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American Railcar Industries, Inc. (NASDAQ:ARII)

Q1 2013 Earnings Call

April 25, 2013 10:00 am ET

Executives

James A. Cowan – President and Chief Executive Officer

Dale C. Davies – Senior Vice President, Chief Financial Officer and Treasurer

Analysts

Justin Long – Stephens, Inc.

Eric Crawford – UBS Securities LLC

Art Hatfield – Raymond James

Matt Brooklier – Longbow Research

Tyson Bauer – KC Capital

Tejas R. Patel – KeyBanc Captial Markets

Operator

Good day, ladies and gentlemen, and welcome to American Railcar Industries First Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today’s conference, Dale Davies, Chief Financial Officer. Sir, you may begin.

Dale C. Davies

Good morning. I would like to welcome everyone to the American Railcar Industries first quarter 2013 conference call. I’m Dale Davies, our Chief Financial Officer, and I would like to thank you for joining us this morning. For those who are interested, a replay of this call will also be available on our website, www.americanrailcar.com, shortly after this call ends. Joining me this morning is Jim Cowan, our President and CEO. Our call today will include discussions about the railcar industry, our operations and financial results. We will also make a few comments about our joint ventures and our business outlook.

Following these remarks, we’ll have a Q&A session. This conference call includes forward-looking statements, including statements as to estimates, expectations, intentions and predictions of future financial performance based on currently available information. Participants are directed to our SEC filings and press releases for a description of certain business issues and risks, as a change in any one could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Also, please note that the company does not undertake any obligation to update any forward-looking statements made during the call.

EBITDA and adjusted EBITDA are non-GAAP financial measures we will discuss today that are reconciled to our net earnings in our press release, which was issued yesterday. The press release is available through the Investor Relations page of our website.

Now, it’s my pleasure to introduce Jim Cowan.

James A. Cowan

Thank you, Dale, and good morning. Demand in North America for certain railcar types remained strong. The industry reported that approximately 12,000 railcars were delivered and approximately 24,000 railcars were ordered during the first quarter of 2013, producing a book-to-bill ratio of 2. Industry backlog was approximately 71,700 railcars at March 31, 2013. Approximately 91% of the industry backlog is for tank and hopper railcars. The global inside industry forecast for North America expects new railcar deliveries to be about 49,000 units in 2013.

Tank railcars continue to be the dominant railcar type, driving orders in North America. The industry reported that approximately 6,100 tank railcars were delivered and approximately 19,300 tanks railcars were ordered during the first quarter of 2013. Industry backlog for tank railcars was approximately 61,300 at the end of March, and approximately 85% of the industry backlog. The strength and demand for tank railcars continues to be driven by the oil and gas markets. As of March 31, we had 6,400 railcars in our backlog including 2,080 railcars to be manufactured for firm lease orders. We are being selective on which tank railcar orders to bid in an attempt to maximize our margins and shareholder return.

Therefore we have not extended our tank railcar orders at capacity beyond the next 12 months. We have seen inquiry activity for hopper railcars begin to increase. Consistent with industry expectations, we anticipate the plastic power demand to strengthen late in 2013, for a delivery in 2014 through 2016. Separate from our backlog. ACF Industries now has a tank railcar backlog that will be produced at its Milton Pennsylvania facility that has just recently resumed production. They will be producing these tank railcars on the agreement ACF and ARI entered into in January of this year for ACF to manufacture and sell certain tank railcars, and ARI to provide license and purchasing and engineering services.

We are extremely pleased with another strong quarter of operating results in the first quarter of 2013 on strong railcar manufacturing production and increased lease fleet revenues. We continue to benefit from a favorable product mix of higher tank railcar shipments, partially offset by lower shipments in the hopper railcar market. Demand for our railcar services has remained steady. In addition, our hopper railcar manufacturing facility is performing certain repair projects in order to better utilize the capabilities of this facility.

I’ll now turn it back to Dale for a discussion of our first quarter results.

Dale C. Davies

Thanks, Jim. First quarter consolidated revenues were $195 million, versus $182 million for the same period in 2012, up 7% on higher revenues for our manufacturing and leasing segments. We shipped 1,900 railcars during the first quarter of 2013, including 530 railcars to our leasing segment customers. Manufacturing revenues increased due to strong tanker volumes, partially offset by lower hopper railcar volumes. Leasing revenues increased due to an increase in our lease fleet from 950 railcars at March 31, 2012 to 3,120 railcars at March 31, 2013. Revenues for railcars built for our lease fleet are not recognized in consolidated revenues as a railcar sale, but are recognized monthly over the term of the lease.

Our manufacturing segment revenues, including an estimate of revenues for railcars built for our lease fleet, were $228 million for the first quarter of 2013, compared to $212 million for the same period of 2012. The primary reason for the increase in revenues from first quarter of 2012 was a shift in sales mix to more tank railcars as previously discussed. Revenues for railcars built for our lease fleet are shown at an estimated fair value as if they had been sold to a third party and were $55 million for the first quarter of 2013 compared to $48 million for the same period of 2012. These inter-segment revenues for railcars transferred to our lease fleet are eliminated in consolidation.

Our railcar leasing segment revenues for the first quarter of 2013 were $7 million compared to $1 million for the same period in 2012. The increase from 2011 reflects the progress we have made in building our lease fleet. Revenues for railcar is subject to lease or recognize monthly over multiple years of the lease based on the lease agreement terms. Revenues for our railcar services segment were comparable at $16 million for the first quarters of both 2013 and 2012. Consolidated earnings from operations for the first quarter of 2013 were $31 million, compared to $24 million in the same period of 2012.

Our operating margins were 16% for the first quarter, compared to 13% for the same period in 2012.The increase in earnings from operations was driven primarily by our manufacturing segment. Partially offset by an increase in our selling, general and administrative expenses, which are mainly driven by an increase in our share-based compensation. Our share-based compensation fluctuates with changes in our stock price. Our stock price increased by approximately $15 per share during in the first quarter of 2013 compared to staying flat during the same period of 2012.

Operating earnings for our manufacturing segment were $44 million for the first quarter of 2013 compared to $34 million for the same period of 2012. Segment operating earnings includes profits on railcars built for our lease fleet of $10 million for the first quarter of 2013 and $9 million for the same period of 2012. These are eliminated in consolidation based on an estimated fair market value, less to cost to manufacture.

Operating margins for the manufacturing segment were 19%, first quarter 2013, compared to 16% for the same period in 2012. The increase in the prior year was primarily driven by higher sales mix of tank railcars with higher selling prices, as well as operating leverage and efficiencies as a result of strong railcar production volumes for tank railcars, all of which were partially offset by softer hopper railcar volumes.

Operating earnings from the railcar services segment were $2 million for the first quarters of both 2013 and 2012. Operating margins for the Railcar Services segment were 15% in the first quarter of 2013 and the first quarter of 2012. Adjusted EBITDA, which excludes stock-based compensation and other income on short-term investments was $43 million for the first quarter of 2013. This was 43% higher than the $30 million for the first quarter of 2012. Share based compensation expense was $6 million for the first quarter of 2013 compared to $1 million for the same period in 2012.

As discussed previously, our share based compensation was driven by significant increase in our share price. Other income on short-term investments was $2 million, as we sold our remaining Greenbrier stock. Interest expense was $3 million for the first quarter of 2013, compared to $5 million for the same period of 2012. The decrease as a result of savings realized on our lower interest rates secured as part of the lease fleet financing and a lower average debt balance as we retired $100 million of our 7.5% senior unsecured notes in September of 2012 and the remaining $175 million on March 1, 2013.

Net earnings for the first quarter of 2013 were $18 million or $0.84 per share, compared to $12 million or $0.56 per share for the same period of 2012. Our strong earnings have contributed to cash flow from operations of $18 million for the first quarter of 2013. The continued growth of our lease fleet and the redemption of the remaining $175 million of our 7.5% senior unsecured notes resulted in a cash balance as of March 31 of $56 million. We expect to make the final draw of $50 million under the lease fleet financing in May of 2013.

On April 22, our Board of Directors declared a cash dividend of $0.25 per share of common stock of ARI to shareholders of record as of June 17, 2013 that will be paid on June 27, 2013. At this time, I’d like to turn it back to Jim for a few comments about our joint ventures on our international activities.

James A. Cowan

Thanks, Dale. Results for our joint ventures for castings production, Ohio Castings, and axle manufacturing, Axis softened from the prior year as demand for components produced by these joint ventures followed overall industry demand for new railcars. Going forward, we expect these joint ventures to continue to reflect industry demand for all railcar types.

On the international front, our India joint venture, Amtek Railcar, continues to show good progress. We are preparing to build railcars and also certain railcar parts for export at this facility. We anticipate production to start up for railcars this summer with shipments to follow.

Our consulting agreement with the India Railways Research Design and Standards Organization also continues to progress. We have built two prototypes for testing as part of this project. The next prototype for testing is expected to be built in the second half of this year. Management and the board of directors will continue to look at opportunities that will further diversify and grow our business. We continue to focus on improving operational efficiencies, meeting customer demand for our railcars and increasing our railcar lease fleet.

Now, I’ll turn it back to the operator, Charlotte. Would you please explain how our participants can register their questions?

Question-and-Answer Session

Operator

Certainty. (Operator Instructions) Our first question comes from the line of Justin Long from Stephens. Your line is now open. You may begin.

Justin Long – Stephens, Inc.

Thanks and good morning.

James A. Cowan

Thanks.

Dale C. Davies

Good morning.

Justin Long – Stephens, Inc.

The industry tank car orders in the first quarter were pretty strong, you mentioned over 19,000 railcars, but your orders, if you look from external customers were around 400 units or 500 units, can you provide a little more color on what drove that discrepancy in your order book versus what we saw for the industry and it sounds like from your comments that this is due to a more price disciplined approach. So, does that imply that you’re seeing a more competitive environment in terms of pricing in the overall market?

James A. Cowan

No, you’ve got it, I mean; we’re looking at a very disciplined approach going to the market with our availability. We’ve been very selective. There’s been lease rates that have been very, very attractive that we have obtained. And secondly, as we said at our last call we were going to restart the ACF facility and of course establish a backlog there, and that has been done as well. And that’s not reflected as we stated in our numbers.

Justin Long – Stephens, Inc.

Are there any details on that ACF backlog that you could provide?

James A. Cowan

No, not at this time.

Justin Long – Stephens, Inc.

Okay. And now, just given the substantial amount of capacity that’s reflected in the tank car backlog, could you talk about how you expect that overall market to progress going forward as through the remainder of 2013 in terms of both demand and pricing and kind of what you’re seeing from an inquiry level so far this year and into the current quarter?

James A. Cowan

Well, the inquiry level is still very strong for tanks. You can see the delivery that we noted for the industry was about 6,100 units with the ACF expansion and a few other noted expansions that’s probably going to approach 7,000 deliveries per quarter. So, obviously the 61,000 backlog has got a couple of year run rate there. But we do think with the inquiry activity that it’s going to continue to have some strength.

Justin Long – Stephens, Inc.

Okay, great. And I know some of your employees have shifted from the Paragould plant to Marmaduke, just given the current demand environment from different car types, but if we start to see orders pick up on the hopper front later this year and it sounds like that’s what you’re expecting to see, do you have the resources to be running both of these plants near full capacity at the same time?

James A. Cowan

Absolutely, I mean we’ve had about 1,600 employees, 1,700 employees several different times in our history. We’re not at that level currently today. We’ve not had a lot of trouble of getting labor in that area. We can’t go out and hire 500 people in a month. But we do stair step it up month-over-month and we will be able to plan that out as we see the covered hopper backlog increase.

Justin Long – Stephens, Inc.

Okay. And maybe for Dale, last call I believe you discussed expectations for railcar deliveries to be roughly flat on a sequential basis, looks like they were down about 20%, could you talk about what drove that, and were there any one-time items like delayed deliveries. I know sometimes with unit trains that’s an issue that impacted the quarter?

Dale C. Davies

There really weren’t any unit trains delivered, there weren’t any delayed deliveries and what we actually saw was maybe a little softer deliveries out of our hopper car plant for March than I might have anticipated last time we talked.

Justin Long – Stephens, Inc.

Okay. And going forward, would you expect the 1Q delivery rate is it pretty good run rate to you for the remainder of the year?

Dale C. Davies

No, I think in the second quarter, you’re going to see it a little lower than that. I think we are experiencing some softness in hopper car plant. The tank car plants running hard, but I think our view right now is that we’ll have a little softness in our hopper car plant in the second quarter and then and we’re hopeful that third and fourth quarter will pick back up a bit.

Justin Long – Stephens, Inc.

Okay, thanks. I’ll pass it along. I appreciate the time today.

Dale C. Davies

Okay.

Operator

Thank you. Our next question comes from the line of Eric Crawford from UBS. Your line is now open.

Eric Crawford – UBS Securities LLC

Thanks, good morning guys.

James A. Cowan

Good morning.

Eric Crawford – UBS Securities LLC

Just following up on that, I guess cadence of production to the areas is 7,000, what you’re kind of expecting to deliver for this year railcars.

Dale C. Davies

I think it will be a little less than that.

Eric Crawford – UBS Securities LLC

Okay, that’s helpful. So, I mean gross margins tick down a bit with production. Should we expect the gross margins to tick down as you as you bring production down as well?

Dale C. Davies

Well, I think the second quarter might be a little soft, but I think the third and fourth will come back to maybe what you saw this quarter. I think the couple things going on when we see a little slowness in the hopper business it also affects our parts of plants a bit, so we’ve got that going on.

Eric Crawford – UBS Securities LLC

Okay, thank you for that. And then I guess lastly from me. The decline in hopper shipments in the quarter, you’re expecting those to pick up in the back half of the year?

James A. Cowan

Yeah I think so. I mean clearly the order book for hoppers is pretty slow in the first quarter and has been for the last couple, but we’re starting to see some commodities coming back on the frac sand side, clearly the pellet market is gaining its energy here in a lot of quotations that are getting prepared and then the food grade products that we also deliver we’re getting pockets of activity there. So yeah, I think the second half will certainly be better.

Eric Crawford – UBS Securities LLC

Okay, thanks. And sorry, just one more point of clarification, what’s the estimated market value of the backlog for direct sale and lease railcars? You provided that in the release last quarter, but I may have missed it.

Dale C. Davies

One second, I think $120 million.

Eric Crawford – UBS Securities LLC

All-in?

Dale C. Davies

Yeah.

Eric Crawford – UBS Securities LLC

Okay, thank you.

Operator

Thank you. And our next question comes from the line of our Art Hatfield from Raymond James. Your line is now open. And you may begin with your questions.

Art Hatfield – Raymond James

Thank you. Hey, morning Jim and Dale.

James A. Cowan

Good morning.

Dale C. Davies

Good morning.

Art Hatfield – Raymond James

Jim I want to go back to this question about pricing in the marketplace and your comments about you being disciplined on price. Is that just in the tank market, are you feeling some softness elsewhere. One of your competitors made a point in the recent announcement of announcing that they had got – received their first ever plastic pellet car order; and is that kind of hits the market you wonder kind of how aggressive maybe some pricing is going on in order for people to receive new – first-time orders, such as that?

James A. Cowan

Well no – when I said selective pricing mean that was for the tank car business clearly. Again, we’ve seen some very attractive lease opportunities there. On the hopper side, it is very competitive, again, most of the car builders have a very low backlog and I think the total backlogs around 3,000. So that isn’t very much for that whole segment. But, on the pellet market like you say where we heard the announcement you’re referencing don’t have any data to add to that, but we’re starting to see some better activity on the hopper side. And hopefully as orders do happen, we’ll see a little improvement in the pricing there as well.

Art Hatfield – Raymond James

Let me – maybe help me understand your comment about selective pricing on the tank side and you’re seeing some good pricing on leasing, is that where your focus is on the tank side trying to build out the lease fleet in that area. And as such, you are really focused on putting orders into the order book based on what you’re getting on the lease side or am I kind of over reading that?

James A. Cowan

Now, you’re reading that correctly. I mean, clearly we’ve tilted a little harder on the lease side there with some of the opportunities that we’ve seen.

Art Hatfield – Raymond James

And so your comment is basically saying that lease pricing remains firm on a tank car side?

James A. Cowan

Yes.

Art Hatfield – Raymond James

Okay. And, would you care to comment kind of like term – what kind of term you’re getting on your deals these days?

James A. Cowan

No, no we’re not going to – we won’t go there.

Art Hatfield – Raymond James

Okay, you would mentioned, what was I going to say, you mentioned Marmaduke is running fallout, kind of what’s production, daily production down in Paragould?

James A. Cowan

At the Paragould facility?

Art Hatfield – Raymond James

Yes.

James A. Cowan

We’re running – it’s round, I would say 25% of the capacity.

Art Hatfield – Raymond James

Great. And then just lastly on the SG&A, Dale, you had mentioned the stock compensation expense was roughly $6 million in the quarter. If we were to back that out, kind of getting into maybe a little above $5 million, is that a normalized run rate for SG&A ex the stock compensation?

Dale C. Davies

Yeah, you are going to see just the vesting piece of that. It’s probably about 750,000 a quarter. And everything else is added to the stock price movement. So, the stock price moves $1, it’s worth about $0.01 in EPS.

Art Hatfield – Raymond James

Right.

Dale C. Davies

Well, it was up $15 in the first quarter, was about $0.15 of our, you know the decline was there, I guess our mix versus what you guys had $0.15 of that might have been the stock based comp if you had impact that into your numbers.

Art Hatfield – Raymond James

You beat my number at $0.80, so you guys

Dale C. Davies

Okay.

Art Hatfield – Raymond James

Order in my book.

Dale C. Davies

All right. So anyways, it was about $0.15.

Art Hatfield – Raymond James

Got it.

Dale C. Davies

If the price, you know it’s trading down a little bit today, you might see some of that come back as a pick up in the second quarter if it stays in this range.

Art Hatfield – Raymond James

But, ex that you’re running – are you running quarterly SG&A around $5 million, $5.5million?

Dale C. Davies

Yeah.

Art Hatfield – Raymond James

Okay. Fair enough. That’s all I got this morning, thanks for your time.

James A. Cowan

Thanks, Art.

Operator

Thank you. And our next question comes from the line of Matt Brooklier from Longbow Research. Your line is now open. You may proceed with your question.

Matt Brooklier – Longbow Research

Hey, thanks. Good morning. So I wanted to circle back to ACF, you mentioned building up the backlog there, just curious if you can provide some commentary on kind of the all-in annual potential production capabilities of that particular facility?

James A. Cowan

Yeah. They can do about a 1,000 units per year.

Matt Brooklier – Longbow Research

Okay. And when should we expect or start to see deliveries out of ACF from a timing perspective, and you guys are starting to book profits from that contract?

James A. Cowan

Well, two pieces there. They’ll start deliveries this quarter, I mean they’ve already started operation. In terms of any profit piece there is a start-up expense that has to be covered first. And I would say that will at least take this quarter 2Q, to actually cover that. So it will be second half.

Matt Brooklier – Longbow Research

Okay, so we should start to see second half contribution in terms of what you are doing at ACF and again just to confirm that, those build-in from a unit perspective will not be included in your backlog and delivers?

James A. Cowan

Yeah, that’s correct. It’s obviously a separate company. We do participate there, but we’re not going to divulge there, they are a private company and we won’t divulge their backlog in deliveries.

Matt Brooklier – Longbow Research

Okay, fair enough. And then turning to the international side of things, you did provide some commentary, but what, from a unit perspective, if you could what could the potential contribution be from your India operations this year, and then maybe thinking about it into ‘14?

James A. Cowan

Well, this year our target is to get to a breakeven at the end of the year. We’ll be starting railcar production in just a few weeks there, we’ve already started making railcar parts, but in 2014, I don’t. know Dale, do you have a guess?

Dale C. Davies

I think in 2014, it’s still going to be maybe slightly positive, but not a major contributor, and probably until we get passed ‘14.

Matt Brooklier – Longbow Research

Okay. But we’re starting to produce and starting to deliver the railcars out of Amtek this year.

James A. Cowan

That is correct.

Matt Brooklier – Longbow Research

Okay, very good. Thank you. Thanks for the time.

Operator

Thank you. Our next question comes from the line of Tyson Bauer from KC Capital. Your line is now open, and you may proceed with your question.

Tyson Bauer – KC Capital

Good morning, gentlemen.

James A. Cowan

Good morning.

Tyson Bauer – KC Capital

Couple of quick questions. You talked about, obviously, the orders and being price sensitive. How much of that had to do with just the availability of delivery schedules given two of your primary competitors’ expanded capacity, so they have the availability maybe to deliver earlier for some of these projects that people want it built, and then of course the ACF also was in that same situation, so how much of it was delivery schedules and their availability to deliver quicker than what you have as opposed to maybe just straight purely price competition?

James A. Cowan

Tyson, I don’t know that I could answer that question. I mean clearly there’s been expansions by the competition. We’ve been tweaking our plan, trying to get a little more out as well. I wish I could answer that. I don’t know that I could even give it a guess.

Tyson Bauer – KC Capital

Okay. That kind of screws up the follow-up question of when we thought that could stabilize and we are all battling on.

James A. Cowan

Well, maybe I answer that. I think the stabilization is probably going to be 4Q of this year. I think you’ll have most of the expansion activities in place and running. Obviously, pretty hard range to deliver these 61,000 units that are in backlog currently.

Tyson Bauer – KC Capital

The outlook you’ve given on past calls regarding the oil tank car segment. We’re hearing more about ethanol coal cars being used for oil, some hopper cars with bladders being used to transport oil and ultimately, at some point here about 2 million barrels needed to be on the rails at any given time, given we had about what 750 barrels per car, and taken assumptions for turnaround, when do we get to that point of satisfying that need for the oil by rails demand that we’re currently seeing?

James A. Cowan

Bauer Tyson, you’re asking the hardest questions, because I don’t know the answer to that one either. There’s a lot of focus on that by a lot of people. This backlog of the 61,000, I mean I would guess probably 80% of that is for this particular activity. I’ll go back to what I said earlier, that you know there still is a fair amount of inquiry activity as we speak four additional tank cars for this service and the regular type of tank car food and chemical sector as well. So it’s still a pretty strong market even today.

Tyson Bauer – KC Capital

Okay. And Dale, you commented on the parts because of the production levels being down that’s affected the parts side, should we anticipate that as deliveries increase with the hoppers that will go along with those margins, so Q3, Q4, we’ll start to see that margin in the part side ramp up also?

Dale C. Davies

Yeah, you’re right. We started making parts for these cars well ahead of when the assembly occurs. So if we start delivering stronger hopper car production rate in the third and fourth quarter, the parts plants will see that a little earlier than the final delivery of the car.

Tyson Bauer – KC Capital

Okay. You talked about energizing on the plastic pellets order activity or lease interest with some of that come into fruition by the second half. Are we really about 12-16 months away from really getting into the crux of the big demand bubble that’s expected to come through as these plants get developed in the Gulf Coast?

James A. Cowan

Yeah, I think the big delivery time period will be 15 and 16, but there again, folks are making a lot of plans because they all know what their competition has done, and so that’s why there is a lot of inquiry activity this early, and again, there was a fair number of cars built last year, we delivered some in one in the first quarter as well. Still have other activities that could be delivered or inquiries that could be delivered this year, but then I guess I think folks are making good plans and so 14 through 16 is going to be a pretty big pellet to delivery period.

Tyson Bauer – KC Capital

That sounds good, and thanks a lot gentlemen.

James A. Cowan

Thank you, Tyson.

Operator

Thank you. Our next question comes from the line of Steve Barger from KeyBanc. Your line is now open, and you may proceed with your question.

Tejas R. Patel – KeyBanc Captial Markets

Hey, good morning guys. This is actually Tajes filling in for Steve. How are you today?

James A. Cowan

Good.

Tejas R. Patel – KeyBanc Captial Markets

Just a couple of quick questions. It’s just to understand this right as inquiry levels remain high which you’ve indicated in that order activity shouldn’t be robust based on that. Would you look to book more orders at their prevailing market prices?

James A. Cowan

Oh, yeah, I mean, you guys got to remember the orders through the first quarter. We’re very big, I think they are going to be fairly strong in the second quarter. They are talking to a lot of folks about that right now and again, we’re trying to be price sensitive from our perspective and booking very strong orders.

Tejas R. Patel – KeyBanc Captial Markets

Okay. And then, just a follow-up on a earlier question around, I think you mentioned 80% of the current tank car backlog was related to their rail by rail phenomena? So, I guess just, kind of follow-up, how much of that inquiries that you’re seeing are for the non-petroleum cars on the tank car side?

James A. Cowan

It’s probably about a third right now. I guess of what we’re seeing, but my 80% is my rough guess, I’m sure others have different ones, but of the 61,000 it’s probably in the high ‘40s or around 50,000 of those are probably headed for this crude service.

Tejas R. Patel – KeyBanc Captial Markets

Got you. That’s very helpful. Thank you guys.

James A. Cowan

Okay.

Operator

Thank you. Our next question comes from the line of Justin Long from Stephens. Your line is now open. And you may proceed with your question.

Justin Long – Stephens, Inc.

Hey, thanks for taking my follow-up, Dale just a couple of housekeeping items. I wanted to clarify, was the $2 million of other income all related to the sale of the Greenbrier stock or was there something else in that number?

Dale C. Davies

No, pretty much all it was the again on that sale stock – stock sale.

Justin Long – Stephens, Inc.

Okay, great. And any changes in terms of your expectations for deliveries for the lease fleet this year, do you still think it will be somewhere around that 2,000 unit range looking at the full year 2013?

Dale C. Davies

Yeah, I think it’s going to be in that neighborhood. And we still have a little space to still show on the hopper side. So, you know but I think that will probably happen and will be in that range.

Justin Long – Stephens, Inc.

Okay. And then last question, just on a high level there recently appears to be a push to diversify the business, you made the run at Greenbrier and maybe after there you’ve been growing the lease fleet, you’ve been investing in some of the service operations. In terms of your longer-term strategic view for the Company, when we look at ARI 5 years from now, how do you think the mix of business changes and what do you think the focus will be in terms of how you diversify the business from here?

Dale C. Davies

Well, I think we are doing those things that you mentioned and we – the lease place is going to give us that stable cash flow that we’ve been looking for. It’s going to give us another way to go to market, it’s showing us another opportunity for earning on these railcars, after that first year when you built the car. India is a big factor for us that’s going to be a significant business for us, it’s getting started now and we have a certain level of capacity over there. That capacity is expandable and we view that this plant will become a major player in India and that’s going to be very important to us there. And we are continuing to pursue the services business. So, if you look down the road, manufacturing is still going to be sort of the heart of the company, but we are trying to put a lot of pieces around that to give us other ways of earning money for our investors.

Justin Long – Stephens, Inc.

Okay, great. Thanks again for the time.

Dale C. Davies

Okay.

James A. Cowan

Thanks.

Operator

Thank you. And at this time I am not showing any further questions. I would now like to turn the call back over to management for closing remarks.

James A. Cowan

I just want to thank everybody again for your interest. We’re excited of our first quarter and activities going forward. We’ll talk to you in a few months. Thanks.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude today’s program. You may all now disconnect.

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