American Railcar Industries, Inc./DE (Form: 10-Q, Received: 05/15/2006 15:33:38)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended March 31, 2006


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from to

Commission File No. 000-51728

AMERICAN RAILCAR INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)


Delaware		43-1481791
(State of Incorporation)		(I.R.S. Employer Identification No.)

100 Clark Street, St. Charles, Missouri		63301
(Address of principal executive offices)		(Zip Code)

(636) 940-6000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non—accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes o No þ

The number of shares of the registrant’s common stock, without par value, outstanding on April 26, 2006 was 21,207,773 shares.

AMERICAN RAILCAR INDUSTRIES, INC.

INDEX TO FORM 10Q


Item Number		Page Number

PART I — FINANCIAL INFORMATION

1.	Financial Statements:

	Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2006 and December 31, 2005		1

	Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2006 and 2005		3

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2006 and 2005		4

	Selected Notes to Condensed Consolidated Financial Statements (Unaudited)		5

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24

3.	Quantitative and Qualitative Disclosures About Market Risk		34

4.	Controls and Procedures		34

PART II — OTHER INFORMATION

1.	Legal Proceedings		35

1A.	Risk Factors		35

2.	Unregistered Sales of Equity Securities and Use of Proceeds		35

6.	Exhibits		37

	Signatures		38

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts, unaudited)


	December 31,		March 31,
	2005		2006

Assets
Current Assets
Cash and cash equivalents	$	28,692	$	27,938
Accounts receivable, net		38,273		44,013
Accounts receivable, due from affiliates		5,110		13,188
Inventories, net		88,001		98,464
Prepaid expenses		2,523		4,978
Deferred tax asset		1,967		1,184

Total current assets		164,566		189,765

Property, plant and equipment
Buildings		84,255		89,307
Machinery and equipment		68,187		78,431

		152,442		167,738
Less accumulated depreciation		65,398		67,622

Net property, plant and equipment		87,044		100,116
Construction in process		3,759		5,841
Land		2,182		2,381

Total property, plant and equipment		92,985		108,338

Debt issuance costs		565		236
Deferred offering costs		4,860		—
Goodwill		—		6,923
Other assets		26		38
Investment in joint venture		5,578		5,902

Total assets	$	268,580	$	311,202

CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
(In thousands, except per share amounts, unaudited)


	December 31,			March 31,
	2005			2006


Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt	$	33,294		$	83
Accounts payable		55,793			51,500
Accounts payable, due to affiliates		4,457			3,215
Accrued expenses and taxes		7,675			8,606
Accrued compensation		7,243			9,539
Accrued dividends		11,336			636
Note payable to affiliate — current		19,000			—

Total current liabilities		138,798			73,579

Long - term debt, net of current portion		7,076			75
Deferred tax liability		5,364			7,093
Pension and post-retirement liabilities		10,522			10,303
Other liabilities		59			81
Mandatory redeemable preferred stock, stated value $1,000, 99,000 shares authorized, 1 share issued and outstanding at December 31, 2005, none outstanding at March 31, 2006		1			—

Total Liabilities		161,820			91,131

Commitments and contingencies		—			—

Shareholders’ equity:
New Preferred Stock, $.01 par value per share, stated value $1,000 per share, 500,000 shares authorized, 82,055 issued and outstanding at December 31, 2005, none outstanding at March 31, 2006		82,055			—
Common stock, $.01 par value, 50,000,000 shares authorized, 11,147,059 and 21,207,773 shares issued and outstanding at December 31, 2005 and March 31, 2006, respectively		111			212
Additional paid-in capital		41,667			230,864
Accumulated deficit		(15,442	)		(9,374	)
Accumulated other comprehensive loss		(1,631	)		(1,631	)

Total shareholders’ equity		106,760			220,071

Total Liabilities and shareholders’ equity	$	268,580		$	311,202

See notes to the condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)


	For the Three Months Ended,
	March 31,			March 31,
	2005			2006


Revenues:
Manufacturing operations (including revenues from affiliates of $11,098 and $15,027 in 2005 and 2006, respectively)	$	120,694		$	166,490
Railcar services (including revenues from affiliates of $5,771 and $5,982 in 2005 and 2006, respectively)		10,228			12,239

Total revenues		130,922			178,729
Cost of goods sold:
Manufacturing operations (including costs related to affiliates of $10,468 and $14,068 in 2005 and 2006, respectively)		115,517			148,256
Railcar services (including costs related to affiliates of $3,794 and $4,571 in 2005 and 2006, respectively)		8,252			10,213

Total cost of goods sold		123,769			158,469
Gross profit		7,153			20,260
Selling, administrative and other		3,399			5,145
Stock based compensation expense		—			3,550

Earnings from operations		3,754			11,565
Interest income (including interest income from affiliates of $823 and $0 in 2005 and 2006, respectively)		868			486
Interest expense (including interest expense to affiliates of $828 and $98 in 2005 and 2006, respectively)		1,086			1,030
Earnings from joint venture		744			475

Earnings before income tax expense		4,280			11,496
Income tax expense		1,742			4,235

Net earnings	$	2,538		$	7,261

Less preferred dividends		(4,520	)		(568	)

Earnings (loss) available to common shareholders	$	(1,982	)	$	6,693
Net earnings (loss) per common share — basic	$	(0.18	)	$	0.35
Net earnings (loss) per common share — diluted	$	(0.18	)	$	0.35
Weighted average common shares outstanding — basic		11,147			19,013
Weighted average common shares outstanding — diluted		11,147			19,139

See notes to the condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)


	For the Three Months Ended
	March 31,			March 31,
	2005			2006


Operating activities:
Net earnings	$	2,538		$	7,261
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		1,525			2,290
Loss on the disposition of property, plant and equipment		—			401
Write-off of deferred financing costs		—			565
Stock based compensation		—			3,550
Change in joint venture investment as a result of earnings		(744	)		(475	)
Expense relating to pre-recapitalization liabilities		265			—
Provision for deferred income taxes		(3,595	)		709
Provision for losses on accounts receivable		20			39
Changes in operating assets and liabilities:
Accounts receivable		(11,814	)		(5,779	)
Accounts receivable, due from affiliate		—			(8,078	)
Inventories		(6,598	)		(6,626	)
Prepaid expenses		(5,003	)		(2,443	)
Accounts payable		26,509			(4,293	)
Accounts payable, due to affiliate		—			240
Accrued expenses and taxes		12,644			3,208
Other		(1,466	)		(181	)

Net cash provided by (used in) operating activities		14,281			(9,612	)

Investing activities:
Purchases of property, plant and equipment		(4,733	)		(9,915	)
Repayment of note receivable for affiliate (Castings LLC)		—			146
Acquisitions		—			(17,061	)

Net cash used in investing activities		(4,733	)		(26,830	)

Financing activities:
Proceeds from sale of common stock		—			205,275
Offering costs					(14,667	)
Preferred stock redemption		—			(82,056	)
Preferred stock dividends		—			(11,904	)
Increase in amount due from affiliate		(6,332	)		—
Decrease in amount due to affiliate		(17,338	)		(20,482	)
Finance fees related to new credit facility		—			(265	)
Proceeds from debt issuance		30,000			—
Repayment of debt		(18	)		(40,213	)

Net cash provided by financing activities		6,312			35,688

Increase (decrease) in cash and cash equivalents		15,860			(754	)
Cash and cash equivalents at beginning of period		6,943			28,692

Cash and cash equivalents at end of period	$	22,803		$	27,938

See notes to the condensed consolidated financial statements.

American Railcar Industries, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months ended March 31, 2005 and 2006

The condensed consolidated financial statements included herein have been prepared by American Railcar Industries, Inc. and subsidiaries (collectively the “Company” or “ARI”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The Condensed Balance Sheet as of December 31, 2005 has been derived from the audited consolidated balance sheets as of that date. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest annual report attached on Form 10-K for the year ended December 31, 2005. In the opinion of management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. The results of operations of any interim period are not necessarily indicative of the results that may be expected for a fiscal year.

Note 1—Description of the Business

The condensed consolidated financial statements of the Company include the accounts of American Railcar Industries, Inc. and its wholly owned subsidiaries. Through its subsidiary Castings, LLC (“Castings”), the Company has a one-third ownership interest in Ohio Castings Company, LLC (“Ohio Castings”), a limited liability company formed to produce steel railcar parts, such as sideframes, bolsters, couplers and yokes, for use or sale by the ownership group. All significant intercompany transactions and balances have been eliminated.

ARI manufactures railcars, custom designed railcar parts for industrial companies, railroads, and other industrial products, primarily aluminum and special alloy steel castings, for non-rail customers. ARI also provides railcar maintenance services for railcar fleets, including that of its affiliate, American Railcar Leasing, LLC (“ARL”). In addition, ARI provides fleet management and maintenance services for railcars owned by selected customers. Such services include inspecting and supervising the maintenance and repair of such railcars. The Company’s operations are located in the United States and Canada. The Company operates a small railcar repair facility in Sarnia, Ontario Canada. Canadian revenues were 0.4% and 0.2% of total company revenues for the three months ended March 31, 2005 and 2006, respectively. Canadian assets were 0.2% and 0.4% of total company assets for the three months ended March 31, 2005 and 2006, respectively.

In 2003, ACF Industries Holding Corp. (ACF Holding), an affiliate of ARI, formed a wholly-owned subsidiary, Castings. Castings has a one-third ownership interest in Ohio Castings. In June 2005, ARI purchased Castings from ACF Holding. The transaction was consummated on January 1, 2005. The cost of the acquisition was $12.0 million represented by a demand note that the Company paid in January, 2006. However, as Castings was owned by an entity with ownership common to ARI, the investment in subsidiary is recorded at the date of inception of Castings, June, 2003, at book value. The purchase price was recorded at full value as a payable to affiliate and the excess of fair value over cost, totaling $5.6 million, is presented as a distribution from equity.

On July 20, 2004, the Company formed American Railcar Leasing LLC (“ARL”), a wholly owned subsidiary. ARL’s primary business is the leasing of railcars. The subsidiary was capitalized through the issuance of common and preferred stock. The Company’s investment in ARL was $116.7 million and $151.7 million at December 31, 2004 and June 30, 2005, respectively. Preferred stock of ARL was issued to affiliated companies in exchange for contributions of cash or railcars totaling $102.7 million. In January 2005, ARI obtained an additional $35.0 million of ARL common stock resulting in a carrying value of $151.7 million.

On June 30, 2005, in anticipation of the initial public offering (see Note 3), the Company sold its common interest in ARL for $125.0 million to affiliated companies in return for the preferred stock investment, valued at $116.1 million, plus accrued dividends of $8.9 million that those affiliates held in the Company. At December 31, 2004, the Company’s investment in ARL was $116.7 million. This investment was eliminated as of December 31, 2004 in order to present the Company on a stand alone basis. New preferred stock of $86.5 million plus accrued dividends of $3.5 million were eliminated from ARI’s equity and a charge of $26.7 million was recorded to additional paid in capital to reflect the difference between the final transfer price of $125.0 million and the ultimate carrying value of the Company’s investment in ARL of $151.7 million. The 2005 financial statements reflect a reduction of New Preferred Stock of $29.6 million plus accrued dividends of $5.4 million to eliminate the additional investment of

American Railcar Industries, Inc. and Subsidiaries

$35.0 million made in that period. ARI retained no liabilities or other interests in ARL as a result of this sale. The presentation of the Company’s operations has been prepared on a standalone basis excluding ARL’s operations for all periods. Any differences related to the amounts originally capitalized and the amount paid for ARL in the sale have been recorded through adjustments to shareholders’ equity, including certain tax benefits that the Company received as a result of utilizing the Company’s previously incurred tax losses. The Company recorded a deferred tax asset of $12.5 million and $2.0 million in 2004 and 2005, respectively, for those net operating loss carry forwards, as the Company has the legal right to utilize them for tax purposes.

The following table discloses the preferred stock transactions and the effect on additional paid-in-capital reflecting the elimination of the Company’s investment in ARL for the years ended December 31, 2004 and 2005.


	New preferred			Additional paid in
	stock			capital
	(in thousands)
January 1, 2004		—		$	11,484
New preferred stock issued in exchange for mandatorily redeemable preferred stock		95,517			—
Capital contribution		102,654			42,482
Exchange of common interest in ARL for new preferred stock		(86,486	)		(26,670	)
ARL deferred tax assets		—			12,522
Other		—			1,431

December 31, 2004	$	111,685		$	41,249

Exchange of common interest in ARL for new preferred stock	$	(29,630	)		—
Tax benefit of ARL NOL		—			(2,023	)
Other		—			2,441

December 31, 2005	$	82,055		$	41,667

Acquisition

On March 31, 2006, the Company acquired all of the common stock of Custom Steel, Inc., (“Custom Steel”) a subsidiary of Steel Technologies, Inc. Custom Steel operates a facility, located adjacent to our component manufacturing facility in Kennett, Missouri, that produces value-added fabricated parts that primarily support our railcar manufacturing operations. Prior to the acquisition, ARI was Custom Steel’s primary customer. The purchase price was approximately $17.1 million, which resulted in goodwill of approximately $6.9 million, of which zero will be deductible for tax purposes. The purchase price includes a true up adjustment of $1.7 million which was paid back to the Company due to lower inventory levels at the time of the closing. Just prior to the closing, the Company paid off all payables due to Custom Steel which totaled $5.3 million.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:


	At March 31, 2006
	(in millions)

Inventory	$	3.9
Property, plant and equipment		8.1
Goodwill		6.9
Deferred tax liability assumed		(1.8	)

The acquisition was accounted for under the purchase method of accounting, with the purchase price being allocated to the assets acquired based on relative fair values.

American Railcar Industries, Inc. and Subsidiaries

Note 2—Summary of Significant Accounting Policies

Significant accounting policies are described below.

Revenue recognition

Revenues from railcar sales are recognized following completion of manufacturing, inspection, customer acceptance and shipment, which is when title and risk for any damage or loss with respect to the railcars passes to the customer. In some cases, paint and lining work may be outsourced and, as a result, the sale will not be recorded until the railcars are shipped from the independent contractor and accepted by the customer. Revenues from railcar and industrial parts and components are recorded at the time of product shipment, in accordance with the contractual terms. Revenue for railcar maintenance services are recognized upon completion and shipment of railcars from the Company’s plants. The Company does not bundle railcar service contracts with new railcar sales. Revenue for fleet management services are recognized as performed.

The Company records amounts billed to customers for shipping and handling as part of sales in accordance with EITF 00-10, Accounting for Shipping and Handling Fees and Costs, and records related costs in cost of sales.

Debt issuance costs

Debt issuance costs were incurred in connection with the issuance of long-term debt in 2005 and the amended and restated revolving credit facility in 2006, and are amortized over the term of the related debt, utilizing the effective interest method.

Inventories

Inventories are stated at the lower of average cost or market on a first-in, first-out basis, and include the cost of materials, direct labor and manufacturing overhead.

Accounts receivable

The Company carries its accounts receivable at their face amount, less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its account receivable and establishes an allowance for doubtful accounts, based on a 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.

Property, plant and equipment

Land, buildings, machinery and equipment are carried at cost. Maintenance and repair costs are charged directly to earnings. Tooling is generally capitalized and amortized over a period of two to five years.

Buildings are depreciated over estimated useful lives that range from 14 to 50 years. The estimated useful lives of other depreciable assets, including machinery and equipment, vary from 3 to 25 years. Depreciation is calculated on the straight-line method for financial reporting purposes and on accelerated methods for tax purposes.

Pension plans and other postretirement benefits

Certain ARI employees participate in noncontributory, defined benefit pension plans and a supplemental executive retirement plan. Benefits for the salaried employees are based on salary and years of service, while those for hourly employees are based on negotiated rates and years of service.

ARI also participates in defined contribution retirement plans, health care and life insurance plans. Benefit costs are accrued during the years employees render service.

American Railcar Industries, Inc. and Subsidiaries

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 ARI’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are recovered or settled.

Ohio Castings joint venture

The Company uses the equity method to account for its investment in Ohio Castings. Under the equity method, the Company recognizes its share of the earnings and losses of the joint venture as they accrue instead of when they are realized. Advances and distributions are charged and credited directly to the investment account. 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 to the Company and the other joint venture partner in Ohio Castings at cost plus a licensing fee. Ohio Castings is currently in the process of consolidating its operations in one facility, which involves the closing of one of its facilities. The Company does not believe that this closing will have a material financial impact on the Company.

The Company has determined that, although the joint venture is a variable interest entity (“VIE”), the Company is not the primary beneficiary and the joint venture should not be consolidated in the Company’s financial statements. The risk of loss to Castings and the Company is limited to its investment in the VIE and its one third share of its guarantee of Ohio Castings debt which was approximately $0.1 million at March 31, 2006.

The cost of railcar manufacturing for the three months ended March 31, 2005 and 2006 included $5.6 million and $12.0 million, respectively, in products produced by Ohio Castings.

The carrying amount of the investment in Ohio Castings by Castings was $5.6 million and $5.9 million at December 31, 2005 and March 31, 2006, respectively.

Summary combined financial information for Ohio Castings, the investee company, as of and for the year ended December 31, 2005 and three months ended March 31, 2006 follows:


	December 31, 2005		March 31, 2006
	(in thousands)
Financial position
Current assets	$	18,302	$	20,751
Property, plant, and equipment, net		15,380		15,289

Total assets		33,682		36,040


Current liabilities
Long-term debt		14,540		10,355
Total liabilities		11,663		16,782

		26,203		27,137



Member’s equity	$	7,479	$	8,903

Summary consolidated results of operations for the three months ended March 31, 2005 and 2006.

American Railcar Industries, Inc. and Subsidiaries


	March 31, 2005		March 31, 2006
	(in thousands)
Results of operations
Sales	$	28,740	$	37,339

Earnings from operations		2,205		1,327

Net earnings	$	2,211	$	1,424

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 criteria for determining impairment for 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 management’s best estimate of future undiscounted cash flows expected to result from the use of the assets. If the assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. No impairment losses have been recorded for the year ended December 31, 2005. The Company reduced the carrying value of equipment purchased under a lease agreement from an unrelated third party by $0.4 million in the first quarter of 2006, for its manufacturing plants which is reflected in the consolidated statement of operations under costs of manufacturing operations.

Statement of cash flows

ARI considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

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 discussed in Note 6. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision.

Foreign currency translation

Balance sheet amounts from the Company’s Canadian operation are translated at the exchange rates in effect at quarter-end or year-end, and operations statement amounts are translated at the average rates of exchange prevailing during the quarter or year. Currency translation adjustments are included in Shareholders’ Equity.

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 (loss), foreign currency translation adjustment and the Company’s minimum pension liability adjustment, which is shown net of tax.

Retained earnings

ARI was recapitalized on October 1, 1994, when ACF Industries LLC (ACF), the former holder of ARI’s common stock, transferred to ARI the old common stock of ARI along with the assets and liabilities of ACF’s railcar maintenance and railcar parts manufacturing businesses (the “1994 ACF asset transfer”). In exchange, ACF received 57,306 shares of ARI’s newly issued mandatorily redeemable preferred stock. New shares of ARI’s common stock were issued to Carl C. Icahn, Chairman of the Board of ACF, in exchange for cash of $6.4 million. In October 1998, ARI redeemed 57,305 shares of the preferred stock and the remaining share of preferred stock was transferred to Mr. Icahn. As ARI and ACF are entities under common control, accounting principles generally accepted in the United

American Railcar Industries, Inc. and Subsidiaries

States of America require that ARI’s initial carrying value of assets transferred to it from ACF and the purchase of Castings be equal to ACF’s historical net book value at the time of transfer. The excess of the fair value paid over the net book value of assets and liabilities transferred to ARI is reflected as a distribution of retained earnings and has the effect of reducing shareholders’ equity by $24.8 million as of December 31, 2005 and March 31, 2006. Of that amount, $19.2 million was recorded at the formation of ARI, and $5.6 million was recorded in 2003 from the acquisition of Castings. In 2004, the Company recorded a $0.75 million return of capital from Castings.

Earnings per share

Basic earnings (loss) per share are calculated as net earnings (loss) attributable to common shareholders divided by the weighted-average number of common shares outstanding during the respective period. Diluted earnings (loss) per share are calculated by dividing net earnings (loss) attributable to common shareholders by the weighted-average number of shares outstanding plus dilutive potential common shares outstanding during the year.

Use of estimates

Management of ARI has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Significant items subject to estimates and assumptions include deferred taxes, workers compensation accrual, valuation allowances for accounts receivable and inventory obsolescence, valuation of property, plant and equipment, and the reserve for warranty claims. Actual results could differ from those estimates.

Stock-based compensation

The Company applies the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R) (“123R”), Share-Based Payments , to stock option awards issued. The compensation cost recorded for these awards will be based on their grant-date fair value required by Statement 123(R).

Goodwill

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 142, Goodwill and Other Intangible Assets . This standard requires that goodwill and other intangible assets with indefinite useful lives shall not be amortized but shall be tested for impairment at least annually by comparing the fair value of the asset to its carrying value. The Company adopted this standard upon the acquisition of Custom Steel which resulted in goodwill of $6.9 million, as described in Note 1. The Company plans to perform the goodwill impairment test required by SFAS No. 142 as of March 1 of each year.

Recent accounting pronouncements

In December 2004, the FASB issued SFAS 123R, which establishes the accounting for transactions in which an entity exchanges its equity instruments or certain liabilities based upon the entity’s equity instruments for goods or services. The revision to SFAS No. 123 generally requires that publicly traded companies measure the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award, which is usually the vesting period.

In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) 107, Share-Based Payment , to provide additional guidance to public companies in applying the provisions of Statement 123R. During 2005, the FASB issued three FASB Staff Positions (“FSP”): FSP FAS 123R-1, “Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123(R),” FSP FAS 123R-2, “Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123R,” and FSP FAS 123R-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards.” The Company has adopted the provisions of SAB 107 in conjunction with the adoption of Statement 123R and also considers the guidance provided in the FSPs. The revised provisions of SFAS No. 123 became

American Railcar Industries, Inc. and Subsidiaries

effective for the Company on January 19, 2006.

In March 2005, the FASB issued FIN 47 as an interpretation of FASB Statement 143, Accounting for Asset Retirement Obligations (FASB 143). This interpretation clarifies the term conditional asset retirement obligation as used in FASB 143 and refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. This interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The company adopted FIN 47 at December 31, 2005. There was no change to operating results as a result of this adoption.

On June 1, 2005, the FASB issued Statement No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS 154) . The Statement applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle. The Company adopted SFAS 154 at December 31, 2005. There was no change to operating results as a result of this adoption.

Note 3—Initial Public Offering

On January 19, 2006, the Company’s registration statement on Form S-1 (Registration No. 333-130284) was declared effective and, on that same date, the Company filed a registration statement on Form S-1 pursuant to Rule 462(b) under the Securities Act (Registration No. 333-131162) (collectively, the “Registration Statement”). Pursuant to the Registration Statement, as amended, the Company registered 9,775,000 shares of common stock (8,500,000 shares offered by the Company and an additional 1,275,000 shares offered by the Company pursuant to the exercise of the underwriters’ over-allotment option), par value $0.01 per share, with an aggregate offering price of $205.3 million. On January 24, 2006, the Company completed the sale of 9,775,000 shares of common stock to the public at a price of $21.00 per share. The stock offering resulted in gross proceeds to the Company of $205.3 million. Expenses related to the offering were $13.3 million for underwriting discounts and commissions. The Company received net proceeds of $192.0 million in the offering. As of March 31, 2006, the net proceeds from the offering were applied as follows (in millions):


Redemption of all outstanding shares of preferred stock	$	94.0
Repayment of notes due to affiliates		20.5
Repayment of all industrial revenue bonds		8.6
Repayment of amounts outstanding under revolving credit facility		32.3
Acquisition of Custom Steel		17.1
Payment of payables in connection with acquisition		5.3
Investment in plant, property and equipment		9.9
Offering costs paid during the first quarter		1.4

Total uses	$	189.1

As a result, as of March 31, 2006, there were approximately $2.9 million of proceeds remaining from the offering available for working capital and general corporate purposes.

American Railcar Industries, Inc. and Subsidiaries

Note 4—Accounts Receivable

The allowance for doubtful accounts consists of the following:


	Three Months Ended March 31,
	2005			2006
	(in thousands)
Beginning Balance	$	510		$	849
Bad debt expense		20			39
Accounts written off		(1	)		(2	)
Recoveries		2			2

Ending Balance	$	531		$	888

Note 5—Inventories

Inventories consist of the following:


	December 31,		March 31,
	2005		2006
	(in thousands)
Raw materials	$	49,246	$	53,143
Work-in-process		26,301		33,949
Finished products		14,772		13,861

Total inventories		90,319		100,953
Less reserves		2,318		2,489

Total inventories, net	$	88,001	$	98,464

Inventory reserves consist of the following:


	December 31,			March 31,
	2005			2006
	(in thousands)
Beginning Balance	$	2,679		$	2,318
Provision		273			171
Write off		(634	)		—

Ending Balance	$	2,318		$	2,489

American Railcar Industries, Inc. and Subsidiaries

Note 6—Long-Term Debt

Long-term debt consists of the following:


	December 31,		March 31,
	2005		2006
	(in thousands)
Revolving line of credit	$	31,852	$	—
Industrial revenue bonds secured by certain buildings and manufacturing equipment and guaranteed by ACF and ACF Holding, with effective interest rates ranging from 6.75% to 8.5%, principal amounts due through the year 2011		8,340		—
Other		178		158

Total long-term debt, including current portion		40,370		158
Less current portion of debt		33,294		83

Total long-term debt, net of current portion	$	7,076	$	75

Concurrent with the completion of the initial public offering, the Company entered into an Amended and Restated Credit Agreement (the “revolving credit agreement”) providing for the terms of the Company’s revolving credit facility (the “revolving credit facility”) with North Fork Business Capital Corporation, as administrative agent for various lenders. The revolving credit facility has a total commitment of the lesser of (i) $75.0 million or (ii) an amount equal to a percentage of eligible accounts receivable plus a percentage of eligible raw materials and finished goods inventory. In addition, the revolving credit facility includes a $15.0 million capital expenditure sub-facility that is based on a percentage of the costs related to capital projects the Company may undertake. The revolving credit facility has a three-year term. Borrowings under the revolving credit facility are collateralized by substantially all of the assets of the Company. The revolving credit facility has both affirmative and negative covenants, including, without limitation, a maximum senior debt leverage ratio, a maximum total debt leverage ratio, a minimum interest coverage ratio, a minimum tangible net worth and limitations on capital expenditures and dividends. As of March 31, 2006, the Company was in compliance with all of its covenants under this Agreement.

The fair value of long-term debt was approximately $40.4 million and $0.2 million at December 31, 2005 and March 31, 2006, respectively, as calculated by discounting cash flows through maturity using ARI’s current rate of borrowing for similar liabilities.

Note 7—Warranties

The Company records a liability for an estimate of costs that it expects to incur under its basic limited warranty, which is typically a range from one year for parts and services to five years on new railcars, when manufacturing revenue is recognized. Factors affecting the Company’s warranty liability include the number of units sold and historical and anticipated rates of claims and costs per claim. The Company assesses the adequacy of its warranty liability based on changes in these factors.

Changes in the Company’s warranty reserve, which is reflected on the balance sheet in accrued expenses, are as follows:


	Three Months Ended March 31,
	2005			2006
	(in thousands)
Liability, beginning of period	$	1,630		$	1,237
Expense for new warranties issued		62			466
Warranty claims		(175	)		(469	)

Liability, end of period	$	1,517		$	1,234

American Railcar Industries, Inc. and Subsidiaries

Note 8—Earnings per Share

The shares used in the computation of the Company’s basic and diluted earnings per common share are reconciled as follows:


	Three Months Ended March 31,
	2005		2006
Weighted average basic common shares outstanding		11,147,059		19,013,011
Dilutive effect of employee stock options		—		126,367

Weighted average diluted common shares outstanding		11,147,059		19,139,378

Note 9—Stock based Compensation

Concurrent with the pricing of the offering, the Company granted options to purchase a total of 484,876 shares of common stock under the 2005 equity incentive plan (the “2005 plan”). These options were granted at an exercise price equal to the initial public offering price. The options have a term of five years and vest in equal annual installments over a three-year period. The Company determined that the stock option expense for all these options will total approximately $3.5 million over the next three years using a Black-Scholes calculation based on the following assumptions: stock volatility of 35%; 5-year term; interest rate of 4.35%; and dividend yield of 1%. The Company accounts for the Plan under the recognition and measurement principles of SFAS No. 123R, Share-Based Payment , and its related provisions.

The 2005 plan permits the Company to issue stock and grant stock options, restricted stock, stock units and other equity interests to purchase or acquire up to 1.0 million shares of our common stock. Awards covering no more than 300,000 shares may be granted to any person during any fiscal year. 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 Company’s board of directors or a committee of the board.

In connection with the initial public offering, the Company issued 285,714 shares of the Company’s common stock to Mr. Unger, currently its Chief Executive Officer. 114,286 of these shares will be transferable without contractual restrictions by Mr. Unger six months after issuance. An additional 85,714 of these shares will be transferable without contractual restrictions by Mr. Unger twelve months after issuance. The remaining 85,714 shares will be transferable without contractual restrictions by Mr. Unger eighteen months after issuance. In connection with this issuance, the Company recorded compensation expense of $2.4 million on the date of the grant. An additional $3.6 million in compensation expense will be recognized ratably over a one year vesting period starting in February 2006.

As indicated in Note 2, we adopted the provisions of SFAS 123R in the first quarter of 2006. In the three months ended March 31, 2006, we recognized stock-based compensation expense of $3.6 million in our condensed consolidated financial statements, which included $0.6 million for stock options and $3.0 million for restricted stock awards.

American Railcar Industries, Inc. and Subsidiaries

The following is a summary of the changes in outstanding options for the three months ended March 31, 2006:

Weighted

Average

Remaining

Exercise

Contractual

Price

Life

Outstanding at the beginning of period

—

Granted

484,876

21.00

58 months

Outstanding at the end of period

484,876

21.00

58 months

Exercisable at end of period

—

Note 10—Related Party Transactions

In connection with the 1994 ACF asset transfer, described in Note 2, the Company entered into the following administrative and operating agreements with ACF, effective as of October 1, 1994:

Manufacturing services agreement

Under the manufacturing services agreement, ACF agreed to manufacture and distribute, at the Company’s instruction, various products using certain assets that the Company acquired pursuant to the 1994 ACF asset transfer agreement. In consideration for these services, the Company agreed to pay ACF based on agreed upon rates. Components supplied to ARI by ACF include tank railcar heads, wheel sets and various structural components. In the three months ended March 31, 2005 and 2006, ARI purchased inventory of $16.9 million and $22.5 million, respectively, of components from ACF. The agreement automatically renews unless written notice is provided by the Company.

Administration Agreement

Under this agreement, ACF agreed to provide the Company with office facilities and administrative services, primarily information technology services. In exchange for the facilities and services, the Company agreed to pay ACF based on agreed upon rates. Management believes that these allocation methods are reasonable for the relevant costs. Total amounts incurred under this agreement totaled $0.4 million at March 31, 2005. The agreement was terminated on April 1, 2005.

Railcar Servicing Agreement

Under this agreement, the Company agreed to provide ACF with railcar repair and maintenance services, fleet management services and consulting services on safety and environmental matters for railcars owned or managed by ACF. ACF agreed to compensate the Company based on agreed upon rates. The agreement was terminated on April 1, 2005. No amounts were recorded for the three months ended March 31, 2005.

Supply Agreement

Under this agreement, 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. Revenue recorded under this arrangement totaled $0.1 million at March 31, 2005 and is included under revenue from affiliates on the statement of operations. No revenue was recorded under this arrangement for the three months ended March 31, 2006.

American Railcar Industries, Inc. and Subsidiaries

In 2004, the Company entered into the following agreements with ACF and ARL:

Railcar Management Agreements

Under this agreement, the Company provided ARI First and ARI Third, subsidiaries of ARL, with marketing, leasing, administration, maintenance, record keeping and insurance services for railcars owned by ARI First and ARI Third. In exchange for these services, ARI First and ARI Third paid the Company a management fee which totaled $0.6 million for the three months ended March 31, 2005, which is included under revenue from affiliates on the statement of operations. No revenue was recorded under this arrangement for the three months ended March 31, 2006.

ACF Administration Agreement

The ACF Administration agreement was entered into with ACF and ARL. Under the agreement, ACF agreed to provide certain management services which were required under the railcar management agreement with ARI First and ARI Third described above. Fees paid to ACF under this agreement were equal to the fees the Company charged to ARI First and Third under the railcar management agreement and totaled $0.6 million for the three months ended March 31, 2005, which is included under cost related to affiliates on the statement of operations. No fees were paid during the three months ended March 31, 2006.

These two arrangements were terminated on June 30, 2005, when ARI assigned its management agreements for ARI First LLC and ARI Third LLC to ARL.

In 2004, 2005 and 2006, the Company entered into the following agreements with ARL and its subsidiaries:

ARL Railcar Services Agreement

Under this agreement, ARL provided the Company with railcar services which the Company was required to provide to ARI First and ARI Third under the railcar management agreement. The Company paid ARL an amount equal to the amounts paid to the Company by ARI First and ARI Third under the railcar management agreement which totaled $0.6 million for the three months ended March 31, 2005 and it is included under cost of goods sold on the statement of earnings. This agreement was terminated on July 1, 2005.

ARL Railcar Servicing Agreement

Under this agreement, the Company agreed to provide ARL with railcar repair and maintenance services, fleet management services and consulting services on safety and environmental matters for railcars owned or managed by ARL and leased or held for lease by ARL. ARL agreed to compensate the Company based on agreed upon rates. Revenue of $5.8 million and $6.0 million for the three months ended March 31, 2005 and 2006, were recorded under this arrangement which is included under revenue from affiliates on the statement of operations. The agreement extends through June 30, 2006 and is automatically renewable unless either party provides at least six months prior notice of termination. Termination by the Company would result in a fee payable to ARL of $0.5 million.

ARL Services Agreement

Under this agreement, 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 Mr. Unger which is further described in Note 12. Under the agreement, the Company agreed to provide purchasing and engineering services to ARL. Consideration exchanged between the companies is based on agreed upon a fixed annual fee. Total fees paid to ARL were $0.5 million for the three months ended March 31, 2006. No fees were paid to ARL during the three months ended March 31, 2005. Amounts billed to ARL totaled $0.03 million for the three months ended March 31, 2005. No amounts were billed to ARL during the three months ended March 31, 2006. These balances are included in revenues and costs related to affiliates on the statement of operations. Either party may terminate any of these services, and the associated costs for these services, on at least six months prior notice at any time prior to the termination of the agreement on December 31, 2007.

American Railcar Industries, Inc. and Subsidiaries

Trademark License Agreement

Under this agreement, which is effective as of June 30, 2005, ARI granted a nonexclusive, perpetual, worldwide license to ARL to use ARI’s common law trademarks “American Railcar” and the “diamond shape” logo. ARL may only use the licensed trademarks in connection with the railcar leasing business. ARI receives annual fees of $1,000 in exchange for this license.

ARL Sales Contract

On March 31, 2006, the Company entered into an agreement with ARL for the Company to manufacture and ARL to purchase 1,000 tank railcars in 2007. We have in the past manufactured and sold railcars to ARL on a purchase order basis. When we entered into this agreement, we planned to produce these tank railcars with new manufacturing capacity that we expected to have available beginning in January 2007. The agreement also includes options for ARL to purchase up to an additional 300 covered hopper railcars in 2007, should additional capacity become available, and 1,000 tank railcars and 400 covered hopper railcars in 2008. No assessment has yet been made as to what, if any, impact the recent storm damage to the Company’s tank railcar manufacturing facility in Marmaduke, Arkansas, might have on this contract.

Agreements with ACF

As part of ARI’s recapitalization, ACF retained the liabilities for unfunded pension and other postretirement liabilities and workers compensation liabilities as of October 1, 1994 for employees who transferred from ACF to ARI at that date and for environmental liabilities as of that date. Expenses paid by ACF, relating to pre-recapitalization liabilities, are recorded as capital contributions by ARI and included in additional paid-in capital.

ARI recorded total expenses relating to benefits and environmental liabilities of $0.8 million in the three months ended March 31, 2005. Included in the total expenses incurred were amounts related to pre-capitalization liabilities retained by ACF, which are reflected as additional paid-in capital, totaling $0.3 million in the three months ended March 31, 2005. Effective December 1, 2005, the Company separated pension and post retirement obligations from ACF. As such, pre-recapitalization expenses related to pension and post retirement benefits will no longer be paid by ACF on ARI’s behalf.

ARI entered into a note payable with ACF Holding, an affiliate, for $12.0 million effective January 1, 2005 in connection with the purchase of Castings (Note 1). This note was paid off in full in connection with the initial public offering, as discussed in Note 3.

Agreements with Affiliated Parties

During 2004, ARI advanced $165.0 million to Mr. Icahn under a secured note due in 2007 and bearing interest at prime plus 1 ³ / ₄ %. Interest income on the note was $0.8 million for the three months ended March 31, 2005. On January 26, 2005, the ARL operating agreement was amended and an assignment and assumption agreement was executed whereby ARI transferred its interest in the $165.0 million secured note receivable from Mr. Icahn to ARL in exchange for 35,000 A Units of ARL and in satisfaction of the $130.0 million note issued to ARL, as discussed below.

During 2004, ARL advanced $130.0 million to ARI under a note due in 2007 and bearing interest at prime plus 1 ¹ / ₂ %. Interest expense on the note was $0.6 million for the three months ended March 31, 2005. As discussed above, this note was fully satisfied on January 26, 2005.

On December 17, 2004, ARI borrowed $7.0 million under a note payable to Arnos Corp., an affiliate. The note bears interest at prime plus 1 ³ / ₄ % and was payable on demand. Interest expense on the note was $0.1 million for the three months ended March 31, 2005. No interest expense was recorded for the year ended December 31, 2004, as interest did not start accruing until January 1, 2005. This note was fully satisfied on January 26, 2005.

As of March 31, 2005, amounts due to affiliates included $19.9 million in payables to ACF and ARL. Included in amounts due from affiliates at March 31, 2005 were $1.2 million in receivables from Carl Icahn and Ohio Castings. As of March 31, 2006, amounts due to affiliates included $3.2 million in accounts payable to ACF. Included in amounts due from affiliates at March 31, 2006 were $13.2 million in accounts receivable from ACF and ARL.

American Railcar Industries, Inc. and Subsidiaries

In April 2005, the Company entered into a consulting agreement with ACF in which both parties agreed to provide labor litigation, labor relations support and consultation, and labor contract interpretation and negotiation services to one another. In addition, the Company has agreed to provide ACF with engineering and consulting advice. Fees paid to one another are based on agreed upon rates. No services were rendered and no amounts were paid during the three months ended March 31, 2006.

Cost of railcar manufacturing for the three months ended March 31, 2005 and 2006 includes $5.6 million and $12.0 million, respectively, in railcar products produced by Ohio Castings, which is partially owned by Castings, as described in Note 1. Expenses of $0.6 million and $0.1 million paid to Castings under a supply agreement are included in the cost of railcar manufacturing for the three months ended March 31, 2005 and 2006, respectively. Inventory at March 31, 2005 and 2006 includes approximately $4.5 million and $4.8 million, respectively, of purchases from Ohio Castings.

In September 2003, Castings loaned Ohio Castings $3.0 million under a promissory note which was due January 2004. The note was renegotiated in 2005 with a new principal amount of $2.2 million and bears interest at 4.0%. Payments of principal and interest are due quarterly with the last payment due in November 2008. This note receivable is included in investment in joint venture on the accompanying balance sheet. Total amounts due from Ohio Castings under this note were $2.3 million and $1.8 million at March 31, 2005 and 2006, respectively.

Note 11—Pension Plans

ARI is the sponsor of two defined benefit plans that cover certain executives and employees at certain of its manufacturing facilities and a supplemental executive retirement plan (SERP). The Company uses a measurement date of October 1 for all pension plans, except for the Shipper’s Car Line Pension Plan, which has a measurement date of December 1, which is the date the Company became the sponsoring employer of that plan. The plan’s assets are held by independent trustees and consist primarily of equity and fixed income securities.

The Company also provides certain postretirement health care benefits for certain of its salaried and hourly retired employees. The measurement date for the post-retirement plan is December 1, which is the date the Company assumed the sponsorship of the plan. Employees may become eligible for health care benefits if they retire after attaining specified age and service requirements. These benefits are subject to deductibles, co-payment provisions and other limitations.

The Company recorded total expenses relating to these plans of $0.2 million in the three months ended March 31, 2006. The Company recorded total expense of $0.03 million in the three months ended March 31, 2005.

The components of net periodic benefit cost for the three months ended March 31, 2005 and 2006 are as follows:

American Railcar Industries, Inc. and Subsidiaries


	Pension Benefits
	Three Months Ended March 31,
	2005			2006
	(in thousands)
Service cost	$	5		$	45
Interest cost		51			199
Expected return on plan assets		(48	)		(182	)
Recognized gains and losses		20			48
Prior service cost recognized		—			—

Net periodic benefit cost recognized	$	28		$	110


	Postretirement Benefits
	Three Months Ended March 31,
	2005		2006
	(in thousands)
Service cost	$	—	$	3
Interest cost		—		52

Net periodic benefit cost recognized	$	—	$	55

The Company’s policy with respect to funding the qualified plans is to fund at least the minimum required by the Employee Retirement Income Security Act of 1974, as amended, and not more than the maximum amount deductible for tax purposes. ARI does not currently have minimum funding requirements, as set forth in employee benefit and tax laws. All contributions made to the funded pension plans for 2005 and 2006 were voluntary and were made with cash generated from operations.

The Company also maintains qualified defined contribution plans which provide benefits to their employees based on employee contributions, years of service, and employee earnings with discretionary contributions allowed. Expenses related to these plans were $0.2 million and $0.2 million for the three months ended March 31, 2005 and 2006, respectively. Selected ARI salaried employees participated in the ACF Industries, Inc. Savings and Investment Plan, and the expense is included above.

Note 12—Commitments and Contingencies

The Company leases certain facilities from an entity owned by its Chief Executive Officer, certain affiliates of ARI and third parties. Total rent expense on these leases were approximately $1.9 million and $1.4 million for the three months ended March 31, 2005 and 2006, respectively. Expenses to related parties included in the amounts above were $0.2 million, for the three months ended March 31, 2005 and 2006.

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 ARI’s 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. ARI’s operations that involve hazardous materials also raise potential risks of liability under common law. ARI is involved in investigation and remediation activities at properties that it now owns or leases to address historical contamination and potential contamination by third parties. The Company is also involved with state agencies in the cleanup of two sites under these laws. These investigations are at a preliminary stage, and it is impossible to estimate, with any certainty, the timing and extent of remedial actions that may be required, and the costs that would be involved in

American Railcar Industries, Inc. and Subsidiaries

such remediation. Substantially all of the issues identified relate to the use of the properties prior to their transfer to ARI in 1994 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. However, if ACF fails to honor its obligations to ARI, ARI would be responsible for the cost of such remediation. The Company believes that its operations and facilities are in substantial compliance with applicable laws and regulations and that any noncompliance is not likely to have a material adverse effect on its operations or financial condition.

When it is possible to make a reasonable estimate of the liability with respect to such a matter, a provision will be made as appropriate. Actual cost to be incurred in future periods may vary from these estimates. Based on facts presently known, ARI does not believe that the outcome of these proceedings will have a material adverse effect on its future liquidity, results of operations or financial position.

ARI is a party to collective bargaining agreements with labor unions at its Longview, Texas and North Kansas City, Missouri repair facilities and at its Longview, Texas steel foundry and components manufacturing facility. These agreements expire in January 2008, September 2007, and April 2008, respectively. ARI is also party to a collective bargaining agreement at our Milton, Pennsylvania repair facility, which will expire on June 19, 2006. At the present time, there are no workers at Milton, as the site is idled.

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.

The Company was named a party to a suit in which the plaintiff alleges the Company was responsible for the malfunction of a valve which was remanufactured in 2004 by a third party. The Company believes it has no responsibility for this malfunction and has meritorious defense against any liability in this case. In any event, it is not possible to estimate the expected settlement, if any, that any party might be held accountable for at this time as the case is in its early stages.

We entered into two vendor supply contracts with minimum volume commitments in October 2005 with suppliers of materials used at our railcar production facilities. The agreements have terms of two and three years respectively. We have agreed to purchase a combined total of $67.6 from these two suppliers over three years. In 2006, 2007 and 2008 we expect to purchase $16.0 million, $27.1 million and $24.5 million respectively under these agreements.

ARI entered into supply agreements on January 28, 2005 and on June 8, 2005 with a supplier for two types of steel plates. The agreement is for five years and is cancelable by either party, with proper notice after two years. The agreement commits ARI to buy 75% of its production needs from this supplier at prices that fluctuate with market.

The Company has been named as the defendant in a lawsuit in which the plaintiff claims that the Company is responsible for the damage caused by allegedly defective railcars that were manufactured by the Company. The plaintiffs allege that failures in certain components caused the contents transported by these railcars to spill out of the railcars causing property damage, clean-up costs, monitoring costs, testing costs and other costs and damages. The Company was recently served with the complaint for this lawsuit, but the Company believes that it is not responsible for the spills and has meritorious defenses against liability.

Note 13—Common Stock, Mandatorily Redeemable Preferred Stock, and New Preferred Stock

On January 19, 2006, the Company’s registration statement was declared effective. Pursuant to the Registration Statement, as amended, the Company registered 9,775,000 shares of common stock (8,500,000 shares offered by the Company and an additional 1,275,000 shares offered by the Company pursuant to the exercise of the underwriters’ over-allotment option), par value $0.01 per share. On January 24, 2006, the Company completed the sale of 9,775,000 shares of common stock to the public at a price of $21.00 per share. In connection with the offering, the Company redeemed all mandatorily redeemable preferred stock and new preferred stock, including accrued dividends of $11.9 million, for a total of $94.0 million.

American Railcar Industries, Inc. and Subsidiaries

In February, 2006, the Board of Directors of the Company declared a cash dividend of $.03 per share of common stock of the Company to shareholders of record at the close of business on March 22, 2006. Dividends of $0.6 million have been accrued as of March 31, 2006. These dividends were paid on April 6, 2006.

Note 14—Operating Segment and Sales/Credit Concentrations

ARI operates in two reportable segments; manufacturing operations and railcar services. The accounting policies of the segments are the same as those described in Note 2. Performance is evaluated based on revenue and operating profit. Intersegment sales and transfers are accounted for as if sales or transfers were to third parties.

The information in the following tables is derived from the segments’ internal financial reports used for corporate management purposes:


As of and for the three months	Manufacturing				Corporate & all
ended March 31, 2005	Operations		Railcar Services		other			Eliminations			Totals
	(in thousands)

Revenues from external customers	$	120,694	$	10,228	$	—		$	—		$	130,922
Intersegment revenues		238		772		—			(1,010	)		—
Cost of goods sold — external customers		115,517		8,252		—			—			123,769
Cost of intersegment sales		212		590		—			(802	)		—

Gross profit		5,203		2,158		—			(208	)		7,153
Selling, administration and other		711		232		2,456			—			3,399

Earnings (loss) from operations	$	4,492	$	1,926	$	(2,456	)	$	(208	)	$	3,754

Total assets	$	166,412	$	30,017	$	72,151		$	—		$	268,580
Capital expenditures		4,531		196		6			—			4,733
Depreciation and amortization		1,040		479		6			—			1,525


As of and for the three months	Manufacturing				Corporate & all
ended March 31, 2006	Operations		Railcar Services		other			Eliminations			Totals
	(in thousands)
Revenues from external customers	$	166,490	$	12,239	$	—		$	—		$	178,729
Intersegment revenues		901		178		—			(1,079	)		—
Cost of goods sold — external customers		148,256		10,213		—			—			158,469
Cost of intersegment sales		933		138		—			(1,071	)		—

Gross profit		18,202		2,066		—			(8	)		20,260
Selling, administration and other		1,472		493		6,730			—			8,695

Earnings (loss) from operations	$	16,730	$	1,573	$	(6,730	)	$	(8	)	$	11,565

Total assets	$	233,900	$	32,753	$	44,549		$	—		$	311,202
Capital expenditures		9,915		—		—			—			9,915
Depreciation and amortization		1,760		495		35			—			2,290

Manufacturing Operations

Revenues from affiliates were 8% and 8% of total revenues for the three months ended March 31, 2005 and 2006, respectively. Revenues from one significant customer totaled 21% and 32% of total revenues for the three months ended March 31, 2005 and 2006, respectively. Revenues from two significant customers were 38% and 46% of total revenues for the three months ended March 31, 2005 and 2006, respectively. Receivables from one significant customer were 29% and 14% of total accounts receivable at March 31, 2005 and 2006, respectively. Receivables

American Railcar Industries, Inc. and Subsidiaries

from two significant customers were 42% and 20% of total accounts receivable at March 31, 2005 and 2006, respectively.

Railcar services

Revenues from affiliates were 4% and 3% of total revenues for the three months ended March 31, 2005 and 2006, respectively. No single customer accounted for more than 10% of total services revenue for the three months ended March 31, 2005 and 2006.

Note 15—Supplemental Cash Flow Information

ARI received interest income of $0.9 million and $0.5 million for the three months ended March 31, 2005 and 2006, respectively.

ARI paid interest expense of $1.1 million and $1.0 million for the three months ended March 31, 2005 and 2006, respectively.

ARI paid taxes of $.04 million and $1.4 million for the three months ended March 31, 2005 and 2006, respectively.

In January 2005, ARI exchanged the $165.0 million secured note with Mr. Icahn to ARL in satisfaction of the $130.0 million note owed to ARL plus $35.0 million of common interest in ARL.

In the first three months ended March 31, 2006, the Company incurred stock based compensation expense of $3.0 million in connection with the initial public offering for the issuance of shares to the Company’s Chief Executive Officer. The Company’s stock option expense for the three months ended March 31, 2006 was $0.6 million.

In January 2006, in connection with the initial public offering, the Company incurred a compensation expense of $0.5 million for its Chief Financial Officer which is payable in 2007.

In February 2006, the Board of Directors of the Company declared a common stock dividend of $0.03 per share to shareholders that was paid on April 6, 2006 to shareholders of records as of March 22, 2006.

Note 16—Subsequent Events

On April 2, 2006, the Company’s Marmaduke, Arkansas tank railcar manufacturing facility and associated equipment was damaged by a tornado. The Company has substantially completed its initial evaluation of the damage. While the majority of the facility suffered only minor damage, the portion of the facility that processed inbound material as well as equipment associated with material handling, plate steel blasting and sheet rolling was destroyed by the storm. The tornado also destroyed an empty building that was nearing completion to receive inbound material and store inventory. The clean up of debris is nearing completion, and the Company has recently begun the building reconstruction. The major equipment items that will require replacement have been ordered. The Company estimates that tank railcar production could resume in mid to late August, although the Company cannot at this time assure a firm date by which production may resume. Through the date of this filing, no Company customer has cancelled any contracts for the manufacture of tank railcars.

The Company received written confirmation from its insurance carrier that the Company’s insurance provides coverage for the wind and rain damage to its property and for business interruption as a direct result of the insured damage. The Company’s various insurance coverages have deductibles that must be satisfied before insurance coverage may be applied. These deductibles are a $100,000 property damage deductible and a 5-day equivalent time element deductible relating to the Company’s business interruption. Subject to these deductibles, the Company believes that substantially all of its damage from the storm will be covered by insurance and within the coverage limits of its policies. The insurance carrier has already made an initial payment of $7.5 million to the Company on its claim, and the Company is continuing to work with its carrier to further assess the amount of the damage and the insurable loss.

American Railcar Industries, Inc. and Subsidiaries

On April 3, 2006, the Company issued 75,000 options to purchase the Company’s common stock to the Company’s Chief Financial Officer with an exercise price of $35.69 per share. The options vest in three equal installments on April 3, 2008, April 3, 2009, and April 3, 2010.

American Railcar Industries, Inc. and Subsidiaries

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained in this report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, financial position or performance to be materially different from any future results, financial position or performance expressed or implied by such forward-looking statements. We have used the words “may,” “will,” “expect,” “anticipate,” “believe,” “forecast,” “estimate,” “plan,” “projected,” “intend” and similar expressions in this report to identify forward-looking statements. We have based these forward-looking statements on our current views with respect to future events and financial performance. Our actual results or those of our industry could differ materially from those projected in the forward-looking statements. Our forward-looking statements are subject to risks and uncertainties, including:

•

risks associated with the storm damage and related business interruption suffered by our Marmaduke manufacturing facility, including without limitation:

	•		the determination of the scope, amount and deductibles under our insurance coverage for that damage and business interruption;

	•		the timing of insurance payments;

	•		the delivery time for replacement equipment;

	•		the time it will take to complete our rebuilding efforts;

	•		delays that could extend the time of our plant shut-down;

	•		the risk that our rebuilding efforts, plant shut down or associated delivery delays will result in unanticipated costs that may not be covered by insurance;

	•		our ability to retain tank railcar customers or orders; and

	•		our ability to retain our employees for that facility;

	•		the difficulties of integrating acquired businesses with our own;

	•		the cyclical nature of our business;

	•		adverse economic and market conditions;

	•		fluctuating costs of raw materials, including steel and railcar components, and delays in the delivery of such raw materials and components;

	•		our ability to maintain relationships with our suppliers of railcar components and raw materials;

	•		fluctuations in the supply of components and raw materials we use in railcar manufacturing;

	•		the highly competitive nature of our industry;

	•		the risk of damage to our primary railcar manufacturing facilities or equipment in Paragould or Marmaduke, Arkansas;

	•		our reliance upon a small number of customers that represent a large percentage of our revenues;

	•		the variable purchase patterns of our railcar customers and the timing of completion, delivery and acceptance of customer orders;

	•		our dependence on our key personnel;

	•		the risks of a labor shortage in light of our recent growth;

American Railcar Industries, Inc. and Subsidiaries

	•		risks associated with the conversion of our railcar backlog into revenues;

	•		the risk of lack of acceptance of our new railcar offerings by our customers;

	•		the cost of complying with environmental laws and regulations;

	•		the costs associated with being a public company;

	•		our relationship with Carl C. Icahn, our principal beneficial stockholder and the chairman of our board of directors, and his affiliates as a purchaser of our products, supplier of components and services to us and as a provider of significant capital, financial and managerial support;

	•		potential failure by ACF Industries LLC, an affiliate of Carl Icahn our principal beneficial stockholder and the chairman of our board of directors to honor its indemnification obligations to us;

	•		potential risk of increased unionization of our workforce;

	•		our ability to manage our pension costs;

	•		potential significant warranty claims; and

	•		covenants in our existing revolving credit facility and other agreements as they presently exist and similar covenants that we expect in our amended and restated revolving credit facility governing our indebtedness that limit our management’s discretion in the operation of our businesses.

Our actual results could be different from the results described in or anticipated by our forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections and may be better or worse than anticipated. Given these uncertainties, you should not rely on forward-looking statements. Forward-looking statements represent our estimates and assumptions only as of the date that they were made. We expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, after the date of this report, in order to reflect changes in circumstances or expectations or the occurrence of unanticipated events except to the extent required by applicable securities laws. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed above under “Risk factors” in our Annual Report on Form 10-K filed on March 28, 2006 (the “Annual Report”) and in Part II- Item 1A of this report, as well as the risks and uncertainties discussed elsewhere in the Annual Report and this report. We caution you that these risks may not be exhaustive. We operate in a continually changing business environment and new risks emerge from time to time.

OVERVIEW

We are a leading North American manufacturer of covered hopper and tank railcars. We also repair and refurbish railcars, provide fleet management services and design and manufacture certain railcar and industrial components used in the production of our railcars as well as railcars and non-railcar industrial products produced by others. We provide our railcar customers with integrated solutions through a comprehensive set of high quality products and related services.

We operate in two segments: manufacturing operations and railcar services. Manufacturing operations consists of railcar manufacturing and railcar and industrial component manufacturing. Railcar services consists of railcar repair and refurbishment services and fleet management services.

RECENT DEVELOPMENTS

American Railcar Industries, Inc. and Subsidiaries

On March 31, 2006, we completed the purchase of the stock of Custom Steel, Inc., a subsidiary of Steel Technologies, Inc. Custom Steel operates a facility located adjacent to our component manufacturing facility in Kennett, Missouri that produces value-added fabricated parts that primarily support our railcar manufacturing operations. The purchase price was approximately $17.1 million including approximately $3.9 million for inventories. The purchase price includes a true up adjustment of $1.7 million which was paid back to the Company due to lower inventory levels at the time of the closing. In 2005 and the first three months of 2006 we acquired $45.0 million and $11.5 million, respectively of parts from Custom Steel.

On March 31, 2006, we entered into an agreement with American Railcar Leasing LLC (“ARL”) to manufacture and sell to ARL 1,000 tank railcars in 2007. We have in the past manufactured and sold railcars to ARL on a purchase order basis. ARL is controlled by Carl C. Icahn, our majority beneficial stockholder and the chairman of our board of directors. When we entered into this agreement, we planned to produce these tank railcars with new manufacturing capacity that we expected to have available beginning in January 2007. The agreement also includes options for ARL to purchase up to an additional 300 covered hopper railcars in 2007, should additional capacity become available, and 1,000 tank railcars and 400 covered hopper railcars in 2008. No assessment has yet been made as to what, if any, impact the recent storm damage to our tank railcar manufacturing facility in Marmaduke, Arkansas, might have on this contract.

On April 2, 2006, our Marmaduke, Arkansas tank railcar manufacturing facility was damaged by a tornado. While the majority of the facility suffered only minor damage, the portion of the factory that processed inbound material as well as equipment associated with material handling, plate steel blasting and sheet rolling was destroyed by the storm. The tornado also destroyed the steel plate storage facility that was under construction and nearly completed. We have ordered the major equipment items that will require replacement. The facility is currently shut down, and we estimate that tank railcar production could resume in mid to late August, although we cannot at this time assure a firm date by which production may resume. Through the date of this filing, none of our customers has canceled any contracts for the manufacture of tank railcars. We have received written confirmation from our insurance carrier that our insurance provides coverage for the wind and rain damage to our property and for business interruption as a direct result of the insured damage. Our various insurance coverages have deductibles that must be satisfied before insurance coverage may be applied. These deductibles are a $100,000 property damage deductible and a 5-day equivalent time element deductible relating to our business interruption. Subject to these deductibles, we believe that substantially all of our damage from the storm will be covered by insurance and within the coverage limits of our policies. The insurance carrier has already made an initial payment of $7.5 million to us on our claim, and we are continuing to work with our carrier to further assess the amount of the damage and the insurable loss. Certain risks associated with this storm damage are set forth in “Part II—Item 1A — Risk Factors.”

Our revenues and manufacturing gross profits will be adversely affected by the shut-down of our Marmaduke facility. However, as set forth above, and subject to our deductibles and the risks and uncertainties set forth in this report, we expect that the profit impact of these adverse affects will be substantially offset by proceeds from our business interruption insurance. We also expect to recognize a gain on the repair and replacement of our facility and equipment that is funded from insurance proceeds, where the cost of repair or replacement is greater than the book value of the underlying property or equipment that is being replaced.

RESULTS OF OPERATIONS

Three Months ended March 31, 2006 compared to Three Months ended March 31, 2005

Our earnings available to common shareholders for the three months ended March 31, 2006 were $6.7 million, compared to a loss of $2.0 million for the three months ended March 31, 2005, representing an increase of $8.7 million. In the first three months of 2006, we sold 1,980 railcars, which is 498 more than the 1,482 railcars we sold in the first three months of 2005. Most of our revenues for the first three months of 2006 included sales under contracts that allowed us to adjust our sale prices to pass on to our customers the impact of increases in the costs of certain raw materials, particularly steel, and components.

American Railcar Industries, Inc. and Subsidiaries

Revenues

Our revenues for the three months ended March 31, 2006 increased 36.5% to $178.7 million from $130.9 million in the three months ended March 31, 2005. This increase was primarily attributable to an increase in our revenues from manufacturing operations.

Our manufacturing operations revenues increased 37.9% to $166.5 million in the first three months of 2006 from $120.7 million in the first three months of 2005. This increase was primarily attributable to the delivery of an additional 498 railcars in the first three months of 2006 versus the comparable period of 2005, increased prices resulting from our ability to pass through our increased raw material and component costs and increases in the base unit price for some of our railcars. Our revenues from sales of railcars increased $46.4 million to $149.8 million in the first three months of 2006 from $103.4 million in the first three months of 2005. The additional deliveries of railcars in the first three months of 2006 reflected increased sales of covered hopper and tank railcars. The increased sales reflected our increased capacity at our Paragould facility supported by the continued strong backlog of orders for our railcars. For the first three months of 2006, our manufacturing operations included $15.0 million, or 8.4% of our total revenues, from transactions with affiliates, compared to $11.1 million, or 8.5% of our total revenues, in the first three months of 2005. These revenues were attributable to sales of railcars to companies controlled by Mr. Icahn.

Our railcar services revenues increased by $2.0 million to $12.2 million in the first three months of 2006, from $10.2 million in the first three months of 2005. This increase was primarily attributable to strong railcar repair demand. For the first three months of 2006, our railcar services revenues included $6.0 million, or 3.3% of our total revenues, from transactions with affiliates, compared to $5.8 million, or 4.4% of our total revenues, in the first three months of 2005.

Gross Profit

Our gross profit increased to $20.3 million in the first three months of 2006 from $7.2 million in the first three months of 2005. Our gross profit margin increased to 11.3% in the first three months of 2006 from 5.5% in the first three months of 2005, primarily reflecting improved margins in our manufacturing operations.

Our gross profit margin for our manufacturing operations increased to 11.0% in the first three months of 2006 from 4.3% in the first three months of 2005. This increase was primarily attributable to our ability to pass through increased raw material and component costs through variable pricing contracts, the shift in railcar mix, and improved efficiencies.

In the first three months of 2006, we were able to pass through most of our increased raw material and component costs. In the first three months of 2005, we were unable to pass through $1.2 million of $8.6 million of increased raw material and component costs. All of our current railcar manufacturing contracts have variable cost provisions that adjust the delivery price for changes in certain raw material and component costs. As a result, changes in steel prices and other raw material and component prices should have little impact on our gross profits for the remainder of the year. However, increases in raw material and component costs would have an adverse effect on our gross profit margin as a percentage of revenues, because revenue would increase and we do not earn any additional net profit margin on our price adjustment.

In 2004, we entered into a contract to manufacture centerbeam platform railcars. This was the first time we manufactured centerbeam platform railcars and, as a result of start-up and increased production costs, we did not realize a profit on this contract. Our centerbeam platform railcar contracts were completed at our Paragould facility in July 2005 and we have since converted the manufacturing line at that facility back to manufacturing covered hopper railcars.

In the first three months of 2005, we incurred additional costs in connection with the completion of our new third production line at our Paragould facility, including costs associated with outsourcing our railcar painting and lining for the increased railcar production from that the new production line and costs of the initial training and supplies for that production line. We substantially completed additional painting and lining capabilities at our Paragould facility in November 2005. This new painting and lining capacity has allowed us to improve margins in 2006 as we reduced outsourcing of this process.

American Railcar Industries, Inc. and Subsidiaries

Selling, General and Administrative Expenses

Our selling, general and administrative expenses increased by $1.7 million in the first three months of 2006, to $5.1 million from $3.4 million in the first three months of 2005. Selling, general and administrative expenses were 2.9% of total revenues in the first three months of 2006 as compared to 2.6% of total revenues in the first three months of 2005. The selling, general and administrative expenses for the first quarter of 2006 include a $0.5 million bonus to our Chief Financial Officer in connection with the initial public offering, payable April 22, 2007. Our increase in of selling, general and administrative expenses was primarily attributable to compensation expenses incurred in connection with our initial public offering, increased expenses associated with being a public company and increased expenses to support our growing business.

Stock Based Compensation Expense

Our stock based compensation expense for the three months ended March 31, 2006 was $3.6 million. In the first three months of 2006, we incurred stock based compensation expense of $3.6 million in connection with stock options and restricted stock awarded at the time of our initial public offering. We expect to incur additional stock based compensation expense of $0.3 million per month through January 2007 in connection with stock issued in connection with our initial public offering. For the remainder of 2006, the Company will incur stock option expense of $0.2 million per month based on the stock options issued in connection with and subsequent to the initial public offering. We did not incur any stock based compensation expense during the first quarter of 2005.

Interest Expense and Income

Our interest expense in the three months ended March 31, 2006 was $1.0 million as compared to $1.1 million for the three months ended March 31, 2005, representing a decrease of $0.1 million. In the three months ended March 31, 2006, we repaid substantially all of our outstanding debt with a portion of the net proceeds of our initial public offering. Our interest expense in the three months ended March 31, 2006 included approximately $0.6 million of deferred financing costs that we incurred in connection with the repayment of our industrial revenue bond and credit facility financings. Our interest income in the three months ended March 31, 2006 was $0.5 million as compared to $0.9 million for the three months ended March 31, 2005, representing a decrease of $0.4 million. The decrease in interest income was primarily attributable to the repayment of the $165.0 million secured note to Mr. Icahn in January 2005.

Income Taxes

Our income tax expense for the three months ended March 31, 2006 was $4.2 million, or 36.8% of our earnings before income taxes, as compared to $1.7 million for the three months ended March 31, 2005, or 40.7% of our earnings before income taxes. Our 2005 effective tax rate was impacted by expenses included in pre-tax earnings for which we do not receive a deduction for tax purposes. These expenses result from liabilities and obligations retained by ACF as part of its transfer of assets to us in 1994. Although ACF is responsible for any costs associated with these liabilities, we are required to recognize these costs as expenses in order to reflect the full cost of doing business. The entire amount of such permanently nondeductible expenses is treated as contribution of capital resulting in an increase to our effective tax rate. These expenses associated with employee benefit plans ended on December 1, 2005, when our retirement plans were separated from the ACF plans. The expenses included in pre-tax income were $0.3 million for the three months ended March 31, 2005.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity for the three months ended March 31, 2006 were proceeds from our initial public offering and cash generated from operations.

We completed our initial public offering on January 24, 2006 and issued 9.8 million shares at an offering price of $21.00 per share. Net proceeds from the offering were used, among other things, to repay most of our long-term debt, to redeem all of our outstanding redeemable preferred stock and to repay all amounts outstanding under our revolving credit facility. The remaining net proceeds have been retained for working capital and general corporate

American Railcar Industries, Inc. and Subsidiaries

purposes, including the purchase of a strategic supplier and other property plant and equipment in the three months ended March 31, 2006.

In January 2006, concurrent with the completion of the initial public offering, we entered into an Amended and Restated Credit Agreement with North Fork Business Capital Corporation, as administrative agent for various lenders. The revolving credit facility has a total commitment of the lesser of (i) $75 million or (ii) an amount equal to a percentage of eligible accounts receivable plus a percentage of eligible raw materials and finished goods inventory. In addition, the amended and restated revolving credit facility includes a $15.0 million capital expenditure sub-facility that is based on a percentage of the costs related to capital projects we may undertake. The revolving credit facility has a three-year term. Borrowings under the revolving credit facility are collateralized by substantially all of our assets. The revolving credit facility has both affirmative and negative covenants, including, without limitation, a maximum senior debt leverage ratio, a maximum total debt leverage ratio, a minimum interest coverage ratio, a minimum tangible net worth and limitations on capital expenditures and dividends. As of March 31, 2006 we had $63.6 million of availability under the revolving credit facility and no borrowings outstanding.

Cash Flows

The following tables summarizes our net cash provided by or used in operating activities, investing activities and financing activities for the three months ended March 31, 2006:


	Three Months Ended
	March 31,
	2006

Net cash provided by (used in):
Operating activities	$	(9,612	)
Investing activities		(26,830	)
Financing activities		35,688

Total	$	(754	)

Operating Activities

Cash flows from operating activities are affected by several factors, including fluctuations in business volume, contract terms for billings and collections, the timing of collections on our accounts receivables, processing of payroll and associated taxes and payments to our suppliers. We do not typically experience business credit losses, although a payment may be delayed pending completion of closing documentation, and a typical order of railcars may not yield cash proceeds until after the end of a reporting period.

Our net cash used in operating activities was $9.6 million for the three months ended March 31, 2006, which included net earnings of $7.3 million, increased by depreciation and amortization of $2.3 million, long-lived asset impairment of $0.4 million, write-off of deferred financing costs of $0.6 million, and stock based compensation expense of $3.6 million. These increases were partially offset by $0.5 million of earnings allocated to us as a result of our joint venture interest in Ohio Castings. Cash provided by operating activities attributable to changes in our current assets and liabilities included an increase in accounts receivable of $5.8 million, an increase in accounts receivable due form affiliate of $8.1 million, an increase in inventory of $6.6 million, an increase in prepaid expenses of $2.4 million, and a decrease in accounts payable of $4.3 million. These sources of cash were partially offset by an increase in accrued expenses of $3.2 million. The increase in inventories was primarily attributable to the increase in cost of steel and increased production levels. The decrease in accounts payable was primarily attributable to the payment of all outstanding payables with Custom Steel in connection with the acquisition. The increase in accounts receivable was primarily attributable to the increased volume of sales attributed to railcars manufactured at our Paragould facility. The increase in prepaid expenses was primarily attributable to payments for workers’ compensation and general insurance coverages that benefit future periods.

American Railcar Industries, Inc. and Subsidiaries

Investing Activities

Net cash used in investing activities for the three months ended March 31, 2006 was $26.8 million, including $9.9 million for the purchases of equipment at multiple locations to increase capacity and operating efficiencies. These purchases are described in further detail below under “—Capital Expenditures.” The remaining $17.1 million is attributable to the acquisition of Custom Steel. We also received a partial repayment from Ohio Castings of $0.1 million on a loan.

Financing Activities

Net cash provided by financing activities was $35.7 million for the three months ended March 31, 2006, and included the $205.3 million in proceeds from the initial public offering, offset by offering cost of $14.7 million, the redemption of preferred stock of $82.1 million, the payment of preferred dividends of $11.9 million, the reduction of amounts due to affiliates of $20.5 million, and the repayment of debt of $40.2 million.

Capital Expenditures

We continuously evaluate facility requirements based on our strategic plans, production requirements and market demand and may elect to make capital investments at higher or lower levels in the future. These investments are all based on an analysis of the potential for these additions to improve profitability and future rates of return. In response to the current demand for our railcars, we are pursuing opportunities to increase our production capacity and reduce our costs through continued vertical integration of our production capacity. From time to time, we may expand our business by acquiring other businesses or pursuing other strategic growth opportunities.

Capital expenditures for the first quarter of 2006 were $9.9 million. On January 31, 2006, we exercised an option to purchase all equipment under an equipment lease. The lease allowed for the purchase of all the equipment at estimated fair value. We paid $5.8 million to purchase the lease equipment. Other capital expenditures included $2.3 million for a building extension for tracks 1 and 2 at our Paragould facility, $0.5 million for the final phase of the track 3 paint shop at Paragould, $0.5 million for a steel plate storage facility at our Marmaduke facility and $0.4 million for replacement of production equipment at Marmaduke. The steel plate storage facility at Marmaduke, which was only partially completed, was destroyed by a tornado and we plan to reconstruct it.

On March 31, 2006 the Company completed the acquisition of the stock of Custom Steel Inc. from Steel Technologies, Inc., with the transaction effective April 1, 2006. After post closing adjustments, the investment is approximately $17.1 million.

In the first quarter of 2006, we initiated a project that we estimate will cost approximately $7 million to construct a new fabrication shop at our Paragould facility to produce covered hopper railcar components that are currently supplied by an outside vendor. In addition to repairing the tornado damage at our Marmaduke facility, we plan to invest approximately $10 million on two expansion projects at our Marmaduke plant to increase the production of hazardous material tank cars and standard service tank cars. We expect that the payments relating to these projects will be paid primarily in 2006. We expect to continue to invest in projects, including possible strategic acquisitions, to reduce manufacturing costs, improve production efficiencies and to otherwise complement and expand our business.

As further described under “—Recent Developments,” on April 2, 2006, our Marmaduke, Arkansas tank railcar manufacturing facility was damaged by a tornado and is currently shut down. We anticipate that we will incur significant capital expenditures in repairing the damage to the facility, and that the facility will not be able to begin to operate until at least mid to late August. We have received written confirmation from our insurance carrier that our insurance provides coverage for the wind and rain damage to our property and for business interruption as a direct result of the insured damage. Our various insurance coverages have deductibles that must be satisfied before insurance coverage may be applied. These deductibles are a $100,000 property damage deductible and a 5-day equivalent time element deductible relating to our business interruption. Subject to these deductibles, we believe that substantially all of our damage from the storm will be covered by insurance and within the coverage limits of our policies. The insurance carrier has already made an initial payment of $7.5 million to us on our claim, and we are

American Railcar Industries, Inc. and Subsidiaries

continuing to work with our carrier to further assess the amount of the damage and the insurable loss. Certain risks associated with this storm damage are set forth in “Part II—Item 1A — Risk Factors.”

We anticipate that the repair and replacement of our Marmaduke facility and equipment. and any future expansion of our business will be financed through recoveries from our insurance carrier, cash flow from operations, our revolving credit facility or term debt associated directly with that expenditure. Moreover, we believe that these sources of funds will provide sufficient liquidity to meet our expected operating requirements over the next twelve months.

Our long-term liquidity is contingent upon future operating performance and our ability to continue to meet financial covenants under our revolving credit facility and any other indebtedness. We may also require additional capital in the future to fund capital expenditures, acquisitions or incur from time to time other investments and these capital requirements could be substantial. Our operating performance may also be affected by matters discussed under “—Special Note Regarding Forward-Looking Statements”, “Risk Factors” in the Annual Report and this report and trends and uncertainties discussed in this discussion and analysis, as well as elsewhere in the Annual Report and this report. These risks, trends and uncertainties may also adversely affect our long-term liquidity.

Dividends

On February 28, 2006, our Board of Directors declared a regular cash dividend of $0.03 per share of our common stock. The dividend was paid on April 6, 2006, to shareholders of record at the close of business on March 22, 2006. We intend to pay cash dividends on our common stock in the future. Our revolving credit facility contains provisions that trigger a demand right if we pay dividends on our common stock unless the payment does not cause the adjusted fixed charge coverage ratio (fixed charges, pursuant to the revolving credit facility, include any dividends paid or payable on our common stock) to be less than 1.2 to 1.0 or the adjusted ratio of our indebtedness to earnings before interest, taxes, depreciation and amortization, after giving effect to any debt incurred to pay any such dividend to be greater than 4.0 to 1.0, each on a quarterly and/or annual basis. In addition, under Delaware law, our board of directors may declare dividends only to the extent of our “surplus” (which is defined as total assets at fair market value minus total liabilities, minus statutory capital), or if there is no surplus, out of our net profits for the then-current and/or immediately preceding fiscal years. Moreover, our declaration and payment of dividends will be at the discretion of our board of directors and will depend upon our operating results, strategic plans, capital requirements, financial condition, covenants under our borrowing arrangement and other factors our board of directors considers relevant. Accordingly, we may not pay dividends in any given amount in the future, or at all.

In addition, dividends of $0.6 million accrued in 2006 on our preferred stock were paid in the first quarter of 2006. All of our outstanding shares of preferred stock were redeemed in January 2006 in connection with our initial public offering.

Contractual Obligations

The following table summarizes our contractual obligations as of March 31, 2006 and the effect that these obligations and commitments would be expected to have on our liquidity and cash flow in future periods:

American Railcar Industries, Inc. and Subsidiaries


	Payments due by Period
Contractual Obligations	Total		1 Year		2-3 Years		4-5 Years		After 5 Years
	(in thousands)

Long-Term Debt Obligations	$	158	$	83	$	75	$	—	$	—

Operating Lease Obligations ¹		4,970		2,804		1,940		226		—

Purchase Obligations		67,629		16,000		51,629		—		—

Pension Funding		4,936		1,510		3,036		390		—


Total	$	77,693	$	20,397	$	56,680	$	616	$	—


¹		The operating lease commitment includes the future minimum rental payments required under non-cancelable operating leases for property and equipment leased by us.

We entered into two vendor supply contracts with minimum volume commitments in October 2005 with suppliers of materials used at our railcar production facilities. The agreements have terms of two and three years respectively. We have agreed to purchase a combined total of $67.6 from these two suppliers over three years. In 2006, 2007 and 2008, we expect to purchase $16.0 million, $27.1 million, and $24.5 million respectively under these agreements.

We entered into two supply agreements, in January 2005 and June 2005, with a steel supplier for the purchase of regular and normalized steel plate. The agreements each have terms of five years and may be terminated by either party at any time after two years, upon twelve months prior notice. Each agreement requires us to purchase the lesser of a fixed volume or 75% of our requirements for the steel covered by that agreement at prices that fluctuate with the market. We have no commitment under these arrangements to buy a minimum amount of steel, other than the minimum percentages, if our overall steel purchases decline.

We have entered into supply agreements with an affiliate of Amsted Industries, Inc., an affiliate of one of our Ohio Castings joint venture partners, to purchase up to 25% and 33% of the car sets, consisting of sideframes and bolsters, produced at each of two foundries, respectively, being operated by subsidiaries of Ohio Castings. Our purchase commitments under these supply agreements are dependent upon the number of car sets manufactured by these foundries, which are jointly controlled by us and the other two members of Ohio Castings.

We are subject to comprehensive federal, state, local and international environmental laws and regulations relating to the release or discharge of materials into the environment, the management, use, processing, handling, storage, transport or disposal of hazardous materials and wastes, or otherwise relating to the protection of human health and the environment. These laws and regulations not only expose us to liability for the environmental condition of our current or formerly owned or operated facilities, and our own negligent acts, but also may expose us to liability for the conduct of others or for our actions that were in compliance with all applicable laws at the time these actions were taken. In addition, these laws may require significant expenditures to achieve compliance, and are frequently modified or revised to impose new obligations. Civil and criminal fines and penalties and other sanctions may be imposed for non-compliance with these environmental laws and regulations. Our operations that involve hazardous materials also raise potential risks of liability under common law. We are involved in investigation and remediation activities at properties that we now own or lease to address historical contamination and potential contamination by third parties. We are also involved with state agencies in the cleanup of two sites under these laws. These investigations are at a preliminary stage, and it is impossible to estimate, with any certainty, the timing and extent of remedial actions that may be required, and the costs that would be involved in such remediation. Substantially all of the issues identified relate to the use of the properties prior to their transfer to us in 1994 by ACF and for which ACF has retained liability for environmental contamination that may have existed at the time of transfer to us. ACF has also agreed to indemnify us for any cost that might be incurred with those existing issues. However, if ACF fails to honor its obligations to us, we would be responsible for the cost of such remediation. We have been advised that,

American Railcar Industries, Inc. and Subsidiaries

ACF estimates that it will spend approximately $0.2 million on environmental investigation in each of 2006 and 2007, relating to contamination that existed at properties prior to their transfer to us and for which ACF has retained liability and agreed to indemnify us. We believe that our operations and facilities are in substantial compliance with applicable laws and regulations and that any noncompliance is not likely to have a material adverse effect on our operations or financial condition.

Future events, such as new environmental regulations or changes in or modified interpretations of existing laws and regulations or enforcement policies, or further investigation or evaluation of the potential health hazards of products or business activities, may give rise to additional compliance and other costs that could have a material adverse effect on our financial conditions and operations. In addition, ACF has in the past conducted investigation and remediation activities at properties that we now own to address historic contamination. Although we believe that ACF has satisfactorily addressed all known material contamination, there can be no assurance that ACF has addressed all historical contamination. The discovery of historical contamination or the release of hazardous substances into the environment at our current or formerly owned or operated facilities could require ACF or us in the future to incur investigative or remedial costs or other liabilities that could be material or that could interfere with the operation of our business.

We have been named a party to a suit in which the plaintiff alleges we were responsible for the malfunction of a valve which we manufactured, and that was negligently remanufactured in 2004 by a third party. We believe we have no responsibility for this malfunction and have meritorious defenses against any liability. It is not possible to estimate the expected settlement, if any, at this time as the case is in its early stages.

We have been named the defendant in a law suit in which the plaintiff, OCI Chemical Company, claims we were responsible for the damage caused by allegedly defective railcars that were manufactured by us. The lawsuit was filed on September 19, 2005 in the United States District Court, Eastern District of Missouri. The plaintiff seeks unspecified damages in excess of $75,000. The plaintiffs allege that the failures in certain components caused the contents transported by these railcars to spill out of the railcars causing property damage, clean-up costs, monitoring costs, testing costs and other costs and damages. We believe that we are not responsible for the damage and have meritorious defenses against liability.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations are based upon our interim consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Any differences may have a material impact on our financial condition and results of operation.

The critical accounting estimates used in the preparation of our financial statements that we believe affect our more significant judgments and estimates used in the preparation of our consolidated financial statements presented in this report are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005. Except as set forth below, there have been no material changes to the critical accounting policies.

Stock based Compensation

During the first quarter of 2006, we adopted SFAS No. 123R, “Share-Based Payment” , or SFAS 123R, which is a revision of SFAS No. 123 “Accounting for Stock-Based Compensation” , or SFAS 123, and supersedes APB No. 25, “Accounting for Stock Issues to Employees” , or APB 25. SFAS 123R requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors based on the estimated fair values of the awards on their grant dates. Our share-based awards include stock options and restricted stock awards.

American Railcar Industries, Inc. and Subsidiaries

We use the Black-Scholes model to estimate the fair value of our option awards and employee stock purchase rights issued under the Employee Stock Purchase Plan. The Black-Scholes model requires estimates of the expected term of the option, as well as future volatility and the risk-free interest rate.

Business combination

Business combinations accounted for under the purchase method of accounting require management to estimate the fair value of the assets acquired and liabilities assumed. The allocation of the purchase price is based on the estimated fair value of assets and liabilities acquired and may be subject to adjustments during the year following the date of acquisition related to a change in the fair value of the assets and liabilities assumed.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have a $75.0 million revolving credit facility which provides for financing of our working capital requirements. As of March 31, 2006, there were no borrowings under the revolving credit facility. We are exposed to interest rate risk on the borrowings under our revolving credit facility. However, we do not plan to enter into swaps or other hedging arrangements to manage this risk because we do not believe the risk is significant. On an annual basis, a 1% change in the interest rate in our revolving credit facility will increase or decrease our interest expense by $10,000 for every $1.0 million of outstanding borrowings.

We are exposed to price risks associated with the purchase of raw materials, especially steel and heavy castings. The cost of steel, heavy castings and all other materials used in the production of our railcars represent approximately 80-85% of our direct manufacturing costs. Given the significant increases in the price of raw materials since November 2003, this exposure can affect our costs of production. We believe that the risk to our margins and profitability has been greatly reduced by the variable pricing contracts we now have in place. We have negotiated all of our current railcar manufacturing contracts with our customers to adjust the purchase prices of our railcars to reflect increases or decreases in the cost of certain raw materials and components and, as a result, we are able to pass on to our customers most of the increased raw material and component costs with respect to the railcars that we will produce and deliver after the first nine months of 2005. We believe that we currently have excellent supplier relationships and do not anticipate that material constraints will limit our production capacity. Such constraints may exist if railcar production were to increase beyond current levels, or other economic changes occur that affect the availability of our raw materials.

We are not exposed to any significant foreign currency exchange risks.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report on Form 10-Q (the “Evaluation Date”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There has been no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

American Railcar Industries, Inc. and Subsidiaries

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There have been no material developments since the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

ITEM 1A. RISK FACTORS

In addition to the risk factors set forth in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 28, 2006, we are subject to the following additional risks relating to the tornado damage and associated plant shut down at our Marmaduke facility:

We cannot guarantee that our insurance coverage, subject to applicable deductibles, will be adequate to cover damage at our Marmaduke facility. Nor can we guarantee that our business interruption insurance will be adequate to cover our losses resulting from the business interruption. Our insurance carrier could also contest the scope of our coverage or the amount of our coverage or deductibles. Even if our preliminary assessment of our insurance coverage is correct, delays in receiving payments from, or disputes with, our insurance carrier, could adversely affect our business and results of operations. We cannot guarantee the delivery time for replacement equipment, the time it will take to complete our rebuilding efforts, how long our production delay at the facility will continue, or whether our rebuilding efforts, plant shut down or associated delivery delays will result in unanticipated costs that may not be covered by insurance. We cannot assure that we will be able to retain our tank railcar customers or orders. Our tank railcar orders may be subject to cancellation in connection with our plant shutdown or otherwise, or we may incur disputes with those customers over rescheduling deliveries. We also cannot guarantee that we will be able to retain our employees, several of whom may have been displaced from their homes.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In January 2006, we issued 285,714 shares of our common stock to our Chief Executive Officer, James J. Unger, as consideration for his past and continued services to us. The shares were issued pursuant to a November 2005 letter agreement with Mr. Unger and in reliance on the exemption to registration set forth in Rule 701 of the Securities Act.

In January 2006, in connection with our initial public offering of our Common Stock, we granted a total of 484,876 options to purchase shares of our Common Stock under our 2005 Equity Incentive Plan, including the following number of shares to our executive officers and key employees:


Executive Officer/Key Employee	Number of Shares

James A. Cowan		249,160
Jackie R. Pipkin		42,857
Alan C. Lullman		42,857
Michael R. Williams		42,857

The exercise price of these options is $21.00 per share. The options vest in three equal annual installments on January 19, 2007, January 19, 2008 and January 19, 2009 and have a five year term.

On February 28, 2006, the Board of Directors approved an amendment to the 2005 Equity Incentive Plan and associated form of stock option agreement to require eligible participants to enter into non-solicitation, non-competition and confidentiality agreements. On February 28, 2006, the Board of Directors also approved an amendment to the 2005 Executive Incentive Plan to require eligible participants to enter into non-solicitation, non-competition and confidentiality agreements.

In addition, on March 31, 2006, our Compensation Committee approved the award of options to purchase 75,000 shares of our Common Stock to our Chief Financial Officer, William P. Benac, which were granted on April 3, 2006. The exercise price of these options is $35.69 per share. The options vest in three annual installments on April 3, 2008, April 3, 2009, and April 3, 2010 and have a five year term. The options are subject to the terms and conditions of our 2005 Equity Incentive Plan and a stock option agreement, as amended, which contain non-solicitation, non-competition and confidentiality provisions.

American Railcar Industries, Inc. and Subsidiaries

On January 19, 2006, our registration statement on Form S-1 (Registration No. 333-130284) was declared effective and, on that same date, we filed a registration statement on Form S-1 pursuant to Rule 462(b) under the Securities Act (Registration No. 333-131162) (collectively, the “Registration Statement”). Pursuant to the Registration Statement, as amended, the Company registered 9,775,000 shares of common stock (8,500,000 shares offered by the Company and an additional 1,275,000 shares offered by Company pursuant to the exercise of the underwriters’ over-allotment option), par value $0.01 per share, with an aggregate offering price of $205.3 million. On January 24, 2006, the Company completed the sale of 9,775,000 shares of common stock to the public at a price of $21.00 per share and the offering was completed. The stock offering resulted in gross proceeds to the Company of $205.3 million. Expenses related to the offering were $13.3 million for underwriting discounts and commissions. We received net proceeds of $192.0 million in the offering.

Since the closing of the offering and through March 31, 2006, we have applied the net proceeds from the offering as follows (in millions):


Redemption of all outstanding shares of preferred stock	$	94.0
Repayment of notes due to affiliates		20.5
Repayment of all industrial revenue bonds		8.6
Repayment of amounts outstanding under revolving credit facility		32.3
Acquisition of Custom Steel		17.1
Payment of payables in connection with acquisition		5.3
Investment in plant, property and equipment		9.9
Offering costs paid during the first quarter		1.4

Total uses	$	189.1

As of March 31, 2006, there were approximately $2.9 million of proceeds remaining from the offering available for working capital and general corporate purposes.

American Railcar Industries, Inc. and Subsidiaries

ITEM 6. EXHIBITS


Exhibit
No.		Description of Exhibit


10.36		American Railcar Industries, Inc. 2005 Equity Incentive Plan, as amended

10.37		Form of Option Agreement, as amended, under American Railcar Industries, Inc. 2005 Equity Incentive Plan, as amended

10.38		American Railcar Industries, Inc. 2005 Executive Incentive Plan, as amended

10.39		Purchase and Sale Agreement dated as of March 31, 2006 between American Railcar Industries, Inc. and American Railcar Leasing, LLC†

31.1		Rule 13a-14(a), 15d-14(a) Certification of the Chief Executive Officer

31.2		Rule 13a-14(a), 15d-14(a) Certification of the Chief Financial Officer

32		Certification pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

†		Confidential treatment has been requested for the redacted portions of this agreement. A complete copy of this agreement, including the redacted portions, has been filed separately with the Securities and Exchange Commission.

American Railcar Industries, Inc. and Subsidiaries

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	AMERICAN RAILCAR INDUSTRIES, INC.
Date: May 15, 2006	By:	/s/ James J. Unger
		James J. Unger, President and Chief Executive Officer



	By:	/s/ William P. Benac
		William P. Benac, Senior Vice-President, Chief Financial
		Officer and Treasurer

American Railcar Industries, Inc. and Subsidiaries

EXHIBIT INDEX


Exhibit
No.		Description of Exhibit


10.36		American Railcar Industries, Inc. 2005 Equity Incentive Plan, as amended

10.37		Form of Option Agreement, as amended, under American Railcar Industries, Inc. 2005 Equity Incentive Plan, as amended

10.38		American Railcar Industries, Inc. 2005 Executive Incentive Plan, as amended

10.39		Purchase and Sale Agreement dated as of March 31, 2006 between American Railcar Industries, Inc. and American Railcar Leasing, LLC†

31.1		Rule 13a-14(a), 15d-14(a) Certification of the Chief Executive Officer

31.2		Rule 13a-14(a), 15d-14(a) Certification of the Chief Financial Officer

32		Certification pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

†		Confidential treatment has been requested for the redacted portions of this agreement. A complete copy of this agreement, including the redacted portions, has been filed separately with the Securities and Exchange Commission.

Exhibit 10.36

AMERICAN RAILCAR, INC.
2005 EQUITY INCENTIVE PLAN

1. Purpose and Eligibility. The purpose of this 2005 Equity Incentive Plan (the "Plan") of American Railcar, Inc., a Delaware corporation (the "Company") is to provide stock options, stock issuances, stock units and other equity interests in the Company (each, an "Award") to (a) employees, officers, directors, consultants and advisors of the Company and its Parents and Subsidiaries, and
(b) any other Person who is determined by the Board to have made (or is expected to make) contributions to the Company. Any person to whom an Award has been granted under the Plan is called a "Participant." Additional definitions are contained in Section 10.

2. Administration.

a. Administration by Board of Directors. The Plan will be administered by the Board of Directors of the Company (the "Board"). The Board, in its sole discretion, shall have the authority to grant and amend Awards, to adopt, amend and repeal rules relating to the Plan and to interpret and correct the provisions of the Plan and any Award. The Board shall have authority, subject to the express limitations of the Plan, (i) to construe and determine the respective Stock Option Agreement, Awards and the Plan, (ii) to prescribe, amend and rescind rules and regulations relating to the Plan and any Awards, (iii) to determine the terms and provisions of the respective Stock Option Agreements and Awards, which need not be identical, (iv) to initiate an Option Exchange Program, and (v) to make all other determinations in the judgment of the Board of Directors necessary or desirable for the administration and interpretation of the Plan. The Board may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Stock Option Agreement or Award in the manner and to the extent it shall deem expedient to carry the Plan, any Stock Option Agreement or Award into effect and it shall be the sole and final judge of such expediency. All decisions by the Board shall be final and binding on all interested persons. Neither the Company nor any member of the Board shall be liable for any action or determination relating to the Plan.

b. Appointment of Committee. To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board (a "Committee"). All references in the Plan to the "Board" shall mean such Committee or the Board.

c. Delegation to Executive Officers. To the extent permitted by applicable law, the Board may delegate to one or more executive officers of the Company the power to grant Awards and exercise such other powers under the Plan as the Board may determine, provided that the Board shall fix the maximum number of Awards to be granted and the maximum number of shares issuable to any one Participant pursuant to Awards granted by such executive officers.

d. Applicability of Section Rule 16b-3. Notwithstanding anything to the contrary in the foregoing if, or at such time as, the Common Stock is or becomes registered under Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor

statute, the Plan shall be administered in a manner consistent with Rule 16b-3 promulgated thereunder, as it may be amended from time to time, or any successor rules ("Rule 16b-3"), such that all subsequent grants of Awards hereunder to Reporting Persons, as hereinafter defined, shall be exempt under such rule. Those provisions of the Plan which make express reference to Rule 16b-3 or which are required in order for certain option transactions to qualify for exemption under Rule 16b-3 shall apply only to such persons as are required to file reports under Section 16 (a) of the Exchange Act (a "Reporting Person").

e. Applicability of Section 162 (m). Those provisions of the Plan which are required by or make express reference to Section 162 (m) of the Code or any regulations thereunder, or any successor section of the Code or regulations thereunder ("Section 162 (m)") shall apply only upon the Company's becoming a company that is subject to Section 162 (m). Notwithstanding any provisions in this Plan to the contrary, whenever the Board is authorized to exercise its discretion in the administration or amendment of this Plan or any Award hereunder or otherwise, the Board may not exercise such discretion in a manner that would cause any outstanding Award that would otherwise qualify as performance-based compensation under Section 162 (m) to fail to so qualify under
Section 162 (m).

3 Stock Available for Awards.

a. Number of Shares. Subject to adjustment under Section 3(c), the aggregate number of shares of common stock of the Company (the "Common Stock") that may be issued pursuant to the Plan is one million 1,000,000. If any Award expires, or is terminated, surrendered or forfeited, in whole or in part, the unissued Common Stock covered by such Award shall again be available for the grant of Awards under the Plan. If an Award granted under the Plan shall expire or terminate for any reason without having been exercised in full, the unpurchased shares subject to such Award shall again be available for subsequent Awards under the Plan, and if shares of Common Stock issued pursuant to the Plan are repurchased by, or are surrendered or forfeited to, the Company at no more than the price paid for such shares, such shares of Common Stock shall again be available for the grant of Awards under the Plan. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares.

b. Per-Participant Limit. Subject to adjustment under Section 3(c), no Participant may be granted Awards during any one fiscal year to purchase more than three hundred thousand (300,000) shares of Common Stock.

c. Adjustment to Common Stock. Subject to Section 7, in the event of any stock split, reverse stock split stock dividend, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off, split-up, or other similar change in capitalization or similar event (other than any stock split effected in connection with the merger of American Railcar Industries, Inc., a Missouri Corporation with and into the Corporation), (i) the number and class of securities available for Awards under the Plan and the per-Participant share limit, (ii) the number and class of securities, vesting schedule and exercise price per share subject to each outstanding Option, (iii) the repurchase price per security subject to repurchase, and (iv) the terms of each other outstanding

Award shall be adjusted by the Company (or substituted Awards may be made if applicable) to the extent the Board shall determine, in good faith, that such an adjustment (or substitution) is appropriate.

4. Stock Options.

a. General. The Board may grant options to purchase Common Stock (each, an "Option") and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option and the conditions and limitations applicable to the exercise of each Option and the shares of Common Stock issued upon the exercise of each Option, including, but not limited to, vesting provisions, repurchase provisions and restrictions relating to applicable federal or state securities laws. Each Option will be evidenced by a Stock Option Agreement, consisting of a Notice of Stock Option Award and a Stock Option Award Agreement (collectively, a "Stock Option Agreement").

b. Incentive Stock Options. An Option that the Board intends to be an incentive stock option (an "Incentive Stock Option") as defined in Section 422 of the Code, as amended, or any successor statute ("Section 422"), shall be granted only to an employee of the Company and shall be subject to and shall be construed consistently with the requirements of Section 422 and regulations thereunder. The Board and the Company shall have no liability if an Option or any part thereof that is intended to be an Incentive Stock Option does not qualify as such. An Option or any part thereof that does not qualify as an Incentive Stock Option is referred to herein as a "Nonstatutory Stock Option" or "Nonqualified Stock Option."

c. Dollar Limitation. For so long as the Code shall so provide, Options granted to any employee under the Plan (and any other incentive stock option plans of the Company) which are intended to qualify as Incentive Stock Options shall not qualify as Incentive Stock Options to the extent that such Options, in the aggregate, become exercisable for the first time in any one calendar year for shares of Common Stock with an aggregate fair market value (determined as of the respective date or dates of grant) of more than $100,000. The amount of Incentive Stock Options which exceed such $100,000 limitation shall be deemed to be Nonqualified Stock Options. For the purpose of this limitation, unless otherwise required by the Code or regulations of the Internal Revenue Service or determined by the Board, Options shall be taken into account in the order granted, and the Board may designate that portion of any Incentive Stock Option that shall be treated as Nonqualified Option in the event that the provisions of this paragraph apply to a portion of any Option. The designation described in the preceding sentence may be made at such time as the Committee considers appropriate, including after the issuance of the Option or at the time of its exercise.

d. Exercise Price. The Board shall establish the exercise price (or determine the method by which the exercise price shall be determined) at the time each Option is granted and specify the exercise price in the applicable Stock Option Agreement, provided, however, in no event may the per share exercise price be less than the fair market value of the Common Stock at the time of the grant. In the case of an Incentive Stock Option granted to a Participant who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any parent or subsidiary, then the exercise price

shall be no less than 110% of the fair market value of the Common Stock on the date of grant. In the case of a grant of an Incentive Stock Option to any other Participant, the exercise price shall be no less than 100% of the fair market value of the Common Stock on the date of grant.

e. Duration of Options. Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable Stock Option Agreement; provided, that the term of any Incentive Stock Option may not be more than ten (10) years from the date of grant. In the case of an Incentive Stock Option granted to a Participant who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any parent or subsidiary, the term of the Option shall be no longer than five (5) years from the date of grant.

f. Exercise of Option. Options may be exercised only by delivery to the Company of a written notice of exercise signed by the proper person together with payment in full as specified in Section 4(g) and the Stock Option Agreement for the number of shares for which the Option is exercised.

g. Payment Upon Exercise. Common Stock purchased upon the exercise of an Option shall be paid for by one or any combination of the following forms of payment as permitted by the Board in its sole and absolute discretion:

i. by check payable to the order of the Company;

ii. only if the Common Stock is then publicly traded, by delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price, or delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price;

iii. to the extent explicitly provided in the applicable Stock Option Agreement, by delivery of shares of Common Stock owned by the Participant valued at fair market value (as determined by the Board or as determined pursuant to the applicable Stock Option Agreement); and

iv. payment of such other lawful consideration as the Board may determine.

Except as otherwise expressly set forth in a Stock Option Agreement, the Board shall have no obligation to accept consideration other than cash and in particular, unless the Board so expressly provides, in no event will the Company accept the delivery of shares of Common Stock that have not been owned by the Participant at least six months prior to the exercise. The fair market value of any shares of the Company's Common Stock or other non-cash consideration which may be delivered upon exercise of an Option shall be determined in such manner as may be prescribed by the Board.

h. Acceleration, Extension, Etc. The Board may, in its sole discretion, and in all instances subject to any relevant tax and accounting considerations which may adversely impact

or impair the Company, (i) accelerate the date or dates on which all or any particular Options or Awards granted under the Plan may be exercised, or (ii) extend the dates during which all or any particular Options or Awards granted under the Plan may be exercised or vest.

i. Determination of Fair Market Value. If, at the time an Option is granted under the Plan, the Company's Common Stock is publicly traded under the Exchange Act, "fair market value" shall mean (i) if the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq Small Cap Market of The Nasdaq Stock Market, its fair market value shall be the last reported sales price for such stock (on that date) or the closing bid, if no sales were reported as quoted on such exchange or system as reported in The Wall Street Journal or such other source as the Board deems reliable; or (ii) the average of the closing bid and asked prices last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on a national market system. In the absence of an established market for the Common Stock, including without limitation for Awards granted upon the execution of an underwriting agreement (e.g. pricing) of an initial public offering of the Company's Common Stock, the fair market value thereof shall be determined in good faith by the Board after taking into consideration all factors which it deems appropriate.

5. Restricted Stock.

a. Grants. The Board may grant Awards entitling recipients to acquire shares of Common Stock, subject to (i) delivery to the Company by the Participant of a check in an amount at least equal to the par value of the shares purchased, and (ii) the right of the Company to repurchase all or part of such shares at their issue price or other stated or formula price from the Participant in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award (each, a "Restricted Stock Award").

b. Terms and Conditions. The Board shall determine the terms and conditions of any such Restricted Stock Award. Any stock certificates issued in respect of a Restricted Stock Award shall be registered in the name of the Participant and, unless otherwise determined by the Board, deposited by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). After the expiration of the applicable restriction periods, the Company (or such designee) shall deliver the certificates no longer subject to such restrictions to the Participant or, if the Participant has died, to the beneficiary designated by a Participant, in a manner determined by the Board, to receive amounts due or exercise rights of the Participant in the event of the Participant's death (the "Designated Beneficiary"). In the absence of an effective designation by a Participant, Designated Beneficiary shall mean the Participant's estate.

6. Other Stock-Based Awards. The Board shall have the right to grant other Awards based upon the Common Stock having such terms and conditions as the Board may determine, including, without limitation, the grant of shares based upon certain conditions, the grant of securities convertible into Common Stock and the grant of stock appreciation rights, phantom stock awards or stock units.

7. General Provisions Applicable to Awards.

a. Transferability of Awards. Except as the Board may otherwise determine or provide in an Award, Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the life of the Participant, shall be exercisable only by the Participant; provided, however, except as the Board may otherwise determine or provide in an Award, that Nonstatutory Options and Restricted Stock Awards may be transferred pursuant to a qualified domestic relations order (as defined in the Employee Retirement Income Security Act of 1974, as amended) or to a grantor-retained annuity trust or a similar estate-planning vehicle in which the trust is bound by all provisions of the Stock Option Agreement and Restricted Stock Award, which are applicable to the Participant. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees.

b. Documentation. Each Award under the Plan shall be evidenced by a written instrument in such form as the Board shall determine or as executed by an officer of the Company pursuant to authority delegated by the Board. Each Award may contain terms and conditions in addition to those set forth in the Plan, provided that such terms and conditions do not contravene the provisions of the Plan or applicable law.

c. Board Discretion. The terms of each type of Award need not be identical, and the Board need not treat Participants uniformly.

d. Additional Award Provisions. The Board may, in its sole discretion, include additional provisions in any Stock Option Agreement, Restricted Stock Award or other Award granted under the Plan, including without limitation restrictions on transfer, repurchase rights, commitments to pay cash bonuses, to make, arrange for or guaranty loans or to transfer other property to Participants upon exercise of Awards, or transfer other property to Participants upon exercise of Awards, or such other provisions as shall be determined by the Board; provided that such additional provisions shall not be inconsistent with any other term or condition of the Plan or applicable law.

e. Termination of Status. The Board shall determine the effect on an Award of the disability (as defined in Section 22(e)(3) of the Code), death, retirement, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, or the Participant's legal representative, conservator, guardian or Designated Beneficiary, may exercise rights under the Award, subject to applicable law and the provisions of the Code related to Incentive Stock Options.

f. Change in Control. Unless otherwise expressly provided in the applicable Stock Option Agreement or Restricted Stock Award or other Award, in connection with the occurrence of a Change in Control (as defined below), the Board shall, in its sole discretion as to any outstanding Awards including any portions thereof (on the same basis or on different bases, as the Board shall specify), take one or any combination of the following actions:

A. make appropriate provision for the continuation of such Awards by the Company or the assumption of such Awards by the surviving or acquiring entity and by substituting on an equitable basis for the shares then subject to such Awards either (x) the consideration payable with respect to the outstanding shares of Common Stock in connection with the Change in Control, (y) shares of stock of the surviving or acquiring corporation or (z) such other securities as the Board deems appropriate, the fair market value of which (as determined by the Board in its sole discretion) shall not materially differ from the fair market value of the shares of Common Stock subject to such Awards immediately preceding the Change in Control;

B. accelerate the date of exercise or vesting of such Awards;

C. permit the exchange of such Award for the right to participate in any stock option or other employee benefit plan of any successor corporation;

D. provide for the repurchase of the Award for an amount equal to the difference of (i) the consideration received per share for the securities underlying the Award in the Change in Control minus (ii) the per share exercise price, if any, of such securities. Such amount shall be payable in cash for the property payable with respect to such securities in connection with the Change in Control. The value of any such property shall be determined by the Board in its sole discretion; or

E. provide for the termination of any such Awards immediately prior to a Change in Control; provided that no such termination will be effective if the Change in Control is not consummated.

g. Change in Control Defined. For purposes of this Agreement, "Change in Control" means the consummation of any transaction (including, without limitation, any sale of stock, merger, consolidation or spin-off), the result of which is that any Person, other than Carl Icahn or the Related Parties, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of the Company. For purposes of the definition of Change in Control, the capitalized terms shall have the following meaning: "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and any successor thereto. "Related Parties" means: (1) Carl Icahn, any spouse and any child, stepchild, sibling or descendant of Carl Icahn; (2) any estate of Carl Icahn or of any person under clause (1); (3) any person who receives a beneficial interest in any estate under clause (2) to the extent of such interest; (4) any executor, personal administrator or trustee who holds such beneficial interest in the Company for the benefit of, or as fiduciary for, any person under clauses (1), (2) or (3) to the extent of such interest; and (5) any Person, directly or indirectly owned or controlled by Carl Icahn or any other person or persons identified in clauses
(1), (2), (3) or (4), and (6) any not-for-

profit entity not subject to taxation pursuant to Section 501(c)(3) of the Code or any successor provision to which Carl Icahn or any person identified in clauses (1), (2), or (3) above is a member of the Board of Directors or an equivalent governing body of, and is a senior officer or trustee, as the case may be, of any such entity. "Voting Stock" means any class or series of capital stock, or of an equity interest in an entity other than a corporation, that is (A) ordinarily entitled to vote in the election of directors thereof at a meeting of stockholders called for such purpose, without the occurrence of any additional event or contingency or (B) in the case of an entity other than a corporation, ordinarily entitled to elect or appoint the governing body of such entity, without the occurrence of any additional event or contingency.

h. Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Board shall notify each Participant as soon as practicable prior to the effective date of such proposed transaction. The Board in its sole discretion may provide for a Participant to have the right to exercise his or her Award until fifteen (15) days prior to such transaction as to all of the shares of Common Stock covered by the Option or Award, including shares as to which the Option or Award would not otherwise be exercisable, which exercise may in the sole discretion of the Board, be made subject to and conditioned upon the consummation of such proposed transaction. In addition, the Board may provide that any Company repurchase option applicable to any shares of Common Stock purchased upon exercise of an Option or Award shall lapse as to all such shares of Common Stock, provided the proposed dissolution and liquidation takes place at the time and in the manner contemplated.

i. Assumption of Options Upon Certain Events. In connection with a merger or consolidation of an entity with the Company or the acquisition by the Company of property or stock of an entity, the Board may grant Awards under the Plan in substitution for stock and stock-based awards issued by such entity or an affiliate thereof. The substitute Awards shall be granted on such terms and conditions as the Board considers appropriate in the circumstances.

j. Parachute Payments and Parachute Awards. Notwithstanding the provisions of Section 7(f) and in the sole discretion of the Company, if, in connection with a Change in Control described therein, if a tax under Section 4999 of the Code would be imposed on the Participant (after taking into account the exceptions set forth in Sections 280G(b)(4) and 280G(b)(5) of the Code, if applicable), then the number of Awards which shall become exercisable, realizable or vested as provided in such Section shall be reduced (or delayed), to the minimum extent necessary, so that no such tax would be imposed on the Participant (the Awards not becoming so accelerated, realizable or vested, the "Parachute Awards"). All determinations required to be made under this Section 7(j) shall be made by the Company.

k. Amendment of Awards. The Board may amend, modify or terminate any outstanding Award including, but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or realization, and converting an Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participant's consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant and such action is expressly permitted herein, including, without limitation, Section 7(m).

l. Conditions on Delivery of Stock. The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Company's counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations.

m. Acceleration. The Board may, without the Participant's consent, at any time provide that any Options shall become immediately exercisable in full or in part, that any Restricted Stock Awards shall be free of some or all restrictions, or that any other stock-based Awards may become exercisable in full or in part or free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be, despite the fact that the foregoing actions may (i) cause the application of Sections 280G and 4999 of the Code if a change in control of the Company occurs, or (ii) disqualify all or part of the Option as an Incentive Stock Option.

8. Withholding. The Company shall have the right to deduct from payments of any kind otherwise due to the optionee or recipient of an Award any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of Options under the Plan or the purchase of shares subject to the Award. Subject to the prior approval of the Company, which may be withheld by the Company in its sole discretion, the optionee or recipient of an Award may elect to satisfy such obligation, in whole or in part, (a) by causing the Company to withhold shares of Common Stock otherwise issuable pursuant to the exercise of an Option or the purchase of shares subject to an Award or (b) by delivering to the Company shares of Common Stock already owned by the optionee or Award recipient of an Award. The shares so delivered or withheld shall have a fair market value of the shares used to satisfy such withholding obligation as shall be determined by the Company as of the date that the amount of tax to be withheld is to be determined. An optionee or recipient of an Award who has made an election pursuant to this Section may only satisfy his or her withholding obligation with shares of Common Stock which are not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements.

9. No Exercise of Option if Engagement or Employment Terminated for Cause. If the employment or engagement of any Participant is terminated "for Cause," the Award may terminate, upon a determination of the Board, on the date of such termination and the Option shall thereupon not be exercisable to any extent whatsoever and the Company shall have the right to repurchase any shares of Common Stock, subject to a Restricted Stock Award whether or not such shares have vested, at the Participant's initial purchase price. For purposes of this
Section 9, "for Cause" shall be defined as follows: (i) if the Participant has executed an employment agreement, then the definition of "cause" contained therein, if any, shall govern, or (ii) conduct, as determined by the Board of Directors, involving any one of the following: (a) misconduct or inadequate performance by the Participant which is injurious to the Company; (b) the commission of an act of embezzlement, fraud or theft, which results in economic loss,

damage or injury to the Company; (c) the unauthorized disclosure of any trade secret or confidential information of the Company (or any client, customer, supplier or other third party who has a business relationship with the Company) or the violation of any noncompetition or nonsolicitation covenant or assignment of inventions obligation with the Company; (d) the commission of an act which constitutes unfair competition with the Company or which induces any customer or prospective customer of the Company to breach a contract with the Company or to decline to do business with the Company; (e) the indictment of the Participant for a felony or serious misdemeanor offense, either in connection with the performance of his or her obligations to the Company or which shall adversely affect the Participant's ability to perform such obligations; (f) the commission of an act of fraud or breach of fiduciary duty which results in loss, damage or injury to the Company; or (g) the failure of the Participant to perform in a material respect his or her employment, consulting or advisory obligations without proper cause. The Board may in its discretion waive or modify the provisions of this Section at a meeting of the Board with respect to any individual Participant with regard to the facts and circumstances of any particular situation involving a determination under this Section.

10. Miscellaneous.

a. Definitions.

i. "Company," for purposes of eligibility under the Plan, shall include any present or future subsidiary corporations of American Railcar, Inc., as defined in Section 424(f) of the Code (a "Subsidiary"), and any present or future parent corporation of American Railcar, Inc., as defined in Section 424(e) of the Code. For purposes of Awards other than Incentive Stock Options, the term "Company" shall include any other business venture in which the Company has a direct or indirect significant interest, as determined by the Board in its sole discretion.

ii. "Code" means the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder.

iii. "Employee" for purposes of eligibility under the Plan shall include a person to whom an offer of employment has been extended by the Company.

iv "Option Exchange Program" means a program whereby outstanding options are exchanged for options with a lower exercise price.

b. No Right To Employment or Other Status. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan.

c. No Rights As Stockholder. Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to

any shares of Common Stock to be distributed with respect to an Award until becoming the record holder thereof.

d. Effective Date and Term of Plan. The Plan shall become effective on the date on which it is adopted by the Board. No Awards shall be granted under the Plan after the completion of ten years from the date on which the Plan was adopted by the Board, but Awards previously granted may extend beyond that date.

e. Amendment of Plan. The Board may amend, suspend or terminate the Plan or any portion thereof at any time.

f. Governing Law. The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the state of Delaware, without regard to any applicable conflicts of law.

g. Confidentiality, Non-Compete and Non-Solicit. Each Participant agrees to execute and deliver to the Company a Confidentiality, Non-Compete and Non-Solicit Agreement in form and substance acceptable to the Company.

APPROVALS
ORIGINAL PLAN:
Adopted by the Board of Directors on: December 23, 2005 Approved by the stockholders on: January 13, 2006

AMENDMENTS TO PLAN:
Amended by Board of Directors on: February 28, 2006

Exhibit 10.37

AMERICAN RAILCAR INDUSTRIES, INC.
2005 EQUITY INCENTIVE PLAN
NOTICE OF STOCK OPTION AWARD

Unless otherwise defined herein, the terms defined in the 2005 Equity Incentive Plan shall have the same defined meanings in this Notice of Stock Option Award and the attached Stock Option Award Terms, which is incorporated herein by reference (together, the "Award Agreement").

PARTICIPANT (the "PARTICIPANT")

GRANT

The undersigned Participant has been granted an Option to purchase Common Stock of American Railcar Industries, Inc. (the "Company"), subject to the terms and conditions of the Plan and this Award Agreement, as follows:

DATE OF GRANT              ______________________          TOTAL EXERCISE PRICE             ____________________

TYPE OF OPTION             [ ] Incentive Stock Option      TOTAL NUMBER OF SHARES GRANTED   ____________________

                           [ ] Nonstatutory Stock Option   TERM/EXPIRATION DATE             [5 YEARS]

EXERCISE PRICE PER SHARE   [FMV ON GRANT DATE]

Vesting Schedule:

This Option shall be exercisable, in whole or in part, according to the following vesting schedule:

            VESTING DATE               % OF GRANT (OR # OF SHARES) VESTED
------------------------------------   ----------------------------------
One year anniversary of Grant Date     33.33% of Grant
Two year anniversary of Grant Date     66.66% of Grant
Three year anniversary of Grant Date   100% of Grant

PARTICIPANT AMERICAN RAILCAR INDUSTRIES, INC.

-------------------------------------   ----------------------------------------
                                        By

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Print Name                              Title

AMERICAN RAILCAR INDUSTRIES, INC.
STOCK OPTION
AWARD TERMS

1. Grant of Option. The Committee hereby grants to the Participant named in the Notice of Stock Option Grant an option (the "Option") to purchase the number of Shares set forth in the Notice of Stock Option Award, at the exercise price per Share set forth in the Notice of Stock Option Grant (the "Exercise Price"), and subject to the terms and conditions of the 2005 Equity Incentive Plan (the "Plan"), which is incorporated herein by reference. In the event of a conflict between the terms and conditions of the Plan and this Stock Option Award Agreement, the terms and conditions of the Plan shall prevail.

If designated in the Notice of Stock Option Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 limitation rule of Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option ("NSO").

2. Exercise of Option.

i. Right to Exercise. This Option may be exercised during its term in accordance with the Vesting Schedule set out in the Notice of Stock Option Award and with the applicable provisions of the Plan and this Award Agreement, including, without limitation, if the Participant is terminated for Cause as described more fully in
Section 9 of the Plan, the Option shall immediately terminate.

ii. Method of Exercise. This Option shall be exercisable by delivery of an exercise notice in the form attached as Exhibit A (the "Exercise Notice") which shall state the election to exercise the Option, the number of Shares with respect to which the Option is being exercised (the "Exercised Shares"), and such other representations and agreements as may be required by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by payment of the aggregate Exercise Price.

No Shares shall be issued pursuant to the exercise of an Option unless such issuance and such exercise complies with applicable laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Participant on the date on which the Option is exercised with respect to such Shares.

3. Termination. This Option shall be exercisable for three months after Participant ceases to be an employee; provided, however, if the Relationship is terminated by the Company for cause, the Option shall terminate immediately. Upon Participant's death or Disability, this Option may be exercised for twelve months after the Relationship ceases. In no event may Participant exercise this Option after the Term/Expiration Date as provided above.

4. Participant's Representations. In the event the Shares have not been registered under the Securities Act of 1933, as amended, (the "Securities Act") at the time this Option is exercised and as a condition of such exercise, the Participant shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her investment representations as requested by the Company.

5. Lock-Up Period. Participant hereby agrees that, if so requested by the Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Participant shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such other period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period.

6. Restrictions on Exercise. This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable law.

7. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Participant only by Participant. The terms of the Plan and this Award Agreement shall be binding upon the executors, Committees, heirs, successors and assigns of the Participant.

8. Term of Option. This Option may be exercised only within the Term set out in the Notice of Stock Option Award which Term may not exceed five
(5) years from the Date of Grant, and may be exercised during such Term only in accordance with the Plan and the terms of this Award Agreement.

9. Notice of Disqualifying Disposition of Incentive Stock Option Shares. If this Option is an Incentive Stock Option, and if the Participant sells or otherwise disposes of any of the Shares acquired pursuant to the Incentive Stock Option on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after the date of

exercise, the Participant shall immediately notify the Company in writing of such disposition. The Participant agrees that the Participant may be subject to income tax withholding by the Company on the compensation income recognized by the Participant.

10. Withholding. Pursuant to applicable federal, state, local or foreign laws, the Company may be required to collect income or other taxes on the grant of this Option, the exercise of this Option, the lapse of a restriction placed on this Option or the Shares issued upon exercise of this Option, or at other times. The Company may require, at such time as it considers appropriate, that the Participant pay the Company the amount of any taxes which the Company may determine is required to be withheld or collected, and the Participant shall comply with the requirement or demand of the Company. In its discretion, the Company may withhold Shares to be received upon exercise of this Option or offset against any amount owed by the Company to the Participant, including compensation amounts, if in its sole discretion it deems this to be an appropriate method for withholding or collecting taxes.

11. Entire Agreement; Governing Law. The Plan is incorporated herein by reference. The Plan and this Award Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof, and may not be modified (except as provided herein and in the Plan) adversely to the Participant's interest except by means of a writing signed by the Company and Participant. This agreement is governed by the internal substantive laws but not the choice of law rules of the State of Delaware.

12. No Guarantee of Continued Service. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING IN THE RELATIONSHIP AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING ENGAGED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED EMPLOYMENT FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH PARTICIPANT'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE THE RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.

13. Confidentiality, Non-Compete and Non-Solicitation. Pursuant to the terms and conditions of the Plan, Participant has executed and delivered to the Company the Confidentiality, Non-Compete and Non-Solicitation Agreement attached hereto as Exhibit B.

14. Participant Acknowledgement. Participant acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Participant has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Plan or this Option. Participant further agrees to notify the Company upon any change in the residence address indicated below.

EXHIBIT A

2005 EQUITY INCENTIVE PLAN
EXERCISE NOTICE

American Railcar Industries, Inc.
100 Clark St.
St. Charles, MO 63301
Attention: President

1. Exercise of Option. Effective as of today, ______________, 200_, the undersigned ("Participant") hereby elects to exercise Participant's option to purchase _________ shares of the Common Stock (the "Shares") of American Railcar Industries, Inc. (the "Company") under and pursuant to the 2005 Equity Incentive Plan (the "Plan") and the Stock Option Award Agreement dated ____________, 200__ (the "Award Agreement").

2. Delivery of Payment. Purchaser herewith delivers to the Company the full purchase price of the Shares, as set forth in the Award Agreement.

3. Representations of Participant. Participant acknowledges that Participant has received, read and understood the Plan and the Award Agreement and agrees to abide by and be bound by their terms and conditions.

4. Rights as Stockholder. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares shall be issued to the Participant as soon as practicable after the Option is exercised. No adjustment shall be made for a dividend or other right for which the record date is prior to the date of issuance except as provided in Section 3(c) of the Plan.

5. Tax Consultation. Participant understands that Participant may suffer adverse tax consequences as a result of Participant's purchase or disposition of the Shares. Participant represents that Participant has consulted with any tax consultants Participant deems advisable in connection with the purchase or disposition of the Shares and that Participant is not relying on the Company for any tax advice.

[SIGNATURES APPEAR ON NEXT PAGE.]

Submitted by:                           Accepted by:

PARTICIPANT                             AMERICAN RAILCAR INDUSTRIES, INC.


-------------------------------------   ----------------------------------------
                                        By

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Print Name                              Title

Address:                                Address:

                                        100 Clark St
                                        St. Charles, MO 63301
                                        Attention: President

                                        ----------------------------------------
                                        Date Received

EXHIBIT B

CONFIDENTIALITY, NON-COMPETE AND

NON-SOLICITATION AGREEMENT

This CONFIDENTIALITY, NON-COMPETE AND NON-SOLICITATION AGREEMENT (hereinafter referred to as "Agreement") made as of the ______ day of __________, 2006, between American Railcar Industries, Inc. a corporation incorporated under the laws of the State of Delaware (hereinafter referred to as "Company") and NAME: _____________________________ (hereinafter referred to as "Employee").

WHEREAS, as a condition and inducement of the Company's employment of, participation in any equity incentive plans, or payment of any incentive owing to, and transfer of confidential information to the Employee, the Company has requested and the Employee has agreed to enter into this Agreement.

NOW THEREFORE in consideration of the provisions contained herein including the Company's employment of and transfer of confidential information to the Employee, the Company and the Employee agree as follows:

1. DEFINITIONS

(a) For purposes of this Agreement the terms:

(i) "Affiliate" shall mean with respect to any specified Person, another Person which, directly or indirectly, controls, is controlled by, or is under common control with such specified Person;

(ii) "Company" shall mean American railcar Industries, Inc. and/or any of its subsidiaries, parent or related corporations;

(iii) "Confidential Information" shall mean all information disclosed or otherwise made available to the Employee by the Company, Affiliates, employees or representatives, about or relating to the Company's, or any of its Affiliates' plans, business or activities, or employees, including, but not limited to the information set forth in any business plan of the Company and information concerning advertising, marketing plans and strategies, finances or financial condition, accounting, methods, processes, trade secrets,

Intellectual Property, product and business plans, and current or potential customer, client, business partner or supplier lists and records, service charges, rates and fees, investments plans or projections, research in respect of acquired or potential target investments and communications and all Work Product;

(iv) "Intellectual Property" shall mean all source-codes, object-codes, manuals and other documentation and materials (whether or not in written form) and all versions thereof, together with all other patents, licenses, trademarks, service marks, trade names (whether registered or unregistered), copyrights, proprietary computer software, proprietary inventions, proprietary technology, technical information, intellectual property, discoveries, designs, proprietary rights and non-public information, trade secrets, in each case, whether or not patentable;

(v) "Person" an individual, corporation, partnership, trust or unincorporated organization, limited liability company, limited liability partnership, joint venture, joint stock company, any governmental agency or instrumentality or any other entity;

(vi) "Work Product" shall mean all work product (tangible, recorded or otherwise, and without regard to the form or condition or state of completion) including, without limitation, Intellectual Property invented, created, assembled or developed in connection with, with respect to, for, or in relation to, the Company during the Employee's employment by the Company.

2. CONFIDENTIALITY

(a) The Employee shall not (either during the continuance of the Employee's employment by the Company or at any time thereafter) disclose any Confidential Information to any Person other than designated employees of the Company, and all such Confidential Information, either in electronic, printed or verbal form will remain the property of the Company and shall not be used by the Employee (either during the continuance of employment by the Company or at any time thereafter) for Employees own purpose or for any purpose other than those of the Company. The Employee agrees that the Company will retain proprietary rights in the Confidential Information and disclosure to or awareness by the Employee of the Confidential Information shall not be deemed to confer any rights whatsoever to the Employee in respect of any part of the Confidential Information.

(b) The restrictions and covenants set forth in (a) above applicable to the Confidential Information shall not apply to any portion of the Confidential Information that the Employee can clearly demonstrate is at the time of disclosure or thereafter generally available to and known by the public (other than as a result of its disclosure by the Employee in breach of his obligations herein).

(c) In the event that the Employee is (i) requested by interrogatory, subpoena, deposition, civil investigation demand or other similar legal process or (ii) required by applicable laws, rules or regulations, to disclose any Confidential Information, the Employee shall provide the Company with prompt written notice of any such request or requirement so that the Company may seek an appropriate protective order. If, failing the entry of a protective order, the Employee is, in the written opinion of its counsel, compelled to disclose Confidential Information, the Employee may disclose that portion of the Confidential Information which its counsel advises the Employee in such opinion that it is compelled to disclose. In any event, the Employee will not oppose, and shall assist, action by the Company in any such proceeding to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information.

3. NON-COMPETE

The Employee covenants and agrees with the Company that during the continuance of employment, and for a period of one (1) year from the date on which Employee ceases to be an employee of the Company as a result of either the Employee's resignation or termination of employment by the Company for "Cause", as defined herein, the Employee will not:

(1) within the territory(ies) or region(s) for which the Employee is or was responsible when employed, (if the Employee was assigned to a territory or region) or,

(2) (if the employee did not have responsibility for a territory or region), within fifty miles from the location at which the employee performed work on behalf of the Company,

either directly or indirectly, as principal, agent, owner, employee, partner, investor, shareholder (other than solely as a holder of not more than 1% of the issued and outstanding shares of any public corporation), consultant, advisor or otherwise howsoever participate in, act for, or on behalf of, or for the benefit of, own, operate, carry on or engage in the operation of or have any financial interest in or provide, directly or indirectly, financial assistance to or lend money to or guarantee the debts or obligations of, any Person carrying on or engaged in any business that is competitive with or identical to the business conducted by the Company in the United States of America (the "Business"). For purposes of this Paragraph 3, any one of the following shall constitute "Cause":
(1) the Employee's material breach of this Agreement or Company policy; (2) the Company's default in

performing its obligations under contracts with other persons or business entities, or Company's suffering of economic harm, if directly caused by the Employee; (3) the Employee's fraud with respect to the business or affairs of the Company or if the Employee is convicted of committing a felony or any crime involving moral turpitude; or (4) other misconduct by the Employee.

4. NON-SOLICITATION

The Employee covenants and agrees with the Company that during the continuance of this employment, and for a period of one (1) year from the date on which he ceases to be an employee of the Company for any reason, the Employee shall not directly, or indirectly, for himself or for any other person or entity:

(a) attempt to divert or, solicit, interfere with or endeavor to entice away from, or attempt to do any of the forgoing with respect to, the Company or its Affiliates, any customer, client or any Person in the habit of dealing with the Company or its Affiliates, with whom the Employee had contact with in a business capacity, was responsible for, or had knowledge of Confidential Information about, and the Employee shall refrain from committing any act which would in any manner jeopardize any relationship the Company has or may have with any customer, client or any person or entity;

(b) interfere with, entice away, hire, encourage, or otherwise attempt to obtain the withdrawal of any employee of the Company or Affiliates in relation to the Business; or

5. INJUNCTIVE RELIEF

Irreparable harm shall be presumed if the Employee breaches or threatens to breach any agreement, covenant or provision of this Agreement, and under such circumstances damages will be impossible to ascertain. Accordingly, the Employee agrees that in the event of any breach or threatened breach of this Agreement, the Company shall be entitled to an injunction and other equitable relief without being required to show irreparable harm, without posting any bond or security in connection therewith, and that any court of competent jurisdiction may immediately enjoin any breach or threatened breach of this Agreement. The equitable remedies contemplated hereby shall not be deemed to be exclusive remedies for a breach of this Agreement but shall be in addition to all other remedies available at law or equity.

6. INVALIDITY

If any provision of this Agreement is held to be illegal, invalid, or unenforceable under any present or future law, and if the rights or obligations under this Agreement will not be materially and adversely affected thereby, (a) such provision shall be fully severable; (b) this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof; (c) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance from this Agreement; and
(d) in lieu of such illegal, invalid, or unenforceable provision, there shall be added automatically as a part of this Agreement a legal, valid, and enforceable provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible.

7. ACKNOWLEDGEMENT

The Employee acknowledges reading and understanding the terms and conditions of this Agreement, and that the Company has provided a reasonable opportunity for the employee, if the Employee so chooses, to seek independent legal advice prior to executing this Agreement.

8. GOVERNING LAW/JURISDICTION/SERVICE OF PROCESS

The validity, interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of New York without regard to the conflict of laws. In any action between or among the parties arising out of this Agreement, (i) each of the parties irrevocably consents to the exclusive jurisdiction and venue of the federal and state courts located in the State of New York; (ii) if any such action is commenced in a state court, then, subject to applicable law, neither party shall object to the removal of such action to any federal court located in the State of New York; (iii) each of the parties irrevocably waives the right to trial by jury; and (iv) each of the parties irrevocably consents to service of process by first class certified mail, return receipt requested, postage prepaid, to the address of such party set forth in the signature page hereto, unless a party notifies the other in writing of a different address.

9. ENTIRE AGREEMENT/AMENDMENTS/WAIVERS/COUNTERPARTS/NOTICES

This Agreement shall constitute the entire agreement among the parties with respect to the matters covered hereby and shall supersede all previous written, oral or implied understandings among them with respect to such matters provided however, that nothing herein shall limit the Employee's responsibilities or the Company's rights under any business conduct policy. This Agreement or any of its provisions shall not be amended, waived or otherwise modified except by a writing executed by all of the parties hereto. No failure or delay by the Company in exercising its rights and remedies

under or with respect to this Agreement shall operate as a waiver or bar any further exercise of such rights and remedies. This Agreement may be executed in any number of counterparts, each of which when executed shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. All notices hereunder shall be given in writing delivered to the address of the recipient set forth on the signature page hereto.

10. MISCELLANEOUS

(a) This Agreement does not alter, change or modify the employment-at-will relationship that exists between the Company and the Employee and nothing herein shall be construed as requiring cause for or advance notice of termination of employment.

(b) This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns, as the case may be. The Company may assign this Agreement to any affiliate of the Company and to any successor or assign of all or a substantial portion of the Company's business. The Employee may not assign or transfer any of his rights or obligations under this Agreement.

IN WITNESS WHEREOF the parties hereto have executed this Confidentiality, Non-Compete and Non-Solicitation Agreement as of the date first written above.

Print Name

Employee Signature

Employee Address:

AMERICAN RAILCAR INDUSTRIES, INC.

Name: James J. Unger Title: President and Chief Executive Officer

EXHIBIT 10.38

AMERICAN RAILCAR INDUSTRIES, INC.

2005 Executive Incentive Plan

I. PURPOSE

The American Railcar Industries, Inc. 2005 Executive Incentive Plan has been established for those Participants defined under Section III below.

The purpose of this Plan is to provide additional compensation to Participants for their contribution to the achievement of the objectives of the Company, encouraging and stimulating superior performance by such personnel, and assisting in attracting and retaining highly qualified key employees.

II. DEFINITIONS

A. Base Salary equals the base annual salary effective December 31st for which the award is calculated.

B. Company means American Railcar Industries, Inc. and its subsidiaries and its successors and assigns.

C. Fiscal Year means the Company's Fiscal Year beginning January 1 and ending the last day of December.

D. Plan means the American Railcar Industries, Inc. Executive Incentive Plan, as from time to time amended.

E. Chief Executive Officer means the Chief Executive Officer of American Railcar Industries, Inc.

F. Financial Targets are the financial goal(s) of the Company for the Fiscal Year identified in exhibit B as applied to Participants in Exhibit C.

G. Personal Goals refer to the personal goals and objectives set by each Participant and his/her supervisor at the beginning of each Fiscal Year against which performance is measured under Section V below.

III. EMPLOYEES COVERED BY THIS PLAN

Those employees who are incumbents listed on Exhibit C or become employees in position levels as listed on Exhibit C (each a "Participant") and whom have a signed Confidentiality, Non-Compete and Non-Solicitation Agreement on file, shall be eligible to participate in this Plan.

IV. FINANCIAL AWARD

A Participant in the Plan shall be entitled to a Financial Award computed as the product of:

Participants X  Bonus as a X Performance X Individual     = Participants
Base Salary    % of Salary    as a % of    Performance        Financial
                               Target      Rating on a          Award
                                           0 - 100% scale

A. "Participant's Base Salary" shall be the salary as defined in
Section II-A in effect during applicable period.

B. "Bonus as % of Salary" shall be as set forth in Exhibit A, Table I based upon Management Level of each Participant.

C. "Performance as a % of Target" shall be determined in accordance with the schedule set forth in Exhibit A, Table II based on the attainment of the Company's financial target for the applicable period as identified in Exhibit B and as measured in performance percentages by target for individual per Exhibit C.

D. "Individual Performance Rating" shall be based on an individual performance evaluation in accordance with Section V below.

If a Participant was in more than one management level during a Fiscal Year, a separate computation shall be made for each level applicable to the Participant during such Fiscal Year; the sum of the separate computations shall be the Participant's Financial Award.

V. PERSONAL PERFORMANCE RATING

Personal goals for each Participant are to be developed jointly by the Participant and his/her supervisor for the Fiscal Year.

Attainment of such goals and other performance criteria, both quantifiable and non-quantifiable, may be used to arrive at an overall individual performance rating from 0% to 100%. Such criteria shall be applied consistently to Participants with similar duties pursuant to an evaluation process to be reviewed and approved by the Vice President, Administration. Criteria that may be weighed in arriving at an individual performance rating include, without limitation:

- Achievement of income goals by business unit

- Development of subordinates

- Successful development of new accounts/products

- Improvement in product programs

- Attainment of self-development objectives

- Control or reduction of operating expenses by business unit

- Safety record of Facility or Facilities

- Quality Program Achievement

The supervisor will assign a Personal Performance %, from 0% to 100%, reflecting the Participant's performance during such Fiscal Year. The Personal Performance % recommendation of the supervisor shall be reviewed by the appropriate member of the Management Committee, who shall recommend an appropriate Personal Performance % to the Chief Executive Officer who shall approve the final Personal Performance % for each Participant. The Chief Executive Officer reserves the right, in his sole discretion, to accept the Personal Performance % recommendation for each Participant or to modify any Personal Performance % for any Participant to achieve such dispersion of performance ratings as the Chief Executive Office deems appropriate.

VI. PERFORMANCE MEASURES, TARGETS AND PAYOUT RANGES

The financial performance measures, targets and payout ranges used for incentive purposes shall be established by the Board of Directors based on the annual business plan. Those measures, targets and payout ranges, as appropriate, shall be approved by

the Chief Executive Officer and the Board of Directors. The performance measures, targets and payout ranges are defined in Exhibit A, B and C.

VII. PARTICIPANT BONUS COMPOSITION

The composition of the bonuses are established by Management Level and communicated individually to each Participant.

VIII. COMPUTATION AND DISBURSEMENT OF FUNDS

As soon as practicable after the close of the Fiscal Year, the members of the Management Committee will recommend a Personal Performance % for each Participant in his department to the Chief Executive Officer and the Board of Directors. In addition, the Chief Financial Officer of the Company shall calculate the financial performance measure and the proposed payout under the Plan based upon the Chief Executive Officer's determination of each Participant's Personal Performance % and the achievement of the financial performance measure. The proposed payout shall be presented to the Board of Directors for final approval. Once approved, payment of the Financial Awards shall be made as soon as practicable after the completion of the annual audit.

If the Participant dies before receiving his/her award, the amount due will be paid to the designated beneficiaries on file with the Company and, in the absence of such designation, to the Participant's estate.

All payment awards shall be reduced by amounts required to be withheld for taxes at the time payments are made.

IX. CHANGES TO TARGET

The Chairman of the Board of Directors, at any time prior to the final determination of awards and in consultation with the Board of Directors, may consider changes to the performance measures, targets, and payout ranges used for incentive purposes, such that if, in the judgment of the Chairman of the Board of Directors, such change(s) is/are desirable in the interests of equitable treatment of the Participants and the Company as a result of extraordinary or non-recurring events, changes in applicable accounting rules or principles, changes in the Company's methods of accounting, changes in applicable law, changes due to consolidation,

acquisitions, or reorganization. The Chief Executive Officer shall implement such changes(s) for immediate incorporation into the Plan.

X. A Participant shall be entitled to payment of a partial Financial Award if, prior to the end of such Fiscal Year, a Participant:

- Dies

- Retires (is eligible to immediately receive retirement benefits under a Company sponsored retirement plan)

- Becomes permanently disabled

- Transfers to a position with a salary grade not eligible for participation in the Plan

- Enters military service

- Takes an approved leave of absence

- Is appointed or elected to public office

- Is terminated due to position elimination

provided that the Participant was an active employee for a minimum of 60 consecutive calendar days during such Fiscal Year. Such partial awards shall be paid at the time when payments of awards for such Fiscal Year are made to active Participants.

Participants hired, or who otherwise become eligible to participate hereunder, during the course of a Fiscal Year and who are employed through the end of such Fiscal Year shall be eligible for a pro-rated award based on their Base Salary during such Fiscal Year and length of eligible service prior to the end of the Fiscal Year so long as the Participant was in a bonus eligible position for at least 60 days.

XI. FORFEITURE OF BONUS

Except as provided in Section X, no Participant who ceases to be an employee of the Company prior to the payment date of the award shall be entitled to any Financial Award under this Plan for

such Fiscal Year unless the Chief Executive Officer in consultation with the Board of Directors determines otherwise.

XII. ADMINISTRATION

This Plan shall be administered by the Sr. Director of Human Resources of American Railcar Industries, Inc., subject to the control and supervision of the Chief Executive Officer and the Board of Directors of American Railcar Industries, Inc.

In the event of a claim or dispute brought forth by a Participant, the decision of the Chief Executive Officer as to the facts in the case and the meaning and intent of any provision of the Plan, or its application, shall be final and conclusive.

XIII. NO EMPLOYMENT CONTRACT; FUTURE PLANS

Participation in this Plan shall not confer upon any Participant any right to continue in the employ of the Company nor interfere in any way with the right of the Company to terminate any Participant's employment at any time. The Company is under no obligation to continue the Plan in future Fiscal Years.

XIV. AMENDMENT OR TERMINATION

The Board of Directors of the Company may at any time, or from time to time, (a) amend, alter or modify the provisions of this Plan, (b) terminate this Plan, or (c) terminate the participation of an employee or group of employees in this Plan; provided, however, that in the event of the termination of this Plan or a termination of participation, the Company shall provide the partial awards to the affected Participants(s) for the portion of the Fiscal Year during which such employee(s) were Participants in this Plan, in a manner in which the Company, in its sole judgment, determines to be equitable to such Participants and the Board of Directors of the Company.

XV. GENERAL PROVISIONS

A. No right under the Plan shall be assignable, either voluntarily or involuntarily by way of encumbrance, pledge, attachment, level or charge of any nature (except as may be required by state or federal law).

B. Nothing in the Plan shall require the Company to segregate or set aside any funds or other property for the purpose of paying any portion of an award. No Participant, beneficiary or other person shall have any right, title or interest in any amount awarded under the Plan prior to the close of the Fiscal Year, or in any property of the company or its subsidiaries.

FINAL APPROVAL DATE:

Adopted by the Board of Directors on: December 23, 2005

Amended by Board of Directors on: February 28, 2006

CONFIDENTIAL TREATMENT
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT
MARKED WITH ASTERISKS

PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (this "AGREEMENT") is made as of this 31st day of March, 2006, by and between AMERICAN RAILCAR LEASING, LLC (ARL), ("BUYER"), a corporation organized under the laws of the State of Delaware, and AMERICAN RAILCAR INDUSTRIES, INC. ("SELLER"), a corporation organized under the laws of the State of Delaware. Seller is a manufacturer of railroad rolling stock that Buyer desires to purchase and Seller desires to sell.

For and in consideration of the premises and the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Buyer and Seller hereby agree as follows:

1. Sale of Railcars; Scope of Work.

(a) Subject to the provisions hereof, Seller agrees to manufacture and sell to Buyer railcars of the types described in Exhibit A attached hereto (individually, a "CAR", and collectively the "CARS"), and Buyer agrees to purchase Cars from any such types. Except as otherwise provided in this Agreement, Seller shall furnish all labor, materials and equipment required to manufacture the Cars at its manufacturing facility or facilities listed on Exhibit A hereto (hereinafter referred to as "SELLER'S PLANT").

(b) In the calendar year 2007, Seller hereby offers to sell to Buyer and Buyer agrees to buy from Seller, 1,000 tank cars consisting of any combination and number of types identified on Exhibit A hereto ("OFFERED CAR TYPES"). The obligation of Seller to offer and the obligation of Buyer to purchase Cars in 2007 or 2008 year are subject to the provisions of this Agreement. Buyer shall not be obligated to order any percentage or number of Cars from any particular Offered Car Types provided that Buyer orders Cars which conform to one or more Offered Car Types. The parties shall execute a separate Schedule with respect to specific Car purchases under this Agreement. Each Schedule shall incorporate the provisions of this Agreement and the numbers and particulars of the Cars to be ordered, delivery dates, any special terms and pricing.

In addition, Buyer, subject to any ***, if any, *** shall have the option to purchase up to 300 hopper cars to the extent production capacity at the Paragould Facility be beyond the current committed production track schedule as a result of the currently contemplated Paragould expansion. At such time as Seller determines such production capacity shall be available, Seller shall, pursuant to this option and subject to any ***, if any, offer to Buyer such production capacity. Seller shall make such offer to Buyer ***. Car types shall be consistent with production types and schedules as contemplated herein.

Buyer shall also have the option to purchase at least one thousand (1,000) tank cars and at least four hundred (400) hopper cars for the 2008 fiscal year under same terms and conditions as this contract. This option will expire on *** unless exercised in writing by the Buyer prior to that date.

CONFIDENTIAL TREATMENT
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT
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[Purchase and Sale Agreement]

2. Purchase Price.

(a) The actual purchase price ("PURCHASE PRICE") shall be the lower of (i) the Adjusted Purchase Price, as hereinafter defined, or (ii) the then-current Market Price, as hereinafter defined, in each case, as in effect at the time such Purchase Order is placed. The base purchase price of the Cars (the "BASE PURCHASE Price") as of March 2006 for each Offered Car Type shall be as set forth in Exhibit A hereto. The Base Purchase Price is firm and subject to escalation or other adjustment after the date of this Agreement only as provided in this Agreement. The Base Purchase Price shall be ***. The Base Purchase Price, as increased or decreased pursuant to the provisions of this Agreement, is referred to as the "ADJUSTED PURCHASE PRICE". Neither the Adjusted Purchase Price nor any Market Price includes any state or local sales, use or other similar taxes, and any such sales, use or similar tax arising out of this transaction, if any, shall be paid by Buyer together with the Base Purchase Price. Seller shall sell Cars to Buyer at the lesser of the Adjusted Purchase Price or the best current market price ("MARKET PRICE") determined on a "most favored nations" basis; ***.

(b) At the time of execution of each Schedule and Purchase Order, Seller shall provide Buyer the Market Price for the delivery period quoted. "Most favored nations" pricing, for the purpose of this Agreement, is defined as the lowest price of an Offered Car Type offered by Seller to the market place.

(c) Seller shall also inform Buyer in connection with the execution of each Schedule, of Seller's estimated adjustments to the relevant Base Purchase Price. Seller shall inform Buyer promptly of its final determination of the Adjusted Purchase Price and, in any event, prior to rendering any Seller's invoice with respect to such Schedule. *** No adjustments shall be made in any Price for changes in any of the following: ***.

(d) *** by Buyer and/or a mutually acceptable third party ***

3. Specifications ***. The Cars shall be constructed in a good and workmanlike manner in accordance with the specifications described on Exhibit B hereto, as the same may be hereafter amended or supplemented from time to time (the "SPECIFICATIONS"). The Cars will be built in accordance with all then current Federal Railroad Administration, American Association of Railroads and United States Department of Transportation design, testing and approval requirements for new Cars.

Seller shall construct and equip each Car with components and appurtenances identified on *** attached hereto as Exhibit C. ***

4. Buyer's Option to Modify Order. Within ten (10) days of the placement of each Purchase Order, Seller shall give Buyer written notice of the date on which Seller will commence manufacture of each type of Car ("MANUFACTURE START DATE"). Buyer will have the option to change either the quantity or type of Car to be purchased subject to the following conditions:

(a) The option must be exercised no later than *** prior to any Manufacture Start Date by Buyer notifying Seller in writing of the change.

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[Purchase and Sale Agreement]

(b) If Buyer elects to change the quantity only,

(i) the total number of Cars to be purchased must remain the same,

(ii) the price of each type of Car purchased as well as the specifications for the Cars shall remain the same, and

(iv) Seller may reasonably modify the delivery schedule in the event that Seller requires additional time to manufacture the Cars with respect to which the order has been changed.

(i) the total number of Cars to be purchased must remain the same,

(ii) any change in the type of Car may only be to a type of Car that Seller currently manufactures or to a type that it manufactures at the time Buyer notifies Seller of its election to change the type of Car,

(iii) the *** with respect to which the order has been changed as well as the *** shall be ***, and

(iv) Seller may reasonably modify the delivery schedule in the event that it requires additional time to manufacture the Cars with respect to which the order has been changed.

5. Delivery and Terms of Payment.

(a) If, with respect to Offered Car Types covered under this Agreement, Seller is unable to meet engineering specifications required by Buyer, the quantity of Cars that Seller is unable to provide will be deducted from the Railcar Quantity Obligations. From time to time in any Agreement Year of the term of this Agreement, Seller may be ***.

(b) Unless otherwise agreed in writing, delivery of the Cars shall be F.O.B. Seller's Plant not later than *** following the date of the Purchase Order therefore. After a Certificate of Acceptance (as hereinafter defined) has been executed with respect to a Car, such Car will be shipped from Seller's Plant to the railroad interchange designated in Exhibit A hereto (the "INTERCHANGE POINT"), and Seller shall invoice Buyer for payment of the Purchase Price. Unless otherwise agreed, Seller shall, at its expense, deliver the Cars to the Interchange Point and all subsequent switching and transportation charges shall be for Buyer's account. Payment by Buyer of Seller's invoice shall be due *** after Buyer's receipt thereof. Title to a Car shall pass to Buyer upon payment in full for such Car. Following receipt of payment for a Car, Seller shall deliver to Buyer a bill for sale for such Car substantially in the form of Exhibit D hereto.

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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT
MARKED WITH ASTERISKS

[Purchase and Sale Agreement]

6. Force Majeure. In the event that Seller is unable to deliver a Car to Buyer within *** after the date of a Purchase Order therefore as a result of a Force Majeure Event, Buyer shall have the option to notify Seller that it will not purchase such Car(s) as to which delivery has been delayed, and the Railcar Quantity Obligations in that Agreement Year shall be reduced by the number of Cars that Seller is unable to deliver, the Purchase Price will be reduced accordingly for each Car that Buyer has elected not to purchase, and such omitted Car will not be deemed a "Car" under this Agreement. As used herein, a "Force Majeure Event" shall mean and include any delays in the delivery of any Car caused by strikes, lockouts (other than lockouts by Seller) or other labor disturbances; shortages or late delivery of material (due to no fault of Seller); unavailability, interruptions or inadequacy of fuel supplies; acts of God; war, preparation for war or other acts or interventions the military or other governmental agencies, governmental regulations; priorities given to defense orders; riot, embargoes, sabotage, act of terrorism, vandalism, malicious mischief, landslides, floods, hurricanes, earthquakes, collisions or fires; delays of subcontractors or of carriers by land, sea or air (due to no fault of Seller); quarantine restrictions, shortages of labor or components and any other circumstances or cause beyond Seller's reasonable control.

7. Inspection and Acceptance; Failure to Deliver. Seller shall give Buyer, and/or its designated agent, reasonable opportunity to inspect the Cars during construction at Seller's Plant during normal operating hours or at such other time as may be mutually agreed. Prior to shipment of a Car, Buyer and Seller shall mutually agree on a date for Buyer's inspection of such completed Car and the execution of a certificate of acceptance ("CERTIFICATE OF ACCEPTANCE") in the form of Exhibit E hereto. If Buyer determines that a Car appears to have been manufactured according to the applicable specifications and is in acceptable condition for delivery (hereinafter, a "CONFORMING CAR"), Buyer shall execute a Certificate of Acceptance. In the event Buyer does not attend such inspection, or Buyer and Seller cannot mutually agree on an inspection date to occur within three (3) days of the date of shipment of the Car, Seller is authorized and empowered to inspect the Car and execute a Certificate of Acceptance on Buyer's behalf if it determines that the Car is a Conforming Car. If Buyer notifies Seller that a Car does not conform to the specifications applicable to that Car (hereinafter a "NON-CONFORMING CAR"), it shall be Seller's obligation to make the Car a Conforming Car. The execution of a Certificate of Acceptance shall not preclude Buyer from asserting a claim for a breach of Seller's Car warranty contained in Section 9 herein within the applicable warranty period or that a Car was not manufactured in accordance with the applicable Specifications.

If Seller is unable to provide a Conforming Car within *** of the scheduled delivery date for any reason whatsoever other than a Force Majeure Event or as a result of a delay caused by Buyer, ***.

8. No Liens or Claims of Third Parties. Seller hereby represents and warrants to Buyer that: (a) Seller is the sole owner of the Cars and has good and marketable title to all of the Cars, free and clear of all liens, claims, demands, charges, security interests, privileges, pledges or other encumbrances ("LIENS") other than the Liens created by Buyer and that Seller will convey to Buyer good and marketable title to the Cars being sold free and clear of all Liens of every nature and kind whatsoever other than Liens created by Buyer; and
(b) neither Seller's rights in

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[Purchase and Sale Agreement]

the Cars, nor the Cars, are subject to any contract, agreement, or understanding, whether written or oral, which provides for any remarketing, residual sharing or similar arrangement or which would be binding upon or enforceable against Buyer, the Cars, or the proceeds of any sale, lease or any disposition of any thereof.

9. Seller's Car Warranty; Car Cleaning. Seller warrants that each Car will be free from defects in material and workmanship under normal use and service for a period of *** from the Closing Date and will be manufactured in accordance with the applicable Specifications. With respect to parts and materials manufactured by others and incorporated by Seller in the Cars, such parts and material shall be covered only by the warranty, if any, of the manufacturer thereof, and Seller shall assign to Buyer any such warranty, to the extent assignable by Seller ***. Seller's obligations with respect to any Car for breach of this warranty is limited at its option, to either a credit or refund of the price of any non-conforming or defective component (or Car) or replacement or repair of such non-conforming or defective component (or Car) at Seller's Plant or at such other location as Seller shall designate in order to minimize Purchaser's transportation expenses. Seller's agreement set forth above to refund, repair or replace defective parts and materials (other than with respect to parts and materials manufactured by others and incorporated by Seller in the Cars, the remedy for which is provided for above in this Section 9) shall be Buyer's sole and exclusive warranty liability with respect to the Cars that are defective in any respect or that fail to conform to any express or implied warranty, and Seller will not in any event be liable for the cost of any labor or transportation charges expended on or in connection with the repair, replacement or return of any component (or Car) or, except as provided herein, for any special, indirect, incidental or consequential damages.

THIS WARRANTY IS EXPRESSLY IN LIEU OF ALL OTHER WARRANTIES EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. BUYER ACKNOWLEDGES THAT ITS SOLE REMEDY FOR BREACH OF THIS WARRANTY BY SELLER IS AS PROVIDED ABOVE AND, EXCEPT AS PROVIDED HEREIN, SELLER SHALL NOT BE LIABLE FOR ANY SPECIAL, INDIRECT OR OTHER INCIDENTAL OR CONSEQUENTIAL INJURY OR DAMAGE; PROVIDED, HOWEVER, NOTHING CONTAINED HEREIN SHALL LIMIT SELLER'S LIABILITY TO BUYER FOR CLAIMS OF CONTRIBUTION, IN TORT, PRODUCTS LIABILITY, OR ARE BASED ON ACTS OR OMISSIONS OF SELLER WITHOUT ANY GROSS NEGLIGENCE ON THE

PART OF BUYER.

THIS WARRANTY IS CONDITIONED UPON COMPLIANCE BY BUYER AND ALL OTHER USERS OF THE CARS WITH OPERATION, LOADING, USE, HANDLING, MAINTENANCE AND STORAGE IN ACCORDANCE WITH GOOD COMMERCIAL PRACTICES OF THE RAILROAD INDUSTRY. SELLER SHALL NOT BE RESPONSIBLE FOR FAILURES CAUSED BY MISLOADING, OVERLOADING, OVERHEATING, IMPROPER CLEANING, PHYSICAL ABUSE, ACCIDENT, DERAILMENT OR FOR OTHER DAMAGE CAUSED BY FIRE, FLOOD OR OTHER EXTERNAL CONDITIONS UNRELATED TO THE MANUFACTURE OF THE CAR, OR FOR NORMAL WEAR AND TEAR.

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[Purchase and Sale Agreement]

In general, Cars shall be delivered clean and free from debris or other matter. Certain of the Cars may require that particular cleaning procedures be followed. Any such procedures and the Cars to which such procedures apply shall be described on Exhibit F hereto. Prior to delivery, the Cars shall be cleaned so as to be free from debris or other matter and in accordance with the procedures, if any, described on Exhibit F hereto. Notwithstanding the fact that a Certificate of Acceptance has been executed with respect to a Car, if a Car is not clean prior to first load by Buyer's customer so as to make it suitable for loading the commodities described on Exhibit F hereto, then Buyer and Seller may jointly inspect the Car or Cars in question. Seller will either pay, or reimburse Buyer, for the expenses to clean any such Car, up to a maximum of *** per car, provided, however, Seller's payment or reimbursement obligation will not apply if the Car is not clean because foreign matter was introduced while in transit or through loading operations or other actions of third parties.

10. Sales Tax. Buyer shall pay, and shall indemnify and hold Seller harmless on an after-tax basis against, all sales, use, transfer or similar taxes (and any fines, penalties, additions to tax or interest relating thereto), if any, imposed or assessed on or with respect to the sale and the transfer of the Cars as contemplated herein.

11. No Finder. Each party represents and warrants to the other that neither it nor any party acting on its behalf has paid, or become obligated to pay, or committed any other party to pay any fee or commission to any broker, finder or intermediary for or on account of the transactions contemplated by this Agreement.

12. Patents. In lieu of any other warranty by Seller against patent infringement, statutory or otherwise, Seller agrees to defend, hold harmless and indemnify Buyer against all claims, demands, losses, suits, damages, liabilities and expenses (including reasonable attorneys' fees) arising out of any suit, claim, or action for actual or alleged direct or contributory infringement of, or inducement to infringe, any patent, trademark, copyright or other intellectual property right by reason of the manufacture, use or sale of the Cars unless such actual or alleged infringement arises out of the compliance with designs, instructions or specifications furnished by Buyer. In case the Cars or any part thereof are held to constitute such infringement or the use thereof is enjoined, Seller shall, at its option ***, take one of the following three corrective actions (each, a "CORRECTIVE ACTION"): (a) procure for Buyer the right to continue using the Cars or part thereof, (b) replace the Cars or part thereof with a non-infringing Car or part thereof, or (c) take such measures as may be required to make the Cars or part thereof non-infringing, in which event Buyer shall deliver the Cars to Seller for that purpose. In the event that Seller fails to effect a Corrective Action *** after Buyer's written request, Seller shall ***. The foregoing states Seller's entire liability with respect to any patent infringement by the Cars or part thereof.

13. Expenses. Whether or not the transactions contemplated hereby are consummated, each party hereto shall pay its own expenses in connection with this Agreement and the transactions contemplated hereby, including, without limitation, the fees and disbursements of its counsel.

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[Purchase and Sale Agreement]

14. Entire Agreement. This Agreement and the Exhibits hereto contain the entire agreement and understanding between the parties hereto with respect to the subject matter contained herein and therein and supersede all prior agreements, understandings and representations, oral or written; provided, however, that, with respect to any orders for railcars made by ARL prior to the date of this Agreement, such orders shall remain subject to the terms and conditions of such orders. No modification, limitation or release of any of the terms and conditions contained herein or in the Exhibits hereto shall be made except by mutual agreement to that effect in writing and signed by the parties hereto.

15. Governing Law. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF NEW YORK, SHALL BE CONSTRUED IN ACCORDANCE WITH, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, THE LAWS OF SUCH STATE, WITHOUT REGARD TO ITS CONFLICTS OF LAW DOCTRINE, AND THIS AGREEMENT SHALL BE DEEMED IN ALL RESPECTS TO BE A CONTRACT OF SUCH STATE. BOTH PARTIES CONSENT TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN NEW YORK, NEW YORK, FOR ANY ACTION THAT MAY BE BROUGHT UNDER THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

16. Notice. All communications under this Agreement shall be in writing or by a telecommunications device capable of creating a written record, and any such notice shall become effective (a) upon personal delivery thereof, including, without limitation, by overnight mail and courier service, (b) five
(5) days after the date on which it shall have been mailed by United States mail (by certified mail, postage prepaid, return receipt requested), or (c) in the case of notice by such a telecommunications device when properly transmitted, addressed to each party at the following addresses:

If to Seller:

American Railcar Industries, Inc.
100 Clark Street
St. Charles, MO 63301
Attn: Alan C. Lullman, Senior Vice President
Facsimile No.: (636) 940-6044

If to Buyer:

American Railcar Leasing, LLC
620 North Second Street
St. Charles, MO 63301
Attn: Brian Evdo, Vice President Marketing
Facsimile No.: (636) 940-5020

Or to any other address as may be given by any party to the other by notice pursuant to the provisions of this Section 16.

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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT
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[Purchase and Sale Agreement]

17. Waivers and Amendments; Non-Contractual Remedies; Preservation of Remedies. This Agreement may be amended, superseded, modified, supplemented or terminated, and the terms hereof may be waived, only by written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof. No waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, shall preclude any further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that any party may otherwise have at law or in equity.

18. Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. No assignment of this Agreement or of any rights hereunder shall relieve the assigning party of any of its obligations or liabilities hereunder. This Agreement, and the certificates, schedules, annexes and other documents executed and delivered at the closing in connection herewith are the complete agreement of the parties regarding the subject matter hereof and thereof and supersede all prior understandings (written or oral), communications and agreements; provided, however, that, with respect to any orders for railcars made by ARL prior to the date of this Agreement, such orders shall remain subject to the terms and conditions of such orders.

19. Counterparts. This Agreement may be executed by the parties in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument.

20. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be effective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement, and the remainder of such provision and the remaining provisions of this Agreement shall be interpreted, to the maximum extent possible, so as to conform to the original intent of this Agreement.

21. Indemnification. Each party agrees that it shall indemnify and hold harmless the other party from and against any loss, claim, damage or expense (including attorneys' fees and costs) attributable to a breach by such party of any of its obligations, representations or warranties contained herein.

22. Non-Disclosure. Seller agrees that the information contained in this Agreement as well as other information provided to Seller by Buyer in connection with Buyer's purchase of the Cars (including but not limited to the price, type and number of railcars to be purchased, particular configurations, designs or modifications, delivery locations and identity of Buyer's customers and parties to whom the Cars are to be delivered) is confidential and, except as provided in this Agreement or required by Seller in order to fulfill the terms and conditions of Buyer's purchase, Seller shall not disclose any thereof to any third party. Seller shall similarly

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[Purchase and Sale Agreement]

treat any information provided to Seller by Buyer in connection with the purchase of the Cars prior to or subsequent to the date of this Agreement as confidential in accordance with the terms hereof. All of the foregoing is hereinafter referred to as the "Confidential Information." In particular, Seller agrees that it will not disclose any of the Confidential Information to any affiliate of Seller engaged in the leasing of railcars or in the management of railcars or to the employees, officers or directors of any such affiliate

Neither party, without the prior written consent of the other, shall issue any press release or make any other public announcement or statement relating to Buyer's purchase of the Cars or containing any Confidential Information.

Notwithstanding the foregoing, Confidential Information shall not include: (a) such information as is required to be made to UMLER and the Association of American Railroads, (b) such information as is required to be disclosed by law (including applicable securities laws), court or governmental agency or authority, (c) such information as is required by either party's accountants, auditors, insurance carriers or other legal or financial advisors, and (d) information that becomes known to a party on a non-confidential basis from a source as to which the party has no actual knowledge that such source was bound by a confidentiality agreement with respect to such information.

Seller shall take reasonable security precautions, at least as great as the precautions it takes to protect its own confidential information, to keep confidential the Confidential Information, and will not otherwise use such Confidential Information for the benefit of any affiliate engaged in the leasing or management of railcars or other third party.

Seller shall notify Buyer immediately upon discovery of any unauthorized use or disclosure of Confidential Information, and will cooperate with Buyer in every reasonable way to help Buyer regain possession and control of the Confidential Information, and prevent its further unauthorized use. Seller acknowledges that monetary damages may be inadequate to protect Buyer against actual or threatened breach of this Agreement with respect to the Confidential Information. Accordingly, Seller agrees that Buyer shall be entitled to seek injunctive relief for any such breach of Seller's obligations or representations under this Agreement with respect to the Confidential Information. BUYER STIPULATES, ACKNOWLEDGES AND AGREES THAT SELLER SHALL NOT BE LIABLE FOR ANY SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES FOR ANY BREACH OF THIS AGREEMENT WITH RESPECT TO THE CONFIDENTIAL INFORMATION BY SELLER OR BREACH OF SELLER'S REPRESENTATIONS HEREIN.

23. Drawings. Buyer shall have the right to receive a copy of all drawings. Buyer agrees that all drawings and technical material, including specifications, descriptions and tolerances relating to the Cars or any components thereof supplied by Seller to Buyer (the "DRAWINGS"), are the exclusive property of Seller and contain confidential and proprietary information. By accepting the Drawings from Seller, Buyer agrees to limit its use of the Drawings solely to matters relating to Buyer's use of the Cars, including the repair and maintenance of the Cars. Buyer further agrees not to disclose the Drawings, or to disclose any information contained in or

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MARKED WITH ASTERISKS

[Purchase and Sale Agreement]

derived from the Drawings to any person, including but not limited to, any other manufacturer of Cars or components; provided, however, in the event Buyer sells any of the Cars, Buyer may deliver any Drawings relating to such Cars to the purchaser. Seller agrees on Buyer's written request, to provide Drawings to any car repair shop reasonably satisfactory to Seller or other party reasonably satisfactory to Seller (other than another manufacturer of Cars or components) provided that such car repair shop or other party agrees in advance, in writing, to be bound by confidentiality provisions similar to those contained herein and reasonably satisfactory to Seller.

24. Termination. Without prejudice to any other right or remedy:

(a) Either party may terminate this Agreement by written notice to the other party in the event that:

(i) the other party should breach this Agreement and such breach shall not be remedied within *** of the giving of notice of the breach; or

(ii) a petition or complaint in bankruptcy or for reorganization is filed by or against the other party or the other party becomes insolvent.

25. Paragraph Headings. The paragraph headings contained in this Agreement are for convenience of reference only and shall not effect in any way the meaning or interpretation of this Agreement.

***

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[Purchase and Sale Agreement]

IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement as of the day and year first hereinabove set forth.

SELLER:

AMERICAN RAILCAR INDUSTRIES, INC.

BY:    /S/ JAMES J. UNGER
       ----------------------------------
TITLE: PRESIDENT AND CEO
       ----------------------------------

BUYER:

AMERICAN RAILCAR LEASING, LLC

BY:    /S/ UMESH CHOKSI
       ----------------------------------
TITLE: SENIOR VICE PRESIDENT
       ----------------------------------
       CFO AND TREASURER
       ----------------------------------

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MARKED WITH ASTERISKS

[Purchase and Sale Agreement]

EXHIBIT A TO
PURCHASE AND SALE AGREEMENT

COVERED CAR TYPES:

Covered Hoppers:

3,256 cu ft suitable for cement service
6,224 cu ft suitable for plastic pellets 5,750 cu ft pressure differential covered hopper 5,001 cu ft pressure differential covered hopper 5,300 cu ft pressure differential covered hopper 3,300 cu ft pressure differential covered hopper

Tanks:

25,500 gallons general purpose
30,000 gallons general purpose
33,600 gallons pressure

Pricing for each of the cars described above shall be determined and approved by the Buyer at the time of executing a specific Schedule with respect to the purchase of such cars.

MARCH 2006 BASE PURCHASE PRICES

Covered Hoppers:

6,224 cu ft suitable for plastic pellets - ***

Tanks:

30,000 gallons spec. 06-ARL-002-B - *** 33,600 gallons spec. 06-ARL-003-A - ***

If Buyer successfully executes lease arrangements with customers for specialty Cars (those outside the above Offered Car Types) and Buyer elects to utilize Seller as the builder, those Cars may count toward the Railcar Quantity Obligations.

The above prices include current estimate of surcharges and lining for the covered hoppers for plastic pellets and for the pressure differential covered hoppers. These selling prices are subject

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[Purchase and Sale Agreement]

to steel surcharges, specialty surcharges and material cost increases applicable at time of production.

If Buyer documents that Seller's lowest Purchase Price is ***, Buyer may exit from its Railcar Quantity Obligations by that amount unless Seller chooses to match the lower price.

MANUFACTURING LOCATION:

Seller's Plant, Paragould, Arkansas, or
Marmaduke, Arkansas

INTERCHANGE POINT:

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[Purchase and Sale Agreement]

EXHIBIT B TO
PURCHASE AND SALE AGREEMENT

SPECIFICATIONS

To be provided at time of execution of separate Schedule for specific car purchases per paragraph "(1)".

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[Purchase and Sale Agreement]

EXHIBIT C TO
PURCHASE AND SALE AGREEMENT

***

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EXHIBIT D TO
PURCHASE AND SALE AGREEMENT

WARRANTY BILL OF SALE

American Railcar Industries, Inc., a Delaware corporation (the "SELLER"), in consideration of the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, from AMERICAN RAILCAR LEASING, LLC, a Delaware corporation ("BUYER"), hereby grants, sells, assigns, conveys, transfers, delivers and sets over unto Buyer all of Seller's right, title and interest in and to the equipment identified in Schedule 1 attached hereto and made a part hereof, together with all parts, appurtenances or other property attached or installed on such items of equipment (collectively with and including such parts, appurtenances and other property, the "EQUIPMENT").

To have and to hold to Buyer and its successors and assigns forever.

This Warranty Bill of Sale is being delivered in connection with the Purchase and Sale Agreement between Seller and Buyer, dated as of ____________, ____. Seller hereby warrants to Buyer and its successors and assigns on the date hereof that Seller is the lawful owner of good and marketable legal and beneficial title to the Equipment, that Seller has the right to sell the same, that good and marketable title to the Equipment is conveyed to Buyer free and clear of all claims, liens, security interests, encumbrances and rights of others of any nature whatsoever arising prior to the delivery of the Equipment hereunder, except any claims, liens, security interests and other encumbrances arising from, through or under Buyer, and Seller covenants that it shall warrant and defend such title to the Equipment against all such claims and demands whatsoever.

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[Purchase and Sale Agreement]

IN WITNESS WHEREOF, Seller has caused this Warranty Bill of Sale to be duly executed by its officer thereunto duly authorized on this ____ day of _______, 200_.

AMERICAN RAILCAR INDUSTRIES, INC.

By:

Name:

Title:

STATE of _____________     )
                           )       SS:
COUNTY OF __________       )

On this ___ day of _______, 200_, before me personally appeared ___________________, to me personally known, who, being by me duly sworn, says that he is a _______________ of American Railcar Industries, Inc., and that the foregoing Warranty Bill of Sale was signed on behalf of said corporation by authority of its Board of Directors. Further, he acknowledged that the execution of the foregoing Warranty Bill of Sale was the free act and deed of said corporation.

Notary Public

[Notarial Seal]

My commission expires: ___________

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EXHIBIT E TO
PURCHASE AND SALE AGREEMENT

CERTIFICATE OF ACCEPTANCE

Contract/Order No: _______________ Certificate No.: __________

Place Accepted: _____________
Date Accepted: _____________

I, the duly authorized representative of American Railcar Leasing LLC, ("BUYER"), under the Purchase and Sale Agreement, dated March 31, 2006 (the "AGREEMENT"), for the purpose of accepting and inspecting the following Cars, hereby certifies that the Cars have been inspected, approved, delivered, received and accepted on behalf of Buyer or its assigns and found to be in apparent good order and running condition and in apparent conformance with applicable specifications and drawings. The execution of this Certificate of Acceptance shall not relieve American Railcar Industries, Inc. ("SELLER"), of its duty or decrease its responsibility to produce and deliver the Cars in accordance with the terms, including warranties, contained in the Agreement.

Description of Cars        Quantity          Light Weight            Reporting Marks
---------------------    ------------      ----------------       ----------------------

Capitalized terms used herein and not otherwise defined shall have the meaning given to them in the Agreement.

Authorized Representative of
American Railcar Leasing, LLC

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EXHIBIT F TO
PURCHASE AND SALE AGREMENT

Special Cleaning Procedures:

Commodities to be Loaded:

-19-

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, James J. Unger, President & CEO of American Railcar Industries, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of American Railcar Industries, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [omitted] for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) [omitted]

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 15, 2006                 /s/ James J. Unger
                                   ----------------------------------------
                                   James J. Unger - President & CEO

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, William P. Benac, Chief Financial Officer of American Railcar Industries, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of American Railcar Industries, Inc.;

b) [omitted]

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 15, 2006                         /s/ William P. Benac
                                           -------------------------------------
                                           William P. Benac, Sr. V.P. - CFO
                                           and Treasurer

EXHIBIT 32

CERTIFICATION
PURSUANT TO RULE 13A-14 (b) AND SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350 (a) AND (b))

I, James J. Unger, President and Chief Executive Officer of American Railcar Industries, Inc. (the "Company") certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1. the quarterly report on Form 10-Q of the Company for the three months ended March 31, 2006 (the "Quarterly Report") fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

2. the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  May 15, 2006                     /s/ James J. Unger
                                        ----------------------------------------
                                        James J. Unger  -- President & CEO

I, William P. Benac, Senior Vice President and Chief Financial Officer of American Railcar Industries, Inc. (the "Company") certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

3. the quarterly report on Form 10-Q of the Company for the three months ended March 31, 2006 (the "Quarterly Report") fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

4. the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  May 15, 2006                     /s/ William P. Benac
                                        ----------------------------------------
                                        William P. Benac, Sr. V.P. -- CFO and
                                        Treasurer