NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2012, 2011 and 2010
Note 1 Description of the Business
American Railcar Industries, Inc. (a North Dakota corporation) and its wholly-owned subsidiaries (collectively the Company or ARI)
manufactures railcars, which are offered for sale or lease, custom designed railcar parts 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 leases railcars manufactured by the Company to certain markets and provides railcar repair and maintenance services for railcar fleets. In addition, ARI provides railcar
repair services, engineering and field services and fleet management for railcars owned by certain customers. Such services include maintenance planning, project management, tracking and tracing, regulatory compliance, mileage audit, rolling stock
taxes and online service access.
The accompanying consolidated financial statements have been prepared by ARI and include the accounts of ARI
and its direct and indirect wholly-owned subsidiaries; Castings, LLC (Castings), ARI Component Venture, LLC (ARI Component), American Railcar Mauritius I (ARM I), American Railcar Mauritius II (ARM II), ARI Fleet Services of Canada, Inc , ARI
Longtrain, Inc. (Longtrain), and Longtrain Leasing I, LLC (Longtrain Leasing). From time to time, the Company makes investments through Longtrain. All intercompany transactions and balances have been eliminated.
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 U.S. 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 un-invested cash balances. Through December 31, 2012, the FDIC was providing unlimited coverage of noninterest-bearing checking or demand deposit accounts. The
Companys cash balances on deposit exceeded the insured limits by $163.2 million as of December 31, 2012. 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 sheets while unrealized holding gains and losses on available for sale securities are excluded from earnings and reported as
a separate component of accumulated other comprehensive income (loss). When the available for sale securities are 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.
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. All derivative contracts, excluding those that qualify for
exception, are recognized in the consolidated balance sheets at their fair value. In the past, the Company has not applied hedge accounting and accordingly, all realized and unrealized gains and losses on derivative contracts as a result of marking
these contracts to market were reflected in its consolidated statements of operations. To the extent these derivatives are designated for hedge accounting, gains and losses that arise from marking these instruments to market are recorded as a
component of accumulated other comprehensive income (loss) in the consolidated balance sheets, to the extent effective, and are reclassified into earnings in the period during which the hedged transaction affects earnings. During the periods
presented, the Company did not have any outstanding derivative contracts or financial instruments.
48
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. Revenues from railcar leasing are recognized on a straight-line basis per terms of the lease. If railcars are sold under an operating lease that is less than one year old, the proceeds from the railcars sold that
were on lease will be shown on a gross basis in revenues and cost of revenues at the time of sale. Sales of railcars on operating leases that have been on lease for more than one year are recognized as a net gain or loss from the disposal of the
long-term asset as a component of earnings from operations. Revenues from railcar and industrial components are recorded at the time of product shipment, in accordance with the Companys contractual terms. Revenues from railcar maintenance
services are recognized upon completion and shipment of railcars from ARIs plants. The Company does not currently bundle railcar service contracts with new railcar sales. Revenues from fleet management, engineering and field services are
recognized as performed.
Revenues related to consulting type contracts are accounted for under the proportional performance method. Profits
expected to be realized on these contracts are based on the total contract revenues and costs based on the estimate of the percentage of project completion. Revenues recognized in excess of amounts billed are recorded to unbilled revenues and
included in other current assets on the consolidated balance sheets. Billings in excess of revenues recognized on in-progress contracts are recorded to unbilled costs and included in other current liabilities on the consolidated balance sheets.
These estimates are reviewed and revised periodically throughout the term of the contracts and any adjustments are recorded on a cumulative basis in the period the revisions are made.
The Company records amounts billed to customers for shipping and handling as part of sales and records related costs in cost of revenues.
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
On a routine basis, the Company evaluates its accounts 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 operating below 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. Internally developed software is capitalized and amortized over a period of approximately five years.
Buildings are depreciated over estimated useful lives that range from 15 to 39 years. The estimated useful lives of other depreciable assets, including
machinery, 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.
Impairment of 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 Company has determined that there were no triggering events that required an assessment for impairment of long-lived assets, therefore no impairment charges were recognized during any of the years presented.
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.
Debt issuance costs
Debt issuance costs were incurred in connection with ARIs issuance of long-term debt as described in Note 11, and are amortized over the term of the related debt.
49
Goodwill
Goodwill is not amortized but is reviewed for impairment at least annually, on March 1, or as indicators of impairment are present. In September 2011, the Financial Accounting Standards Board (FASB)
issued authoritative guidance related to goodwill that allows companies to first consider qualitative factors as a basis for assessing impairment and determining the necessity of a detailed impairment test. The Company adopted the guidance in the
first quarter of 2012. As a result, the Company performed the qualitative goodwill analysis for the current year. See Note 8 for further discussion on this analysis.
The annual review for impairment is performed by assessing qualitative factors to determine if any potential impairment exists. If the qualitative factors indicate that an impairment is more likely than
not, or if indicators of impairment are present, then the Company would perform a detailed impairment test on the existing goodwill. The detailed test is performed by first comparing the carrying value of the reporting unit, including goodwill to
its fair value. The fair value of the reporting unit is determined using a combination of methods including prices of comparable businesses using recent transactions involving businesses similar to the Company and a present value technique, referred
to as the market and income approaches, respectively. If the fair value is determined to be less than the carrying value, a second step is performed to compute the amount of impairment, if any. Impairment of goodwill is measured as the excess of the
carrying amount of goodwill over the net fair values of recognized and unrecognized assets and liabilities of the reporting unit. Assumptions relevant to the market and income approaches are discussed below.
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. Using a five-year financial projection for the reporting
unit, the Company estimates the discounted net cash flows to determine the fair value. Net cash flows consist of after-tax operating income, plus depreciation, less capital expenditures and working capital needs. The discounted net cash flow method
considers a five-year projection of net cash flows and adds to those cash flows a residual value at the end of the projection period.
Significant estimates and assumptions used in the evaluation are forecasted revenues and profits, the weighted average cost of capital and tax rates.
Forecasted revenues of the reporting unit are estimated based on historical trends of ARIs plants that the reporting unit supplies parts to, which are driven by the railcar industry forecast. Forecasted margins are 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 are added to selling, general and administrative costs. The weighted average cost of capital
is calculated using ARIs estimated cost of equity and debt.
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 9. 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 regularly evaluates for recoverability of its deferred tax
assets and establishes 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. The Company also records unrecognized tax positions, including potential interest and penalties. For further discussion of income taxes refer to Note 12.
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.
50
ARI also sponsors defined contribution retirement plans and health care plans covering certain employees.
Benefit costs are accrued during the years employees render service. For further discussion of employee benefit plans refer to Note 13.
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 and trading levels. 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. For the fair value of the Companys short-term
investments, senior unsecured notes and investment in the pension plans assets refer to Note 3, Note 11 and Note 13, respectively.
Foreign currency translation
Balance sheet amounts from the Companys Canadian operations are translated at the exchange rate effective at year-end and the statement of
operations 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 (loss).
Comprehensive income (loss)
Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income
(loss) consists of net earnings, foreign currency translation, changes resulting from realized and unrealized gains and losses related to postretirement liability transactions and changes resulting from realized and unrealized gains and losses on
short-term investments or derivative instruments for which hedge accounting is being applied. All components of comprehensive income (loss) are shown net of tax.
Earnings (loss) per common share
Basic earnings (loss) per common share is calculated as net earnings (loss) attributable to common stockholders divided by the weighted-average number of common shares outstanding during the respective
period. Diluted earnings per common share is calculated by dividing net earnings (loss) attributable to common stockholders by the weighted-average common number of shares outstanding plus dilutive potential common shares outstanding during the
year.
Use of estimates
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, share-based compensation fair values, the reserve for warranty claims and revenues recognized under the proportional
performance method. Actual results could differ from those estimates.
Share-based compensation
The share-based compensation cost recorded for stock appreciation rights (SARs) is based on their fair value. For further discussion of share-based
compensation refer to Note 16.
Reclassifications
Prior-period amounts for the new leasing segment, railcars on operating lease and investing cash flows related to our joint ventures have been
reclassified to conform to the current year presentation. See Note 20 for further detail related to the segment reclassification. Other than these items, there have been no material reclassifications during the current period.
Note 3 Short-term Investments Available for Sale Securities
During January 2008, Longtrain purchased approximately 1.5 million shares of common stock in the open market of The
Greenbrier Companies (Greenbrier) for $27.9 million. Subsequently, Longtrain sold a majority of the shares it owned. During the year ended December 31, 2010, the remaining approximately 0.4 million shares of common stock were sold for
proceeds of $4.1 million and realized gains totaling $0.4 million.
Throughout the fourth quarter of 2012, Longtrain purchased
approximately 2.7 million shares of Greenbrier common stock in the open market for $40.3 million. Approximately 1.9 million of these shares were sold prior to the end of the year for $31.5 million, resulting in a gain of $1.9 million that
was recorded to other income during 2012.
51
As of December 31, 2012, the fair value of the remaining shares of Greenbrier that were held by the
Company was $12.6 million and such shares were classified as a Level 1 fair value measurement as defined by U.S. GAAP and the fair value hierarchy. As of December 31, 2012, there were no indicators of impairment related to the remaining shares
outstanding. See Note 18 for the amount of unrealized gain on the shares outstanding as of December 31, 2012.
Note 4 Fair Value Measurements
The fair value hierarchal disclosure framework prioritizes and ranks the level of market price observability used in measuring assets
and 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 asset or liability. Assets or liabilities 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.
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 assets and/or liabilities as of the reporting date. The type of assets
and/or liabilities included in Level 1 include listed equities and listed derivatives. The Company does not adjust the quoted price for these 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. 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 assets and/or liabilities and include situations where there is little, if any, market activity
for the assets and/or liabilities. The inputs into the determination of fair value require significant management judgment or estimation.
|
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.
Note 5 Accounts Receivable, net
Accounts receivable, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(in thousands)
|
|
Accounts receivable, gross
|
|
$
|
36,755
|
|
|
$
|
34,272
|
|
Less allowance for doubtful accounts
|
|
|
(655
|
)
|
|
|
(646
|
)
|
|
|
|
|
|
|
|
|
|
Total accounts receivable, net
|
|
$
|
36,100
|
|
|
$
|
33,626
|
|
|
|
|
|
|
|
|
|
|
52
The allowance for doubtful accounts consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
646
|
|
|
$
|
768
|
|
|
$
|
677
|
|
Provision (Adjustment)
|
|
|
90
|
|
|
|
(22
|
)
|
|
|
113
|
|
Write-offs
|
|
|
(87
|
)
|
|
|
(100
|
)
|
|
|
(22
|
)
|
Recoveries
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
655
|
|
|
$
|
646
|
|
|
$
|
768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6 Inventories, net
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(in thousands)
|
|
Raw materials
|
|
$
|
72,244
|
|
|
$
|
62,141
|
|
Work-in-process
|
|
|
15,877
|
|
|
|
26,731
|
|
Finished products
|
|
|
24,364
|
|
|
|
8,967
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
112,485
|
|
|
|
97,839
|
|
Less reserves
|
|
|
(2,410
|
)
|
|
|
(2,012
|
)
|
|
|
|
|
|
|
|
|
|
Total inventories, net
|
|
$
|
110,075
|
|
|
$
|
95,827
|
|
|
|
|
|
|
|
|
|
|
Inventory reserves consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
Beginning Balance
|
|
$
|
2,012
|
|
|
$
|
2,096
|
|
|
$
|
1,926
|
|
Provision
|
|
|
735
|
|
|
|
47
|
|
|
|
1,254
|
|
Write-offs
|
|
|
(337
|
)
|
|
|
(131
|
)
|
|
|
(1,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
2,410
|
|
|
$
|
2,012
|
|
|
$
|
2,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7 Property, Plant and Equipment, net
The following table summarizes the components of property, plant and equipment, net:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(in thousands)
|
|
Operations/Corporate:
|
|
|
|
|
|
|
|
|
Buildings
|
|
$
|
151,545
|
|
|
$
|
149,597
|
|
Machinery and equipment
|
|
|
173,468
|
|
|
|
167,393
|
|
Land
|
|
|
3,335
|
|
|
|
3,335
|
|
Construction in process
|
|
|
12,156
|
|
|
|
2,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
340,504
|
|
|
|
323,077
|
|
Less accumulated depreciation
|
|
|
(184,611
|
)
|
|
|
(167,434
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
155,893
|
|
|
$
|
155,643
|
|
|
|
|
|
|
|
|
|
|
Railcar Leasing:
|
|
|
|
|
|
|
|
|
Railcars on Lease
|
|
$
|
225,992
|
|
|
$
|
39,851
|
|
Less accumulated depreciation
|
|
|
(5,710
|
)
|
|
|
(1,252
|
)
|
|
|
|
|
|
|
|
|
|
Railcars on operating lease, net
|
|
$
|
220,282
|
|
|
$
|
38,599
|
|
|
|
|
|
|
|
|
|
|
53
Depreciation expense
Depreciation expense for the years ended December 31, 2012, 2011 and 2010 was $23.9 million, $22.2 million and $23.6 million, respectively.
Capitalized interest
In conjunction with the interest costs incurred related to the senior
unsecured notes offering and lease fleet financing described in Note 11, the Company began recording capitalized interest on certain property, plant and equipment capital projects. ARI also capitalizes interest related to the senior unsecured notes
for investments made in equity method joint ventures but only for those investments made while the joint venture is in the development phase.
Lease agreements
The Company leases
railcars to third parties under multiple year agreements. 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.
Capital expenditures for leased railcars represent cash outflows for the Companys cost to produce railcars shipped or to be
shipped for lease.
Railcars subject to lease agreements are classified as operating leases and are depreciated in accordance with the
Companys depreciation policy. Depreciation expense for leased railcars for the years ended December 31, 2012, 2011 and 2010 was $4.4 million, $0.5 million and $0.3 million, respectively.
As of December 31, 2012, future contractual minimum rental revenues required under non-cancellable operating leases for railcars with terms longer
than one year are as follows (in thousands):
|
|
|
|
|
2013
|
|
$
|
23,218
|
|
2014
|
|
|
22,599
|
|
2015
|
|
|
22,256
|
|
2016
|
|
|
21,412
|
|
2017
|
|
|
13,675
|
|
2018 and thereafter
|
|
|
23,368
|
|
|
|
|
|
|
Total
|
|
$
|
126,528
|
|
|
|
|
|
|
Note 8 Goodwill
On March 31, 2006, the Company acquired all of the common stock of Custom Steel, a subsidiary of Steel Technologies, Inc. Custom
Steel produces value-added fabricated parts that primarily support the Companys railcar manufacturing operations. The acquisition resulted in goodwill of $7.2 million. The results attributable to Custom Steel are included in the
manufacturing operations segment.
The Company performed the annual qualitative assessment as of March 1, 2012 to determine whether it
was more likely than not that the fair value of the reporting unit was greater than its carrying amount. If ARI had determined that it was more likely than not that the fair value of the reporting unit was less than its carrying amount, then the
Company would have performed the first step of the two-step goodwill impairment test. In evaluating whether it was more likely than not that the fair value of the reporting unit was greater than its carrying amount, the Company considered the
following relevant factors:
|
|
|
The North American railcar market has been, and ARI expects it to continue to be highly cyclical. The railcar industry significantly improved in 2011,
remains strong in 2012 and is forecasted by third parties to remain strong through at least 2014.
|
|
|
|
ARI is subject to regulation through various laws and regulations. No significant assessments have been made by the various regulatory agencies.
|
|
|
|
The railcar manufacturing industry has historically been extremely competitive. There are several competitors who have expanded their capabilities into
new markets.
|
|
|
|
ARI saw a significant increase in railcar order activity in 2011 compared to 2010.
|
54
|
|
|
The primary long-lived assets at the reporting unit are machines with uses in various applications for numerous markets and industries. As such,
management does not believe that there has been a significant decrease in the market value of the reporting units long-lived assets.
|
|
|
|
The reporting unit has a history of positive operating cash flows that is expected to continue.
|
|
|
|
No part of the reporting units net income is comprised of significant non-operating or non-recurring gains or losses, and no significant changes
in balance sheet accruals were noted.
|
|
|
|
In addition, during 2011 there were no changes in the following with regard to the reporting unit:
|
|
|
|
Business strategy or product mix; and
|
|
|
|
Buyer or supplier bargaining power.
|
|
|
|
There have been no significant changes in legal factors that would affect the carrying value of the reporting unit.
|
After assessing the above factors, the Company determined that it was more likely than not that the fair value of the reporting unit was greater than its
carrying amount, and therefore no further testing was necessary. As of December 31, 2012, there have been no changes in circumstances that would more likely than not lower the estimated fair value below the carrying amount. Additionally, no
impairment was recognized in any of the prior periods presented.
Note 9 Investments in and Loans to Joint Ventures
As of December 31, 2012, the Company was party to three joint ventures: Ohio Castings LLC (Ohio Castings), Axis LLC (Axis) and
Amtek Railcar Industries Private Limited (Amtek Railcar). Through its wholly-owned subsidiary, Castings, the Company has a 33.3% ownership interest in 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, the Company has a 41.9% ownership interest in Axis, a limited liability company formed to produce railcar axles for use or sale by the ownership group. The Company
has a wholly-owned subsidiary, ARM I that wholly-owns ARM II. Through ARM II, the Company has a 50.0% ownership interest in Amtek Railcar, a joint venture that was formed to produce railcars and railcar components in India for sale by the joint
venture.
The Company accounts for these joint ventures using the equity method. Under this 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. From time to time, the Company also makes loans to its joint ventures that are included in the
investment account. The investment balance related to all three joint ventures is recorded within our manufacturing segment. The carrying amount of investments in and loans to joint ventures are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(in thousands)
|
|
Carrying amount of investments in and loans to joint ventures
|
|
|
|
|
|
|
|
|
Ohio Castings
|
|
$
|
7,022
|
|
|
$
|
6,236
|
|
Axis
|
|
|
27,181
|
|
|
|
29,362
|
|
Amtek RailcarIndia
|
|
|
10,333
|
|
|
|
9,524
|
|
|
|
|
|
|
|
|
|
|
Total investments in and loans to joint ventures
|
|
$
|
44,536
|
|
|
$
|
45,122
|
|
|
|
|
|
|
|
|
|
|
The maximum loss exposure as a result of investments in and loans to joint ventures are as follows:
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
|
(in thousands)
|
|
Maximum exposure to loss by joint venture
|
|
|
|
|
Ohio CastingsInvestment exposure
|
|
$
|
7,022
|
|
AxisLoans, including accrued interest exposure
|
|
|
27,181
|
|
Amtek RailcarIndia investment exposure
|
|
|
10,333
|
|
|
|
|
|
|
Total maximum exposure to loss due to joint ventures
|
|
$
|
44,536
|
|
|
|
|
|
|
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.
55
In June 2009, Ohio Castings temporarily idled its manufacturing facility due to the decline in the
railcar industry. The facility remained idled until the third quarter of 2011 when the joint venture restarted production. During the year ended December 31, 2011, ARI made capital contributions totaling $2.1 million to Ohio Castings to
fund the restart of production. The other two partners made matching contributions. 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 also made matching contributions. After a full year of production at the facility and operating at a profit, Ohio Castings repaid the remaining balance of its note payable to ARI and the other two partners during 2012.
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, all major and strategic decisions are decided between the partners, and the risk
of loss to Castings and the Company is limited to the Companys investment through Castings.
See Note 19 for information regarding
financial transactions among the Company, Ohio Castings and Castings.
Summary combined financial position information for Ohio Castings, the
investee company, in total, is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(in thousands)
|
|
Financial position:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
13,479
|
|
|
$
|
12,800
|
|
Non-current assets
|
|
|
9,140
|
|
|
|
10,214
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
22,619
|
|
|
|
23,014
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
4,621
|
|
|
|
8,148
|
|
Non-current liabilities
|
|
|
|
|
|
|
494
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,621
|
|
|
|
8,642
|
|
Members equity
|
|
|
17,998
|
|
|
|
14,372
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$
|
22,619
|
|
|
$
|
23,014
|
|
|
|
|
|
|
|
|
|
|
Summary combined financial results of operations for Ohio Castings, the investee company, in total, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
Results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
74,687
|
|
|
$
|
31,007
|
|
|
$
|
|
|
Gross profit (loss)
|
|
$
|
6,522
|
|
|
$
|
(3,099
|
)
|
|
$
|
|
|
Net income (loss)
|
|
$
|
3,627
|
|
|
$
|
(3,054
|
)
|
|
$
|
(3,025
|
)
|
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. Effective August 5, 2009, ARI Component and a wholly-owned subsidiary of the other initial partner acquired a loan to Axis from its initial lenders (the Axis Credit Agreement), with each party acquiring a
50.0% interest in the loan. Under 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. The purchase price paid by the Company for its 50.0% interest was $29.5 million, which equaled the then outstanding principal amount of the portion of the loan acquired by the Company.
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 equally contributed the necessary capital, which amounted to $0.5 million for each. The capital contributions were utilized to provide working capital. The partners ownership percentages were adjusted accordingly.
Also in 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.
56
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.
The Axis
Credit Agreement was amended on March 31, 2011. Under the amendment, the commitment to make term loans expired on December 31, 2011 and the commitment to make revolving loans expired on December 28, 2012. On March 30, 2012, the
Axis Credit Agreement was further amended to delay the first payment on the term loans until September 30, 2012. Axis made this required payment but in the fourth quarter of 2012 before the second payment came due, the Axis Credit Agreement was
further amended. This amendment delayed the next quarterly payment until March 31, 2013. Thereafter payments are due each fiscal quarter, with the last payment due on December 31, 2019.
Subject to certain limitations, at the election of Axis, the interest rate for the loans under the Axis Credit Agreement, as amended, 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%. 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 monthly. In accordance with the terms of the agreement as amended, Axis satisfied interest on the term loan
by increasing the outstanding principal by the amount of interest that was otherwise due and payable in cash. Axis ability to satisfy the term loan interest by increasing the principal ceased on September 30, 2011.
The balance outstanding on these loans, including interest, due to ARI Component, was $35.7 million as of December 31, 2012 and was
$37.1 million as of December 31, 2011.
ARI currently intends to fund the cash needs of Axis through loans and capital contributions
through at least March 31, 2014. 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, 2014.
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 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 19 for information regarding financial transactions among the Company, ARI Component and Axis.
Summary combined financial position information for Axis, the investee company, in total, is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(in thousands)
|
|
Financial position:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
7,121
|
|
|
$
|
14,619
|
|
Non-current assets
|
|
|
45,378
|
|
|
|
52,465
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
52,499
|
|
|
|
67,084
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
16,563
|
|
|
|
31,319
|
|
Non-current liabilities
|
|
|
58,141
|
|
|
|
56,624
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
74,704
|
|
|
|
87,943
|
|
Members deficit
|
|
|
(22,205
|
)
|
|
|
(20,859
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$
|
52,499
|
|
|
$
|
67,084
|
|
|
|
|
|
|
|
|
|
|
57
Summary combined financial results of operations for Axis, the investee company, in total, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
Results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
59,303
|
|
|
$
|
40,217
|
|
|
$
|
18,926
|
|
Gross profit (loss)
|
|
$
|
5,390
|
|
|
$
|
(7,249
|
)
|
|
$
|
(8,808
|
)
|
Income (Loss) before interest
|
|
$
|
4,465
|
|
|
$
|
(8,184
|
)
|
|
$
|
(9,772
|
)
|
Net loss
|
|
$
|
(1,345
|
)
|
|
$
|
(13,809
|
)
|
|
$
|
(15,022
|
)
|
Revenues and net loss for Axis have improved as production volumes have increased and inefficiencies from the ramp up of production
have decreased. The new railcar axle market closely follows the new railcar market, which has remained strong compared to prior years.
As of
December 31, 2012, the investment in Axis was comprised entirely of ARIs term loan, revolver and related accrued interest due from Axis. Based on the discussion above, this loan has been evaluated to currently be fully recoverable. The
Company will continue to monitor its investment in 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 and September 2012, respectively, the Company made a
$9.8 million and $1.1 million equity contribution to Amtek Railcar. The cash contribution in 2012, which was matched by the other equity partner, was made to provide Amtek Railcar a more favorable liquidity position to better utilize its
existing credit agreement. ARIs ownership in this joint venture is 50.0%. Amtek Railcar has manufactured three prototype railcars. Accordingly, Amtek Railcar has not recorded any sales in the current year and is still considered a development
stage entity.
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, 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
position for Amtek Railcar, the investee company, in total, are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(in thousands)
|
|
Financial position:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
11,252
|
|
|
$
|
4,061
|
|
Non-current assets
|
|
|
51,524
|
|
|
|
35,606
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
62,776
|
|
|
|
39,667
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
7,452
|
|
|
|
6,635
|
|
Non-current liabilities
|
|
|
41,247
|
|
|
|
19,095
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
48,699
|
|
|
|
25,730
|
|
Stockholders equity
|
|
|
14,077
|
|
|
|
13,937
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
62,776
|
|
|
$
|
39,667
|
|
|
|
|
|
|
|
|
|
|
58
Summary combined financial results of operations for Amtek Railcar, the investee company, in total, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
Results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Gross loss
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net loss
|
|
$
|
(2,094
|
)
|
|
$
|
(1,905
|
)
|
|
$
|
(619
|
)
|
The change in ARIs investment in joint venture consists of interest capitalized as a result of the joint venture currently
constructing its facility and being considered a development stage enterprise, offset by its 50.0% share in the net loss of the entity.
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 10 Warranties
The Companys standard warranty is 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.
The overall change in the Companys warranty reserve is reflected on the consolidated balance sheets in accrued expenses and taxes and is detailed
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
Liability, beginning of year
|
|
$
|
930
|
|
|
$
|
1,151
|
|
|
$
|
1,094
|
|
Provision for warranties issued during the year, net of adjustments
|
|
|
1,318
|
|
|
|
1,098
|
|
|
|
1,003
|
|
Provision for warranties issued in previous years, net of adjustments
|
|
|
199
|
|
|
|
(466
|
)
|
|
|
(208
|
)
|
Warranty claims
|
|
|
(1,073
|
)
|
|
|
(853
|
)
|
|
|
(738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability, end of year
|
|
$
|
1,374
|
|
|
$
|
930
|
|
|
$
|
1,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11 Long-term Debt
2007 Senior Unsecured Notes
In February 2007, the Company completed the offering of $275.0 million senior unsecured fixed rate notes, which were subsequently exchanged for registered notes in March 2007 (Notes). The fair value
of these Notes was $176.3 million and $275.0 million as of December 31, 2012 and 2011, 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 4.
In September 2012, the Company redeemed $100.0 million of its Notes utilizing available cash on hand. In
conjunction with the redemption, the Company incurred a $2.3 million loss, which is shown as loss on debt extinguishment on the onsolidated statements of operations. This charge consists of $1.9 million related to the premium the Company paid on the
redemption as well as $0.4 million related to the accelerated write-off of a portion of deferred debt issuance costs. As of December 31, 2012, the outstanding principal balance of the Notes was $175.0 million.
The Notes bear a fixed interest rate of 7.5%, which is payable semi-annually in arrears on March 1 and September 1 until their maturity in
2014. On or after March 1, 2013, the Notes can be redeemed at par value plus any accrued and unpaid interest. The terms of the Notes contain restrictive covenants that limit the Companys ability to, among other things, incur additional
debt, issue disqualified or preferred stock, make certain restricted payments and enter into certain significant transactions with stockholders and affiliates. Certain covenants, including those that restrict the Companys ability to incur
additional indebtedness and issue disqualified or preferred stock, become more restrictive if the Companys fixed charge coverage ratio, as defined, is less than 2.0 to 1.0 as measured on a rolling four-quarter basis. The Company was in
compliance with all of its covenants under the Notes as of December 31, 2012.
59
2012 Lease Fleet Financing
In December, 2012, Longtrain Leasing entered into a senior secured delayed draw term loan facility (Term Loan) that is secured by a portfolio of railcars, railcar leases, the receivables associated with
those railcars and leases, and certain other assets of Longtrain Leasing. The Term Loan provides for an initial draw at closing (Initial Draw) and allows for up to two additional draws. The first additional draw (First Draw) was required to occur on
or before February 28, 2013 with the second additional draw to occur in March, April or May of 2013. The capacity of the Term Loan is limited to the lesser of $199.8 million or 75% of the Net Aggregate Equipment Value, as defined in the credit
agreement and matures on February 27, 2018.
Upon closing, the Initial Draw was $98.4 million, net of fees and expenses. The fair value
of the Term Loan was $100.0 million as of December 31, 2012 and is based upon estimates by various banks determined by trading levels on the date of measurement using a level 2 fair value measurement as defined by U.S. GAAP under the fair value
hierarchy. For definition and discussion of a Level 2 input for fair value measurement, refer to Note 4. As of December 31, 2012, the outstanding principal balance on the Term Loan, including the current portion, was $100.0 million.
The Term Loan bears interest at one-month LIBOR plus 2.5%, for a rate of 2.7% as of December 31, 2012, subject to an
alternative fee as set forth in the credit agreement, and is payable on the 15
th
of each month (Payment Date). The interest rate increases by 2.0% following certain defaults. The Company is required to pay 3.33% of principal annually via monthly payments that are due on the Payment
Date, commencing on March 15, 2013, with any remaining balance payable on the final scheduled maturity. The Term Loan may be prepaid at any time without premium or penalty, other than customary LIBOR breakage fees. The Term Loan contains
restrictive covenants that limit Longtrain Leasings ability to, among other things, incur additional debt, issue additional equity, sell certain assets, grant certain liens on its assets, make certain restricted payments, acquisitions and
investments, and enter into certain significant transactions with stockholders and affiliates. Additionally, the Term Loan requires Longtrain Leasing to comply with a Debt Service Coverage Ratio, as defined in the credit agreement, of 1.05 to 1.0,
measured quarterly on a three-quarter trailing basis beginning on September 30, 2013, and subject to up to a 75 day cure period. Certain covenants, including those that restrict Longtrain Leasings ability to incur additional indebtedness
and issue equity, become more restrictive if Longtrain Leasings debt service coverage ratio, as defined, is less than 1.2 to 1.0 on or after September 30, 2013.
The Term Loan also obligates Longtrain Leasing and ARI to maintain ARIs separateness and to ensure that the collections from the railcars and railcar leases that secure the Term Loan are managed in
accordance with the credit agreement. Additionally, ARI is obligated to make any selections of transfers of railcars, railcar leases, receivables and related assets to be conveyed to Longtrain Leasing in good faith and without any adverse selection,
to cause American Railcar Leasing LLC (ARL), as the manager, to maintain, lease, and re-lease
Longtrain Leasings equipment no less favorably than similar portfolios serviced by ARL, and to repurchase or replace railcars that
are reported as Eligible Units (as defined in the credit agreement) when they are not Eligible Units, subject to limitations on liability set forth in the credit agreement. The Company was in compliance with all of its covenants under the Term Loan
as of December 31, 2012.
The Term Loan is secured by a first lien on substantially all assets of Longtrain Leasing, consisting of
railcars, railcar leases, receivables and related assets, subject to limited exceptions. The Company is obligated to make any selections of transfers of railcars, railcar leases, receivables and related assets to be conveyed to Longtrain in good
faith and without any adverse selection, to cause American Railcar Leasing LLC (ARL), as the manager, to maintain, lease, and re-lease Longtrains equipment no less favorably than similar portfolios serviced by ARL and to repurchase or replace
railcars that are reported as Eligible Units (as defined in the credit agreement related to the Term Loan) when they are not Eligible Units, subject to limitations on liability set forth in the credit agreement. As of December 31, 2012, the net
book value of the railcars that were pledged as part of the Term Loan were $112.0 million. The future contractual minimum rental revenues related to the railcars pledged as of December 31, 2012 are as follows (in thousands).
|
|
|
|
|
2013
|
|
$
|
12,170
|
|
2014
|
|
|
12,170
|
|
2015
|
|
|
11,965
|
|
2016
|
|
|
11,485
|
|
2017
|
|
|
6,597
|
|
2018 and thereafter
|
|
|
9,737
|
|
|
|
|
|
|
Total
|
|
$
|
64,124
|
|
|
|
|
|
|
60
The remaining principal payments under existing debt agreements as of December 31, 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Period
|
|
Contractual Obligations
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
Thereafter
|
|
|
|
(in thousands)
|
|
Senior Unsecured Notes
|
|
$
|
|
|
|
$
|
175,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Term Loan
|
|
|
2,755
|
|
|
|
3,330
|
|
|
|
3,330
|
|
|
|
3,339
|
|
|
|
3,330
|
|
|
|
83,916
|
|
Total
|
|
$
|
2,755
|
|
|
$
|
178,330
|
|
|
$
|
3,330
|
|
|
$
|
3,339
|
|
|
$
|
3,330
|
|
|
$
|
83,916
|
|
Note 12 Income Taxes
Income tax expense (benefit) consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,217
|
|
|
$
|
(3,556
|
)
|
|
$
|
(14,651
|
)
|
State and local
|
|
|
3,551
|
|
|
|
803
|
|
|
|
213
|
|
Foreign
|
|
|
137
|
|
|
|
86
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
4,905
|
|
|
|
(2,667
|
)
|
|
|
(14,357
|
)
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
32,458
|
|
|
|
5,761
|
|
|
|
1,209
|
|
State and local
|
|
|
4,643
|
|
|
|
734
|
|
|
|
(1,675
|
)
|
Foreign
|
|
|
16
|
|
|
|
38
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
37,117
|
|
|
|
6,533
|
|
|
|
(438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
42,022
|
|
|
$
|
3,866
|
|
|
$
|
(14,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
Income tax expense (benefit) attributable to earnings (loss) from operations differed from the amounts
computed by applying the U.S. Federal statutory income tax rate of 35.0% to earnings (loss) from operations by the following amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
Computed income tax expense (benefit)
|
|
$
|
37,046
|
|
|
$
|
2,871
|
|
|
$
|
(14,626
|
)
|
State and local tax expense (benefit)
|
|
|
4,351
|
|
|
|
525
|
|
|
|
(1,357
|
)
|
Expiration of stock options
|
|
|
0
|
|
|
|
756
|
|
|
|
|
|
Valuation allowance
|
|
|
0
|
|
|
|
(756
|
)
|
|
|
756
|
|
Excludable loss from foreign joint venture
|
|
|
366
|
|
|
|
354
|
|
|
|
87
|
|
Tax credits, federal and state
|
|
|
3
|
|
|
|
(228
|
)
|
|
|
(278
|
)
|
Loss of domestic production activities deduction due to net operating loss carry back
|
|
|
|
|
|
|
|
|
|
|
641
|
|
Non-deductible items
|
|
|
127
|
|
|
|
(43
|
)
|
|
|
(107
|
)
|
Adjustments for uncertain tax positions
|
|
|
(14
|
)
|
|
|
162
|
|
|
|
70
|
|
Other, net
|
|
|
143
|
|
|
|
225
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
42,022
|
|
|
$
|
3,866
|
|
|
$
|
(14,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Computed income tax expense (benefit)
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
(35.0
|
%)
|
State and local tax expense (benefit)
|
|
|
4.1
|
%
|
|
|
6.4
|
%
|
|
|
(3.2
|
%)
|
Expiration of stock options
|
|
|
|
|
|
|
9.2
|
%
|
|
|
|
|
Valuation allowancestock options
|
|
|
|
|
|
|
(9.2
|
%)
|
|
|
1.8
|
%
|
Excludable loss from foreign joint venture
|
|
|
0.4
|
%
|
|
|
4.3
|
%
|
|
|
0.2
|
%
|
Tax credits, federal and state
|
|
|
|
|
|
|
(2.8
|
%)
|
|
|
(0.7
|
%)
|
Loss of domestic production activities deduction due to net operating loss carry back
|
|
|
|
|
|
|
|
|
|
|
1.5
|
%
|
Non-deductible items
|
|
|
0.1
|
%
|
|
|
(0.5
|
%)
|
|
|
(0.3
|
%)
|
Adjustments for uncertain tax positions
|
|
|
|
|
|
|
2.0
|
%
|
|
|
0.2
|
%
|
Other, net
|
|
|
0.1
|
%
|
|
|
2.7
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
39.7
|
%
|
|
|
47.1
|
%
|
|
|
(35.4
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
The tax effects of temporary differences that have given rise to deferred tax assets and liabilities are
presented below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(in thousands)
|
|
Current deferred tax assets
|
|
|
|
|
|
|
|
|
Provisions not currently deductible
|
|
$
|
4,002
|
|
|
$
|
3,002
|
|
Tax credits and deferred revenues
|
|
|
|
|
|
|
39
|
|
Net operating loss state
|
|
|
112
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
Total gross current deferred tax asset
|
|
|
4,114
|
|
|
|
3,203
|
|
Valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current deferred tax asset
|
|
|
4,114
|
|
|
|
3,203
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets
|
|
|
|
|
|
|
|
|
Provisions not currently deductible
|
|
|
4,046
|
|
|
|
3,206
|
|
Stock based compensation
|
|
|
2,739
|
|
|
|
3,138
|
|
Net operating loss carryforwardsfederal and state
|
|
|
211
|
|
|
|
1,628
|
|
Tax creditsfederal and state
|
|
|
|
|
|
|
1,480
|
|
Pensions and post retirement
|
|
|
4,229
|
|
|
|
4,084
|
|
|
|
|
|
|
|
|
|
|
Total gross non-current deferred tax asset
|
|
|
11,225
|
|
|
|
13,536
|
|
Valuation allowance
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Total non-current deferred tax asset
|
|
|
11,224
|
|
|
|
13,534
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset
|
|
$
|
15,338
|
|
|
$
|
16,737
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax liabilities
|
|
|
|
|
|
|
|
|
Investment in joint ventures
|
|
$
|
(3,256
|
)
|
|
$
|
(3,043
|
)
|
Property, plant and equipment
|
|
|
(60,775
|
)
|
|
|
(25,363
|
)
|
Unrealized gain on financial instruments
|
|
|
(653
|
)
|
|
|
|
|
Other
|
|
|
(6
|
)
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liability
|
|
$
|
(64,690
|
)
|
|
$
|
(28,456
|
)
|
|
|
|
|
|
|
|
|
|
The net deferred tax asset (liability) is classified in the consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(in thousands)
|
|
Current deferred tax assets
|
|
$
|
4,114
|
|
|
$
|
3,203
|
|
Non-current deferred tax assets
|
|
|
11,224
|
|
|
|
13,534
|
|
Non-current deferred tax liability
|
|
|
(64,690
|
)
|
|
|
(28,456
|
)
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax liability, net
|
|
|
(53,466
|
)
|
|
|
(14,922
|
)
|
Current deferred tax asset
|
|
|
4,114
|
|
|
|
3,203
|
|
Non-current deferred tax liability, net
|
|
|
(53,466
|
)
|
|
|
(14,922
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(49,352
|
)
|
|
$
|
(11,719
|
)
|
|
|
|
|
|
|
|
|
|
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 asset or liability 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
permanently 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 $1.8 million and $1.5 million as of December 31, 2012 and 2011, respectively. If ARI were to change 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, 2012 and 2011 foreign tax credits would be available to offset these taxes such that the U.S. tax impact would be insignificant. ARIs other foreign entity has losses and
no positive earnings yet. However, ARI considers all of its foreign entities earnings to be permanently reinvested.
63
As of December 31, 2012, the Company had state net operating loss carry-forwards in the amount of $6.3
million, which expire between 2014 and 2031. In 2011, ARI had state net operating loss carryforwards of $27.5 million.
The Company also had
federal net operating losses of $19.1 million, of which $15.6 million was carried back to a prior years taxable income. The federal net operating loss carry forward of $3.5 million was utilized in 2012. In 2012, the Company utilized all of its
federal and state tax credits. In addition, no tax benefit has been provided on the losses associated with the Companys Indian joint venture.
As of December 31, 2012, the Companys gross unrecognized tax benefits were $1.7 million, of which $1.3 million, net of federal benefit on state matters, would impact the effective tax rate if
reversed. As of December 31, 2011, the Companys gross unrecognized tax benefits were $1.8 million, of which $1.3 million, net of federal benefit on state matters, would impact the effective tax rate if reversed.
The aggregate changes in the balance of unrecognized tax benefits were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Beginning balance
|
|
$
|
1,813
|
|
|
$
|
1,607
|
|
|
$
|
2,024
|
|
Increases in tax positions for prior years
|
|
|
34
|
|
|
|
154
|
|
|
|
110
|
|
Decreases in tax positions for prior years
|
|
|
|
|
|
|
|
|
|
|
(536
|
)
|
Increases in tax positions for current year
|
|
|
611
|
|
|
|
52
|
|
|
|
9
|
|
Settlements
|
|
|
(704
|
)
|
|
|
|
|
|
|
|
|
Expirations of statutes
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,744
|
|
|
$
|
1,813
|
|
|
$
|
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 both years ended December 31, 2012 and 2011 was $0.1 million and included less than $0.1 million of federal income tax benefits and penalties. The Company believes it is reasonably possible that within
the next twelve months its unrecognized tax benefits could change up to $1.0 million as a result of the Companys analysis of state tax filing requirements.
The statute of limitation on the Companys 2008 federal income tax return is set to expire on April 14, 2013. The Companys federal income tax returns for tax years 2009 and beyond remain
subject to examination, with the latest statute expiring in September 2016. The statute of limitations on certain state income tax returns for 2008 remain open and subject to examination, with the latest statute expiring on November 15, 2013
while all state income tax returns for 2009 and beyond remain open to examination by various state taxing authorities, with the latest statute of limitations expiring on November 15, 2017. The Companys foreign subsidiarys income tax
returns for the tax years 2008 and beyond remain open to examination by foreign tax authorities.
Note 13 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 union employees of the Company, was frozen effective as of January 1, 2012 and no
additional benefits will accrue thereunder. The assets of the defined benefit pension 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.
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, the healthcare premium rates for postretirement healthcare to be paid by retirees were raised and the portion of those rates to be paid by the Company was reduced to zero. This change resulted in a decrease to the
postretirement benefit liability of $2.8 million that was recorded to accumulated other comprehensive income (loss) as of December 31, 2009. This adjustment is being recognized over the remaining weighted-average service period of active plan
participants. As a result of this plan change in 2009, our postretirement plan liability estimate does not assume a health care cost trend rate as the liability is not driven by health care costs.
64
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
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
(in thousands)
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at January 1
|
|
$
|
22,568
|
|
|
$
|
19,922
|
|
|
$
|
106
|
|
|
$
|
90
|
|
Service cost
|
|
|
191
|
|
|
|
317
|
|
|
|
1
|
|
|
|
1
|
|
Interest cost
|
|
|
934
|
|
|
|
1,015
|
|
|
|
4
|
|
|
|
5
|
|
Actuarial loss
|
|
|
1,951
|
|
|
|
2,552
|
|
|
|
9
|
|
|
|
19
|
|
Assumed administrative expenses
|
|
|
(190
|
)
|
|
|
(180
|
)
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(1,037
|
)
|
|
|
(1,058
|
)
|
|
|
(9
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at December 31
|
|
$
|
24,417
|
|
|
$
|
22,568
|
|
|
$
|
111
|
|
|
$
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at January 1
|
|
$
|
13,278
|
|
|
$
|
13,194
|
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
1,723
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
(191
|
)
|
|
|
(183
|
)
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
1,121
|
|
|
|
1,203
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(1,037
|
)
|
|
|
(1,058
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at fair value at December 31
|
|
$
|
14,894
|
|
|
$
|
13,278
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation in excess of plan assets at December 31
|
|
$
|
(9,523
|
)
|
|
$
|
(9,291
|
)
|
|
$
|
(111
|
)
|
|
$
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
(in thousands)
|
|
Accrued benefit liabilityshort term
|
|
$
|
(112
|
)
|
|
$
|
(114
|
)
|
|
$
|
(4
|
)
|
|
$
|
(3
|
)
|
Accrued benefit liabilitylong term
|
|
|
(9,411
|
)
|
|
|
(9,177
|
)
|
|
|
(107
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liability recognized at December 31
|
|
$
|
(9,523
|
)
|
|
$
|
(9,291
|
)
|
|
$
|
(111
|
)
|
|
$
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (loss) gain
|
|
$
|
(9,117
|
)
|
|
$
|
(8,584
|
)
|
|
$
|
806
|
|
|
$
|
894
|
|
Net prior service (cost) credit
|
|
|
(42
|
)
|
|
|
(50
|
)
|
|
|
2,089
|
|
|
|
2,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive (loss) income pre-tax at December 31
|
|
$
|
(9,159
|
)
|
|
$
|
(8,634
|
)
|
|
$
|
2,895
|
|
|
$
|
3,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
The short-term liability has been reported on the consolidated balance sheets in accrued compensation.
The components of net periodic benefit cost for the years ended December 31, 2012, 2011 and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
191
|
|
|
$
|
316
|
|
|
$
|
267
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
|
|
934
|
|
|
|
1,015
|
|
|
|
1,025
|
|
|
|
4
|
|
|
|
5
|
|
|
|
5
|
|
Expected return on plan assets
|
|
|
(1,010
|
)
|
|
|
(997
|
)
|
|
|
(885
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment loss
|
|
|
|
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized actuarial loss (gain)
|
|
|
705
|
|
|
|
377
|
|
|
|
345
|
|
|
|
(80
|
)
|
|
|
(90
|
)
|
|
|
(100
|
)
|
Amortization of prior service cost (gain)
|
|
|
8
|
|
|
|
7
|
|
|
|
7
|
|
|
|
(391
|
)
|
|
|
(391
|
)
|
|
|
(391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit cost
|
|
$
|
828
|
|
|
$
|
718
|
|
|
$
|
816
|
|
|
$
|
(466
|
)
|
|
$
|
(475
|
)
|
|
$
|
(485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net actuarial loss (gain) that is expected to be amortized from accumulated other comprehensive loss into net periodic benefit
costs during the year ended December 31, 2013 is $0.8 million and ($0.5) million, respectively, for pension benefits and postretirement benefits.
Additional information
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid as follows:
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement
Benefits
|
|
|
|
(in thousands)
|
|
2013
|
|
$
|
1,059
|
|
|
$
|
4
|
|
2014
|
|
|
1,070
|
|
|
|
4
|
|
2015
|
|
|
1,102
|
|
|
|
4
|
|
2016
|
|
|
1,130
|
|
|
|
5
|
|
2017
|
|
|
1,145
|
|
|
|
5
|
|
2018 and thereafter
|
|
|
6,705
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,211
|
|
|
$
|
53
|
|
|
|
|
|
|
|
|
|
|
The Company expects to contribute $0.9 million to its pension and postretirement plans in 2013.
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.
Mortality and retirement
rates
Mortality and retirement rates are based on actual and anticipated plan experience.
66
The decrease in the discount rates resulted in an increase in the benefit obligation, which will be
amortized through actuarial losses. The assumptions used to determine end of year benefit obligations are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Discount rate
|
|
|
3.70
|
%
|
|
|
4.25
|
%
|
|
|
3.67
|
%
|
|
|
4.18
|
%
|
The assumptions used in the measurement of net periodic cost are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Discount rate
|
|
|
4.25
|
%
|
|
|
5.25
|
%
|
|
|
5.75
|
%
|
|
|
4.18
|
%
|
|
|
5.31
|
%
|
|
|
5.31
|
%
|
Expected return on plan assets
|
|
|
7.50
|
%
|
|
|
7.50
|
%
|
|
|
7.50
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The Companys pension plans asset valuation in the fair value hierarchy levels, discussed in detail in Note 4, along with
the weighted average asset allocations as of December 31, 2012, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Percentage of
Total
|
|
|
|
(in thousands)
|
|
|
|
|
Asset Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,011
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,011
|
|
|
|
7
|
%
|
Equities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large cap value equity
|
|
|
1,472
|
|
|
|
|
|
|
|
|
|
|
|
1,472
|
|
|
|
10
|
%
|
Mid cap growth equity
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
298
|
|
|
|
2
|
%
|
Mid cap value equity
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
306
|
|
|
|
2
|
%
|
Small cap value equity
|
|
|
413
|
|
|
|
|
|
|
|
|
|
|
|
413
|
|
|
|
3
|
%
|
Small cap growth equity
|
|
|
425
|
|
|
|
|
|
|
|
|
|
|
|
425
|
|
|
|
3
|
%
|
International growth equity
|
|
|
473
|
|
|
|
|
|
|
|
|
|
|
|
473
|
|
|
|
3
|
%
|
Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large cap growth equity
|
|
|
|
|
|
|
1,560
|
|
|
|
|
|
|
|
1,560
|
|
|
|
10
|
%
|
International value equity
|
|
|
530
|
|
|
|
|
|
|
|
|
|
|
|
530
|
|
|
|
4
|
%
|
International markets core equity
|
|
|
933
|
|
|
|
|
|
|
|
|
|
|
|
933
|
|
|
|
6
|
%
|
International small to mid cap
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
321
|
|
|
|
2
|
%
|
Large cap enhanced core equity
|
|
|
|
|
|
|
1,701
|
|
|
|
|
|
|
|
1,701
|
|
|
|
11
|
%
|
High yield
|
|
|
607
|
|
|
|
|
|
|
|
|
|
|
|
607
|
|
|
|
4
|
%
|
Core bond
|
|
|
|
|
|
|
2,168
|
|
|
|
|
|
|
|
2,168
|
|
|
|
15
|
%
|
International bond
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
282
|
|
|
|
2
|
%
|
Fixed income
|
|
|
977
|
|
|
|
|
|
|
|
|
|
|
|
977
|
|
|
|
6
|
%
|
Commodity
|
|
|
379
|
|
|
|
|
|
|
|
|
|
|
|
379
|
|
|
|
3
|
%
|
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury bonds
|
|
|
434
|
|
|
|
|
|
|
|
|
|
|
|
434
|
|
|
|
3
|
%
|
Asset backed securities
|
|
|
|
|
|
|
604
|
|
|
|
|
|
|
|
604
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,861
|
|
|
$
|
6,033
|
|
|
$
|
|
|
|
$
|
14,894
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
The Companys pension plans asset valuation in the fair value hierarchy levels, along with the
weighted average asset allocations as of December 31, 2011, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Percentage of
Total
|
|
|
|
(in thousands)
|
|
|
|
|
Asset Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
570
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
570
|
|
|
|
4
|
%
|
Equities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large cap value equity
|
|
|
1,062
|
|
|
|
|
|
|
|
|
|
|
|
1,062
|
|
|
|
8
|
%
|
Mid cap growth equity
|
|
|
307
|
|
|
|
|
|
|
|
|
|
|
|
307
|
|
|
|
2
|
%
|
Mid cap value equity
|
|
|
286
|
|
|
|
|
|
|
|
|
|
|
|
286
|
|
|
|
2
|
%
|
Small cap value equity
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
322
|
|
|
|
2
|
%
|
International growth equity
|
|
|
501
|
|
|
|
|
|
|
|
|
|
|
|
501
|
|
|
|
4
|
%
|
Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large cap growth equity
|
|
|
|
|
|
|
1,655
|
|
|
|
|
|
|
|
1,655
|
|
|
|
12
|
%
|
Small cap growth equity
|
|
|
|
|
|
|
416
|
|
|
|
|
|
|
|
416
|
|
|
|
3
|
%
|
International value equity
|
|
|
536
|
|
|
|
|
|
|
|
|
|
|
|
536
|
|
|
|
4
|
%
|
International markets core equity
|
|
|
815
|
|
|
|
|
|
|
|
|
|
|
|
815
|
|
|
|
6
|
%
|
International small to mid cap
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
265
|
|
|
|
2
|
%
|
Large cap enhanced core equity
|
|
|
|
|
|
|
1,939
|
|
|
|
|
|
|
|
1,939
|
|
|
|
15
|
%
|
High yield
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
|
387
|
|
|
|
3
|
%
|
Core bond
|
|
|
|
|
|
|
1,754
|
|
|
|
|
|
|
|
1,754
|
|
|
|
13
|
%
|
International bond
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
265
|
|
|
|
2
|
%
|
Fixed income
|
|
|
760
|
|
|
|
|
|
|
|
|
|
|
|
760
|
|
|
|
6
|
%
|
Commodity
|
|
|
602
|
|
|
|
|
|
|
|
|
|
|
|
602
|
|
|
|
5
|
%
|
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury bonds
|
|
|
397
|
|
|
|
|
|
|
|
|
|
|
|
397
|
|
|
|
3
|
%
|
Asset backed securities
|
|
|
|
|
|
|
439
|
|
|
|
|
|
|
|
439
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,075
|
|
|
$
|
6,203
|
|
|
$
|
|
|
|
$
|
13,278
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company invests in a balanced portfolio of individual equity securities, collective funds, 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, U.S. 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 investment 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 investment 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 eligible employees based on employee contributions, years
of service and employee earnings with discretionary contributions allowed. Expenses related to these plans were $0.9 million, $0.8 million and $0.8 million for the years ended December 31, 2012, 2011 and 2010, respectively.
68
Note 14 Commitments and Contingencies
As of December 31, 2012, 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):
|
|
|
|
|
2013
|
|
$
|
1,508
|
|
2014
|
|
|
1,563
|
|
2015
|
|
|
1,548
|
|
2016
|
|
|
1,168
|
|
2017
|
|
|
1,010
|
|
2018 and thereafter
|
|
|
5,484
|
|
|
|
|
|
|
Total
|
|
$
|
12,281
|
|
|
|
|
|
|
Total rent expense for the years ended December 31, 2012, 2011 and 2010 was $2.3 million, $2.3 million and $2.1 million,
respectively.
We have various agreements with and commitments to related parties. See Note 19 for further detail.
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 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 ARIs board of directors and, through IELP, its principal beneficial stockholder. Substantially all of the issues identified relate to the use of
these properties prior to their 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 financial condition or results of operations.
ARI is a party to
collective bargaining agreements with labor unions at two repair facilities that expire in January 2016 and September 2013. ARI is also party to a collective bargaining agreement with a labor union at a parts manufacturing facility that
expires in April 2014.
On September 2, 2009, a complaint was filed by George Tedder (the Plaintiff) against us in the U.S. District
Court, Eastern District of Arkansas. The Plaintiff alleged that the Company was liable for an injury that resulted during the Plaintiffs break on April 24, 2008. At the initial trial on April 9, 2012, the jury ruled in favor of the
Plaintiff. After ARI appealed the initial ruling, the judge reduced the amount awarded to the Plaintiff, which was fully accrued at December 31, 2012. In January 2013, ARI filed an appeal related to the revised ruling.
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.
Note 15 Earnings (Loss) per Share
The shares used in the computation of the Companys basic and diluted earnings (loss) per common share are reconciled as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Weighted average common shares outstandingbasic
|
|
|
21,351,570
|
|
|
|
21,351,570
|
|
|
|
21,302,488
|
|
Dilutive effect of employee stock options
|
|
|
|
|
|
|
85
|
(1)
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstandingdiluted
|
|
|
21,351,570
|
|
|
|
21,351,655
|
|
|
|
21,302,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Stock options to purchase 340,352 shares of common stock expired unexercised on January 19, 2011. Refer to Note 16 for further discussion of these stock options.
|
69
(2)
|
Stock options to purchase 376,353 shares of common stock were not included in the calculation of 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 16 for further discussion of these stock options.
|
Note 16 Share-based Compensation
The Company accounts for share-based compensation granted under the 2005 Equity Incentive Plan, as amended (the 2005 Plan) based on the
fair values calculated using the Monte Carlo and Black-Scholes-Merton (Black-Scholes) option-pricing formulas. Share-based compensation is expensed using a graded vesting method over the vesting period of the instrument. The fair value of the
liability associated with share-based compensation is based on the components used to calculate the Black-Scholes value, including the Companys closing market price, as of that date and is considered a Level 2 input. For definition and
discussion of a Level 2 input for fair value measurement, refer to Note 4.
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 1,000,000 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.
The following table presents the amounts for share-based compensation
expense incurred by ARI, all related to the Companys SARs awards, and the corresponding line items on the consolidated statements of operations that they are recorded within:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
Share-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: manufacturing operations
|
|
$
|
899
|
|
|
$
|
697
|
|
|
$
|
1,190
|
|
Cost of revenues: railcar services
|
|
|
171
|
|
|
|
105
|
|
|
|
202
|
|
Selling, general and administrative
|
|
|
3,598
|
|
|
|
2,736
|
|
|
|
3,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense
|
|
$
|
4,668
|
|
|
$
|
3,537
|
|
|
$
|
5,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefits related to share-based compensation arrangements were $2.3 million, $1.3 million and $2.1 million for the years
ended December 31, 2012, 2011 and 2010, respectively.
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.
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.
No stock options were granted in 2012, 2011 or 2010. As of December 31, 2012, an aggregate of 855,476 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. The 1,000,000 shares covered by the Plan were
registered for issuance to the public with the Securities Exchange Commission (SEC) on a Form S-8 on August 16, 2006.
Options to
purchase 36,001 shares and 14,000 shares of the Companys common stock were exercised during the years ended December 31, 2011 and 2010, respectively. The total intrinsic value of options exercised during both years ended December 31,
2011 and 2010, was less than $0.1 million. All stock options fully vested in January 2009 and expired in January 2011. As such, the Company did not recognize any compensation expense related to stock options during the years ended
December 31, 2012, 2011 and 2010.
70
The following is a summary of option activity under the 2005 Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Covered by
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Weighted
Average
Grant-date
Fair Value
of Options
Granted
|
|
|
Aggregate
Intrinsic
Value
($000)
|
|
Outstanding and exercisable at the end of the period, December 31, 2010
|
|
|
376,353
|
|
|
$
|
21.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(36,001
|
)
|
|
$
|
21.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(340,352
|
)
|
|
$
|
21.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at the end of the period, December 31, 2011 and 2012
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock appreciation rights
The compensation committee of the Companys board of directors granted awards of SARs to certain employees pursuant to the 2005 Plan during April 2007, April 2008, September 2008,
March 2009, March 2010, May 2011 and February 2012. 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. This exchange was accounted for as a modification of a liability award in accordance with U.S. GAAP. The SARs that were exchanged from the 2007 grant were treated as being cancelled with
the grant on May 14, 2010 taking its place. This resulted in a net effect of $0.3 million of SARs compensation income in 2010.
All of
the SARs granted in 2007 that were not exchanged, 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 and 89,600 of the SARs granted in 2012 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 market-based SARs will not vest. Further, each holder
must remain employed by the Company through each anniversary of the grant date in order to vest in the corresponding number of SARs.
All of
the SARs granted in 2011 and 114,900 of the SARs granted in 2012 vest in three equal increments on the first, second and third anniversaries of the grant date, but only if the Company achieves a specified adjusted earnings before interest, taxes,
depreciation and amortization (Adjusted EBITDA) target for the fiscal year preceding the applicable anniversary date. Each holder must further remain employed by the Company through each such 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 SARs Agreement). The SARs are subject in all respects to the terms and conditions of the 2005 Plan and the SARs Agreement, which
contain non-solicitation, non-competition and confidentiality provisions.
The fair value of all unexercised SARs is determined at each
reporting period under the Monte Carlo and Black-Scholes option pricing methodologies based on the inputs in the table below, which project that the specific performance target for applicable grants will be fully met. The fair value of the SARs is
expensed on a graded vesting basis over the vesting period, which is in equal increments on the respective anniversaries of the grant date. Changes in the fair value of vested SARs are expensed in the period of change. The following table provides
an analysis of SARs granted in 2012, 2011, 2010, 2009, 2008 and 2007 and assumptions that were used as of December 31, 2012 in the Black-Scholes option-pricing model:
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
2/24/2012
|
|
|
5/9/2011
|
|
|
3/31/2010
&
5/14/2010
|
|
|
3/3/2009
|
|
|
4/28/2008
|
|
|
4/4/2007
|
|
SARs outstanding at December 31, 2012
|
|
|
197,900
|
|
|
|
191,922
|
|
|
|
102,833
|
|
|
|
85,625
|
|
|
|
14,612
|
|
|
|
4,500
|
|
Vested & Exercisable
|
|
|
|
|
|
|
38,499
|
|
|
|
50,839
|
|
|
|
12,851
|
|
|
|
14,612
|
|
|
|
4,500
|
|
Vesting period
|
|
|
3 years
|
|
|
|
3 years
|
|
|
|
4 years
|
|
|
|
4 years
|
|
|
|
4 years
|
|
|
|
4 years
|
|
Expiration Dates
|
|
|
2/24/2019
|
|
|
|
5/9/2018
|
|
|
|
3/31/2017
&
5/14/2017
|
|
|
|
3/3/2016
|
|
|
|
4/28/2015
|
|
|
|
4/4/2014
|
|
Weighted average exercise price
|
|
|
$29.31
|
|
|
|
$24.45
|
|
|
|
$12.92
|
|
|
|
$6.71
|
|
|
|
$20.88
|
|
|
|
$29.49
|
|
Expected volatility range
|
|
|
60.1% - 61.8%
|
|
|
|
59.6% - 61.0%
|
|
|
|
58.0% - 59.6%
|
|
|
|
59.0%
|
|
|
|
47.1%
|
|
|
|
47.1%
|
|
Expected life range (in years)
|
|
|
3.1 - 4.1
|
|
|
|
2.7 - 3.3
|
|
|
|
2.1 - 2.3
|
|
|
|
1.6 - 1.7
|
|
|
|
1.2
|
|
|
|
0.7
|
|
Risk-free interest rate range
|
|
|
0.4% - 0.7%
|
|
|
|
0.4%
|
|
|
|
0.3%
|
|
|
|
0.3%
|
|
|
|
0.2%
|
|
|
|
0.2%
|
|
Expected Dividend yield
|
|
|
3.2%
|
|
|
|
3.2%
|
|
|
|
3.2%
|
|
|
|
3.2%
|
|
|
|
3.2%
|
|
|
|
3.2%
|
|
Forfeiture Rate on unvested SARs
|
|
|
2.0%
|
|
|
|
2.0%
|
|
|
|
2.0%
|
|
|
|
2.0%
|
|
|
|
0.0%
|
|
|
|
0.0%
|
|
The stock volatility rate was determined using the historical volatility rates of the Companys common stock over the same period
as the expected life of each grant. The expected life ranges represent the use of the simplified method prescribed by the SEC due to inadequate exercise activity for the Companys SARs. The simplified method uses the average of the vesting
period and expiration period of each group of SARs that vest equally over a three or four-year period. The risk-free rate is based on the U.S. Treasury yield curve in effect for the expected term of the options at the time of grant. The expected
dividend yield was determined using the most recent quarters dividend. The forfeiture rate was based on a Company estimate of expected forfeitures over the contractual life of each grant for each period.
The following is a summary of SARs activity under the 2005 Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Appreciation
Rights
(SARs)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Weighted
Average
Fair
Value of
SARs
|
|
|
Aggregate
Intrinsic
Value
($000)
|
|
Outstanding at January 1, 2010
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
242,041
|
|
|
$
|
24.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled/Forfeited (1)
|
|
|
(22,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(124,764
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2011
|
|
|
805,910
|
|
|
$
|
16.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
197,900
|
|
|
$
|
29.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled/Forfeited
|
|
|
(15,760
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(390,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012
|
|
|
597,392
|
|
|
$
|
21.54
|
|
|
|
60 months
|
|
|
$
|
15.04
|
|
|
$
|
6,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2012
|
|
|
121,301
|
|
|
$
|
17.32
|
|
|
|
50 months
|
|
|
$
|
15.93
|
|
|
$
|
1,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Of the SARs granted in 2008, 13,123 and 13,122 were forfeited in 2011 and 2010, 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.
|
As of December 31, 2012,
unrecognized compensation costs related to the unvested portion of SARs were $1.8 million and are expected to be recognized over a period of 20 months.
72
Note 17 Shareholders Equity
On December 24, 2012, the Company paid a cash dividend of $0.25 per share of common stock, or $5.3 million. No other dividends
were paid by the company in any periods presented.
Note 18 Accumulated Other Comprehensive Income (Loss)
The following table presents the balances of related after-tax components of accumulated other comprehensive income (loss).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Short-term
Investment
Transactions
|
|
|
Accumulated
Currency
Translation
|
|
|
Accumulated
Postretirement
Transactions
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Balance December 31, 2009
|
|
$
|
|
|
|
$
|
1,057
|
|
|
|
538
|
|
|
$
|
1,595
|
|
Currency translation
|
|
|
|
|
|
|
511
|
|
|
|
|
|
|
|
511
|
|
Minimum pension liability re-valuation, net of tax effect of $243
|
|
|
|
|
|
|
|
|
|
|
(393
|
)
|
|
|
(393
|
)
|
Amortization of net actuarial gain, net of tax effect of $189
|
|
|
|
|
|
|
|
|
|
|
(306
|
)
|
|
|
(306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2010
|
|
$
|
|
|
|
$
|
1,568
|
|
|
|
(161
|
)
|
|
$
|
1,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation
|
|
|
|
|
|
|
(285
|
)
|
|
|
|
|
|
|
(285
|
)
|
Minimum pension liability re-valuation, net of tax effect of $1,285
|
|
|
|
|
|
|
|
|
|
|
(2,014
|
)
|
|
|
(2,014
|
)
|
Amortization of net actuarial gain, net of tax effect of $189
|
|
|
|
|
|
|
|
|
|
|
(306
|
)
|
|
|
(306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2011
|
|
$
|
|
|
|
$
|
1,283
|
|
|
|
(2,481
|
)
|
|
$
|
(1,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation
|
|
|
|
|
|
|
279
|
|
|
|
|
|
|
|
279
|
|
Minimum pension liability re-valuation, net of tax effect of $335
|
|
|
|
|
|
|
|
|
|
|
(375
|
)
|
|
|
(375
|
)
|
Amortization of net actuarial gain, net of tax effect of $189
|
|
|
|
|
|
|
|
|
|
|
(306
|
)
|
|
|
(306
|
)
|
Unrealized gain on Available for Sale Securities, net of tax effect of $654
|
|
|
1,213
|
|
|
|
|
|
|
|
|
|
|
|
1,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2012
|
|
$
|
1,213
|
|
|
$
|
1,562
|
|
|
|
(3,162
|
)
|
|
$
|
(387
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 19 Related Party Transactions
Agreements with ACF
The Company has or had the following agreements with ACF, a company controlled by Mr. Carl Icahn, chairman of the Companys board of directors
and, through IELP, the Companys principal beneficial stockholder:
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. For the years ended December 31, 2012, 2011 and 2010, ARI purchased inventory of less than $0.1 million,
less than $0.1 million and $1.1 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 any periods presented.
Asset Purchase Agreement
On January 29, 2010, ARI entered into an agreement to purchase certain assets from ACF for $0.9 million that will allow the Company to manufacture railcar components previously purchased from
ACF.
73
The purchase price of $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 was recorded as 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.
Agreements with ARL
The Company has or had the following agreements with ARL, a company controlled by Mr. Carl Icahn, chairman of the Companys board of directors and, through IELP, the Companys principal
beneficial stockholder:
Railcar servicing agreement and fleet services agreement
Effective January 1, 2008, the Company entered into a fleet services agreement with ARL, which replaced the 2005 railcar servicing agreement. Under
the agreement, ARI provided ARL fleet management services for a fixed monthly fee and railcar repair and maintenance services for a charge of labor, components and materials. The Company provided such repair and maintenance services for ARLs
fleet of railcars. The agreement extended through December 31, 2010.
This agreement was replaced by a new agreement that was effective
April 16, 2011 (the Railcar Services Agreement). Under the Railcar Services Agreement, ARI will provide ARL railcar repair, engineering, administrative and other services, on an as needed basis, for ARLs lease fleet at mutually agreed
upon prices. The Railcar Services Agreement has a term of three years and will automatically renew for additional one year periods unless either party provides at least sixty days prior written notice of termination. There is no termination fee if
the Company elects to terminate the agreement prior to the end of the term.
For the years ended December 31, 2012, 2011 and 2010,
revenues of $21.4 million, $24.7 million and $15.0 million were recorded under these agreements, respectively. Such amounts are included under railcar services revenues from affiliates on the consolidated statements of operations. The
terms and pricing on services provided to related parties are not less favorable to ARI than the terms and pricing on services provided to unaffiliated third parties. The Railcar Services Agreement was unanimously approved by the independent
directors of the Companys audit committee on the basis that the terms were no less favorable than those terms that could have been obtained from an independent third party.
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 was 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 the year ended December 31, 2010. The fees paid to ARL are included in selling, general and
administrative costs to affiliates on the consolidated statements of operations.
Railcar orders
The Company has from time to time manufactured and sold railcars to ARL under long-term agreements as well as on a purchase order basis. Revenues for
railcars sold to ARL were $45.1 million, $1.2 million and $81.8 million for the years ended December 31, 2012, 2011 and 2010, respectively. In the third quarter of 2012, all unfilled purchase orders previously placed by ARL were
assigned to AEP Leasing LLC (AEP), a company controlled by Mr. Carl Icahn, chairman of the Companys board of directors and, through IELP, the Companys principal beneficial stockholder. Revenues for railcars sold to ARL are included
in manufacturing revenues from affiliates on the consolidated statements of operations. The terms and pricing on sales to related parties are not less favorable to ARI than the terms and pricing on sales to unaffiliated third parties. Any related
party sales of railcars under an agreement or purchase order, have been and will be subject to the approval or review by the Companys audit committee.
74
Railcar management agreements
On February 29, 2012, the Company entered into a Railcar Management Agreement (the Railcar Management Agreement) with ARL, pursuant to which the Company engaged ARL to sell or lease ARIs
railcars in certain markets, subject to the terms and conditions of the Railcar Management Agreement. The Railcar Management Agreement was effective as of January 1, 2011, will continue through December 31, 2015 and may be renewed upon
written agreement by both parties. In December of 2012, Longtrain Leasing entered into a similar agreement with ARL with a term of five years.
The Railcar Management Agreement also provides that ARL will manage the Companys leased railcars including arranging for services, such as repairs
or maintenance, as deemed necessary. Subject to the terms and conditions of the agreement, ARL will receive, in respect of leased railcars, a fee consisting of a lease origination fee and a management fee based on the lease revenues, and, in respect
of railcars sold by ARL, sales commissions. The Railcar Management Agreement was unanimously approved by the independent directors of the Company on the basis that the terms were no less favorable than those terms that could have been obtained from
an independent third party.
For the years ended December 31, 2012 and 2011, total fees incurred were $1.4 million and $0.1 million,
respectively. Such amounts are included in cost of revenues for railcar leasing on the consolidated statements of operations. For the years ended December 31, 2011, total sales commissions incurred were $0.2 million, which was included in
selling, general and administrative expenses within the manufacturing segment.
Agreement with AEP
The Company has the following agreement with AEP, a company controlled by Mr. Carl Icahn, chairman of the Companys board of directors and,
through IELP, the Companys principal beneficial stockholder:
Railcar orders
As discussed above, in the third quarter 2012, the Company began manufacturing and selling railcars to AEP on a purchase order basis, following the
assignment to AEP all unfilled purchase orders previously placed by ARL. Revenues from railcars sold to AEP were $58.5 million for the year ended December 31, 2012. Revenues from railcars sold to AEP are included in manufacturing revenues from
affiliates on the consolidated statements of operations. The terms and pricing on sales to related parties are no less favorable to ARI than the terms and pricing on sales to unaffiliated third parties. Any related party sales of railcars under an
agreement or purchase order have been and will be subject to the approval or review by the Companys audit committee.
Agreements with
other related 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. During 2011, the joint venture partners renegotiated the terms of the notes extending the
term into the fourth quarter of 2012. Total amounts due from Ohio Castings under this note were $0.5 million as of December 31, 2011. Accrued interest on this note as of December 31, 2011 was less than $0.1 million. The other
partners in the joint venture made identical loans to Ohio Castings. The remainder of the note was repaid during 2012.
The Companys
Axis joint venture entered into a credit agreement in December 2007. During 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 balance
outstanding on these loans, due to ARI Component, was $35.7 million and $37.1 million as of December 31, 2012 and 2011, respectively. See Note 9 for further information regarding this transaction and the terms of the underlying loan.
Effective January 1, 2010, ARI entered into a services agreement with a term of one year to provide Axis accounting, tax, human
resources and purchasing assistance for an annual fee of $0.3 million, payable in equal monthly installments. This agreement had an initial term of one year and automatically renews for additional one-year periods unless written notice is
received from either party.
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.
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 of directors. Mr. Unger continues in his role as vice
chairman in connection with which he is provided an annual director fee of $65,000.
75
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 all the years ended December 31, 2012, 2011 and 2010. These costs are included in cost of revenues from manufacturing on the consolidated statements of
operations. The Company is required to pay all tax increases assessed or levied upon the property and the cost of the utilities, as well as repair and maintain the facility. The lease was unanimously approved by the independent directors of the
Companys audit committee on the basis that the terms of the lease were no less favorable than those terms that could have been obtained from an independent third party.
On October 29, 2010, ARI entered into a lease agreement with a term of eleven years with an entity owned by the vice chairman of the 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 commenced January 1, 2011. 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 uses. The expenses recorded for this facility were $0.6 million for the year ended
December 31, 2012 and 2011. These fees are included in selling, general and administrative expenses on the consolidated statements of operations as costs to a related party.
In June 2011, ARI entered into a scrap agreement with M. W. Recycling (MWR), a company controlled by Mr. Carl Icahn, chairman of the Companys board of directors and, through IELP the
Companys principal beneficial stockholder. In November 2012, a new agreement was signed with an initial term of 3 years. After the initial term, the agreement automatically renews until terminated in accordance with the provisions. Under the
agreement, ARI sells and MWR purchases scrap metal from several ARI plant locations. This agreement was approved by the Companys audit committee on the basis that the terms of the agreement were no less favorable than those that would have
been obtained from an independent third party. For the year ended December 31, 2012 and 2011, MWR collected scrap material totaling $8.6 million and $3.3 million, respectively.
Icahn Sourcing, LLC (Icahn Sourcing), is an entity formed and controlled by Mr. Carl Icahn in order to maximize the potential buying power of a group of entities with which Mr. Carl
Icahn has a relationship in negotiating with a wide range of suppliers of goods, services and tangible and intangible property at negotiated rates. The Company was a member of the buying group in 2012. The Company did not pay Icahn Sourcing any fees
or other amounts with respect to the buying group arrangement in 2012.
In December, 2012, Icahn Sourcing advised ARI that effective
January 1, 2013 it would restructure its ownership and change its name to Insight Portfolio Group LLC (Insight Portfolio Group). In connection with the restructuring, ARI acquired a minority equity interest in Insight Portfolio
Group and agreed to pay a portion of Insight Portfolio Groups operating expenses in 2013. A number of other entities with which Carl Icahn has a relationship also acquired equity interests in Insight Portfolio Group and also agreed to pay
certain of Insight Portfolio Groups operating expenses in 2013.
Financial information for transactions with related parties
Cost of revenues for manufacturing operations for the years ended December 31, 2012, 2011 and 2010 included $83.5 million, $24.7
million and $5.2 million, respectively, in railcar products produced by joint ventures.
Inventory as of December 31, 2012 and 2011,
included $3.3 million and $1.7 million of materials produced by joint ventures. As of December 31, 2012 and 2011, all profit from related parties for inventory still on hand was eliminated.
Note 20 Operating Segments and Sales, Geographic and Credit Concentrations
ARI operates in three reportable segments: manufacturing, railcar leasing and railcar services. These reportable segments are organized
based upon a combination of the products and services offered. Performance is evaluated based on revenues and segment earnings (loss) from operations. Intersegment revenues are accounted for as if sales were to third parties. The information in the
following table is derived from the segments internal financial reports used by the Companys management for purposes of assessing segment performance and for making decisions about allocation of resources.
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
Earnings (Loss) from Operations
|
|
|
Capital
Expenditures
|
|
|
Depreciation &
Amortization
|
|
|
|
External
|
|
|
Intersegment
|
|
|
Total
|
|
|
External
|
|
|
Intersegment
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
For the Year Ended December, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$
|
633,547
|
|
|
$
|
219,499
|
|
|
$
|
853,046
|
|
|
$
|
120,623
|
|
|
$
|
35,362
|
|
|
$
|
155,985
|
|
|
$
|
16,856
|
|
|
$
|
15,239
|
|
Railcar Leasing
|
|
|
13,444
|
|
|
|
|
|
|
|
13,444
|
|
|
|
7,371
|
|
|
|
29
|
|
|
|
7,400
|
|
|
|
185,918
|
|
|
|
4,424
|
|
Railcar Services
|
|
|
64,732
|
|
|
|
495
|
|
|
|
65,227
|
|
|
|
10,718
|
|
|
|
(99
|
)
|
|
|
10,619
|
|
|
|
965
|
|
|
|
2,903
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,292
|
)
|
|
|
|
|
|
|
(17,292
|
)
|
|
|
2,141
|
|
|
|
2,244
|
|
Eliminations
|
|
|
|
|
|
|
(219,994
|
)
|
|
|
(219,994
|
)
|
|
|
|
|
|
|
(35,292
|
)
|
|
|
(35,292
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated
|
|
$
|
711,723
|
|
|
$
|
|
|
|
$
|
711,723
|
|
|
$
|
121,420
|
|
|
$
|
|
|
|
$
|
121,420
|
|
|
$
|
205,880
|
|
|
$
|
24,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$
|
453,092
|
|
|
$
|
35,658
|
|
|
$
|
488,750
|
|
|
$
|
36,075
|
|
|
$
|
4,860
|
|
|
$
|
40,935
|
|
|
$
|
2,743
|
|
|
$
|
17,660
|
|
Railcar Leasing
|
|
|
1,075
|
|
|
|
|
|
|
|
1,075
|
|
|
|
239
|
|
|
|
20
|
|
|
|
259
|
|
|
|
29,444
|
|
|
|
505
|
|
Railcar Services
|
|
|
65,218
|
|
|
|
285
|
|
|
|
65,503
|
|
|
|
12,476
|
|
|
|
19
|
|
|
|
12,495
|
|
|
|
987
|
|
|
|
2,851
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,041
|
)
|
|
|
|
|
|
|
(16,041
|
)
|
|
|
2,472
|
|
|
|
1,850
|
|
Eliminations
|
|
|
|
|
|
|
(35,943
|
)
|
|
|
(35,943
|
)
|
|
|
|
|
|
|
(4,899
|
)
|
|
|
(4,899
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated
|
|
$
|
519,385
|
|
|
$
|
|
|
|
$
|
519,385
|
|
|
$
|
32,749
|
|
|
$
|
|
|
|
$
|
32,749
|
|
|
$
|
35,646
|
|
|
$
|
22,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$
|
205,331
|
|
|
$
|
998
|
|
|
$
|
206,329
|
|
|
$
|
(10,168
|
)
|
|
$
|
249
|
|
|
$
|
(9,919
|
)
|
|
$
|
3,753
|
|
|
$
|
19,256
|
|
Railcar Leasing
|
|
|
763
|
|
|
|
|
|
|
|
763
|
|
|
|
383
|
|
|
|
|
|
|
|
383
|
|
|
|
|
|
|
|
347
|
|
Railcar Services
|
|
|
67,469
|
|
|
|
281
|
|
|
|
67,750
|
|
|
|
10,908
|
|
|
|
26
|
|
|
|
10,934
|
|
|
|
2,084
|
|
|
|
2,816
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,773
|
)
|
|
|
|
|
|
|
(17,773
|
)
|
|
|
307
|
|
|
|
1,877
|
|
Eliminations
|
|
|
|
|
|
|
(1,279
|
)
|
|
|
(1,279
|
)
|
|
|
|
|
|
|
(275
|
)
|
|
|
(275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated
|
|
$
|
273,563
|
|
|
$
|
|
|
|
$
|
273,563
|
|
|
$
|
(16,650
|
)
|
|
$
|
|
|
|
$
|
(16,650
|
)
|
|
$
|
6,144
|
|
|
$
|
24,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
|
|
Manufacturing
|
|
$
|
329,346
|
|
|
$
|
311,656
|
|
|
$
|
272,138
|
|
Railcar Leasing
|
|
|
263,228
|
|
|
|
46,073
|
|
|
|
9,641
|
|
Railcar Services
|
|
|
49,060
|
|
|
|
47,408
|
|
|
|
49,133
|
|
Corporate
|
|
|
168,124
|
|
|
|
298,633
|
|
|
|
323,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated
|
|
$
|
809,758
|
|
|
$
|
703,770
|
|
|
$
|
654,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Concentrations
The Companys operations are located in the United States and Canada. The Company operates a railcar repair facility in Sarnia, Ontario, Canada. Canadian revenues were 0.9%, 1.2% and 2.0% of total
consolidated revenues for 2012, 2011 and 2010, respectively. Canadian assets were 1.6% and 1.7% of total consolidated assets as of December 31, 2012 and 2011, respectively. In addition, the Companys subsidiaries ARM I and ARM II are
located in Mauritius, through which the Company holds a 50% interest in an Indian joint venture. Refer to Note 9 for further information. Assets held by ARM I and ARM II were 1.1% and 1.2% of total consolidated assets as of December 31, 2012
and 2011, respectively.
Manufacturing Segment
Manufacturing consists of railcar manufacturing, and railcar and industrial component manufacturing. Intersegment revenues are determined based on an estimated fair market value of the railcars
manufactured for the Companys railcar leasing segment, as if such railcars had been sold to a third party. Revenues for railcars manufactured for the Companys leasing segment are not recognized in consolidated revenues as railcar sales,
but rather lease revenues are recognized over the term of the lease. Earnings (loss) from operations for manufacturing include an allocation of selling, general and administrative costs, as well as profit for railcars manufactured for the
Companys leasing segment based on revenue determined as described above.
Manufacturing revenues from affiliates were 14.5%, 29.9% and
24.8% of total consolidated revenues for the years ended December 31, 2012, 2011 and 2010, respectively. Manufacturing revenues from customers that accounted for more than 10% of total consolidated revenues were 49.4%, 45.3% and 41.9% for each
respective year ended December 31, 2012, 2011 and 2010.
Manufacturing receivables from customers that accounted for more than 10% of
total consolidated accounts receivable were 35.1% and 31.0% of total consolidated accounts receivable, respectively, as of December 31, 2012 and 2011.
77
Railcar Leasing Segment
Railcar leasing consists of railcars manufactured by the Company and leased to third parties under operating leases. Although the Company began expanding its railcar leasing activity during 2011, such
activity was not required to be reported as a separate segment until March 31, 2012, when it met the asset test as required by authoritative guidance. Accordingly, in 2012 we separately presented the results of the leasing business, which had
previously been reported in the Manufacturing segment. To maintain comparability, prior periods have been restated to separately present the leasing segments results. Earnings (loss) from operations for railcar leasing include an allocation of
selling, general and administrative costs and also reflect origination fees paid to ARL associated with originating the lease to the Companys leasing customers. The origination fees represent a percentage of the revenues from the lease over
its initial term and are paid up front.
There were no railcar leasing revenues from affiliates for the years ended December 31, 2012,
2011 or 2010. No single railcar leasing customer accounted for more than 10.0% of total consolidated revenues for the years ended December 31, 2012, 2011 or 2010. No single railcar leasing customer accounted for more than 10.0% of total
consolidated accounts receivable as of December 31, 2012 or 2011.
Railcar Services Segment
Railcar services consist of railcar repair services, engineering and field services, and fleet management services. Earnings (loss) from operations for
railcar services include an allocation of selling, general and administrative costs.
Railcar services revenues from affiliates were 3.0%,
4.8% and 5.5% of total consolidated revenues for the years ended December 31, 2012, 2011 and 2010, respectively. No single railcar services customer accounted for more than 10.0% of total consolidated revenues for the years ended
December 31, 2012, 2011 and 2010. No single railcar services customer accounted for more than 10.0% of total consolidated accounts receivable as of December 31, 2012 and 2011.
Note 21 Consulting Contracts
During the first quarter of 2011, the Company entered into a technology services consulting agreement with SDS-Altaiwagon, a Russian
railcar builder, to design a railcar for general service in Russia for a total contract price of $1.5 million. The technology services consulting agreement was completed in the first quarter of 2012.
During the second quarter of 2011, the Company entered into a consulting agreement with the Indian Railways Research Designs and Standards Organization
to design and develop certain railcars for service in India for a total contract price of $9.6 million. The consulting agreement is expected to continue through 2016.
For the years ended December 31, 2012 and 2011, revenues of $1.8 million and $2.7 million were recorded under these two consulting agreements, respectively. As of December 31, 2012 and
2011, unbilled revenues of $2.1 million and $1.3 million were due from the RDSO agreements.
Note 22 Supplemental Cash Flow Information
ARI received interest income of $3.3 million, $3.5 million and $4.3 million for the years ended December 31, 2012, 2011 and 2010,
respectively.
ARI paid interest expense, net of capitalized interest, of $20.5 million, $20.6 million and $20.6 million for the years ended
December 31, 2012, 2011 and 2010, respectively.
ARI received net tax refunds of $0.8, $14.4 and $1.1 million for the years ended
December 31, 2012, 2011 and 2010.
ARI paid $5.8 million, $2.0 million and $0.2 million to employees related to SARs exercises
during the years ended December 31, 2012, 2011 and 2010, respectively.
In conjunction with our lease fleet financing as discussed in
Note 11, the Company had $0.4 million of deferred debt issuance costs accrued and unpaid at December 31, 2012 in accrued expenses and taxes.
78
Note 23 Selected Quarterly Financial Data (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
quarter
|
|
|
Second
quarter
|
|
|
Third
quarter
|
|
|
Fourth
quarter
|
|
|
Year to
Date
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
181,599
|
|
|
$
|
154,214
|
|
|
$
|
168,230
|
|
|
$
|
207,680
|
|
|
$
|
711,723
|
|
Gross profit
|
|
|
30,369
|
|
|
|
33,424
|
|
|
|
36,698
|
|
|
$
|
47,860
|
|
|
|
148,351
|
|
Net earnings
|
|
|
12,004
|
|
|
|
13,361
|
|
|
|
14,010
|
|
|
$
|
24,448
|
|
|
|
63,823
|
|
Net earning per common share-bassic and diluted
|
|
$
|
0.56
|
|
|
$
|
0.63
|
|
|
$
|
0.66
|
|
|
$
|
1.14
|
|
|
$
|
2.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
quarter
|
|
|
Second
quarter
|
|
|
Third
quarter
|
|
|
Fourth
quarter
|
|
|
Year to
Date
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
84,843
|
|
|
$
|
111,913
|
|
|
$
|
125,784
|
|
|
$
|
196,845
|
|
|
$
|
519,385
|
|
Gross profit
|
|
|
4,944
|
|
|
|
13,256
|
|
|
|
14,955
|
|
|
|
24,641
|
|
|
|
57,796
|
|
Net earnings (loss)
|
|
|
(5,329
|
)
|
|
|
569
|
|
|
|
4,026
|
|
|
|
5,070
|
|
|
|
4,336
|
|
Net earnings (loss) per common share-basic and diluted
|
|
$
|
(0.25
|
)
|
|
$
|
0.03
|
|
|
$
|
0.19
|
|
|
$
|
0.24
|
|
|
$
|
0.20
|
|
Note 24 Subsequent Events
In January 2013, we entered into a purchasing and engineering services agreement and license with ACF. Under this agreement, ARI will
provide purchasing support and engineering services to ACF in connection with ACFs manufacture and sale of certain tank railcars at its facility. Additionally, ARI will provide certain other intellectual property related to certain tank
railcars required to manufacture and sell those tank railcars. ARI will receive a license fee for any railcars shipped from ACFs facility and will receive a share of the net profits (as defined in the agreement), if any, but will not absorb
any losses incurred by ACF. Under the agreement, given the Companys strong backlog for tank railcars through early 2014, ACF will have the exclusive right to manufacture and sell specified tank railcars for any new orders scheduled for
delivery to customers on or before January 31, 2014. ARI shall have the exclusive right to any sales opportunities for such tank railcars for any new orders scheduled for delivery after that date and through December 31, 2014. ARI also has
the right to assign any sales opportunity to ACF, and ACF has the right, but not the obligation, to accept such sales opportunity. Any sales opportunity accepted by ACF will not be reflected in ARIs orders or backlog. Subject to certain early
termination events, the agreement shall terminate on December 31, 2014.
During January 2013, ARI sold its remaining approximately
0.8 million shares of Greenbrier for $12.7 million, resulting in a gain of $2.0 million in 2013. After this sale, ARI owns no remaining shares of Greenbrier.
On February 19, 2013, the Board of Directors of the Company declared a cash dividend of $0.25 per share of common stock of the Company to shareholders of record as of March 18, 2013 that will be
paid on March 28, 2013.
During February 2013, ARI made a second draw of $50.0 million under its lease fleet financing, resulting in net
proceeds received of $49.8 million. After this draw, availability under the lease fleet financing is up to $49.8 million
On March 1,
2013, we completed a voluntary redemption of the remaining $175.0 million of Notes outstanding at par, plus any accrued and unpaid interest.
79