
Gross unrecognized tax benefits at December 31, 2009 |
|
$ |
(2,024 |
) |
|
|
|
|
|
|
|
|
|
Increases in tax positions for prior years |
|
|
(110 |
) |
Decreases in tax positions for prior years |
|
|
536 |
|
Increases in tax positions for current years |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
Liability activity, net |
|
|
417 |
|
|
|
|
|
|
|
|
|
|
Gross unrecognized tax benefits at December 31, 2010 |
|
$ |
(1,607 |
) |
|
|
|
|
The Company accounts for interest expense and penalties related to income tax issues as income
tax expense. The total amount of accrued interest included in the tax provision for the year ended
December 31, 2010 was $0.1 million and included less than $0.1 million of federal income tax
benefits and penalties. The total amount of accrued interest included in the tax provision for the
year ended December 31, 2009 was $0.3 million and included $0.2 million of federal income tax
benefits and penalties. The Company does not expect any significant changes to its unrecognized tax
benefits within the next twelve months.
The statute of limitation on the Companys 2007, 2008, 2009 and 2010 federal income tax returns
will expire on September 15, 2011, 2012, 2013 and 2014, respectively. The Companys state income
tax returns for the 2006 through 2010 tax years remain open to examination by various state
authorities with the latest closing period on November 15, 2014. The Companys foreign subsidiarys
income tax returns for the 2007 through 2010 tax years remain open to examination by foreign tax
authorities.
Note 15 Employee Benefit Plans
The Company is the sponsor of two defined benefit pension plans that cover certain employees at
designated repair facilities. One plan, which covers certain salaried and hourly employees, is
frozen and no additional benefits are accruing thereunder. The second plan, which covers only
certain of the Companys union employees, is currently active and benefits will continue to accrue
thereunder until January 1, 2012, when the plan will be frozen. The assets of all funded plans are
held by independent trustees and consist primarily of equity and fixed income securities. The
Company is also the sponsor of an unfunded, non-qualified supplemental executive retirement plan
(SERP) in which several of its current and former employees are participants. The SERP is frozen
and no additional benefits are accruing thereunder.
60
The Company also provides postretirement healthcare benefits for certain of its retired employees
and life insurance benefits for certain of its union employees. Employees may become eligible for
healthcare benefits, and union employees may become eligible for life insurance benefits, only if
they retire after attaining specified age and service requirements. These benefits are subject to
deductibles, co-payment provisions and other limitations. During 2009, postretirement healthcare
premium rates for retirees were increased. This change resulted in a decrease to the postretirement
benefit liability of $2.8 million that was recorded to accumulated other comprehensive income as of
December 31, 2009. This adjustment is being recognized over the
remaining weighted-average service period of active plan participants.
The Companys measurement date is December 31 and costs of benefits relating to current service for
those employees to whom the Company is responsible to provide benefits are currently expensed.
The change in benefit obligation, change in plan assets and the funded status is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Change in benefit obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation Beginning of year |
|
$ |
18,414 |
|
|
$ |
17,080 |
|
|
$ |
83 |
|
|
$ |
2,750 |
|
Service cost |
|
|
267 |
|
|
|
235 |
|
|
|
1 |
|
|
|
47 |
|
Interest cost |
|
|
1,025 |
|
|
|
1,034 |
|
|
|
5 |
|
|
|
151 |
|
Adjustment to benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,750 |
) |
Actuarial loss (gain) |
|
|
1,427 |
|
|
|
1,232 |
|
|
|
1 |
|
|
|
(2 |
) |
Assumed administrative expenses |
|
|
(147 |
) |
|
|
(143 |
) |
|
|
|
|
|
|
|
|
Retiree contributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(113 |
) |
Benefits paid |
|
|
(1,064 |
) |
|
|
(1,024 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation End of year |
|
$ |
19,922 |
|
|
$ |
18,414 |
|
|
$ |
90 |
|
|
$ |
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets Beginning of year |
|
$ |
12,105 |
|
|
$ |
10,695 |
|
|
$ |
|
|
|
$ |
|
|
Actual return on plan assets |
|
|
1,639 |
|
|
|
1,962 |
|
|
|
|
|
|
|
|
|
Administrative expenses |
|
|
(170 |
) |
|
|
(146 |
) |
|
|
|
|
|
|
|
|
Employer contributions |
|
|
684 |
|
|
|
618 |
|
|
|
|
|
|
|
|
|
Benefits paid |
|
|
(1,064 |
) |
|
|
(1,024 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at fair value End of year |
|
$ |
13,194 |
|
|
$ |
12,105 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation in excess of plan assets at December 31, |
|
$ |
(6,728 |
) |
|
$ |
(6,309 |
) |
|
$ |
(90 |
) |
|
$ |
(83 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheet are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Accrued benefit liability short term |
|
$ |
(108 |
) |
|
$ |
(111 |
) |
|
$ |
(3 |
) |
|
$ |
(3 |
) |
Accrued benefit liability long term |
|
|
(6,620 |
) |
|
|
(6,198 |
) |
|
|
(87 |
) |
|
|
(80 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liability recognized at December 31, |
|
$ |
(6,728 |
) |
|
$ |
(6,309 |
) |
|
$ |
(90 |
) |
|
$ |
(83 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (loss) gain |
|
$ |
(5,530 |
) |
|
$ |
(5,178 |
) |
|
$ |
1,003 |
|
|
$ |
1,104 |
|
Net prior service (cost) credit |
|
|
(57 |
) |
|
|
(123 |
) |
|
|
2,871 |
|
|
|
3,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive (loss)
income pre-tax at December 31, |
|
$ |
(5,587 |
) |
|
$ |
(5,301 |
) |
|
$ |
3,874 |
|
|
$ |
4,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
The short-term liability has been reported on the consolidated balance sheet in accrued
expenses and taxes.
The components of net periodic benefit cost for the years ended December 31, 2010, 2009 and 2008
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Components of net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
267 |
|
|
$ |
235 |
|
|
$ |
371 |
|
|
$ |
1 |
|
|
$ |
47 |
|
|
$ |
62 |
|
Interest cost |
|
|
1,025 |
|
|
|
1,034 |
|
|
|
1,271 |
|
|
|
5 |
|
|
|
151 |
|
|
|
231 |
|
Expected return on plan assets |
|
|
(885 |
) |
|
|
(757 |
) |
|
|
(1,359 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment loss |
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized actuarial loss (gain) |
|
|
345 |
|
|
|
368 |
|
|
|
213 |
|
|
|
(100 |
) |
|
|
(92 |
) |
|
|
(46 |
) |
Amortization of prior service cost (gain) |
|
|
7 |
|
|
|
14 |
|
|
|
18 |
|
|
|
(391 |
) |
|
|
(85 |
) |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit cost |
|
$ |
816 |
|
|
$ |
894 |
|
|
$ |
514 |
|
|
$ |
(485 |
) |
|
$ |
21 |
|
|
$ |
265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information
The following benefit payments, which reflect expected future service, as appropriate, are expected
to be paid as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement |
|
|
|
Pension Benefits |
|
|
Benefits |
|
|
|
(in thousands) |
|
2011 |
|
$ |
1,078 |
|
|
$ |
3 |
|
2012 |
|
|
1,078 |
|
|
|
4 |
|
2013 |
|
|
1,095 |
|
|
|
4 |
|
2014 |
|
|
1,129 |
|
|
|
4 |
|
2015 |
|
|
1,152 |
|
|
|
5 |
|
2016 and thereafter |
|
|
6,419 |
|
|
|
29 |
|
|
|
|
|
|
|
|
Total |
|
$ |
11,951 |
|
|
$ |
49 |
|
|
|
|
|
|
|
|
The Company expects to contribute $1.2 million to its pension and postretirement plans in
2011.
Pension and other postretirement benefit costs and liabilities are dependent on assumptions used in
calculating such amounts. The primary assumptions include factors such as discount rates, expected
return on plan assets, mortality rates and retirement rates, as discussed below:
Discount rates
The Company reviews these rates annually and adjusts them to reflect current conditions. The
Company deemed these rates appropriate based on the Citigroup Pension Discount curve analysis along
with expected payments to retirees.
Expected return on plan assets
The Companys expected return on plan assets is derived from detailed periodic studies, which
include a review of asset allocation strategies, anticipated future long-term performance of
individual asset classes, risks (standard deviations) and correlations of returns among the asset
classes that comprise the plans asset mix. While the studies give appropriate consideration to
recent plan performance and historical returns, the assumptions are primarily long-term,
prospective rates of return.
62
Mortality and retirement rates
Mortality and retirement rates are based on actual and anticipated plan experience.
The assumptions used to determine end of year benefit obligations are shown in the following
table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Discount rate |
|
|
5.25 |
% |
|
|
5.75 |
% |
|
|
5.31 |
% |
|
|
5.83 |
% |
The assumptions used in the measurement of net periodic cost are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Discount rate |
|
|
5.75 |
% |
|
|
6.25 |
% |
|
|
6.25 |
% |
|
|
5.31 |
% |
|
|
5.83 |
% |
|
|
6.30 |
% |
Expected return on plan assets |
|
|
7.50 |
% |
|
|
7.25 |
% |
|
|
8.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
The Companys pension plans asset valuation in the fair value hierarchy levels, discussed in
detail in Note 5, along with the weighted average asset allocations at December 31, 2010, by asset
category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
of Total |
|
|
|
($ in thousands) |
|
|
|
|
|
Asset Category |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
355 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
355 |
|
|
|
3 |
% |
Equities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large cap value equity |
|
|
1,109 |
|
|
|
|
|
|
|
|
|
|
|
1,109 |
|
|
|
8 |
% |
Mid cap growth equity |
|
|
237 |
|
|
|
|
|
|
|
|
|
|
|
237 |
|
|
|
2 |
% |
Mid cap value equity |
|
|
173 |
|
|
|
|
|
|
|
|
|
|
|
173 |
|
|
|
1 |
% |
Small cap value equity |
|
|
294 |
|
|
|
|
|
|
|
|
|
|
|
294 |
|
|
|
2 |
% |
International growth equity |
|
|
620 |
|
|
|
|
|
|
|
|
|
|
|
620 |
|
|
|
5 |
% |
Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large cap growth equity |
|
|
|
|
|
|
1,228 |
|
|
|
|
|
|
|
1,228 |
|
|
|
9 |
% |
Small cap growth equity |
|
|
|
|
|
|
327 |
|
|
|
|
|
|
|
327 |
|
|
|
2 |
% |
International value equity |
|
|
658 |
|
|
|
|
|
|
|
|
|
|
|
658 |
|
|
|
5 |
% |
International markets core equity |
|
|
547 |
|
|
|
|
|
|
|
|
|
|
|
547 |
|
|
|
4 |
% |
Large cap enhanced core equity |
|
|
|
|
|
|
2,200 |
|
|
|
|
|
|
|
2,200 |
|
|
|
17 |
% |
High yield |
|
|
532 |
|
|
|
|
|
|
|
|
|
|
|
532 |
|
|
|
4 |
% |
Core bond |
|
|
|
|
|
|
1,895 |
|
|
|
|
|
|
|
1,895 |
|
|
|
14 |
% |
International bond |
|
|
518 |
|
|
|
|
|
|
|
|
|
|
|
518 |
|
|
|
4 |
% |
Fixed income |
|
|
736 |
|
|
|
|
|
|
|
|
|
|
|
736 |
|
|
|
6 |
% |
Commodity |
|
|
681 |
|
|
|
|
|
|
|
|
|
|
|
681 |
|
|
|
5 |
% |
Debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury bonds |
|
|
693 |
|
|
|
|
|
|
|
|
|
|
|
693 |
|
|
|
5 |
% |
Asset backed securities |
|
|
|
|
|
|
391 |
|
|
|
|
|
|
|
391 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,153 |
|
|
$ |
6,041 |
|
|
$ |
|
|
|
$ |
13,194 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
The Companys pension plans asset valuation in the fair value hierarchy levels, discussed in
detail in Note 5, along with the weighted average asset allocations at December 31, 2009, by asset
category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
of Total |
|
|
|
($ in thousands) |
|
|
|
|
|
Asset Category |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
293 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
293 |
|
|
|
2 |
% |
Equities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large cap value equity |
|
|
606 |
|
|
|
|
|
|
|
|
|
|
|
606 |
|
|
|
5 |
% |
Small cap value equity |
|
|
497 |
|
|
|
|
|
|
|
|
|
|
|
497 |
|
|
|
4 |
% |
International growth equity |
|
|
581 |
|
|
|
|
|
|
|
|
|
|
|
581 |
|
|
|
5 |
% |
International value equity |
|
|
505 |
|
|
|
|
|
|
|
|
|
|
|
505 |
|
|
|
4 |
% |
Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large cap growth equity |
|
|
|
|
|
|
666 |
|
|
|
|
|
|
|
666 |
|
|
|
6 |
% |
Small cap growth equity |
|
|
|
|
|
|
423 |
|
|
|
|
|
|
|
423 |
|
|
|
3 |
% |
Core equity |
|
|
|
|
|
|
2,902 |
|
|
|
|
|
|
|
2,902 |
|
|
|
24 |
% |
High yield |
|
|
672 |
|
|
|
|
|
|
|
|
|
|
|
672 |
|
|
|
6 |
% |
Core bond |
|
|
|
|
|
|
4,960 |
|
|
|
|
|
|
|
4,960 |
|
|
|
41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,154 |
|
|
$ |
8,951 |
|
|
$ |
|
|
|
$ |
12,105 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company invests in a balanced portfolio of individual equity securities, various
collective and mutual funds and individual debt securities to maintain a diversified portfolio
structure with distinguishable investment objectives. The objective of the total portfolio is
long-term growth and appreciation along with capital preservation, to maintain the value of plan
assets over time in real terms net of fees, distributions and liquidity obligations. The objective
in value equities and funds is to provide a competitive rate of return through investment in
attractively valued companies relative to their underlying fundamentals. The objective of
investments in growth equities and funds is to benefit from earnings growth potential. The
objective of investments in core equities is to produce consistent, market-like return with
relatively low tracking error to the broader equity market. The high yield, bond funds, fixed
income, US Treasury bonds and asset backed securities objective is to provide fixed-income
exposure that adds diversification and contributes to total return through both appreciation and
income generation. The commodity funds objective is to provide a competitive rate of return. Asset
classes and securities are diversified by market capitalization (large cap, mid cap, small cap), by
geographic orientation (domestic versus international) and by style (core, growth, value). All
conventional investments are traded on major exchanges and are readily marketable.
The overall objective of the pension plans investments is to grow plan assets in relation to
liabilities, while prudently managing the risk of a decrease in the pension plans assets. The
pension plans 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 an investment mix as established for
each plan. The committee has established an average target investment mix of approximately 65%
equities and approximately 35% fixed-income for the plans.
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 $0.8 million, $0.8
million and $0.7 million for the years ended December 31, 2010, 2009 and 2008, respectively.
Note 16 Commitments and Contingencies
As of December 31, 2010, 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):
|
|
|
|
|
2011 |
|
$ |
1,083 |
|
2012 |
|
|
956 |
|
2013 |
|
|
1,091 |
|
2014 |
|
|
1,179 |
|
2015 |
|
|
1,175 |
|
2016 and thereafter |
|
|
7,597 |
|
|
|
|
|
Total |
|
$ |
13,081 |
|
|
|
|
|
64
Total rent expense for the years ended December 31, 2010, 2009 and 2008 was $2.1 million, $2.3
million and $2.6 million, respectively.
In connection with the Companys investment in Ohio Castings, ARI has a guarantee of a $2.0 million
state loan, of which $0.2 million was outstanding as of December 31, 2010. The state loan is
scheduled to be fully paid off in June 2011. The two other partners of Ohio Castings have made
identical guarantees of this obligation. The value of this guarantee amounted to less than $0.1
million at December 31, 2010. It is anticipated that Ohio Castings will continue to make principal
and interest payments while its facility is temporarily idled through equity contributions by ARI
and the other partners.
The Companys Axis joint venture entered into a credit agreement in December 2007. Effective August
5, 2009, the Company and the other initial partner acquired this loan from the lenders party
thereto, with each party acquiring a 50.0% interest in the loan. The total commitment under the
term loan is $60.0 million with an additional $10.0 million commitment under the revolving loan.
ARI Component is responsible to fund 50.0% of the loan commitments. The balance outstanding on
these loans, due to ARI Component, was $31.9 million of principal and $3.6 million of accrued
interest, both as of December 31, 2010. In accordance with the terms of the agreement, in 2010,
Axis elected to satisfy interest on the term loan by increasing the outstanding principal amount of
the term loan by the amount of interest otherwise due and payable in cash. This does not affect the
remaining funding commitments on these loans. ARI Components share of the remaining commitment on
these loans was $3.1 million as of December 31, 2010. See Note 11 for further information regarding
this transaction and the terms of the underlying loan.
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 ARIs 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. ARIs operations that involve
hazardous materials also raise potential risks of liability under common law. Management believes
that there are no current environmental issues identified that would have a material adverse effect
on the Company. Certain real property ARI acquired from ACF in 1994 has been involved in
investigation and remediation activities to address contamination. ACF is an affiliate of Mr. Carl
Icahn, the chairman of ARIs board of directors and, through IELP, its principal beneficial
stockholder. Substantially all of the issues identified relate to the use of this property prior to
its transfer to ARI 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. As of the date of this report, ARI does not
believe it will incur material costs in connection with any investigation or remediation activities
relating to these properties, but it cannot assure that this will be the case. If ACF fails to
honor its obligations to ARI, ARI could 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, if any, 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 two repair facilities and
one parts manufacturing facility that expire beginning April 2011 through September 2013.
ARI was named the defendant in a wrongful death lawsuit, Nicole Lerma v. American Railcar
Industries, Inc., filed on August 17, 2007 in the Circuit Court of Greene County, Arkansas Civil
Division. The court reached a verdict in favor of ARI on May 24, 2010. The plaintiff did not appeal
the decision within the timeframe allowed.
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.
In July 2007, ARI entered into an agreement with its joint venture, Axis, to purchase new railcar
axles from the joint venture.
The Company has no minimum volume purchase requirements under this agreement.
65
On October 29, 2010, ARI entered into a lease agreement with a term of eleven years and total base
rent of $6.4 million, over the term of the agreement, with an entity owned by the vice chairman of
the Companys board of directors. The lease is for ARIs headquarters location in St. Charles,
Missouri, that it previously leased through ARL under a services agreement with ARL, which expired
December 31, 2010. The term under the new lease agreement commences January 1, 2011 at the time the
previous lease under the services agreement with ARL expired. The Company is required to pay
monthly rent and a portion of all tax increases assessed or levied upon the property and increases
to the cost of the utilities and other services it used.
Note 17 (Loss) Earnings per Share
The shares used in the computation of the Companys basic and diluted (loss) earnings per common
share are reconciled as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Weighted average basic common shares outstanding |
|
|
21,302,488 |
|
|
|
21,302,296 |
|
|
|
21,302,296 |
|
Dilutive effect of employee stock options |
|
|
|
(1) |
|
|
|
(2) |
|
|
|
(2) |
|
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding |
|
|
21,302,488 |
|
|
|
21,302,296 |
|
|
|
21,302,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Stock options to purchase 376,353 shares of common stock were not included in the
calculation for diluted loss per share for the year ended December 31, 2010. These options were
excluded as the exercise price exceeded the average market price and because ARI reported a net
loss for 2010. Refer to Note 18 for further discussion of these stock options. |
|
(2) |
|
Stock options to purchase 390,353 shares of common stock were not included in the calculation
for diluted earnings per share for the years ended December 31, 2009 and 2008. These options were
excluded as the exercise price exceeded the average market price for 2009 and 2008. Refer to Note
18 for further discussion of these stock options. |
Note 18 Stock Based Compensation
The Company accounts for stock based compensation granted under the 2005 Equity Incentive Plan, as
amended (the 2005 Plan) based on the fair values calculated using the Black-Scholes-Merton
option-pricing formula. Stock based compensation is expensed using a graded vesting method over the
vesting period of the instrument.
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 the Companys
common stock. Awards covering no more than 300,000 shares may be granted to any person during any
fiscal year. Options and SARs are subject to certain vesting provisions as designated by the board
of directors and may have an expiration period that ranges from 5 to 10 years. Options and SARs
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 Companys board of directors or a committee of the board. Options and
SARs granted are expensed on a graded vesting method over the vesting period of the instrument.
The following table presents the amounts for stock based compensation expense incurred by ARI and
the corresponding line items on the consolidated statements of operations that they are classified
within:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended |
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
($ in thousands) |
|
Stock based compensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue: manufacturing operations |
|
$ |
1,190 |
|
|
$ |
237 |
|
|
$ |
28 |
|
Cost of revenue: railcar services |
|
|
202 |
|
|
|
42 |
|
|
|
(2 |
) |
Selling, administrative and other |
|
|
3,966 |
|
|
|
895 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
Total stock based compensation expense |
|
$ |
5,358 |
|
|
$ |
1,174 |
|
|
$ |
62 |
|
|
|
|
|
|
|
|
|
|
|
Income tax benefits related to stock based compensation arrangements were $2.1 million, $0.5
million and less than $0.1 million for the years ended December 31, 2010, 2009 and 2008,
respectively.
66
Stock options
In January 2006, on the date of the initial public offering, the Company granted options to
purchase 484,876 shares of common stock under 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 an
expiration term of five years and vest in equal annual installments over a three-year period. The
Company determined the fair value of these options using a Black-Scholes calculation based on the
following assumptions: stock volatility of 35.0%; 5 year term; interest rate of 4.35%; and dividend
yield of 1.0%. 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 Treasury 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. In January 2011, 340,352 stock options expired unexercised. A valuation allowance
of $0.8 million was recorded as of December 31, 2010 related to the expiration of these options in
January 2011.
In April 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
closing stock price on the date of the grant. These options had a four year vesting period and a
five year expiration period. The Company determined the fair value using the same assumptions and
methodology as was used for the options issued in connection with the Companys initial public
offering. During 2008, the Companys former Chief Financial Officer, William Benac, resigned
causing the cancellation of these options resulting in the recognition of $0.4 million of income
from the reversal of expense.
No stock options were granted in 2010, 2009 and 2008.
The Company recognized $0.5 million (exclusive of $0.4 million gain related to cancellation) of
compensation expense and recognized related income tax benefits of less than $0.1 million during
the year ended December 31, 2008 related to stock options. The Company did not recognize any stock
based compensation expense related to stock options during the years ended December 31, 2010 and
2009 as the stock options were fully vested.
The following is a summary of option activity under the 2005 Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
Grant-date |
|
|
Aggregate |
|
|
|
Shares |
|
|
Average |
|
|
Remaining |
|
|
Fair Value of |
|
|
Intrinsic |
|
|
|
Covered by |
|
|
Exercise |
|
|
Contractual |
|
|
Options |
|
|
Value |
|
|
|
Options |
|
|
Price |
|
|
Life |
|
|
Granted |
|
|
($000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2008 |
|
|
465,353 |
|
|
$ |
23.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled in 2008 |
|
|
(75,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 and 2009 |
|
|
390,353 |
|
|
$ |
21.00 |
|
|
|
|
|
|
$ |
7.28 |
|
|
|
|
|
Exercised in 2010 |
|
|
(14,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010 |
|
|
376,353 |
|
|
$ |
21.00 |
|
|
Less than 1 month |
|
$ |
7.28 |
|
|
$ |
425 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2010 |
|
|
376,353 |
|
|
$ |
21.00 |
|
|
Less than 1 month |
|
$ |
7.28 |
|
|
$ |
425 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Options to purchase 376,353 shares, of which all were exercisable, of the Companys
common stock had an exercise price that was below market price, based on the closing market price
of $22.13 for a share of the Companys common stock on the last business day of the year ended
December 31, 2010. |
No options were exercised in 2009 and 2008. Options to purchase 14,000 shares of the Companys
common stock were exercised during the year ended December 31, 2010. The total intrinsic value of
options exercised during the year ended December 31, 2010, was less than $0.1 million. The Company
realized tax expense of less than $0.1 million related to these option exercises.
All outstanding options vested on January 19, 2009 and all compensation costs related to the stock
options were recognized as of December 31, 2008.
As of December 31, 2010, an aggregate of 515,124 shares were available for issuance in connection
with future equity instrument grants under the Companys 2005 Plan. Shares issued under the 2005
Plan may consist in whole or in part of authorized but unissued shares or treasury shares. All
options that expire unexercised are returned to the 2005 Plan. 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.
67
Stock appreciation rights
The compensation committee of the board of directors of the Company granted awards of stock
appreciation rights (SARs) to certain employees pursuant to the 2005 Plan during April 2007, April
2008, September 2008, March 2009 and March 2010. On May 14, 2010, ARI completed an exchange offer
and exchanged 190,200 eligible SARs granted on April 4, 2007 at an exercise price per SAR of $29.49
for 95,100 SARs granted on May 14, 2010 at an exercise price per SAR of $14.12.
All of the SARs granted in 2007, 196,900 of the SARs granted in 2008 and 212,850 of the SARs
granted in 2009 vest in 25.0% increments on the first, second, third and fourth anniversaries of
the grant date. The SARs granted in March and May 2010 vest in three equal increments on the first,
second and third anniversaries of the grant date. Each holder must remain employed by the Company
through each such date in order to vest in the corresponding number of SARs.
Additionally, 77,500 of the SARs granted in 2008 and 93,250 of the SARs granted in 2009 similarly
vest in 25.0% increments on the first, second, third and fourth anniversaries of the grant date,
but only if the closing price of the Companys common stock achieves a specified price target
during the applicable twelve month period for twenty trading days during any sixty day trading day
period. If the Companys common stock does not achieve the specified price target during the
applicable twelve-month period, the related portion of these performance-based SARs will not vest.
Each holder must further remain employed by the Company through each anniversary of the grant date
in order to vest in the corresponding number of SARs.
The SARs have exercise prices that represent the closing price of the Companys common stock on the
date of grant. Upon the exercise of any SAR, the Company shall pay the holder, in cash, an amount
equal to the excess of (A) the aggregate fair market value (as defined in the 2005 Plan) in respect
of which the SARs are being exercised, over (B) the aggregate exercise price of the SARs being
exercised, in accordance with the terms of the Stock Appreciation Rights Agreement (the SAR
Agreement). The SARs are subject in all respects to the terms and conditions of the 2005 Plan and
the SAR Agreement, which contain non-solicitation, non-competition and confidentiality provisions.
The following table provides an analysis of SARs granted in 2010, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2010 Grants |
|
2009 Grant |
|
2008 Grants |
|
2007 Grant |
Grant date |
|
3/31/2010 & |
|
|
|
4/28/2008 & |
|
|
|
|
5/14/2010 |
|
3/3/2009 |
|
9/12/2008 |
|
4/4/2007 |
# SARs outstanding at December 31, 2010 |
|
236,750 |
|
285,600 |
|
176,853 |
|
12,150 |
Weighted average exercise price |
|
$12.95 |
|
$6.71 |
|
$20.81 |
|
$29.49 |
Contractual term |
|
7 years |
|
7 years |
|
7 years |
|
7 years |
|
December 31, 2010 SARs black scholes
valuation components: |
|
|
|
|
|
|
|
|
Stock volatility range |
|
60.5% 65.3% |
|
65.3% 70.3% |
|
60.4% 70.3% |
|
49.2% 60.4% |
Expected life range |
|
3.3 4.3 years |
|
2.6 3.7 years |
|
2.2 3.2 years |
|
1.6 1.8 years |
Risk free interest rate range |
|
1.0% 2.0% |
|
1.0% |
|
0.6% 1.0% |
|
0.6% |
Dividend yield |
|
0.0% |
|
0.0% |
|
0.0% |
|
0.0% |
Forfeiture rate |
|
2.0% |
|
2.0% |
|
2.0% |
|
2.0% |
The exercise prices represent the closing price of the Companys common stock on the date of
grant. The SARs have a term of seven years. As there is not yet adequate history of the Companys
stock prices, the stock volatility rate was determined using a combination of the Companys limited
historical volatility rate and the historical volatility rates for several other similar companies
within the railcar industry. The expected life ranges represent the use of the simplified method
prescribed by the U.S. Securities and Exchange Commission in Staff Accounting Bulletins Official
Text Topic 14D2, which uses the average of the vesting period and expiration period of each group
of SARs that vest equally over a four-year period. The interest rates used were the government
Treasury bill rate on the date of valuation. Dividend yield was determined using the historical
dividend rate of the Company. The forfeiture rate used was based on a Company estimate of expected
forfeitures over the contractual life of each grant of SARs for each period.
68
The following is a summary of SARs activity under the 2005 Plan:
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
Aggregate |
|
|
|
Appreciation |
|
|
Average |
|
|
Remaining |
|
|
Weighted |
|
|
Intrinsic |
|
|
|
Rights |
|
|
Exercise |
|
|
Contractual |
|
|
Average Fair |
|
|
Value |
|
|
|
(SARs) |
|
|
Price |
|
|
Life |
|
|
Value of SARs |
|
|
($000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2008 |
|
|
275,300 |
|
|
$ |
29.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
274,400 |
|
|
$ |
20.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled/Forfeited (1) |
|
|
(43,674 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
506,026 |
|
|
$ |
25.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
306,100 |
|
|
$ |
6.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled/Forfeited (1) |
|
|
(23,576 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009 |
|
|
788,550 |
|
|
$ |
18.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
236,750 |
|
|
$ |
12.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled/Forfeited (1) |
|
|
(295,022 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(18,925 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010 |
|
|
711,353 |
|
|
$ |
12.68 |
|
|
60 months |
|
$ |
13.24 |
|
|
$ |
6,811 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2010 |
|
|
149,100 |
|
|
$ |
15.91 |
|
|
55 months |
|
$ |
11.43 |
|
|
$ |
996 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Of the SARs granted in 2008, 13,122, 19,376 and 19,374 were forfeited in 2010, 2009 and
2008, respectively, due to the closing price of the Companys common stock not achieving a
specified price target for twenty trading days during any sixty day trading day period. |
|
(2) |
|
SARs granted in 2007 with an exercise price of $29.49 have no intrinsic value based on the
closing market price of $22.13 for a share of the Companys common stock on the last business day
of the year ended December 31, 2010. However, the SARs granted in 2010 with an exercise price of
$12.16 and $14.12, those granted in 2009 with an exercise price of $6.71 and those granted in 2008
with an exercise price of $20.88 and $16.46 have an intrinsic value of $6.8 million based on the
closing market price for 2010. |
|
(3) |
|
SARs granted in 2007 with an exercise price of $29.49 have no intrinsic value based on the
closing market price of $22.13 for a share of the Companys common stock on the last business day
of the year ended December 31, 2010. However, the SARs granted in 2009 with an exercise price of
$6.71 and those granted in 2008 with an exercise price of $20.88 and $16.46 have an intrinsic value
of $1.0 million based on the closing market price for 2010. |
Compensation expense of $5.4 million, $1.2 million and less than $0.1 million was incurred for the
years ended December 31, 2010, 2009 and 2008, respectively, related to stock appreciation rights
granted under the 2005 Plan. The Company recognized income tax benefits related to SARs of $2.1
million, $0.5 million and less than $0.1 million during the years ended December 31, 2010, 2009 and
2008, respectively.
As of December 31, 2010, unrecognized compensation costs related to the unvested portion of stock
appreciation rights were $2.8 million and were expected to be recognized over a period of 26
months.
Note 19 Common Stock
During each quarter of 2008, the Company declared and paid cash dividends of $0.03 per share of
common stock of the Company to stockholders of record as of a given date. The Company declared cash
dividends in the first two quarters of 2009 and paid cash dividends the first three quarters of
2009 to stockholders of record as of a given date. Subsequently, in August 2009, the board of
directors indefinitely suspended its quarterly dividend payments.
During the year ended December 31, 2010, the Company issued 14,000 shares of its common stock as
certain holders of stock options exercised options to purchase the Companys common stock.
69
Note 20 Related Party Transactions
Agreements with ACF
The Company has or had the following agreements with ACF, a company controlled by Mr. Carl Icahn,
the Companys principal beneficial stockholder, through IELP, and chairman of the Companys board
of directors:
Manufacturing services agreement
Under the manufacturing services agreement entered into in 1994 and amended in 2005, ACF agreed to
manufacture and distribute, at the Companys instruction, various railcar components. In
consideration for these services, the Company agreed to pay ACF based on agreed upon rates. In the
years ended December 31, 2010, 2009 and 2008, ARI purchased inventory of $1.1 million, $13.5
million and $44.7 million, respectively, of components from ACF. The agreement automatically renews
unless written notice is provided by the Company.
Supply agreement
Under a supply agreement entered into in 1994, the Company 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. No revenue was recorded from ACF for the year
ended December 31, 2010. Revenue recorded under this arrangement was less than $0.1 million and
$0.2 million, respectively, for the years ended December 31, 2009 and 2008. Such amounts are
included under manufacturing operations revenue from affiliates on the consolidated statements of
operations. Profit margins on sales to related parties approximate the margins on sales to other
customers.
Railcar manufacturing agreement
In May 2007, the Company entered into a manufacturing agreement with ACF, pursuant to which the
Company agreed to purchase approximately 1,390 tank railcars from ACF, supported by a new customer
order received at the same time. The profit realized by ARI upon sale of the tank railcars to ARI
customers was first paid to ACF to reimburse it for the start-up costs involved in implementing the
manufacturing arrangements evidenced by the agreement and thereafter, the profit was split evenly
between ARI and ACF. In September 2008, a termination letter was received from ACF terminating this
agreement effective the later of the completion of approximately 1,390 tank railcars or March 2009.
The commitment under this agreement was satisfied in March 2009 and the agreement was terminated at
that time.
In the years ended December 31, 2009 and 2008, ARI incurred costs under this agreement of $4.1
million and $24.2 million, respectively, in connection with railcars that were manufactured and
delivered to customers during that period, which includes payments made to ACF for its share of the
profits along with ARI costs and such amount is included under cost of goods sold on the
consolidated statements of operations. The Company recognized revenue of $19.0 million and $100.3
million related to railcars shipped under this agreement for the years ended December 31, 2009 and
2008, respectively. No revenues or costs were incurred under this agreement for the year ended
December 31, 2010.
Asset Purchase Agreement
On January 29, 2010, ARI entered into an agreement to purchase certain assets from ACF for
approximately $0.9 million that will allow the Company to manufacture railcar components previously
purchased from ACF.
The purchase price of approximately $0.9 million was determined using various factors, including
but not limited to, independent appraisals that assessed fair market value for the purchased
assets, each assets remaining useful life and the replacement cost of each asset. Given that ACF
and ARI have the same majority stockholder, the assets purchased were recorded at ACFs net book
value and the remaining portion of the purchase price will be a reduction to stockholders equity.
As of December 31, 2010, all of the assets had been received and paid for in accordance with the
agreement.
Other agreements
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. This agreement terminated January 5, 2010.
ARI entered into an agreement in April 2005 to provide ACF with engineering and consulting advice.
Fees are based on agreed upon rates. No services were rendered and no amounts were paid during the
years ended December 31, 2010, 2009 and 2008.
70
Agreements with ARL
The Company has or had the following agreements with ARL, a company controlled by Mr. Carl Icahn,
the Companys principal beneficial stockholder, through IELP, and chairman of the Companys board
of directors:
Railcar servicing agreement and fleet services agreement
Effective as of January 1, 2008, the Company entered into a new fleet services agreement with ARL,
which replaced the 2005 railcar servicing agreement. The new agreement reflects a reduced level of
fleet management services, relating primarily to logistics management services, for which ARL now
pays a fixed monthly fee. Additionally, under the new agreement, the Company continues to provide
railcar repair and maintenance services to ARL for a charge of labor, components and materials. The
Company currently provides such repair and maintenance services for approximately 28,000 railcars
for ARL. The new agreement extends through December 31, 2010, and is automatically renewed for
additional one-year periods unless either party gives at least sixty days prior notice of
termination. There is no termination fee if the Company elects to terminate the new agreement.
Revenue of $15.0 million, $14.4 million and $15.3 million for the years ended December 31, 2010,
2009 and 2008, respectively, was recorded under this agreement. Such amounts are included under
railcar services revenue from affiliates on the consolidated statements of operations. Profit
margins on sales to related parties approximate the margins on sales to other customers.
Services agreement, separation agreement and rent and building services extension agreement
Under the Companys services agreement with ARL, 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 the Companys vice
chairman of the board of directors, which is further described later in this footnote. Under this
agreement, the Company agreed to provide purchasing and engineering services to ARL. Consideration
exchanged between the companies is based on an agreed upon fixed annual fee.
On March 30, 2007, ARI and ARL agreed, pursuant to a separation agreement, to terminate, effective
December 31, 2006, all services provided to ARL by the Company under the services agreement.
Additionally, the separation agreement provided that all services provided to the Company by ARL
under the services agreement would be terminated except for rent and building services. Under the
separation agreement, ARL agreed to waive the six month notice requirement for termination required
by the services agreement.
In February 2008, ARI and ARL agreed, pursuant to an extension agreement, that effective December
31, 2007, all rent and building services would continue unless otherwise terminated by either party
upon six months prior notice or by mutual agreement between the parties. This agreement terminated
on December 31, 2010 by mutual agreement.
Total fees paid to ARL were $0.6 million for all the years ended December 31, 2010, 2009 and 2008.
The fees paid to ARL are included in selling, administrative and other costs to affiliates on the
consolidated statements of operations.
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 ARIs 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 is entitled to annual fees of $1,000 in exchange for this license.
Sales contracts
The Company from time to time manufactures and sells railcars to ARL under long-term agreements as
well as on a purchase order basis. Revenues for railcars sold to ARL were $81.8 million, $105.0
million and $182.5 million for the years ended December 31, 2010, 2009 and 2008, respectively.
Revenues for railcars sold to ARL are included under manufacturing revenue from affiliates on the
accompanying consolidated statements of operations. Profit margins on sales to related parties
approximate the margins on sales to other large customers.
Agreements with other affiliated parties
In September 2003, Castings loaned Ohio Castings $3.0 million under a promissory note, which was
due in January 2004. The note was renegotiated resulting in a new principal amount of $2.2 million,
bearing interest at a rate of 4.0% with a maturity date of August 2009. Due to the temporary idling
of the facility, Ohio Castings advised the partners that it was unable to pay the notes when due.
The notes were renegotiated and are now due February 2012. Interest will continue to accrue but
interest payments have been deferred until August 2011. Accrued interest for this note as of
December 31, 2010, was less than $0.1
million. This note receivable is included in investment in joint venture on the accompanying
consolidated balance sheet. Total amounts due from Ohio Castings under this note were $0.5 million
at both December 31, 2010 and 2009.
71
In connection with the Companys investment in Ohio Castings, ARI has a guarantee of a $2.0 million
state loan that provided for purchases of capital equipment, of which $0.2 million was outstanding
as of December 31, 2010. The state loan is scheduled to be fully paid off in June 2011. The two
other partners of Ohio Castings have made identical guarantees of these obligations.
One of the Companys joint ventures, Axis, entered into a credit agreement in December 2007. In
connection with this event, the Company agreed to a 50.0% guaranty of Axis obligation under its
credit agreement during the construction and start-up phases of the facility. As of June 30, 2009,
Axis had approximately $62.2 million outstanding under the credit agreement of which the Companys
exposure was 50.0%. The Companys guaranty had a maximum exposure related to it of $35.0 million,
exclusive of any capitalized interest, fees, costs and expenses. The Companys initial partner in
the joint venture made an identical guarantee relating to this credit agreement. Effective August
5, 2009, the Company and the other initial partner acquired this loan, with each party acquiring a
50.0% interest in the loan. The purchase price paid by the Company for its 50.0% interest was
approximately $29.5 million, which equaled the then outstanding principal amount of the portion of
the loan acquired by the Company. The total commitment under the loan is up to $70.0 million,
consisting of up to $60.0 million in term loans and up to $10.0 million under the revolving loans.
The balance outstanding on the portion of these loans due to ARI Component was $31.9 million in
principal and $3.6 million of accrued interest both as of December 31, 2010. ARI Component is
responsible to fund 50.0% of the loan commitments. ARI Components share of the remaining
commitment on these loans, term and revolving, was $3.1 million as of December 31, 2010. ARI is in
discussions with Axis and the other initial partner of Axis regarding the potential renegotiation
of the term loans, as it is not currently anticipated that Axis will be able to repay the term
loans in accordance with the Axis Credit Agreement, beginning March 31, 2011. See Note 11 for
further information regarding this transaction and the terms of the underlying loan.
The Company purchases railcar parts from its joint ventures under long-term contracts. During the
years ended December 31, 2010, 2009 and 2008, the Company purchased $5.8 million, $7.6 million and
$21.7 million of railcar parts from its joint ventures, respectively.
Effective January 1, 2009, ARI entered into a services agreement with a term of one year to provide
Axis accounting, tax, human resources and information technology assistance for an annual fee of
$0.2 million. Effective January 1, 2010, this agreement was replaced by a new services agreement
for ARI to provide Axis accounting, tax, human resources, information technology and purchasing
assistance for an annual fee of $0.3 million. This agreement has a term of one year and
automatically renews for additional one-year periods unless written notice is received from either
party.
Effective April 1, 2009, Mr. James J. Unger, the Companys former chief executive officer, assumed
the role of vice chairman of the board of directors and became a consultant to the Company. In
exchange for these services, Mr. Unger received an annual consulting fee of $135,000 and an annual
director fee of $65,000 that were both payable quarterly, in advance. The Company also agreed to
provide Mr. Unger with an automobile allowance related to his role as vice chairman. Mr. Ungers
consulting agreement terminated in accordance with its terms as of April 1, 2010. In his role as
consultant, Mr. Unger reported to and served at the discretion of the Companys Board. Mr. Unger
continues in his role as vice chairman in connection with which he is provided an annual director
fee of $65,000 and an automobile allowance.
72
The Company leases one of its parts manufacturing facilities from an entity owned by its vice
chairman of the board of directors. Expenses paid for this facility were $0.4 million for the years
ended December 31, 2010, 2009 and 2008. These costs are included in manufacturing operations cost
of revenue.
On October 29, 2010, ARI entered into a lease agreement with a term of eleven years and total base
rent of $6.4 million, over the term of the agreement, with an entity owned by the vice chairman of
the Companys board of directors. The lease is for ARIs headquarters location in St. Charles,
Missouri, that it previously leased through ARL under a services agreement with ARL, which expired
December 31, 2010. The term under the new lease agreement commences January 1, 2011 at the time the
previous lease under the services agreement with ARL expired. The Company is required to pay
monthly rent and a portion of all tax increases assessed or levied upon the property and increases
to the cost of the utilities and other services it used.
Financial information for transactions with affiliates
As of December 31, 2010 and 2009, accounts receivable of $5.0 million and $1.4 million,
respectively, were due from ACF, Ohio Castings, ARL, Axis and Amtek Railcar.
As of December 31, 2010 and 2009, interest receivable of $0.2 million and $1.0 million,
respectively, was due from Ohio Castings and Axis.
As of December 31, 2010 and 2009, accounts payable of $0.3 million and $0.6 million, respectively,
were due to ACF, ARL and Axis.
Cost of railcar manufacturing for the years ended December 31, 2010, 2009 and 2008 included $5.2
million, $7.5 million and $21.7 million, respectively, in railcar products produced by joint
ventures.
Inventory at December 31, 2010, included purchases of $0.4 million from joint ventures. Inventory
at December 31, 2009, included purchases of $0.2 million from joint ventures. At December 31, 2010
and 2009, all profit from related parties for inventory still on hand was eliminated.
73
Note 21 Operating Segment and Sales/Credit Concentrations
ARI operates in two reportable segments: manufacturing operations and railcar services. 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 tables is
derived from the segments internal financial reports used for corporate management purposes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the year ended |
|
Manufacturing |
|
|
Railcar |
|
|
Corporate & |
|
|
|
|
|
|
|
December 31, 2010 |
|
Operations |
|
|
Services |
|
|
all other |
|
|
Eliminations |
|
|
Totals |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
|
$ |
206,094 |
|
|
$ |
67,469 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
273,563 |
|
Intersegment revenues |
|
|
998 |
|
|
|
281 |
|
|
|
|
|
|
|
(1,279 |
) |
|
|
|
|
Cost of revenue external customers |
|
|
(210,269 |
) |
|
|
(54,353 |
) |
|
|
|
|
|
|
|
|
|
|
(264,622 |
) |
Cost of intersegment revenue |
|
|
(748 |
) |
|
|
(255 |
) |
|
|
|
|
|
|
1,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
(3,925 |
) |
|
|
13,142 |
|
|
|
|
|
|
|
(276 |
) |
|
|
8,941 |
|
Selling, administration and other |
|
|
(5,610 |
) |
|
|
(2,207 |
) |
|
|
(17,774 |
) |
|
|
|
|
|
|
(25,591 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
$ |
(9,535 |
) |
|
$ |
10,935 |
|
|
$ |
(17,774 |
) |
|
$ |
(276 |
) |
|
$ |
(16,650 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
281,779 |
|
|
$ |
49,133 |
|
|
$ |
323,455 |
|
|
$ |
|
|
|
$ |
654,367 |
|
Capital expenditures |
|
|
3,753 |
|
|
|
2,084 |
|
|
|
307 |
|
|
|
|
|
|
|
6,144 |
|
Depreciation and amortization |
|
|
19,603 |
|
|
|
2,816 |
|
|
|
1,877 |
|
|
|
|
|
|
|
24,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the year ended |
|
Manufacturing |
|
|
Railcar |
|
|
Corporate & |
|
|
|
|
|
|
|
December 31, 2009 |
|
Operations |
|
|
Services |
|
|
all other |
|
|
Eliminations |
|
|
Totals |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
|
$ |
365,329 |
|
|
$ |
58,102 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
423,431 |
|
Intersegment revenues |
|
|
1,303 |
|
|
|
109 |
|
|
|
|
|
|
|
(1,412 |
) |
|
|
|
|
Cost of revenue external customers |
|
|
(329,025 |
) |
|
|
(47,015 |
) |
|
|
|
|
|
|
|
|
|
|
(376,040 |
) |
Cost of intersegment revenue |
|
|
(1,066 |
) |
|
|
(102 |
) |
|
|
|
|
|
|
1,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
36,541 |
|
|
|
11,094 |
|
|
|
|
|
|
|
(244 |
) |
|
|
47,391 |
|
Selling, administration and other |
|
|
(7,051 |
) |
|
|
(2,177 |
) |
|
|
(15,913 |
) |
|
|
|
|
|
|
(25,141 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
$ |
29,490 |
|
|
$ |
8,917 |
|
|
$ |
(15,913 |
) |
|
$ |
(244 |
) |
|
$ |
22,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
271,862 |
|
|
$ |
47,283 |
|
|
$ |
345,219 |
|
|
$ |
|
|
|
$ |
664,364 |
|
Capital expenditures |
|
|
3,823 |
|
|
|
10,711 |
|
|
|
513 |
|
|
|
|
|
|
|
15,047 |
|
Depreciation and amortization |
|
|
19,929 |
|
|
|
2,395 |
|
|
|
1,799 |
|
|
|
|
|
|
|
24,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the year ended |
|
Manufacturing |
|
|
Railcar |
|
|
Corporate & |
|
|
|
|
|
|
|
December 31, 2008 |
|
Operations |
|
|
Services |
|
|
all other |
|
|
Eliminations |
|
|
Totals |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
|
$ |
757,505 |
|
|
$ |
51,301 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
808,806 |
|
Intersegment revenues |
|
|
717 |
|
|
|
148 |
|
|
|
|
|
|
|
(865 |
) |
|
|
|
|
Cost of revenue external customers |
|
|
(682,744 |
) |
|
|
(41,653 |
) |
|
|
|
|
|
|
|
|
|
|
(724,397 |
) |
Cost of intersegment revenue |
|
|
(580 |
) |
|
|
(122 |
) |
|
|
|
|
|
|
702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
74,898 |
|
|
|
9,674 |
|
|
|
|
|
|
|
(163 |
) |
|
|
84,409 |
|
Selling, administration and other |
|
|
(7,655 |
) |
|
|
(2,551 |
) |
|
|
(16,329 |
) |
|
|
|
|
|
|
(26,535 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
$ |
67,243 |
|
|
$ |
7,123 |
|
|
$ |
(16,329 |
) |
|
$ |
(163 |
) |
|
$ |
57,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
351,037 |
|
|
$ |
40,246 |
|
|
$ |
288,371 |
|
|
$ |
|
|
|
$ |
679,654 |
|
Capital expenditures |
|
|
42,163 |
|
|
|
7,396 |
|
|
|
2,874 |
|
|
|
|
|
|
|
52,433 |
|
Depreciation and amortization |
|
|
17,513 |
|
|
|
2,086 |
|
|
|
1,361 |
|
|
|
|
|
|
|
20,960 |
|
74
Manufacturing Operations
Manufacturing revenues from affiliates were 29.9%, 24.8% and 22.6% of total consolidated revenues
for the years ended December 31, 2010, 2009 and 2008, respectively.
Manufacturing revenues from the most significant customer, an affiliate, totaled 29.9% of total
consolidated revenues for the year ended December 31, 2010. Manufacturing revenues from the most
significant customer, unaffiliated, totaled 35.6% and 44.7% of total consolidated revenues for the
years ended December 31, 2009 and 2008, respectively.
Manufacturing revenues from the two most significant customers, one affiliated and one
unaffiliated, were 41.8%, 60.4% and 67.4% of total consolidated revenues for the years ended
December 31, 2010, 2009 and 2008, respectively.
Manufacturing receivables from an affiliated significant customer totaled 12.0% of total
consolidated accounts receivable at December 31, 2010. No other customer accounted for more than
10.0% of total consolidated accounts receivable as of December 31, 2010. Manufacturing receivables
from one unaffiliated significant customer totaled 10.8% of total consolidated accounts receivable
at December 31, 2009. No other customer accounted for more than 10.0% of total consolidated
accounts receivable as of December 31, 2009.
Railcar Services
Railcar services revenues from affiliates were 5.5%, 3.4% and 1.9% of total consolidated revenues
for the years ended December 31, 2010, 2009 and 2008, respectively. No single railcar services
customer accounted for more than 10.0% of total consolidated revenue for the years ended December
31, 2010, 2009 and 2008. No single railcar services customer accounted for more than 10.0% of total
consolidated accounts receivable as of December 31, 2010 and 2009.
Note 22 Supplemental Cash Flow Information
ARI received interest income of $4.3 million, $5.6 million and $7.8 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
ARI paid interest expense, net of capitalized interest, of $20.6 million, $20.2 million and $19.5
million for the years ended December 31, 2010, 2009 and 2008, respectively.
ARI received tax refunds, net, of $1.1 million for the year ended December 31, 2010. ARI paid taxes
of $7.3 million and $18.9 million for the years ended December 31, 2009 and 2008, respectively.
On October 30, 2008, the board of directors of the Company declared a cash dividend of $0.03 per
share of common stock of the Company to stockholders of record as of January 9, 2009 that was paid
on January 23, 2009.
In November 2007, the board of directors of the Company declared a cash dividend of $0.03 per share
of common stock of the Company to stockholders of record as of January 8, 2008 that was paid on
January 18, 2008.
75
Note 23 Selected Quarterly Financial Data (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
Year to |
|
|
|
quarter |
|
|
quarter |
|
|
quarter |
|
|
quarter |
|
|
Date |
|
|
|
(in thousands, except per share data) |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
52,311 |
|
|
$ |
61,165 |
|
|
$ |
64,797 |
|
|
$ |
95,290 |
|
|
$ |
273,563 |
|
Gross profit |
|
|
956 |
|
|
|
2,570 |
|
|
|
2,290 |
|
|
|
3,125 |
|
|
|
8,941 |
|
Net loss |
|
|
(7,023 |
) |
|
|
(5,882 |
) |
|
|
(6,252 |
) |
|
|
(7,849 |
) |
|
|
(27,006 |
) |
Net loss per share-basic and diluted |
|
$ |
(0.33 |
) |
|
$ |
(0.28 |
) |
|
$ |
(0.29 |
) |
|
$ |
(0.37 |
) |
|
$ |
(1.27 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
Year to |
|
|
|
quarter |
|
|
quarter |
|
|
quarter |
|
|
quarter |
|
|
Date |
|
|
|
(in thousands, except per share data) |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
156,947 |
|
|
$ |
109,926 |
|
|
$ |
78,098 |
|
|
$ |
78,460 |
|
|
$ |
423,431 |
|
Gross profit |
|
|
16,377 |
|
|
|
12,809 |
|
|
|
8,810 |
|
|
|
9,395 |
|
|
|
47,391 |
|
Net earnings |
|
|
2,726 |
|
|
|
1,132 |
|
|
|
1,092 |
|
|
|
10,508 |
|
|
|
15,458 |
|
Net earnings per share-basic and diluted |
|
$ |
0.13 |
|
|
$ |
0.05 |
|
|
$ |
0.05 |
|
|
$ |
0.50 |
|
|
$ |
0.73 |
|
Note 24 Subsequent Event
In 2011, ARI renewed the lease for one of its parts manufacturing facilities from an entity owned
by its vice chairman of the board of directors. The new lease will expire February 28, 2016.
76
|
|
|
Item 9: |
|
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure |
None
|
|
|
Item 9A: |
|
Controls and Procedures |
Disclosure Controls and Procedures
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial
Officer, our management evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of
the end of the period covered by this Annual Report on Form 10-K (the Evaluation Date). Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of
the Evaluation Date, our disclosure controls and procedures are effective to ensure that
information required to be disclosed in the reports that we file or submit under the Securities
Exchange Act of 1934 is (i) recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commissions rules and forms and (ii) accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls
There has been no change in our internal control over financial reporting that occurred during our
last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Managements Report on Internal Control over Financial Reporting
Our Management is responsible for establishing and maintaining effective internal control over
financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. Our
internal control over financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Therefore, even those systems determined to be effective can provide only
reasonable assurance, as opposed to absolute assurance, of achieving their internal control
objectives.
Management assessed the effectiveness of our internal control over financial reporting as of
December 31, 2010. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control
Integrated Framework. Based on our assessment, we believe that, as of December 31, 2010, our
internal control over financial reporting is effective based on those criteria.
The effectiveness of internal control over financial reporting as of December 31, 2010, has been
audited by Grant Thornton, LLP, the independent registered public accounting firm, who also audited
our consolidated financial statements. Grant Thorntons attestation report on our internal control
over financial reporting is included herein.
|
|
|
Item 9B: |
|
Other Information |
On February 24, 2011, we entered into an agreement with The CIT Group/Equipment Financing, Inc.
(CIT), to sell 3,500 railcars for delivery between approximately April 1, 2011 and March 31, 2012
(the Sale Agreement). The type of railcars to be manufactured and sold pursuant to the Sale
Agreement will vary based upon CITs requirements. The purchase price of each railcar will be
subject to adjustments for price fluctuations and surcharges related to certain raw materials and
components. Under the Sale Agreement, CIT has the right to defer delivery of certain railcars,
provided the final delivery date is not extended beyond December 31, 2012. The Sale Agreement also
contains an option for CIT to purchase additional railcars, which must be exercised by December 31,
2011.
Either party may terminate the Sale Agreement by written notice upon a breach not remedied within
30 days of notice thereof, or in the event of the other partys bankruptcy, reorganization or
insolvency.
77
PART III
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Item 10: |
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Directors, Executive Officers and Corporate Governance of the Registrant |
We have adopted a Code of Business Conduct and a Code of Ethics for Senior Financial Officers that
applies to all of our directors, officers, and employees. The Code of Business Conduct and Code of
Ethics for Senior Financial Officers are posted on our website at www.americanrailcar.com under the
caption Corporate Governance. We intend to satisfy the disclosure requirement under Item 5.05 of
Current Report on Form 8-K regarding an amendment to, or waiver from, a provision of this code by
posting such information on our website, at the address specified above.
The additional information required by this item is incorporated by reference to our Proxy
Statement for the 2011 Annual Meeting of Stockholders (the 2011 Proxy Statement) to be filed with
the Securities and Exchange Commission within 120 days after the close of our fiscal year.
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Item 11: |
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Executive Compensation |
Information required by this item is incorporated by reference to our 2011 Proxy Statement to be
filed with the Securities and Exchange Commission within 120 days after the close of our fiscal
year.
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Item 12: |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Information required by this item is incorporated by reference to our 2011 Proxy Statement to be
filed with the Securities and Exchange Commission within 120 days after the close of our fiscal
year.
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Item 13: |
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Certain Relationships and Related Transactions, and Director Independence |
Information required by this item is incorporated by reference to our 2011 Proxy Statement to be
filed with the Securities and Exchange Commission within 120 days after the close of our fiscal
year.
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Item 14: |
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Principal Accountant Fees and Services |
Information required by this item is incorporated by reference to our 2011 Proxy Statement to be
filed with the Securities and Exchange Commission within 120 days after the close of our fiscal
year.
Part IV
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Item 15: |
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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.
78
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 to be signed on its behalf by the undersigned, thereunto
duly authorized.
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American Railcar Industries, Inc.
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Date: March 1, 2011 |
By: |
/s/ James Cowan
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Name: |
James Cowan |
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Title: |
President and Chief Executive Officer |
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Signature |
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Title |
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Date |
/s/ James Cowan
Name: James Cowan
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President and Chief Executive Officer
(principal executive officer)
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March 1, 2011 |
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/s/ Dale C. Davies
Name: Dale C. Davies
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Senior Vice President, Chief Financial
Officer (principal financial officer) and Treasurer
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March 1, 2011 |
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/s/ Michael E. Vaughn
Name: Michael E. Vaughn
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Vice President and Corporate Controller
(principal accounting officer)
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March 1, 2011 |
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/s/ James J. Unger
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Vice Chairman of our Board of Directors
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March 1, 2011 |
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/s/ Vincent J. Intrieri
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Director
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March 1, 2011 |
Name: Vincent J. Intrieri
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/s/ Stephen Mongillo
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Director
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March 1, 2011 |
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/s/ James Pontious
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Director
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March 1, 2011 |
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/s/ J. Mike Laisure
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Director
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March 1, 2011 |
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/s/ Brett Icahn
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Director
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March 1, 2011 |
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/s/ Harold First
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Director
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March 1, 2011 |
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/s/ Hunter Gary
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Director
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March 1, 2011 |
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79
Exhibit index
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Exhibit No. |
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Description of Exhibit |
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2.1 |
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Agreement and Plan of Merger between American Railcar Industries, Inc. (Missouri) and
American Railcar Industries, Inc. (Delaware) (incorporated by reference to Exhibit 2.1 to
ARIs Annual Report on Form 10-K for the fiscal year ended December 31, 2005, filed with
the SEC on March 28, 2006). |
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2.2 |
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Stock Purchase Agreement dated March 24, 2006 between Steel Technologies, Inc. and ARI
Acquisition Sub joined in by American Railcar Industries (incorporated by reference to
Exhibit 2.2 to ARIs Current Report on Form 8-K, filed with the SEC on March 28, 2006). |
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2.3 |
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Agreement and Plan of Merger between American Railcar Industries, Inc., a Delaware
corporation, and American Railcar Industries, Inc., a North Dakota corporation,
(incorporated by reference to Exhibit 2.1 to ARIs Current Report on Form 8-K, filed with
the SEC on June 30, 2009). |
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3.1 |
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Amended and Restated Articles of Incorporation of American Railcar Industries, Inc., a
North Dakota corporation (incorporated by reference to Exhibit 3.1 to ARIs Current
Report on Form 8-K, filed with the SEC on June 30, 2009). |
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3.2 |
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Bylaws of American Railcar Industries, Inc., a North Dakota corporation (incorporated by
reference to Exhibit 3.2 to ARIs Current Report on Form 8-K, filed with the SEC on June
30, 2009). |
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4.1 |
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Specimen Common Stock Certificate of American Railcar Industries, Inc., a North Dakota
corporation (incorporated by reference to Exhibit 4.2 to ARIs Current Report on Form
8-K, filed with the SEC on June 30, 2009). |
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4.2 |
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Indenture (Including the form of note), Dated as of February 28, 2007 (incorporated by
reference to Exhibit 4.2 to ARIs Current Report on Form 8-K, filed with the SEC on March
1, 2007). |
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4.3 |
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First Supplemental Indenture, Dated as of June 30, 2009 (incorporated by reference to
Exhibit 4.1 to ARIs Current Report on Form 8-K, filed with the SEC of June 30, 2009). |
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9.1 |
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Voting Agreement dated as of December 8, 2005 by and between MODAL LLC and the Foundation
for a Greater Opportunity (incorporated by reference to Exhibit 9.1 to ARIs Registration
Statement on Form S-1, Amendment No. 1, filed with the SEC on January 4, 2006). |
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10.1 |
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Asset Transfer Agreement dated as of October 1, 1994 by and among ACF Industries,
Incorporated, American Railcar Industries, Inc. and Carl Icahn (incorporated by reference
to Exhibit 10.1 to ARIs Registration Statement on Form S-1, filed with the SEC on
December 13, 2005). |
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10.2 |
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License Agreement dated as of October 1, 1994 by and between ACF Industries, Incorporated
and American Railcar Industries, Inc. as Licensee (incorporated by reference to Exhibit
10.2 to ARIs Registration Statement on Form S-1, filed with the SEC on December 13,
2005). |
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10.3 |
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License Agreement dated as of October 1, 1994 by and between American Railcar Industries,
Inc. and ACF Industries, Incorporated as Licensee (incorporated by reference to Exhibit
10.3 to ARIs Registration Statement on Form S-1, filed with the SEC on December 13,
2005). |
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10.4 |
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Manufacturing Services Agreement dated as of October 1, 1994 between ACF Industries,
Incorporated and American Railcar Industries, Inc., as ratified and amended on June 30,
2005 (incorporated by reference to Exhibit 10.4 to ARIs Registration Statement on Form
S-1, filed with the SEC on December 13, 2005). |
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10.5 |
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Business Consultation Agreement for Engineering Services between ACF Industries LLC and
American Railcar Industries, Inc. (incorporated by reference to Exhibit 10.7 to ARIs
Registration Statement on Form S-1, filed with the SEC on December 13, 2005). |
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10.6 |
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Amended and Restated Services Agreement
dated as of June 30, 2005 between
American Railcar Leasing LLC and American
Railcar Industries, Inc. (incorporated by
reference to Exhibit 10.12 to ARIs
Registration Statement on Form S-1, filed
10.6 with the SEC on December 13, 2005). |
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Exhibit No. |
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Description of Exhibit |
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10.7 |
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Indenture of Lease between St. Charles Properties and ACF Industries, Incorporated for the property located at Clark and Second Streets, St.
Charles, MO, dated March 1, 2001 together with the Assignment and Assumption of Lease dated April 1, 2005 among ACF Industries LLC (as successor to
ACF Industries, Incorporated), American Railcar Industries, Inc. and St. Charles Properties (incorporated by reference to Exhibit 10.13 to ARIs
Registration Statement on Form S-1, filed with the SEC on December 13, 2005). |
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10.8 |
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Assignment and Assumption, Novation and Release dated as of June 30, 2005 by and between ACF Industries Holding, Inc., American Railcar Industries,
Inc., Gunderson Specialty Products, Inc., Gunderson, Inc., Castings, LLC, ASF-Keystone, Inc., Amsted Industries Incorporation and Ohio Castings
Company, LLC (incorporated by reference to Exhibit 10.22 to ARIs Registration Statement on Form S-1, filed with the SEC on December 13, 2005). |
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10.9 |
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Ohio Castings Company, LLC Amended and Restated Limited Liability Company Agreement, dated as of June 20, 2003 (incorporated by reference to Exhibit
10.25 to ARIs Registration Statement on Form S-1, filed with the SEC on December 13, 2005). |
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10.10 |
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Employee Benefit Plan Agreement dated as of December 1, 2005 between American Railcar
Industries, Inc. and ACF Industries LLC (incorporated by reference to Exhibit 10.31 to
ARIs Registration Statement on Form S-1, Amendment No. 1, filed with the SEC on January
4, 2006). |
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10.11 |
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Trademark License Agreement dated as of June 30, 2005 by and between American Railcar
Industries, Inc. and American Railcar Leasing LLC (incorporated by reference to Exhibit
10.32 to ARIs Registration Statement on Form S-1, Amendment No. 1, filed with the SEC on
January 4, 2006). |
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10.12 |
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Summary Plan Description of Executive Survivor Insurance Plan Program of Insurance
Benefits for Salaried Employees of American Railcar Industries, Inc (incorporated by
reference to Exhibit 10.33 to ARIs Registration Statement on Form S-1, Amendment No. 1,
filed with the SEC on January 4, 2006). |
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10.13 |
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Supplemental Executive Retirement Plan of American Railcar Industries, Inc (incorporated
by reference to Exhibit 10.34 to ARIs Annual Report on Form 10-K for the fiscal year
ended December 31, 2005, filed with the SEC on March 28, 2006). |
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10.14 |
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American Railcar, Inc. 2005 Equity Incentive Plan, as amended (incorporated by reference
to Exhibit 10.36 to ARIs Quarterly Report on Form 10-Q for the quarter ended March 31,
2006, filed with the SEC on May 15, 2006). |
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10.15 |
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Form of Option Agreement, as amended, under American Railcar Industries, Inc. 2005 Equity
Incentive Plan, as amended (incorporated by reference to Exhibit 10.37 to ARIs Quarterly
Report on Form 10-Q for the quarter ended March 31, 2006, filed with the SEC on May 15,
2006). |
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10.16 |
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American Railcar Industries, Inc. 2005 Executive Incentive Plan, as amended (incorporated
by reference to Exhibit 10.38 to ARIs Quarterly Report on Form 10-Q for the quarter
ended March 31, 2006, filed with the SEC on May 15, 2006). |
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10.17 |
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Purchase and Sale Agreement dated March 31, 2006 between American Railcar Leasing LLC and
American Railcar Industries, Inc. (incorporated by reference to Exhibit 10.39 to ARIs
Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, filed with the SEC on
May 15, 2006). |
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10.18 |
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Purchase and Sale Agreement dated September 19, 2006 between American Railcar Leasing LLC
and American Railcar Industries, Inc. (incorporated by reference to Exhibit 10.41 to
ARIs Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, filed with
the SEC on November 14, 2006). |
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10.19 |
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Wheel Set Component and Finished Wheel Set Storage Agreement dated November 13, 2006 between ACF Industries LLC and American Railcar
Industries, Inc. (incorporated by reference to Exhibit 10.42 to ARIs Quarterly Report on Form 10-Q for the quarter ended September 30,
2006, filed with the SEC on November 14, 2006). |
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Exhibit No. |
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Description of Exhibit |
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10.20 |
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Registration Rights Agreement, dated February 28, 2007 (incorporated by reference to Exhibit 10.44 to ARIs Current Report on Form 8-K,
filed with the SEC on March 1, 2007). |
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10.21 |
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Employment Agreement with Alan C. Lullman (incorporated by reference to Exhibit 10.44 to ARIs Current Report on Form 8-K, filed with the
SEC on March 30, 2007). |
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10.22 |
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ARI/ARL Services Separation Agreement (incorporated by reference to Exhibit 10.45 to ARIs Current Report on Form 8-K, filed with the SEC
on April 5, 2007). |
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10.23 |
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Form of Stock Appreciation Rights Agreement (incorporated by reference to Exhibit 10.46 to ARIs Current Report on Form 8-K, filed with
the SEC on April 10, 2007). |
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10.24 |
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Axis, LLC Amended and Restated Limited Liability Company Agreement, dated as of January 25, 2008 (incorporated by reference to Exhibit
10.51 to ARIs Annual Report on Form 10-K for the fiscal year ended December 31, 2007, filed with the SEC on February 22, 2008). |
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10.25 |
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ARI / ARL Rent and Building Services Extension Agreement, dated as of February 22, 2008 (incorporated by reference to Exhibit 10.52 to
ARIs Annual Report on Form 10-K for the fiscal year ended December 31, 2007, filed with the SEC on February 22, 2008). |
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10.26 |
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Fleet Services Agreement with American Railcar Leasing, LLC, dated as of February 26, 2008 (incorporated by reference to Exhibit 10.53 to
ARIs Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, filed with the SEC on May 12, 2008). |
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10.27 |
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Joint Venture Agreement by and between American Railcar Mauritius II and Amtek Transportation Systems Limited (incorporated by reference
to Exhibit 10.54 to ARIs Current Report on Form wil8-K, filed with the SEC on June 20, 2008). |
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10.28 |
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Form of Stock Appreciation Rights Agreement (incorporated by reference to Exhibit 10.55 to ARIs Quarterly Report on Form 10-Q for the
quarter ended June 30, 2008, filed with the SEC on August 8, 2008). |
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10.29 |
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Employment Agreement between American Railcar Industries, Inc. and Dale C. Davies, dated as of September 12, 2008 (incorporated by
reference to Exhibit 10.56 to ARIs Current Report on Form 8-K, filed with the SEC on September 16, 2008). |
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10.30 |
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Letter Agreement (Amendment to SARs) (incorporated by reference to Exhibit 10.57 to ARIs Current Report on Form 8-K, filed with the SEC
on April 10, 2009). |
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10.31 |
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Form of 2009 Stock Appreciation Rights Agreement (incorporated by reference to Exhibit 10.58 to ARIs Quarterly Report on Form 10-Q for
the quarter ended March 31, 2009, filed with the SEC on May 8, 2009). |
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10.32 |
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Employment Agreement between American Railcar Industries, Inc. and James Cowan dated as of May 8, 2009 (incorporated by reference to
Exhibit 10.59 to ARIs Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, filed with the SEC on May 8, 2009). |
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10.33 |
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Axis Credit Agreement dated as of December 28, 2007, as amended January 28, 2008, February 29, 2008, March 31, 2008 and August 5, 2009
(incorporated by reference to Exhibit 10.60 to ARIs Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, filed with
the SEC on November 6, 2009). |
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10.34 |
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Master Assignment Agreement dated as of August 5, 2009 (incorporated by reference to Exhibit 10.61 to ARIs Quarterly Report on Form 10-Q
for the quarter ended September 30, 2009, filed with the SEC on November 6, 2009). |
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10.35 |
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Form of 2010 Stock Appreciation Rights Agreement (incorporated by reference to Exhibit 10.62 to ARIs Quarterly Report on Form 10-Q for
the quarter ended March 31, 2010, filed with the SEC on May 5, 2010). |
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10.36 |
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Lease Agreement, dated as of October 29, 2010 (incorporated by reference to Exhibit 10.63 to ARIs Quarterly Report on Form 10-Q for the
quarter ended September 30, 2010, filed with the SEC on November 2, 2010). |
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82
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Exhibit No. |
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Description of Exhibit |
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12.1 |
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Computation of Ratio of Earnings to Fixed Charges.* |
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21.1 |
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Subsidiaries of American Railcar Industries, Inc.* |
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23.1 |
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Consent of Grant Thornton LLP.* |
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31.1 |
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Rule 13a-15(e) and 15d-15(e) Certification of the Chief Executive Officer.* |
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31.2 |
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Rule 13a-15(e) and 15d-15(e) Certification of the Chief Financial Officer.* |
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32.1 |
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Certification pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
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* |
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Filed herewith
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Confidential treatment has been requested for the redacted portions of this agreement. A
complete copy of this agreement, including the redacted portions has been filed separately
with the Securities and Exchange Commission. |
83