Share-based Compensation

6 Months Ended

Jun. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-based Compensation

Share-Based Compensation

The Company accounts for share-based compensation granted under the 2005 Equity Incentive Plan, as amended (the 2005 Plan), based on the fair values calculated using the Monte Carlo and Black-Scholes-Merton (Black-Scholes) models. Share-based compensation is expensed using a graded vesting method over the vesting period of the instrument. The fair value of the liability associated with share-based compensation as of June 30, 2013 is based on the fair value components used to calculate the Black-Scholes value, including the Company’s closing market price, as of that date and is considered a Level 2 input. For the definition and discussion of a Level 2 input for fair value measurement, refer to Note 3.

Stock appreciation rights

The compensation committee of the Company’s board of directors granted awards of stock appreciation rights (SARs) to certain employees pursuant to the 2005 Plan during April 2008, September 2008, March 2009, March 2010, May 2011, and February 2012. The following table presents the amounts incurred by ARI for share-based compensation and the corresponding line items on the condensed consolidated statements of operations that they are classified within:

	Three Months Ended   June 30,					Six Months Ended   June 30,
	2013			2012		2013		2012
	(in thousands)
Share-based compensation expense (income)
Cost of revenues: Manufacturing	$	(538	)	$	397	$	494	$	562
Cost of revenues: Railcar services	(253		)	86		32		80
Selling, general and administrative	(2,142		)	1,634		2,549		2,171
Total share-based compensation expense (income)	$	(2,933	)	$	2,117	$	3,075	$	2,813

The SARs have exercise prices that represent the closing price of the Company’s common stock on the date of grant. Upon the exercise of any SAR, the Company shall pay the holder, in cash, an amount equal to the excess of (A) the aggregate fair market value (as defined in the 2005 Plan) in respect of which the SARs are being exercised, over (B) the aggregate exercise price of the SARs being exercised, in accordance with the terms of the Stock Appreciation Rights Agreement (the SARs Agreement). The SARs are subject in all respects to the terms and conditions of the 2005 Plan and the SARs Agreement, which contain non-solicitation, non-competition and confidentiality provisions.

The fair value of all unexercised SARs is determined at each reporting period under the Monte Carlo and Black-Scholes models based on the inputs in the table below, which project that the specific performance target for applicable grants will be fully met. The fair value of the SARs is expensed on a graded vesting basis over the vesting period, which is in equal increments on the respective anniversaries of the grant date. Changes in the fair value of vested SARs are expensed in the period of change. The following table provides an analysis of SARs granted in 2012, 2011, 2010, 2009, and 2008 and assumptions that were used as of June 30, 2013 in the Black-Scholes model:

	Grant Date
	2/24/2012	5/9/2011	3/31/2010 & 5/14/2010	3/3/2009	4/28/2008
SARs outstanding as of June 30, 2013	135,828	134,655	42,073	10,075	1,550
Vested & Exercisable	7,235	59,757	42,073	10,075	1,550
Vesting period	3 years	3 years	3 years	4 years	4 years
Expiration Dates	2/24/2019	5/9/2018	3/31/2017 & 5/14/2017	3/3/2016	4/28/2015
Weighted average exercise price	$29.31	$24.45	$13.24	$6.71	$20.88
Expected volatility range	57.3% - 58.8%	55.4% - 57.3%	55.5%	45.9%	46.1%
Expected life range (in years)	2.8 - 3.6	2.4 - 2.8	1.9	1.3	0.9
Risk-free interest rate	0.7%	0.4% - 0.7%	0.4%	0.2%	0.2%
Expected Dividend yield	3.0%	3.0%	3.0%	3.0%	3.0%
Forfeiture Rate on unvested SARs	2.0%	2.0%	N/A	N/A	N/A

The stock volatility rate was determined using the historical volatility rates of the Company’s common stock over the same period as the expected life of each grant. The expected life ranges represent the use of the simplified method prescribed by the SEC due to inadequate exercise activity for the Company’s SARs. The simplified method uses the average of the vesting period and expiration period of each group of SARs that vest equally over a three or four-year period. The risk-free rate is based on the U.S. Treasury yield curve in effect for the expected term of the options at the time of grant. The expected dividend yield was determined using the most recent quarter’s dividend. The forfeiture rate was based on a Company estimate of expected forfeitures over the vesting period of each grant for each period.

As of June 30, 2013, unrecognized compensation costs related to the unvested portion of SARs were estimated to be $0.9 million and were expected to be recognized over a weighted average period of 16 months.