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EX-99.1 - EXHIBIT 99.1 - American Railcar Industries, Inc. | ariiex991q4-2017.htm |
8-K - 8-K - American Railcar Industries, Inc. | q42017results8k.htm |
Q4 2017
Supplemental
Information
Investor Contact: 636.940.6000
Website: americanrailcar.com
American Railcar Industries, Inc.
Exhibit 99.2
Forward Looking
Disclaimer
Safe Harbor Statement
This presentation contains statements relating to our expected financial performance, objectives, long-term strategies and/or future
business prospects, events and plans that are forward-looking statements. Forward-looking statements represent our estimates and
assumptions only as of the date of this presentation. Such statements include, without limitation, statements regarding: our plans to
continue to transition the management of our lease fleet from ARL to in-house and terminate our contractual agreements with ARL, the
impact of the Tax Cuts and Jobs Act of 2017 on our business and financial statements, our plans to address the Federal Railroad
Administration (FRA) directive released September 30, 2016 and subsequently revised and superseded on November 18, 2016 (Directive)
and the settlement we entered into related thereto, various estimates we have made in preparing our financial statements, expected
future trends relating to our industry, products and markets, anticipated customer demand for our products and services, trends relating
to our shipments, leasing business, railcar services, and revenues, trends related to shipments for direct sale versus lease, our strategic
objectives and long-term strategies, our results of operations, financial condition and the sufficiency of our capital resources, our capital
expenditure plans, short- and long-term liquidity needs, ability to service our current debt obligations and future financing plans, our stock
repurchase program, anticipated benefits regarding the growth of our leasing business, the mix of railcars, customers and commodities in
our lease fleet and our lease fleet financings, anticipated production schedules for our products and the anticipated production
schedules of our joint ventures, our backlog, and the anticipated performance and capital requirements of our joint ventures. These
forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially
from those anticipated. Investors should not place undue reliance on forward-looking statements, which speak only as of the date they
are made and are not guarantees of future performance. Potential risks and uncertainties that could adversely affect our business and
prospects include, among other things: our prospects in light of the cyclical nature of our business; the health of and prospects for the
overall railcar industry; the risk of being unable to market or remarket railcars for sale or lease at favorable prices or on favorable terms or
at all; the highly competitive nature of the manufacturing, railcar leasing and railcar services industries; the impact, costs and expenses of
any warranty claims to which we may be subject now or in the future; risks relating to our compliance with the Federal Railroad
Administration (FRA) directive released September 30, 2016 and subsequently revised and superseded on November 18, 2016
(Directive)Directive and the settlement related thereto, any developments related to the Directive and the settlement agreement
related thereto or other regulatory actions and any costs or loss of revenue related thereto; uncertainties regarding the Tax Cuts and Jobs
Act of 2017; our ability to recruit, retain and train qualified personnel; fluctuations in the costs of raw materials, including steel and railcar
components, and delays in the delivery of such raw materials and components; the risks associated with our ongoing compliance with
transportation, environmental, health, safety, and regulatory laws and regulations, which may be subject to change; the variable
purchase patterns of our railcar customers and the timing of completion, customer acceptance and shipment of orders, as well as the
mix of railcars for lease versus direct sale; risks relating to the ongoing transition of the management of our railcar leasing business from
ARL to in-house management following completion of the ARL Sale; the impact, costs and expenses of any warranty claims to which we
may be subject now or in the future; risks related to the loss changeover of day-to-day management upon the transition of executive
officers; fluctuations in commodity prices, including oil and gas; the risks associated with our ongoing compliance with transportation,
environmental, health, safety, and regulatory laws and regulations, which may be subject to change; the variable purchase patterns of
our railcar customers and the timing of completion, customer acceptance and shipment of orders, as well as the mix of railcars for lease
versus direct sale; our ability to recruit, retain and train qualified personnel; our ability to manage overhead and variations in production
rates; the impact of any economic downturn, adverse market conditions or restricted credit markets; risks relating to the ongoing
transition of the management of our railcar leasing business from ARL to in-house management following completion of the sale of
American Railcar Leasing LLC to an unaffiliated third party; our reliance upon a small number of customers that represent a large
percentage of our revenues and backlog; fluctuations in commodity prices, including oil and gas; fluctuations in the costs of raw
materials, including steel and railcar components, and delays in the delivery of such raw materials and components; fluctuations in the
supply of components and raw materials that we use in railcar manufacturing; the ongoing risks related to our relationship with Mr. Carl
Icahn, our principal beneficial stockholder through Icahn Enterprises L.P. (IELP), and certain of his affiliates; the impact, costs and
expenses of any litigation to which we may be subject now or in the future; the risks associated with our current joint ventures and
anticipated capital needs of and production capabilities at our joint ventures; the sufficiency of our liquidity and capital resources,
including long-term capital needs to further support the growth of our lease fleet; risks related to our and our subsidiaries’ indebtedness
and compliance with covenants contained in our and our subsidiaries’ financing arrangements; the impact of repurchases pursuant to
our stock repurchase program on our current liquidity and the ownership percentage of our principal beneficial stockholder through IELP,
Mr. Carl Icahn; the conversion of our railcar backlog into revenues equal to our reported estimated backlog value; the risks and impact
associated with any potential joint ventures, acquisitions, strategic opportunities, dispositions or new business endeavors; the integration
with other systems and ongoing management of our new enterprise resource planning system; risks related to our and our subsidiaries’
indebtedness and compliance with covenants contained in our and our subsidiaries’ financing arrangements; and the additional risk
factors described in our filings with the Securities and Exchange Commission. We expressly disclaim any duty to provide updates to any
forward-looking statements made in this presentation, whether as a result of new information, future events or otherwise.
2
ARI – Successful and Diversified Business Model
Complete life cycle solutions for the railcar industry.
Railcars Components
Manufacturing
Railcar Repair
Services
Railcar
Leasing
3
Strategic Developments
• Integration of strong sales force and fleet management group
• Transitioning lease fleet management gives us the opportunity to streamline processes and realize
synergies with the rest of our organization
• Our team is focused on listening to our customers, finding solutions, and delivering high quality
service to meet their needs
• Product offering includes comprehensive solutions in manufacturing, leasing and railcar services
• Business model strives to optimize production plan to match market conditions and order backlog
4
ARI Locations
Added to strategically placed sales force to cover our customers’ needs
5
ARI Key Railcar Markets -
Two Largest Product Segments in the Railcar Industry*
TANK RAILCARS
• Product offerings include general service,
pressurized, coiled, lined and insulated
carbon steel or stainless steel railcars that
are capable of transporting:
• Chemicals
• Ethanol
• Food Products
• Natural Gas Liquids
• Crude Oil
HOPPER RAILCARS
• Product offerings include general service
and specialty carbon steel or stainless steel
railcars that are capable of transporting:
• Plastic Pellets
• Food Products
• Grain
• Sand
• Specialty Chemical Products
• Cement
* Based upon backlog as of 12/31/17 per the Railway Supply Institute, Inc ARCI 2017 – 4th Quarter Reporting Statistics (issued January 2018)
6
7
Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Dec 2016 Dec 2017
Railcar backlog for lease - - - 2,200 1,810 2,330 2,844 1,452 1,637 389
Railcar backlog for direct sale 4,240 550 1,050 4,330 5,250 6,230 8,888 5,629 2,176 1,551
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
T
otal
Ra
il
c
ar
Ba
c
k
lo
g
1,050
6,530
7,060
8,560
11,732
7,081
4,240
550
3,813
1,940
ARI’s Railcar Backlog
8
• Flexible and labor efficient
manufacturing facilities able to respond to
customer delivery demands
• Strategic locations near customers and
major rail lines
• Vertical integration from joint ventures
and component manufacturing helps us to
be cost competitive
• Experienced team striving for excellence
(safety, quality, service)
• Numerous product offerings/designs that
can be manufactured for direct sale or
lease
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
$-
$200
$400
$600
$800
$1,000
$1,200
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Revenue Operating Margin % ^ (millions)
^: Manufacturing segment revenues and operating margin % presented above include an estimate of
revenue and profit, respectively, for railcars built for our lease fleet. Such revenues and profit are based
on an estimated fair market value of the leased railcars as if they had been sold to a third party, less the
cost to manufacture for operating margin %. Estimated revenues related to railcars built for our lease
fleet are eliminated in consolidation.
Broad manufacturing base allows ARI to be competitive and provide quality railcars and components
Manufacturing Segment
Manufacturing core competency allows ARI to be competitive and provide low cost, quality railcars and components
9
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
$-
$20
$40
$60
$80
$100
$120
$140
$160
2012 2013 2014 2015 2016 2017
Revenue Lease Fleet(millions)
• Disciplined lease strategy balancing mix of
customers, commodities, acceptable market
rates, and staggered lease terms
• Relatively young lease fleet with low
maintenance expense
• Began in-house management of the
railcar leasing business as a result of the ARL
sale on June 1, 2017
• Added to our existing sales force and
established lease fleet management group
• Further integration of ARI’s business model
• Further fleet growth expected to come from
existing liquidity and future railcar leveraged
financing(s)
• Unencumbered leased railcars available to
borrow against
Diversifying and supplementing our business with revenue streams generated over the life of the railcar
Railcar Leasing Segment
10
0%
5%
10%
15%
20%
25%
$-
$10
$20
$30
$40
$50
$60
$70
$80
$90
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Revenue Operating Margin %
(millions)
Supporting both ARI’s lease fleet and customers' railcar needs, while gaining valuable industry insight
Railcar Services Segment
Supporting both ARI’s lease fleet and customers' railcar needs, while gaining valuable industry insight
TRADITIONAL REPAIR
• Railcar qualifications and inspections
• Light/heavy railcar repairs
• Exterior and interior coatings
• Cleaning
• Valve replacement and testing
• Wheel and axle replacement
• Additional offerings for mini-shops and mobile
on-site customer repairs
TANK RAILCAR RETROFITTING
• Tank railcar manufacturing facility offers
retrofit capabilities along with traditional
repair services
11
$808.8
$423.4
$273.6
$519.4
$711.7
$750.6 $733.0
$889.3
$639.1
$476.8
$0.0
$200.0
$400.0
$600.0
$800.0
$1,000.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
^ Revenues related to railcars built for the Company's lease fleet are not recognized in consolidated revenues as railcar sales, but rather as lease revenues in accordance with the terms of the contract over the life of the lease.
$31.4
$15.5
($27.0)
$4.3
$63.8
$86.9
$99.5
$133.5
$72.7
$142.2
$78.8
$40.0
$4.5
$50.5
$149.5
$181.1
$209.0
$278.9
$188.0
$141.5
($50.0)
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Net Earnings Adj. EBITDA**
**
* Please see reconciliation of net earnings (loss) to Adj. EBITDA on Exhibit B.
Consolidated Revenue ($ mil) ^
Net Earnings & Adj. EBITDA ($ mil)
Our Financial History
** 2017 net earnings included a $107.3 million tax benefit related to a one-time adjustment driven by the Tax Cuts and Jobs Act of 2017. Please see reconciliation of the impact of the tax adjustments due to the Tax Cuts and Jobs Act of 2017 on net earnings and earnings per share on Exhibit A.
12
$10.4 $0.0 $0.0
$29.4
$185.9
$162.1
$307.7
$211.6
$90.3
$163.8
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
$350.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Lease Railcar CAPEX ($ mil) #
Operational CAPEX ($ mil)
$42.0
$15.0
$6.1 $6.2
$20.0 $22.0 $20.1
$36.6
$23.0
$7.1
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Our Financial History (continued)
# Includes effect of leased railcars in process.
13
$263.8
$192.0
$172.7
$260.9
$176.2
$150.5 $145.0
$167.5
$114.7 $109.0 $120.7
$132.4
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
^ Revenues related to railcars built for the Company's lease fleet are not recognized in consolidated revenues as railcar sales, but rather as lease revenues in accordance with the terms of the contract over the life of the lease.
$72.0 $68.5 $62.6
$75.8
$54.5 $50.4
$31.3
$51.8
$36.1 $37.0 $34.6 $33.8 $35.0 $33.0 $29.4 $36.2
$22.8 $19.9
$7.7
$22.3
$10.6 $10.9 $8.9
$111.9
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
Adjusted EBITDA * Net Earnings
* Please see reconciliation of net earnings (loss) to Adj. EBITDA on Exhibit B.
Net Earnings & Adj. EBITDA ($ mil)
Consolidated Revenue ($ mil) ^
Quarterly Financial Comparison
** Q4-2017 net earnings included a $107.3 million tax benefit related to a one-time adjustment driven by the Tax Cuts and Jobs Act of 2017. Please see reconciliation of the impact of the tax adjustments due to the Tax Cuts and Jobs Act of 2017 on net earnings and earnings per share on Exhibit A.
**
14
$5.0
$10.4
$11.1
$10.1
$4.4
$6.7
$4.8
$7.1
$1.6 $1.8 $1.4
$2.3
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
$48.1
$84.5
$77.7
$1.3
$20.6
$12.8
$36.0
$20.9
$55.9
$47.9
$28.6 $31.4
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
# Includes effect of leased railcars in process.
Operational CAPEX ($ mil)
Lease Railcar CAPEX ($ mil) #
Quarterly Financial Comparison (continued)
15
In Thousands, except per share amounts, unaudited
Exhibit A – Impact of 2017 Tax Act Reconciliation
2017 2016 2017 2016
Net earnings (GAAP) $ 111,852 $ 22,286 $ 142,177 $ 72,663
Tax adjustments
Impact of the Tax Cuts and Jobs Act enacted in 2017 (1) (107,272) - (107,272) -
Net earnings, excluding tax adjustments (non-GAAP) $ 4,580 $ 22,286 $ 34,905 $ 72,663
Weighted average common shares outstanding - basic and
diluted 19,084 19,186 19,084 19,439
Basic and diluted earnings per share (GAAP) $ 5.86 $ 1.16 $ 7.45 $ 3.74
Basic and diluted earnings per share, excluding tax
adjustments ( on-GAAP) $ 0.24 $ 1.16 $ 1.83 $ 3.74
Three Months Ended
December 31,
Twelve Months Ended
December 31,
(1) Amounts shown represent the estimated impact of corporate income tax changes enacted by the Tax Cuts and Jobs Act ("2017 Tax
Act"), signed into law on December 22, 2017. The ultimate impact of the 2017 Tax Act may differ from these estimates, due to, among other
things, changes in interpretations and assumptions made by the Company and additional guidance that may be issued by the U.S.
Department of the Treasury.
Exhibit A – Impact of 2017 Tax Act Reconciliation
Net earnings excluding tax adjustments represents net earnings before a one-time adjustment related to the impact of the new Tax
Cuts and Jobs Act of 2017 (the "2017 Tax Act"). The Company believes that net earnings excluding tax adjustments is a useful measure
to investors in evaluating ARI’s operating performance compared to prior quarters as the impact of the 2017 Tax Act is not expected
to be repeated. The calculation of net earnings excluding tax adjustments excludes the income tax benefit recognized by the
Company related to its revaluation of deferred tax assets and liabilities to account for the future impact of lower corporate tax rates
and other provisions of the 2017 Tax Act. Net earnings excluding tax adjustments is not a financial measure presented in accordance
with U.S. generally accepted accounting principles (U.S. GAAP). Accordingly, when analyzing the Company’s operating
performance, investors should not consider net earnings excluding tax adjustments in isolation or as a substitute for net earnings, cash
flows provided by operating activities or other statement of operations or cash flow data prepared in accordance with U.S. GAAP. The
calculation of net earnings excluding tax adjustments is not necessarily comparable to that of other similarly titled measures reported
by other companies.
16
17
In Thousands, unaudited
Exhibit B – Adj. EBITDA Reconciliation
Annual Reconciliation 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Net earnings (loss) $ 31,382 $ 15,458 $ (27,006) $ 4,336 $ 63,823 $ 86,896 $ 99,533 $133,453 $ 72,663 $142,177
Income tax expense (benefit) 18,403 6,568 -14,795 3,866 42,022 52,440 65,074 77,291 41,537 (75,960)
Interest expense 20,299 20,909 21,275 20,291 17,765 7,337 7,622 21,801 22,803 21,854
Loss on debt extinguishment - - - - 2,267 392 1,896 2,126 - -
Interest income (7,835) (6,613) (3,519) (3,654) (3,003) (2,716) (2,517) (2,164) (1,785) (1,621)
Depreciation 20,148 23,405 23,597 22,167 23,850 27,712 34,212 45,729 52,216 57,526
EBITDA $ 82,397 $ 59,727 $ (448) $ 47,006 $146,724 $172,061 $205,820 $278,236 $187,434 $143,976
Loss on sale of investment in
India joint venture - - - - - 5,917 - - - -
Expense related to stock based
compensation 62 1,174 5,358 3,537 4,668 5,129 3,192 646 751 (158)
Other income on short-term
investment activity (3,657) (20,858) (379) - (1,863) (2,008) - - (80) (2,314)
Adjusted EBITDA $ 78,802 $ 40,043 $ 4,531 $ 50,543 $149,529 $181,099 $209,012 $278,882 $188,105 $141,504
Quarterly Reconciliation Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
Net earnings $ 34,976 $ 32,969 $ 29,357 $ 36,151 $ 22,792 $ 19,896 $ 7,689 $ 22,286 $ 10,568 $ 10,899 $ 8,858 $111,852
Income tax expense 20,541 19,297 16,729 20,724 13,963 12,312 4,864 10,398 6,793 8,794 6,278 (97,825)
Interest expense 4,738 5,694 5,645 5,724 5,906 5,678 5,632 5,587 5,531 5,488 5,441 5,394
Loss on debt extinguishment 2,126 - - - - - - - - - - -
Interest income (563) (550) (542) (509) (478) (453) (429) (425) (373) (368) (405) (475)
Depreciation 10,061 10,910 12,214 12,544 12,655 12,961 13,113 13,487 13,873 14,301 14,572 14,780
EBITDA $ 71,879 $ 68,320 $ 63,403 $ 74,634 $ 54,838 $ 50,394 $ 30,869 $ 51,333 $ 36,392 $ 39,114 $ 34,744 $ 33,726
Expense (Income) related to
stock appreciation rights 107 184 (762) 1,117 (311) 24 395 643 (247) (225) 246 68
Other income on short-term
investment activity - - - - - - - (180) (54) (1,867) (393) -
Adjusted EBITDA $ 71,986 $ 68,504 $ 62,641 $ 75,751 $ 54,527 $ 50,418 $ 31,264 $ 51,796 $ 36,091 $ 37,022 $ 34,597 $ 33,794
Exhibit B – Adj. EBITDA Reconciliation
EBITDA represents net earnings before income tax expense, interest expense (income) and depreciation of property, plant and
equipment. The Company believes EBITDA is useful to investors in evaluating ARI’s operating performance compared to that of other
companies in the same industry. In addition, ARI’s management uses EBITDA to evaluate operating performance. The calculation of
EBITDA eliminates the effects of financing, income taxes and the accounting effects of capital spending. These items may vary for
different companies for reasons unrelated to the overall operating performance of a company’s business. EBITDA is not a financial
measure presented in accordance with U.S. generally accepted accounting principles (U.S. GAAP). Accordingly, when analyzing the
Company’s operating performance, investors should not consider EBITDA in isolation or as a substitute for net earnings (loss), cash flows
provided by operating activities or other statements of operations or cash flow data prepared in accordance with U.S. GAAP. The
calculation of EBITDA is not necessarily comparable to that of other similarly titled measures reported by other companies.
Adjusted EBITDA represents EBITDA before share based compensation expense (income) related to stock appreciation rights (SARs)
and other income related to our short-term investments. Management believes that Adjusted EBITDA is useful to investors in evaluating
the Company’s operating performance, and therefore uses Adjusted EBITDA for that purpose. The Company’s SARs, which settle in
cash, are revalued each period based primarily upon changes in ARI’s stock price. Management believes that eliminating the
expense (income) associated with share-based compensation and income associated with short-term investments allows
management and ARI’s investors to understand better the operating results independent of financial changes caused by the
fluctuating price and value of the Company’s common stock and short-term investments. Adjusted EBITDA is not a financial measure
presented in accordance with U.S. GAAP. Accordingly, when analyzing operating performance, investors should not consider
Adjusted EBITDA in isolation or as a substitute for net earnings, cash flows provided by operating activities or other statements of
operations or cash flow data prepared in accordance with U.S. GAAP. The Company’s calculation of Adjusted EBITDA is not
necessarily comparable to that of other similarly titled measures reported by other companies.
18
A Tradition of Industry Leadership
19