<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 2000
REGISTRATION NO. 333-45196
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--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
RAILAMERICA TRANSPORTATION CORP.
(Exact name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 4011 65-0979478
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification
No.)
</TABLE>
---------------------
(FOR THE CO-REGISTRANTS, PLEASE SEE "CO-REGISTRANT INFORMATION"
ON THE FOLLOWING PAGE)*
<TABLE>
<S> <C>
GARY O. MARINO
CHAIRMAN, CHIEF EXECUTIVE OFFICER
AND PRESIDENT
5300 BROKEN SOUND BOULEVARD, N.W. RAILAMERICA TRANSPORTATION CORP.
BOCA RATON, FLORIDA 33487 5300 BROKEN SOUND BOULEVARD, N.W.
(561) 994-6015 BOCA RATON, FLORIDA 33487
(Address, Including Zip Code, and Telephone Number, (561) 994-6015
Including Area (Name, Address, Including Zip Code, and Telephone Number,
Code, of Registrant's Principal Executive Offices) Including Area Code, of Agent for Service)
</TABLE>
---------------------
COPIES OF COMMUNICATIONS TO:
FERN S. WATTS, ESQ.
GREENBERG TRAURIG, P.A.
1221 BRICKELL AVENUE
MIAMI, FLORIDA 33131
TELEPHONE NO.: (305) 579-0500
FACSIMILE NO.: (305) 579-0717
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------------
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
* The Co-Registrants named on the following page are the direct and indirect
parent and domestic subsidiaries of the Registrant and the guarantors of the
notes to be registered hereby.
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--------------------------------------------------------------------------------
<PAGE> 2
CO-REGISTRANT INFORMATION
<TABLE>
<CAPTION>
(PRIMARY STANDARD (STATE OR OTHER
INDUSTRIAL JURISDICTION OF
(EXACT NAME OF CO-REGISTRANTS CLASSIFICATION INCORPORATION OR (I.R.S. EMPLOYER
AS SPECIFIED IN ITS CHARTER) NUMBER) ORGANIZATION) IDENTIFICATION NO.)
----------------------------- ----------------- ---------------- -------------------
<S> <C> <C> <C>
RailAmerica, Inc...................................... 3715 Delaware 65-0328006
Palm Beach Rail Holding, Inc.......................... 3715 Delaware 65-0979476
Austin & Northwestern Railroad Company, Inc........... 3715 Texas 65-0328006
Boston Central Freight Railroad, Inc.................. 3715 Delaware 74-2822956
Cascade and Columbia River Railroad Company, Inc...... 3715 Delaware 91-1734603
Central Oregon & Pacific Railroad, Inc................ 3715 Delaware 93-1151074
Central Railroad Company of Indiana................... 3715 Indiana 35-1824902
Connecticut Southern Railroad, Inc.................... 3715 Delaware 03-0353222
Dakota Rail, Inc...................................... 3715 South Dakota 46-0365527
Dallas, Garland & Northeastern Railroad, Inc.......... 3715 Texas 74-2410681
Dallas, Garland & Northeastern Railroad, Inc.......... 3715 Delaware 74-2782740
Delaware Valley Railway Company, Inc.................. 3715 Delaware 23-2769325
Florida Rail Lines, Inc............................... 3715 Delaware 65-0945307
Georgia Southwestern Railroad, Inc.................... 3715 Delaware 58-2144829
Huron and Eastern Railway Company, Inc................ 3715 Michigan 38-2655990
Indiana & Ohio Central Railroad, Inc.................. 3715 Delaware 74-2862103
Indiana & Ohio Rail Corp.............................. 3715 Delaware 74-2862101
Indiana & Ohio Railway Company........................ 3715 Delaware 74-2862012
Indiana Southern Railroad, Inc........................ 3715 Delaware 74-2932611
Marksman Corp......................................... 3715 Delaware 22-2959560
Mid-Michigan Railroad, Inc............................ 3715 Michigan 31-1224037
Missouri & Northern Arkansas Railroad Company, Inc.... 3715 Kansas 43-1624703
New England Central Railroad, Inc..................... 3715 Delaware 03-0344030
New Orleans Lower Coast Railroad Company, Inc......... 3715 Louisiana 72-1183692
North Carolina and Virginia Railroad Company, Inc..... 3715 Delaware 74-2932608
Otter Tail Valley Railroad Company, Inc............... 3715 Minnesota 41-1565408
Pittsburgh Industrial Railroad, Inc................... 3715 Delaware 74-2733541
Plainview Terminal Company............................ 3715 Texas 75-2622280
Prairie Holdings Corporation.......................... 3715 Florida 59-2994998
Rail Operating Support Group, Inc..................... 3715 Delaware 65-0797247
RailAmerica Australia, Inc............................ 3715 Florida 65-0797248
RailAmerica Equipment Corporation..................... 3715 Delaware 65-0622013
RailAmerica Intermodal Services, Inc.................. 3715 Delaware 65-0553260
RaiLink Acquisition, Inc.............................. 3715 Delaware 65-1033741
RailTex Acquisition Corp.............................. 3715 Delaware 74-2877630
RailTex Distribution Services, Inc.................... 3715 Texas 74-2717791
RailTex, Inc.......................................... 3715 Texas 74-1948121
RailTex International Holdings, Inc................... 3715 Delaware 74-2787728
RailTex Logistics, Inc................................ 3715 Delaware 74-2795200
RailTex Services Co., Inc............................. 3715 Texas 74-2587475
Saginaw Valley Railway Company, Inc................... 3715 Delaware 38-2779857
San Diego & Imperial Valley Railroad Company, Inc..... 3715 California 74-2332456
South Carolina Central Railroad Company, Inc.......... 3715 South Carolina 57-0856173
South Central Tennessee Railroad Corp., Inc........... 3715 Delaware 62-1583702
The Toledo, Peoria & Western Railroad Corporation..... 3715 New York 16-1490112
Toledo, Peoria & Western Railway Corporation.......... 3715 New Jersey 22-2814670
Ventura County Railroad Co., Inc...................... 3715 Delaware 77-0495102
West Texas and Lubbock Railroad Company, Inc.......... 3715 Texas 75-2622278
</TABLE>
The address, including zip code of each of the Co-Registrants' principal
executive offices is 5300 Broken Sound Boulevard, N.W., Boca Raton, Florida
33487. The telephone number, including area code, of each of the Co-Registrants
is (561) 994-6015.
The name, address, including zip code of the agent for service for each of
the Co-Registrants is Gary O. Marino, Chairman of the Board, President and Chief
Executive Officer of RailAmerica Transportation Corp., 5300 Broken Sound
Boulevard, N.W., Boca Raton, Florida 33487. The telephone number, including area
code, of the agent for service for each of the Co-Registrants is (561) 994-6015.
<PAGE> 3
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--------------------------------------------------------------------------------
PROSPECTUS
$130,000,000
(RAILAMERICA LOGO)
RAILAMERICA TRANSPORTATION CORP.
OFFER TO EXCHANGE
ALL OUTSTANDING 12 7/8% SENIOR SUBORDINATED NOTES DUE 2010
FOR
REGISTERED 12 7/8% SENIOR SUBORDINATED NOTES DUE 2010
--------------------------------------------------------------------------------
THE REGISTERED NOTES
The terms of the registered notes that we are offering in exchange for the
outstanding notes are substantially identical to the terms of the outstanding
notes, except that some transfer restrictions and registration rights relating
to the outstanding notes will not apply to the registered notes.
MATERIAL TERMS OF THE EXCHANGE OFFER
- The exchange offer will expire at 5:00 p.m., New York City time, on October
27, 2000, unless extended.
- The exchange offer is subject to customary conditions, including the
conditions that the exchange offer not violate applicable law or any
applicable interpretation of the staff of the Securities and Exchange
Commission.
- You may withdraw tenders of outstanding notes at any time before the exchange
offer expires.
- We will exchange all outstanding notes that are validly tendered and not
withdrawn before the exchange offer expires.
- We will issue the registered notes promptly after the exchange offer expires.
- We believe that the exchange of outstanding notes will not be a taxable event
for federal income tax purposes, but you should read "Certain U.S. Federal
Income Tax Considerations" on page 68 for more information.
- We will not receive any proceeds from the exchange offer.
- All broker-dealers must comply with the registration and prospectus delivery
requirements of the Securities Act of 1933. Each broker-dealer that receives
registered notes for its own account pursuant to the exchange offer must
acknowledge that it will deliver a prospectus in connection with any resale of
the registered notes. The letter of transmittal accompanying this prospectus
states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of registered notes received in exchange for outstanding notes
where those outstanding notes were acquired by the broker-dealer as a result
of market-making activities or other trading activities. We have agreed that
for a period of one year after consummating the exchange offer we will make
this prospectus available to any broker-dealer for use in connection with any
such resale.
- No public market currently exists for the registered notes. We do not intend
to apply for listing of the registered notes on any securities exchange or to
arrange for them to be quoted on any quotation system.
BEFORE PARTICIPATING IN THE EXCHANGE OFFER, PLEASE REFER TO THE SECTION IN
THIS PROSPECTUS ENTITLED "RISK FACTORS" BEGINNING ON PAGE 13.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE REGISTERED NOTES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 25, 2000
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Forward-Looking Statements.................................. ii
Prospectus Summary.......................................... 1
Risk Factors................................................ 13
Use of Proceeds............................................. 23
Capitalization.............................................. 24
Unaudited Pro Forma Combined Financial Information.......... 25
The Exchange Offer.......................................... 39
Description of the Registered Notes......................... 49
Certain U.S. Federal Income Tax Considerations.............. 68
Plan of Distribution........................................ 75
Where You Can Find More Information......................... 75
Legal Matters............................................... 77
Experts..................................................... 77
Index to Consolidated Financial Statements.................. F-1
</TABLE>
i
<PAGE> 5
FORWARD-LOOKING STATEMENTS
This prospectus contains some forward-looking statements, within the
meaning of federal securities laws, about our financial condition, results of
operations and business. You can find many of these statements by looking for
words like "will," "should," "believes," "expects," "project," "could,"
"anticipates," "estimates," "intends," "may," "pro forma" or similar expressions
used in this prospectus. These forward-looking statements are subject to
numerous assumptions, risks and uncertainties that may cause our actual results
or performance to be materially different from any future results or performance
expressed or implied by the forward-looking statements. The risks and
uncertainties include those risks and uncertainties identified under the heading
"Risk Factors" in this prospectus. These factors include, but are not limited
to, the following:
- our level of leverage;
- our ability to meet our debt service obligations;
- the subordination of the notes to our senior indebtedness, which is
secured by substantially all of our assets;
- the restrictions imposed upon us by the indenture and by our senior
credit facilities;
- our relationships with Class I railroads;
- our ability to find suitable acquisition opportunities and to finance and
complete acquisitions and integrate acquired businesses; and
- our ability to successfully market and sell non-core properties and
assets.
Because these forward-looking statements are subject to risks and
uncertainties, we caution you not to place undue reliance on these statements,
which speak only as of the date of this prospectus. We do not undertake any
responsibility to review or confirm analysts' expectations or estimates or to
release publicly any revisions to these forward-looking statements to take into
account events or circumstances that occur after the date of this prospectus.
Additionally, we do not undertake any responsibility to update you on the
occurrence of unanticipated events which may cause actual results to differ from
those expressed or implied by these forward-looking statements.
ii
<PAGE> 6
PROSPECTUS SUMMARY
This summary highlights information that we believe is especially important
concerning our business and the exchange offer. It does not contain all of the
information that may be important to your investment decision. You should read
the entire prospectus, including "Risk Factors" and our financial statements and
related notes, before deciding to participate in the exchange offer. Except
where the context otherwise requires, the terms "we," "us," "our" or
"RailAmerica," refer to the business of RailAmerica, Inc., the ultimate parent
of the issuer of the notes, and its consolidated subsidiaries. RailAmerica
Transportation Corp., the issuer of the notes, is a wholly-owned indirect
subsidiary of RailAmerica, Inc. and constitutes substantially all of our
continuing operations. All dollar amounts are expressed in U.S. dollars.
Unless otherwise noted, all financial information and operating data
included in this prospectus:
- give pro forma effect to the acquisition of RailTex on February 4, 2000;
- give pro forma effect to the acquisitions of The Toledo, Peoria and
Western Railroad, RaiLink, and Freight Australia in 1999; and
- exclude Kalyn/Siebert, Inc. which is considered a discontinued operation
and is being held for sale.
OUR BUSINESS
We are the largest owner and operator of short line freight railroads in
North America and a leading owner and operator of regional freight railroads in
Australia and Chile. We own, operate or have equity interests in, a diversified
portfolio of 47 railroads with approximately 12,200 miles of track located in
the United States, Australia, Canada and Chile. Through our diversified
portfolio of rail lines, we operate in numerous geographic regions with varying
concentrations of commodities hauled. We believe individual economic and
seasonal cycles in each region may partially offset each other.
On February 4, 2000, we acquired RailTex for approximately $128.0 million
in cash and approximately 6.6 million shares of RailAmerica common stock, valued
at $60.8 million. We also refinanced approximately $105.3 million of RailTex
indebtedness and substantially all of our indebtedness. RailTex owns and
operates 25 short line freight railroads with approximately 4,100 miles of track
concentrated in the southeastern, midwestern, Great Lakes and New England
regions of the United States and eastern Canada. In connection with the
acquisition, we and some of our subsidiaries entered into a credit agreement
providing $330.0 million of senior term loans and $50.0 million of senior
revolving loans. In addition, RailAmerica Transportation issued $95.0 million of
subordinated bridge notes and Palm Beach Rail Holding, Inc., the direct parent
of RailAmerica Transportation, issued $55.0 million of asset sale bridge notes,
in connection with the acquisition.
For the twelve months ended June 30, 2000 excluding the results of
RailAmerica de Chile, S.A., known as Ferronor, we generated revenues of $347.5
million and EBITDA of $94.7 million. For the six months ended June 30, 2000
excluding the results of Ferronor, we generated revenues of $180.8 million and
EBITDA of $48.9 million. The book value of our property, plant and equipment,
excluding Ferronor, as of June 30, 2000 was $690.9 million.
OUR NORTH AMERICAN OPERATIONS
We own, lease and operate 40 rail properties in North America and have
equity interests in five additional rail properties. All of our North American
rail properties are short line railroads that provide transportation services
for both on-line customers and Class I railroads which interchange with our rail
lines. Short line railroads are typically less than 350 miles long, serve a
particular class of customers in a small geographic area and interchange with
Class I railroads. Short line rail operators primarily serve customers on their
line by transporting products to and from the Class I interchanges. Each of our
North American rail lines is typically the only rail carrier directly serving
its customers. The ability to haul heavy and large quantities of freight as part
of a long-distance haul make rail services generally a more effective,
lower-cost alternative to other modes of transportation, including motor
carriers.
In 1999, we moved over 900,000 carloads of freight in North America, most
of which interchanged with Class I railroads. As of June 30, 2000, 36 of our 40
owned or leased North American short line rail
1
<PAGE> 7
properties generated freight revenue on a fixed-rate basis under long-term
contracts. We believe this substantially reduces pricing volatility.
United States. We own/lease and operate 31 short line rail properties in
the United States with approximately 4,500 miles of track. Our United States
properties are geographically diversified and operate in 24 states. We have
clusters of rail properties in the southeastern, midwestern, Great Lakes and New
England regions of the United States. We believe that this cluster strategy
provides economies of scale and helps us achieve operational synergies. In 1999,
our United States rail properties generated $187.0 million of revenue or 54% of
our total revenue, excluding Ferronor. For the six months ended June 30, 2000,
these properties generated $92.2 million of revenue or 51% of our total revenue,
excluding Ferronor.
Canada. We own/lease and operate nine short line rail properties in Canada
with approximately 2,400 miles of track. Our Canadian properties are
geographically diversified and operate in five provinces and the Northwest
Territory. We have clusters of rail properties in Alberta, southern Ontario and
eastern Quebec. In 1999, our Canadian rail properties generated $59.4 million of
revenue or 17% of our total revenue, excluding Ferronor. For the six months
ended June 30, 2000, these properties generated $34.5 million of revenue or 19%
of our total revenue, excluding Ferronor. We also own a 26% equity interest in
Quebec Railway Corporation, a railroad company operating five railroads in
southeastern Canada with approximately 750 miles of track.
OUR INTERNATIONAL OPERATIONS
Australia. In Australia, we own Freight Victoria, now doing business as
Freight Australia, a regional freight railroad operating in the States of
Victoria and New South Wales. Freight Australia is our wholly owned Australian
subsidiary that purchased the assets of V/Line Freight Corporation from the
Government of the State of Victoria on April 30, 1999 for total consideration of
approximately $103 million. The assets we purchased from V/Line Freight
Corporation include 106 locomotives and over 2,600 rail cars. As a part of the
total consideration, Freight Australia prepaid to the State of Victoria the
rental payments of a 45-year lease to operate 3,150 miles of track. The present
value of the lease payments totaled approximately $60 million. Freight
Australia's customers span a variety of industries, with particular emphasis on
companies in the Australian agricultural industry for which Freight Australia
carries bulk grain and other agricultural products. Freight Australia generates
a substantial percentage of its revenue from contracts with the Australian Wheat
Board. In addition, Freight Australia receives a substantial percentage of its
revenue from fees received for providing access to track on which V/Line
Passenger operates a passenger railroad servicing the State of Victoria. In
1999, our Australian rail property generated $97.9 million of revenue or 28% of
our total revenue, excluding Ferronor. For the six months ended June 30, 2000,
this property generated $53.3 million of revenue or 30% of our total revenue,
excluding Ferronor.
Chile. Through a wholly-owned subsidiary, RailAmerica de Chile S.A., we
own 55% of the outstanding voting stock of Ferronor. Ferronor owns and operates
approximately 1,400 miles of rail line in northern Chile. Ferronor is treated as
an unrestricted subsidiary under the indenture and is not subject to the
negative covenants contained in the indenture. In 1999, we received cash
dividends totaling approximately $0.9 million from Ferronor.
OUR BUSINESS STRATEGY
Integrate RailTex into our operations. We expect that the acquisition and
integration of RailTex will generate approximately $11.0 million of annual cost
savings and synergies. A key element to our strategy has been the implementation
of a comprehensive integration plan focusing on areas such as rationalizing
staffing, regionalizing operations, centralizing corporate functions and
management information systems and the elimination of other duplicative costs
including public company costs and board of director fees. To date, we believe
that we have achieved a substantial portion of these cost savings.
Grow internally through focused sales, marketing efforts and customer
service. We will continue to focus on increasing traffic in each of our markets
by aggressively marketing our customer service to our customers and bolstering
our sales efforts. In many cases, we believe customer service and sales and
marketing at railroads that we have acquired have been neglected by the previous
owners. We purchased a number of our rail lines from Class I railroads. Due to
the size of the Class I railroads and their concentration on long-haul traffic,
we believe the Class I operators typically have not effectively marketed these
branch line operations.
2
<PAGE> 8
Maintain close relationships with Class I railroads. Since most of our
North American short line rail properties interchange with at least one Class I
railroad, we maintain close relationships with substantially all of the North
American Class I rail operators. We believe that these relationships will enable
us to pursue new business opportunities on existing rail line properties and
acquire additional short line freight rail lines from the Class I railroads.
Continue to grow through selective acquisitions. We expect that
opportunities to acquire selected North American short line rail properties will
continue to become available over the next several years. We also expect to make
acquisitions, in economically and politically stable international markets as a
result of an increasing number of governments seeking to privatize their
national rail systems.
Focus on core operations through strategic divestitures. We believe that in
order to capitalize on opportunities more profitable to our overall portfolio
and to minimize the amount of management time and effort on the smaller
properties in our portfolio and to reduce debt we may from time to time divest
some of our non-core railroad properties. We have announced a plan to divest
approximately $100 million of these properties and other assets, including our
announced plan to sell Kalyn/Siebert. As part of this plan, as of June 2000, we
sold a corridor of land owned by the West Texas and Lubbock Railroad for $9.3
million and other assets for approximately $2.0 million. In August 2000, we sold
two rail lines for gross proceeds of approximately $4.6 million. We believe a
market for these divestitures exists among other smaller short line operating
companies and selected strategic buyers. We cannot assure you that we will be
able to sell any of these properties or assets on acceptable terms, if at all.
OFFERING OF OUTSTANDING NOTES
In August 2000, RailAmerica Transportation sold units consisting of
$130,000,000 of outstanding notes and warrants to purchase 1,411,414 shares of
common stock, $.001 par value, of RailAmerica in a private offering. The net
proceeds we received from the issuance of the units were used to repay all $95.0
million of subordinated bridge notes issued by RailAmerica Transportation, $20.0
million of the asset sale bridge notes issued by Palm Beach Rail Holding, Inc.
and approximately $1.8 million of term loans under our senior credit facilities.
ASSETS HELD FOR SALE
As part of our strategy to focus on our core railroad business, we have
determined to sell Kalyn/Siebert, our truck trailer manufacturing business.
Kalyn/Siebert is a wholly-owned subsidiary of Palm Beach Rail Holding, Inc. and
is classified as a discontinued operation for purposes of our consolidated
financial statements. We intend to use the net proceeds from the sale of
Kalyn/Siebert to repay a majority of the outstanding asset sale bridge notes
issued by Palm Beach Rail Holding, Inc.
RECENT DEVELOPMENTS
In August 2000, we were selected to be one of four final bidders with
respect to the proposed sale by the Government of the State of Western Australia
of the rail freight business of the Western Australian Government Railways
Commission, known as Westrail. In addition, on August 14, 2000, we appointed
Gary M. Spiegel as our Executive Vice President and Chief Operating Officer,
North American Rail Group. Prior to joining us, Mr. Spiegel was Senior Vice
President - Operations at CSX Transportation. Prior to joining CSX in 1998, Mr.
Spiegel was employed by Conrail, a Class I carrier, and its predecessor
railroads for 28 years in various capacities, most recent of which was Vice
President - Service Delivery.
CORPORATE INFORMATION
RailAmerica Transportation Corp. is a wholly-owned indirect subsidiary of
RailAmerica, Inc., a publicly traded company listed on the Nasdaq National
Market under the symbol "RAIL." RailAmerica Transportation comprises
substantially all of the operating assets of RailAmerica, Inc. except
Kalyn/Siebert. RailAmerica Transportation is a Delaware corporation with our
principal executive offices located at 5300 Broken Sound Boulevard, N.W., Boca
Raton, Florida 33487. Our telephone number is (561) 994-6015.
3
<PAGE> 9
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT OPERATING DATA AND CREDIT STATISTICS)
The following table sets forth our summary historical consolidated financial
information and other data for the years ended December 31, 1997, 1998 and 1999
and the six months ended June 30, 1999 and 2000. The summary historical
financial data for the years ended December 31, 1997, 1998 and 1999 exclude
Ferronor and have been derived from our audited consolidated financial
statements and the notes thereto. The summary historical financial data for the
six months ended June 30, 1999 and 2000 exclude Ferronor and have been derived
from our unaudited consolidated financial statements and the notes thereto. The
pro forma financial data for the year ended December 31, 1999, the six months
ended June 30, 2000 and the twelve months ended June 30, 2000 (1) gives effect
to the issuance of the outstanding notes and the application of the net
proceeds, (2) gives effect to our acquisitions of RailTex, the Toledo, Peoria
and Western Railroad, RaiLink and Freight Australia, and the related financings,
including our new senior credit facility and (3) excludes Ferronor, which is
treated as an unrestricted subsidiary under the indenture. The pro forma
financial data assumes the transactions had been consummated on January 1, 1999,
January 1, 2000 or July 1, 1999, in the case of income statement data, other
data, operating data, certain other data and credit statistics and on December
31, 1999 or June 30, 2000, in the case of balance sheet data and certain balance
sheet data. The following financial information should be read in conjunction
with "Unaudited Pro Forma Consolidating Financial Information" and our
consolidated financial statements and the notes thereto included or incorporated
by reference into this prospectus.
RAILAMERICA, INC.
<TABLE>
<CAPTION>
TWELVE MONTHS
(UNAUDITED) SIX MONTHS ENDED ENDED
YEAR ENDED DECEMBER 31, JUNE 30, JUNE 30,
---------------------------------------- ------------------------------- -------------
1997 1998 1999 1999 1999 2000 2000 2000
PRO FORMA PRO FORMA PRO FORMA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues............... $16,434 $21,332 $106,257 $346,337 $ 31,517 $166,708 $180,782 $347,510
Operating expenses -- railroad... 7,389 6,720 63,412 203,569 18,215 94,950 102,994 196,705
Selling, general and
administrative................. 5,704 7,352 17,327 51,143 6,827 27,552 29,832 58,252
Acquisition related costs........ -- -- -- -- -- 1,924 1,924 1,924
Gain on sale and impairment of
assets (net)................... -- -- -- -- -- (7,785) (7,785) (7,785)
Depreciation and amortization.... 1,521 1,837 7,948 29,443 2,174 13,760 15,163 29,829
Operating expenses -- motor
carrier........................ -- 4,438 -- -- -- -- -- --
------- ------- -------- -------- -------- -------- -------- --------
Operating income........... 1,820 985 17,570 62,182 4,301 36,307 38,654 68,585
Interest expense................. (2,934) (3,213) (14,692) (51,114) (3,558) (22,240) (25,758) (52,167)
Amortization of financing
costs.......................... (366) (465) (4,203) (2,216) (988) (2,638) (1,352) (2,945)
Other............................ 340 226 4,819 8,243 68 832 832 7,926
Foreign exchange loss............ -- -- 272 -- 2,005 (2,929) 50 (1,908)
------- ------- -------- -------- -------- -------- -------- --------
(Loss) income from continuing
operations before income
taxes.......................... (1,140) (2,467) 3,766 17,095 1,828 9,332 12,426 19,491
(Loss) income from continuing
operations..................... (823) (1,467) 4,553 11,260 1,159 6,320 8,421 14,747
Discontinued operations.......... 1,746 4,288 3,896 3,896 2,523 (112) (112) 1,261
Extraordinary loss from early
extinguishment of debt -- -- -- -- -- (2,216) (2,216) (2,216)
------- ------- -------- -------- -------- -------- -------- --------
Net (loss) income.......... $ 923 $ 2,821 $ 8,449 $ 15,156 $ 3,682 $ 3,992 $ 6,093 $ 13,792
======= ======= ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(1)(2)(3)(4)............... $ 3,341 $ 3,128 $ 27,091 $ 93,379(5)(9) $ 6,475 $ 45,131 $ 48,881(6) $ 94,716(7)(9)
Cash interest expense(8)......... $ 2,934 $ 3,213 $ 14,692 $ 49,832 $ 3,558 $ 21,564 $ 25,117 $ 50,885
Capital expenditures............. $ 4,310 $11,960 $ 37,313 N/A $ 25,554 $ 23,244 N/A N/A
OPERATING DATA:
Freight carloads................. 46,207 49,519 154,991 N/A 106,454 551,332 N/A N/A
Track mileage.................... 930 1,000 2,748 10,300 4,340 11,750 11,750 11,750
BALANCE SHEET DATA (AT PERIOD
END):
Total assets............................................................................. $812,354 $815,583
Total debt............................................................................... $530,416 $530,815
Stockholders' equity..................................................................... $114,765 $118,771
RAILAMERICA TRANSPORTATION CORP.
CERTAIN BALANCE SHEET DATA (AT
PERIOD END):
Total debt..................................................................................................... $474,746
CERTAIN OTHER DATA:
Cash interest expense.......................................................................................... $ 49,532
CREDIT STATISTICS:
Ratio of EBITDA to RailAmerica Transportation cash interest expense............................................ 1.9x
Ratio of RailAmerica Transportation net debt to EBITDA(10)..................................................... 4.9x
</TABLE>
------------------------------
(1) EBITDA represents income from continuing operations before provisions for
income taxes, interest expense and depreciation and amortization. While
EBITDA should not be construed as a substitute for other historical
operating data prepared in accordance with GAAP in analyzing our operating
performance, financial position and cash flows, we have included EBITDA
because it is commonly used by some investors to analyze and compare
companies on the basis of operating performance, leverage and liquidity and
to determine our ability to service debt.
(2) For the year ended December 31, 1999, EBITDA excludes $651,146 of expenses
associated with the Delaware Valley Railway, which ceased operations during
1999 and includes a cash dividend of $921,522 that we received from
Ferronor.
(3) For the six months ended June 30, 2000, EBITDA excludes (i) $1,924,000 of
acquisition related costs which consisted of (a) $170,000 non-cash
amortization of a not-to-compete payment to a former RailTex employee and
(b) $1,754,000 of other RailTex related acquisition costs, (ii) $925,000
non-cash amortization of a fuel hedge and (iii) $7,785,000 of net gain on
sale and impairment of assets.
(4) For the twelve months ended June 30, 2000, EBITDA (i) excludes $133,397 of
expenses associated with the Delaware Valley Railway, which ceased
operations during 1999, (ii) includes a cash dividend of $989,182 that we
received from Ferronor, (iii) excludes $1,924,000 of acquisition related
costs which consisted of (a) $170,000 non-cash amortization of a
not-to-compete payment to a former RailTex employee and (b) $1,754,000 of
other RailTex related acquisition costs, (iv) excludes $925,000 non-cash
amortization of a fuel hedge and (v) excludes $7,785,000 of net gain on sale
and impairment of assets.
4
<PAGE> 10
(5) Pro Forma EBITDA for the year ended December 31, 1999 represents EBITDA for
that period adjusted as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
EBITDA.................................................. $27,091
Pro Forma acquisitions.................................. 48,536
Other regulation S-X adjustments........................ 17,752
--------------
Pro Forma EBITDA........................................ $93,379
</TABLE>
(6) Pro Forma EBITDA for the six months ended June 30, 2000 represents EBITDA
for that period adjusted as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
----------------
<S> <C>
EBITDA.................................................. $45,131
Pro Forma acquisitions.................................. 3,185
Other regulation S-X adjustments........................ 565
-------
Pro Forma EBITDA........................................ $48,881
</TABLE>
(7) Pro Forma EBITDA for the twelve months ended June 30, 2000 represents
EBITDA for that period adjusted as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
JUNE 30, 2000
----------------
<S> <C>
EBITDA.................................................. $64,964
Pro Forma acquisitions.................................. 25,077
Other regulation S-X adjustments........................ 4,675
-------
Pro Forma EBITDA........................................ $94,716
</TABLE>
(8) Cash interest expense of RailAmerica, Inc. includes $1.4 million of
interest expense for the year ended December 31, 1999 and the twelve month
period ended June 30, 2000 and $0.7 million of interest expense for the six
months ended June 30, 2000 relating to RailAmerica, Inc.'s 6% convertible
subordinated debt.
(9) Pro forma EBITDA for the twelve months ended December 31, 1999 includes
additional RailTex net income from the sale of timber of $181,000 and for
the twelve months ended June 30, 2000 includes additional RailTex net
income from the sale of timber of $117,000. This net income is reported as
other income on the unaudited pro forma consolidating statements of income
for the twelve months ended June 30, 2000.
(10) For purposes of calculating the ratio of RailAmerica Transportation net
debt to EBITDA, RailAmerica Transportation net debt is presented net of
cash and a $5.1 million discount attributable to the value of warrants
issued in the offering of the outstanding notes.
5
<PAGE> 11
THE EXCHANGE OFFER
The following is a summary of the principal terms of the exchange offer. A
more detailed description is contained in this prospectus under the section
entitled "The Exchange Offer." The term "registered notes" refers to the
registered 12 7/8% Senior Subordinated Notes due 2010 being offered in the
exchange offer. The term "outstanding notes" refers to our currently outstanding
12 7/8% Senior Subordinated Notes due 2010 that are exchangeable for the
registered notes. The term "indenture" refers to the indenture that applies to
both the outstanding notes and the registered notes.
The Exchange Offer.............. We are offering to exchange $1,000 principal
amount of registered notes and integral
multiples of $1,000 in excess thereof which
have been registered under the Securities Act
for each $1,000 principal amount of
outstanding notes and integral multiples of
$1,000. We issued the outstanding notes on
August 14, 2000 in a private offering. In
order to be exchanged, an outstanding note
must be properly tendered and accepted before
expiration of the exchange offer. All
outstanding notes that are validly tendered
and not validly withdrawn will be exchanged.
We will issue the registered notes promptly
after the expiration of the exchange offer.
As of the date of this prospectus, there is
outstanding $130.0 million principal amount
of outstanding notes. Outstanding notes may
be tendered for exchange in whole or in part
for minimum denominations of $1,000 principal
amount and integral multiples of $1,000.
Registration Rights Agreement... Simultaneously with the sale of the
outstanding notes on August 14, 2000, we
entered into a registration rights agreement
under which we committed to conduct the
exchange offer. You are entitled under the
registration rights agreement to exchange
your outstanding notes for registered notes
with substantially identical terms. The
exchange offer is intended to satisfy these
rights. After the exchange offer is complete,
except as set forth in the next paragraph,
you will no longer be entitled to any
exchange or registration rights with respect
to your outstanding notes.
The registration rights agreement requires us
to file a registration statement for a
continuous offering in accordance with Rule
415 under the Securities Act for your benefit
if:
- we are not permitted to consummate the
exchange offer because the exchange offer
is not permitted by applicable law or SEC
policy;
- you are ineligible to participate in the
exchange offer and indicate that you wish
to have your outstanding notes registered
under the Securities Act; or
- you may not resell registered notes you
have acquired in the exchange offer to the
public without delivering a prospectus and
this prospectus, including any amendment or
supplement thereto, is not appropriate or
available for resales by you.
Resales of the Registered
Notes........................... We believe that registered notes to be issued
in the exchange offer in exchange for the
outstanding notes may be offered for
6
<PAGE> 12
resale, resold and otherwise transferred by
you without compliance with the registration
and prospectus delivery provisions of the
Securities Act if you meet the following
conditions:
(1) the registered notes are acquired by
you in the ordinary course of your
business;
(2) you are not engaging in and do not
intend to engage in a distribution of
the registered notes;
(3) you do not have an arrangement or
understanding with any person to
participate in the distribution of the
registered notes; and
(4) you are not an affiliate of ours, as
that term is defined in Rule 405 under
the Securities Act
However, the SEC has not considered this
exchange offer in the context of a no-action
letter and we cannot be sure that the staff
of the SEC would make the same determination
with respect to the exchange offer as in
other circumstances. Furthermore, if you do
not meet the above conditions, you may incur
liability under the Securities Act if you
transfer any registered note without
delivering a prospectus meeting the
requirements of the Securities Act. We do not
assume, or indemnify you against, that
liability.
Each broker-dealer that receives registered
notes for its own account in the exchange
offer in exchange for outstanding notes which
that broker-dealer acquired as a result of
market-making activities or other trading
activities must acknowledge that it will
comply with the prospectus delivery
requirements of the Securities Act in
connection with any resale of the registered
notes. Broker-dealers who acquired
outstanding notes directly from us and not as
a result of market-making activities or other
trading activities may not participate in the
exchange offer and must comply with the
prospectus delivery requirements of the
Securities Act in order to resell the
outstanding notes
Expiration Date................. The exchange offer will expire at 5:00 p.m.,
New York City time, on October 27, 2000,
unless we decide to extend the exchange
offer.
Withdrawal...................... You may withdraw the tender of your
outstanding notes at any time prior to 5:00
p.m., New York City time, on the expiration
date.
Conditions to the Exchange
Offer........................... The only conditions to completing the
exchange offer are that the exchange offer
not violate applicable law or any applicable
interpretation of the staff of the SEC and no
injunction, order or decree has been issued,
or any action or proceeding has been
instituted or threatened that would
reasonably be expected to prohibit, prevent
or materially impair our ability to proceed
with the exchange offer.
7
<PAGE> 13
If any of these conditions exist prior to the
expiration date, we may take the following
actions:
- refuse to accept any outstanding notes and
return all previously tendered outstanding
notes;
- extend the duration of the exchange offer;
or
- waive these conditions to the extent
permissible under applicable law.
Procedures for Tendering
Outstanding Notes............... We issued the outstanding notes as global
securities in fully registered form without
coupons. Beneficial interests in the
outstanding notes which are held by direct or
indirect participants in The Depository Trust
Company through uncertificated depositary
interests are shown on, and transfers of the
outstanding notes can be made only through,
records maintained in book-entry form by DTC
with respect to its participants.
If you are a holder of an outstanding note
held in the form of a book-entry interest and
you wish to tender your outstanding notes for
exchange pursuant to the exchange offer, you
must transmit to Wells Fargo Bank Minnesota,
N.A., as exchange agent, on or prior to the
expiration of the exchange offer either:
- a written or facsimile copy of a properly
completed and executed letter of
transmittal and all other required
documents to the address set forth on the
cover page of the letter of transmittal; or
- a computer-generated message transmitted by
means of DTC's Automated Tender Offer
Program system and forming a part of a
confirmation of book-entry transfer in
which you acknowledge and agree to be bound
by the terms of the letter of transmittal.
The exchange agent must also receive on or
prior to the expiration of the exchange offer
either:
- a timely confirmation of book-entry
transfer of your outstanding notes into the
exchange agent's account at DTC, in
accordance with the procedure for
book-entry transfers described in this
prospectus under the heading "The Exchange
Offer -- Book-Entry Transfer," or
- the documents necessary for compliance with
the guaranteed delivery procedures
described below.
A letter of transmittal accompanies this
prospectus. By executing the letter of
transmittal or delivering a
computer-generated message through DTC's
Automated Tender Offer Program system, you
will represent to us that, among other
things:
(1) the registered notes to be acquired by
you in the exchange offer are being
acquired in the ordinary course of your
business;
8
<PAGE> 14
(2) you are not engaging in and do not
intend to engage in a distribution of
the registered notes;
(3) you do not have an arrangement or
understanding with any person to
participate in the distribution of the
registered notes; and
(4) you are not an affiliate of ours.
Procedures for Tendering
Certificated Outstanding
Notes......................... If you are a holder of book-entry interests
in the outstanding notes, you are entitled to
receive, in limited circumstances, in
exchange for your book-entry interests,
certificated notes which are in equal
principal amounts to your book-entry
interests. See "The Exchange
Offer -- Procedures for
Tendering -- Book-Entry Interests." No
certificated notes are issued and outstanding
as of the date of this prospectus. If you
acquire certificated outstanding notes prior
to the expiration of the exchange offer, you
must tender your certificated outstanding
notes in accordance with the procedures
described in this prospectus under the
heading "The Exchange Offer -- Procedures for
Tendering -- Certificated Outstanding Notes."
Special Procedures for
Beneficial Owners............... If you are the beneficial owner of
outstanding notes and they are registered in
the name of a broker, dealer, commercial
bank, trust company or other nominee, and you
wish to tender your outstanding notes, you
should promptly contact the person in whose
name your initial notes are registered and
instruct that person to tender on your
behalf. If you wish to tender on your own
behalf, you must, prior to completing and
executing the letter of transmittal and
delivering your outstanding notes, either
make appropriate arrangements to register
ownership of the outstanding notes in your
name or obtain a properly completed bond
power from the person in whose name your
outstanding notes are registered. The
transfer of registered ownership may take
considerable time and it may not be possible
to complete prior to the expiration date.
Guaranteed Delivery
Procedures...................... If you wish to tender your outstanding notes
and your outstanding notes are not
immediately available or you cannot deliver
your outstanding notes, the letter of
transmittal or any other documents required
by the letter of transmittal to the exchange
agent, or you cannot complete the procedure
for book-entry transfer, then prior to the
expiration date you must tender your
outstanding notes according to the guaranteed
delivery procedures set forth in "The
Exchange Offer -- Procedures for
Tendering -- Guaranteed Delivery Procedures."
Acceptance of Outstanding Notes
and Delivery of Registered
Notes......................... Except under the circumstances described
above under "Conditions to the Exchange
Offer," we will accept for exchange any and
all outstanding notes which are properly
tendered in the exchange offer before 5:00
p.m., New York City time, on the expiration
date. We will deliver the registered notes
promptly following the expiration date. If we
do not accept any of your
9
<PAGE> 15
outstanding notes for exchange we will return
them to you as promptly as practicable after
the expiration or termination of the exchange
offer without any expense to you.
Interest on the Registered Notes
and the Outstanding Notes....... The registered notes will pay interest on
every August 15 and February 15, commencing
February 15, 2001. Interest will not be paid
on outstanding notes that are tendered and
accepted for exchange.
Exchange Agent.................. Wells Fargo Bank Minnesota, N.A. is serving
as the exchange agent in connection with the
exchange offer.
Use of Proceeds................. We will not receive any cash proceeds from
the issuance of the registered notes in the
exchange offer.
Consequences of Failure to
Exchange........................ Outstanding notes that are not tendered or
that are tendered but not accepted will
continue to be subject to the existing
restrictions on transfer provided in the
outstanding notes and in the indenture.
U.S. Federal Tax
Considerations.................. The exchange of the outstanding notes
generally will not be a taxable exchange for
federal income tax purposes.
TERMS OF THE REGISTERED NOTES
Issuer.......................... RailAmerica Transportation Corp.
Registered Notes Offered........ $130.0 million aggregate principal amount of
12 7/8% Senior Subordinated Notes due 2010.
The registered notes will evidence the same
debt as the outstanding notes and will be
issued under, and entitled to the benefits
of, the same indenture. The terms of the
registered notes are the same as the terms of
the outstanding notes in all material
respects except that the registered notes:
- have been registered under the Securities
Act;
- do not include rights to registration under
the Securities Act; and
- do not contain transfer restrictions
applicable to the outstanding notes.
Maturity Date................... August 15, 2010.
Interest Payment Dates.......... Every August 15 and February 15, commencing
February 15, 2001.
Guarantees...................... Each of RailAmerica Transportation's domestic
restricted subsidiaries will be a guarantor
as well as RailAmerica Transportation's
direct parent, Palm Beach Rail Holding, Inc.
and its ultimate parent, RailAmerica, Inc.
Non-guarantor subsidiaries accounted for
approximately 46.8% of our EBITDA for the
year ended December 31, 1999 and 47.1% of our
EBITDA for the six months ended June 30,
2000. If we do not make payments on the
registered notes when they are due, our
guarantors are required to make payments.
10
<PAGE> 16
Sinking Fund.................... None.
Optional Redemption............. We may redeem some or all of the registered
notes at any time on or after August 15,
2005, in whole or in part, in cash at the
redemption prices described in this
prospectus, plus accrued and unpaid interest
to the date of redemption.
In addition, on or before August 15, 2003, we
may redeem up to 35% of the aggregate
principal amount of the registered notes
originally issued at a redemption price of
112.875% with the proceeds of equity
offerings within 60 days of closing of an
equity offering. We may make that redemption
only if, after the redemption, at least 65%
of the aggregate principal amount of
registered notes originally issued remain
outstanding.
Change of Control............... Upon a change of control, as defined in
"Description of the Registered Notes," we
will be required to make an offer to purchase
the notes. The purchase price will equal 101%
of the principal amount of the notes on the
date of repurchase, plus accrued and unpaid
interest to the date of repurchase.
Ranking......................... The registered notes and the guarantees will
be general unsecured obligations and will
rank:
- junior to all of RailAmerica
Transportation's and the guarantors'
existing and future senior indebtedness and
secured indebtedness, including any
obligations under the senior credit
facilities;
- equally with any of RailAmerica
Transportation's and the guarantors' future
senior subordinated indebtedness;
- senior to any of RailAmerica
Transportation's and the guarantors' future
subordinated indebtedness; and
- effectively junior to all of the
liabilities of our subsidiaries that have
not guaranteed the registered notes.
At June 30, 2000, assuming the sale of the
outstanding notes and the related warrants,
and the use of proceeds of that sale had been
completed at that time, the registered notes
would have ranked junior to $337.1 million of
senior indebtedness. In addition, the
guarantors would have had approximately $18.7
million of indebtedness outstanding (other
than indebtedness consisting of guarantees of
RailAmerica Transportation senior
indebtedness) that would have ranked senior
to the guarantors' guarantees of the
registered notes.
Certain Covenants............... The terms of the indenture governing the
registered notes restrict RailAmerica
Transportation's ability and the ability of
our restricted subsidiaries to:
- incur additional indebtedness;
- create liens;
- pay dividends or make other equity
distributions;
- purchase or redeem capital stock;
11
<PAGE> 17
- make investments;
- sell assets;
- engage in transactions with affiliates; or
- effect a consolidation or merger.
These limitations are subject to a number of
important qualifications and exceptions. See
"Description of the Registered Notes --
Certain Covenants."
RISK FACTORS
We urge you to read carefully the risk factors beginning on page 13 for a
discussion of factors you should consider before exchanging your outstanding
notes for registered notes.
12
<PAGE> 18
RISK FACTORS
You should carefully consider the following risk factors in addition to the
other information contained in this prospectus before participating in the
exchange offer. Unless indicated otherwise, the outstanding notes and the
registered notes are collectively referred to as the "notes" in the following
risk factors.
RISKS RELATED TO THE NOTES
WE HAVE SUBSTANTIAL DEBT AND DEBT SERVICE REQUIREMENTS WHICH COULD HAVE
ADVERSE CONSEQUENCES ON OUR BUSINESS.
In August 2000, we issued 130,000 units consisting of the outstanding notes
and warrant to purchase 1,411,414 shares of RailAmerica's common stock, which
yielded gross proceeds to us of $122.2 million. On a pro forma basis as if the
issuance of the units and the application of the net proceeds had occurred on
June 30, 2000, RailAmerica Transportation would have had approximately $474.7
million of total indebtedness outstanding. This amount excludes approximately
$26.9 million of outstanding indebtedness of Ferronor, which is non-recourse to
us and our other subsidiaries. On a pro forma basis as if the acquisition of
RailTex and the related financings, including our borrowings under the senior
credit facility, the issuance of the units and the application of the net
proceeds had occurred on January 1, 1999, our cash interest expense, excluding
Ferronor, would have been approximately $50.9 million for the year ended
December 31, 1999 and $25.1 million for the six months ended June 30, 2000. The
degree to which we are leveraged could have important consequences, including
the following:
- our ability to borrow additional amounts for working capital, capital
expenditures, potential acquisition opportunities, general corporate
purposes and other purposes may be limited or financing may not be
available on terms favorable to us or at all;
- a substantial portion of our cash flows from operations must be used to
pay our interest expense and repay our debt, which would reduce the funds
that would otherwise be available to us for our operations and future
business opportunities;
- we may be more vulnerable to economic downturns, may be limited in our
ability to withstand competitive pressures and may have reduced
flexibility in responding to changing business, regulatory and economic
conditions; and
- fluctuations in market interest rates will affect the cost of our
borrowings to the extent not covered by interest rate hedge agreements
because the interest under our credit facilities is payable at variable
rates.
DESPITE CURRENT INDEBTEDNESS LEVELS, RAILAMERICA TRANSPORTATION AND ITS
SUBSIDIARIES MAY STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT, WHICH WILL
INTENSIFY THE RISKS DISCUSSED ABOVE.
The indenture permits, subject to specified limitations, RailAmerica
Transportation and its subsidiaries to be able to incur substantial additional
indebtedness in the future. Our revolving credit facility allows us to borrow a
total of $50.0 million. As of August 31, 2000, we had outstanding borrowings of
approximately $23.6 million under our revolving credit facility. All of these
borrowings would be senior to the notes and the guarantees. If new debt is added
to our and our subsidiaries' current debt levels, the related risks that we and
they now face could intensify.
WE MAY NOT BE ABLE TO GENERATE SUFFICIENT CASH FLOW TO MEET OUR DEBT SERVICE
REQUIREMENTS.
We cannot assure you that our future cash flows will be sufficient to meet
our debt obligations and commitments. Any insufficiency would have a negative
impact on our business. Our ability to generate cash flow from operations
sufficient to make scheduled payments on our debt as they become due will depend
on our future performance and our ability to implement our business strategy
successfully. Our performance will be affected by prevailing economic conditions
and financial, business, regulatory and other factors. Most of these factors are
beyond our control. Failure to pay our interest expense or make our principal
payments
13
<PAGE> 19
would result in a default. A default, if not waived, could result in
acceleration of our indebtedness, in which case the debt would become
immediately due and payable. If this occurs, we may be forced to reduce or delay
capital expenditures and implementation of our business strategy, sell assets,
obtain additional equity capital or refinance or restructure all or a portion of
our outstanding debt. In the event that we are unable to do so, we may be left
without sufficient liquidity and we may not be able to repay our debt and the
lenders will be able to foreclose on our assets. Even if new financing is
available, it may not be on terms that are acceptable to us.
YOUR RIGHT TO RECEIVE PAYMENT ON THE NOTES AND THE GUARANTEES IS JUNIOR TO ALL
OF RAILAMERICA TRANSPORTATION'S AND THE GUARANTORS' SENIOR INDEBTEDNESS AND
POSSIBLY ALL OF RAILAMERICA TRANSPORTATION'S AND THE GUARANTORS' FUTURE
BORROWINGS.
The notes will be general unsecured obligations, junior in right of payment
to all of RailAmerica Transportation's existing and future senior indebtedness,
including obligations under the senior credit facilities. The notes will also be
effectively subordinated to any secured debt that we or our subsidiaries may
have now or may incur in the future to the extent of the value of the assets
securing that debt. In addition, the notes will be effectively subordinated to
all of the liabilities of any of our subsidiaries that do not guarantee the
notes. In the event that RailAmerica Transportation or a guarantor is declared
bankrupt, becomes insolvent, is liquidated or reorganized, defaults on payment
under debt that is senior to the notes or commits a default causing the
acceleration of the maturity of debt, any debt that ranks ahead of the notes and
the guarantees will be entitled to be paid in full from RailAmerica
Transportation's assets or the assets of the guarantor, as applicable, before
any payment may be made with respect to the notes or the affected guarantees.
The subordination provisions of the indenture also provide that under specified
circumstances, RailAmerica Transportation cannot make any payments to you for a
period of up to 179 days if a non-payment default exists under our designated
senior indebtedness. In any of the foregoing events, we cannot assure you that
we would have sufficient assets to pay amounts due on the notes. As a result,
holders of the notes may receive less, proportionally, than the holders of debt
senior to the notes and the guarantees.
At June 30, 2000, after giving pro forma effect to the sale of the
outstanding notes and related warrants and the use of proceeds from that sale,
as if they had occurred on that date, the notes would have ranked junior in
right of payment to approximately $337.1 million of senior indebtedness. In
addition, the guarantors would have had approximately $18.7 million of
indebtedness outstanding (other than indebtedness consisting of guarantees of
RailAmerica Transportation senior indebtedness) that would have ranked senior to
the guarantors' guarantees of the notes. In addition, the indenture governing
the notes permits, subject to specified limitations, the incurrence of
additional indebtedness, some or all of which may be senior indebtedness.
THE INDENTURE GOVERNING THE NOTES AND OUR SENIOR CREDIT FACILITIES CONTAIN
COVENANTS THAT SIGNIFICANTLY RESTRICT OUR OPERATIONS.
The indenture governing the notes and our senior credit facilities contain
numerous covenants imposing financial and operating restrictions on our
business. These restrictions may affect our ability to operate our business and
may limit our ability to take advantage of potential business opportunities as
they arise. These covenants place restrictions on our ability to, among other
things:
- incur more debt;
- pay dividends, redeem or repurchase our stock or make other
distributions;
- make acquisitions or investments;
- use assets as security in other transactions;
- enter into transactions with affiliates;
- merge or consolidate with others;
- dispose of assets or use asset sale proceeds;
14
<PAGE> 20
- create liens on our assets; and
- extend credit.
In addition, our senior credit facilities also require us to meet a number
of financial ratios and tests. In some cases, RailAmerica Transportation's
subsidiaries are limited in their ability to make distributions to RailAmerica
Transportation. Our ability to meet these ratios and tests and to comply with
other provisions of our credit facilities and the indenture can be affected by
changes in economic or business conditions or other events beyond our control.
Our failure to comply with the obligations in our senior credit facilities and
the indenture could result in an event of default under these facilities and the
indenture, which, if not cured or waived, could permit acceleration of the
notes, our indebtedness under the senior credit facilities or our other
indebtedness which could have a material adverse effect on us. Acceleration of
other indebtedness may cause us to be unable to make interest payments on the
notes and repay the principal amount of the notes.
RAILAMERICA TRANSPORTATION IS DEPENDENT ON ITS SUBSIDIARIES TO MEET ITS
PAYMENT OBLIGATIONS UNDER THE NOTES.
RailAmerica Transportation is a holding company with no significant assets
other than its investments in its subsidiaries. RailAmerica Transportation
conducts all of its business through these subsidiaries. In order to pay
principal, interest or any applicable premiums or liquidated damages on the
notes, RailAmerica Transportation must receive funds from its subsidiaries. The
ability of its subsidiaries to pay dividends, or to make loans, advances or
other payments to RailAmerica Transportation will depend on the subsidiaries'
results of operations, provisions of applicable laws and contractual
restrictions in our senior credit facility, the indenture and other instruments
governing indebtedness. See "Description of the Registered Notes -- Certain
Covenants -- Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" for more information on the limitations on dividends and other
payments by the restricted subsidiaries contained in the indenture.
YOUR RIGHT TO RECEIVE PAYMENTS ON THESE NOTES COULD BE ADVERSELY AFFECTED IF
ANY OF OUR NON-GUARANTOR SUBSIDIARIES DECLARES BANKRUPTCY, LIQUIDATE, OR
REORGANIZE.
Some but not all of our subsidiaries will guarantee the notes. In the event
of a bankruptcy, liquidation or reorganization of any of the non-guarantor
subsidiaries, holders of their indebtedness and their trade creditors will
generally be entitled to payment of their claims from assets of those
subsidiaries before any assets are made available for distribution to us.
As of June 30, 2000, if we had completed the sale of the outstanding notes
and related warrants and the use of proceeds from that sale, these notes would
have been effectively junior to approximately $127.6 million of indebtedness and
other liabilities (including trade payables) of these non-guarantor
subsidiaries. The non-guarantor subsidiaries generated 46.8% of our EBITDA for
the year ended December 31, 1999 and 47.1% of our EBITDA for the six months
ended June 30, 2000 and held 40.3% of our assets as of December 31, 1999 and
42.6% of our assets as of June 30, 2000.
YOU WILL BE REQUIRED TO INCLUDE ORIGINAL ISSUE DISCOUNT IN YOUR GROSS INCOME
FOR FEDERAL INCOME TAX PURPOSES.
The outstanding notes were issued with original issue discount for federal
income tax purposes. A holder of a note will generally have income for tax
purposes arising from this original issue discount prior to the actual receipt
of cash in respect of this income. See "Certain United States Federal Income Tax
Considerations."
15
<PAGE> 21
If a bankruptcy case is commenced by or against our company under the
United States Bankruptcy Code after the issuance of the notes, the claim of a
holder of any of the notes with respect to the principal amount thereof may be
limited to an amount equal to the sum of:
- the initial offering price allocable to the notes, and
- that portion of the original issue discount which is not deemed to
constitute "unmatured interest" for purposes of the Bankruptcy Code.
Any original issue discount that was not amortized as of any such
bankruptcy filing would constitute "unmatured interest."
THE REGISTERED NOTES MAY NOT HAVE AN ACTIVE MARKET AND THE PRICE MAY BE
VOLATILE, SO YOU MAY BE UNABLE TO SELL YOUR REGISTERED NOTES AT THE PRICE YOU
DESIRE OR AT ALL.
We cannot ensure that a liquid market will develop for the registered
notes, that you will be able to sell any of the registered notes at a particular
time if at all or that the prices you receive when you sell will be favorable.
Prior to this exchange offer, there has been no public market for the
outstanding notes. The initial purchasers of the outstanding notes have informed
us that they intend to make a market in the registered notes, but they are not
obligated to do so. The initial purchasers may cease their market-making at any
time in their sole discretion. We do not intend to apply, and are not obligated
to apply, for listing of the registered notes on any securities exchange or any
automated quotation system. As a result, you cannot be sure that an active
trading market will develop for the registered notes.
In addition, the liquidity of the trading market for the registered notes,
if any, and the market price quoted for the registered notes, may be adversely
affected by the changes in interest rates in the market for high-yield
securities and by changes in our financial performance or prospects, or in the
prospects for companies in the railroad industry generally.
FRAUDULENT TRANSFER STATUTES MAY LIMIT YOUR RIGHTS AS A NOTEHOLDER.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a subsidiary guarantee, such as the guarantees of the
notes by our subsidiary guarantors, could be voided, or claims in respect of a
subsidiary guarantee could be subordinated to all other debts of that guarantor
if, among other things, the guarantor, at the time it incurred the indebtedness
evidenced by its guarantee received less than reasonably equivalent value or
fair consideration for the incurrence of the guarantee, and any one of the
following:
- the guarantor was insolvent or rendered insolvent by reason of that
incurrence;
- the guarantor was engaged in a business or transaction for which the
guarantor's remaining assets constituted unreasonably small capital; or
- the guarantor intended to incur, or believed that it would incur, debts
beyond its ability to pay those debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could
be voided and required to be returned to the guarantor, or to a fund for the
benefit of the other creditors of the guarantor.
On the basis of historical financial information, recent operating history
and other factors, we believe that each of the guarantors of the notes, after
giving effect to its guarantee of these notes, will not be insolvent, will not
have unreasonably small capital for the business in which it is engaged and will
not have incurred debts beyond its ability to pay those debts as they mature. We
cannot assure you of the standard a court would apply in making these
determinations or that a court would agree with our conclusions.
If a court avoided the guarantee of the notes by a subsidiary guarantor as
a result of a fraudulent conveyance, or held the guarantee unenforceable for any
other reason, noteholders would no longer have a claim as a creditor against the
assets of that subsidiary.
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<PAGE> 22
WE MAY BE UNABLE TO PURCHASE THE NOTES UPON A CHANGE OF CONTROL.
Upon the occurrence of specific change of control events, we will be
required to offer to repurchase your notes at 101% of their principal amount,
plus accrued interest. The terms of our senior credit facilities limit our
ability to purchase your notes in those circumstances. Any of our future debt
agreements may contain similar restrictions and provisions. If the holders of
the notes exercise their right to require us to repurchase all of the notes upon
a change of control, the financial effect of this repurchase could cause a
default under our other indebtedness, even if the change in control itself would
not cause a default. The ability to pay cash to the holders of the notes on a
repurchase will be limited by our then existing financial resources.
Accordingly, it is possible that we will not have sufficient funds at the time
of the change of control to make the required repurchase of notes or that
restrictions in our senior credit facilities will not allow those repurchases.
In addition, important corporate events, such as leveraged recapitalizations
that would increase the level of our indebtedness, would not constitute a
"change of control" under the indenture.
SOME PERSONS WHO PARTICIPATE IN THIS EXCHANGE OFFER MUST DELIVER A PROSPECTUS
IN CONNECTION WITH RESALES OF THE REGISTERED NOTES.
Based on no-action letters issued by the staff of the SEC to third parties,
we believe that you may offer for resale, resell or otherwise transfer the
registered notes without compliance with the registration and prospectus
delivery requirements of the Securities Act. However, in some instances
described in this prospectus under "The Exchange Offer," you will remain
obligated to comply with the prospectus delivery requirements of the Securities
Act to transfer your registered notes. In these instances, if you transfer any
registered note without delivering a prospectus meeting the requirements of the
Securities Act or without an exemption from registration of your registered
notes under the Securities Act, you may incur liability under the Securities
Act. We do not and will not assume, or indemnify you against, this liability.
RISKS RELATED TO OUR BUSINESS OPERATIONS
OUR INABILITY TO INTEGRATE ACQUIRED BUSINESSES SUCCESSFULLY COULD HAVE ADVERSE
CONSEQUENCES FOR OUR BUSINESS.
We have experienced significant growth through acquisitions. Acquisitions
result in greater administrative burdens and operating costs and, to the extent
financed with debt, additional interest costs. We cannot assure you that we will
be able to manage or integrate the acquired companies or businesses
successfully. The process of combining RailTex into our operations and
integrating our other acquired businesses may be disruptive to our business and
may cause an interruption of, or a loss of momentum in, our business as a result
of the following factors, among others:
- loss of key employees or customers;
- possible inconsistencies in standards, controls, procedures and policies
among the combined companies and the need to implement company-wide
financial, accounting, information and other systems;
- failure to maintain the quality of services that the companies have
historically provided;
- the need to coordinate geographically diverse organizations; and
- the diversion of management's attention from our day-to-day business as a
result of the need to deal with any disruptions and difficulties and the
need to add management resources to do so.
These disruptions and difficulties, if they occur, may cause us to fail to
realize the cost savings, revenue enhancements and other benefits that we
currently expect to result from that integration and may cause material adverse
short- and long-term effects on our operating results and financial condition.
17
<PAGE> 23
WE EXPECT TO CONTINUE TO ACQUIRE OTHER BUSINESSES, WHICH MAY ADVERSELY AFFECT
OUR OPERATING RESULTS, FINANCIAL CONDITION AND EXISTING BUSINESS.
The success of our acquisition program will depend on, among other things:
- the availability of suitable candidates;
- competition from other companies for the purchase of available
candidates;
- our ability to value those candidates accurately and negotiate favorable
terms for those acquisitions;
- the availability of funds to finance acquisitions;
- our ability to fund acquisitions in accordance with the restrictions
contained in our senior credit facilities; and
- the availability of management resources to oversee the integration and
operation of the acquired businesses.
If our acquisition program is not successful, our operating results,
financial condition and existing business may be adversely affected.
Financing for acquisitions may come from several sources, including cash on
hand and proceeds from the incurrence of indebtedness or the issuance of
additional common stock, preferred stock, convertible debt or other securities.
Additional debt would increase our leverage and interest costs, and may rank
senior to or pari passu with the notes.
WE MAY NOT REALIZE THE ANTICIPATED COST SAVINGS AND OTHER BENEFITS FROM OUR
ACQUISITION OF RAILTEX AND OUR OTHER ACQUISITIONS.
Even if we are able to integrate the operations of RailTex and other
acquired businesses into our operations, we may not realize the full benefits of
the cost savings, revenue enhancements or other benefits that we currently
expect to result. The potential cost savings are based on analyses completed by
members of our management. These analyses necessarily involve assumptions as to
future events, including general business and industry conditions, costs to
operate our business and competitive factors, many of which are beyond our
control and may not materialize. While we believe these analyses and their
underlying assumptions to be reasonable, they are estimates which are difficult
to predict and necessarily speculative in nature. If we achieve the expected
benefits, they may not be achieved within the anticipated time frame. Also, the
cost savings and other synergies from these acquisitions may be offset by costs
incurred in integrating the companies, increases in other expenses, operating
losses or problems in the business unrelated to these acquisitions.
WE FACE COMPETITION FROM OTHER TYPES OF TRANSPORTATION AND FROM OTHER RAIL
OPERATORS.
We compete directly with other modes of transportation, including motor
carriers and, to a lesser extent, ships and barges. Competition is based
primarily upon the rate charged and the transit time required, as well as the
quality and reliability of the service provided. While we must build or acquire
and maintain our rail system, trucks are able to use public roadways. Any future
improvements or expenditures materially increasing the quality of these
alternative modes of transportation in the locations in which we operate, or
legislation granting materially greater latitude for motor carriers with respect
to size or weight limitations, could have a material adverse effect on our
results of operations and financial condition.
In addition, we compete for domestic acquisition opportunities with other
short-line operators and for foreign acquisitions with other U.S. and foreign
rail operators. Some of these competitors have significantly greater resources
than we do and may possess greater local market knowledge as well.
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<PAGE> 24
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY UNFAVORABLE CONDITIONS IN THE
AGRICULTURAL INDUSTRY BECAUSE A SUBSTANTIAL PORTION OF OUR RAILROAD TRAFFIC
CONSISTS OF AGRICULTURAL COMMODITIES.
Factors that negatively affect the agricultural industry in the regions in
which we operate could have a material adverse effect on our results of
operations and financial condition. These factors include weather conditions,
export and domestic demand and total world supply, and fluctuations in
agricultural prices. A significant portion of our revenues for the year ended
December 31, 1999 and the six months ended June 30, 2000 were derived from the
agricultural industry. We believe that agricultural commodities will continue to
represent a principal component of our rail traffic base in the near future. As
a result, we will continue to be affected by unfavorable conditions affecting
the agricultural industry in general.
WE ARE SUBJECT TO THE RISKS OF DOING BUSINESS IN FOREIGN COUNTRIES.
We have railroad operations in Australia, Chile and Canada. We may also
consider acquisitions in other foreign countries. The risks of doing business in
foreign countries include:
- adverse changes in the economy of those countries;
- adverse effects of currency exchange controls;
- restrictions on the withdrawal of foreign investment and earnings;
- government policies against ownership of businesses by non-nationals; and
- the potential instability of foreign governments.
Our operations in foreign countries are also subject to economic
uncertainties, including among others, risk of renegotiation or modification of
existing agreements or arrangements with governmental authorities, exportation
and transportation tariffs, foreign exchange restrictions and changes in
taxation structure.
BECAUSE SOME OF OUR SIGNIFICANT SUBSIDIARIES TRANSACT BUSINESS IN FOREIGN
CURRENCIES, FUTURE EXCHANGE RATE FLUCTUATIONS MAY ADVERSELY AFFECT OUR RESULTS
OF OPERATIONS.
While our operations are predominantly in U.S. dollars, some of our
significant subsidiaries transact business in foreign currencies, including the
Australian dollar and the Canadian dollar. Changes in the relation of these and
other currencies to the U.S. dollar could affect our revenues, result in
exchange losses and result in the writedown of our investments in those foreign
countries. The impact of future exchange rate fluctuations on our results of
operations cannot be accurately predicted. Historically, we have not engaged in
hedging transactions with respect to foreign currency exchange rates. However,
if circumstances change, we may seek to limit our exposure to the risk of
currency fluctuations by engaging in hedging or other transactions. We cannot
assure you that we will successfully manage our exposure to currency
fluctuations.
BECAUSE WE DEPEND ON CLASS I RAILROADS FOR OUR NORTH AMERICAN OPERATIONS, OUR
BUSINESS AND FINANCIAL RESULTS MAY BE ADVERSELY AFFECTED IF OUR RELATIONSHIPS
WITH CLASS I CARRIERS DETERIORATE.
The railroad industry in the United States and Canada is dominated by a
small number of Class I carriers that have substantial market control and
negotiating leverage. Almost all of the traffic on our North American railroads
is interchanged with Class I carriers. A decision by any of these Class I
carriers to discontinue transporting commodities or to use alternate modes of
transportation, such as motor carriers, could have a material adverse effect on
our business and results of operations. Our ability to provide rail service to
our customers in North America depends in large part upon our ability to
maintain cooperative relationships with Class I carriers with respect to, among
other matters, freight rates, car supply, reciprocal switching, interchange and
trackage rights. A deterioration in the operations of or service provided by
those interchange partners, or in our relationship with our interchange
partners, would adversely affect our business. In addition, much of the freight
transported by our North American railroads moves on railcars supplied by Class
I carriers. If the number of railcars supplied by Class I carriers is
insufficient, we might not be able to obtain replacement railcars on favorable
terms and shippers may seek alternate forms of transportation.
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<PAGE> 25
Portions of our North American rail properties are operated under leases,
operating agreements or trackage rights agreements with Class I carriers.
Failure of our railroads to comply with these leases and agreements in all
material respects could result in the loss of operating rights with respect to
those rail properties, which would adversely affect our results of operations
and financial condition. Class I carriers also have traditionally been
significant sources of business for us, as well as sources of potential
acquisition candidates as they continue to divest themselves of branch lines to
smaller rail operators. Because we depend on Class I carriers for our North
American operations, our business and financial results may be adversely
affected if our relationships with those carriers deteriorate.
WE ARE SUBJECT TO SIGNIFICANT GOVERNMENTAL REGULATION OF OUR RAILROAD
OPERATIONS. THE FAILURE TO COMPLY WITH GOVERNMENTAL REGULATION COULD HAVE A
MATERIAL ADVERSE EFFECT ON US.
We are subject to governmental regulation by a significant number of
foreign, federal, state and local regulatory authorities with respect to our
railroad operations and a variety of health, safety, labor, environmental and
other matters. Our failure to comply with applicable laws and regulations could
have a material adverse effect on us. Governments may change the legislative
framework within which we operate without providing us with any recourse for any
adverse effects that the change may have on our business. Also, some of the
regulations require us to obtain and maintain various licenses, permits and
other authorizations and we cannot assure you that we will continue to be able
to do so.
WE MAY INCUR SIGNIFICANT EXPENSES IN CONNECTION WITH AUSTRALIA'S OPEN ACCESS
REGIME.
In Australia, where a significant portion of our operations are located,
the applicable legislative framework enables third party rail operators to gain
access to the railway infrastructure on which we operate for access fees. As
part of this regime, we have executed and may be required to execute access
agreements governing access to the railway infrastructure. We may be required to
make significant expenditures and to incur significant expenses in order to
comply with the applicable regulatory framework and these access agreements.
WE MAY BE REQUIRED TO PAY PENALTY FEES UNDER SOME CIRCUMSTANCES TO A THIRD
PARTY RAIL OPERATOR THAT HAS ACCESS TO THE AUSTRALIAN RAILWAYS.
Our access agreement with V/Line Passenger in Australia contains penalty
provisions if trains using the railway infrastructure are delayed, early or
cancelled under a variety of circumstances resulting from our actions. The
formulas for calculation of the penalty are complex. The penalties apply unless
the penalty event is primarily due to acts of God, which includes, but is not
limited to, events such as natural disasters, war, changes in applicable laws
and power shortages. We cannot assure you that we will not incur significant
penalties under the Australian access agreement.
OUR LONG-TERM LEASE OF THE RAILWAY INFRASTRUCTURE IN AUSTRALIA MAY BE
TERMINATED FOLLOWING SPECIFIED DEFAULTS.
The director of public transport for the State of Victoria, Australia may
terminate the lease in specified circumstances, including: (1) if we fail to
maintain all necessary accreditations, (2) if we fail to maintain railway
infrastructure and (3) if we fail to maintain insurance. The termination of the
lease would have a material adverse effect on our financial condition, results
of operations and business.
TERMINATION OF OUR AGREEMENT WITH THE AUSTRALIAN WHEAT BOARD WOULD ADVERSELY
AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
If we fail to perform our obligations under our agreement with the
Australian Wheat Board, they may terminate the agreement by giving us one
month's notice in writing. Before giving us this one month's notice, the
Australian Wheat Board must give us the opportunity to remedy the failure by
giving us six weeks notice of our failure to perform. In addition to terminating
the agreement for our failure to perform, the Wheat Board may terminate the
agreement if we cease to exist in our present form as a result of a
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<PAGE> 26
reconstruction or merger and a conflict of interest arises as a result. If our
agreement is terminated, for any reason, our financial condition and results of
operations would be adversely affected.
WE COULD INCUR SIGNIFICANT COSTS FOR VIOLATIONS OF APPLICABLE ENVIRONMENTAL
LAWS AND REGULATIONS.
Our railroad and manufacturing operations and real estate ownership are
subject to extensive foreign, federal, state and local environmental laws and
regulations concerning, among other things, emissions to the air, discharges to
waters, and the handling, storage, transportation and disposal of waste and
other materials and cleanup of hazardous material or petroleum releases.
Environmental liability can extend to previously owned or operated properties,
leased properties and properties owned by third parties, as well as to
properties currently owned and used by us. Environmental liabilities may also
arise from claims asserted by adjacent landowners or other third parties in
toxic tort litigation. We may be subject to allegations or findings to the
effect that we have violated, or are strictly liable under, these laws or
regulations. We could incur significant costs as a result. We may be required to
incur significant expenses to investigate and remediate environmental
contamination. Some reports prepared in connection with our recent acquisition
of V/Line Freight and the Toledo, Peoria and Western Railroad Corporation
identified a number of contaminated sites on the properties leased or licensed
to us, which we may be required to remediate. In addition, some transactions,
including the RailTex acquisition, may subject us to various requirements to
investigate and remediate contamination at other properties.
LOSS OF KEY PERSONNEL COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
Our operations and prospects depend in large part on the performance of our
senior management team. We cannot be sure that we would be able to find
qualified replacements for any of these individuals if their services were no
longer available. The loss of the services of one or more members of our senior
management team, particularly Gary O. Marino, our chairman, president and chief
executive officer, could have a material adverse effect on our business,
financial condition and results of operations.
SOME OF OUR EMPLOYEES BELONG TO LABOR UNIONS AND STRIKES OR WORK STOPPAGES
COULD ADVERSELY AFFECT OUR OPERATIONS.
We are a party to collective bargaining agreements with various labor
unions in the United States, Australia, Chile and Canada. Some of these
agreements expire within the next two years. Our inability to negotiate
acceptable contracts with these unions could result in, among other things,
strikes, work stoppages or other slowdowns by the affected workers. If the
unionized workers were to engage in a strike, work stoppage or other slowdown,
or other employees were to become unionized or the terms and conditions in
future labor agreements were renegotiated, we could experience a significant
disruption of our operations and higher ongoing labor costs.
WE MAY FACE LIABILITY FOR CASUALTY LOSSES WHICH ARE NOT COVERED BY INSURANCE.
We have obtained insurance coverage for losses arising from personal injury
and for property damage in the event of derailments or other accidents or
occurrences. However, losses or other liabilities may arise that are not covered
by insurance. In addition, under catastrophic circumstances our liability could
exceed our insurance limits. Insurance is available from a limited number of
insurers and may not continue to be available or, if available, may not be
obtainable on terms acceptable to us.
IF WE DO NOT COMPLETE OUR ANNOUNCED PLAN TO SELL KALYN/SIEBERT WE MAY BE
UNABLE TO REPAY OUR ASSET SALE BRIDGE NOTES.
In November 1999, we announced our intention to sell our trailer
manufacturing business, Kalyn/Siebert. In connection with our acquisition of
RailTex and refinancing of debt in February 2000, we entered into a $55.0
million asset sale bridge note facility that is secured by the assets of
Kalyn/Siebert and is expected to be repaid in part out of the net proceeds of
the sale of Kalyn/Siebert. We used $20.0 million from the net proceeds of the
sale of the outstanding notes and related warrants to repay a portion of the
asset sale bridge
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notes. To the extent that we are unable to sell Kalyn/Siebert on acceptable
terms or at all, we may need to seek alternative means of financing our
repayment of the remaining asset sale bridge notes. While recourse under the
asset sale bridge notes is limited to the assets and stock of Kalyn/Siebert and
the assets of Kalyn/Siebert Canada, we cannot assure you as to what the ultimate
effect of our failure to fully repay the asset sale bridge notes in a timely
manner would be.
RISING FUEL COSTS COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
Fuel costs constitute a significant portion of our transportation expenses.
Fuel costs were approximately 12.2% of our historical transportation expenses
for the six months ended June 30, 2000, 13.9% for the year ended December 31,
1999 and 10.4% for the year ended December 31, 1998. Recently, diesel fuel
prices have increased dramatically, and this increase may have a material
adverse effect on our business and results of operations.
Fuel prices and supplies are influenced significantly by international
political and economic circumstances. If a fuel supply shortage were to arise
from OPEC production curtailments, a disruption of oil imports or otherwise,
higher fuel prices and any price increases would materially affect our operating
results. We do not generally engage in fuel hedge contracts.
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<PAGE> 28
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. In consideration
for issuing the registered notes as contemplated in this prospectus, we will
receive in exchange the outstanding notes in like principal amount. The
outstanding notes surrendered in exchange for the registered notes will be
retired and cancelled and cannot be reissued. The issuance of the registered
notes will not result in any increase in our indebtedness.
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<PAGE> 29
CAPITALIZATION
The following table shows our capitalization as of June 30, 2000 on an
actual basis and on an as adjusted basis for us and for RailAmerica
Transportation Corp. reflecting the issuance of the outstanding notes and
related warrants and the application of the net proceeds.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma
Combined Financial Information," "Selected Historical Financial Information" and
the financial statements and the notes to those statements included or
incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
---------------------------------------------------
(IN THOUSANDS)
AS ADJUSTED
-----------
RAILAMERICA, RAILAMERICA
ACTUAL INC.(3) TRANSPORTATION(4)
<S> <C> <C> <C>
Cash and cash equivalents........................ $ 9,041 $ 9,041 $ 8,403
======== ======== ========
LONG-TERM DEBT (INCLUDING CURRENT PORTION):
Senior credit facility
Revolving credit facility................... $ 13,014 $ 13,014 $ 13,014
Term A loan................................. 121,875 121,046 121,046
Term B loan................................. 203,975 203,023 203,023
Other senior debt.............................. 45,570 45,570 18,693
Notes offered hereby(1)........................ -- 117,180 117,180
Subordinated bridge notes...................... 95,000 -- --
Asset sale bridge notes(2)..................... 57,063 37,063 --
Convertible subordinated debt.................. 22,496 22,496 1,790
-------- -------- --------
Total debt............................. 558,993 559,392 474,746
-------- -------- --------
Redeemable convertible preferred stock........... 6,827 6,827
-------- --------
STOCKHOLDERS' EQUITY:
Common stock................................... 20 20
Additional paid-in capital..................... 115,262 120,331
Retained earnings.............................. 22,200 21,288
Accumulated other comprehensive income......... (12,504) (12,504)
Less: treasury stock (shares at cost).......... (6,500) (6,500)
-------- --------
Total stockholders' equity............. 118,478 122,635
-------- --------
Total capitalization................... $684,298 $688,854
======== ========
</TABLE>
------------------------
(1) As adjusted reflects $122.2 million of gross proceeds from the sale of
the outstanding notes and related warrants less a $5.1 million discount
associated with the value of those warrants. The discount associated
with the warrants has been allocated to additional paid-in capital.
(2) At June 30, 2000, $37.1 million of the asset sale bridge notes are
included in net liabilities of discontinued operations. For purposes of
this table, we have included the entire amount of the asset sale bridge
notes as long term debt.
(3) Includes approximately $26.9 million of senior debt of Ferronor and $3.7
million of stockholders' equity attributable to Ferronor.
(4) The pro forma as adjusted data for RailAmerica Transportation excludes
approximately $26.9 million of other senior debt of Ferronor. The
Ferronor debt is non-recourse to RailAmerica Transportation and its
other subsidiaries.
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<PAGE> 30
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information gives
effect to the consummation of the acquisition of RailTex and the related
financings and our 1999 acquisitions (each accounted for as a purchase for
financial accounting purposes), and the issuance of the outstanding notes and
related warrants and the application of the net proceeds from that issuance in
each case as if it or they had been consummated; (1) on June 30, 2000, in the
case of the unaudited pro forma combined balance sheet; and (2) on January 1,
1999, July 1, 1999 or January 1, 2000, in the case of the unaudited pro forma
combined statements of operations.
The following unaudited pro forma combined financial information is
presented for illustrative purposes only and does not purport to be indicative
of RailAmerica's actual financial position or results of operations as of the
date hereof, or as of or for any other future date, and is not necessarily
indicative of what our actual financial position or results of operations would
have been had the acquisition of RailTex been consummated on the
above-referenced dates, nor does it give effect to (1) any transactions other
than the acquisition and those described in the notes to the unaudited pro forma
combined financial information or (2) RailAmerica's or RailTex's results of
operations since December 31, 1999 for the December 31, 1999 income statement or
RailAmerica's or RailTex's results of operations since June 30, 2000 for the
June 30, 2000 income statements.
The following unaudited pro forma combined financial information is based
upon the historical financial data of RailAmerica, V/Line Freight, RaiLink, the
Toledo, Peoria and Western Railroad and RailTex and should be read in
conjunction with the information appearing in "Use of Proceeds,"
"Capitalization," "Selected Historical Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
RailAmerica's audited consolidated financial statements and notes thereto, the
RailTex audited financial statements and notes thereto, and other financial data
included or incorporated by reference in this prospectus.
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<PAGE> 31
RAILAMERICA, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATING STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOLEDO,
V/LINE FREIGHT PEORIA AND PRO FORMA CONSOLIDATED
RAILAMERICA(A) CORPORATION(B) RAILLINK LTD.(C) WESTERN(D) RAILTEX(E) ADJUSTMENTS BALANCES
-------------- -------------- ---------------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total operating
revenue............... $125,373 $28,831 $19,982 $ 7,674 $177,845 $ 5,747(f) $ 365,452
-------- ------- ------- ------- -------- -------- ---------
Operating expenses:
Transportation -- railroad.. 75,376 31,291 11,888 6,756 94,063 (3,841)(g) 215,533
Selling, general and
administrative...... 19,550 -- 3,915 1,627 36,437 (8,163)(h) 53,366
Depreciation and
amortization........ 9,179 1,230 2,113 681 16,693 778(i) 30,674
-------- ------- ------- ------- -------- -------- ---------
Total operating
expenses...... 104,105 32,521 17,916 9,064 147,193 (11,226) 299,573
-------- ------- ------- ------- -------- -------- ---------
Operating
income........ 21,268 (3,690) 2,066 (1,390) 30,652 16,973 65,879
Interest expense........ (16,287) (234) (662) (617) (10,435) (4,252)(j) (52,708)
(2,775)(k)
(413)(l)
(13,224)(m)
(3,809)(n)
Amortization of deferred
loans costs........... (4,203) -- -- -- -- 1,987(o) (2,216)
Other income
(expense)............. 5,739 -- 356 18 3,051 -- 9,164
Foreign exchange gain... 273 -- -- -- -- (273)(p) --
Minority interest in
income of
subsidiary............ (1,551) -- -- -- -- -- (1,551)
-------- ------- ------- ------- -------- -------- ---------
Income (loss) from
continuing operations
before income taxes... 5,239 (3,924) 1,760 (1,989) 23,268 (5,786) 18,568
Provision (benefit) for
income taxes.......... (787) -- 629 (664) 9,389 (2,733)(q) 5,834
-------- ------- ------- ------- -------- -------- ---------
Income (loss) from
continuing
operations............ $ 6,026 $(3,924) $ 1,131 $(1,325) $ 13,879 $ (3,053) $ 12,734
======== ======= ======= ======= ======== ======== =========
Weighted average shares
outstanding
Basic................. 11,090 6,872 17,962
======== ======== =========
Diluted............... 11,665 8,956 20,621
======== ======== =========
Earnings per share --
continuing operations
Basic................. $ 0.45 $ 0.65
======== =========
Diluted............... $ 0.43 $ 0.61
======== =========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
26
<PAGE> 32
NOTES TO UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1999
STATEMENTS OF INCOME:
(a) Reflects our historical consolidated statement of income for the year
ended December 31, 1999 including the results of Ferronor. For the period,
Ferronor had operating revenue of $19.1 million and EBITDA of $4.9 million. In
addition, the historical consolidated statement of income includes the results
of operation of certain non-core rail lines that we have announced are for sale.
The revenue and EBITDA of these rail lines was $13.1 million and $5.1 million,
respectively for the period.
(b) Reflects the historical consolidated statement of income for V/Line
Freight for the period from January 1, 1999 to April 30, 1999, the time period
during the year ended December 31, 1999 which was prior to our acquisition of
V/Line Freight.
(c) Reflects the historical consolidated statement of income for RaiLink
Ltd. for the period from January 1, 1999 to August 1, 1999, the time period
during the year ended December 31, 1999 which was prior to our acquisition of
RaiLink.
(d) Reflects the historical consolidated statement of income for the
Toledo, Peoria and Western Railroad for the period from January 1, 1999 to
September 1, 1999, the time period during the year ended December 31, 1999 which
was prior to our acquisition of the Toledo, Peoria and Western Railroad.
(e) Reflects the historical consolidated statement of income for RailTex
the year ended December 31, 1999 prior to our acquisition of RailTex.
(f) Reflects revenue from track access fees at V/Line Freight for the
period from January 1, 1999 to April 30, 1999, based upon the kilometers
traveled times the agreed upon rate from other railroads with access to V/Line
Freight's tracks, which would have been due to us had we acquired V/Line Freight
on January 1, 1999.
(g) Reflects adjustment to Transportation -- railroad expenses of $(3.8)
million consisting of the reduction of V/Line Freight expenses resulting from
(i) outsourcing some maintenance functions, (ii) reimbursement of some
maintenance costs from a third party and (iii) capitalization of track
improvements.
(h) Reflects an adjustment to selling, general and administrative costs of
$(8.2) million consisting of: (A) $(0.4) million related to the elimination of
costs incurred by RaiLink in connection with RailAmerica's acquisition of
RaiLink and expensed by RaiLink during 1999; (B) $(0.9) related to a reduction
in RaiLink costs resulting from (i) elimination of duplicative senior management
positions, (ii) reduction in fuel costs based upon RailAmerica's negotiated
prices and (iii) elimination of fees paid to directors of RaiLink and related
expenses; and (C) $(6.8) million related to a reduction in RailTex costs
resulting from (i) elimination of duplicative management positions as well as
RailTex's Chairman Emeritus, (ii) elimination of fees paid to directors of
RailTex and related costs and (iii) elimination of certain duplicative public
company costs.
(i) Reflects an adjustment to depreciation and amortization cost of $0.8
million consisting of (A) $1.2 million related to the increased depreciation and
amortization due to the revaluation of V/Line Freight's property, plant and
equipment and infrastructure lease; (B) $(0.3) million related to the decreased
depreciation and amortization due to the revaluation of RaiLink's property,
plant and equipment; (C) $(0.3) million related to the decreased depreciation
and amortization due to the revaluation of Toledo, Peoria and Western Railroad's
property, plant and equipment; (D) $(0.8) million related to the decreased
depreciation and amortization due to the revaluation of RailTex's property,
plant and equipment; and (E) $1.0 million related to the non-cash amortization
of a not-to-compete payment paid to a former RailTex employee.
(j) Reflects the adjustment to interest expense related to our acquisition
of V/Line Freight for the period prior to the acquisition on April 30, 1999,
assuming the acquisition was funded through the issuance of the
27
<PAGE> 33
NOTES TO UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1999 -- (CONTINUED)
outstanding notes and convertible subordinated debt, less the elimination of
historical interest expense, calculated as follows:
<TABLE>
<CAPTION>
INTEREST ALLOCATED INTEREST
RATE PRINCIPAL AMOUNT EXPENSE
-------- ------------------- ----------------
<S> <C> <C> <C>
Outstanding notes.......................... 14.0% $95.0 million $ 4,433
Convertible subordinated debt.............. 8.0% $ 2.0 million 53
Less: Historical interest expense on
extinguished debt........................ (234)
----------
$ 4,252
==========
</TABLE>
(k) Reflects the adjustment to interest expense related to our acquisition
of RaiLink Ltd. for the period prior to the acquisition as of August 1, 1999,
assuming the acquisition was funded through borrowings under our Senior Credit
Facility and the issuance of the convertible subordinated debt less the
elimination of historical interest expense, calculated as follows:
<TABLE>
<CAPTION>
INTEREST ALLOCATED INTEREST
RATE PRINCIPAL AMOUNT EXPENSE
-------- ------------------- ----------------
<S> <C> <C> <C>
Senior Credit Facility..................... 9.3% $48.6 million $ 2,636
Convertible subordinated debt.............. 8.0% $13.4 million 624
Less: Historical interest expense on
extinguished debt........................ (485)
----------
$ 2,775
==========
</TABLE>
The effect of a 1/8% increase in interest rates on the Senior Credit
Facility would result in an increase in interest expense of $61,000 for the year
ended December 31, 1999.
(l) Reflects the adjustment to interest expense related to our acquisition
of Toledo, Peoria and Western Railroad for the period prior to the acquisition
as of September 1, 1999, assuming the acquisition was funded through borrowings
under our Senior Credit Facility and the issuance of the convertible
subordinated debt less the elimination of historical interest expense,
calculated as follows:
<TABLE>
<CAPTION>
INTEREST ALLOCATED INTEREST
RATE PRINCIPAL AMOUNT EXPENSE
-------- ------------------- ----------------
<S> <C> <C> <C>
Senior Credit Facility..................... 9.3% $ 9.7 million $ 600
Convertible subordinated debt.............. 8.0% $ 8.1 million 430
Less: Historical interest expense on
extinguished debt........................ (617)
----------
$ 413
==========
</TABLE>
The effect of a 1/8% increase in interest rates on the Senior Credit
Facility would result in an increase in interest expense of $12,000 for the year
ended December 31, 1999.
28
<PAGE> 34
NOTES TO UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1999 -- (CONTINUED)
(m) Reflects the adjustment to interest expense related to our acquisition
of RailTex resulting from borrowings under our Senior Credit Facility less the
elimination of historical interest expense, calculated as follows:
<TABLE>
<CAPTION>
INTEREST ALLOCATED INTEREST
RATE PRINCIPAL AMOUNT EXPENSE
-------- ------------------- ----------------
<S> <C> <C> <C>
Senior Credit Facility (Term B)............ 9.35% $205.0 million $ 19,578
Senior Credit Facility (Term A)............ 9.3% $ 43.9 million 4,081
Less: Historical interest expense on
extinguished debt........................ (10,435)
----------
$ 13,224
==========
</TABLE>
The effect of a 1/8% increase in interest rates on our Senior Credit
Facility would result in an increase in interest expense of $311,000 for the
year ended December 31, 1999.
(n) Reflects the increase in interest expense for the periods subsequent to
the acquisitions described in footnotes (j), (k) and (l), from the replacement
of existing indebtedness with the issuance of the outstanding notes.
(o) Reflects net increase in amortization of deferred loan costs as a
result of our Senior Credit Facility and bridge loans used to finance the above
acquisitions.
(p) Reflects the elimination of a foreign exchange loss resulting from the
extinguishment of debt used to finance our acquisition of V/Line Freight.
(q) Reflects the income tax effect of the pro forma adjustments.
29
<PAGE> 35
RAILAMERICA, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
PRO FORMA CONSOLIDATED
RAILAMERICA(A) RAILTEX(B) ADJUSTMENTS BALANCES
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Operating revenue............................ $177,047 $14,074 $ -- $191,121
-------- ------- ------- --------
Operating expenses:
Transportation -- railroad................. 102,103 8,044 -- 110,147
Selling, general and administrative........ 28,750 2,845 (565)(c) 31,030
Acquisition related costs.................. 1,924 -- -- 1,924
Gain on sale of assets (net)............... (7,785) -- -- (7,785)
Depreciation and amortization.............. 14,384 1,480 (77)(d) 15,787
-------- ------- ------- --------
Total operating expenses........... 139,376 12,369 (642) 151,103
-------- ------- ------- --------
Operating income................... 37,671 1,705 642 40,018
Interest expense............................. (23,062) (633) (1,339)(e) (26,580)
(1,546)(f)
Amortization of deferred loan costs.......... (2,638) -- 1,286(g) (1,352)
Other income (expense)....................... 1,007 -- -- 1,007
Foreign exchange loss........................ (3,243) -- 2,979(h) (264)
-------- ------- ------- --------
Income (loss) from continuing operations
before income taxes..................... 9,735 1,072 2,022 12,829
Provision (benefit) for income taxes......... 3,036 483 511(i) 4,030
-------- ------- ------- --------
Income (loss) from continuing operations... $ 6,699 $ 589 $ 1,511 $ 8,799
======== ======= ======= ========
Weighted average shares outstanding
Basic...................................... 17,493 1,130 18,623
======== ======= ========
Diluted.................................... 17,684 1,130 18,814
======== ======= ========
Earnings per share -- continuing operations
Basic...................................... $ 0.36 $ 0.45
======== ========
Diluted.................................... $ 0.36 $ 0.45
======== ========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
30
<PAGE> 36
NOTES TO UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000
STATEMENT OF INCOME:
(a) Reflects our historical consolidated statement of income for the six
months ended June 30, 2000 including the results of Ferronor. For the period,
Ferronor had operating revenue of $10.3 million and EBITDA of $2.0 million. In
addition, the historical consolidated statement of income includes the results
of operation of certain non-core rail lines that we have announced are for sale.
The revenue and EBITDA of these rail lines was $7.2 million and $2.9 million,
respectively for the period.
(b) Reflects the historical consolidated statement of income for RailTex
for the month of January 2000, the time period during the six month period ended
June 30, 2000 which was prior to our acquisition of RailTex.
(c) Reflects an adjustment to selling, general and administrative costs of
$(0.6) million consisting of: a reduction in RailTex costs resulting from (i)
elimination of duplicative management positions as well as RailTex's Chairman
Emeritus, (ii) elimination of fees paid to directors of RailTex and related
costs and (iii) elimination of certain duplicative public company costs.
(d) Reflects an adjustment to depreciation and amortization cost of $(0.1)
million consisting of (A) the decreased depreciation and amortization due to the
revaluation of RailTex's property, plant and equipment and (B) $0.1 million
related to the non-cash amortization of a not-to-compete payment paid to a
former RailTex employee.
(e) Reflects the adjustment to interest expense related to our acquisition
of RailTex resulting from borrowings under our Senior Credit Facility less the
elimination of historical interest expense, calculated as follows:
<TABLE>
<CAPTION>
INTEREST ALLOCATED INTEREST
RATE PRINCIPAL AMOUNT EXPENSE
-------- ---------------- --------
<S> <C> <C> <C>
Senior Credit Facility (Term B)................... 9.55% $205.0 million $1,631
Senior Credit Facility (Term A)................... 9.3% $ 43.9 million 341
Less: Historical interest expense on extinguished
debt............................................ (633)
------
$1,339
======
</TABLE>
The effect of a 1/8% increase in interest rates on our Senior Credit
Facility would result in an increase in interest expense of $78,000 for the
three months ended March 31, 2000.
(f) Reflects the increase in interest expense from the replacement of
existing indebtedness with the issuance of the outstanding notes.
(g) Reflects net decrease in amortization of deferred loan costs as a
result of our Senior Credit Facility and bridge loans used to finance the above
acquisitions.
(h) Reflects the elimination of a foreign exchange loss resulting from the
extinguishment of debt used to finance our acquisition of V/Line Freight.
(i) Reflects the income tax effect of the pro forma adjustments.
31
<PAGE> 37
RAILAMERICA, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATING STATEMENTS OF INCOME
FOR THE TWELVE MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOLEDO
PEORIA AND PRO FORMA CONSOLIDATED
RAILAMERICA(A) RAILINK LTD.(B) WESTERN(C) RAILTEX(D) ADJUSTMENTS BALANCES
-------------- ---------------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Total operating revenue................ $262,542 $ 2,832 $ 1,912 $101,594 $ -- $368,880
-------- ------- ------- -------- ------- --------
Operating expenses:
Transportation -- railroad........... 154,127 1,824 2,564 52,156 -- 210,671
Acquisition related costs............ 1,924 -- -- -- -- 1,924
Gain on sale of assets, net.......... (7,785) -- -- -- -- (7,785)
Selling, general and
administrative..................... 40,495 1,056 844 22,934 (4,675)(e) 60,653
Depreciation and amortization........ 20,843 314 170 9,980 (14)(f) 31,293
-------- ------- ------- -------- ------- --------
Total operating expenses....... 209,604 3,194 3,578 85,070 (4,690) 296,756
-------- ------- ------- -------- ------- --------
Operating income............... 52,938 (362) (1,666) 16,524 4,690 72,124
Interest expense....................... (34,961) (96) (214) (5,924) (395)(g) (53,997)
(44)(h)
(7,877)(i)
(4,485)(j)
Amortization of deferred loan costs.... (5,853) 0 0 0 2,908(k) (2,945)
Other income (expense)................. 5,729 42 0 2,211 7,982
Foreign exchange gain (loss)........... (4,975) 0 0 0 2,979(l) (1,996)
-------- ------- ------- -------- ------- --------
Income (loss) from continuing
operations before income taxes..... 12,878 (416) (1,880) 12,811 (2,224) 21,168
Provision (benefit) for income taxes... 1,581 (215) (640) 5,204 (1,188)(m) 4,742
-------- ------- ------- -------- ------- --------
Income (loss) from continuing
operations........................... $ 11,297 $ (201) $(1,240) $ 7,607 $(1,037) $ 16,424
======== ======= ======= ======== ======= ========
Weighted average shares outstanding
Basic................................ 14,528 5,541 20,069
======== ======= ========
Diluted.............................. 17,378 5,541 22,919
======== ======= ========
Earnings per share -- Continuing
operations
Basic................................ $ 0.72 $ 0.75
======== ========
Diluted.............................. $ 0.62 $ 0.67
======== ========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
32
<PAGE> 38
NOTES TO UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
FOR THE TWELVE MONTH PERIOD ENDED JUNE 30, 2000
INCOME STATEMENT:
(a) Reflects our historical consolidated statement of income for the twelve
months ended June 30, 2000 including the results of Ferronor. For the period,
Ferronor had operating revenue of $21.4 million and EBITDA of $5.0 million. In
addition, the historical consolidated statement of income includes the results
of operation of certain non-core rail lines that we have announced are for sale.
The revenue and EBITDA of such rail lines was $13.3 million and $5.6 million,
respectively for the period.
(b) Reflects the historical consolidated statement of income for RaiLink
Ltd. for the period from July 1, 1999 to August 1, 1999, the time period during
the twelve month period ended June 30, 2000 which was prior to our acquisition
of RaiLink.
(c) Reflects the historical consolidated statement of income for the
Toledo, Peoria and Western Railroad for the period from July 1, 1999 to
September 1, 1999, the time period during the twelve month period ended June 30,
2000 which was prior to our acquisition of the Toledo, Peoria and Western
Railroad.
(d) Reflects the historical consolidated statement of income for RailTex
for the period from July 1, 1999 to February 1, 2000, the time period during the
twelve month period ended June 30, 2000 which was prior to our acquisition of
RailTex.
(e) Reflects an adjustment to selling, general and administrative costs of
$(4.7) million consisting of: (A) $(0.1) million related to the elimination of
costs incurred by RaiLink in connection with RailAmerica's acquisition of
RaiLink and expensed by RaiLink during 1999; (B) $(0.7) related to a reduction
in RaiLink costs resulting from (i) elimination of duplicative senior management
positions, (ii) reduction in fuel costs based upon RailAmerica's negotiated
prices and (iii) elimination of fees paid to directors of RaiLink and related
expenses; and (C) $(3.9) related to a reduction in RailTex costs resulting from
(i) elimination of duplicative management positions as well as RailTex's
Chairman Emeritus, (ii) elimination of fees paid to directors of RailTex and
related costs and (iii) elimination of certain duplicative public company costs.
(f) Reflects an adjustment to depreciation and amortization cost consisting
of (A) $(0.1) related to the decreased depreciation and amortization due to the
revaluation of RaiLink's property, plant and equipment; (B) $(0.1) related to
the decreased depreciation and amortization due to the revaluation of Toledo,
Peoria and Western Railroad's property, plant and equipment; (C) $(0.4) related
to the decreased depreciation and amortization due to the revaluation of
RailTex's property, plant and equipment; and (D) $0.6 million related to the
non-cash amortization of a not-to-compete payment paid to a former RailTex
employee.
(g) Reflects the adjustment to interest expense related to our acquisition
of RaiLink Ltd. for the period prior to the acquisition on August 1, 1999,
assuming the acquisition was funded through borrowings under our Senior Credit
Facility and the issuance of convertible subordinated debt less the elimination
of historical interest expense, calculated as follows:
<TABLE>
<CAPTION>
INTEREST ALLOCATED INTEREST
RATE PRINCIPAL AMOUNT EXPENSE
-------- ---------------- --------
<S> <C> <C> <C>
Senior Credit Facility............................ 9.3% $ 48.6 million $ 402
Convertible Subordinated debt..................... 8.0% $ 13.4 million 89
Less: Historical interest expense on extinguished
debt............................................ (96)
------
$ 395
======
</TABLE>
The effect of a 1/8% increase in interest rates on our Senior Credit
Facility would result in an increase in interest expense of $15,000 for the
period.
(h) Reflects the adjustment to interest expense related to our acquisition
of the Toledo, Peoria and Western Railroad for the period prior to the
acquisition as of September 1, 1999, assuming the acquisition
33
<PAGE> 39
NOTES TO UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
FOR THE TWELVE MONTH PERIOD ENDED JUNE 30, 2000 -- (CONTINUED)
was funded through borrowings under our Senior Credit Facility and the issuance
of convertible debt less the elimination of historical interest expense,
calculated as follows:
<TABLE>
<CAPTION>
INTEREST ALLOCATED INTEREST
RATE PRINCIPAL AMOUNT EXPENSE
-------- ---------------- --------
<S> <C> <C> <C>
Senior Credit Facility............................ 9.3% $ 9.7 million $ 150
Convertible subordinated debt..................... 8.0% $ 8.1 million 108
Less: Historical interest expense on extinguished
debt............................................ (214)
-----
$ 44
=====
</TABLE>
The effect of a 1/8% increase in interest rates on our Senior Credit
Facility would result in an increase in interest expense of $3,000 for the
period.
(i) Reflects the adjustment to interest expense related to our acquisition
of RailTex for the period prior to the acquisition as of February 1, 2000, as a
result of borrowings under our Senior Credit Facility less the elimination of
historical interest expense. The interest rates and debt balances are as
follows:
<TABLE>
<CAPTION>
INTEREST ALLOCATED INTEREST
RATE PRINCIPAL AMOUNT EXPENSE
-------- ---------------- --------
<S> <C> <C> <C>
Senior Credit Facility (Term B).................. 9.55% $205.0 million $11,419
Senior Credit Facility (Term A).................. 9.3% $ 43.9 million 2,382
Less: Historical interest expense on extinguished
debt........................................... (5,924)
-------
$ 7,877
=======
</TABLE>
The effect of a 1/8% increase in interest rates on our Senior Credit
Facility would result in an increase in interest expense of $311,000 for the
period.
(j) Reflects the increase in interest expense for the periods subsequent to
the acquisitions described in footnotes (g), (h) and (i) from the replacement of
existing indebtedness with the issuance of the outstanding notes.
(k) Reflects the net increase in amortization of deferred loan costs as a
result of our Senior Credit Facility and bridge loans used to finance the above
acquisitions.
(l) Reflects the elimination of a foreign exchange loss resulting from the
extinguishment of debt used to finance our acquisition of V/Line Freight.
(m) Reflects the income tax effect of the pro forma adjustments.
34
<PAGE> 40
RAILAMERICA, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED
RAILAMERICA(A) ADJUSTMENTS BALANCES
-------------- ----------- ------------
<S> <C> <C> <C>
ASSETS
Cash.................................................. $ 9,041 $ -- $ 9,041
Accounts and notes receivable......................... 57,056 -- 57,056
Inventories........................................... 11,968 -- 11,968
Other current assets.................................. 7,958 -- 7,958
Net assets of discontinued operation.................. 19,338 -- 19,338
--------- --------- --------
Total current assets........................ 105,361 -- 105,361
Property, plant and equipment, net.................... 737,238 -- 737,238
Investment in affiliates.............................. 4,739 -- 4,739
Other assets.......................................... 21,371 5,000(b) 24,600
(1,770)(c)
--------- --------- --------
Total assets................................ $ 868,709 $ 3,229 $871,938
========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt.................. $ 20,553 $ -- $ 20,553
Current portion of asset sale bridge loan............. 37,063 -- 37,063
Accounts payable...................................... 41,210 -- 41,210
Accrued expenses...................................... 38,224 (468)(d) 37,756
--------- --------- --------
Total current liabilities................... 137,050 (468) 136,582
--------- --------- --------
Long-term debt........................................ 383,880 (21,781)(d) 479,279
117,180(e)
Subordinated debt..................................... 96,790 (95,000)(d) 1,790
Convertible debt...................................... 20,706 20,706
Other liabilities..................................... 28,742 28,742
Deferred income taxes................................. 66,552 (708)(c) 65,844
Minority interest..................................... 9,684 9,684
Redeemable convertible preferred stock................ 6,827 6,827
Stockholders' equity
Common stock........................................ 20 20
Additional paid in capital.......................... 115,262 5,069(e) 120,331
Retained earnings................................... 22,200 (1,163)(c) 21,137
Accumulated other comprehensive income.............. (12,504) (12,504)
Less treasury stock................................. (6,500) (6,500)
--------- --------- --------
Total stockholders' equity.................. 118,478 4,006 122,484
--------- --------- --------
Total liabilities and stockholders'
equity.................................... $ 868,709 $ 3,229 $871,938
========= ========= ========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
35
<PAGE> 41
NOTES TO UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
AS OF JUNE 30, 2000
BALANCE SHEET:
(a) Represents our historical balance sheet as of June 30, 2000.
(b) Represents debt issuance costs related to the outstanding notes.
(c) Represents the write-off of $1.8 million of debt issuance costs
associated with debt which was refinanced in connection with the issuance of the
outstanding notes and related warrants.
(d) Represents the portion of outstanding debt that was refinanced in
connection with the issuance of the outstanding notes and related warrants.
(e) Represents the outstanding notes and the value of warrants issued with
the notes.
36
<PAGE> 42
SELECTED HISTORICAL FINANCIAL INFORMATION
Our selected historical financial information as of and for each of the
five years in the period ended December 31, 1999, have been derived from our
audited consolidated financial statements and notes thereto. Our selected
historical financial information as of and for the six months ended June 30,
1999 and 2000 have been derived from our unaudited consolidated financial
statements and notes thereto. Our results of operations for the six months ended
June 30, 2000 are not indicative of the results to be expected for the full
year. You should read the following selected historical financial information in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," our audited consolidated financial statements and
notes thereto and the other financial data contained elsewhere or incorporated
by reference in this prospectus.
37
<PAGE> 43
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL INFORMATION OF RAILAMERICA, INC.
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenue................................... $7,205 $12,020 $24,496 $37,256 $125,372 $39,878 $177,047
Operating income.................................... 541 2,516 3,365 5,497 21,268 6,001 37,671
Income (loss) from continuing operations before
income taxes...................................... (40) 777 (127) (887) 5,239 2,096 9,735
Income (loss) from continuing operations............ (22) 478 288 113 6,026 1,428 6,699
Net income (loss)................................... $ 868 $ 505 $ 1,939 $ 4,401 $ 9,921 $ 3,951 $ 4,371
BASIC EARNINGS PER COMMON SHARE:
Continuing operations............................... $(0.15) $ 0.10 $ 0.02 $ 0.01 $ 0.45 $ 0.09 $ 0.36
Net income per share................................ $ 0.04 $ 0.10 $ 0.23 $ 0.46 $ 0.80 $ 0.32 $ 0.24
DILUTED EARNINGS PER COMMON SHARE:
Continuing operations............................... $(0.15) $ 0.09 $ 0.02 $ 0.01 $ 0.43 $ 0.08 $ 0.36
Net (loss) income per share......................... $ 0.04 $ 0.10 $ 0.22 $ 0.45 $ 0.77 $ 0.31 $ 0.23
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic............................................... 4,554 4,966 8,304 9,553 11,090 10,617 17,493
Diluted............................................. 4,554 4,966 8,587 9,778 11,665 11,004 17,684
OTHER DATA:
EBITDA before certain charges (2)(3)(4)............. $1,364 $ 3,609 $ 5,153 $ 8,040 $ 31,098 $ 8,721 $ 52,055
Cash flows from operations.......................... $3,321 $ 2,206 $ 2,292 $ 5,743 $ 21,500 $13,029 $ 19,305
Ratio of earnings to fixed charges (5).............. N/A 1.38 1.18 1.13 1.25 $ 1.35 $ 1.35
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30, 2000
---------------------------------------------- -------------------------
1995 1996 1997 1998 1999 ACTUAL AS ADJUSTED(1)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)..................... $ 830 $ 2,199 $ 1,407 $10,071 $23,957 $(31,689) $ (31,221)
Total assets............................ 34,687 65,317 95,235 135,833 443,928 868,709 871,938
Long-term debt, excluding current
maturities.................................. 15,540 36,273 43,875 62,770 145,016 383,880 362,099
Subordinated debt, excluding current
maturities.................................. 2,000 2,000 2,000 -- 122,449 117,496 139,676
Redeemable convertible preferred stock........ -- -- -- 6,882 8,830 6,827 6,827
Stockholders' equity.......................... $9,149 $15,992 $26,814 $34,760 $69,466 $118,478 $ 122,635
OPERATING DATA:
Freight carloads.............................. 18,505 25,871 69,140 117,535 154,091 551,332 551,332
Track mileage................................. 450 930 2,330 2,400 7,650 11,750 11,750
Number of employees........................... 265 275 542 652 1,697 2,600 2,600
</TABLE>
------------------------------
(1) Adjusted to give effect to the sale of the outstanding notes and the related
warrants and the application of the net proceeds from that sale and the
issuance of the warrants.
(2) EBITDA represents income from continuing operations before provisions for
income taxes, interest expense and depreciation and amortization. While
EBITDA should not be construed as a substitute for other historical
operating data prepared in accordance with GAAP in analyzing our operating
performance, financial position and cash flows, we have included EBITDA
because it is commonly used by some investors to analyze and compare
companies on the basis of operating performance, leverage and liquidity and
to determine our ability to service debt.
(3) For the year ended December 31, 1999, EBITDA excludes $651,146 of expenses
associated with the Delaware Valley Railway.
(4) For the six months ended June 30, 2000, EBITDA excludes (1) $1,924,000 of
acquisition related costs which consisted of (a) 170,000 non-cash
amortization of a not-to-compete to a former RailTex employee and (b)
$1,754,000 of other RailTex related acquisition costs, (2) $925,000 non-cash
amortization of a fuel hedge and (3) $7,785,000 of net gain on sale and
impairment of assets.
(5) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include income before taxes and
fixed charges and "fixed charges" include interest expense, amortization of
deferred financing fees and costs and a portion of rent expense that is
representative of the interest factor in these rentals. Fixed charges
exceeded earnings by approximately $40,000 for the year ended December 31,
1995.
38
<PAGE> 44
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
As a condition to the sale of the outstanding notes, we and the initial
purchasers of the outstanding notes entered into the registration rights
agreement. Under the registration rights agreement, we agreed to:
- file with the SEC an exchange offer registration statement under the
Securities Act with respect to the registered notes no later than
November 12, 2000;
- use our best efforts to cause the exchange offer registration statement
to be declared effective under the Securities Act no later than February
10, 2001; and
- keep the exchange offer open for a period not less than 20 business days
(or longer if required by applicable law) after the date notice of the
exchange offer is mailed to holders of the outstanding notes; and
- cause the exchange offer to be consummated no later than the 30th
business day after it is declared effective under the Securities Act.
The exchange offer being made by this prospectus is intended to satisfy our
obligations under the registration rights agreement. You may be entitled to
"shelf" registration rights. In accordance with the registration rights
agreement, we are required to file a shelf registration covering your
outstanding notes for a continuous offering in accordance with Rule 415 of the
Securities Act if:
- we are not permitted to consummate the exchange offer because the
exchange offer is not permitted by applicable law or SEC policy; or
- any holder of outstanding notes which are Transfer Restricted Securities
notifies us before the 20th business day following the consummation of
the exchange offer that:
- it is prohibited by law or SEC policy from participating in the
exchange offer;
- it may not resell the registered notes acquired by it in the exchange
offer to the public without delivering a prospectus, and the
prospectus (including any amendment or supplement thereto) contained
in the exchange offer registration statement is not appropriate or
available for those resales by it; or
- it is a broker-dealer and holds notes acquired directly from us or any
of our affiliates.
In the event that we are obligated to file a shelf registration statement,
we will be required to keep the shelf registration statement effective until the
later of two years from the date the shelf registration is declared effective by
the SEC or the date on which all of the outstanding notes have been sold
thereunder.
For purposes of the registration rights agreement, "Transfer Restricted
Securities" means each note until the earlier of:
(1) the date on which that note is exchanged in the exchange offer and
entitled to be resold to the public by the holder thereof without complying
with the prospectus delivery requirements of the Securities Act;
(2) the date on which that note has been disposed of in accordance
with the shelf registration statement;
(3) the date on which that note is disposed of by a broker-dealer
pursuant to the "Plan of Distribution" contemplated by the exchange offer
registration statement (including delivery of the prospectus contained
therein); and
(4) the date on which that note is distributed to the public pursuant
to Rule 144 under the Securities Act.
39
<PAGE> 45
The registration rights agreement provides that:
(1) if we fail to file an exchange offer registration statement with
the SEC on or before November 12, 2000;
(2) if the exchange offer registration statement is not declared
effective before February 10, 2001;
(3) if the exchange offer is not consummated on or before the 30th
business day after the exchange offer registration statement is declared
effective;
(4) if obligated to file the shelf registration statement and we fail
to file the shelf registration statement with the SEC on or before the 30th
day after that filing obligation arises;
(5) if obligated to file a shelf registration statement and the shelf
registration statement is not declared effective on or before the 90th day
after the obligation to file a shelf registration statement arises; or
(6) if the exchange offer registration statement or the shelf
registration statement, as the case may be, is declared effective but
thereafter ceases to be effective or useable in connection with resales of
the Transfer Restricted Securities, for such time of non-effectiveness or
non-usability (each, a "Registration Default"),
then we will pay to each holder of Transfer Restricted Securities affected
thereby liquidated damages ("Liquidated Damages") in an amount equal to $0.05
per week per $1,000 in principal amount of the Transfer Restricted Securities
held by such holder for each week or portion thereof that the Registration
Default continues for the first 90 day period immediately following the
occurrence of such Registration Default. The amount of the Liquidated Damages
shall increase by an additional $0.05 per week per $1,000 in principal amount of
Transfer Restricted Securities with respect to each subsequent 90 day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $0.50 per week per $1,000 in principal amount of Transfer
Restricted Securities. We will not be required to pay Liquidated Damages for
more than one Registration Default at any given time. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
We will pay all accrued Liquidated Damages to holders entitled thereto by
wire transfer to the accounts specified by them or by mailing checks to their
registered address if no such accounts have been specified.
EFFECT OF THE EXCHANGE OFFER
Based on no-action letters issued by the staff of the SEC to third parties,
we believe that you may offer for resale, resell and otherwise transfer the
registered notes issued to you under the exchange offer without further
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that you can represent that:
- you are acquiring the registered notes in the ordinary course of your
business;
- you are not engaging in and do not intend to engage in a distribution of
the registered notes;
- you have no arrangements or understandings with any person to participate
in the exchange offer for the purpose of distributing the registered
notes; and
- you are not an "affiliate" (as defined in Rule 405 of the Securities Act)
of ours.
If you are not able to make these representations, you are a "Restricted
Holder." As a Restricted Holder, you will not be able to participate in the
exchange offer, may not rely on the SEC staff positions set forth in the Exxon
Capital Holdings Corporation no-action letter and similar no-action letters and
may only sell your outstanding notes as part of a registration statement
containing the selling security holder information required by Item 507 or 508
of SEC Regulation S-K, as applicable, or under an exemption from the
registration requirements of the Securities Act.
40
<PAGE> 46
In addition, each broker-dealer, other than a Restricted Holder, that
receives registered notes for its own account in exchange for outstanding notes
which were acquired by such broker-dealer as a result of market-making or other
trading activities (a "Participating Broker-Dealer") may be a statutory
underwriter and must acknowledge in the letter of transmittal that it will
deliver a prospectus meeting the requirements of the Securities Act upon any
resale of those registered notes. The letter of transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based upon interpretations by the SEC staff, we believe that a Participating
Broker-Dealer may offer for resale, resell and otherwise transfer registered
notes issued under the exchange offer upon compliance with the prospectus
delivery requirements, but without compliance with the registration
requirements, of the Securities Act. This prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer as
part of their resales. We have agreed that, for a period of one year after the
completion of the exchange offer, we will make this prospectus available to any
broker-dealer for use by the broker-dealer in any resale. For more information,
please see the section in this prospectus entitled "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
To the extent outstanding notes are tendered and accepted in the exchange
offer, the principal amount of outstanding notes will decrease with a resulting
decrease in the liquidity in the market for the outstanding notes. In addition,
following completion of the exchange offer, except as provided in the
registration rights agreement, you will not have any further registration rights
and your outstanding notes will continue to be subject to certain restrictions
on transfer. Accordingly, if you do not participate in the exchange offer, your
ability to sell your outstanding notes could be adversely affected. You may
suffer adverse consequences if you fail to exchange your outstanding notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions contained in this prospectus
and in the letter of transmittal, we will accept for exchange any and all
outstanding notes that are validly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the expiration date. We will issue $1,000 principal
amount at maturity of registered notes in exchange for each $1,000 principal
amount at maturity of outstanding notes accepted in the exchange offer. You may
tender some or all of your outstanding notes under the exchange offer. However,
outstanding notes may be tendered only in minimum denominations of $1,000
principal amount and integral multiples of $1,000. As of the date of this
prospectus, an aggregate of $130,000,000 in principal amount at maturity of the
outstanding notes is outstanding. This prospectus, together with the
accompanying letter of transmittal, is first being sent on or about September
25, 2000, to the nominee of The Depository Trust Company ("DTC" or the
"Depository") and to others believed to have beneficial ownership in the
outstanding notes.
The form and terms of the registered notes will be substantially identical
to the form and terms of the outstanding notes, except that:
- the offering of the registered notes has been registered under the
Securities Act;
- the registered notes will not be subject to transfer restrictions; and
- the registered notes will be issued free of any covenants regarding
registration rights and free of any provision for Liquidated Damages.
The registered notes will evidence the same debt as the outstanding notes
and will be issued under the same indenture.
You do not have any appraisal or dissenters rights under law or the
indenture in the exchange offer. We intend to conduct the exchange offer in
accordance with the applicable requirements of the Exchange Act. Outstanding
notes which are not tendered for, or are tendered but not accepted in connection
with, the exchange offer will remain outstanding.
41
<PAGE> 47
We will be deemed to have accepted validly tendered outstanding notes when,
as and if we have given oral notice, promptly confirmed in writing, or written
notice of the acceptance to the exchange agent. The exchange agent will act as
agent for the tendering holders for the purpose of receiving the registered
notes from us.
If we do not accept for exchange any tendered outstanding notes because of
an invalid tender, the occurrence of other events described in this prospectus
or otherwise, certificates for any such unaccepted outstanding notes will be
returned to you, without expense, as promptly as practicable after the
expiration date.
If you tender outstanding notes in the exchange offer, you will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes relating to the exchange of
outstanding notes under the exchange offer. We will pay all charges and
expenses, other than underwriting discounts and commissions and transfer taxes,
as part of the exchange offer. See "--Fees and Expenses."
EXPIRATION DATE, EXTENSIONS, TERMINATION
The term "expiration date" means 5:00 p.m., New York City time, on October
27, 2000, unless we, in our sole discretion, extend the exchange offer, in which
case the term "expiration date" shall mean the latest date and time to which the
exchange offer is extended.
We have the right, subject to applicable law, in our reasonable discretion,
at any time and from time to time, (1) to extend the exchange offer or (2) to
terminate the exchange offer, if any of the conditions set forth below under
" -- Conditions" shall not have been satisfied by giving oral or written notice
of such extension or termination to the exchange agent. Any such extension or
termination will be followed as promptly as practicable by a public
announcement.
Any such termination or extension will be followed promptly by oral or
written notice to the exchange agent (any such oral notice to be promptly
confirmed in writing) and by making a public announcement, and that announcement
in the case of an extension will be made no later than 9:00 am, New York City
time, on the next business day after the previously scheduled expiration date.
Without limiting the manner in which we may choose to make any public
announcement, and subject to applicable laws, we shall have no obligation to
publish, advertise or otherwise communicate any such public announcement, other
than by issuing a timely release to an appropriate news agency.
PROCEDURES FOR TENDERING
Book-Entry Interests
The outstanding notes were issued as global securities in fully registered
form without interest coupons. Beneficial interests in the global securities,
held by direct or indirect participants in DTC, are shown on, and transfers of
these interests are effected only through, records maintained in book-entry form
by DTC with respect to its participants.
If you hold your outstanding notes in the form of book-entry interests and
you wish to tender your outstanding notes for exchange pursuant to the exchange
offer, you must transmit to the exchange agent on or prior to the expiration
date either:
(1) written or facsimile copy of a properly completed and duly
executed letter of transmittal, including all other documents required by
the letter of transmittal, to the exchange agent at the address set forth
on the cover page of the letter of transmittal; or
(2) computer-generated message transmitted by means of DTC's Automated
Tender Offer Program system and received by the exchange agent and forming
a part of a confirmation of book-entry transfer, in which you acknowledge
and agree to be bound by the terms of the letter of transmittal.
42
<PAGE> 48
In addition, in order to deliver outstanding notes held in the form of
book-entry interests:
(A) a timely confirmation of book-entry transfer of those notes into
the exchange agent's account at DTC pursuant to the procedure for
book-entry transfers described below under "-- Book-Entry Transfer" must be
received by the exchange agent prior to the expiration date; or
(B) you must comply with the guaranteed delivery procedures described
below.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND
RISK. INSTEAD OF DELIVERY BY MAIL, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR
HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. YOU SHOULD NOT SEND
THE LETTER OF TRANSMITTAL OR OUTSTANDING NOTES TO US. YOU MAY REQUEST YOUR
BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY, OR NOMINEE TO EFFECT THE ABOVE
TRANSACTIONS FOR YOU.
Certificated Outstanding Notes
Only registered holders of certificated outstanding notes may tender those
notes in the exchange offer. If your outstanding notes are certificated notes
and you wish to tender those notes for exchange pursuant to the exchange offer,
you must transmit to the exchange agent on or prior to the expiration date. a
written or facsimile copy of a properly completed and duly executed letter of
transmittal, including all other required documents, to the address set forth
below under "-- Exchange Agent." In addition, in order to validly tender your
certificated outstanding notes:
(1) the certificates representing your outstanding notes must be
received by the exchange agent prior to the expiration date, or
(2) you must comply with the guaranteed delivery procedures described
below.
Procedures Applicable to All Holders
If you validly tender outstanding notes and you do not withdraw the tender
prior to the expiration date, you will have made an agreement with us in
accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal.
If your outstanding notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you wish to tender your
notes, you should contact the registered holder promptly and instruct the
registered holder to tender on your behalf. If you wish to tender on your own
behalf, you must, prior to completing and executing the letter of transmittal
and delivering your outstanding notes, either make appropriate arrangements to
register ownership of the outstanding notes in your name or obtain a properly
completed bond power from the registered holder. The transfer of registered
ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible institution unless:
(A) outstanding notes tendered in the exchange offer are tendered
either:
(1) under "Special Delivery Instructions" on the letter of
transmittal; or
(2) for the account of an eligible institution; and
(B) the box entitled "Special Registration Instructions" on the letter
of transmittal has not been completed.
If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantee must be by a financial institution,
which includes most banks, savings and loan associations and brokerage houses,
that are participants in the Securities Transfer Agents Medallion Program. the
New York Stock Exchange Medallion Program or the Stock Exchanges Medallion
Program.
43
<PAGE> 49
If the letter of transmittal is signed by a person other than you, your
outstanding notes must be endorsed or accompanied by a properly completed bond
power and signed by you as your name appears on those outstanding notes.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing. Unless we waive this
requirement, in this instance you must submit with the letter of transmittal
proper evidence satisfactory to us of their authority to act on your behalf.
We will determine, in our sole discretion, all questions regarding the
validity, form, eligibility, including time of receipt, acceptance and
withdrawal of tendered outstanding notes. This determination will be final and
binding. We reserve the absolute right to reject any and all outstanding notes
not properly tendered or any outstanding notes our acceptance of which would, in
the opinion of our counsel, be unlawful. We also reserve the right to waive any
defects, irregularities or conditions of tender as to particular outstanding
notes. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all parties.
You must cure any defects or irregularities in connection with tenders of
your outstanding notes within the time period we will determine unless we waive
that defect or irregularity. Although we intend to notify you of defects or
irregularities with respect to your tender of outstanding notes, neither we, the
exchange agent nor any other person will incur any liability for failure to give
this notification. Your tender will not be deemed to have been made and your
notes will be returned to you if:
(1) you improperly tender your outstanding notes;
(2) you have not cured any defects or irregularities in your tender;
and
(3) we have not waived those defects, irregularities or improper
tender.
The exchange agent will return your outstanding notes, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration of the exchange offer.
By tendering, you will represent to us that, among other things:
(1) the registered notes to be acquired by you in the exchange offer
are being acquired in the ordinary course of your business;
(2) you are not engaging in and do not intend to engage in a
distribution of the registered notes to be acquired by you in the exchange
offer;
(3) you do not have an arrangement or understanding with any person to
participate in the distribution of the registered notes to be acquired by
you in the exchange offer; and
(4) you are not an "affiliate" of ours, as defined under Rule 405 of
the Securities Act.
In all cases, issuance of registered notes for outstanding notes that are
accepted for exchange in the exchange offer will be made only after timely
receipt by the exchange agent of certificates for your outstanding notes or a
timely book-entry confirmation of your outstanding notes into the exchange
agent's account at DTC, a properly completed and duly executed letter of
transmittal, or a computer-generated message instead of the letter of
transmittal, and all other required documents. If any tendered outstanding notes
are not accepted for any reason set forth in the terms and conditions of the
exchange offer or if outstanding notes are submitted for a greater principal
amount than you desire to exchange, the unaccepted or non-exchanged outstanding
notes, or outstanding notes in substitution therefor, will be returned without
expense to you. In addition, in the case of outstanding notes tendered by
book-entry transfer into the exchange agent's account at DTC pursuant to the
book-entry transfer procedures described below, the non-exchanged outstanding
notes will be credited to your account maintained with DTC, as promptly as
practicable after the expiration or termination of the exchange offer.
44
<PAGE> 50
Guaranteed Delivery Procedures
If you desire to tender your outstanding notes and your outstanding notes
are not immediately available or one of the situations described in the
immediately preceding paragraph occurs, you may tender if:
(1) you tender through an eligible financial institution;
(2) on or prior to 5:00 p.m., New York City time, on the expiration
date, the exchange agent receives from an eligible institution, a written
or facsimile copy of a properly completed and duly executed letter of
transmittal and notice of guaranteed delivery, substantially in the form
provided by us; and
(3) the certificates for all certificated outstanding notes, in proper
form for transfer, or a book-entry confirmation, and all other documents
required by the letter of transmittal, are received by the exchange agent
within three NYSE trading days after the date of execution of the notice of
guaranteed delivery.
The notice of guaranteed delivery may be sent by facsimile transmission,
mail or hand delivery. The notice of guaranteed delivery must set forth:
(1) your name and address;
(2) the amount of outstanding notes you are tendering; and
(3) a statement that your tender is being made by the notice of
guaranteed delivery and that you guarantee that within three NYSE trading
days after the execution of the notice of guaranteed delivery, the eligible
institution will deliver the following documents to the exchange agent:
(A) the certificates for all certificated outstanding notes being
tendered, in proper form for transfer or a book-entry confirmation of
tender;
(B) a written or facsimile copy of the letter of transmittal, or a
book-entry confirmation instead of the letter of transmittal; and
(C) any other documents required by the letter of transmittal.
BOOK-ENTRY TRANSFER
The exchange agent will establish an account with respect to the book-entry
interests at DTC for purposes of the exchange offer promptly after the date of
this prospectus. You must deliver your book-entry interest by book-entry
transfer to the account maintained by the exchange agent at DTC. Any financial
institution that is a participant in DTC's systems may make book-entry delivery
of book-entry interests by causing DTC to transfer the book-entry interests into
the exchange agent's account at DTC in accordance with DTC's procedures for
transfer.
If one of the following situations occur:
(1) you cannot deliver a book-entry confirmation of book-entry
delivery of your book-entry interests into the exchange agent's account at
DTC; or
(2) you cannot deliver all other documents required by the letter of
transmittal to the exchange agent prior to the expiration date;
then you must tender your book-entry interests according to the guaranteed
delivery procedures discussed above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of outstanding notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date.
45
<PAGE> 51
To withdraw a tender of outstanding notes in the exchange offer, a written
or facsimile transmission notice of withdrawal must be received by the exchange
agent at its address listed in this prospectus prior to 5:00 p.m., New York City
time, on the expiration date. Any notice of withdrawal must:
- specify the name of the person having deposited the outstanding notes to
be withdrawn;
- identify the outstanding notes to be withdrawn, including the certificate
number or numbers and principal amount of such outstanding notes;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the outstanding notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee with respect to the
outstanding notes register the transfer of the outstanding notes into the
name of the person withdrawing the tender; and
- specify the name in which any outstanding notes are to be registered if
different from that of the person that deposited the outstanding notes to
be withdrawn.
If the outstanding notes have been delivered under the book-entry procedure
set forth above under "-- Procedures for Tendering," any notice of withdrawal
must specify the name and number of the participant's account at DTC to be
credited with the withdrawn outstanding notes.
We will determine, in our sole discretion, all questions as to the
validity, form and eligibility, including time of receipt, of withdrawal
notices. Our determination shall be final and binding on all parties. Any
outstanding notes withdrawn will be deemed not to have been validly tendered for
purposes of the exchange offer and registered notes will not be issued in
exchange for those withdrawn outstanding notes unless the withdrawn outstanding
notes are validly retendered. Properly withdrawn outstanding notes may be
retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the expiration date.
Any outstanding notes that are tendered but not accepted due to withdrawal,
rejection of tender or termination of the exchange offer will be returned as
soon as practicable to the holder without cost to the holder (or, in the case of
outstanding notes tendered by book-entry transfer into the exchange agent's
account at the book-entry transfer facility under the book-entry transfer
procedures described above, these outstanding notes will be credited to an
account maintained with that book-entry transfer facility for the outstanding
notes).
CONDITIONS
Notwithstanding any other term of the exchange offer, we are not required
to accept for exchange any outstanding notes, and may terminate the exchange
offer as provided in this prospectus before the acceptance of any outstanding
notes, if:
- the exchange offer will violate applicable law or any applicable
interpretation of the SEC staff;
- the outstanding notes are not tendered in accordance with the exchange
offer;
- you do not represent that you are acquiring the registered notes in the
ordinary course of your business, that you are not engaging in and do not
intend to engage in a distribution of the registered notes, and that you
have no arrangement or understanding with any person to participate in a
distribution of the registered notes; or
- any action or proceeding is instituted or threatened by any governmental
agency with respect to the exchange offer which would reasonably be
expected to impair our ability to proceed with the exchange offer.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances giving rise to any condition or we may waive them in whole
or in part at any time and from time to time in our reasonable discretion. Our
failure at any time to exercise any of the foregoing rights shall not be deemed
a
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waiver of the right and each right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
If we determine in our reasonable judgment that any of the conditions are
not satisfied, we may (1) refuse to accept any outstanding notes and return all
tendered outstanding notes to the tendering holders (or, in the case of
outstanding notes delivered by book-entry transfer within DTC, credit any
outstanding notes to the account maintained within DTC by the participant in DTC
which delivered the notes), (2) extend the exchange offer and retain all
outstanding notes tendered prior to the expiration of the exchange offer,
subject, however, to the rights of holders to withdraw the tenders of
outstanding notes (see "Withdrawal of Tenders" above) or (3) waive the
unsatisfied conditions with respect to the exchange offer and accept all
properly tendered outstanding notes which have not been withdrawn. If a waiver
constitutes a material change to the exchange offer, we will promptly disclose
the waiver by means of a prospectus supplement that will be distributed to the
registered holders, and we will extend the exchange offer for a period of five
to ten business days, depending upon the significance of the waiver and the
manner of disclosure to the registered holders, if the exchange offer would
otherwise expire during that five to ten business day period.
EXCHANGE AGENT
Wells Fargo Bank Minnesota, N.A. has been appointed as exchange agent for
the exchange offer. Delivery of letters of transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this prospectus or of the letter of transmittal should be directed to
the exchange agent as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: In Person by Hand Only:
WELLS FARGO BANK MINNESOTA, N.A. WELLS FARGO BANK MINNESOTA, N.A.
Corporate Trust Operations 12th Floor -- Northstar East Building
MAC N9303-121 Corporate Trust Services
P.O. Box 1517 608 Second Avenue South
Minneapolis, MN 55480 Minneapolis, MN
By Regular Mail or Overnight Courier: By Facsimile (Eligible Institution Only):
WELLS FARGO BANK MINNESOTA, N.A. (616) 667-4927
Corporate Trust Operations Attention: Corporate Trust Operations
MAC N9303-121 Confirmed by Telephone: (800) 344-5128
Sixth & Marquette Avenue
Minneapolis, MN 55479 (Originals of all documents submitted by facsimile
should be sent promptly by hand, overnight courier or
registered or certified mail.)
</TABLE>
Delivery to other than the above address or facsimile number will not
constitute a valid delivery of your outstanding notes.
FEES AND EXPENSES
We will pay expenses of soliciting tenders. The principal solicitation is
being made by mail; however, additional solicitation may be made by facsimile,
telephone or in person by our officers and regular employees.
We have not retained any dealer-manager as part of the exchange offer and
will not make any payments to brokers, dealers or others soliciting acceptance
of the exchange offer. We will, however, pay the exchange agent reasonable and
customary fees for services and will reimburse it for its reasonable
out-of-pocket expenses under the exchange offer. We will also pay the reasonable
fees and expenses of one firm acting as counsel for the holders of the
outstanding notes. Expenses include fees and expenses of the exchange agent and
trustee, accounting and legal fees and printing costs, among others.
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<PAGE> 53
TRANSFER TAXES
You must pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. If satisfactory evidence of payment
of the taxes or exemption therefrom is not submitted with the letter of
transmittal, the amount of the transfer taxes will be billed directly to you.
ACCOUNTING TREATMENT
The registered notes will be recorded at the same carrying value as the
outstanding notes on the date of the exchange. Accordingly, we will recognize no
gain or loss for accounting purposes. The expenses of the exchange offer and the
unamortized expenses relating to the issuance of the outstanding notes will be
amortized over the term of the registered notes.
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<PAGE> 54
DESCRIPTION OF THE REGISTERED NOTES
GENERAL
The registered notes will be issued under the indenture for the outstanding
notes among RailAmerica Transportation Corp., the guarantors and Wells Fargo
Bank Minnesota, N.A., as trustee. Any outstanding notes that remain outstanding
after the completion of the exchange offer, together with the registered notes
issued in exchange for the outstanding notes, will be treated as a single class
of debt securities under the indenture. Unless otherwise indicated, the
outstanding notes and the registered notes to be issued in the exchange offer
are collectively referred to as the "notes" in this summary description. The
terms of the notes include those stated in the indenture and those made part of
the indenture by reference to the Trust Indenture Act of 1939, as amended. The
notes are subject to all such terms, and holders of the notes are referred to
the indenture and the Trust Indenture Act for a statement thereof. We have filed
a copy of the indenture as an exhibit to the registration statement which
includes this prospectus.
The following description is a summary of the material provisions of the
indenture. It is not complete and is qualified in its entirety by reference to
the indenture, including the definitions in the indenture of certain terms used
below. We urge you to read the indenture because it, and not this description,
defines your rights as a holder of the notes.
The definitions of certain terms used in the following summary are set
forth below under "-- Certain Definitions." For purposes of this summary, the
term "RailAmerica Transportation" refers only to RailAmerica Transportation
Corp. and not to any of its subsidiaries.
The notes:
- are general unsecured obligations of RailAmerica Transportation;
- rank junior in right of payment to all secured indebtedness to the extent
of the assets securing that indebtedness;
- rank junior in right of payment to all existing and future Senior
Indebtedness of RailAmerica Transportation including Obligations under
the Senior Credit Facility;
- rank equally in right of payment with any future senior subordinated
Indebtedness of RailAmerica Transportation;
- rank senior in right of payment to all future subordinated Indebtedness
of RailAmerica Transportation; and
- are effectively junior to all liabilities of RailAmerica Transportation's
non-guarantor subsidiaries.
The notes will be unconditionally guaranteed on a senior subordinated basis
by RailAmerica Transportation's parent, Palm Beach Rail Holding, Inc., its
indirect parent RailAmerica, Inc. and by each of its Restricted Subsidiaries
that are Domestic Subsidiaries. The guarantees:
- are general unsecured obligations of the Guarantors;
- will rank junior in right of payment to all existing and future Guarantor
Senior Indebtedness of the Guarantors, including borrowings and
guarantees under the Senior Credit Facility;
- will rank equally in right of payment with any future senior subordinated
Indebtedness of the Guarantors; and
- will rank senior in right of payment to any future subordinated
Indebtedness of the Guarantors.
As of June 30, 2000, RailAmerica Transportation and the Guarantors had
outstanding approximately $337.1 million of consolidated Senior Indebtedness and
its non-guarantor subsidiaries had approximately $90.1 million of outstanding
liabilities, including trade payables but excluding intercompany obligations and
obligations represented by guarantees of indebtedness of RailAmerica
Transportation or another Guarantor. The indenture permits RailAmerica
Transportation and its Subsidiaries to incur additional Indebtedness,
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<PAGE> 55
including Senior Indebtedness, in the future. See "Risk Factors" and "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock."
RailAmerica, Inc. and Palm Beach Rail Holding, Inc. are not subject to the
restrictive covenants contained in the indenture. As a result, you should not
rely on their guarantees in evaluating an investment in the notes.
As of the date of this prospectus, all of RailAmerica Transportation's
Domestic Subsidiaries will be Restricted Subsidiaries and Guarantors. For the
year ended December 31, 1999 and the six months ended June 30, 2000, these
subsidiaries accounted for 54% and 49% of its pro forma total revenue. So long
as it satisfies the conditions described in the definition of "Unrestricted
Subsidiary," RailAmerica Transportation will be permitted to designate current
or future Subsidiaries as "Unrestricted" Subsidiaries that are not subject to
the restrictive covenants included in the indenture.
The effect of designating a Subsidiary as an "Unrestricted Subsidiary" will
be
- an Unrestricted Subsidiary will not be subject to the restrictive
covenants in the indenture;
- a Subsidiary that has previously been a Guarantor and that is designated
an Unrestricted Subsidiary will be removed from its guarantee; and
- the assets, income, cash flow and other financial results of an
Unrestricted Subsidiary will not be consolidated with those of
RailAmerica Transportation for purposes of calculating compliance with
the restrictive covenants contained in the indenture.
PRINCIPAL, MATURITY AND INTEREST
- The notes are limited to $130,000,000 in aggregate principal amount and
will mature on August 15, 2010.
- The notes bear interest at the rate of 12 7/8% per annum.
- RailAmerica Transportation will pay interest on the notes in cash in
arrears on August 15 and February 15 of each year, commencing February
15, 2001, to holders of record of notes at the close of business on the
August 1 or February 1 immediately preceding such interest payment date.
- Interest on the notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance.
- Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
- The notes will be issued in denominations of $1,000 and integral
multiples thereof.
RailAmerica Transportation will pay principal of, premium, if any, and
interest and liquidated damages, if any, on the notes:
- at the office of the paying agent and registrar in New York, New York;
or,
- at RailAmerica Transportation's option, by check mailed to a holder's
registered address;
- however, all payments with respect to global notes and certificated
notes, the holders of which have given wire transfer instructions to
RailAmerica Transportation, will be paid by wire transfer of immediately
available funds to the accounts specified by the holders thereof.
The registrar may require payment of a sum sufficient to cover any transfer
tax or similar governmental charge payable in connection with certain transfers
or exchanges. See "-- Transfer and Exchange." The trustee is acting as paying
agent and registrar. RailAmerica Transportation may change the paying agent or
registrar without prior notice to holders of notes, and RailAmerica
Transportation or any of its Subsidiaries may act as paying agent or registrar.
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SUBORDINATION
The payment of Subordinated Note Obligations will be subordinated in right
of payment, as set forth in the indenture, to the prior payment in full in cash
or Cash Equivalents of all Senior Indebtedness, whether outstanding on the date
of the indenture or thereafter incurred.
Upon any distribution to creditors of RailAmerica Transportation in a
liquidation or dissolution of RailAmerica Transportation or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to
RailAmerica Transportation or its property, an assignment for the benefit of
creditors or any marshaling of the assets and liabilities of RailAmerica
Transportation,
(1) the holders of Senior Indebtedness will be entitled to receive
payment in full in cash or Cash Equivalents of all Obligations due in
respect of such Senior Indebtedness including interest after the
commencement of any such proceeding whether or not allowable as a claim in
any such proceeding at the rate specified in the applicable Senior
Indebtedness, before the holders of notes will be entitled to receive any
payment with respect to the Subordinated Note Obligations under the notes,
and
(2) until all Obligations with respect to Senior Indebtedness are paid
in full in cash or Cash Equivalents, any distribution to which the holders
of notes would be entitled shall be made to the holders of Senior
Indebtedness.
However, holders of notes may receive and retain Permitted Junior
Securities and payments made from the trust described under "-- Legal Defeasance
and Covenant Defeasance."
RailAmerica Transportation also may not make any payment upon or in respect
of the Subordinated Note Obligations, except in Permitted Junior Securities or
from the trust described under "-- Legal Defeasance and Covenant Defeasance,"
until all Obligations with respect to Senior Indebtedness have been paid in full
in cash or Cash Equivalents if:
(1) a default in the payment of the principal (including reimbursement
obligations in respect of letters of credit) of, premium, if any, or
interest on or commitment, letter of credit or administrative fees relating
to, Designated Senior Indebtedness occurs and is continuing beyond any
applicable period of grace; or
(2) any other default occurs and is continuing with respect to
Designated Senior Indebtedness that permits holders of the Designated
Senior Indebtedness as to which that default relates to accelerate its
maturity and the trustee receives a notice of that default (a "Payment
Blockage Notice") from RailAmerica Transportation or the holders of any
Designated Senior Indebtedness.
Payments on the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which that
default is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received by the trustee,
unless a payment default on Designated Senior Indebtedness then exists.
No new period of payment blockage for a nonpayment default may be commenced
unless and until 360 days have elapsed since the date of receipt by the trustee
of the immediately prior Payment Blockage Notice. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage Notice
to the trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice unless that default shall have been waived or cured for a period of not
less than 90 days.
"Designated Senior Indebtedness" means:
(i) any Indebtedness outstanding under the Senior Credit Facility at
any time and
(ii) following the payment in full in cash of all Indebtedness under
the Senior Credit Facility and the permanent termination of all commitments
thereunder, any other Senior Indebtedness permitted under
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<PAGE> 57
the indenture the principal amount of which is $25 million or more and that
has been designated by RailAmerica Transportation as "Designated Senior
Indebtedness."
"Permitted Junior Securities" means Equity Interests in RailAmerica
Transportation or unsecured debt securities of RailAmerica Transportation that
are subordinated to all Senior Indebtedness (and any debt securities issued in
exchange for Senior Indebtedness) to substantially the same extent as, or to a
greater extent than, the notes are subordinated to Senior Indebtedness.
"Senior Indebtedness" means all Obligations, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of RailAmerica Transportation, whether outstanding on the issue
date or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the notes; provided that
Indebtedness under this sentence shall constitute "Senior Indebtedness" only to
the extent that such Indebtedness is secured by interests in property or assets
and only if the Chief Financial Officer of RailAmerica Transportation or
RailAmerica delivers a certificate to the Trustee at the time of the incurrence
of such Indebtedness stating that, after due inquiry, the Indebtedness is
secured by interests in property and assets which have, and such officer has no
reason to believe that such property and assets will not continue to have, a
fair market value that equals or exceeds the principal amount and one interest
payment on such Indebtedness, giving due regard to the type and amount of any
other Indebtedness secured by such property and assets. Such certificate shall
constitute conclusive evidence, binding for all purposes, that such Indebtedness
is secured. Without limiting the generality of the foregoing, "Senior
Indebtedness" shall also include all Obligations, if any, interest (including
any interest accruing subsequent to the filing of a petition of bankruptcy at
the rate provided for in the documentation with respect thereto, whether or not
such interest is an allowed claim under applicable law) on, and all other
amounts owing in respect of, all monetary obligations (including guarantees
thereof) of every nature of RailAmerica Transportation under the Senior Credit
Facility, including, without limitation, obligations to pay principal and
interest, reimbursement obligations under letters of credit, fees, expenses and
indemnities. "Senior Indebtedness" shall not include
(i) any Indebtedness of RailAmerica Transportation to a Subsidiary of
RailAmerica Transportation or any Affiliate of RailAmerica Transportation;
(ii) Indebtedness to, or guarantees on behalf of, any shareholder,
director, officer or employee of RailAmerica Transportation or any
Subsidiary of RailAmerica Transportation (including, without limitation,
amounts owed for compensation);
(iii) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(iv) Indebtedness represented by Disqualified Stock;
(v) any liability for federal, state, local or other taxes owed or
owing by RailAmerica Transportation;
(vi) that portion of any Indebtedness incurred in violation of the
indenture provisions set forth under "-- Limitation on Incurrence of
Indebtedness and Issuance of Preferred Stock;" and
(vii) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of RailAmerica Transportation.
"Subordinated Note Obligations" means all Obligations with respect to the
notes, including, without limitation, principal, premium, if any, interest and
liquidated damages, if any, payable pursuant to the terms of the notes
(including, without limitation, upon the acceleration or redemption thereof),
together with and including, without limitation, any amounts received or
receivable upon the exercise of rights of rescission or other rights of action,
including, without limitation, claims for damages, or otherwise.
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RailAmerica Transportation will promptly notify holders of Senior
Indebtedness if payment of the notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, holders of notes may recover less ratably than
creditors of RailAmerica Transportation who are holders of Senior Indebtedness.
GUARANTEES
RailAmerica Transportation's payment obligations under the notes will be
jointly and severally guaranteed by the Guarantors. The guarantee of each
Guarantor will be subordinated to the prior payment in full in cash or Cash
Equivalents of all Guarantor Senior Indebtedness of that Guarantor, including
that Guarantor's borrowings under, or guarantee of, the Senior Credit Facility,
to the same extent that the notes are subordinated to Senior Indebtedness of
RailAmerica Transportation. The obligations of each Guarantor that is a
Subsidiary under its guarantee will be limited so as not to constitute a
fraudulent conveyance under applicable law.
No Guarantor may consolidate with or merge with or into another person or
entity, whether or not the Guarantor is the surviving Person, unless:
(1) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger, if other than
RailAmerica Transportation or the Guarantor, unconditionally assumes all
the obligations of the Guarantor pursuant to a supplemental indenture in
form and substance reasonably satisfactory to the trustee under the
indenture, the guarantee and the registration rights agreement; and
(2) immediately after giving effect to such transaction, no Default or
Event of Default exists.
In the event of:
- a sale or other disposition of all of the assets of a Guarantor that
is a Subsidiary, by way of merger, consolidation or otherwise, if
the Guarantor applies the Net Proceeds of that sale in accordance
with the "Asset Sales" provisions of the indenture;
- a sale or other disposition of all of the capital stock of a
Guarantor that is a Subsidiary, if the Net Proceeds of that sale are
applied in accordance with the "Asset Sales" provisions of the
indenture; or
- the designation of any Restricted Subsidiary that is a Guarantor as
an Unrestricted Subsidiary in accordance with the terms of the
indenture,
that Guarantor will be released and relieved of any obligations under its
guarantee.
OPTIONAL REDEMPTION
Except as provided below, the notes will not be redeemable at RailAmerica
Transportation's option prior to August 15, 2005. Thereafter, the notes will be
redeemable, at the option of RailAmerica Transportation, in whole or in part,
upon at least 30, but not more than 60 days notice, at the redemption prices
(expressed as percentages of the principal amount) set forth below, plus any
accrued and unpaid interest and liquidated damages, if any, to the redemption
date if redeemed during the twelve-month period beginning on August 15 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2005........................................................ 106.438%
2006........................................................ 104.292
2007........................................................ 102.146
2008 and thereafter......................................... 100.000
</TABLE>
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Notwithstanding the foregoing, at any time on or before August 15, 2003,
RailAmerica Transportation may (at its option) redeem for cash up to 35% of the
aggregate principal amount of the notes originally issued under the indenture at
a redemption price of 112.875% of the principal amount thereof, in each case
plus accrued and unpaid interest and liquidated damages, if any, to the
redemption date, with the net cash proceeds of an Equity Offering; provided
that:
- at least 65% of the principal amount of the notes issued under the
indenture remains outstanding immediately after the occurrence of such
redemption; and
- the redemption occurs within 60 days of the date of the closing of such
Equity Offering.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the trustee
will select the notes for redemption as follows:
(1) in compliance with the requirements of the principal national
securities exchange, if any, on which the notes are listed; or
(2) if the notes are not so listed, on a pro rata basis, by lot or by
another method the trustee considers fair and appropriate; provided that if
a partial redemption is made with the proceeds of a Equity Offering,
selection of the notes or portions thereof for redemption shall be made by
the trustee only on a pro rata basis or on as nearly a pro rata basis as is
practicable (subject to DTC procedures), unless such method is otherwise
prohibited;
provided that no notes of $1,000 or less shall be redeemed in part.
Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each holder of notes to be
redeemed at its registered address. Notices of redemption may not be
conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original note. Notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on notes
or portions of notes called for redemption.
MANDATORY REDEMPTION
RailAmerica Transportation is not required to make any mandatory redemption
of, or sinking fund payments with respect to, the notes.
REPURCHASE AT THE OPTION OF THE HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each holder of notes shall have
the right to require RailAmerica Transportation to purchase all or any part
(equal to $1,000 or an integral multiple thereof) of such holder's notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof,
plus any accrued and unpaid interest and liquidated damages, if any, to the date
of purchase (the "Change of Control Payment"). Within 60 days following any
Change of Control, RailAmerica Transportation will, or will cause the trustee
to, mail a notice to each holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase notes on the date
specified in that notice, which date shall be no earlier than 30 days and no
later than 60 days from the date that notice is mailed (the "Change of Control
Payment Date"), pursuant to the procedures required by the indenture and
described in that notice.
RailAmerica Transportation will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent those laws and regulations are
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applicable in connection with the repurchase of the notes as a result of a
Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the indenture relating to a Change
of Control Offer, RailAmerica Transportation will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the indenture by virtue thereof.
On the Change of Control Payment Date, RailAmerica Transportation will, to
the extent lawful:
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all notes or portions thereof so tendered;
and
(3) deliver or cause to be delivered to the trustee the notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of notes or portions thereof being purchased by
RailAmerica Transportation.
The paying agent will promptly mail to each holder of notes so tendered the
Change of Control Payment for that holder's notes, and the trustee will promptly
authenticate and mail or cause to be transferred by book-entry to each holder a
new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each new note will be in a principal amount
of $1,000 or an integral multiple thereof.
The indenture provides that, prior to complying with the provisions of this
covenant, but in any event within 90 days following a Change of Control,
RailAmerica Transportation will either repay all outstanding Senior Indebtedness
or obtain the requisite consents, if any, under all agreements governing
outstanding Senior Indebtedness to permit the repurchase of notes required by
this covenant. The indenture requires RailAmerica Transportation to publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the indenture are applicable. Except as described
above with respect to a Change of Control, the indenture does not contain
provisions that permit the holders of the notes to require that RailAmerica
Transportation repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
The Senior Credit Facility prohibits RailAmerica Transportation from
purchasing any notes and also provides that some change of control events, which
may include events not otherwise constituting a Change of Control under the
indenture, with respect to RailAmerica Transportation would constitute a default
thereunder. Any future credit agreements or other agreements relating to Senior
Indebtedness to which RailAmerica Transportation becomes a party may contain
similar restrictions and provisions. In the event a Change of Control occurs at
a time when RailAmerica Transportation is prohibited from purchasing notes,
RailAmerica Transportation could seek the consent of its lenders to the purchase
of notes or could attempt to refinance the borrowings that contain that
prohibition. If RailAmerica Transportation does not obtain such a consent or
repay those borrowings, RailAmerica Transportation will remain prohibited from
purchasing notes. In that case, RailAmerica Transportation's failure to purchase
tendered notes would constitute an Event of Default under the indenture, which
would, in turn, constitute a default under the Senior Credit Facility. In those
circumstances, the subordination provisions in the indenture would likely
restrict payments to the holders of notes.
RailAmerica Transportation will not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the indenture applicable to a Change of Control Offer
made by RailAmerica Transportation and purchases all notes validly tendered and
not withdrawn under that Change of Control Offer.
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In addition, RailAmerica Transportation will not be required to make a
Change of Control Offer, as provided above, if, in connection with or in
contemplation of a Change of Control, it has made an offer to purchase (an
"Alternate Offer") any and all notes validly tendered at a cash price equal to
or greater than the Change of Control offer price and has purchased all notes
properly tendered in accordance with the terms of such Alternate Offer.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, lease, transfer, conveyance or other
disposition, other than by way of merger or consolidation, in one or a
series of related transactions, of all or substantially all of the assets
of RailAmerica Transportation and its Subsidiaries, taken as a whole, to
any "person" or "group" (as those terms are used in Section 13(d) of the
Exchange Act);
(2) the adoption of a plan for the liquidation or dissolution of
RailAmerica Transportation or RailAmerica, Inc. (whether or not otherwise
in compliance with the provisions of the indenture);
(3) RailAmerica Transportation or RailAmerica, Inc. becoming aware of
(by way of a report or any other filing pursuant to Section 13(d) of the
Exchange Act, proxy vote, written notice or otherwise) the acquisition by
any Person or related group (within the meaning of Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act, or any successor provision to either
of the foregoing, including any "group" acting for the purpose of
acquiring, holding or disposing of securities within the meaning of Rule
13d-5(b)(1) under the Exchange Act), other than a Permitted Holder, in a
single transaction or in a series of related transactions, by way of
merger, consolidation or other business combination or purchase of
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act, or any successor provision), directly or indirectly, of 40% or more of
the total voting power entitled to vote in the election of the board of
directors of RailAmerica Transportation or of such other Person surviving
the transaction; or
(4) the first day on which a majority of the members of the board of
directors of RailAmerica, Inc. are not Continuing Members.
The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the assets of RailAmerica Transportation and its
Subsidiaries taken as a whole. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of notes to require RailAmerica Transportation to repurchase notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of RailAmerica Transportation and its Subsidiaries taken as a
whole to another person or group may be uncertain.
"Continuing Members" means, as of any date of determination, any member of
the board of directors of RailAmerica, Inc., as the case may be, who:
(1) was a member of RailAmerica, Inc.'s board of directors, as the
case may be, at the date of the indenture; or
(2) was nominated for election or elected to RailAmerica, Inc.'s board
of directors, as the case may be, with the approval of, or whose election
to the board of directors was ratified by, at least a majority of the
Continuing Members who were members of RailAmerica, Inc.'s board of
directors, as the case may be, at the time of that nomination or election.
"Permitted Holder" means RailAmerica, Inc. and any direct or indirect
wholly-owned subsidiary of RailAmerica, Inc.
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Asset Sales
The indenture provides that RailAmerica Transportation will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, consummate an
Asset Sale unless:
(1) RailAmerica Transportation or the Restricted Subsidiary, as the
case may be, receives consideration at the time of that Asset Sale at least
equal to the fair market value (evidenced by an Officers' Certificate
delivered to the trustee in the case of an Asset Sale with a fair market
value less than $5.0 million and a resolution of the board of directors set
forth in an Officers' Certificate delivered to the trustee in the case of
an Asset Sale with a fair market value greater than or equal to $5.0
million) of the assets or Equity Interests issued or sold or otherwise
disposed of; and
(2) at least 75% of the consideration therefor received by RailAmerica
Transportation or the Restricted Subsidiary is in the form of cash or Cash
Equivalents.
For the purposes of this provision, each of the following shall be deemed
to be cash:
(i) any liabilities, as shown on RailAmerica Transportation's or the
Restricted Subsidiary's most recent balance sheet, of RailAmerica
Transportation or any Restricted Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the
notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases
RailAmerica Transportation or the Restricted Subsidiary from further
liability; and
(ii) any securities, notes or other obligations received by
RailAmerica Transportation or the Restricted Subsidiary from the transferee
that are promptly converted (but in any event within 90 days) of their
receipt by RailAmerica Transportation or the Restricted Subsidiary into
cash or Cash Equivalents, but only to the extent of the cash or Cash
Equivalents received.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
RailAmerica Transportation or the Restricted Subsidiary, as the case may be,
shall apply the Net Proceeds, at its option, to:
(1) repay or purchase Senior Indebtedness or Pari Passu Indebtedness
and, if the Indebtedness repaid is Indebtedness under a revolving line of
credit, to correspondingly reduce commitments with respect thereto;
provided that, if RailAmerica Transportation shall elect to repay or
purchase Pari Passu Indebtedness, RailAmerica Transportation shall make an
offer, in accordance with the procedures set forth below for an Asset Sale
Offer, to all holders of notes to purchase notes at a purchase price equal
to 100% of the principal amount of the notes, plus accrued and unpaid
interest and liquidated damages, if any, thereon to the date of purchase
(any such offer shall be on a ratable basis with the holders of such Pari
Passu Indebtedness); or
(2) (a) an investment in property, the making of a capital expenditure
or the acquisition of assets that are used or useful in a Permitted
Business; or (b) the acquisition of Capital Stock of any Person primarily
engaged in a Permitted Business if as a result of the acquisition by
RailAmerica Transportation or any Restricted Subsidiary thereof, that
Person becomes a Restricted Subsidiary.
Pending the final application of any Net Proceeds, RailAmerica
Transportation may temporarily reduce Indebtedness (including revolving
indebtedness under the Senior Credit Facility) or otherwise invest those Net
Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of the second preceding paragraph will be deemed
to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $15.0 million, RailAmerica Transportation will be required to make an
offer to all holders of notes (an "Asset Sale Offer") to purchase the maximum
principal amount of notes that, together with all Pari Passu Indebtedness which
RailAmerica Transportation is concurrently offering to repay or purchase, may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
and liquidated damages, if any, to the date of purchase, in accordance with the
procedures set forth in the indenture.
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To the extent that any Excess Proceeds remain after consummation of an
Asset Sale Offer, RailAmerica Transportation may use those Excess Proceeds for
any purpose not otherwise prohibited by the indenture. If the aggregate
principal amount of notes surrendered by holders thereof in connection with an
Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee shall select
the notes to be purchased as set forth under "-- Selection and Notice." Upon
completion of an offer to purchase, the amount of Excess Proceeds shall be reset
at zero.
RailAmerica Transportation will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent those laws and regulations are applicable in connection with the
repurchase of the notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the indenture relating to an Asset Sale Offer, RailAmerica Transportation will
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations described in the indenture by virtue
thereof.
CERTAIN COVENANTS
Restricted Payments
The indenture provides that RailAmerica Transportation will not, and will
not permit any Restricted Subsidiary to, directly or indirectly,
(1) declare or pay any dividend or make any other payment or
distribution on account of RailAmerica Transportation's or any of its
Restricted Subsidiaries' Equity Interests (including, without limitation,
any payment in connection with any merger or consolidation involving
RailAmerica Transportation) or to the direct or indirect holders of
RailAmerica Transportation's or any of its Subsidiaries' Equity Interests
other than
- dividends or distributions payable in Equity Interests (other than
Disqualified Stock of RailAmerica Transportation) or
- dividends or distributions payable by a Restricted Subsidiary to
RailAmerica Transportation or any Restricted Subsidiary of
RailAmerica Transportation;
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving RailAmerica Transportation) any Equity Interests of
RailAmerica Transportation or any direct or indirect parent of RailAmerica
Transportation (other than any such Equity Interests owned by RailAmerica
Transportation or any Restricted Subsidiary of RailAmerica Transportation);
(3) make any principal payment on or with respect to, or purchase,
defease, redeem, prepay, decrease or otherwise acquire or retire for value,
prior to any scheduled final maturity, scheduled repayment or scheduled
sinking fund payment, any Indebtedness of RailAmerica Transportation that
is subordinate or junior in right of payment to the notes except in
accordance with the mandatory redemption or repayment provisions set forth
in the original documentation governing that Indebtedness (but not pursuant
to any mandatory offer to repurchase upon the occurrence of any event); or
(4) make any Restricted Investment
(all such payments and other actions set forth in clauses (1) through (4) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; or
(b) RailAmerica Transportation would, immediately after such
Restricted Payment and after giving pro forma effect thereto as if that
Restricted Payment had been made at the beginning of RailAmerica
Transportation's most recently completed four full fiscal quarters, have
been permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio set forth in the first
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paragraph of the covenant described under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by RailAmerica Transportation and its
Restricted Subsidiaries after the date of the indenture (excluding
Restricted Payments permitted by clauses (2), (3), (4) and (5) (ii) of the
next succeeding paragraph), is less than the sum, without duplication, of:
(1) 50% of the aggregate Consolidated Net Income of RailAmerica
Transportation for the period (taken as one accounting period) from the
beginning of the first full fiscal quarter commencing after the date of
the indenture to the end of RailAmerica Transportation's most recently
ended fiscal quarter for which internal financial statements are
available at the time of that Restricted Payment (or, if Consolidated
Net Income for that period is a deficit, less 100% of the deficit); plus
(2) 100% of the net cash proceeds received by RailAmerica
Transportation after the date of the indenture from contributions to
RailAmerica Transportation's common equity or from the issue or sale
after the date of the indenture of Equity Interests (other than
Disqualified Stock) of RailAmerica Transportation or of Disqualified
Stock or convertible debt securities of RailAmerica Transportation to
the extent that they have been converted into such Equity Interests,
other than
- Equity Interests, Disqualified Stock or convertible debt
securities sold to a Subsidiary of RailAmerica Transportation;
and
- Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock.
plus (3) without duplication,
(i) to the extent that any Restricted Investment that was made after
the date of the indenture is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (A) the cash return of capital with respect
to such Restricted Investment (less the cost of disposition, if any) and
(B) the initial amount of such Restricted Investment; and
(ii) the redesignation of Unrestricted Subsidiaries whose assets are
used or useful in, or which is engaged in, one or more Permitted Business
as Restricted Subsidiaries (valued, proportionate to RailAmerica
Transportation's equity interest in that Subsidiary, at the lesser of (a)
the fair market value of the net assets of that Subsidiary at the time of
that redesignation and (b) the initial amount of such Restricted
Investment).
The foregoing provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration, such payment would
comply with all the provisions of the indenture;
(2) if no Default or Event of Default shall have occurred and be
continuing, the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of
RailAmerica Transportation in exchange for, or out of the net cash proceeds
of the substantially concurrent sale (other than to a Subsidiary of
RailAmerica Transportation) of other Equity Interests of RailAmerica
Transportation (other than any Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from clause (c)(2) of the preceding paragraph;
(3) if no Default or Event of Default shall have occurred and be
continuing, the defeasance, redemption, repurchase, retirement or other
acquisition of subordinated Indebtedness of RailAmerica Transportation with
the net cash proceeds from a substantially concurrent sale (other than to a
Subsidiary of RailAmerica Transportation) of, or in exchange for,
subordinated Indebtedness;
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(4) the payment of dividends by a Restricted Subsidiary on any class
of common stock of that Restricted Subsidiary if:
(i) that dividend is paid pro rata to all holders of that class of
common stock; and
(ii) at least a majority of that class of common stock is held by
RailAmerica Transportation or one or more of its Restricted
Subsidiaries;
(5) (i) the payment of amounts to RailAmerica, Inc. (directly or
through Palm Beach Rail Holding, Inc.) in an amount necessary to enable
RailAmerica, Inc. to pay: (a) the reasonable fees and expenses of its
directors, (b) the salaries, wages, employee benefits, insurance and other
direct expenses incurred in the ordinary course of business of RailAmerica,
Inc., (c) taxes in the amounts set forth in the Tax Sharing Agreement, (d)
dividends and mandatory redemption with respect to Series A Convertible
Preferred Stock of RailAmerica, Inc. that is outstanding on the date of the
indenture, (e) interest and principal, when due, on RailAmerica, Inc.'s 6%
junior convertible subordinated debentures due 2004, (f) up to $2.0 million
per fiscal year to repurchase RailAmerica, Inc. common stock under its
stock buyback program and (g) its public company expenses, including legal
fees, directors' and officers' insurance costs, accounting fees, financial
advisory fees, investor relations costs, directors' fees and printing fees
and related expenses, in each case of clauses (a), (b) and (g) in an amount
that substantially reflects the contribution of RailAmerica Transportation
and its Subsidiaries to the consolidated financial results of RailAmerica
and its subsidiaries and (ii) the payment of the Net Proceeds from the sale
of Quebec Railway Corporation to Palm Beach Rail Holding, Inc. to the
extent used to repay Palm Beach Rail Holding, Inc.'s asset sale bridge
notes issued on February 4, 2000; and
(6) if no Default or Event of Default shall have occurred and be
continuing, additional Restricted Payments in an aggregate amount not to
exceed $22.0 million; provided, that no more than $20.0 million of
Restricted Payments made pursuant to this clause (6) may be used to repay
Palm Beach Rail Holding, Inc.'s asset sale bridge notes issued on February
4, 2000.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by RailAmerica Transportation or that
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be
determined by the board of directors of RailAmerica Transportation whose
resolution with respect thereto shall be delivered to the trustee. The board of
directors' determination must be based on an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $5.0 million.
Not later than the date of making any Restricted Payment (other than a
Restricted Payment made pursuant to section (5)(i)), RailAmerica Transportation
shall deliver to the trustee an Officers' Certificate stating that the
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed.
Incurrence of Indebtedness and Issuance of Preferred Stock
The indenture provides that:
(1) RailAmerica Transportation will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Indebtedness); and
(2) RailAmerica Transportation will not permit any of its Restricted
Subsidiaries to issue any shares of preferred stock;
provided that RailAmerica Transportation or any Guarantor may incur
Indebtedness, including Acquired Indebtedness, if the Fixed Charge Coverage
Ratio for RailAmerica Transportation's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on
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which that additional Indebtedness is incurred would have been at least (x) 2.25
to 1.0 in the case of any such incurrence or issuance occurring on or prior to
the thirty-six month anniversary of the date of the indenture and (y) 2.5 to 1
in the case of any such incurrence or issuance that occurs thereafter, in each
case determined on a consolidated pro forma basis, including a pro forma
application of the net proceeds therefrom, as if the additional Indebtedness had
been incurred at the beginning of that four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Indebtedness"):
(1) the incurrence by RailAmerica Transportation and any Restricted
Subsidiary under the Senior Credit Facility; provided that the aggregate
principal amount of all Indebtedness (with letters of credit being deemed
to have a principal amount equal to the maximum potential liability of
RailAmerica Transportation and those Guarantors thereunder) outstanding
under the Senior Credit Facility (together with any Indebtedness incurred
pursuant to clause (2) below) does not exceed an amount equal to $380
million less (x) the amount of term Indebtedness repaid with the proceeds
of this offering and (y) the aggregate amount of all Net Proceeds of Asset
Sales that have been applied by RailAmerica Transportation or any of its
Restricted Subsidiaries since the date of the indenture to repay any term
Indebtedness under the Senior Credit Facility pursuant to the covenant
described under the caption "-- Repurchase at the Option of
Holders -- Asset Sales" and less the aggregate amount of all Net Proceeds
of Asset Sales applied by RailAmerica Transportation or any of its
Restricted Subsidiaries to repay any revolving credit Indebtedness under
the Senior Credit Facility and effect a corresponding commitment reduction
thereunder pursuant to the covenant described under the caption
"-- Repurchase at the Option of Holders -- Asset Sales";
(2) the incurrence by RailAmerica Transportation and its Restricted
Subsidiaries of Existing Indebtedness;
(3) the incurrence by RailAmerica Transportation of Indebtedness
represented by the notes issued in this offering on the date of the
indenture (and new notes issued in exchange therefor) and the indenture and
the incurrence by the Guarantors of the guarantees;
(4) the incurrence by RailAmerica Transportation or any of its
Restricted Subsidiaries of Indebtedness represented by Capital Expenditure
Indebtedness, Capital Lease Obligations or other obligations, in each case,
the proceeds of which are used solely for the purpose of financing all or
any part of the purchase price or cost of construction or improvement of
property, plant or equipment (including acquisitions of Capital Stock of a
Person that becomes a Restricted Subsidiary to the extent of the fair
market value of the property, plant or equipment so acquired) used in the
business of RailAmerica Transportation or that Restricted Subsidiary, in an
aggregate principal amount (or accreted value, as applicable) not to exceed
$10.0 million outstanding after giving effect to that incurrence;
(5) Indebtedness arising from agreements of RailAmerica Transportation
or any Restricted Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary,
other than guarantees of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or Restricted Subsidiary for the
purpose of financing that acquisition; provided that:
(a) that Indebtedness is not reflected on the balance sheet of
RailAmerica Transportation or any Restricted Subsidiary (contingent
obligations referred to in a footnote or footnotes to financing
statements and not otherwise reflected on the balance sheet will not be
deemed to be reflected on that balance sheet for purposes of this clause
(a)); and
(b) the maximum assumable liability in respect of that Indebtedness
shall at no time exceed the gross proceeds including non-cash proceeds
(the fair market value of those non-cash proceeds being measured at the
time received and without giving effect to any subsequent changes in
value) actually received by RailAmerica Transportation and/or that
Restricted Subsidiary in connection with that disposition;
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(6) the incurrence by RailAmerica Transportation or any of its
Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to refund, refinance, defease or
replace Indebtedness (other than intercompany Indebtedness) that was
permitted by the indenture to be incurred;
(7) the incurrence by RailAmerica Transportation or any of its
Restricted Subsidiaries of intercompany Indebtedness between or among
RailAmerica Transportation and/or any of its Restricted Subsidiaries;
provided that:
(a) if RailAmerica Transportation is the obligor on that
Indebtedness, that Indebtedness is expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the notes;
and
(b) (i) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than
RailAmerica Transportation or a Restricted Subsidiary thereof and
(ii) any sale or other transfer of any such Indebtedness to a
Person that is not either RailAmerica or a Restricted Subsidiary thereof
shall be deemed, in each case, to constitute an incurrence of that
Indebtedness by RailAmerica Transportation or that Restricted
Subsidiary, as the case may be, that was not permitted by this clause
(7);
(8) the incurrence by RailAmerica Transportation or any of its
Restricted Subsidiaries of Hedging Obligations that are incurred for the
purpose of fixing or hedging:
(a) interest rate risk with respect to any Indebtedness that is
permitted by the terms of the indenture to be outstanding;
(b) exchange rate risk with respect to agreements or Indebtedness
of that Person payable denominated in a currency other than U.S.
dollars; and
(c) risk with respect to fluctuations in the cost of raw materials
(including, without limitation, fuel) used in the ordinary course of
business;
provided that those agreements do not increase the Indebtedness of the
obligor outstanding at any time other than as a result of fluctuations in
foreign currency exchange rates, interest rates or the cost of raw materials or
by reason of fees, indemnities and compensation payable thereunder;
(9) the guarantee by RailAmerica Transportation or any of its
Restricted Subsidiaries of Indebtedness of RailAmerica Transportation or
any Restricted Subsidiary that was permitted to be incurred by another
provision of this covenant;
(10) obligations in respect of performance and surety bonds and
completion guarantees (including related letters of credit), bankers'
acceptances, workers' compensation claims and payment obligations in
connection with self-insurance or similar obligations provided by
RailAmerica Transportation or any Restricted Subsidiary in the ordinary
course of business and industrial revenue bonds or other similar
governmental or municipal bonds; and
(11) the incurrence by RailAmerica Transportation or any of its
Restricted Subsidiaries of additional Indebtedness in an aggregate
principal amount (or accreted value, as applicable) outstanding after
giving effect to that incurrence, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred pursuant to this clause (11), not to exceed $25.0 million.
For purposes of determining compliance with this covenant:
- in the event that an item of Indebtedness meets the criteria of more than
one of the categories of Permitted Indebtedness described in clauses (1)
through (11) above or is entitled to be incurred pursuant to the first
paragraph of this covenant, RailAmerica Transportation shall, in its sole
discretion, classify that item of Indebtedness in any manner that
complies with this covenant and that item of Indebtedness will be treated
as having been incurred pursuant to any one of those clauses or
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pursuant to the first paragraph hereof and RailAmerica Transportation may
divide and classify an item of Indebtedness under more than one of the
categories of Permitted Indebtedness described in clauses (1) through
(11); and
- accrual of interest or dividends, accretion or amortization of original
issue discount will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant.
Liens
The indenture provides that RailAmerica Transportation will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, assume or suffer to exist any Lien, other than a Permitted Lien,
that secures obligations under any Pari Passu Indebtedness or subordinated
Indebtedness of RailAmerica Transportation, on any property or asset now owned
or hereafter acquired by RailAmerica Transportation or any of its Restricted
Subsidiaries, or any income or profits therefrom, or assign or convey any right
to receive income therefrom, unless the notes are equally and ratably secured
with the obligations so secured until such time as those obligations are no
longer secured by a Lien; provided that, in any case involving a Lien securing
subordinated Indebtedness of RailAmerica Transportation, that Lien is
subordinated to the Lien securing the notes at least to the same extent that
such subordinated Indebtedness is subordinated to the notes.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The indenture provides that RailAmerica Transportation will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective, any consensual
encumbrance or restriction on the ability of any of its Restricted Subsidiaries
to:
(1) (a) pay dividends or make any other distributions to RailAmerica
Transportation or any of its Restricted Subsidiaries
(i) on its Capital Stock or
(ii) with respect to any other interest or participation in, or
measured by, its profits; or
(b) pay any Indebtedness owed to RailAmerica Transportation or any
Restricted Subsidiary,
(2) make loans or advances to RailAmerica Transportation or any
Restricted Subsidiary or
(3) transfer any of its properties or assets to RailAmerica
Transportation or any Restricted Subsidiary.
However, the foregoing restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect as of the date of the
indenture;
(2) the Senior Credit Facility as in effect as of the date of the
indenture;
(3) the indenture, the notes and the Guarantees;
(4) Foreign Credit Facilities; provided that the Indebtedness incurred
thereunder was permitted by the terms of the indenture to be incurred;
(5) applicable law and any applicable rule, regulation or order;
(6) any agreement or instrument governing Indebtedness or Capital
Stock of a Person acquired by RailAmerica Transportation or any of its
Restricted Subsidiaries as in effect at the time of that acquisition
(except to the extent created in contemplation of that acquisition), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired; provided that, in the case of
Indebtedness, that Indebtedness was permitted by the terms of the indenture
to be incurred;
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(7) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(8) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (6) above on the property so acquired;
(9) contracts for the sale of assets, including, without limitation,
customary restrictions with respect to a Subsidiary pursuant to an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of the Restricted
Subsidiary;
(10) secured Indebtedness otherwise permitted to be incurred pursuant
to the covenants described under "-- Incurrence of Indebtedness and
Issuance of Preferred Stock" and "-- Liens" that limit the right of the
debtor to dispose of the assets securing that Indebtedness;
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(12) customary provisions in joint venture agreements and other
similar agreements entered into in the ordinary course of business; and
(13) Permitted Refinancing Indebtedness of Indebtedness issued,
assumed or incurred pursuant to an agreement referred to in clauses (1),
(2), (3), (4) or (6) above; provided that the restrictions contained in the
agreements governing that Permitted Refinancing Indebtedness are, in the
good faith judgment of RailAmerica Transportation's board of directors, not
materially less favorable, taken as a whole, to the holders of the notes
than those contained in the agreements governing the Indebtedness being
refinanced.
MERGER, CONSOLIDATION, OR SALES OF ASSETS
The indenture provides that RailAmerica Transportation may not consolidate
or merge with or into (whether or not RailAmerica Transportation is the
surviving corporation), or, directly or indirectly, sell, assign, transfer,
convey, lease or otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions to, another Person unless:
(1) RailAmerica Transportation is the surviving corporation or the
Person formed by or surviving any such consolidation or merger (if other
than RailAmerica Transportation) or to which that sale, assignment,
transfer, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States, any
state thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than RailAmerica Transportation) or the Person to which that
sale, assignment, transfer, conveyance or other disposition shall have been
made assumes all the obligations of RailAmerica Transportation under the
registration rights agreement, the notes and the indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the trustee;
(3) immediately after that transaction no Default or Event of Default
exists; and
(4) RailAmerica Transportation or the Person formed by or surviving
any such consolidation or merger (if other than RailAmerica
Transportation), or to which that sale, assignment, transfer, conveyance or
other disposition shall have been made, will, at the time of such
transaction and after giving pro forma effect thereto as if the transaction
had occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock."
The foregoing clause (4) will not prohibit:
(a) a merger between RailAmerica Transportation and a Wholly Owned
Subsidiary of RailAmerica, Inc.;
(b) a merger between RailAmerica Transportation and a Wholly Owned
Restricted Subsidiary; or
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(c) a merger between RailAmerica Transportation and an Affiliate
incorporated solely for the purpose of reincorporating RailAmerica
Transportation in another State of the United States
so long as, in the case of clauses (a), (b) and (c), the amount of Indebtedness
of RailAmerica Transportation and its Restricted Subsidiaries is not increased
thereby.
Transactions with Affiliates
The indenture provides that RailAmerica Transportation will not, and will
not permit any of its Restricted Subsidiaries to, make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate of RailAmerica Transportation (each
of the foregoing, an "Affiliate Transaction"), unless:
(1) that Affiliate Transaction is on terms that are no less favorable
to RailAmerica Transportation or that Restricted Subsidiary than those that
would have been obtained in a comparable transaction by RailAmerica
Transportation or that Restricted Subsidiary with an unrelated Person; and
(2) RailAmerica Transportation delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the board of directors set forth in an
Officers' Certificate certifying that the relevant Affiliate Transaction
complies with clause (1) above and that the Affiliate Transaction has
been approved by a majority of the disinterested members of the board of
directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, an opinion as to the fairness to the holders of the notes
of that Affiliate Transaction from a financial point of view issued by
an accounting, appraisal or investment banking firm of national
standing.
Notwithstanding the foregoing, the following items shall not be deemed to
be Affiliate Transactions:
(1) customary directors' fees, indemnification or similar arrangements
or any employment agreement or other compensation plan or arrangement
entered into by RailAmerica Transportation or any of its Restricted
Subsidiaries in the ordinary course of business (including ordinary course
loans to employees not to exceed (a) $2.5 million outstanding in the
aggregate at any time and (b) $0.5 million to any one employee) and
consistent with the past practice of RailAmerica Transportation or that
Restricted Subsidiary;
(2) transactions between or among RailAmerica Transportation and/or
its Restricted Subsidiaries;
(3) payments of customary arms'-length fees by RailAmerica
Transportation or any of its Restricted Subsidiaries to investment banking
firms, financial consultants and financial advisors made for any financial
advisory, financing, underwriting or placement services or in respect of
other investment banking activities, including, without limitation, in
connection with acquisitions or divestitures that are approved by a
majority of the board of directors in good faith;
(4) any agreement as in effect on the date of the indenture or any
amendment thereto (so long as that amendment is not more disadvantageous to
the holders of the notes in any material respect than the original
agreement as in effect on the Closing Date) or any transaction contemplated
thereby;
(5) the issuance and sale of Equity Interests (other than Disqualified
Stock) of RailAmerica Transportation for cash;
(6) payments pursuant to the Tax Sharing Agreement;
(7) transactions pursuant to loan documents between RailAmerica de
Chile, S.A. and RailAmerica Transportation as in effect on the date of the
indenture; and
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(8) Restricted Payments that are permitted by the provisions of the
indenture described under the caption "-- Restricted Payments" and any
Permitted Investments.
No Senior Subordinated Indebtedness
The indenture provides that
- RailAmerica Transportation will not incur any Indebtedness that would
rank both (a) senior in right of payment to the notes and (b) subordinate
in right of payment to any other Indebtedness of RailAmerica
Transportation; and
- no Guarantor that is a Restricted Subsidiary will incur any Indebtedness
that would rank both (a) senior in right of payment to that Guarantor's
guarantee and (b) subordinate in right of payment to any other
Indebtedness of such Guarantor.
Additional Note Guarantees
If RailAmerica Transportation or any of its Restricted Subsidiaries
acquires or creates another Domestic Subsidiary after the date of the indenture
or if any Foreign Restricted Subsidiary issues a guarantee in favor of the
lenders under the Senior Credit Facility (other than guarantees by Canadian
Subsidiaries of borrowings under the Canadian revolving credit facility and
guarantees by Australian Subsidiaries of borrowings under the Australian
revolving credit facility), such Subsidiary must become a Guarantor and execute
a supplemental indenture and deliver an opinion of counsel to the trustee within
ten business days of the date on which it was acquired or created; provided that
all Subsidiaries that have been properly designated as Unrestricted Subsidiaries
in accordance with the indenture shall not become Guarantors for so long as they
continue to constitute Unrestricted Subsidiaries.
Designation of Restricted and Unrestricted Subsidiaries
The board of directors of RailAmerica Transportation may designate any
Restricted Subsidiary of RailAmerica Transportation to be an Unrestricted
Subsidiary if that designation would not cause a Default or an Event of Default.
If a Restricted Subsidiary of RailAmerica Transportation is designated as an
Unrestricted Subsidiary, the aggregate fair market value of all outstanding
Investments owned by RailAmerica Transportation and its Restricted Subsidiaries
in the Subsidiary so designated will be deemed to be an Investment made as of
the time of such designation and will either reduce the amount available for
Restricted Payments under the first paragraph of the covenant described above
under the caption "-- Restricted Payments" or reduce the amount available for
future Investments under one or more clauses of the definition of Permitted
Investments, if applicable, as RailAmerica Transportation shall determine. That
designation will only be permitted if such Investment would be permitted at that
time and if such Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary. The board of directors may redesignate an Unrestricted
Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a
Default or an Event of Default.
Business Activities
RailAmerica Transportation will not, and will not permit any Restricted
Subsidiary to, engage in any business other than Permitted Businesses, except to
such extent as would not be material to RailAmerica Transportation and its
Restricted Subsidiaries taken as a whole.
Payments for Consent
RailAmerica Transportation will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any holder of notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the indenture or the notes unless such consideration is offered to be paid or
is paid to all holders of the notes that consent, waive
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or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
Reports
The indenture provides that, whether or not required by the rules and
regulations of the SEC, so long as any notes are outstanding, RailAmerica, Inc.
will furnish to the holders of notes, if not then obtainable from the SEC:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K of
RailAmerica, Inc. with appropriate footnotes regarding the results of
operations and financial position of RailAmerica Transportation or if
RailAmerica Transportation were required to file those Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report
thereon by RailAmerica, Inc.'s certified independent accountants; and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K if RailAmerica, Inc. were required to file those reports,
in each case, within the time periods specified in the SEC's rules and
regulations.
In addition, following the consummation of the exchange offer contemplated
by the registration rights agreement, whether or not required by the rules and
regulations of the SEC, RailAmerica, Inc. will file a copy of all the
information and reports referred to in clauses (1) and (2) above with the SEC
for public availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make that
information available to securities analysts and prospective investors upon
request.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
This general discussion of certain U.S. federal income and estate tax
considerations with respect to the acquisition, ownership and disposition of a
registered note acquired in exchange for an outstanding note applies to you if
you acquired the outstanding note for cash on its original issuance at its issue
price and if you hold the outstanding note and the registered note as capital
assets within the meaning of section 1221 of the Internal Revenue Code of 1986,
as amended.
This discussion is based upon the Internal Revenue Code, Treasury
regulations, Internal Revenue Service rulings and pronouncements and judicial
decisions now in effect, each of which is subject to change at any time by
legislative, administrative, or judicial action, possibly with retroactive
effect. The discussion does not discuss every aspect of U.S. federal income and
estate taxation that may be relevant to a particular taxpayer in light of its
personal circumstances or to persons who are otherwise subject to special tax
treatment. For example, special rules not discussed here may apply to you if you
are:
- a bank or a broker-dealer;
- an insurance company;
- a pension or other employee benefit plan;
- a tax exempt organization or entity;
- a U.S. expatriate or former long-term resident of the United States;
- a trader in securities that elects market-to-market accounting treatment;
- a person holding registered notes as a part of a hedging or conversion
transaction or a straddle;
- a hybrid entity or an owner of interests therein; or
- a holder whose functional currency is not the U.S. dollar.
In addition, this discussion does not address the effect of any applicable
foreign, state, local or other tax laws. We have not sought and will not seek
any rulings from the Internal Revenue Service concerning the tax consequences of
the acquisition, ownership or disposition of a registered note and, accordingly,
we cannot assure you that the Internal Revenue Service will not successfully
challenge the tax consequences described below. WE URGE YOU TO CONSULT YOUR TAX
ADVISER WITH RESPECT TO THE U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS
RELEVANT TO ACQUIRING, HOLDING AND DISPOSING OF A REGISTERED NOTE AS WELL AS ANY
TAX CONSIDERATIONS APPLICABLE UNDER THE LAWS OF ANY FOREIGN, STATE, LOCAL OR
OTHER TAXING JURISDICTION.
EXCHANGE OF NOTES
Your exchange of an outstanding note for a registered note pursuant to the
exchange offer should not be a taxable event for U.S. federal income tax
purposes. Accordingly, you should have the same acquisition date, adjusted
basis, holding period, original issue discount, issue price, adjusted issue
price, stated redemption price at maturity, yield and accrual periods for a
registered note acquired pursuant to the exchange offer as you had for the
outstanding note immediately before the exchange. The tax consequences of
ownership and disposition of a registered note should be the same as the tax
consequences of the ownership and disposition of the outstanding note
surrendered in exchange for it.
Accordingly, in the following discussion, the U.S. federal income tax
consequences with respect to a registered note assume that the registered note
is treated, for U.S. federal income tax purposes, as the same note as the
outstanding note for which it was issued and that the registered note has the
same acquisition date, adjusted basis, holding period, original issue discount,
issue price, adjusted issue price, stated redemption price at maturity, yield
and accrual periods as the outstanding note had in your hands immediately before
the exchange, and that any amounts that accrue or are paid or payable on an
outstanding note are treated as accruing or as paid or payable on the registered
note.
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U.S. HOLDERS
If you are a "U.S. Holder," as defined below, this section applies to you.
Otherwise, the section "Non-U.S. Holders" applies to you. You are a U.S. Holder
if you are the beneficial owner of a registered note and you are:
- a citizen or individual resident (as defined in section 7701(b) of the
Internal Revenue Code) of the United States;
- a corporation (or an entity treated as a corporation) created or
organized in the United States or under the law of the United States, any
state or the District of Columbia;
- an estate the income of which is subject to U.S. federal income tax
regardless of its source; or
- a trust if (a) a U.S. court is able to exercise primary supervision over
the administration of the trust and one or more United States persons
have the authority to control all substantial decisions of the trust or
(b) the trust was in existence on August 20, 1996 and properly elected to
continue to be treated as a United States person.
Stated Interest. Stated interest on a registered note generally will be
includible in a U.S. Holder's gross income and taxable as ordinary income for
U.S. federal income tax purposes at the time it is paid or accrues in accordance
with the U.S. Holder's regular method of tax accounting.
Original Issue Discount. The outstanding notes were issued with original
issue discount, known as OID. As noted above, a U.S. Holder of a registered note
should be subject to the rules on OID in the same manner as if the registered
note were a continuation of the outstanding note for which it is issued. As a
result, each U.S. Holder generally will be required to include in income
(regardless of whether the U.S. Holder uses the cash or an accrual method of
accounting for U.S. federal income tax purposes) in each taxable year, in
advance of the receipt of the corresponding cash payments on a registered note,
that portion of the OID, computed on a constant yield basis, attributable to
each day during the year on which the U.S. Holder holds the registered note.
The amount of OID with respect to each registered note will be equal to the
excess of (i) the stated redemption price at maturity of the registered note
over (ii) the issue price of the registered note (which, as noted above, is the
same as the issue price of the outstanding note). The stated redemption price at
maturity of a registered note will be equal to the sum of all cash payments
required to be made on the registered note other than payments of qualified
stated interest. Generally, qualified stated interest payments include stated
interest payments that are unconditionally payable in cash or property (other
than debt instruments of the issuer) at least annually at a single fixed or
variable rate that appropriately takes into account the length of intervals
between payments. The issue price of an outstanding note will be equal to the
portion of the issue price of a unit (which constitutes an investment unit for
U.S. federal income tax purposes consisting of an outstanding note and the
warrant) allocable to the note based upon the relative fair market values of the
outstanding note and the warrant comprising the unit on the issue date of the
unit. Because the unit was issued for money, the issue price of the unit was the
first price at which a substantial amount of the units was sold for money. For
purposes of determining the issue price of the units, sales to bond houses,
brokers or similar persons or organizations acting in the capacity as
underwriters, placement agents or wholesalers are ignored. Under Treasury
regulations, we have allocated the issue price of the units between the
outstanding notes and the warrants. We have allocated $901.38 of the issue price
of each unit to the outstanding note and $39.00 to the warrant. Our allocation
of the issue price is binding on you unless you explicitly disclose (on a form
prescribed by the IRS and attached to your timely-filed U.S. federal income tax
return for the taxable year that includes the acquisition date of the unit) that
you have made a different determination. Our allocation, however, is not binding
on the Internal Revenue Service.
A U.S. Holder of a debt instrument issued with OID generally is required
for U.S. federal income tax purposes to include OID in gross income each year
under a constant yield method, regardless of the holder's
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regular method of tax accounting. The amount of OID includible in income by a
U.S. Holder of a registered note in any taxable year is the sum of the daily
portions of the OID for all days during the taxable year in which the U.S.
Holder holds the registered note. The daily portions of OID required to be
included in a U.S. Holder's gross income in a taxable year will be determined
under a constant yield method by allocating to each day during a taxable year in
which the U.S. Holder holds the registered note a pro rata portion of the OID on
that registered note that is attributable to the accrual period in which that
day is included.
The amount of the OID attributable to each accrual period is an amount
equal to the excess, if any, of (1) the product of the adjusted issue price of
the registered note at the beginning of that accrual period and the yield to
maturity of the registered note (that is, the discount rate that, when used in
computing the present value of all principal and interest payments to be made
under the registered note in the manner prescribed by Treasury regulations,
produces an amount equal to the issue price of the registered note) over (2) the
amount of any qualified stated interest (defined above) allocable to the accrual
period. The adjusted issue price of a registered note at the beginning of the
first accrual period will be its issue price. Thereafter, the adjusted issue
price at the beginning of any accrual period will be equal to (a) the sum of the
issue price of the registered note and the aggregate amount of OID that accrued
for all prior accrual periods minus (b) the amount of all prior payments (other
than payments of qualified stated interest) made on or before the first day of
the accrual period. If a payment (other than a payment of qualified stated
interest) is made on the first day of an accrual period, the adjusted issue
price at the beginning of that accrual period is reduced by the amount of the
payment. OID allocable to a final accrual period is the difference between the
amount payable at maturity (other than qualified stated interest) and the
adjusted issue price of the registered note at the beginning of the final
accrual period. The calculation of OID for an initial short accrual period may
be determined using any reasonable method.
The registered notes may be redeemed prior to their stated maturity at our
option. For purposes of computing the yield on the registered notes, we will be
deemed to exercise or not to exercise our option to redeem the registered notes
in a manner that minimizes the yield on the registered notes. We do not
anticipate that our ability to redeem the registered notes will affect the
registered notes' yield to maturity.
Our failure to file or cause to be declared effective an exchange offer
registration statement or a shelf registration statement, as described under
"Description of the Notes -- Registration Rights; Liquidated Damages," if the
failure occurs, will cause liquidated damages to accrue on the outstanding notes
in the manner described therein. According to the applicable Treasury
regulations, the possibility of a change in the interest rate on the outstanding
notes will not affect the amount or timing of interest income recognized by a
holder of an outstanding note if the likelihood of the change, as of the date
the outstanding notes were issued, was remote. We intend to take the position
that the likelihood of the payment of liquidated damages with respect to the
outstanding notes was remote and do not intend to treat that possibility of a
change in the interest rate as affecting the yield to maturity of the
outstanding notes. Accordingly, any liquidated damages payable to holders of the
outstanding notes if there is a registration default should be includible in
gross income by a U.S. Holder at the time the payment is paid or accrues in
accordance with the U.S. Holder's regular method of tax accounting. Similarly,
we intend to take the position that the likelihood of a redemption or repurchase
if there is a change of control is remote under applicable Treasury regulations
and similarly do not intend to treat that possibility as affecting the yield to
maturity of the outstanding or the registered notes.
A U.S. Holder may elect to include in gross income, on the constant yield
method, all income on a registered note (including stated interest, OID, de
minimis OID, market discount, de minimis market discount and unstated interest),
as adjusted by any amortizable bond premium or acquisition premium. In applying
the constant-yield method to a registered note with respect to which this
election has been made, the issue price of the registered note will equal the
electing U.S. Holder's adjusted basis in the registered note immediately after
its acquisition, the issue date of the registered note will be the date of its
acquisition by the electing U.S. Holder, and no payments on the registered note
will be treated as payments of qualified stated interest. This election
generally will apply only to the registered note with respect to which it is
made and may not be revoked without the consent of the IRS.
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Adjusted Tax Basis. A U.S. Holder's initial tax basis in a registered note
is the amount of the issue price of the unit allocated to the outstanding note.
A U.S. Holder's tax basis in a registered note will be increased by the amount
of OID that the U.S. Holder includes in income pursuant to the foregoing rules
through the day preceding the day of disposition and will be decreased by the
amount of any payments received on the registered note (other than payments of
qualified stated interest).
We will furnish annually to the Internal Revenue Service and to holders
(other than certain exempt holders, including, in particular, corporations)
information with respect to the OID accruing while registered notes were held by
the holders. The amount of OID that you must include in gross income may differ
from the amount of OID we report to the Internal Revenue Service and to you,
depending on your individual circumstances.
Sale, Exchange or Retirement of a Registered Note. Each U.S. Holder
generally will recognize capital gain or loss upon a sale, exchange or
retirement of a registered note measured by the difference, if any, between (1)
the amount of cash and the fair market value of any property received (except to
the extent that the cash or other property is attributable to accrued interest
not previously included in income, which amount will be taxable as ordinary
income) and (2) the holder's adjusted tax basis in the registered note. That
gain or loss will be long-term capital gain or loss if the registered note has
been held for more than one year at the time of the sale, exchange or
retirement. Non-corporate taxpayers are generally subject to a maximum regular
U.S. federal income tax rate of 20 percent on net long-term capital gain. The
deductibility of capital losses is subject to certain limitations.
Prospective investors should be aware that the resale of a registered note
may be affected by the "market discount" rules of the Internal Revenue Code,
under which a portion of any gain realized on the retirement or other
disposition of a registered note by a subsequent holder that acquires the
registered note at a market discount generally would be treated as ordinary
income to the extent of the market discount that accrues while that holder holds
the registered note.
Information Reporting and Backup Withholding. A U.S. Holder of a
registered note may be subject, under certain circumstances, to information
reporting and backup withholding at a rate of 31 percent with respect to certain
reportable payments, including interest on or principal (and premium, if any) of
a registered note and the gross proceeds from a disposition of a registered
note. The backup withholding rules apply if the holder, among other things,
(1) fails to furnish a social security number or other taxpayer
identification number, known as a TIN, certified under penalties of perjury
within a reasonable time after the request therefor,
(2) furnishes an incorrect TIN,
(3) fails to report properly the receipt of interest or dividends or
(4) under certain circumstances, fails to provide a certified
statement, signed under penalties of perjury, that the TIN furnished is the
correct number and that the holder is not subject to backup withholding.
A U.S. Holder who does not provide us with its correct TIN also may be
subject to penalties. Backup withholding will not apply with respect to payments
made to certain holders, including corporations and tax-exempt organizations,
provided their exemptions from backup withholding are properly established. We
will report annually to the IRS and to each U.S. Holder of a registered note the
amount of any reportable payments and the amount of tax withheld, if any, with
respect to those payments.
Any amounts withheld under the backup withholding rules from a payment to a
U.S. Holder will be allowed as a refund or as a credit against that U.S.
Holder's U.S. federal income tax liability, provided the requisite procedures
are followed.
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NON-U.S. HOLDERS
The following discussion is limited to U.S. federal income and estate tax
consequences relevant to a Non-U.S. Holder. As used herein, a Non-U.S. Holder is
a beneficial owner of a registered note that, for U.S. federal income tax
purposes, is (a) a nonresident alien individual, (b) a corporation (or an entity
treated as a corporation) created or organized in or under the law of a country
(or a political subdivision thereof) other than the United States or (c) a
foreign estate or trust, which generally is an estate or trust that is not a
U.S. Holder. For purposes of the withholding tax discussed below (other than
backup withholding), a Non-U.S. Holder includes a nonresident fiduciary of an
estate or trust. This discussion does not address tax consequences relevant to
an expatriate or former long-term resident of the United States or to a person
who holds a registered note through a partnership. A person who holds a
registered note through a hybrid entity (that is, an entity that is fiscally
transparent for U.S. federal income tax purposes but not for foreign tax
purposes) may not be entitled to the benefits of a tax treaty. For example, a
person who is a partner in a foreign partnership or beneficiary of a foreign
trust or estate and who is subject to U.S. federal income tax because of his own
status, for example, as a U.S. resident or a foreign person engaged in trade or
business in the United States, may be subject to U.S. federal income tax even
though the foreign partnership, trust or estate is not itself subject to U.S.
federal income tax. For purposes of the following discussion, U.S. trade or
business income of a Non-U.S. Holder generally means interest or gain on a sale,
exchange or retirement of a registered note if interest or gain is (i)
effectively connected with trade or business conducted by the Non-U.S. Holder
within the United States or (ii) in most cases of a resident of a country with
which the United States has an income tax treaty, attributable to a permanent
establishment (or fixed base) of the Non-U.S. Holder in the United States.
Interest and OID. In general, interest (and premium, if any) paid to and
OID paid to or accrued by a Non-U.S. Holder of a registered note will not be
subject to U.S. withholding tax if it qualifies for the portfolio interest
exemption, and it will not otherwise be subject to U.S. federal income tax if it
is not U.S. trade or business income of the Non-U.S. Holder. Interest and OID on
a registered note qualify for the portfolio interest exemption if
(1) the Non-U.S. Holder of the registered note
(a) does not own, actually and constructively, 10% or more of the
total combined voting power of all classes of our stock entitled to
vote,
(b) is not a controlled foreign corporation related, directly or
indirectly, to us through stock ownership and
(c) is not a bank receiving interest on an extension of credit made
pursuant to a loan agreement made in the ordinary course of its trade or
business, and
(2) either
(a) the Non-U.S. Holder certifies, under penalties of perjury, to
us or to the paying agent, as the case may be, that it is a Non-U.S.
Holder and provides its name and address, or
(b) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of
its trade or business and holds the registered note on behalf of the
Non-U.S. Holder certifies, under penalties of perjury, that it or a
financial institution between it and the Non-U.S. Holder has received
such a certificate and furnishes the payer with a copy thereof.
Treasury regulations that generally will be effective for payments made
after December 31, 2000 provide alternative methods for satisfying the
certification requirement described in (2) above. The new regulations generally
will require, in the case of a registered note held by a foreign partnership,
that the certificate described in (2)(b) above must be provided by the partners
rather than by the foreign partnership and that the partnership must provide
certain information, including a U.S. TIN.
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Interest and premium, if any, and OID paid to or accrued by a Non-U.S.
Holder that constitutes U.S. trade or business income will be subject to U.S.
federal income tax on a net income basis at graduated rates in the same manner
that a U.S. taxpayer is subject to tax and will be exempt from the withholding
tax described above. In the case of a Non-U.S. Holder that is a corporation,
U.S. trade or business income under certain circumstances also will be subject
to an additional branch profits tax at a 30 percent rate (or, if applicable, a
lower treaty rate). The gross amount of interest (and premium, if any) and OID
paid to a Non-U.S. Holder that does not qualify for the portfolio interest
exemption and that is not U.S. trade or business income will be subject to
withholding of U.S. federal income tax at the rate of 30 percent, unless a U.S.
income tax treaty reduces or eliminates withholding. To claim the benefit of a
tax treaty or to claim an exemption from withholding because income is U.S.
trade or business income, a Non-U.S. Holder must provide a properly executed
Form W-8BEN or W-8ECI, as applicable, prior to the payment of the income. These
forms must be updated periodically. Under the new Treasury regulations, a
Non-U.S. Holder who is claiming the benefits of a tax treaty may be required to
obtain a U.S. TIN and to provide certain documentary evidence issued by a
foreign governmental authority to prove residence in the foreign country.
Special procedures are provided in the new regulations for payments through
qualified intermediaries. You should consult your own tax adviser regarding the
effect, if any, of the new regulations on you.
Sale, Exchange or Retirement of a Registered Note. Subject to the
discussion below of backup withholding, gain recognized by a Non-U.S. Holder on
a sale, exchange or retirement of a registered note generally will not be
subject to U.S. federal income tax unless (i) the gain is U.S. trade or business
income of the Non-U.S. Holder or (ii) subject to certain exceptions, the
Non-U.S. Holder is an individual who holds the registered note as a capital
asset and is present in the United States for 183 days or more in the taxable
year of the disposition. A non-U.S. Holder's initial tax basis in an outstanding
note will be equal to the portion of the holder's tax basis in a unit that is
allocated to the outstanding note as described in "CERTAIN U.S. FEDERAL INCOME
TAX CONSIDERATIONS -- U.S. Holders -- Original Issue Discount." A Non-U.S.
Holder's tax basis in a registered note should be increased by the amount of OID
that accrues on the registered note through the day preceding the day of
disposition pursuant to the rules described in " -- U.S. Holders -- Original
Issue Discount" and will be decreased by the amount of any payments received on
the registered note (other than payments of qualified stated interest).
You should be aware that the resale of a registered note to a U.S. Holder
may be affected by the market discount rules of the Code, under which a portion
of any gain realized on retirement or other disposition of a registered note by
a subsequent holder that is a U.S. Holder that acquires the registered note at a
market discount generally would be treated as ordinary income to the extent of
the market discount that accrues while the U.S. Holder holds the registered
note.
Federal Estate Tax. A registered note that is owned, or treated as owned,
by an individual who is not a citizen of the United States and who is not
domiciled in the United States at the time of death will not be subject to U.S.
federal estate tax, provided the individual did not own, actually and
constructively, ten percent or more of the total combined voting power of all
classes of stock in our company entitled to vote and provided the income on the
registered note was not U.S. trade or business income.
Information Reporting and Backup Withholding. We must report annually to
the IRS and to each Non-U.S. Holder any interest or OID that is subject to U.S.
withholding tax (and the amount of tax withheld) and any interest or OID that is
exempt from withholding pursuant to a tax treaty or the portfolio interest
exception. Copies of these information returns also may be made available under
the provisions of a specific treaty or agreement to the tax authorities of the
country in which the Non-U.S. Holder resides.
Information reporting and backup withholding (at a rate of 31 percent) do
not apply to our payments of principal of or interest on a registered note to a
Non-U.S. Holder if the holder certifies under penalties of perjury that it is
not a U.S. Holder or otherwise establishes an exemption (provided that neither
we nor our paying agent has actual knowledge that the holder is not a Non-U.S.
Holder or that the conditions of any other exemption are not, in fact,
satisfied).
The payment of the proceeds from the disposition of a registered note to or
through the U.S. office of any broker, U.S. or foreign, is subject to
information reporting and possible backup withholding unless the
73
<PAGE> 79
owner certifies under penalties of perjury that it is not a U.S. Holder or
otherwise establishes an exemption (provided that the broker does not have
actual knowledge that the holder is not a Non-U.S. Holder or that the conditions
of any other exemption are not, in fact, satisfied).
The proceeds of a disposition of a registered note by a Non-U.S. Holder to
or through a foreign office of a broker will not be subject to backup
withholding. However, information reporting will apply in the case of a "U.S.
related broker" unless the broker has documentary evidence in its files of the
Non-U.S. Holder's foreign status and has no actual knowledge to the contrary or
unless the Non-U.S. Holder otherwise establishes an exemption. A broker is a
"U.S. related broker" if the broker is a United States person, a controlled
foreign corporation for U.S. federal income tax purposes, a foreign person 50
percent or more of whose income from all sources for a designated period is from
activities that are effectively connected with the conduct of trade or business
within the United States or, with respect to payments made after December 31,
2000, a foreign partnership that, at any time during its taxable year, is owned
50 percent or more (by income or capital interest) by United states persons or
is engaged in the conduct of trade or business in the United States. The new
Treasury regulations provide certain presumptions under which a Non-U.S. Holder
will be subject to backup withholding and information reporting unless the
Non-U.S. Holder provides a certification as to its status as a Non-U.S. Holder.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or as a credit against the Non-U.S.
Holder's U.S. federal income tax liability, provided the requisite procedures
are followed.
THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME AND ESTATE TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE TAX ADVICE.
ACCORDINGLY, EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISER AS TO THE
PARTICULAR TAX CONSEQUENCES TO IT OF ACQUIRING, HOLDING AND DISPOSING OF A
REGISTERED NOTE, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.
74
<PAGE> 80
PLAN OF DISTRIBUTION
Each broker-dealer that receives registered notes in exchange for
outstanding notes for its own account pursuant to the exchange offer must
acknowledge that it will deliver a prospectus in connection with any resale of
those registered notes. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales of
registered notes received in exchange for outstanding notes where those
outstanding notes were acquired as a result of market-making activities or other
trading activities. We have agreed that we will make this prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
such resale for a period of one year after consummation of the exchange offer.
We will not receive any proceeds from any sale of registered notes by
broker-dealers. Registered notes received by broker-dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the registered notes or a combination of those
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such registered notes. Any
broker-dealer that effects any resale of registered notes that were received by
it for its own account pursuant to the exchange offer and any broker or dealer
that participates in a distribution of those registered notes may be deemed to
be an "underwriter" within the meaning of the Securities Act and any profit on
any such resale of registered notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The letter of transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of one year after consummation of the exchange offer, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests those documents
in the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer, including the expenses of one counsel for the holders of the
outstanding notes, other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the outstanding notes (including any
broker-dealers) against specified liabilities, including liabilities under the
Securities Act.
WHERE YOU CAN FIND MORE INFORMATION
RailAmerica is, and as a result of the exchange offer, RailAmerica
Transportation and the subsidiary guarantors will be subject to the periodic
reporting and other informational requirements of the Exchange Act. Each of us
will file annual, quarterly and special reports and other information with the
SEC. In addition, we have agreed under the indenture that governs the
outstanding notes and the registered notes that, whether or not we are required
to do so by the rules and regulations of the SEC, for so long as any of the
outstanding notes or registered notes remain outstanding, we will furnish to the
holders of any of those securities and file with the SEC, unless the SEC will
not accept such a filing, (i) all quarterly and annual financial information
that would be required to be contained in a filing with the SEC on Forms 10-Q
and 10-K if we were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by our certified
independent public accountants and (ii) all reports that would be required to be
filed with the SEC on Form 8-K if we were required to file such reports. In
addition, for so long as any of the outstanding notes or registered notes remain
outstanding, we have agreed to make available to any prospective purchaser or
beneficial owner of any of those securities in connection with any sale thereof
the information required by Rule 144A(d)(4) under the Securities Act.
We have filed a registration statement on Form S-4 with the SEC to register
under the Securities Act the registered notes. This prospectus constitutes a
part of that registration statement. As allowed by the SEC's rules, this
prospectus does not contain all the information set forth in the registration
statement, some parts of which have been omitted in accordance with the rules
and regulations of the SEC. Please refer to the
75
<PAGE> 81
registration statement and related exhibits and schedules filed therewith for
further information with respect to us and the registered notes offered by this
prospectus. Statements contained herein concerning the provisions of any
document are not necessarily complete and, in each instance, reference is made
to the copy of such document filed as an exhibit to the registration statement
or otherwise filed by us with the SEC and each such statement is qualified in
its entirety by such reference.
You may read and copy any document we file at the SEC's public reference
rooms located at 450 5th Street, N.W., Washington, D.C. 20549, at Seven World
Trade Center, 13th Floor, New York, New York 10048 and at Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public from
commercial document retrieval services and at the web site maintained by the SEC
at: http://www.sec.gov.
The SEC allows us to "incorporate by reference" some of the documents that
we file with it into this prospectus, which means:
- incorporated documents are considered part of this prospectus;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below, which were filed
with the SEC under the Securities Exchange Act of 1934:
- our annual report on Form 10-K for the year ended December 31, 1999;
- our quarterly reports on Form 10-Q for the periods ended March 31, 2000
and June 30, 2000; and
- our current reports on Form 8-K filed on (1) May 17, 1999, as amended on
July 16, 1999, (2) August 6, 1999, as amended on October 5, 1999, (3)
September 20, 1999, as amended on November 12, 1999, (4) February 4,
2000, (5) April 18, 2000, (6) August 1, 2000 and (7) September 1, 2000.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus:
- any reports filed under Sections 13(a) and (c) of the Securities Exchange
Act;
- definitive proxy or information statements filed under Section 14 of the
Securities Exchange Act in connection with any subsequent stockholders'
meetings; and
- any reports filed under Section 15(d) of the Securities Exchange Act.
You should rely only on the information provided in this prospectus or any
prospectus supplement. We have not authorized anyone else to provide you with
different information. We may not make an offer of the registered notes in any
state where the offer is not permitted. The delivery of this prospectus does
not, under any circumstances, mean that there has not been a change in our
affairs since the date of this prospectus. It also does not mean that the
information in this prospectus is correct after this date. You may request a
copy of any filings referred to above (excluding exhibits), at no cost, by
contacting us at the following address:
RailAmerica, Inc.
5300 Broken Sound Boulevard, N.W.
Boca Raton, Florida 33487
(561) 994-6015
Attn: Donald D. Redfearn, Secretary
76
<PAGE> 82
LEGAL MATTERS
The validity of the registered notes offered hereby will be passed upon by
Greenberg Traurig, P.A., Miami, Florida.
EXPERTS
The financial statements as of December 31, 1998 and 1999 and for the three
years in the period ended December 31, 1999, included in this prospectus and
incorporated by reference from RailAmerica's Annual Report on Form 10-K in this
prospectus, except as they relate to Empresa De Transporte Ferrovario S.A., have
been audited by PricewaterhouseCoopers LLP, independent accountants, and,
insofar as they relate to Empresa De Transporte Ferrovario S.A. as of December
31, 1998 and 1999 and for the years then ended, by Arthur Andersen Langton
Clarke, independent accountants. Such financial statements have been so included
in reliance on the reports of such independent accountants given on the
authority of such firms as experts in accounting and auditing.
The financial statements of V/Line Freight Corporation as of June 30, 1998
and for the year then ended, incorporated into this prospectus by reference from
RailAmerica's Current Report on Form 8-K/A, dated July 16, 1999, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The financial statements of RaiLink Ltd. as of December 31, 1998 and for
the year then ended, incorporated into this prospectus by reference from
RailAmerica's Current Report on Form 8-K/A, dated October 5, 1999, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The financial statements of The Toledo, Peoria and Western Railroad
Corporation as of December 31, 1998 and for the year then ended, incorporated
into this prospectus by reference from RailAmerica's Current Report on Form
8-K/A, dated November 12, 1999, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon, and are incorporated
in reliance upon such report, given on the authority of such firm as experts in
accounting and auditing.
The financial statements and schedules of RailTex included in this
prospectus and incorporated by reference in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
77
<PAGE> 83
INDEX OF FINANCIAL STATEMENTS
The following consolidated financial statements of RailAmerica, Inc. and
its subsidiaries and of RailTex, Inc. and its subsidiaries are included in this
prospectus:
<TABLE>
<CAPTION>
PAGES
-----------
<S> <C>
RAILAMERICA, INC.
Report of Independent Certified Public Accountants.......... F-2
Consolidated Balance Sheets -- December 31, 1999 and 1998... F-4
Consolidated Statements of Income -- For the Years Ended
December 31, 1999, 1998 and 1997.......................... F-5
Consolidated Statement of Stockholders' Equity -- For the
Years Ended December 31, 1999, 1998 and 1997.............. F-6
Consolidated Statements of Cash Flows -- For the Years Ended
December 31, 1999, 1998 and 1997.......................... F-8
Notes to Consolidated Financial Statements.................. F-9 - F-39
Consolidated Balance Sheets -- June 30, 2000 and December
31, 1999 (unaudited)...................................... F-40
Consolidated Statements of Income -- For the three and six
months ended June 30, 2000 and 1999 (unaudited)........... F-41
Consolidated Statement of Stockholders' Equity -- For the
six months ended June 30, 2000 (unaudited)................ F-42
Consolidated Statements of Cash Flows -- For the six months
ended June 30, 2000 and 1999 (unaudited).................. F-43
Notes to Consolidated Financial Statements.................. F-44 -F-52
RAILTEX, INC.
Report of Independent Public Accountants.................... F-53
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997.......................... F-54
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-55
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999, 1998 and 1997.............. F-56
Consolidated Statements of Cash Flows -- For the Years Ended
December 31, 1999, 1998 and 1997.......................... F-57
Notes to Consolidated Financial Statements.................. F-58 - F-86
</TABLE>
F-1
<PAGE> 84
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
RailAmerica, Inc.
In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of income, stockholders' equity and cash flows present fairly, in all material
respects, the financial position of RailAmerica, Inc. and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of Empresa De
Transporte Ferroviario S.A., a 55% owned subsidiary of the Company, which
statements reflect total assets of $87,555,000 and $74,306,000 as of December
31, 1999 and 1998, respectively, and total revenues of $19,115,000 and
$15,312,000 for the years ended December 31, 1999 and 1998. Those statements
were audited by other auditors whose report thereon has been furnished to us,
and our opinion expressed herein, insofar as it relates to the amounts included
for Empresa De Transporte Ferroviario S.A., is based solely on the report of the
other auditors. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Ft. Lauderdale, Florida
March 15, 2000
F-2
<PAGE> 85
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Ferronor S.A.:
We have audited the balance sheets of Empresa de Transporte Ferroviario S.A
("Ferronor") as of December 31, 1999 and 1998, and the related statements of
income and cash flows for the years ended December 31, 1999 and 1998 and for the
ten-month period ended December 31, 1997. These financial statements (not
included separately herein) are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards in Chile, which are substantially consistent with those followed in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and the significant
estimates made by the management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respect, the financial position of Ferronor as of December 31,
1999 and 1998 and the results of its operations and its cash flow for the years
ended December 31, 1999 and 1998 and for the ten-month period ended December 31,
1997 in conformity with generally accepted accounting principles in the United
States of America.
Charles A. Bunce ARTHUR ANDERSEN -- LANGTON CLARKE
February 4, 2000
Santiago, Chile
F-3
<PAGE> 86
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 11,597,540 $ 5,085,402
Accounts and notes receivable............................. 40,856,772 7,733,238
Inventories............................................... 9,928,789 3,647,885
Other current assets...................................... 3,500,166 1,480,637
Net assets of discontinued operation...................... 14,995,915 13,882,586
------------ ------------
Total current assets.............................. 80,879,182 31,829,748
Property, plant and equipment, net.......................... 347,617,262 91,875,650
Notes receivable, less current portion...................... 2,122,843 1,284,200
Investment in affiliates.................................... 4,666,776 1,938,942
Other assets................................................ 8,642,071 4,035,372
------------ ------------
Total assets...................................... $443,928,134 $130,963,912
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 17,811,326 $ 3,557,430
Accounts payable.......................................... 23,731,732 7,004,497
Accrued expenses.......................................... 15,379,461 2,775,962
------------ ------------
Total current liabilities......................... 56,922,519 13,337,889
------------ ------------
Long-term debt, less current maturities..................... 145,016,269 62,769,869
Subordinated debt........................................... 100,000,000 --
Convertible subordinated debt............................... 22,448,642 --
Other liabilities........................................... 16,374,169 427,288
Deferred income taxes....................................... 15,382,013 4,848,869
Minority interest........................................... 9,488,693 7,937,992
Commitments and contingencies
Redeemable convertible preferred stock, $0.01 par value, $25
liquidation value, 1,000,000 shares authorized; 378,400
and 300,600 outstanding, respectively..................... 8,829,844 6,881,684
Stockholders' equity:
Common stock, $0.001 par value, 30,000,000 shares
authorized; 12,610,725 issued and 11,894,136
outstanding at December 31, 1999; 10,207,477 issued and
9,631,188 outstanding at December 31, 1998............. 12,611 10,207
Additional paid-in capital................................ 52,304,578 28,277,533
Retained earnings......................................... 18,170,824 9,285,122
Accumulated other comprehensive income.................... 3,485,717 470,820
Treasury stock (716,589 and 576,289 shares, respectively,
at cost)............................................... (4,507,745) (3,283,361)
------------ ------------
Total stockholders' equity........................ 69,465,985 34,760,321
------------ ------------
Total liabilities and stockholders' equity........ $443,928,134 $130,963,912
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 87
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Operating revenues:
Transportation -- railroad........................... $118,910,941 $30,303,562 $22,023,717
Other................................................ 6,461,383 2,700,421 2,472,188
Motor Carrier........................................ -- 4,252,329 --
------------ ----------- -----------
Total operating revenue...................... 125,372,324 37,256,312 24,495,905
------------ ----------- -----------
Operating expenses:
Transportation -- railroad........................... 75,375,742 15,702,487 12,502,153
Selling, general and administrative.................. 19,549,612 9,075,571 6,840,467
Depreciation and amortization........................ 9,179,239 2,543,115 1,788,594
Motor Carrier........................................ -- 4,438,039 --
------------ ----------- -----------
Total operating expenses..................... 104,104,593 31,759,212 21,131,214
------------ ----------- -----------
Operating income................................ 21,267,731 5,497,100 3,364,691
Interest and other expense............................. (20,490,358) (4,944,113) (3,641,164)
Other income........................................... 6,012,072 232,070 1,000,382
Minority interest in income of subsidiary.............. (1,550,700) (1,671,750) (851,243)
------------ ----------- -----------
Income from continuing operations before income
taxes........................................ 5,238,745 (886,693) (127,334)
Provision for income taxes............................. (786,979) (1,000,000) (415,000)
------------ ----------- -----------
Income from continuing operations............... 6,025,724 113,307 287,666
Discontinued operations:
Estimated loss on disposal of discontinued segments
(net of income tax benefit of $277,000)........... -- -- (452,402)
Income from operations of discontinued segments (less
applicable income tax provisions of $2,300,000,
$2,500,000, and $1,200,000)....................... 3,895,512 4,287,842 2,103,935
------------ ----------- -----------
Net income................................... $ 9,921,236 $ 4,401,149 $ 1,939,199
============ =========== ===========
Net income available to common stockholders............ $ 8,885,702 $ 4,401,149 $ 1,939,199
============ =========== ===========
Basic earnings per common share
Continuing operations............................. $ 0.45 $ 0.01 $ 0.02
Discontinued operations........................... 0.35 0.45 0.21
------------ ----------- -----------
Net income................................... $ 0.80 $ 0.46 $ 0.23
============ =========== ===========
Diluted earnings per common share
Continuing operations............................. $ 0.43 $ 0.01 $ 0.02
Discontinued operations........................... 0.34 0.44 0.20
------------ ----------- -----------
Net income................................... $ 0.77 $ 0.45 $ 0.22
============ =========== ===========
Weighted average common shares outstanding:
Basic............................................. 11,089,614 9,552,866 8,303,938
============ =========== ===========
Diluted........................................... 11,664,871 9,777,866 8,586,938
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 88
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
-------------------------------------------------------------
NUMBER OF ADDITIONAL COMMON
SHARES PAR PAID-IN STOCK RETAINED
ISSUED VALUE CAPITAL SUBSCRIBED EARNINGS
---------- ------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997............. 6,125,410 $ 6,125 $11,773,036 $2,340,000 $ 2,944,774
Net income......................... -- -- -- -- 1,939,199
Issuance of common stock........... 1,720,627 1,721 7,163,206 (2,340,000) --
Treasury stock received for sale of
subsidiaries.................... -- -- -- -- --
Stock incentive plan issuance...... -- -- -- -- --
Exercise of stock options.......... 202,933 203 747,837 -- --
Exercise of warrants............... 1,080,594 1,081 3,666,653 -- --
Cumulative translation............. -- -- -- -- --
---------- ------- ----------- ---------- -----------
Balance, December 31, 1997........... 9,129,564 9,130 23,350,732 -- 4,883,973
Net income......................... -- -- -- -- 4,401,149
Other comprehensive income.........
Cumulative translation............. -- -- -- -- --
Total comprehensive income
Issuance of common stock........... 138,786 138 677,039 -- --
Purchase of treasury stock......... -- -- -- -- --
Exercise of stock options.......... 237,950 238 870,637 -- --
Tax benefit exercise of options.... -- -- 178,000 -- --
Exercise of warrants............... 167,000 167 934,501 -- --
Conversion of debt................. 534,177 534 2,266,624 -- --
---------- ------- ----------- ---------- -----------
Balance, December 31, 1998........... 10,207,477 10,207 28,277,533 -- 9,285,122
Net income......................... -- -- -- -- 9,921,236
Other comprehensive income.........
Cumulative translation............. -- -- -- -- --
Total comprehensive income
Issuance of common stock........... 1,437,888 1,438 12,027,787 -- --
Purchase of treasury stock......... -- -- -- -- --
Exercise of stock options.......... 141,168 141 580,669 -- --
Tax benefit exercise of options.... -- -- 152,000 -- --
Conversion of debt................. 563,520 564 3,332,268 -- --
Conversion of preferred stock...... 260,672 261 2,006,244 -- --
Issuance of warrants............... -- -- 5,928,077 -- --
Preferred stock dividends and
accretion....................... -- -- -- -- (1,035,534)
---------- ------- ----------- ---------- -----------
Balance, December 31, 1999........... 12,610,725 $12,611 $52,304,578 $ -- $18,170,824
========== ======= =========== ========== ===========
</TABLE>
(continued)
F-6
<PAGE> 89
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
------------------------------------------
OTHER
COMPREHENSIVE TREASURY
INCOME STOCK TOTAL
------------- ----------- -----------
<S> <C> <C> <C>
Balance, January 1, 1997............................. $ 67,441 $(1,139,269) $15,992,107
Net income......................................... -- -- 1,939,199
Issuance of common stock........................... -- -- 4,824,927
Treasury stock received for sales of
subsidiaries.................................... -- (479,629) (479,629)
Stock incentive plan issuance...................... -- 173,516 173,516
Exercise of stock options.......................... -- -- 748,040
Exercise of warrants............................... -- -- 3,667,734
Cumulative translation............................. (52,068) -- (52,068)
----------- ----------- -----------
Balance, December 31, 1997........................... 15,373 (1,445,382) 26,813,826
Net income......................................... -- -- 4,401,149
Other comprehensive income.........................
Cumulative translation............................. 455,447 455,447
-----------
Total comprehensive income................. 4,856,596
-----------
Issuance of common stock........................... -- -- 677,177
Purchase of treasury stock......................... -- (1,837,979) (1,837,979)
Exercise of stock options.......................... -- -- 870,875
Tax benefit exercise of options.................... -- -- 178,000
Exercise of warrants............................... -- -- 934,668
Conversion of debt................................. -- -- 2,267,158
----------- ----------- -----------
Balance, December 31, 1998........................... 470,820 (3,283,361) 34,760,321
Net income......................................... -- -- 9,921,236
Other comprehensive income.........................
Cumulative translation............................. 3,014,897 -- 3,014,897
-----------
Total comprehensive income................. 12,936,133
-----------
Issuance of common stock........................... -- -- 12,029,225
Purchase of treasury stock......................... -- (1,224,384) (1,224,384)
Exercise of stock options.......................... -- -- 580,810
Tax benefit exercise of options.................... -- -- 152,000
Conversion of debt................................. -- -- 3,332,832
Conversion of preferred stock...................... -- -- 2,006,505
Issuance of warrants............................... -- -- 5,928,077
Preferred stock dividends and accretion............ -- -- (1,035,534)
----------- ----------- -----------
Balance, December 31, 1999........................... $ 3,485,717 $(4,507,745) $69,465,985
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE> 90
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 9,921,236 $ 4,401,149 $ 1,939,199
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 14,133,502 4,156,546 3,053,728
Minority interest in income of subsidiary............. 1,550,701 1,671,750 851,243
Equity interest in earnings of affiliate.............. (230,109) -- --
Gain on insurance settlement.......................... (4,069,278) -- --
Loss (gain) on sale or disposal of properties......... 118,426 (76,791) (608,380)
Write-off of excess of costs over net assets.......... -- -- 729,681
Write-off of deferred acquisition costs............... 38,855 176,179 76,292
Deferred income taxes................................. 3,401,804 912,967 382,122
Employee stock grants................................. -- -- 15,188
Forgiveness of debt................................... -- (32,809) --
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
Accounts receivable................................ (2,246,205) (885,983) (3,037,697)
Inventories........................................ (2,270,833) (6,921,847) (1,294,501)
Other current assets............................... (1,830,526) (1,157,666) 124,247
Accounts payable................................... 3,243,680 2,410,602 (606,499)
Accrued expenses................................... 3,326,059 720,498 714,409
Other liabilities.................................. (2,294,441) -- --
Deposits and other................................. (1,292,753) 368,476 (47,264)
------------ ------------ ------------
Net cash provided by operating activities........ 21,500,118 5,743,071 2,291,768
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment................. (51,391,127) (28,128,546) (7,455,848)
Proceeds from sale of properties.......................... 165,610 1,806,127 331,654
Proceeds from sale of equity interest..................... 998,441 -- --
Acquisitions, net of cash acquired........................ (8,453,218) (1,757,033) (7,389,903)
Deposit on purchase agreement............................. -- (1,962,067) --
Investment in Great Southern Railway...................... -- -- (596,665)
Loan receivable from Great Southern Railway............... -- -- (1,193,330)
Cash held in discontinued................................. (656,367) (674,468) (472)
Deferred acquisition costs and other...................... 638,881 (612,956) (457,168)
------------ ------------ ------------
Net cash used in investing activities............ (58,697,780) (31,328,943) (16,761,732)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................. 182,085,208 56,006,737 31,453,500
Principal payments on long-term debt...................... (150,182,917) (35,723,969) (25,449,364)
Sale of convertible preferred stock....................... 4,095,000 7,515,000 --
Sale of common stock...................................... 11,868,058 1,032,168 8,163,962
Proceeds from exercise of stock options................... 580,810 870,875 748,041
Preferred stock dividends paid............................ (843,024) -- --
Purchase of treasury stock................................ (1,224,384) (1,837,979) --
Deferred financing costs paid............................. (333,400) (603,549) (286,724)
Deferred loan costs paid.................................. (2,421,445) (333,071) (294,361)
------------ ------------ ------------
Net cash provided by financing activities........ 43,623,906 26,926,212 14,335,054
------------ ------------ ------------
Effect of exchange rates on cash............................ 85,894 -- --
------------ ------------ ------------
Net increase (decrease) in cash............................. 6,512,138 1,340,340 (134,910)
Cash, beginning of period................................... 5,085,402 3,745,062 3,879,972
------------ ------------ ------------
Cash, end of period......................................... $ 11,597,540 $ 5,085,402 $ 3,745,062
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE> 91
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
RailAmerica, Inc. and all of its majority-owned subsidiaries (the "Company").
All significant inter-company balances and transactions have been eliminated.
Certain prior period amounts have been reclassified to conform to the 1999
presentation. The Company announced a plan to sell its trailer manufacturing
operation during 1999 and it is included as a discontinued operation for all
periods reported in these consolidated financial statements.
All of RailAmerica's consolidated subsidiaries are wholly owned except
Empresa de Transporte Ferrovario, S.A. ("Ferronor") in which the Company has a
55% equity interest. In accordance with the Shareholders' Agreement between
RailAmerica and Andres Pirrazzoli y Cia, Ltda ("APCO"), RailAmerica controls the
appointment of a majority of the Board of Directors of Ferronor, including the
Chairman. APCO maintains certain minority rights under the shareholders
Agreement, such as the right to request the General Manager's removal under
certain circumstances. The Company considered these minority rights in
determining whether to consolidate Ferronor and has concluded that consolidation
is appropriate based upon the Company's ownership position, and its level of
control of the Board of Directors and senior management.
In July 1999, the Company acquired a 26.3% equity interest in Quebec
Railway Corporation ("QRC") as part of its RaiLink acquisition. The Company
accounts for the investment using the equity method of accounting.
The Company's principal operations include rail transportation in North
America, Chile and Australia. The Company hauls varied products for its
customers corresponding to their local operating areas, primarily paper and
forest products and agricultural commodities in North America, agricultural
commodities in Australia and iron ore and nitrates in Chile.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
INVENTORIES
Inventories, which are recorded at cost, consist of replacement or repair
parts for equipment and track that are charged to property, plant and equipment
when utilized.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased with a
maturity of three months or less at the date of purchase to be cash equivalents.
CONCENTRATION OF CREDIT RISK
The Company maintains its cash in demand deposit accounts which at times
may exceed FDIC insurance limits. As of December 31, 1999, the Company had
approximately $3.4 million of cash in excess of FDIC insurance limits.
F-9
<PAGE> 92
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at historical cost. Costs
assigned to property purchased as part of an acquisition are based on the fair
value of such assets on the date of acquisition. Improvements are capitalized,
and expenditures for maintenance and repairs are charged to operations as
incurred. Gains or losses on sales and retirements of properties are included in
the determination of the results of operations.
Depreciation has been computed using the straight-line method based on
estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 20-33 years
Railroad track and improvements............................. 3-40 years
Locomotives, transportation and other equipment............. 5-20 years
Office equipment............................................ 5-10 years
</TABLE>
INCOME TAXES
The Company utilizes the liability method of accounting for deferred income
taxes. This method requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the difference between the financial and
tax bases of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. Deferred tax assets are
also established for the future tax benefits of loss and credit carryovers. The
liability method of accounting for deferred income taxes requires a valuation
allowance against deferred tax assets if, based on the weight of available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.
REVENUE RECOGNITION
Transportation -- The Company recognizes transportation revenue after
services are provided. For the years ended December 31, 1999, 1998 and 1997,
approximately 27%, 62% and 59%, respectively, of the Company's North American
railroad transportation revenue was derived from interchanging with BNSF and for
the years ended December 31, 1999, 1998 and 1997, and approximately 14%, 30% and
32%, respectively, from interchanging with CSX. For the year ended December 31,
1999, approximately 19% and 25% of the Company's North American transportation
revenue was derived from interchanging with Canadian National Railroad and
Canadian Pacific Railroad, respectively. The Company had two customers in Chile
who each represented more than 10% of the Chilean transportation revenue and two
costumers in Australia which represented 21% and 19%, respectively, of the
Australian transportation revenue.
Commercial Trailer Sales -- The Company's discontinued trailer
manufacturing operations recognize revenue from the commercial sale of trailers
when title and risk of ownership are transferred to the customer, which
generally is upon shipment or customer pick-up. In certain instances prior to
shipment or customer pick-up, the Company receives full payment for a trailer.
At that time, the Company issues a certificate of title or statement of origin
to the customer and revenue is recognized. In these cases, the customer has made
a fixed, written commitment to purchase, the trailer has been completed and is
available for pick-up or delivery, and the customer has requested the Company to
hold the trailer until the customer determines the most economical means of
taking possession. In such cases, the Company has no further obligation except
to segregate the trailer and hold it for a short period of time, as is customary
in the industry, generally less than one month, until pick-up or delivery.
Trailers are built to customer specifications and no right of return or exchange
privileges are granted.
Governmental Trailer Sales -- The Company's discontinued trailer
manufacturing operations recognize revenue from the sale of trailers to
governmental agencies when title and risks of ownership are transferred,
F-10
<PAGE> 93
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which is upon completion, inspection and acceptance of trailers by the
governmental agency. At that time, the governmental agency has made a fixed
written commitment to purchase in the form of a contract, the trailer has been
completed and is available for pick-up or delivery, and the governmental agency
has requested the Company to hold the trailer until the governmental agency
determines the appropriate means of taking possession. The Company has no
further obligation except to segregate the trailer and hold it for a short
period of time, as is customary in the industry, generally less than one month,
until pick-up or delivery. The trailers are built to the government's
specifications pursuant to a written contract and are inspected and accepted for
delivery by the governmental agency. The contract terms provide for prepayments
by the government of up to 90% of the trailer's cost. These prepayments are
recorded as advances against the inventory. Sales to governmental agencies
represented 23%, 35% and 37% of the Company's manufacturing revenue for the
years ended December 31, 1999, 1998 and 1997, respectively.
FOREIGN CURRENCY TRANSLATION
The financial statements and transactions of the Company's foreign
operations are maintained in their functional currency. Assets and liabilities
are translated at current exchange rates in effect at the balance sheet date.
Translation adjustments, which result from the process of translating the
financial statements into United States dollars, are accumulated in the
cumulative translation adjustment account, which is a component of accumulated
other comprehensive income. Revenues and expenses are translated at the average
exchange rate for each period. Gains and losses from foreign currency
transactions are included in net income. The aggregate gain on foreign currency
translation for 1999 was $0.7 million. As a result of a decline in the value of
the Australian dollar against the U.S. dollar, the Company recorded a
transaction loss of approximately $2.6 million during the first quarter of
fiscal year 2000.
During 1999, Ferronor changed its functional currency from the Chilean Peso
to the U.S. dollar, as the U.S. dollar has become more representative of the
primary economic environment in which Ferronor operates. Factors influencing
this change include the Ferronor's cash flows, sales price, sales market and
financing indicator considerations. This change has been accounted for
prospectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133 requires all derivatives to be measured at fair
value and recognized at either assets or liabilities on the balance sheet.
Furthermore, the accounting for changes in the fair value of a derivative (i.e.
gains and losses) depends on the intended use of the derivative.
2. EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted average number of
common shares outstanding during the year. For the year ended December 31, 1999,
income from continuing operations is reduced by preferred stock dividends and
accretion for the basic earnings per share computation.
Diluted earnings per share is calculated using the sum of the weighted
average number of common shares outstanding plus potentially dilutive common
shares arising out of stock options and warrants. Options and warrants totaling
1.8 million were excluded from the diluted earnings per share calculation as the
exercise prices of these options and warrants were greater than the average
market price of the Common Stock. Assumed conversion of $26.5 million of
convertible debt and the convertible preferred stock are anti-dilutive and are
not included in the calculation.
F-11
<PAGE> 94
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the net income available for common
stockholders and weighted average shares for the diluted calculation (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Income from continuing operations......................... $6,026 $ 113 $ 288
Preferred stock dividends and accretion................... (1,036) -- --
Interest on convertible debt.............................. 42 -- --
------ ------ ------
Income available to common stockholders................... $5,032 $ 113 $ 288
====== ====== ======
Weighted average shares outstanding....................... 11,090 9,553 8,304
Assumed conversion of options and warrants................ 379 225 283
Assumed conversion of convertible debt.................... 196 -- --
------ ------ ------
Weighted average shares outstanding....................... 11,665 9,778 8,587
====== ====== ======
</TABLE>
3. DISCONTINUED OPERATIONS
In November 1999, the Company adopted a plan to sell its trailer
manufacturing operations. This business has been accounted for as a discontinued
operation and the results of operations have been excluded from continuing
operations in the consolidated statements of operations for all periods
presented.
Total revenue for the trailer manufacturing segment was $44.3 million,
$39.9 million and $22.9 million for the years ended December 31, 1999, 1998 and
1997, respectively. Income before income taxes for the trailer manufacturing
segment was $6.2 million, $6.9 million and $3.7 million for the years ended
December 31, 1999, 1998 and 1997, respectively. Total assets in this division as
of December 31, 1999 and 1998 were $28.8 million and $28.1 million respectively.
Total liabilities in this division as of December 31, 1999 and 1998 were $13.9
million and $14.3 million, respectively.
In March 1997, the Company adopted a formal plan to discontinue its motor
carrier division. The motor carrier division consists of Steel City Carriers and
RailAmerica Intermodal Services, both wholly-owned subsidiaries of the Company.
During the fourth quarter of 1997, the Company re-evaluated the carrying amount
of Steel City Carriers' assets and recorded an impairment charge of
approximately $730,000. This amount was determined based on what the Company
believes it will recover through the final disposition of the remaining assets.
Operating results of the discontinued operations, as shown below, include
the operations of the Motor Carrier segment for the three months ended March 31,
1998 and the year ended December 31, 1997. The motor carrier operations have
been included in continuing operations for the nine months ended December 31,
1998, since the disposition of the segment was not completed by April 1998.
Effective December 1, 1998, the Company ceased all motor carrier operations
and leased substantially all of the operating assets of Steel City Carriers,
Ltd. to Laidlaw Carriers, Inc., an operating subsidiary of Ontario, Canada-based
Contrans Corporation. The leases are for a period of 18 to 24 months. In
addition, the Company has entered into an agreement to sell its Ontario real
estate that was previously used in its motor carrier operations.
Total revenue for the motor carrier segment was $1.8 million and $7.1
million for the three months ended March 31, 1998 and year ended December 31,
1997, respectively. Loss before income taxes for the motor carrier segment was
$0.1 million and $1.1 million for the three months ended March 31, 1998 and year
ended December 31, 1997, respectively.
F-12
<PAGE> 95
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACQUISITIONS
On September 3, 1999, the Company, through its wholly-owned subsidiary,
Florida Rail Lines, Inc., completed the acquisition of all the outstanding
common stock of The Toledo, Peoria and Western Railroad Corporation ("TPW") from
CSX Transportation, Delaware Ostego Corporation, and other shareholders for an
aggregate purchase price of $18 million (including the repayment of
indebtedness), subject to certain adjustments. The Company funded the
acquisition through its revolving line of credit. TPW is headquartered in East
Peoria, Illinois and provides rail freight services to customers in the midwest
United States and operates over rail lines running from Fort Madison, Iowa
across North Central Illinois to Logansport, Indiana. TPW has certain unsettled
litigation and contingencies outstanding whose ultimate outcome will impact the
purchase price allocation.
On July 26, 1999, the Company acquired approximately 98% of the outstanding
shares of RaiLink Ltd ("RaiLink"). Through the Company's wholly-owned Canadian
subsidiary, RL Acquisition Corp., the Company commenced an all cash-bid in May
1999 for all of the common shares of RaiLink at a price of CDN$8.75 per share
pursuant to a Pre-Acquisition Agreement dated May 17, 1999 between the Company
and RaiLink. RaiLink had approximately 8.36 million common shares outstanding on
a fully diluted basis, giving the transaction an equity value of approximately
CDN$73.2 million (approximately USD$49.8 million). As more than 90% of the
outstanding shares were acquired under the offer, the Company acquired the
remainder of the shares pursuant to the compulsory acquisition provisions of
applicable Canadian law. A portion of the accrued liabilities assumed
represented severance costs which the Company has accrued in accordance with
EITF No. 95-3, "Recognition of Liabilities in Connection with a Purchase
Business Combination." RaiLink is a regional railway company based in Edmonton,
Alberta and provides freight transportation services to the national railways of
Canada and to a wide variety of shippers. RaiLink and its 26.3% owned affiliate,
Quebec Railway Corporation, currently operate 11 regional railways covering
approximately 2,500 miles of track in Alberta, the Northwest Territories,
Ontario, Quebec and New Brunswick. A portion of the funding for the transaction
was provided by a consortium of banks with National Bank of Canada, as agent,
through the Company's revolving line of credit. The balance of the funding came
from a private offering of the Company's junior convertible subordinated debt.
On April 30, 1999, the Company, through its wholly owned Australian
subsidiary, Freight Victoria Limited ("Freight Victoria"), completed the
acquisition of the assets and liabilities comprising the railroad freight
business of V/Line Freight Corporation ("VLF"), a corporation established by the
Government of the State of Victoria, Australia. VLF was established in March
1997 as part of Victoria's public transportation privatization process and
assumed many of the activities formerly carried out by the V/Line Freight
business unit of the Public Transportation Corporation of the Government of
Victoria.
Under the Sale of Assets Agreement (the "Agreement") dated February 22,
1999 by and between the Company, Freight Victoria and VLF, Freight Victoria
acquired all of the locomotives, wagons, motor vehicles, equipment, stock, spare
parts inventory and accounts receivable, certain business, brand and trade names
and trade marks, and the outstanding business contracts of VLF for a purchase
price of AUD$73.4 million in cash (approximately U.S.$49.0 million). The
purchase price has been allocated to assets acquired. In connection with the
acquisition, Freight Victoria also entered into other agreements, including a
primary infrastructure lease (the "Infrastructure Lease") with the Director of
Public Transport of Australia and various facilities leases, access agreements,
maintenance and service agreements and other miscellaneous agreements. Pursuant
to the Infrastructure Lease, Freight Victoria received a 45-year lease of the
non-electrified intrastate Victorian railway tracks and infrastructure.
Pursuant to certain other agreements, Freight Victoria is responsible for,
among other things, track and rolling stock maintenance, train control, access
to the railway infrastructure by other rail operators and safety and signaling.
Under a letter issued by Freight Victoria in connection with its bid for the VLF
business, Freight Victoria prepaid in cash the net present value of the rental
payments for the Infrastructure Lease
F-13
<PAGE> 96
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
totaling AUD$80.8 million (approximately U.S.$54.0 million). Freight Victoria
commenced operations of the rail-based freight business on May 1, 1999.
In August 1998, the Company, through its newly formed, wholly-owned
subsidiary, VCRR, entered into a long term lease/purchase agreement to operate a
13-mile rail line serving the Port of Hueneme and the Oxnard Harbor District in
Oxnard, California, located approximately 50 miles north of Los Angeles. VCRR's
operations commenced September 1, 1998 and are included in the results of
domestic rail operations as of that date.
In January 1998, the Company acquired, through its wholly-owned subsidiary
Kalyn, all of the outstanding stock of Canadian truck trailer manufacturer
Fabrex, Inc. and its affiliate, Services Remorques Plus, Inc. (collectively
"Fabrex") for approximately $1.5 million in cash and 70,000 shares of
RailAmerica common stock, $.001 par value ("Common Stock"), and assumption of
approximately $1.0 million of long-term debt. Fabrex's operations have been
combined into KSC, a wholly-owned subsidiary of Kalyn. Fabrex, a manufacturer of
specialty bulk-hauling truck trailers used in the solid waste, agricultural and
construction industries, was founded in 1985 and is located in Trois Rivieres,
Quebec.
On February 19, 1997, the Company acquired, through its wholly-owned
subsidiary, RailAmerica de Chile, S.A., a majority interest in Ferronor, a 1,400
mile railroad serving northern Chile. The Company was joined in the purchase of
Ferronor by Andres Pirrazzoli y Cia, Ltda ("APCO"). The purchase price paid by
RailAmerica/APCO for substantially all of the stock of Ferronor, was
approximately $12.3 million and was funded 55% by RailAmerica and 45% by APCO.
All of the above acquisitions were accounted for as purchases and their
results have been included since the date of acquisition. The following
unaudited pro forma summary presents the consolidated results of operations as
if the above referenced acquisitions had occurred at the beginning of 1999 and
1998 and do not purport to be indicative of what would have occurred had the
acquisitions been made as of those dates or of results which may occur in the
future. (In thousands except net income per share)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Operating revenue........................................... $187,607 $167,778
Income from continuing operations........................... $ 5,262 $ 46
Earnings per share -- continuing operations
Basic..................................................... $ 0.37 $ (0.09)
Diluted................................................... $ 0.36 $ (0.09)
</TABLE>
The significant adjustments related to the above years represent the
inclusion of revenue on new agreements, elimination of certain operating costs,
elimination of costs related to the acquisitions, inclusion of depreciation
differences on the revaluation of property, plant and equipment, additional
interest expense based on an increase in long-term obligations, amortization of
intangible assets and the related income tax effects.
5. GREAT SOUTHERN RAILWAY LIMITED
On October 31, 1997, the Company acquired a minority interest, of
approximately 11.4%, in the Great Southern Railway Limited ("GSR"). GSR
completed the acquisition of the assets and business comprising the passenger
rail service of the Australian National Railway Commission. The Company has
invested $0.6 million in equity of GSR, $1.2 million in uncollateralized
subordinated notes (the "Notes"). The Company sold both its interest in the
equity of GSR and the Notes to the majority shareholder of GSR in October 1999.
The Company received $0.9 million in cash and a note for $1.3 million due March
15, 2000. A gain of $0.3 million is included in the 1999 consolidated statement
of income. The remaining note is included in current assets in the consolidated
balance sheet as of December 31, 1999 and was paid in March 2000.
F-14
<PAGE> 97
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following as of December 31,
1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Land........................................................ $ 34,345 $19,301
Buildings and improvements................................ 8,683 5,275
Railroad track and improvements........................... 186,670 44,700
Locomotives, transportation and other equipment........... 135,309 31,104
-------- -------
365,007 100,380
Less accumulated depreciation............................. 17,390 8,504
-------- -------
$347,617 $91,876
======== =======
</TABLE>
Depreciation expense was approximately $9.2 million, $3.0 million and $1.8
million for the years ended December 31, 1999, 1998 and 1997, respectively.
In January 1999, the Company through a newly formed subsidiary E&N Railway
Company Ltd. ("ENR") acquired certain assets of the Esquimalt and Nanaimo
Railway ("E&N") from the Canadian Pacific Railway ("CPR"). The transaction
included the purchase of a 68-mile section of rail line between Port Alberni,
British Columbia and Nanaimo, British Columbia and the lease of a 113-mile
section of rail line from Victoria-to-Nanaimo and from Parksville-to-Courtenay
on British Columbia's Vancouver Island. The purchase of the assets of the E&N
Railway accounted for approximately $10.8 million of fixed asset additions for
year ended December 31, 1999.
7. INVESTMENT IN AFFILIATE
As of December 31, 1999, the Company's recorded investment in QRC was $4.7
million and the Company's underlying equity in net assets of QRC was $4.5
million. The difference is treated as goodwill and is being amortized over a 20
year period. The Company recorded $0.2 million in income, net of amortization,
from this investment in the consolidated statement of operations for 1999.
8. OTHER ASSETS
Other assets consist of the following as of December 31, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Deferred loan costs, net.................................. $6,657 $ 608
Deposits and other........................................ 1,985 3,427
------ ------
$8,642 $4,035
====== ======
</TABLE>
Deferred loan costs are being amortized utilizing the interest method over
the term of the respective term loans.
9. RELATED PARTY TRANSACTIONS
First London Securities Corporation ("First London"), of which Douglas
Nichols, a director of the Company, is President and principal shareholder,
served as the exclusive placement agent for the Company's private placement
which had a final close in January 1999. A portion of the private placement was
received by the Company and closed in December 1998 (see Note 13 Redeemable
Preferred stock). First London received a total of $0.8 million in placement
fees and cost reimbursements during December 1998 and the
F-15
<PAGE> 98
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
first quarter of 1999 on this transaction and two-year warrants to purchase
140,727 shares of Common Stock at an exercise price of $8.25 per share.
During 1997, the Company sold all the outstanding stock of its wholly-owned
subsidiary Gettysburg Scenic Rail Tours, Inc. ("GSRT"), certain railroad
equipment and substantially all the assets of Gettysburg Railway ("GBR") to a
company owned by its Vice Chairman. The sale price for GSRT and the railroad
equipment was $0.5 million, which consisted of cash of $0.1 million and 62,602
shares of the Company's common stock valued at $0.4 million. A gain of
approximately $0.2 million was recognized on the transaction and is included in
other income (expense) in the consolidated income statement for 1997. The sale
price for substantially all of the assets of GBR was $1.45 million, which
consisted of cash of $0.3 million, an $0.8 million promissory note due June 30,
1998 and a $0.35 million mortgage note, at an interest rate of 8.5% with a
maturity of June 30, 2003. The promissory note and mortgage note are
collateralized by the land, buildings and track assets of Gettysburg Railway. A
gain of approximately $0.2 million was recognized on the transaction and is
included in other operating income in the consolidated income statement. The
$800,000 promissory notes maturity date was extended until June 2000.
As of December 31, 1999, $1.15 million of notes receivable from related
parties is included in notes receivable, less current portions on the
consolidated balance sheet.
F-16
<PAGE> 99
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Revolving line of credit. See below......................... $121,005 $44,207
Various equipment notes, with interest imputed at rates from
8.12% to 11.63%, due in fixed monthly installments of $114
(including interest) with varying maturities through
November 2004. Certain equipment serves as collateral..... 3,381 4,457
Burlington Northern Santa Fe ("BNSF") rail facilities
installment purchase obligation, annual payments of $250,
including interest at 10%, maturing in October 2116. If
car loads at OTVR fall below 7,250 in a year, BNSF will
credit payments on this debt at a rate of $250 per car.... 2,139 2,139
Credit facilities with various financial institutions,
ranging in monthly interest rates from 0.77% to 1.495%,
maturing from 30 to 90 days............................... 4,180 1,481
Credit facilities with Banco de Desarrollo, see below....... 10,261 7,782
Credit facility with Banco Security, interest rate of
0.0928% monthly........................................... 5,102 --
Note payable to Compania Minera del Pacifico, bearing
interest at LIBOR plus 2.5% due in monthly installments
(including interest)maturing in 2003. Certain Ferronor
assets serve as collateral................................ 1,765 2,822
Mortgage note payable, bearing interest at 7.85%, due in
fixed monthly installments of $46 (including interest),
with a final payment of $4,827 in January 2010. Corporate
office building serves as collateral...................... 6,000 --
Debenture payable, interest at 6.5%, maturing December 31,
2000.
Certain rail line serves as collateral.................... 4,085 --
Capital lease obligations................................... 1,042 1,459
Other long-term debt........................................ 3,867 1,980
-------- -------
162,827 66,327
Less current maturities................................... 17,811 3,557
-------- -------
Long-term debt, less current maturities........... $145,016 $62,770
======== =======
</TABLE>
Ferronor refinanced certain short-term debt as of January 28, 1999 with
Banco de Desarrollo. The refinancing consists of two credit lines. The first
credit line is a $5.0 million facility which bears interest at the interbank
cost (7.08% at December 31, 1999) plus 1.75% with interest to be paid over 120
equal monthly installments and principal to be paid over 96 equal installments
beginning two years from the funding. The second credit line is a $7.7 million
facility which bears interest at LIBOR plus 2.75% and is payable in 120 equal
monthly installments (including interest).
In February 2000, the Company entered into a credit agreement and two
bridge note facilities in connection with the acquisition of RailTex and the
refinancing of most of the Company's and RailTex's existing debt. The credit
agreement provides (1) a $125 million Term A loan, initially bearing interest at
LIBOR plus 3.00%, (2) a $205 million Term B loan, initially bearing interest at
LIBOR plus 3.25%, and (3) a $50 million revolving credit facility which includes
$30 million of U.S. dollar denominated loans, $10 million of Canadian dollar
denominated loans and $10.0 million of Australian dollar denominated loans with
an initial interest rate of LIBOR plus 3.00%, or a Canadian equivalent. The
loans are provided by a syndicate of banks with Donaldson, Lufkin & Jenrette as
syndication agent and The Bank of Nova Scotia as
F-17
<PAGE> 100
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
administrative agent. All of the stock of all the Company's U.S. subsidiaries
serve as collateral for the credit facilities.
The Term A loans requires principal payments of 5% in 2000, 10% in 2001,
15% in 2002, 20% in 2003, 25% in both 2004 an 2005. The Term B loan requires
principal payments of 1% per year through 2005 and a balloon maturity at
December 31, 2006. The revolving loans mature on December 31, 2005.
The Company's new credit facilities include covenants which impose
financial and operating restrictions on RailAmerica's ability to, among other
things:
- incur more debt;
- pay dividends, redeem or repurchase its stock or make other
distributions;
- make acquisitions or investments;
- use assets as security in other transactions;
- enter into transactions with affiliates;
- merge or consolidate with others;
- dispose of assets or use asset sale proceeds;
- create liens on its assets; and
- extend credit.
The new credit facilities also contain financial covenants that will
require the Company to meet a number of financial ratios and tests.
In February 2000, the Company, through its wholly-owned subsidiary
RailAmerica Transportation, Inc., issued $95 million of subordinated bridge
notes, under a securities purchase agreement with DLJ Bridge Finance, Inc. These
notes mature on February 4, 2001 and have an initial interest rate of 13% per
annum, which rate increases every three months based on the highest specified
rates. The Company, through its wholly-owned subsidiary Palm Beach Holding, Inc.
issued $55 million of asset sale bridge notes, under a securities purchase
agreement with DLJ Bridge Finance, Inc. These notes mature on February 4, 2001
and have an initial interest rate of 15% per annum, which rate increases every
three months based on the highest of specified rates. The asset sale bridge
notes are collateralized by the assets of Kalyn/Siebert, L.P. and its
subsidiaries, which are discontinued operations held for sale.
In connection with the issuance of the subordinated bridge notes, the
purchasers of such notes are entitled to receive warrants to purchase common
stock at an exercise price of $7.75 per share commencing in May 2001 to the
extent the subordinated bridge notes are then outstanding. In connection with
the issuance of the asset sale bridge notes, the purchasers of such notes are
entitled to receive warrants to purchase common stock at an exercise price of
$7.75 per share commencing in August 2000 to the extent the asset sale bridge
notes are then outstanding. The maximum number of shares issuable upon exercise
of all these warrants would be 1,604,330, subject to specified anti-dilution
adjustments.
In connection with the February 2000 debt refinancing, including the
refinancing of RailTex's debt, the Company will record an extraordinary charge
in the first quarter of 2000.
F-18
<PAGE> 101
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate annual maturities of long-term debt are as follows net of
discount amortization taking into effect the above refinancing (in thousands):
<TABLE>
<S> <C>
2000...................................................... $ 17,811
2001...................................................... 18,827
2002...................................................... 23,938
2003...................................................... 29,324
2004...................................................... 35,309
Thereafter................................................ 37,618
--------
$162,827
========
</TABLE>
During the years ended December 31, 1999, 1998 and 1997 interest of
approximately $1,386, $465 and $69, respectively, was capitalized.
CAPITAL LEASES
The Company entered into equipment finance leases for certain tractors,
trailers and other equipment expiring at various times through 2003. These
leases are accounted for as capital leases. The financing of the purchase of the
tractors, trailers and equipment under these capital leases was capitalized
using the interest rate appropriate at the inception of the respective leases.
Minimum annual lease commitments at December 31, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
2000...................................................... $ 427 $ 2,977
2001...................................................... 451 2,631
2002...................................................... 218 2,242
2003...................................................... 75 1,870
2004...................................................... -- 1,033
Thereafter................................................ -- 1,163
------ -------
Total............................................. 1,171 $11,916
=======
Less amount representing interest.................... 129
------
Present value of future minimum lease payments.... 1,042
Less current portion................................... 355
------
Noncurrent portion................................ $ 687
======
</TABLE>
Rental expense under operating leases was approximately $3.4 million, $2.7
million and $0.9 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
11. SUBORDINATED DEBT
To facilitate the acquisition of VLF, Freight Victoria obtained a $100
million bridge loan from Barclays Bank PLC under a senior secured loan facility.
Upon the execution of the facility, the Company issued to Barclays Bank PLC
warrants to acquire 750,000 shares of the Company's Common Stock at an exercise
price of $9.75 per share. On November 30, 1999, in accordance with the terms of
the bridge loan the Company issued additional warrants to acquire 50,000 shares
of the Company's Common Stock to Barclays Bank PLC at an exercise price of
$7.7875 per share and increased the interest rate by 200 basis points. The
bridge loan was refinanced in February 2000 in conjunction with the acquisition
of RailTex (see note 10).
F-19
<PAGE> 102
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. CONVERTIBLE SUBORDINATED DEBT
In August 1999, the Company issued $22.5 million aggregate principal amount
of its junior convertible subordinated debentures. Interest on the debentures
accrues at the rate of 6% per annum and is payable semi-annually, commencing
January 31, 2000. The debentures are convertible, at the option of the holder,
into shares of RailAmerica at a conversion price of $10, subjected to adjustment
in selected circumstances. The debentures mature on July 31, 2004, are general
unsecured obligations and rank subordinate in right of payment to all senior
indebtedness. At RailAmerica's option, the debentures may be redeemed at par,
plus accrued but unpaid interest thereon to the date of redemption, in whole or
in part, if the closing price of RailAmerica's common stock is above 200% of the
conversion price for 10 consecutive trading days.
In addition to the bridge loan the Company issued AUD$3 million
(approximately U.S.$2.0 million) in convertible debt to a certain vendor of
Freight Victoria ("Vendor Debt"). The Vendor Debt is convertible into the
Company's common stock at the current market price or convertible into Freight
Victoria stock at the option of the Company. The Company also issued $2.64
million of convertible debt in lieu of cash payments for fees owed to its
investment banker in the transaction. The convertible debt bears interest at 6%,
is convertible into the Company's common stock at $9.83 per share and was
converted in July 1999 into 272,415 shares of common stock.
13. REDEEMABLE PREFERRED STOCK
In January 1999, the Company completed a private offering of $11.6 million
of its Series A Convertible Redeemable Preferred Stock ("Preferred Stock"). The
Company sold 464,400 shares of its Preferred Stock at a price of $25 per share.
The Preferred Stock pays annual dividends of 7.5%, is convertible into shares of
the Company's common stock at a price of $8.25 per share and is non-voting. The
Preferred Stock is mandatorily redeemable 5 years from its issuance. The
December 31, 1998 balance sheet includes 300,600 shares which were issued during
1998. The remainder of the shares were issued in January 1999. The carrying
value of the Preferred Stock is the par value less issuance costs. The issuance
costs will be amortized on a straight-line basis over the life of the Preferred
Stock. 86,000 shares of the Preferred Stock were converted in the fourth quarter
of 1999 and 88,000 shares were converted in the first quarter of 2000.
14. COMMON STOCK TRANSACTIONS
On August 24, 1998, the Company's Board of Directors authorized a share
repurchase program to buy back up to 1,000,000 shares of its Common Stock
(limited to $2 million per year pursuant to the new credit facilities).
Purchases will be made from time to time in the open market and will continue
until all of such shares are purchased or until the Company determines to
terminate the repurchase program. As of December 31, 1999, the Company had
purchased 445,400 shares with a total cost of $3.1 million. The Company
purchased 172,500 shares with a total cost of $1.1 million in the first quarter
of 2000.
In March 1999, the Company completed a private placement of approximately
$12.5 million of restricted common stock. Pursuant to the offering, the Company
sold approximately 1.4 million shares of its common stock at a price of $8.8125
per share and issued approximately 212,000 warrants to purchase an equivalent
number of shares of common stock at an exercise price of $10.125 per share
within one year of the transaction's closing date. First London Securities
Corporation, of which Douglas Nichols, a director of the Company, is President
and principal shareholder, acted as placement agent and received approximately
$0.4 million in fees and cost reimbursement and one-year warrants to purchase
141,504 shares of the Company's common stock at an exercise price of $10.125.
All of the warrants issued for this transaction expired on March 3, 2000.
In August 1999, the Company issued warrants to purchase an aggregate of
676,363 shares of common stock to the investors in the private offering of $22.5
million principal amount of its junior convertible
F-20
<PAGE> 103
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subordinated debentures described in Note 7. The warrants are exercisable during
the five-year period ending August 5, 2004 at an exercise price of $10.50 per
share, subject to adjustment under selected circumstances. Warrants to purchase
200,000 shares of common stock at an exercise price of $10.50 per share during
the two-year period ending July 31, 2001 were issued in connection with the
private offering to the placement agent.
15. OTHER REVENUE
Other revenue as of December 31, 1999, 1998 and 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Gain on sale of properties and easements.................... $ 266 $ 695 $1,251
Rental income............................................... 2,850 1,484 857
Maintenance revenue......................................... 1,703 -- --
Other....................................................... 1,642 521 364
------ ------ ------
$6,461 $2,700 $2,472
====== ====== ======
</TABLE>
16. INCOME TAX PROVISION
Income before income taxes for the years ended December 31, 1999, 1998 and
1997 consists of (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Domestic................................................... $(2,978) $(2,327) $(1,140)
Foreign Subsidiaries....................................... 8,217 1,440 1,013
------- ------- -------
$ 5,239 $ (887) $ (127)
======= ======= =======
</TABLE>
The provision for income taxes for the years ended December 31, 1999, 1998
and 1997 consists of (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ -----
<S> <C> <C> <C>
Federal income taxes:
Current................................................... $ 15 $ 232 $ --
Deferred.................................................. 1,234 1,039 708
------- ------ -----
1,249 1,271 708
------- ------ -----
State income taxes:
Current................................................... 149 281 161
Deferred.................................................. (106) (55) (26)
------- ------ -----
43 226 135
------- ------ -----
Foreign income taxes:
Current................................................... 857 33 --
Deferred.................................................. 2,197 -- (306)
Change in tax law......................................... (2,835) -- --
------- ------ -----
Total income tax provision........................ $ 1,511 $1,530 $ 537
======= ====== =====
</TABLE>
F-21
<PAGE> 104
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the total income tax provisions for each of the
years ended December 31, 1999, 1998 and 1997 (in thousands):
<TABLE>
<S> <C> <C> <C>
Continuing operations..................................... $ (787) $1,570 $963
Discontinued operations................................... 2,298 (40) (426)
-------- ------ ----
Total income tax provision........................ $ 1,511 $1,530 $537
======== ====== ====
</TABLE>
The differences between the U.S. federal statutory tax rate and the
Company's effective rate from continuing operations are as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Income tax provision, at 35%.............................. $1,833 $2,113 $1,259
Statutory federal Surtax exemption........................ (52) (60) (36)
State income tax, net of federal benefit.................. (48) 147 90
Benefit due to difference between U.S. &
Chilean tax rates...................................... (295) (316) (192)
Benefit due to utilization of Chilean net operating loss
carryforwards.......................................... -- (306) (152)
Benefit due to reduction in Canadian tax rate for
manufacturing companies................................ -- (42) --
Benefit due to difference between U.S. &
Australian tax rates................................... (266) -- --
Net Benefit due to tax law changes in Australia........... (2,835) -- --
Amortization of warrants not deductible................... 602 -- --
Non-deductible expenses, net.............................. 320 45 33
Other, net................................................ 124 107 60
Valuation allowance....................................... (170) (118) (99)
------ ------ ------
$ (787) $1,570 $ 963
====== ====== ======
</TABLE>
The Company joins in the filing of a consolidated U.S. income tax return
with its domestic subsidiaries. For state income tax purposes, the Company and
each of its domestic subsidiaries generally file on a separate return basis in
the states in which they do business. The Company's Canadian subsidiaries file
Canadian and provincial income tax returns. The Company's Chilean and Australian
subsidiaries file income tax returns in their respective jurisdictions.
F-22
<PAGE> 105
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred income tax assets and liabilities as of December
31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forwards......................... $ 7,667 $ 2,798
Alternative minimum tax credit............................ 790 766
Accrued Expense (net of deferred expense)................. 4,478 --
Other..................................................... 108 205
-------- -------
Total deferred assets............................. 13,043 3,769
Less: valuation allowance................................... (321) (491)
-------- -------
Total deferred assets, net........................ 12,722 3,278
Deferred tax liabilities:
Property, plant and equipment............................. 29,162 11,339
Minority Investments...................................... 836 --
Installment Sales......................................... 180 181
Capital Lease Obligation.................................. 859 --
Deferred Revenue.......................................... 495 --
-------- -------
Net deferred tax liability................................ $(18,810) $(8,242)
======== =======
</TABLE>
The liability method of accounting for deferred income taxes requires a
valuation allowance against deferred tax assets if, based on the weight of
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized. It is management's belief that it is more
likely than not that a portion of the deferred tax assets will not be realized.
The Company has established a valuation allowance of $0.3 million at December
31, 1999 and $0.5 million at December 31, 1998, respectively. The valuation
allowance at December 31, 1999 is comprised of $0.2 million, which relates to
prior and current year state net operating losses, and $0.1 million which
relates to prior and current year Chilean net operating losses of Ferronor.
The following is a summary of net operating loss carryforwards by
jurisdiction as of December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
AMOUNT EXPIRATION PERIOD
------- -----------------
<S> <C> <C>
U.S. -- Federal........................................... $ 5,536 2003 - 2019
U.S. -- State............................................. 16,064 2000 - 2019
Chile..................................................... 1,069 None
Australia................................................. 10,938 None
Canada.................................................... 2,741 2004 - 2006
-------
$36,348
=======
</TABLE>
As part of certain acquisitions, the Company acquired net operating loss
carry forwards for federal and state income tax purposes. The utilization of the
acquired tax loss carry forwards is further limited by the Internal Revenue Code
Section 382 to approximately $0.1 million each year. These tax loss carry
forwards expire in the years 2001 through 2010.
No provision was made in 1999 for U.S. income taxes on undistributed
earnings of the Chilean, Canadian or Australian subsidiaries as it is the
intention of management to utilize those earnings in their respective operations
for an indefinite period of time.
F-23
<PAGE> 106
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision includes a one-time income tax benefit of $3.4 million due to
legislation passed in Australia during the third quarter of 1999, which permits
the Company's Australian subsidiary to deduct, for income tax purposes, a larger
amount of depreciation than is reported for financial statement purposes.
Additionally, during December 1999, Australian tax regulations were passed which
will ultimately reduce the statutory tax rate in Australia from 36% to 30%. A
one-time income tax provision of $0.6 million was recorded to revalue the
Company's Australian net deferred tax assets due to this rate reduction.
17. OTHER INCOME
Included in other income for 1999 was a fourth quarter gain on insurance
settlement of $4.1 million from an accident which destroyed certain locomotives
and railcars in Australia. In addition, other income for 1999 includes $0.7
million in exchange gains from Australia and Chile and $0.3 million in gain on
the sale of the Company's minority interest in GSR.
18. STOCK OPTIONS
In July 1992, the Company implemented a stock option plan (the "1992 Plan")
for certain officers, consultants, employees and outside directors of the
Company. The aggregate number of shares which may be issued pursuant to the 1992
Plan is 250,000 shares which are exercisable at date of grant and have a ten
year life.
Effective January 1, 1995, the Company implemented two new stock option
plans: the 1995 Stock Incentive Plan and the 1995 Non-Employee Director Stock
Option Plan. Each plan calls for 250,000 shares to be reserved for future
issuance. Options granted under the Stock Incentive Plan are exercisable at the
date of grant. Options granted under the Non-Employee Director Stock Option Plan
are 1/3 exercisable at the date of grant, 1/3 exercisable at the first
anniversary of the grant date and 1/3 exercisable at the second anniversary of
the grant date. All the options granted under the Stock Incentive Plan and
Non-Employee Director Stock Option Plan have a ten year life from the date of
grant. In June 1997, the Company's stockholders approved a 750,000 increase in
the number of shares of common stock reserved for issuance pursuant to the
Company's 1995 Stock Incentive Plan, bringing total shares reserved under this
plan to 1,000,000.
Under an employment agreement dated November 1994, Mr. Marino was granted
ten-year non-qualified options to purchase an aggregate of 350,000 shares of the
Company's common stock at exercise prices ranging from $3.10 to $4.15. Options
to purchase 175,000 shares were immediately exercisable and options to purchase
87,500 shares became exercisable on each of March 1, 1996 and 1997.
Effective January 1, 1998, Mr. Marino entered into a new employment
agreement with the Company under which he was granted ten-year non-qualified
options to purchase 300,000 shares of common stock of the Company at exercise
prices varying from $7.25 to $9.50. All of the options are immediately
exercisable.
During June 1998, the Company implemented the 1998 Omnibus Executive
Incentive Compensation Plan ("1998 Plan"). The 1998 Plan supersedes the 1992
Plan and the 1995 Stock Incentive Plan. The 1998 Plan provides for grants of
stock options, stock appreciation rights, restricted stock, deferred stock,
other stock-related awards and performance or annual incentive awards. The
aggregate number of shares to be issued pursuant to the 1998 Plan are 930,000
shares. Options for 76,000 shares of common stock of the Company, at an exercise
price of $6.125, were issued pursuant to the 1998 Plan as of July 1, 1998.
Options for 126,000 shares of common stock of the Company, at an exercise price
of $8.75, were issued pursuant to the 1998 Plan as of April 1999. These options
vest ratably over a three year period on each anniversary date and mature ten
years after the grant date. Options for 725,000 shares of common stock of the
Company, at an exercise price of $9.00, were issued pursuant to the 1998 Plan as
of January 1, 2000. These options are subject to shareholder approval at the
Company's 1999 Annual Shareholders Meeting.
F-24
<PAGE> 107
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 1998, the Company issued, options to purchase an aggregate of
150,000 shares of common stock to certain employees at exercise prices equal to
$6.125 per share. The options vest ratably over a three year period on each
anniversary date and mature June 30, 2008. During 1999, the Company issued
options to purchase an aggregate of 25,000 shares of common stock of the Company
at an exercise price of $7.8125, options to purchase 153,500 shares of common
stock of the Company at an exercise price of $8.75 and options to purchase
125,500 shares of common stock of the Company at an exercise price of $9.75. All
of these options vest ratably over a three year period from the date of grant
and mature in ten years from the date of grant.
The Company has adopted the disclosure-only provisions of Statements of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". Accordingly, no compensation costs have been recognized for the
stock options issued during 1999, 1998 and 1997 as all stock options were
granted with an exercise price at least equal to the market price on the date of
grant. Had compensation cost for the Company's stock options issued been
determined based on the fair value at the grant date for awards in 1999, 1998
and 1997 consistent with the provisions of SFAS No. 123, the Company's net
income and net income per share would have been reduced to the pro forma amounts
indicated below (in thousands except per share information):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net income -- as reported................................. $9,921 $4,401 $1,939
====== ====== ======
Net income -- pro forma................................... $8,972 $3,562 $1,152
====== ====== ======
Basic net income per share -- as reported................. $ 0.80 $ 0.46 $ 0.23
====== ====== ======
Basic net income (loss) per share -- pro forma............ $ 0.72 $ 0.37 $ 0.14
====== ====== ======
</TABLE>
These calculations only take into account the options issued since January
1, 1995. The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997: dividend yield 0.0%;
expected volatility of 45%-55%; risk-free interest rate of 5.50%-7.8%; and
expected lives of 10 years. The weighted average fair value of options granted
for 1999, 1998 and 1997 were $5.86, $3.97, and $3.08, respectively.
F-25
<PAGE> 108
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information regarding the above options for 1999, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding at January 1, 1997.............................. 1,124,000 $3.74
Granted................................................... 363,500 $5.00
Exercised................................................. (202,933) $3.69
Forfeited................................................. (33,667) $4.21
---------
Outstanding at December 31, 1997............................ 1,250,900 $4.10
Granted................................................... 551,000 $7.35
Exercised................................................. (237,950) $3.66
Forfeited................................................. (78,450) $3.58
---------
Outstanding at December 31, 1998............................ 1,485,500 $5.40
Granted................................................... 455,000 $8.97
Exercised................................................. (89,667) $4.35
Forfeited................................................. (10,833) $5.09
---------
Outstanding at December 31, 1999............................ 1,840,000 $6.34
=========
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- ---------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OF OPTIONS LIFE PRICE OF OPTIONS PRICE
-------- ---------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
$3.40-$5.00.................................. 836,750 5.92 $4.24 836,750 $4.24
$5.01-$7.00.................................. 248,250 8.50 $6.13 80,916 $6.13
$7.01-$9.50.................................. 755,000 8.80 $8.74 308,333 $8.36
--------- ---------
1,840,000 1,225,999
========= =========
</TABLE>
In January 1995, the Company established an Employee Stock Purchase Plan
open to all full-time employees. Each employee may have payroll deductions as a
percentage of their compensation, not to exceed $25,000 per year. The purchase
price equals 85% of the fair market value of a share of the Company's Common
Stock on January 1 or December 31, of any given year, whichever is lower. For
the years ended December 31, 1999, 1998 and 1997, 16,500, 18,289 and 23,433
shares of common stock, respectively, were sold to employees under this plan.
19. NONCASH INVESTING AND FINANCING ACTIVITIES
In April 1999, the Company issued 750,000 warrants, valued at $3.0 million
to purchase shares of its Common Stock as part of the Freight Victoria
acquisition financing. The Company issued an additional 50,000 warrants, valued
at $0.2 million to purchase the Company's Common Stock in November 1999 as part
of the financing. The Company also issued a $2.6 million convertible note in
connection with the Freight Victoria financing. This note was converted into the
Company's stock in July 1999.
In August 1999, the Company issued 876,363 warrants, valued at $2.7
million, to purchase the Company's Common Stock pursuant to a private offering
of its junior convertible subordinated debentures.
F-26
<PAGE> 109
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1999, $0.7 million of convertible notes were converted into the
Company's Common Stock. In addition, $2.0 million of the redeemable convertible
preferred stock was converted into the Company's Common Stock during 1999.
The Company issued 20,000 shares of common stock to the Company's Chief
Executive Officer for a $95,000 note receivable during 1997. The Company issued
30,000 shares of common stock to the Company's Chief Executive Officer for a
$97,500 note receivable during 1998.
<TABLE>
<CAPTION>
1999 1998 1997
--------- ------- --------
<S> <C> <C> <C>
Acquisition of businesses:
Common stock issued for businesses acquired............ $ -- $ 453 $ --
Warrants issued for business acquired.................. 3,031 -- --
Debt issued for business acquired...................... 173,493 -- --
Acquisition costs accrued.............................. 238 31 90
Details of acquisitions:
Working capital components, other than cash.......... (7,294) (801) 2,867
Property and equipment............................... (209,624) (2,482) (16,071)
Other assets......................................... (4,234) (962) (31)
Deferred loan costs.................................. (6,959) -- --
Goodwill............................................. -- (355) --
Notes payable and loans payable...................... 35,466 1,921 340
Deferred income taxes payable........................ 7,430 440 --
Minority interest.................................... -- -- 5,415
--------- ------- --------
Net cash used in acquisitions................ $ (8,453) $(1,757) $ (7,390)
========= ======= ========
</TABLE>
Cash paid for interest during 1999, 1998 and 1997 was $16.3 million, $5.7
million and $3.9 million, respectively. Cash paid for income taxes during 1999,
1998 and 1997 was $1.3 million, $0.2 million and $0.2 million, respectively.
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
Management believes that the fair value of its long-term debt approximates
its carrying value for the revolving line of credit based on the variable nature
of the financing and for all other long-term debt based on current borrowing
rates available with similar terms and maturities.
21. PENSION AND OTHER BENEFIT PROGRAMS
The Company maintains a pension plan for a majority of its Canadian
railroad employees, with both defined benefit and defined contribution
components.
Defined Benefit -- The defined benefit component applies to approximately
60 employees who transferred employment directly from Canadian Pacific Railway
Company ("CPR") to a subsidiary of RaiLink, Ltd. The defined benefit portion of
the plan is a mirror plan of CPR's defined benefit plan. The employees that
transferred and joined the mirror plan were entitled to transfer or buy back
prior years of service. As part of the arrangement, CPR transferred to the
Company the appropriate value of each employee's pension entitlement.
F-27
<PAGE> 110
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following chart summarizes the benefit obligations, assets, funded
status and rate assumptions associated with the defined benefit plan (in
thousands).
<TABLE>
<S> <C>
Change in benefit obligation
Benefit obligation at August 1, 1999...................... $ 2,710
Service cost.............................................. 26
Interest cost............................................. 79
Plan participants' contributions.......................... 38
--------
Benefit obligation at December 31, 1999................... 2,853
--------
Change in plan assets
Fair value of plan assets at August 1, 1999............... 2,445
Actuarial return on plan assets........................... 132
Employer contributions.................................... 37
Plan participants' contributions.......................... 41
--------
Fair value of plan assets at December 31, 1999............ 2,655
--------
Funded status............................................... (198)
Unrecognized net actuarial loss........................... --
Unrecognized prior service costs.......................... --
--------
Accrued benefit cost...................................... $ (198)
========
Rate Assumptions
Discount rate............................................. 7.00%
Expected return on plan assets............................ 8.00%
Rate of compensation increase............................. 4.50%
</TABLE>
Components of net periodic benefit cost for August 1, 1999 to December 31,
1999:
<TABLE>
<S> <C>
Service cost................................................ $ 25
Interest cost............................................... 79
Expected return on plan assets.............................. (82)
Net obligation at date of adoption.......................... 17
----
Net periodic pension cost................................... $ 39
====
</TABLE>
Freight Victoria's employees participate in the Victorian governments
superannuation funds. The contributions made by Freight Victoria for the period
May 1, 1999 to December 31, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
Victorian Superannuation Fund............................... $ 62
State Superannuation Fund................................... 647
Transport Fund.............................................. 194
Freight Victoria Fund....................................... 53
----
Total contributions............................... $956
====
</TABLE>
VICTORIAN SUPERANNUATION FUND (VICSUPER SCHEME)
1. Contributions are made in accordance with the Superannuation Guarantee
(Administration) Act of 1992.
F-28
<PAGE> 111
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATE SUPERANNUATION FUND
1. Contributions are made in accordance with the actuarial calculations as
advised by the State Superannuation Fund.
Defined contribution -- The defined contribution component applies to a
majority of the Company's Canadian railroad employees that are not covered by
the defined benefit component. The Company contributes 3% of a participating
employee's salary to the plan. Pension expense for the period August 1, 1999 to
December 31, 1999 for the defined contribution members was $0.1 million.
PROFIT SHARING PLAN
The Company maintains a contributory profit sharing plan as defined under
Section 401(k) of the U.S. Internal Revenue Code. The Company made contributions
to this plan at a rate of 50% of the employees contribution up to a maximum
annual contribution of $1,500 per eligible employee. An employee becomes 100%
vested with respect to the employer contributions after completing six years of
service. Employer contributions during the years ended December 31, 1999, 1998
and 1997 were approximately $81,000, $66,000 and $40,000, respectively.
22. OTHER LIABILITIES
Other liabilities principally are accrued employee benefits in Australia
and consist of the following at December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- ----
<S> <C> <C>
Long service leave...................................... $ 7,663 $ --
Annual leave............................................ 6,087 --
Other leave types....................................... 2,182 --
Deferred revenue........................................ 442 427
------- ----
$16,373 $427
======= ====
</TABLE>
23. COMMITMENTS AND CONTINGENCIES
In the ordinary course of conducting its business, the Company becomes
involved in various legal actions and other claims which are pending or could be
asserted against the Company. Litigation is subject to many uncertainties, the
outcome of individual litigated matters is not predictable with assurance, and
it is reasonably possible that some of these matters may be decided unfavorably
to the Company. It is the opinion of management that the ultimate liability, if
any, with respect to these matters will not have a material adverse effect on
the Company's financial position, results of operations or cash flows.
The Company has a $4.9 million obligation, under certain events of default
or line abandonment occurs, to the Canadian National Railroad in connection with
its Coronado and Bonnyville property. The obligation bears no interest and has
no pre-defined terms of payment or maturity.
24. SEGMENT INFORMATION
The Company's continuing operations have been classified into two business
segments: North American rail transportation and International rail
transportation. The North American rail transportation segment includes the
operations of the Company's railroad subsidiaries in the United States and
Canada and the International rail transportation segment includes the operations
of Company's railroad subsidiaries in Chile and Australia. During 1999, the
Company's trailer manufacturing segment was classified as a discontinued
operation and is reported that way for all period presented.
F-29
<PAGE> 112
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Business segment information for the year ended December 31, 1999, 1998 and
1997 (dollar amounts in thousands):
<TABLE>
<CAPTION>
NORTH AMERICAN INTERNATIONAL
CONSOLIDATED RAILROADS RAILROADS OTHER
------------ -------------- ------------- --------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Revenue...................................... $125,372 $ 40,937 $ 82,473 $ 1,962
Depreciation and amortization................ $ 9,179 $ 3,594 $ 4,660 $ 925
Income (loss) before income taxes............ $ 5,239 $ 4,275 $ 6,897* $ (5,933)
Interest expense............................. $ 16,287 $ 5,709 $ 9,157 $ 1,421
Total assets................................. $428,932 $174,343 $214,599 $ 39,990
Capital expenditures......................... $ 50,702 $ 22,461 $ 24,946 $ 3,295
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Revenue...................................... $ 37,256 $ 16,191 $ 15,924 $ 5,141
Depreciation and amortization................ $ 2,543 $ 1,570 $ 706 $ 267
Income (loss) before income taxes............ $ (887) $ 2,072 $ 1,754 $ (4,713)
Interest expense............................. $ 4,479 $ 2,822 $ 789 $ 868
Total assets................................. $117,081 $ 53,692 $ 39,780 $ 23,609
Capital expenditures......................... $ 24,767 $ 6,343 $ 12,807 $ 5,617
</TABLE>
<TABLE>
<CAPTION>
NORTH AMERICAN INTERNATIONAL
CONSOLIDATED RAILROADS RAILROADS OTHER
------------ -------------- ------------- --------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Revenue...................................... $ 24,496 $ 16,014 $ 8,062 $ 420
Depreciation and amortization................ $ 1,789 $ 1,337 $ 267 $ 185
Income (loss) before income taxes............ $ (127) $ 2,071 $ 1,013 $ (3,211)
Interest expense............................. $ 3,275 $ 2,739 $ 341 $ 195
Total assets................................. $ 83,585 $ 53,134 $ 23,115 $ 7,336
Capital expenditures......................... $ 6,756 $ 3,963 $ 2,290 $ 503
</TABLE>
Geographical segment information for the years ended December 31, 1999,
1998 and 1997 (dollar amounts in thousands):
<TABLE>
<CAPTION>
UNITED
CONSOLIDATED STATES CANADA CHILE AUSTRALIA
------------ -------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Revenue.................................... $125,372 $ 22,720 $20,179 $19,115 $ 63,358
Depreciation and amortization.............. $ 9,179 $ 2,428 $ 2,091 $ 1,231 $ 3,429
Income (loss) before income taxes.......... $ 5,239 $ (2,978) $ 919 $ 1,473 $ 5,825*
Interest expense........................... $ 16,287 $ 3,926 $ 3,203 $ 1,595 $ 7,563
Total assets............................... $428,932 $115,295 $99,038 $52,022 $162,577
Capital expenditures....................... $ 50,702 $ 13,915 $11,841 $13,389 $ 11,557
</TABLE>
<TABLE>
<CAPTION>
UNITED
CONSOLIDATED STATES CANADA CHILE AUSTRALIA
------------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Revenue....................................... $ 37,256 $17,080 $4,252 $15,924 $ --
Depreciation and amortization................. $ 2,543 $ 1,837 $ -- $ 706 $ --
Income (loss) before income taxes............. $ (887) $(2,327) $ (142) $ 1,580 $ 2
Interest expense.............................. $ 4,479 $ 3,104 $ 109 $ 1,266 $ --
Total assets.................................. $117,081 $74,628 $2,672 $37,786 $1,995
Capital expenditures.......................... $ 24,767 $11,747 $ 213 $12,807 $ --
</TABLE>
F-30
<PAGE> 113
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
UNITED
CONSOLIDATED STATES CHILE AUSTRALIA
------------ ------- ------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Revenue.............................................. $ 24,496 $16,434 $ 8,062 $ --
Depreciation and amortization........................ $ 1,789 $ 1,521 $ 268 $ --
Income (loss) before income taxes.................... $ (127) $(1,140) $ 1,013 $ --
Interest expense..................................... $ 3,275 $ 2,933 $ 342 $
Total assets......................................... $ 83,585 $60,470 $21,261 $1,854
Capital expenditures................................. $ 6,756 $ 4,466 $ 2,290 $ --
</TABLE>
---------------
* Amount includes $4.1 million casualty gain.
Identifiable assets consist of $425 million from continuing operations and
$15 million from discontinued operations (not included in above amounts).
25. SUBSEQUENT EVENTS
On February 4, 2000, the Company acquired RailTex, Inc. for approximately
$128 million in cash and approximately 6.6 million shares of the Company's
common stock valued at $60.8 million. Railtex, which operates 25 railroads over
4,100 mile of rail lines in North America, became a wholly-owned subsidiary of
the Company. RailTex shareholders received $13.50 in cash and two-thirds of a
share of RailAmerica common stock in exchange for each share of RailTex stock.
In connection with the acquisition, the Company entered into a credit agreement
providing $330 million of senior term loans and $50 million of senior revolving
loans. In addition, a wholly-owned subsidiary of the Company issued $95 million
of subordinated bridge notes and $55 million of asset sale bridge notes.
26. UNAUDITED QUARTERLY FINANCIAL DATA
Quarterly financial data for 1999 is as follows (in thousands except per
share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating revenue......................................... $10,225 $28,088 $38,901 $48,157
Operating income.......................................... $ 1,628 $ 4,373 $ 6,600 $ 8,667
Income from continuing operations......................... $ 54 $ 1,334 $ 2,278 $ 2,375
Net income................................................ $ 1,203 $ 2,748 $ 3,287 $ 2,683
Basic income (loss) from continuing operations per
share................................................... $ (0.02) $ 0.10 $ 0.18 $ 0.18
Diluted income (loss) from continuing operations per
share................................................... $ (0.02) $ 0.09 $ 0.16 $ 0.16
</TABLE>
Quarterly financial data for 1998 is as follows (in thousands except per
share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating revenue......................................... $ 5,853 $ 9,117 $10,848 $11,439
Operating income.......................................... $ 612 $ 1,216 $ 1,581 $ 2,089
Income (loss) from continuing operations.................. $ (172) $ 170 $ 193 $ (77)
Net income................................................ $ 603 $ 1,332 $ 1,361 $ 910
Basic income (loss) from continuing operations per
share................................................... $ (0.02) $ 0.02 $ 0.02 $ (0.01)
Diluted income (loss) from continuing operations per
share................................................... $ (0.02) $ 0.02 $ 0.02 $ (0.01)
</TABLE>
The above amounts differ from what was included in the Form 10-Q's filed
throughout the period due to the trailer manufacturing segment being included in
discontinued operations for all periods reported in these consolidated financial
statements.
F-31
<PAGE> 114
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
27. GUARANTOR FINANCIAL STATEMENT INFORMATION
Set forth are condensed Consolidating Financial Statements of the Company
(Parent), the Guarantor Subsidiaries, Non Guarantor Subsidiaries and the Company
on a consolidated basis.
CONSOLIDATING BALANCE SHEET
AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
NON
COMPANY GUARANTOR GUARANTOR
(PARENT) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash................................... $ 3,588 $ 274 $ 7,736 $ -- $ 11,598
Accounts and notes receivable.......... 2,480 7,682 32,401 (1,705) 40,857
Inventories............................ -- 592 9,337 -- 9,929
Other current assets................... 441 379 2,680 -- 3,500
Net assets of discontinued operation... -- -- 14,996 -- 14,996
------- -------- -------- -------- --------
Total current assets........... 6,509 8,926 67,150 (1,705) 80,879
Property, plant and equipment, net....... 733 88,922 257,963 -- 347,617
Notes receivable, less current portion... 725 1,150 248 -- 2,123
Investment in affiliates................. -- -- 4,667 -- 4,667
Other assets............................. 4,141 521 3,980 -- 8,642
Investment in and advances to
affiliates............................. 66,638 (15,833) (3,925) (46,881) --
------- -------- -------- -------- --------
Total assets................... $78,746 $ 83,686 $330,082 $(48,586) $443,928
======= ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt... $ 5 $ 8,805 $ 9,001 $ -- $ 17,811
Accounts payable....................... 777 3,936 19,024 (6) 23,732
Accrued expenses....................... 842 2,662 11,875 -- 15,379
------- -------- -------- -------- --------
Total current liabilities...... 1,624 15,403 39,901 (6) 56,923
------- -------- -------- -------- --------
Long-term debt, less current
maturities............................. 10,708 42,019 93,989 (1,699) 145,016
Subordinated debt........................ -- -- 100,000 -- 100,000
Convertible subordinated debt............ 20,481 -- 1,968 -- 22,449
Other liabilities........................ -- 441 15,933 -- 16,374
Deferred income taxes.................... (2,411) 18,649 (856) -- 15,382
Minority interest........................ -- -- 4,074 5,415 9,489
Redeemable convertible preferred stock... 8,830 -- -- -- 8,830
Stockholders' equity:
Common stock........................... 13 119 28,259 (28,378) 13
Additional paid-in capital............. 52,153 3,514 20,556 (23,918) 52,305
Retained earnings...................... (8,144) 3,542 22,773 -- 18,171
Accumulated other comprehensive
income.............................. -- -- 3,486 -- 3,486
Treasury stock......................... (4,508) -- -- -- (4,508)
------- -------- -------- -------- --------
Total stockholders' equity..... 39,514 7,174 75,074 (52,296) 69,466
------- -------- -------- -------- --------
Total liabilities and
stockholders' equity......... $78,746 $ 83,686 $330,082 $(48,586) $443,928
======= ======== ======== ======== ========
</TABLE>
F-32
<PAGE> 115
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
NON
COMPANY GUARANTOR GUARANTOR
(PARENT) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenue:
Transportation -- railroad............. $ -- $20,257 $98,654 $-- $118,911
Other.................................. -- 2,463 3,998 -- 6,461
------- ------- ------- --- --------
Total operating revenue........ -- 22,720 102,653 -- 125,372
------- ------- ------- --- --------
Operating expenses:
Transportation -- railroad............. -- 9,427 65,949 -- 75,376
Selling, general and administrative.... 4,825 4,374 10,351 -- 19,550
Depreciation and amortization.......... 108 2,320 6,751 -- 9,179
------- ------- ------- --- --------
Total operating expenses....... 4,933 16,121 83,051 -- 104,105
------- ------- ------- --- --------
Operating income............... (4,933) 6,599 19,602 -- 21,268
Interest expense......................... (1,584) (3,221) (15,686) -- (20,490)
Other income............................. 45 116 5,851 -- 6,012
Minority interest in income of
subsidiary............................. -- -- (1,551) -- (1,551)
------- ------- ------- --- --------
Income from continuing
operations before income
taxes........................ (6,472) 3,494 8,217 -- 5,239
Provision for income taxes............... (2,459) 1,328 345 -- (787)
------- ------- ------- --- --------
Income from continuing
operations................... (4,013) 2,166 7,872 -- 6,026
Discontinued operations:
Income from operations of
discontinued segments............. -- -- 3,896 -- 3,896
------- ------- ------- --- --------
Net income..................... $(4,013) $ 2,166 $11,768 $-- $ 9,921
======= ======= ======= === ========
</TABLE>
F-33
<PAGE> 116
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
NON
COMPANY GUARANTOR GUARANTOR
(PARENT) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $ (4,013) $ 2,166 $11,768 $-- $ 9,921
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 855 2,494 10,785 -- 14,134
Minority interest in income of subsidiary.... -- -- 1,551 -- 1,551
Equity interest in earnings of affiliate..... -- -- (230) -- (230)
Gain on insurance settlement................. -- -- (4,069) -- (4,069)
Loss (gain) on sale or disposal of
properties................................ 56 407 (345) -- 118
Write-off of deferred acquisition costs...... 39 -- -- -- 39
Deferred income taxes........................ 1,918 (9,181) 10,665 -- 3,402
Changes in operating assets and liabilities,
net of acquisitions and dispositions:
Accounts receivable....................... 802 5,533 (8,581) -- (2,246)
Inventories............................... -- 556 (2,827) -- (2,271)
Other current assets...................... 175 447 (2,453) -- (1,831)
Accounts payable.......................... (359) (3,965) 7,568 -- 3,244
Accrued expenses.......................... (203) (1,963) 5,492 -- 3,326
Other liabilities......................... -- -- (2,294) -- (2,294)
Deposits and other........................ (284) 4 (1,014) -- (1,294)
--------- -------- ------- --- ---------
Net cash provided by operating
activities.......................... (1,014) (3,502) 26,016 -- 21,500
--------- -------- ------- --- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment........ (457) (13,458) (37,476) -- (51,391)
Proceeds from sale of properties................. -- 166 -- -- 166
Proceeds from sale of equity interest............ -- -- 998 -- 998
Acquisitions, net of cash acquired............... -- (257) (8,196) -- (8,453)
Cash held in discontinued operations............. -- -- (656) -- (656)
Deferred acquisition costs and other............. 639 -- -- -- 639
--------- -------- ------- --- ---------
Net cash used in investing
activities.......................... 182 (13,549) (45,330) -- (58,697)
--------- -------- ------- --- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt......... 146,405 8,630 0 -- 182,085
Principal payments on long-term debt............. (126,473) (18,445) (5,265) -- (150,183)
Disbursements/receipts on intercompany debt...... (35,636) 32,287 30,399 -- --
Sale of convertible preferred stock.............. 4,095 -- -- -- 4,095
Sale of common stock............................. 11,868 -- -- -- 11,868
Proceeds from exercise of stock options.......... 581 -- -- -- 581
Preferred stock dividends paid................... (843) -- -- -- (843)
Purchase of treasury stock....................... (1,224) -- -- -- (1,224)
Deferred financing costs paid.................... (333) -- -- -- (333)
Deferred loan costs paid......................... (2,270) (152) -- -- (2,422)
--------- -------- ------- --- ---------
Net cash provided by financing
activities.......................... 3,830 22,320 25,134 -- 43,624
--------- -------- ------- --- ---------
Effect of exchange rates on cash................... -- -- 86 -- 86
--------- -------- ------- --- ---------
Net increase (decrease) in cash.................... (4,662) 5,269 5,906 -- 6,513
Cash, beginning of period.......................... 4,754 230 101 -- 5,085
--------- -------- ------- --- ---------
Cash, end of period................................ $ 92 $ 5,499 $ 6,007 $-- $ 11,598
========= ======== ======= === =========
</TABLE>
F-34
<PAGE> 117
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEET
AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NON
COMPANY GUARANTOR GUARANTOR
(PARENT) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................... $ 4,754 $ 229 $ 102 $ -- $ 5,085
Accounts and notes receivable.......... 804 4,125 3,511 (707) 7,733
Inventories............................ -- 390 3,258 -- 3,648
Other current assets................... 175 242 1,064 -- 1,481
Net assets of discontinued operation... -- -- -- -- 13,883
------- ------- ------- -------- --------
Total current assets........... 5,733 4,986 21,818 (707) 31,830
Property, plant and equipment, net....... 434 56,706 34,736 -- 91,876
Notes receivable, less current
portions............................... 725 311 248 -- 1,284
Investment in affiliates................. -- -- 1,939 -- 1,939
Other assets............................. 3,429 530 76 -- 4,035
Investments in and advances to
affiliates............................. 28,138 (6,298) (3,167) (18,673) --
------- ------- ------- -------- --------
Total assets................... $38,459 $56,235 $55,650 $(19,380) $130,964
======= ======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt... $ 516 $ 618 $ 2,423 $ -- $ 3,557
Accounts payable....................... 359 1,235 5,004 406 7,004
Accrued expenses and income taxes
payable............................. 204 1,041 1,531 -- 2,776
------- ------- ------- -------- --------
Total current liabilities...... 1,079 2,894 8,958 406 13,337
------- ------- ------- -------- --------
Long-term debt, less current
maturities............................. 12,810 38,514 11,446 -- 62,770
------- ------- ------- -------- --------
Other liabilities........................ -- 427 -- -- 427
Deferred income taxes.................... (1,920) 6,849 (80) -- 4,849
Minority interest........................ -- -- 2,523 5,415 7,938
Redeemable convertible preferred stock... 6,882 -- -- -- 6,882
Stockholders' equity:
Common stock........................... 10 119 4,864 (4,983) 10
Additional paid-in capital............. 28,277 2,663 17,556 (20,218) 28,278
Retained earnings...................... (5,396) 4,769 9,912 -- 9,285
Cumulative translation adjustment...... -- -- 471 -- 471
Less treasury stock.................... (3,283) -- -- -- (3,283)
------- ------- ------- -------- --------
Total stockholders' equity..... 19,608 7,551 32,803 (25,201) 34,761
------- ------- ------- -------- --------
Total liabilities and
stockholders' equity......... $38,459 $56,235 $55,650 $(19,380) $130,964
======= ======= ======= ======== ========
</TABLE>
F-35
<PAGE> 118
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
NON
COMPANY GUARANTOR GUARANTOR
(PARENT) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenues:
Transportation -- railroad............. $ -- $15,389 $14,915 $-- $30,304
Other.................................. -- 1,526 1,174 -- 2,700
Motor carrier.......................... -- -- 4,252 -- 4,252
------- ------- ------- --- -------
Total operating revenue........ -- 16,915 20,341 -- 37,256
------- ------- ------- --- -------
Operating expenses:
Transportation -- railroad............. -- 6,720 8,982 -- 15,702
Selling, general and administrative.... 3,978 3,374 1,724 -- 9,076
Depreciation and amortization.......... 104 1,733 706 -- 2,543
Motor carrier.......................... -- -- 4,438 -- 4,438
------- ------- ------- --- -------
Total operating expenses....... 4,082 11,827 15,850 -- 31,759
------- ------- ------- --- -------
Operating income............... (4,082) 5,088 4,491 -- 5,497
Interest expense....................... (344) (3,721) (879) -- (4,944)
Other income (expense)................. (155) 431 (44) -- 232
Minority interest in income of
subsidiary.......................... -- -- (1,672) -- (1,672)
------- ------- ------- --- -------
Income from continuing
operations before income
taxes........................ (4,581) 1,798 1,896 -- (887)
Provision for income taxes............. (1,741) 551 190 -- (1,000)
------- ------- ------- --- -------
Income from continuing
operations................... (2,840) 1,247 1,706 -- 113
Discontinued operations
Loss from operations of discontinued
Motor Carrier segment............... -- -- 4,288 -- 4,288
------- ------- ------- --- -------
Net Income..................... $(2,840) $ 1,247 $ 5,994 $-- $ 4,401
======= ======= ======= === =======
</TABLE>
F-36
<PAGE> 119
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
NON
COMPANY GUARANTOR GUARANTOR
(PARENT) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $(2,840) $ 1,246 $ 5,995 $-- $ 4,401
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 388 1,904 1,865 -- 4,157
Minority interest in income of subsidiary............ -- -- 1,672 -- 1,672
Sale of properties................................... -- (84) 7 -- (77)
Write-off of deferred acquisition costs.............. 176 -- -- -- 176
Deferred income taxes................................ (2,102) 2,763 252 -- 913
Forgiveness of debt.................................. -- (33) -- -- (33)
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
Accounts receivable................................ (254) 1,576 (2,208) -- (886)
Inventories........................................ -- (67) (6,855) -- (6,922)
Other current assets............................... (65) (43) (1,050) -- (1,158)
Accounts payable................................... 75 (1,033) 3,369 -- 2,411
Accrued expenses................................... 340 303 77 -- 720
Deposits and other................................. (94) 92 371 -- 369
-------- -------- -------- --- --------
Net cash provided by operating activities...... (4,376) 6,624 3,495 -- 5,743
-------- -------- -------- --- --------
Cash flows from investing activities:
Purchase of property, plant and equipment................ (132) (11,615) (16,382) -- (28,129)
Proceeds from sale of properties......................... -- 1,768 38 -- 1,806
Acquisitions, net of cash acquired....................... -- -- (1,757) -- (1,757)
Deposit on purchase agreement............................ (1,962) -- -- -- (1,962)
Deferred acquisition costs and other..................... (606) (7) (675) -- (1,288)
-------- -------- -------- --- --------
Net cash used in investing activities.......... (2,700) (9,854) (18,776) -- (31,330)
-------- -------- -------- --- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt................. 32,021 8,571 15,415 -- 56,007
Principal payments on debt and capital leases............ (25,241) (2,961) (7,522) -- (35,724)
Disbursements/receipts on intercompany debt.............. (5,162) (2,226) 7,388 --
Sale convertible preferred stock......................... 7,515 -- -- -- 7,515
Sale of common stock..................................... 1,032 -- -- -- 1,032
Proceeds from exercise of stock options.................. 871 -- -- -- 871
Purchase of treasury stock............................... (1,838) -- -- -- (1,838)
Deferred financing costs paid............................ (603) -- -- -- (603)
Deferred loan costs paid................................. (233) (100) -- -- (333)
-------- -------- -------- --- --------
Net cash provided by financing activities...... 8,362 3,284 15,281 -- 26,927
-------- -------- -------- --- --------
Net increase (decrease) in cash............................ 1,286 54 0 -- 1,340
Cash, beginning of period.................................. 3,469 175 101 -- 3,745
-------- -------- -------- --- --------
Cash, end of period........................................ $ 4,755 $ 229 $ 101 $-- $ 5,085
======== ======== ======== === ========
</TABLE>
F-37
<PAGE> 120
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON
COMPANY GUARANTOR GUARANTOR
(PARENT) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenues:
Transportation -- railroad............. $ -- $14,737 $7,287 $-- $22,024
Other.................................. -- 1,697 775 -- 2,472
------- ------- ------ --- -------
Total operating revenue........ -- 16,434 8,062 -- 24,496
------- ------- ------ --- -------
Operating expenses:
Transportation -- railroad............. -- 7,389 5,113 -- 12,502
Selling, general and administrative.... 3,168 2,535 1,137 -- 6,840
Depreciation and amortization.......... 90 1,432 267 -- 1,789
------- ------- ------ --- -------
Total operating expenses....... 3,258 11,356 6,517 -- 21,131
------- ------- ------ --- -------
Operating income............... (3,258) 5,078 1,545 -- 3,365
Interest expense....................... (81) (2,960) (600) -- (3,641)
Other income (expense)................. 78 233 689 -- 1,000
Minority interest in income of
subsidiary.......................... -- -- (851) -- (851)
------- ------- ------ --- -------
Income from continuing
operations before income
taxes........................ (3,261) 2,351 783 -- (127)
Provision for income taxes............. (374) (125) 84 -- (415)
------- ------- ------ --- -------
Income from continuing
operations................... (2,887) 2,476 699 -- 288
Discontinued operations
Estimated loss on disposal of
discontinued Motor Carrier
segment............................. -- -- (453) -- (453)
Loss from operations of discontinued
Motor Carrier segment............... -- -- 2,104 -- 2,104
------- ------- ------ --- -------
Net Income..................... $(2,887) $ 2,476 $2,350 $-- $ 1,939
======= ======= ====== === =======
</TABLE>
F-38
<PAGE> 121
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NON
COMPANY GUARANTOR GUARANTOR
(PARENT) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $(2,887) $2,476 $ 2,350 $-- $ 1,939
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 280 1,624 1,150 -- 3,054
Minority interest in income of
subsidiary.............................. -- -- 851 -- 851
Write-off of excess of cost over net
assets.................................. -- -- 730 -- 730
Write-off of deferred acquisition costs... 76 -- -- -- 76
Sale of properties........................ -- (590) (18) -- (608)
Employee stock grants..................... 15 -- -- -- 15
Deferred income taxes..................... (197) (673) 1,252 -- 382
Changes in operating assets and
liabilities, net of acquisitions and
dispositions:
Accounts receivable..................... (548) (888) (1,602) -- (3,038)
Inventories............................. -- (70) (1,225) -- (1,295)
Other current assets.................... 2 35 87 -- 124
Accounts payable........................ 19 486 (1,111) -- (606)
Accrued expenses........................ (152) 304 562 -- 714
Deposits and other...................... 48 (19) (76) -- (47)
------- ------ -------- --- --------
Net cash provided by operating
activities......................... (3,344) 2,685 2,950 -- 2,291
------- ------ -------- --- --------
Cash flows from investing activities:
Purchase of property, plant and equipment... (150) (4,160) (3,146) -- (7,456)
Acquisitions, net of cash acquired.......... -- -- (7,390) -- (7,390)
Investment in Great Southern Railway........ -- -- (597) -- (597)
Loan receivable from Great Southern
Railway................................... -- -- (1,193) -- (1,193)
Proceeds from sales of subsidiaries......... 152 180 -- -- 332
Deferred acquisition costs and other........ (398) (59) -- -- (457)
------- ------ -------- --- --------
Net cash used in investing
activities......................... (396) (4,039) (12,326) -- (16,761)
------- ------ -------- --- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.... 18,605 8,866 3,983 -- 31,454
Principal payments on debt and capital
leases.................................... (15,340) (4,781) (5,328) -- (25,449)
Disbursements/receipts on intercompany
debt...................................... (7,859) (2,961) 10,820 -- --
Sale of common stock........................ 8,164 -- -- -- 8,164
Proceeds from exercise of stock options..... 748 -- -- -- 748
Deferred financing costs paid............... (287) -- -- -- (287)
Deferred loan costs paid.................... (281) (14) -- -- (295)
------- ------ -------- --- --------
Net cash provided by financing
activities......................... 3,750 1,110 9,475 -- 14,335
------- ------ -------- --- --------
Net (decrease) increase in cash............... 10 (244) 99 -- (135)
Cash, beginning of period..................... 3,460 420 -- -- 3,880
------- ------ -------- --- --------
Cash, end of period........................... $ 3,470 $ 176 $ 99 $-- $ 3,745
======= ====== ======== === ========
</TABLE>
F-39
<PAGE> 122
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 9,041 $ 11,598
Accounts and notes receivable............................. 57,056 40,857
Inventories............................................... 11,968 9,929
Other current assets...................................... 7,958 3,500
Net assets of discontinued operation...................... 19,338 14,996
-------- --------
Total current assets.............................. 105,361 80,880
Property, plant and equipment, net.......................... 737,238 347,617
Investment in affiliates.................................... 4,739 4,667
Other assets................................................ 21,371 10,765
-------- --------
Total assets...................................... $868,709 $443,929
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 20,553 $ 17,811
Current portion of asset sale bridge loan................. 37,063 --
Accounts payable.......................................... 41,210 23,732
Accrued expenses.......................................... 38,224 15,379
-------- --------
Total current liabilities......................... 137,050 56,922
Long-term debt, less current maturities..................... 383,880 145,016
Subordinated debt, less current maturities.................. 96,790 101,968
Convertible subordinated debt............................... 20,706 20,481
Other liabilities........................................... 28,742 16,374
Deferred income taxes....................................... 66,552 15,382
Minority interest........................................... 9,684 9,489
-------- --------
743,404 365,632
-------- --------
Commitments and contingencies
Redeemable convertible preferred stock, $0.01 par value, $25
liquidation value, 1,000,000 shares authorized; 290,400
and 378,400 shares outstanding, respectively.............. 6,827 8,830
-------- --------
Stockholders' equity:
Common stock, $0.001 par value............................ 20 13
Additional paid-in capital................................ 115,262 52,305
Retained earnings......................................... 22,200 18,171
Accumulated other comprehensive income.................... (12,504) 3,486
Treasury stock (1,027,839 and 716,589 shares,
respectively, at cost)................................. (6,500) (4,508)
-------- --------
Total stockholders' equity........................ 118,478 69,467
-------- --------
Total liabilities and stockholders' equity........ $868,709 $443,929
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-40
<PAGE> 123
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Operating revenue.................................. $ 96,047 $ 28,816 $177,047 $39,878
-------- -------- -------- -------
Operating expenses:
Transportation................................... 53,448 17,595 102,103 23,352
Selling, general and administrative.............. 17,511 5,122 28,750 7,805
Acquisition related costs........................ 1,185 -- 1,924 --
Gain on sale and impairment of assets (net)...... (7,785) -- (7,785) --
Depreciation and amortization.................... 7,983 1,726 14,384 2,720
-------- -------- -------- -------
Total operating expenses................. 72,342 24,443 139,376 33,877
-------- -------- -------- -------
Operating income......................... 23,705 4,373 37,671 6,001
Interest expense................................... (11,456) (3,071) (23,062) (4,388)
Amortization of financing costs.................... (1,490) (856) (2,638) (988)
Minority interest and other income (expense)....... 198 (409) 1,007 (534)
Foreign exchange gain (loss)....................... 189 2,005 (3,243) 2,005
-------- -------- -------- -------
Income from continuing operations before
income taxes........................... 11,146 2,042 9,735 2,096
Provision for income taxes......................... 3,558 653 3,036 668
-------- -------- -------- -------
Income from continuing operations................ 7,588 1,389 6,699 1,428
Discontinued operations:
(Loss) income from operations of discontinued
segment (net of applicable income tax of
($215), $804, ($293) and $1,272,
respectively)................................. (35) 1,359 (112) 2,523
-------- -------- -------- -------
Income before extraordinary item......... 7,553 2,748 6,587 3,951
Extraordinary loss from early extinguishment of
debt (net of tax)................................ -- -- (2,216) --
-------- -------- -------- -------
Net income............................... $ 7,553 $ 2,748 $ 4,371 $ 3,951
======== ======== ======== =======
-----------------------------------------------------------------------------------------------
Net income available to common stockholders........ $ 7,387 $ 2,482 $ 4,029 $ 3,444
======== ======== ======== =======
Basic earnings per common share
Continuing operations............................ $ 0.40 $ 0.10 $ 0.36 $ 0.09
Discontinued operations.......................... -- 0.12 -- 0.23
Extraordinary item............................... -- -- (0.13) --
-------- -------- -------- -------
Net income............................... $ 0.40 $ 0.22 $ 0.24 $ 0.32
======== ======== ======== =======
Diluted earnings per common share
Continuing operations............................ $ 0.36 $ 0.10 $ 0.36 $ 0.08
Discontinued operations.......................... -- 0.12 -- 0.23
Extraordinary item............................... -- -- (0.13) --
-------- -------- -------- -------
Net income............................... $ 0.36 $ 0.22 $ 0.23 $ 0.31
======== ======== ======== =======
Weighted average common shares outstanding
Basic............................................ 18,516 11,115 17,493 10,617
======== ======== ======== =======
Diluted.......................................... 21,883 11,553 17,684 11,004
======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-41
<PAGE> 124
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------
NUMBER OF ADDITIONAL OTHER
SHARES PAR PAID-IN RETAINED COMPREHENSIVE TREASURY
ISSUED VALUE CAPITAL EARNINGS INCOME STOCK TOTAL
--------- ----- ---------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999..................... 12,611 $13 $ 52,305 $18,171 $ 3,486 $ (4,508) $ 69,467
Net income..................................... -- -- -- 4,371 -- -- 4,371
Cumulative translation adjustments............. -- -- -- -- (15,990) -- (15,990)
--------
Total comprehensive income............. (11,619)
--------
Issuance of common stock....................... 6,652 7 60,900 -- -- -- 60,907
Exercise of stock options...................... -- -- 4 -- -- -- 4
Conversion of redeemable convertible preferred
stock........................................ 267 -- 2,053 -- -- -- 2,053
Purchase of treasury stock..................... -- -- -- -- -- (1,992) (1,992)
Preferred stock dividends and accretion........ -- -- -- (342) -- -- (342)
------ --- -------- ------- -------- -------- --------
Balance, June 30, 2000......................... 19,530 $20 $115,262 $22,200 $(12,504) $ (6,500) $118,478
====== === ======== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-42
<PAGE> 125
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 4,371 $ 3,951
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 18,484 4,316
Write-off of deferred loan costs..................... 2,498 --
Interest paid in kind................................ 2,063 --
Minority interest in income of subsidiary............ 195 381
Equity interest in earnings of affiliate............. (129) --
(Gain) loss on sale or disposal of properties........ (7,834) 337
Deferred income taxes................................ (10,465) 1,629
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
Accounts receivable............................... 13,016 407
Inventories....................................... (3,558) 369
Other current assets.............................. 1,322 (1,190)
Accounts payable.................................. (3,269) 4,826
Accrued expenses.................................. 11,422 (3,577)
Other liabilities................................. (133) 166
Deposits and other................................ (8,678) 1,415
--------- --------
Net cash provided by operating activities.... 19,305 13,029
--------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment................. (23,244) (25,554)
Proceeds from sale of properties.......................... 9,574 103
Acquisitions, net of cash acquired........................ (149,969) (5,206)
Deposit on purchase agreement............................. -- --
Cash held in discontinued operations...................... 170 --
Deferred acquisition costs and other...................... (1,379) (393)
--------- --------
Net cash used in investing activities........ (164,848) (31,050)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................. 207,104 51,087
Principal payments on long-term debt...................... (48,208) (37,930)
Sale of convertible preferred stock....................... -- 4,095
Sale of common stock...................................... -- 11,914
Proceeds from exercise of stock options................... 4 337
Preferred stock dividends paid............................ (281) (410)
Purchase of treasury stock................................ (1,992) (636)
Deferred financing costs paid............................. (13,219) (810)
--------- --------
Net cash provided by financing activities.... 143,408 27,647
--------- --------
Net (decrease) increase in cash............................. (2,135) 9,626
Effect of exchange rates on cash............................ (422) --
Cash, beginning of period................................... 11,598 5,760
--------- --------
Cash, end of period......................................... $ 9,041 $ 15,386
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-43
<PAGE> 126
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations.
In the opinion of Management, the consolidated financial statements contain
all adjustments of a recurring nature, and disclosures necessary to present
fairly the financial position of the Company as of June 30, 2000 and December
31, 1999, and the results of operations and cash flows for the three and six
months ended June 30, 2000 and 1999. The results of operations for the three and
six months ended June 30, 2000 are not necessarily indicative of the results to
be expected for the full year.
The accounting principles which materially affect the financial position,
results of operations and cash flows of the Company are set forth in Notes to
the Consolidated Financial Statements which are included in the Company's 1999
annual report on Form 10-K. Capitalized terms used but not otherwise defined
herein have the meanings set forth in the Company's 1999 annual report on Form
10-K. Certain prior period amounts have been reclassified to conform with the
current period presentation.
2. EARNINGS PER SHARE
For the three and six months ended June 30, 2000 and 1999, basic earnings
per share is calculated using the weighted average number of common shares
outstanding during the period. Income from continuing operations is reduced by
preferred stock dividends and accretion for the basic earnings per share
computation.
For the three months ended June 30, 2000, diluted earnings per share is
calculated using the sum of the weighted average number of common shares
outstanding plus potentially dilutive common shares arising out of stock
options, warrants, convertible debt and convertible preferred stock. Options and
warrants totaling 4.2 million were excluded from the diluted earnings per share
calculation for the six and three months ended June 30, 2000 as the exercise
price of these options and warrants were greater than the average market price
of the Common Stock. Assumed conversion of the redeemable convertible preferred
stock and the $22.5 million of convertible debt are anti-dilutive for the six
months ended June 30, 2000 and 1999 and the three months ended June 30, 1999 and
have been excluded from the weighted average shares outstanding for diluted
earnings per share.
F-44
<PAGE> 127
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the income from continuing operations
available for common stockholders and weighted average shares (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
2000 1999 2000 1999
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Income from continuing operations...................... $ 7,588 $ 1,389 $ 6,699 $ 1,428
Preferred stock dividends and accretion................ (166) (266) (342) (507)
-------- ------- ------- -------
Income from continuing operations available to common
stockholders (basic)................................. 7,422 1,123 6,357 921
Interest on convertible debt........................... 288 -- -- --
Preferred stock dividends and accretion................ 166 -- -- --
-------- ------- ------- -------
Income from continuing operations available to common
stockholders (diluted)............................... $ 7,876 $ 1,123 $ 6,357 $ 921
======== ======= ======= =======
Weighted average shares outstanding (basic)............ 18,516 11,115 17,493 10,617
Assumed conversion of options and warrants............. 122 438 191 387
Assumed conversion of convertible securities........... 3,245 -- -- --
-------- ------- ------- -------
Weighted average shares outstanding (diluted).......... 21,883 11,553 17,684 11,004
======== ======= ======= =======
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following as of June 30, 2000
and December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Land........................................................ $134,164 $ 34,345
Buildings and improvements.................................. 13,404 8,683
Railroad track and improvements............................. 429,642 186,670
Locomotives, transportation and other equipment............. 184,303 135,309
-------- --------
761,513 365,007
Less accumulated depreciation............................... 24,275 17,390
-------- --------
$737,238 $347,617
======== ========
</TABLE>
In February 2000, the Company acquired RailTex, Inc. This acquisition
resulted in approximately $390 million of the fixed asset additions.
The Company recognized a $9.0 million gain on the sale of land of a Texas
railroad in June 2000. In addition, the Company recognized a $0.5 million loss
on sale and an asset impairment charge of $0.8 million in the second quarter of
2000 related to its tractor and trailer fleet. The net effect of these
transactions has been reflected in operating expenses in the consolidated
statement of income.
4. ACQUISITION
On February 4, 2000, the Company acquired RailTex, Inc. for $128 million in
cash, assumption of $111 million in debt and 6.6 million shares of the Company's
Common Stock, valued at $60.9 million. RailTex, the operator of 25 railroads and
over 4,100 miles of rail lines in North America, became a wholly-owned
subsidiary of the Company. This transaction was financed through the issuance of
new debt (see Note 6).
The acquisition of RailTex has been accounted for as a purchase and its
results have been consolidated since the acquisition date. The final purchase
price allocation was based upon the fair value of the net assets acquired. As
part of the purchase price and in accordance with EITF 95-3, "Recognition of
Liabilities in
F-45
<PAGE> 128
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Connection with a Purchase Business Combination", the Company recorded
liabilities of $11.2 million which related to severance and change of control
payments to former RailTex employees.
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisition of Railtex had occurred at the beginning of
the periods presented and does not purport to be indicative of what would have
occurred had the acquisition been made as of that date or results which may
occur in the future (in thousands except per share data). The six months ended
June 30, 1999 also include the purchases of Freight Australia, which occurred in
April 1999, RaiLink, Ltd., which occurred in July 1999 and Toledo, Peoria and
Western Railroad, which occurred in August 1999 as if these acquisitions had
occurred on January 1, 1999.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
2000 1999
---------- ----------
<S> <C> <C>
Operating revenue........................................... $191,121 $187,332
Income from continuing operations........................... $ 9,122 $ 4,495
Net income.................................................. $ 6,794 $ 7,018
Earnings per share -- continuing operations
Basic..................................................... $ 0.47 $ 0.22
Diluted................................................... $ 0.47 $ 0.21
Earnings per share -- net (loss) income
Basic..................................................... $ 0.35 $ 0.36
Diluted................................................... $ 0.34 $ 0.32
</TABLE>
5. OTHER ASSETS
Other assets consist of the following as of June 30, 2000 and December 31,
1999 (in thousands):
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Deferred loan costs......................................... $13,745 $ 6,657
Notes receivable............................................ 1,668 2,123
Deposits and other.......................................... 5,958 1,985
------- -------
$21,371 $10,765
======= =======
</TABLE>
6. LONG-TERM DEBT
In February 2000, the Company entered into a credit agreement and two
bridge note facilities in connection with the acquisition of RailTex and the
refinancing of most of the Company's and RailTex's existing debt. The credit
agreement provides (1) a $125 million Term A loan, bearing interest at LIBOR
plus 3.00% (2) a $205 million Term B loan, bearing interest at LIBOR plus 3.25%,
and (3) a $50 million revolving credit facility which includes $30 million of
U.S. dollar denominated loans, $10 million of Canadian dollar denominated loans
and $10 million of Australian dollar denominated loans with an interest rate of
LIBOR plus 3.00%. In May 2000, the Company entered into interest rate swaps
which lock in a blended rate of 10.35% on $212.5 million of this debt for a
three-year period. All of the Stock of all the Company's U.S. subsidiaries,
excluding Kalyn/Siebert I, Inc. (a discontinued operation), and 65% of the stock
of the Company's foreign subsidiaries serve as collateral for the credit
facilities.
The Term A loan requires principal payments of 5% in 2000, 10% in 2001, 15%
in 2002, 20% in 2003, and 25% in both 2004 and 2005. The Term B loan requires
principal payments of 1% per year through 2005 and a balloon maturity at
December 31, 2006. The revolving loan matures on December 31, 2005.
F-46
<PAGE> 129
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's credit facilities include covenants which impose financial
and operating restrictions on the Company's ability to, among other things:
incur more debt; pay dividends, redeem or repurchase its stock or make other
distributions; make acquisitions or investments; use assets as security in other
transactions; enter into transactions with affiliates; merge or consolidate with
others; dispose of assets or use asset sale proceeds; create liens on its
assets; and extend credit. The credit facilities also contain financial
covenants that require the Company to meet a number of financial ratios and
tests.
The Company, through its wholly-owned subsidiary RailAmerica Transportation
Corp., issued $95 million of subordinated bridge notes, under a securities
purchase agreement with DLJ Bridge Finance, Inc., bearing interest at an initial
rate of 13% per annum, and increasing every three months based on the highest
specified rates. The subordinated bridge note was fully paid off in August 2000
(see note 11). The Company, through its wholly-owned subsidiary Palm Beach Rail
Holding, Inc. issued $55 million of asset sale bridge notes, under a securities
purchase agreement with DLJ Bridge Finance, Inc. These notes mature on February
4, 2001 and have an initial interest rate of 15% per annum, which rate increases
on August 4, 2000 and November 4, 2000 based on the highest of specified rates.
The asset sale bridge notes are collateralized by the assets of Kalyn/Siebert. A
majority of the asset sale bridge notes are included in current liabilities and
the related interest expense is included in discontinued operations as the
proceeds from the sale of Kalyn/Siebert are required to be used to pay down the
asset sale bridge notes. $20 million of these notes were paid in August 2000
(see note 11).
In connection with the issuance of the asset sale bridge notes, the
purchasers of such notes are entitled to receive warrants to purchase common
stock at an exercise price of $7.75 per share commencing in August 2000 to the
extent the asset sale bridge notes are then outstanding. The maximum number of
shares issuable upon exercise of these warrants is 0.6 million, subject to
specified anti-dilution adjustments. In August 2000, 0.3 million of the warrants
were issued.
In connection with the February 2000 debt refinancing, including the
refinancing of RailTex's debt, the Company recorded an extraordinary charge of
$2.2 million for early extinguishment of debt, net of income taxes, in the first
quarter of 2000.
7. NON-CASH INVESTING AND FINANCING ACTIVITIES
During the first quarter of 2000, $2.2 million of the redeemable
convertible preferred stock was converted into the Company's Common Stock.
In connection with the RailTex acquisition, the Company refinanced $223
million of its debt and $111 million of debt that it assumed from RailTex using
the credit facilities described in Note 6. The Company also issued 6.6 million
shares of its Common Stock, valued at $60.9 million as part of the purchase
price.
8. COMMON STOCK
The Company's common stock issued and outstanding as of June 30, 2000 was
19,530,444 and 18,502,605, respectively, and 12,610,725 and 11,894,136,
respectively, as of December 31, 1999. There are 60,000,000 shares authorized.
On August 24, 1998, the Company's Board of Directors authorized a share
repurchase program to buy back up to 1,000,000 shares of its Common Stock
(limited to $2 million per year pursuant to the Company's credit facilities).
Purchases will be made from time to time in the open market and will continue
until all of such shares are purchased or until the Company determines to
terminate the repurchase program. During the year 2000, the Company has
purchased 311,250 shares with a total cost of $2.0 million.
In June 2000, the Company engaged JW Genesis to assist the Company's Board
of Directors in evaluating the issuance of the subordinated debt, and issued
three-year warrants to purchase 150,000 shares of
F-47
<PAGE> 130
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company's common stock to JW Genesis. Of these warrants, 75,000 are at an
exercise price of $5.50 and 75,000 are at an exercise price of $6.50.
9. DISCONTINUED OPERATIONS
In November 1999, the Company adopted a plan to sell its trailer
manufacturing operations, Kalyn/Siebert. This business has been accounted for as
a discontinued operation and the results of operations have been excluded from
continuing operations in the consolidated statements of operations for all
periods presented.
Total revenue for this business was $21.5 million and $23.0 million for the
six months ended June 30, 2000 and 1999, respectively. Income (loss) before
income taxes for this business was ($0.4 million) and $3.8 million for the six
months ended June 30, 2000 and 1999, respectively. Total assets in this business
as of June 30, 2000 and December 31, 1999 were $29.6 million and $28.8 million,
respectively. Total liabilities in this business as of June 30, 2000 and
December 31, 1999 were $44.8 million, which excluded a majority of the asset
sale bridge notes, and $13.9 million, respectively. Interest of $3.5 million was
allocated to the discontinued operations for the first six months of 2000
relating to the asset sale bridge notes.
10. SEGMENT INFORMATION
The Company's continuing operations have been classified into two segments:
North American rail transportation and International rail transportation. The
North American rail transportation segment includes the operations of the
Company's railroad subsidiaries in the United States and Canada and the
international rail transportation segment includes the operations of the
Company's railroad subsidiaries in Chile and Australia. Because the Company's
trailer manufacturing segment was classified as a discontinued operation its net
assets are included in corporate and other.
Segment information for the six months ended June 30, 2000 and 1999 follows
(in thousands):
SIX MONTHS ENDED JUNE 30, 2000:
<TABLE>
<CAPTION>
NORTH AMERICAN INTERNATIONAL CORPORATE AND
CONSOLIDATED RAILROADS RAILROADS OTHER
------------ -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue............................. $177,047 $112,542 $ 63,600 $ 905
Depreciation and amortization....... $ 14,384 $ 9,997 $ 3,461 $ 926
Operating income (loss)............. $ 37,671 $ 31,824 $ 12,272 $ (6,425)
Total assets.............. $868,709 $539,133 $108,446 $221,130
</TABLE>
SIX MONTHS ENDED JUNE 30, 1999:
<TABLE>
<CAPTION>
NORTH AMERICAN INTERNATIONAL CORPORATE AND
CONSOLIDATED RAILROADS RAILROADS OTHER
------------ -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue............................. $ 39,878 $ 13,018 $ 25,761 $ 1,099
Depreciation and amortization....... $ 2,720 $ 1,020 $ 1,257 $ 443
Operating income (loss)............. $ 6,001 $ 2,620 $ 5,131 $(1,750)
Total assets.............. $292,631 $ 16,499 $204,382 $71,750
</TABLE>
11. SUBSEQUENT EVENTS
In August 2000, the Company, through its wholly-owned subsidiary
RailAmerica Transportation Corp., issued 130,000 units each consisting of $1,000
of 12 7/8% senior subordinated notes due 2010 and warrants to purchase 10.857
shares of RailAmerica common stock for $6.60 per share. Warrants issued totaled
1.4 million. The price per unit was $940.38 and gross proceeds were $122.2
million. The Company used the net
F-48
<PAGE> 131
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
proceeds of the offering to permanently finance most of the bridge debt incurred
in connection with its acquisition of RailTex (see note 6).
12. CONTINGENCIES
In the second quarter of 2000, certain parties filed property damage claims
totaling approximately CND$50 million against the Mackenzie Northern Railway and
others, in connection with fires that allegedly occurred in 1998. We intend to
vigorously defend these claims, and have insurance coverage to approximately
CND$20 million to cover these claims. Because these actions are in their early
stages and the claimants have not yet asserted the legal basis for their claims,
the Company is unable to assess the merits of the claims; however, our insurer
has reserved CND$15 million for these matters. A loss, if any, in excess of our
insurance policy coverage may adversely affect our cash flow and financial
condition.
F-49
<PAGE> 132
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. GUARANTOR FINANCIAL STATEMENT INFORMATION
Set forth are condensed Consolidating Financial Statements of the Company
(Parent), the Guarantor Subsidiaries, Non Guarantor Subsidiaries and the Company
on a consolidated basis.
CONSOLIDATING BALANCE SHEET
AT JUNE 30, 2000
<TABLE>
<CAPTION>
NON
COMPANY GUARANTOR GUARANTOR
(PARENT) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash.................................. $ 272 $ 113 $ 8,656 $ -- $ 9,041
Accounts and notes receivable......... 1,748 31,441 25,566 (1,699) 57,056
Inventories........................... -- 2,368 9,600 -- 11,968
Other current assets.................. 1,150 3,601 3,207 -- 7,958
Net assets of discontinued
operation.......................... -- -- 19,338 -- 19,338
-------- -------- --------- --------- --------
Total current assets.......... 3,170 37,523 66,367 (1,699) 105,361
Property, plant and equipment, net.... 1,180 440,881 295,177 -- 737,238
Investment in affiliates.............. -- -- 4,739 -- 4,739
Other assets.......................... 3,662 14,320 3,389 -- 21,371
Investment in and advances to
affiliates......................... 111,103 390,669 (117,921) (383,851) --
-------- -------- --------- --------- --------
Total assets.................. $119,115 $883,393 $ 251,751 $(385,550) $868,709
======== ======== ========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term
debt............................... $ -- $ 12,874 9,378 $ (1,699) $ 20,553
Current portion of asset sale
bridge............................. -- -- 37,063 -- 37,063
Accounts payable...................... 424 23,043 17,743 -- 41,210
Accrued expenses...................... 1,025 19,135 18,064 -- 38,224
-------- -------- --------- --------- --------
Total current liabilities..... 1,449 55,052 82,248 (1,699) 137,050
Long-term debt, less current
maturities............................ -- 338,489 45,391 -- 383,880
Subordinated Debt....................... -- 95,000 1,790 -- 96,790
Convertible subordinated debt........... 20,706 -- -- -- 20,706
Other liabilities....................... -- 15,589 13,153 -- 28,742
Deferred income taxes................... (5,499) 71,853 198 -- 66,552
Minority interest....................... -- -- 4,269 5,415 9,684
Redeemable convertible preferred
stock................................. 6,827 -- -- -- 6,827
Stockholders' equity:
Common stock.......................... 20 973 27,797 (28,770) 20
Additional paid-in capital............ 115,263 311,000 49,495 (360,496) 115,262
Retained earnings..................... (13,170) (4,810) 40,180 -- 22,200
Accumulated other comprehensive
income............................. 19 247 (12,770) -- (12,504)
Treasury stock........................ (6,500) -- -- -- (6,500)
-------- -------- --------- --------- --------
Total stockholders' equity.... 95,632 307,410 104,702 (389,266) 118,478
-------- -------- --------- --------- --------
Total liabilities and
stockholders' equity........ $119,115 $883,393 $ 251,751 $(385,550) $868,709
======== ======== ========= ========= ========
</TABLE>
F-50
<PAGE> 133
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
NON
COMPANY GUARANTOR GUARANTOR
(PARENT) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenue........................ $ 276 $ 81,480 $95,567 $(276) $177,047
------- -------- ------- ----- --------
Operating expenses:
Transportation......................... -- 41,213 60,890 -- 102,103
Selling, general and administrative.... 4,564 15,531 8,931 (276) 28,750
Acquisition related expenses........... 208 1,716 -- -- 1,924
Gain on sale and impairment of assets
(net)............................... -- (9,036) 1,251 -- (7,785)
Depreciation and amortization.......... 62 8,405 5,917 -- 14,384
------- -------- ------- ----- --------
Total operating expenses....... 4,834 57,829 76,989 -- 139,376
------- -------- ------- ----- --------
Operating income............... (4,558) 23,651 18,578 -- 37,671
Interest expense......................... (692) (18,945) (3,426) -- (23,063)
Amortization of financing costs.......... (465) (1,859) (314) -- (2,638)
Minority interest and other income
(expense).............................. 30 286 692 -- 1,008
Foreign exchange loss.................... -- -- (3,243) -- (3,243)
------- -------- ------- ----- --------
Income from continuing
operations before income
taxes........................ (5,685) 3,133 12,287 -- 9,735
Provision for income taxes............... (2,232) 1,989 3,279 -- 3,036
------- -------- ------- ----- --------
Income from continuing
operations................... (3,453) 1,144 9,008 -- 6,699
Discontinued operations:
Loss from operations of discontinued
segment............................. -- -- (112) -- (112)
------- -------- ------- ----- --------
Income (loss) before extraordinary
item................................... (3,453) 1,144 8,896 6,587
Extraordinary loss from early
extinguishment of debt (net of tax).... (1,232) (57) (927) -- (2,216)
------- -------- ------- ----- --------
Net income..................... $(4,685) $ 1,087 $ 7,969 $ -- $ 4,371
======= ======== ======= ===== ========
</TABLE>
F-51
<PAGE> 134
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
NON
COMPANY GUARANTOR GUARANTOR
(PARENT) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $(4,685) $ 1,087 $ 7,969 -- $ 4,371
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 542 10,248 7,694 -- 18,484
Write-off of deferred loan costs....................... 1,323 14 1,161 -- 2,498
Interest paid in kind.................................. -- -- 2,063 -- 2,063
Minority interest in income of subsidiary.............. -- -- 195 -- 195
Equity interest in earnings of affiliate............... -- -- (129) -- (129)
(Gain) loss on sale or disposal of properties.......... -- (9,088) 1,254 -- (7,834)
Deferred income taxes.................................. (2,936) (2,125) (5,404) -- (10,465)
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
Accounts receivable.................................. 700 6,846 5,470 -- 13,016
Inventories.......................................... -- (2,001) (1,557) -- (3,558)
Other current assets................................. (709) 2,129 (98) -- 1,322
Accounts payable..................................... (353) 808 (3,724) -- (3,269)
Accrued expenses..................................... 301 6,355 4,766 -- 11,422
Other liabilities.................................... -- 1,241 (1,374) -- (133)
Deposits and other................................... (1,034) (2,641) (5,003) -- (8,678)
------- --------- -------- ----- ---------
Net cash provided by operating activities.......... (6,851) 12,873 13,283 -- 19,305
------- --------- -------- ----- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment................ (27) (7,951) (15,266) -- (23,244)
Proceeds from sale of properties......................... -- 9,427 147 -- 9,574
Acquisitions, net of cash acquired....................... -- (149,969) -- -- (149,969)
Cash held in discontinued operations..................... -- -- 170 -- 170
Deferred acquisition costs and other..................... (1,331) (48) -- -- (1,379)
------- --------- -------- ----- ---------
Net cash used in investing activities.............. (1,358) (148,541) (14,949) -- (164,848)
------- --------- -------- ----- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt................. 986 198,766 7,352 -- 207,104
Principal payments on long-term debt..................... (11,699) (34,456) (2,053) -- (48,208)
Disbursements/receipts on intercompany debt.............. 21,423 (20,636) (787) -- --
Proceeds from exercise of stock options.................. 4 -- -- -- 4
Preferred stock dividends paid........................... (281) -- -- -- (281)
Purchase of treasury stock............................... (1,992) -- -- -- (1,992)
Deferred financing costs paid............................ (52) (11,659) (1,508) -- (13,219)
------- --------- -------- ----- ---------
Net cash provided by financing activities.......... 8,389 132,015 3,004 -- 143,408
------- --------- -------- ----- ---------
Net (decrease) increase in cash............................ 180 (3,653) 1,338 -- (2,135)
Effect of exchange rates on cash........................... -- -- (422) -- (422)
Cash, beginning of period.................................. 92 3,770 7,736 -- 11,598
------- --------- -------- ----- ---------
Cash, end of period........................................ $ 272 $ 117 $ 8,652 $ -- $ 9,041
======= ========= ======== ===== =========
</TABLE>
F-52
<PAGE> 135
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To RailTex, Inc.:
We have audited the accompanying consolidated balance sheets of RailTex,
Inc. (a Texas corporation), and subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of RailTex,
Inc., and subsidiaries as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
Arthur Andersen LLP
San Antonio, Texas
February 17, 2000
F-53
<PAGE> 136
RAILTEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
OPERATING REVENUES.......................................... $177,845 $161,020 $148,791
OPERATING EXPENSES:
Transportation............................................ 57,716 53,485 50,870
General and administrative................................ 36,437 30,855 30,701
Equipment................................................. 19,256 18,837 17,830
Maintenance of way........................................ 17,091 15,933 13,449
Depreciation and amortization............................. 16,693 14,258 12,940
-------- -------- --------
Total operating expenses.......................... 147,193 133,368 125,790
-------- -------- --------
OPERATING INCOME............................................ 30,652 27,652 23,001
INTEREST EXPENSE............................................ (10,435) (11,236) (10,527)
OTHER INCOME, NET........................................... 3,051 4,215 4,198
-------- -------- --------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE................................... 23,268 20,631 16,672
INCOME TAXES................................................ (9,389) (7,853) (6,048)
-------- -------- --------
NET INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE...................................... 13,879 12,778 10,624
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (NET
OF INCOME TAXES).......................................... -- (1,703) --
-------- -------- --------
NET INCOME.................................................. $ 13,879 $ 11,075 $ 10,624
======== ======== ========
BASIC EARNINGS PER SHARE:
NET INCOME BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE....................... $ 1.49 $ 1.39 $ 1.16
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (NET
OF INCOME TAXES).......................................... -- (0.19) --
-------- -------- --------
NET INCOME................................................ $ 1.49 $ 1.20 $ 1.16
======== ======== ========
WEIGHTED AVERAGE NUMBER OF BASIC SHARES
OF COMMON STOCK OUTSTANDING................................. 9,285 9,205 9,153
DILUTED EARNINGS PER SHARE:
NET INCOME BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE....................... $ 1.48 $ 1.38 $ 1.15
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (NET
OF INCOME TAXES)....................................... -- (0.18) --
-------- -------- --------
NET INCOME................................................ $ 1.48 $ 1.20 $ 1.15
======== ======== ========
WEIGHTED AVERAGE NUMBER OF DILUTED
SHARES OF COMMON STOCK OUTSTANDING.......................... 9,388 9,251 9,222
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-54
<PAGE> 137
RAILTEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,801 $ 1,243
Accounts receivable, less doubtful receivables of $884 in
1999; $844 in 1998..................................... 31,239 35,478
Prepaid expenses and other current assets................. 1,919 2,387
Inventories............................................... 852 849
Deferred tax assets, net.................................. 1,569 1,906
-------- --------
Total current assets.............................. 37,380 41,863
-------- --------
PROPERTY AND EQUIPMENT, NET................................. 293,971 291,779
-------- --------
OTHER ASSETS:
Investments in Brazilian railroad companies............... 21,095 19,994
Other, net................................................ 12,724 8,709
-------- --------
Total other assets................................ 33,819 28,703
-------- --------
Total assets...................................... $365,170 $362,345
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term notes payable.................................. $ -- $ 215
Current portion of long-term debt......................... 1,010 8,568
Accounts payable.......................................... 18,000 20,574
Accrued liabilities....................................... 18,004 17,729
-------- --------
Total current liabilities......................... 37,014 47,086
DEFERRED INCOME TAXES, NET.................................. 31,272 30,294
LONG-TERM DEBT, LESS CURRENT PORTION........................ 111,475 122,982
OTHER LIABILITIES........................................... 13,977 6,835
-------- --------
Total liabilities................................. 193,738 207,197
-------- --------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN BRAZILIAN INVESTMENTS.................. 11,561 11,000
-------- --------
SHAREHOLDERS' EQUITY:
Preferred Stock; $1.00 par value; 10 million shares
authorized;
no shares issued or outstanding........................ -- --
Common Stock; $.10 par value; 30 million shares
authorized;
issued and outstanding 9,293,314 in 1999; 9,273,963 in
1998.................................................. 929 927
Paid-in capital........................................... 86,095 85,115
Retained earnings......................................... 73,855 59,976
Deferred compensation..................................... (1,201) (948)
Accumulated other comprehensive income.................... 193 (922)
-------- --------
Total shareholders' equity........................ 159,871 144,148
-------- --------
Total liabilities and shareholders' equity........ $365,170 $362,345
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-55
<PAGE> 138
RAILTEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ACCUMULATED
SHARES OTHER TOTAL
ISSUED AND $.10 PAR PAID-IN RETAINED DEFERRED COMPREHENSIVE SHAREHOLDERS'
OUTSTANDING VALUE CAPITAL EARNINGS COMPENSATION INCOME EQUITY
----------- --------- ------- -------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996.......... 9,124 $912 $83,629 $38,277 $ -- $(115) $122,703
Comprehensive income:
Net income........................ -- -- -- 10,624 -- -- 10,624
Foreign currency translation...... -- -- -- -- -- (243) (243)
----- ---- ------- ------- ------- ----- --------
Total comprehensive
income.................... -- -- -- 10,624 -- (243) 10,381
Exercise of stock options......... 37 4 170 -- -- -- 174
----- ---- ------- ------- ------- ----- --------
BALANCE, December 31, 1997.......... 9,161 916 83,799 48,901 -- (358) 133,258
Comprehensive income:
Net income........................ -- -- -- 11,075 -- -- 11,075
Foreign currency translation...... -- -- -- -- -- (564) (564)
----- ---- ------- ------- ------- ----- --------
Total comprehensive
income.................... -- -- -- 11,075 -- (564) 10,511
Exercise of stock options......... 33 3 326 -- -- -- 329
Restricted stock awards........... 80 8 990 -- (998) -- --
Amortization of deferred
compensation.................... -- -- -- -- 50 -- 50
----- ---- ------- ------- ------- ----- --------
BALANCE, December 31, 1998.......... 9,274 927 85,115 59,976 (948) (922) 144,148
Comprehensive income:
Net income........................ -- -- -- 13,879 -- -- 13,879
Foreign currency translation...... -- -- -- -- -- 1,115 1,115
----- ---- ------- ------- ------- ----- --------
Total comprehensive
income.................... -- -- -- 13,879 -- 1,115 14,994
Exercise of stock options......... 19 2 129 -- -- -- 131
Performance stock awards.......... -- -- 851 -- (851) -- --
Amortization of deferred
compensation.................... -- -- -- -- 598 -- 598
----- ---- ------- ------- ------- ----- --------
BALANCE, December 31, 1999.......... 9,293 $929 $86,095 $73,855 $(1,201) $ 193 $159,871
===== ==== ======= ======= ======= ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-56
<PAGE> 139
RAILTEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $13,879 $11,075 $10,624
Adjustments to reconcile net income to net cash provided
by
operating activities:
Cumulative effect of a change in accounting
principle............................................ -- 2,747 --
Depreciation and amortization.......................... 16,693 14,258 12,940
Deferred income taxes.................................. 1,315 5,432 2,182
Provision for losses on accounts receivable............ 427 187 638
Amortization of deferred financing costs............... 452 388 384
Gain on sale of assets................................. (3,041) (1,867) (6,771)
Gain on sale of subsidiary............................. (511) -- --
Gain on sale of minority interest...................... -- (2,045) --
Write down of investments.............................. -- -- 2,100
Other.................................................. 579 82 (275)
Changes in working capital:
Accounts receivable.................................. 3,812 (2,565) (5,975)
Prepaid expenses and other current assets............ 207 (22) (59)
Accounts payable and accrued liabilities............. (1,157) 777 10,109
------- ------- -------
Net cash provided by operating activities....... 32,655 28,447 25,897
------- ------- -------
INVESTING ACTIVITIES:
Purchase of property and equipment........................ (24,919) (30,320) (35,507)
Proceeds from sale of property and equipment.............. 12,339 2,288 7,327
Proceeds from sale of subsidiary.......................... 675 -- --
Purchase of new properties and related equipment and other
costs.................................................. -- (13,096) (25,978)
Investment in Brazilian railroad companies................ (540) -- (1,362)
Sale of preferred shares in Brazilian railroad company.... -- -- 2,758
Proceeds from sale of minority interest................... -- 10,861 --
Organization and acquisition costs........................ 18 (79) (97)
Decrease (increase) in other long-term assets............. 547 (1,617) (152)
------- ------- -------
Net cash used in investing activities........... (11,880) (31,963) (53,011)
------- ------- -------
FINANCING ACTIVITIES:
(Decrease) increase in short-term notes payable........... (215) (355) 218
Proceeds from long-term debt.............................. 272 21,900 75,000
Principal payments on long-term debt and capital leases... (3,469) (16,687) (53,398)
Net (decrease) increase in working capital facilities..... (16,593) (750) 4,000
Deferred financing costs.................................. (848) (3) (369)
Issuance of common stock.................................. 76 247 74
------- ------- -------
Net cash (used in) provided by financing
activities................................... (20,777) 4,352 25,525
------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... 560 (163) 51
------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 558 673 (1,538)
CASH AND CASH EQUIVALENTS, beginning of year................ 1,243 570 2,108
------- ------- -------
CASH AND CASH EQUIVALENTS, end of year...................... $ 1,801 $ 1,243 $ 570
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-57
<PAGE> 140
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF THE COMPANY'S BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
RailTex, Inc. (a Texas corporation) and its wholly-owned subsidiaries.
References to "RailTex" or the "Company" mean RailTex, Inc. and, unless the
context indicates otherwise, its consolidated subsidiaries. All significant
intercompany transactions and accounts have been eliminated in consolidation.
The Company is an operator of short line railroads in North America. Its
holdings include short line railroads concentrated in the Southeastern, Great
Lakes region, New England and Central United States as well as Eastern Canada.
During 1999, the Company owned investments in two Brazilian railroad companies
which were sold in January 2000 (See Note 5).
The Company's strategy is to grow through (i) the creation of new business
and improvement in operating performance of newly added and currently operated
properties and (ii) additions to and divestitures from its portfolio of short
line railroad properties, primarily through strategic acquisitions of Class I
railroad branch lines or existing short line properties, and divestiture of
non-strategic lines to smaller, independently operated short line companies.
ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
CASH AND CASH EQUIVALENTS AND CONSOLIDATED STATEMENTS OF CASH FLOWS
All short-term investments which mature in less than 90 days when purchased
are considered cash equivalents. Cash equivalents are stated at cost, which
approximates market value.
Supplemental disclosures of cash flow information (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Cash paid during the year for:
Interest.......................................... $10,534 $11,207 $8,962
Income taxes...................................... 7,358 2,514 2,604
Non-cash investing and financing activities:
Grants............................................ 6,652 2,918 352
Capital leases.................................... 31 1,959 1,844
Tax benefit from exercise of non-qualified stock
options......................................... 61 76 100
Amortization of deferred compensation............. 598 50 --
Liabilities and long-term debt assumed in connection
with the acquisition of railroad companies:
Fair value of assets acquired..................... -- 15,809 --
Cash paid for capital stock....................... -- 14,003 --
------- ------- ------
Liabilities and long-term debt assumed............ $ -- $ 1,806 $ --
======= ======= ======
</TABLE>
F-58
<PAGE> 141
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are carried at historical cost. Acquired railroad
property is recorded at the purchased cost. Major renewals or betterments are
capitalized; routine maintenance and repairs, which do not improve the asset or
extend asset lives, are charged to expense when incurred. Gains or losses on
sales or other dispositions are credited or charged to income. Depreciation is
computed using the straight-line method over periods ranging from 8 to 30 years
for roadway and structures, 3 to 15 years for locomotives and other railroad
equipment and 3 to 10 years for other non-railroad equipment. Leasehold
improvements are amortized over the life of the lease or the service lives of
the improvements, whichever is shorter.
The Company has adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets To Be Disposed Of."
This statement requires the recognition of an impairment loss on a long-lived
asset held for use when events and circumstances indicate that the estimate of
undiscounted future cash flows expected to be generated by the asset are less
than its carrying amount. The Company recorded an impairment loss totaling
approximately $375,000 related to one of its railroad properties for the year
ended December 31, 1998. For the years ended December 31, 1999 and 1997, no
impairment loss was recorded.
INVESTMENTS IN BRAZILIAN RAILROAD COMPANIES
Investments in Brazilian railroad companies represent minority interest in
Ferrovia Centro Atlantica, S.A. ("FCA") and America Latina Logistica, S.A.
("ALL"), the parent corporation of Ferrovia Sul Atlantico, S.A. ("FSA"), are
accounted for using the cost method of accounting and are valued at the lower of
cost or market.
OTHER ASSETS
At December 31, 1999, other assets primarily include a note receivable of
$5.0 million, interest at LIBOR plus 2.0%, goodwill, and deferred financing
costs, while at December 31, 1998, other assets primarily include goodwill and
deferred financing costs. Goodwill is amortized over 30 years. Financing costs
are amortized over the related loan terms using the effective interest method.
Amortization of these costs is included in interest expense. Prior to the
Company's adoption of Statement of Position 98-5 in 1998, "Reporting on the
Costs of Start-up Activities" ("SOP 98-5") (see further discussion below), the
Company capitalized the costs associated with start-up activities, including the
acquisition of new railroads, and these costs were amortized using the
straight-line method over five years. Amortization of goodwill, financing,
organization and acquisition costs totaled approximately $648,000, $478,000 and
$1.6 million for the years ended December 31, 1999, 1998 and 1997, respectively.
Accumulated amortization of these costs was approximately $3.2 million and $2.6
million at December 31, 1999 and 1998, respectively.
DEFERRED GRANT REVENUE
Included in other liabilities at December 31, 1999 and 1998 is $6.3 million
and $4.4 million, respectively, of deferred grant revenue. Deferred grant
revenue represents economic development funds contributed to the Company by
government entities for track rehabilitation. Deferred grants are being
amortized to income over the life of the assets acquired with the funds.
Also included in other liabilities at December 31, 1999 and 1998 is $8.0
million and $2.7 million, respectively, of deferred revenue contributed to the
Company by one of its customers for rehabilitation of track used to serve this
customer. The deferred revenue is being amortized to income over 15 years, the
life of the service contract with the customer. The assets acquired are being
depreciated over 30 years. As a result, the Company recognized income, in excess
of depreciation, of approximately $221,000 in 1999. There was no income
recognized in 1998 as the asset had not been placed in service.
F-59
<PAGE> 142
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
Freight revenues are recognized as shipments initially move onto the
Company's tracks, which, due to the relatively short length of haul, is not
materially different from the recognition of revenues as shipments progress.
Non-freight revenues, including joint facilities, switching, demurrage, car hire
and car repair services, are recognized as the service is performed.
INCOME TAXES
The Company files consolidated U.S. Federal income tax returns which
include all of its U.S. subsidiaries and separate Canadian federal income tax
returns for each Canadian subsidiary. Deferred income taxes are provided when
certain revenues and expenses are reported in periods which are different for
financial reporting purposes than for income tax reporting purposes.
Deferred tax liabilities and assets are recorded based on the enacted
income tax rates which are expected to be in effect in the periods in which the
deferred tax liability or asset is expected to be settled or realized. A change
in the tax laws or rates results in adjustments to the deferred tax liabilities
and assets. The effect of such adjustments is included in income in the period
in which the tax laws or rates are changed.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Company's Canadian
subsidiaries are measured using the local currency as the functional currency.
Assets and liabilities of operations denominated in foreign currencies are
translated into U.S. dollars at exchange rates in effect at year-end, while
revenues and expenses are translated at average exchange rates prevailing during
the year. The resulting translation gains and losses are charged directly to
foreign currency translation, a component of shareholders' equity, and are not
included in net income until realized through sale or liquidation of the
investment.
CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS AND MAJOR CUSTOMERS
The Company regularly grants trade credit to all of its customers. In
addition, the Company grants trade credit to other railroads through the routine
interchange of traffic. The Company's accounts receivable are well diversified
except for a concentration of accounts receivable with some Class I railroads.
The Company's management believes these Class I railroads are large, financially
strong companies, and thus believe the Company's exposure to credit risk is
minimal. Approximately 16% and 15% of the Company's accounts receivable were due
from one Class I railroad at December 31, 1999 and 1998, respectively. No other
customer individually accounted for more than 10% of the Company's accounts
receivable balance at December 31, 1999 or 1998.
During 1999, the Company served more than 1,100 customers who shipped and
received a wide variety of products. Although most of the Company's railroads
have a well-diversified customer base, several have one or two dominant
customers. The Company's largest customer in 1999, 1998 and 1997 was Canadian
National Railways ("CN"), representing 6.7%, 7.0% and 8.1% of operating
revenues, respectively.
PRICE RISK MANAGEMENT ACTIVITIES
The Company historically has hedged certain anticipated transactions.
Interest rate swaps and diesel fuel price contracts with third parties are used
to hedge interest rates and diesel fuel costs. Hedges of anticipated
transactions are accounted for under the deferral method with gains and losses
on these transactions recognized in interest expense and operating expenses, as
applicable, when the hedged transaction occurs. The Company does not currently
hold or issue financial instruments for trading purposes.
F-60
<PAGE> 143
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. As issued, this statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. Initial application of this
statement was to become effective for the Company's financial statements
beginning January 1, 2000. However, in June 1999, FASB issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133" which delayed for one year the effective date of SFAS 133. The Company
believes the adoption of this statement will not have a material impact on the
financial condition or results of operations of the Company.
In April 1998, the Accounting Standards Executive Committee issued SOP
98-5. SOP 98-5 requires costs associated with start-up activities to be expensed
as incurred. SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998. The Company adopted SOP 98-5 for the year
ended December 31, 1998. This adoption resulted in the recognition of a
non-recurring charge of approximately $1,703,000 (net of income taxes) entitled,
"Cumulative effect of a change in accounting principle (net of income taxes)" in
the accompanying consolidated financial statements. Prior to the adoption of SOP
98-5, the Company capitalized the costs associated with start-up activities,
including the acquisition of new railroad properties, and amortized those costs
over five years. Prospectively, the Company's results of operations will reflect
higher costs associated with the acquisition of new railroad properties in the
period of acquisition.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year amounts to
conform with the current period presentation.
2. RELATED PARTY TRANSACTIONS
The Company purchases, in the normal course of business, various parts for
locomotives and grade crossing signals from certain subsidiaries of Harmon
Industries, Inc., of which the Company's Founder and Chairman Emeritus is a
director. Purchases from subsidiaries of Harmon Industries, Inc. for the years
ended December 31, 1999, 1998 and 1997 totaled approximately $584,000,
$1,200,000 and $462,000, respectively.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
F-61
<PAGE> 144
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. EARNINGS PER SHARE
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS 128"), which was effective for fiscal years
ending after December 15, 1997. Basic earnings per share is determined by
dividing net income by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share is determined by
dividing net income by the weighted average number of shares of common stock and
common stock equivalents outstanding during the period. Stock options with an
exercise price below fair market value for any of the periods presented are
considered common stock equivalents.
The following is a reconciliation of the numerators and the denominators of
the basic and diluted earnings per share computations (in thousands, except per
share amounts).
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NUMERATOR:
Net income before cumulative effect of a change in
accounting principle............................. $13,879 $12,778 $10,624
Cumulative effect of a change in accounting
principle
(net of income taxes)............................ -- (1,703) --
------- ------- -------
Net income.......................................... $13,879 $11,075 $10,624
======= ======= =======
DENOMINATOR:
Weighted average number of basic share of common
stock outstanding................................ 9,285 9,205 9,153
EFFECT OF DILUTIVE SECURITIES:
Stock options....................................... 79 46 69
Performance stock................................... 24 -- --
------- ------- -------
103 46 69
Weighted average number of diluted shares of common
stock outstanding................................ 9,388 9,251 9,222
======= ======= =======
BASIC EARNINGS PER SHARE:
Net income before cumulative effect of a change in
accounting principle............................. $ 1.49 $ 1.39 $ 1.16
Cumulative effect of a change in accounting
principle
(net of income taxes)............................ -- (0.19) --
------- ------- -------
Total....................................... $ 1.49 $ 1.20 $ 1.16
======= ======= =======
DILUTED EARNINGS PER SHARE:
Net income before cumulative effect of a change in
accounting principle............................. $ 1.48 $ 1.38 $ 1.15
Cumulative effect of a change in accounting
principle
(net of income taxes)............................ -- (0.18) --
------- ------- -------
Total....................................... $ 1.48 $ 1.20 $ 1.15
======= ======= =======
</TABLE>
F-62
<PAGE> 145
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Roadway and structures...................................... $272,479 $263,541
Locomotives and other railroad equipment.................... 67,547 61,831
Office furniture and other equipment........................ 14,948 13,751
Equipment and vehicles held under capital leases............ 5,733 5,730
Vehicles.................................................... 1,167 1,120
-------- --------
361,874 345,973
Less accumulated depreciation and amortization.............. (67,903) (54,194)
-------- --------
$293,971 $291,779
======== ========
</TABLE>
5. INVESTMENTS IN BRAZILIAN RAILROAD COMPANIES
At December 31, 1999, the Company owned a 50.5% membership interest
totaling $9.5 million in RailTex Global Investments, LLC, a limited liability
company that owned shares in FCA and ALL. In January 2000, RailTex sold its
interests in FCA and ALL and as a result, the Company no longer owns any
interests in any Brazilian company (See Note 18).
6. SHORT-TERM NOTES PAYABLE
At December 31, 1999, the Company had no outstanding unsecured short-term
notes payable to insurance companies. At December 31, 1998, the Company had
outstanding unsecured short-term notes payable to insurance companies totaling
approximately $215,000. The notes bore interest at 7.75% and were due in monthly
installments of principal and interest totaling approximately $37,000 through
June 1999. The weighted average interest rate for the short-term notes payable
was 7.2% for the year ended December 31, 1998.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
F-63
<PAGE> 146
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Senior unsecured notes payable to two institutions; interest
at 7.44%; interest only due semiannually; principal
balance payable through six annual mandatory prepayments
beginning July 2007....................................... $ 50,000 $ 50,000
Senior unsecured notes payable to four institutions;
interest at 7.23%; interest only due semiannually;
principal balance due September 2005...................... 40,000 40,000
Senior unsecured notes payable to banks; interest is
variable (LIBOR based weighted average interest rate of
6.46% on $18.3 million in borrowings and U.S. prime based
interest rate of 7.75% on $0.3 million in borrowings at
December 31, 1998); interest due monthly; principal
partially due through quarterly principal payments through
April 2002, with remaining balance due April 2002......... -- 18,575
Senior unsecured notes payable to two institutions; interest
at 9.21%; interest only due semiannually; principal
balance of $6.9 million and $3.5 million due September
2005 and October 2005, respectively....................... 10,388 9,756
Senior unsecured subordinated notes; interest at 12.0%;
interest only due semiannually; principal balance of $2.5
million and $2.5 million due January 2001 and January
2002, respectively........................................ 5,000 5,000
Senior unsecured notes payable to banks; interest is
variable (Prime based 8.75% on $1.0 million and LIBOR
based 7.73% on $3.0 million at December 31, 1999);
interest payment periods range from one month to six
months depending on type of loan; all borrowings due April
2002...................................................... 4,000 --
Senior unsecured notes payable to banks; interest is
variable (LIBOR based weighted average interest rate of
6.375% at December 31, 1998); interest only due monthly
through April 1999, when all borrowings become due........ -- 2,000
Senior unsecured notes payable to banks; interest is
variable (90 day Canadian BA rate of 6.145% at December
31, 1998); interest only due monthly through April 1999,
when all borrowings become due............................ -- 1,951
Capital lease obligations; interest at rates ranging from
7.25% to 8.5% at December 31, 1999 and 1998; payable in
variable monthly installments through August 2003......... 2,402 3,513
Other, primarily due to state agencies; interest at rates
ranging from 5.0% to 7.9% at December 31, 1999 and 1998;
payable in variable installments through March 2011....... 695 755
-------- --------
Total long-term debt........................................ 112,485 131,550
Less current portion........................................ (1,010) (8,568)
-------- --------
Long-term debt, less current portion........................ $111,475 $122,982
======== ========
</TABLE>
In April 1999, the Company completed the refinancing and expansion of its
senior revolving credit facility to $175 million. The refinancing and expansion
replaced the Company's previous U.S. and Canadian credit agreements, which
expired in April 1999. The three year agreement consists of a syndicate of ten
F-64
<PAGE> 147
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
banks, led by Chase Bank of Texas, N.A., who serves as administrative agent. The
facility allows for an equivalent of U.S. $20 million to be allocated for use in
Canada. The facility will be used to finance acquisitions, capital expenditures,
working capital and other general corporate purposes. Interest payment periods
range from one month to six months depending on the type of loan. Interest rates
also vary depending on the type of loan. All borrowings become due and payable
in April 2002. The unused portion of the refinanced Senior Bank Facility is
subject to a 0.30% to 0.50% commitment fee based on certain ratios.
At December 31, 1999 and 1998, the Company had a $300,000 letter of credit
("LOC") outstanding under its credit facilities, in place at the time. This LOC
collateralizes a loan from the State of Michigan that financed specific capital
improvements.
Covenants contained in the agreements evidencing the Company's senior bank,
senior unsecured and senior subordinated debt prohibit the Company from paying
dividends on its capital stock and limit its ability to incur additional
indebtedness, create liens on its assets, make capital expenditures and
repurchase shares of its capital stock or any outstanding options or other
rights to acquire capital stock of the Company. The Company is also limited in
its ability to make loans, investments or guarantees. Additionally, the Company
is required to maintain a minimum tangible net worth and certain ratios of
leverage and cash flow to interest. At December 31, 1999, the Company was in
compliance with all covenants. As a result of the Company's merger with
RailAmerica, Inc. ("RailAmerica"), all long-term debt, except capital leases,
were paid in full subsequent to December 31, 1999 (See Note 18).
Maturities of long-term debt were as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
<S> <C>
2000........................................................ $ 1,010
2001........................................................ 3,385
2002........................................................ 7,076
2003........................................................ 217
2004........................................................ 77
Thereafter.................................................. 100,720
--------
Total............................................. $112,485
========
</TABLE>
8. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company historically has hedged certain anticipated transactions.
Interest rate swaps and diesel fuel price collar contracts with third parties
are used to hedge interest rates and diesel fuel costs. Hedges of anticipated
transactions are accounted for under the deferral method with gains and losses
on these transactions recognized in interest expense and operating expenses when
the hedged transaction occurs. The Company does not currently hold or issue
financial instruments for trading purposes.
The Company is exposed to fluctuations in diesel fuel prices, as an
increase in the price of diesel fuel would result in lower earnings and
increased cash outflows. The Company has entered into several commodity collar
transactions to hedge market risks of diesel fuel prices. The first collar was
effective April 1, 1998 and terminated March 31, 1999 and represented notional
amounts totaling 225,000 gallons per month with a cap price of $0.5600 per
gallon and a floor price of $0.4375 per gallon. The second collar was effective
July 1, 1998 and terminated June 30, 1999 and represented notional amounts
totaling 225,000 gallons per month with a cap price of $0.5600 per gallon and a
floor price of $0.4490 per gallon.
In February 1999, the Company entered into two additional contracts to
hedge its market risk from diesel fuel prices. The first consisted of three
monthly swap agreements which fix the price of 725,000 gallons of diesel fuel in
April, May and June 1999 at $0.3215, $0.3280 and $0.3375 per gallon,
respectively. The second is a cap which fixes the price of 725,000 gallons of
diesel fuel per month for the period July
F-65
<PAGE> 148
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 to June 2000 at $0.4500 per gallon. The cost of the cap was approximately
$209,000, which will be amortized over the period covered by the cap. The cap
which expires in June 2000, hedges approximately 60% of the Company's estimated
monthly diesel fuel consumption.
At December 31, 1999 and 1998, the Company had not entered into any
interest rate swaps contracts.
9. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments held by the Company:
Current assets and current liabilities: The carrying value approximates
fair value due to the short maturity of these items.
Accrued interest payable: The carrying amount approximates fair value as
the majority of interest payments are made monthly or semiannually.
Long-term investment: The carrying value approximates fair value based on
discounted cash flows.
Long-term debt, senior subordinated debt and senior notes payable: The
fair value of the Company's long-term debt, senior subordinated debt and senior
notes payable is based on secondary market indicators. Since the Company's debt
is not quoted, estimates are based on each obligation's characteristics,
including remaining maturities, interest rates, credit rating, collateral,
amortization schedule and liquidity. The carrying amount approximates fair
value.
Commodity collar transactions: The fair value of commodity collar
transactions is the amount at which they could be settled, based on estimates
obtained from dealers. The unrealized gain on the commodity collar transaction
at December 31, 1999 was approximately $766,000 and the unrealized loss on the
commodity collar transaction at December 31, 1998 was approximately $249,000.
10. EMPLOYEE BENEFITS
STOCK BASED COMPENSATION
Stock Options
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), was issued. SFAS 123
defines a fair value based method of accounting for employee stock options or
similar equity instruments and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. Under the fair
value based method, compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period of the award, which
is usually the vesting period. However, SFAS 123 also allows entities to
continue to measure compensation costs for employee stock compensation plans
using the intrinsic value method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). The Company adopted SFAS
123 effective January 1, 1996, and has elected to remain with the accounting
prescribed by APB 25. The Company has made the required disclosures prescribed
by SFAS 123.
The Company grants non-qualified stock options to outside Directors and key
employees of the Company. In September 1993, the Board of Directors and
shareholders of the Company approved an equity incentive plan ("1993 Plan"). In
June 1996, the 1993 Plan was amended to (i) increase the maximum number of
shares of Common Stock issuable under the 1993 Plan from 750,000 to 1,250,000,
without reduction for the number of shares issued upon exercise of options
granted outside of the 1993 Plan; (ii) extend the exercise period for Outside
Director's Options from two to ten years and increase the number of shares which
may be purchased under Outside Director's Options from 2,000 to 3,000; (iii)
specify 1,250,000 shares as the maximum number of shares issuable under the 1993
Plan to any employee in any year; (iv) permit the 1993
F-66
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RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Plan administrator to specify shorter vesting periods for non-qualified options;
and (v) clarify that cashless exercises of stock rights are permitted under the
1993 Plan. In May 1999, the shareholders of the Company voted to increase the
maximum number of shares of Common Stock issuable under the 1993 Plan from
1,250,000 to 1,650,000, without reduction for the number of shares issued upon
exercise of options granted outside of the 1993 Plan.
Under the Company's stock option plan, options have been granted to outside
directors and certain key employees of the Company at prices equal to or more
than the fair market value of the Company's stock on the date of grant and
expire 10 years from the date of grant, unless specified otherwise. Stock
options granted to outside directors are exercisable immediately and stock
options granted to key employees vest at a rate of 20% per year, unless
specified otherwise.
A summary of the status of the Company's 1993 Plan, as amended, for the
years ended December 31, 1999, 1998 and 1997, and changes during the years
ending on those dates is presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------
1999 1998 1997
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of the year..... 854,614 $13.60 581,783 $18.07 743,954 $19.00
Granted................................ 215,197 13.46 710,216 13.42 188,973 19.31
Exercised.............................. (19,351) 3.73 (33,039) 7.49 (58,667) 4.71
Forfeited.............................. (105,692) 11.93 (404,346) 20.22 (292,477) 23.93
-------- -------- --------
Outstanding, end of year............... 944,768 13.95 854,614 13.60 581,783 18.07
======== ======== ========
Options exercisable end of year........ 311,416 $13.68 194,654 $13.33 245,940 $13.50
======== ====== ======== ====== ======== ======
Weighted average fair value of options
granted during year.................. $ 8.31 $ 8.41 $12.66
====== ====== ======
</TABLE>
The following table summarizes the information about the 1993 Plan options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 3.74- 8.80........................ 94,890 1.83 $ 6.37 94,890 $ 6.37
$10.88-11.94........................ 259,205 8.91 11.84 59,491 5.78
$14.00-18.50........................ 511,514 7.87 14.47 85,764 14.77
$24.25-27.75........................ 79,159 5.49 26.56 71,271 26.60
------- -------
944,768 7.35 $13.95 311,416 $13.68
======= =======
</TABLE>
In November 1998, the Board of Directors of the Company granted employee
stock options to its current employee option holders other than its then
Chairman of the Board and its Chief Executive Officer at an exercise price of
$11.9375 per share, the then current market value of the Company's common stock.
The options vest over five years in accordance with the Company's 1993 Plan, as
amended. In order to obtain the newly granted stock options the employees were
required to tender all previously granted employee options for cancellation. As
to any employee, the amount of shares included under the new options were
reduced from the number of shares covered by the canceled options by the same
percentage as the new option
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RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exercise price was less than the canceled option exercise price. The reduction
in the number of options outstanding and the reduced exercise price is reflected
in the tables above.
Because the Company has elected to remain with the accounting prescribed by
APB 25, no compensation cost has been recognized for its 1993 Plan. Had
compensation cost for the Company's stock-based compensation plans been
determined on the fair value of the grant dates for awards under those plans
consistent with the method of SFAS 123, the Company's net income, earnings per
basic share and earnings per diluted share would have decreased to the pro forma
amounts indicated below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income:
As reported...................................... $13,879 $11,075 $10,624
Pro forma........................................ 12,378 $ 9,362 $ 9,289
Basic earnings per share:
As reported...................................... $ 1.49 $ 1.20 $ 1.16
Pro forma........................................ $ 1.33 $ 1.02 $ 1.01
Diluted earnings per share:
As reported...................................... $ 1.48 $ 1.20 $ 1.15
Pro forma........................................ $ 1.32 $ 1.01 $ 1.01
</TABLE>
The fair value of each option grant is estimated on the date of grant using
an option-pricing model similar to Black-Scholes with the following
weighted-average assumptions used for grants in 1999, 1998 and 1997,
respectively:
Dividend yield of 0.0% for all years; expected volatility of 48.1%, 42.0%
and 42.2%; risk-free interest rates of 7.7%, 5.6% and 6.5%; and expected lives
of 7.6, 10 and 10 years for December 31, 1999, 1998 and 1997, respectively.
Restricted Stock
In 1998, the Company, under the 1993 Plan, granted 80,000 restricted shares
in the form of the Company's common stock to key executives. Of the 80,000
restricted shares awarded in 1998, 30,000 vest ratably over three years and
50,000 vest ratably over five years. The restricted shares will also vest in the
event of a change in control or termination, not for cause. The unvested portion
of the restricted shares forfeit if the key executive is terminated for cause
during the restriction period. The awards were recorded at the fair market value
of the Company's common stock on the date of grant as deferred compensation and
will be amortized over the restriction period. For the years ended December 31,
1999 and 1998, the Company recorded compensation expense of approximately
$243,000 and $50,000, respectively. For the year ended December 31, 1999, 20,000
of the 80,000 restricted shares vested.
PERFORMANCE STOCK
Performance shares were awarded to certain key employees in 1998, through
the 1993 Plan. Employees must be employed by the Company at the end of three
years from the date of the award to receive the performance shares. During the
three-year period, the number of shares to be awarded can increase by a maximum
of 200.0% or decrease to zero as determined by the Company's total shareholder
return as compared to benchmarks, as defined in the plan.
In addition, the Company, under the 1993, granted performance shares to key
executives in 1999. The performance shares vest over a three-year period
depending on whether certain earnings per share and return on capital targets
are met, as defined. The performance shares cliff vest seven years from the date
of grant. If
F-68
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RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the earnings per share and return on capital targets are met, the executives
must be employed by the Company at the end of three years from the date of the
award to receive the performance shares. If the earnings per share and return on
capital targets are not met, the executive must be employed by the Company at
the end of seven years from the date of the award to receive the performance
shares.
As of December 31, 1999 and 1998, a total of 56,716 and 20,457 performance
shares were outstanding, respectively. At December 31, 1999, the Company
recorded compensation expense related to the performance shares of approximately
$355,000. There was no compensation expense recorded at December 31, 1998
related to the performance shares.
On February 4, 2000, the Company was acquired by a wholly-owned subsidiary
of RailAmerica. As a result of the acquisition, all stock options, restricted
stock and performance stock under the 1993 Plan became fully exercisable and
vested. All stock options, restricted stock and performance stock outstanding
immediately prior to closing were canceled. Each stock option holder received an
amount in cash equal to $13.50 minus the exercise price of the stock option plus
two-thirds of a share of RailAmerica stock in exchange for each share of RailTex
stock. Restricted stock and performance stock holders received an amount in cash
of $13.50 per share plus two-thirds of a share of RailAmerica stock in exchange
for each share of RailTex stock (See Note 18).
CASH BASED COMPENSATION
The Company has various performance-based, cash incentive compensation
programs which include all employees. Total cash incentive compensation of
approximately $5.2 million, $3.6 million and $3.1 million was awarded under the
various incentive compensation programs in 1999, 1998 and 1997, respectively.
RETIREMENT PLANS
The Company has a 401(k) profit sharing plan ("401(k) Plan") for all
eligible employees of the Company, as defined in the 401(k) Plan document. The
401(k) Plan qualifies under Section 401(k) of the Internal Revenue Code as a
salary reduction plan. Employees may elect to contribute a certain percentage of
their salary on a before-tax basis. Employees are immediately fully vested in
their contributions and begin vesting in employer contributions after one year
of service, as defined in the 401(k) Plan document. The 401(k) Plan is a defined
contribution plan with employer contributions made solely at the discretion of
the Board of Directors.
Effective July 1, 1995, the 401(k) Plan was amended to provide for a
Company matching contribution for certain employees of RailTex, Inc., the parent
company, who are not covered under the Railroad Retirement and Railroad
Unemployment Insurance Acts ("The Retirement Acts"). The Company matches
employee contributions, for these employees, at the rate of 200.0% on employee
contributions up to 5.0% of eligible compensation. Employees begin vesting in
the employer matching contributions after one year of service. Company matching
contributions to the 401(k) Plan totaled approximately $327,000, $314,000 and
$230,000 in 1999, 1998 and 1997, respectively.
EMPLOYEE OPEN MARKET STOCK PURCHASE PLAN
The Company had an Employee Open Market Stock Purchase Plan ("Stock
Purchase Plan"), which was canceled in October 1999 when the Company announced
plans to merge with RailAmerica. The purpose of the Stock Purchase Plan was to
allow employees of the Company to participate in the Company's future. The Stock
Purchase Plan was a payroll deduction plan which permits employees who meet
specified length of service requirements to purchase shares, on an after-tax
basis, of the Company's common stock on the open market at prevailing market
prices. The Company paid the brokerage commissions on all purchases and
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RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
incurred the administrative expenses associated with the Stock Purchase Plan.
Stock Purchase Plan expenses in 1999, 1998 and 1997 were not material.
EXECUTIVE DEFERRED COMPENSATION
During 1995, the Company implemented an Executive Deferred Compensation
Plan wherein certain key employees were provided with life insurance protection
in an amount sufficient to provide supplemental income, based upon a percentage
of the employee's base salary, at retirement.
The Executive Deferred Compensation Plan was funded through the purchase of
split-dollar life insurance contracts. Upon death or retirement, the participant
or the participant's estate was to reimburse the Company for all policy premiums
paid. Also, should employment terminate prior to death or retirement, the
participant could forfeit, at the discretion of the Compensation Committee, any
future rights in the insurance policy. Effective January 1, 1999, the Executive
Deferred Compensation Plan was modified and all split-dollar life insurance
contracts, except two policies for two former executives, were canceled and
replaced with a new Executive Deferred Compensation Plan. Under the new plan,
each executive is entitled to 1% of their gross annual salary as deferred
compensation. Premiums paid for the split dollar life insurance contracts for
1999, 1998 and 1997 were approximately $149,000, $407,000 and $311,000,
respectively. The combined cash surrender value of these policies was
approximately $526,000 and $859,000 at December 31, 1999 and 1998, respectively.
As a result of RailAmerica's acquisition of RailTex, which was effective
February 4, 2000, the two remaining split-dollar life insurance policies were
transferred to the two former executives and the deferred compensation that had
been accrued through February 4, 2000 under the new Executive Deferred
Compensation Plan was paid to each executive.
POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS
The Company does not provide post-retirement or post-employment benefits to
its employees.
F-70
<PAGE> 153
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES
Income tax expense consisted of the following (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
United States:
Federal --
Current....................................... $5,181 $1,486 $2,358
Deferred...................................... 1,349 4,672 1,837
------ ------ ------
6,530 6,158 4,195
------ ------ ------
State --
Current....................................... 1,337 (180) 965
Deferred...................................... (270) 970 36
------ ------ ------
1,067 790 1,001
------ ------ ------
Foreign:
Current....................................... 1,556 635 543
Deferred...................................... 236 270 309
------ ------ ------
1,792 905 852
------ ------ ------
$9,389 $7,853 $6,048
Tax effect of change in accounting principle......... -- (1,044) --
------ ------ ------
$9,389 $6,809 $6,048
====== ====== ======
</TABLE>
The following summarizes the estimated tax effect of significant cumulative
temporary differences that are included in the net deferred income tax liability
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Differences in property depreciation and amortization....... $36,488 $33,009
Accruals and reserves not deducted for tax purposes until
paid or realized.......................................... (1,982) (1,333)
Federal benefit of state taxes.............................. (724) (890)
Charitable contribution carryforward........................ (609) (1,291)
AMT credit carryforward..................................... -- (993)
Deferred revenue............................................ (3,470) --
Other items, net............................................ -- (114)
------- -------
Net deferred tax liability............................. $29,703 $28,388
======= =======
</TABLE>
At December 31, 1999 and 1998, there were no valuation allowances against
deferred tax assets.
The Company has not provided any U.S. deferred income taxes or Canadian
withholding taxes on the undistributed earnings of its Canadian subsidiaries
based on the determination that such earnings will be indefinitely reinvested.
At December 31, 1999, the cumulative undistributed earnings of these
subsidiaries were approximately $10.2 million. If such earnings were not
considered indefinitely reinvested, deferred U.S. and Canadian withholding taxes
would have been provided after consideration of foreign tax credits. However,
determination of the amount of deferred federal income taxes and Canadian
withholding taxes is not practical.
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<PAGE> 154
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of the U.S. statutory tax rate to the effective income
tax rate follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
United States statutory rate................................ 35.0% 35.0% 35.0%
Effect of foreign operations................................ 1.8 1.0 1.3
State income taxes, net of federal income tax benefit....... 3.0 4.8 5.0
Contribution for tax purposes, net of valuation allowance... -- -- (5.0)
Reversal of valuation allowance............................. -- (2.5) --
Other, net.................................................. 0.5 (0.2) --
---- ---- ----
40.3% 38.1% 36.3%
==== ==== ====
</TABLE>
12. LEASES
Operating lease expense for the years ended December 31, 1999, 1998 and
1997 totaled approximately $5.1 million, $7.6 million and $6.1 million,
respectively.
The minimum future lease payments for equipment and facilities under
non-cancelable leases are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
FOR THE YEARS ENDED DECEMBER 31, LEASES LEASES
-------------------------------- --------- -------
<S> <C> <C>
2000........................................................ $ 4,285 $1,090
2001........................................................ 2,937 902
2002........................................................ 2,885 536
2003........................................................ 2,752 146
2004........................................................ 2,635 --
Thereafter.................................................. 7,909 --
------- ------
Total minimum payments............................ $23,403 2,674
=======
Less amount representing interest at rates ranging from
7.25% to 8.5%.......................................... 272
------
Present value of minimum lease payments................... $2,402
======
</TABLE>
The Company has entered into various lease agreements covering certain of
its railroad properties. For railroad properties it leases, the Company
ordinarily assumes all operating and financial responsibilities, including
maintenance, payment of property taxes and regulatory compliance, upon
commencement date. Lease payments on three railroad properties leased from one
major railroad are structured to ensure that the Company interchanges an
agreed-upon percentage of outbound carloads with the lessor railroad. Under
these leases, no payments to the lessor are required as long as a minimum
percentage of traffic volume is interchanged with the lessor; therefore, the
Company controls, to some extent, the amounts which may be payable under these
leases. If the minimum percentage of traffic volume interchanged with the lessor
is not met, the amounts which may be payable under these leases could be
significant and have an adverse effect on the Company. These leases are subject
to an initial 20 year term with one or more renewal terms at the Company's
option. In addition, lease payments on five properties leased from two other
major railroads are subject to reduction from the base rate, down to zero,
depending upon the level of traffic interchanged with the lessors. The maximum
aggregate annual base rate lease payments under these leases is approximately
$1.7 million. These leases have initial lease terms of 5 to 20 years and leases
on four of the five properties include purchase options which may be exercised
by the Company after one to three years of operation. To date, no payments have
been required under any of the Company's railroad property leases. Therefore,
the above table does not include any rentals pertaining to the Company's
railroad property leases.
F-72
<PAGE> 155
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
The Company has added railroad properties to its portfolio through the
purchase of track and roadbed, lease of such assets and contracts to operate
such assets under management agreements. These arrangements typically relate
only to the physical assets of the railroad property and, except for the
purchases of Central Properties, Inc. ("CPI") and Indiana & Ohio Rail Corp.
("IORC") (See Note 14), which were structured as acquisitions of stock, the
Company typically does not contractually assume any of the operations or
liabilities of the divesting carriers.
Rail properties operated by the Company under management agreements
typically have initial ten year terms followed by either a purchase option or
one or more renewal terms at the Company's option. These operating contracts
typically require that the Company assume all operating and financial
responsibilities for freight operations on the property, including maintenance,
payment of property taxes and regulatory compliance. Payments by the Company for
the right to conduct rail operations on these properties are typically
calculated as a percentage of revenues from the respective properties.
In August 1995, the Company entered into a ten year Information Technology
Services Agreement ("ITS Agreement") with Electronic Data Systems Corporation
("EDS"). Under the ITS Agreement, EDS is responsible for the management
information systems of the Company, including developing, obtaining licenses for
and maintaining new software for the Company, coordinating the acquisition and
maintenance of computers and related equipment and coordinating the maintenance
of the Company's existing software. The Company currently pays EDS $2.0 million
annually which is subject to annual escalation based on the Consumer Price
Index. The ITS Agreement is subject to earlier termination under certain limited
conditions.
The Company maintains insurance to cover costs associated with personal
injury, including death, and property damage, including derailments. The
Company's liability policies, which include third party property damage, are
currently subject to a self-insured retention of $500,000 per occurrence. With
respect to its transportation of hazardous commodities, the Company's liability
policies cover sudden releases of hazardous materials, including expenses
related to evacuation. Personal injuries associated with grade crossing
accidents and damage to property of shippers are also covered under the
Company's liability policies. The Company's property damage policies, which
cover owned/leased property, are currently subject to a self-insured retention
of $150,000 per occurrence.
The Company's railroad employees are covered by the Federal Employers'
Liability Act ("FELA"), a fault-based system under which injuries and deaths of
railroad employees are settled by negotiation or litigation based on the
comparative negligence of the employee and the employer. FELA-related claims are
covered under the Company's liability insurance policies.
The Company is currently subject to a number of claims and legal actions
that arose in the ordinary course of business, including FELA claims by its
employees and personal injury claims (including wrongful death claims) by third
parties. The Company believes these claims, taking into account reserves and
applicable insurance, will not have a material adverse effect on the Company.
However, adverse judgments in these claims, individually or in the aggregate, in
excess of related reserves and applicable insurance, could have a materially
adverse effect on the Company's financial condition and results of its
operations.
14. ACQUISITIONS AND DIVESTITURES
In September 1999, the Company sold 100% of the stock of the Salt Lake City
Southern Railroad for $675,000.
In June 1999, the Company sold the assets of the Greenville Northern
Railroad for approximately $1.3 million.
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RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 1999, the Company completed the divestiture of the Northeast
Kansas & Missouri Railroad to Union Pacific ("UP") for approximately $3.2
million. The Company also completed the divestiture of the assets of the New
Orleans Lower Coast Railroad to the New Orleans & Gulf Coast Railway Company for
approximately $5.2 million.
In January 1999, a wholly-owned subsidiary of the Company, the Dallas
Garland and Northeast Railroad ("DGNO") commenced operations on 89 miles of rail
line north of Dallas, Texas ("North Dallas Lines") under a lease arrangement
with UP. The North Dallas Lines connect to and are operated as part of the DGNO.
In November 1998, a wholly-owned subsidiary of the Company, Goderich-Exeter
Railway ("GEXR") commenced operations on the Guelph Line under a lease
arrangement with CN. The Guelph Line is a 99 mile rail line that operates
between Silver and London, Ontario and connects with the GEXR at Stratford,
Ontario.
In September 1998, the Company acquired approximately 10 miles of track in
two separate five mile sections from the Burlington Northern and Santa Fe
Railway ("BNSF") for approximately $810,000. One section is in Carthage,
Missouri and the other is in Joplin, Missouri. Both sections are being operated
as part of the Company's Missouri & Northern Arkansas Railroad ("MNAR").
In June 1998, the Company acquired 100% of the outstanding stock of CPI.
The stock was originally held in a voting trust pending Surface Transportation
Board ("STB") approval, which was received effective July 1998. CPI was a
privately held company which owned 100% of the stock of two railroads in Ohio
and Indiana. The Central Railroad of Indianapolis ("CERA") operates almost 92
miles of rail line in north central Indiana under lease and trackage rights
arrangements. The Central Railroad of Indiana ("CIND") owns and operates 81
miles of rail line between Cincinnati, Ohio and Shelbyville, Indiana. The
purchase price was approximately $14.3 million including an approximately $14.0
million cash payment and the assumption of approximately $266,000 of long-term
debt. The Company began actively operating the two railroads in August 1998.
The following unaudited pro forma results of operations for the years ended
December 31, 1998 and 1997, assumes the acquisition of the CPI occurred as of
the beginning of the respective periods (in thousands, except per share
amounts).
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1998 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
Operating revenues.......................................... $163,953 $155,790
======== ========
Net income.................................................. $ 10,214 $ 11,716
======== ========
Basic earnings per share.................................... $ 1.11 $ 1.28
======== ========
Diluted earnings per share.................................. $ 1.10 $ 1.27
======== ========
</TABLE>
These pro forma results have been prepared for comparative purposes only
and include certain adjustments such as depreciation expense as a result of a
step-up in the basis of fixed assets and an adjustment of depreciable lives,
additional amortization expense as a result of organization costs and increased
interest expense on acquisition debt. The unaudited pro forma information is not
necessarily indicative of the results that would have occurred had such
transactions actually taken place at the beginning of the periods specified, nor
does such information purport to project the results of operations for any
future date or period.
In February 1997, a wholly-owned subsidiary of the Indiana & Ohio Rail
Corp., Indiana & Ohio Railway Company ("IORY"), purchased substantially all of
the assets of the former DTI from the Grand
F-74
<PAGE> 157
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Trunk Western Railroad, Inc., a subsidiary of CN. IORY acquired 146 miles of
track for approximately $22.0 million and, with trackage rights, operates over
255 miles of track between Detroit, Michigan and Cincinnati, Ohio. IORY
committed to return the former DTI track to Federal Railroad Administration
Class IV standards, over a three year period. This rehabilitation project was
completed during the year ended December 31, 1998. In addition,$5.0 million of
the purchase price was reimbursed to the Company due to certain levels of
carloadings not achieved within a specified time period, as detailed in the
purchase and sale agreement.
15. COMPREHENSIVE INCOME
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" which establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. Comprehensive Income is defined as
the total of net income and all other changes in equity of an enterprise that
result from transactions and other economic events of a reporting period other
than transactions with owners. The Company has chosen to disclose comprehensive
income in the Consolidated Statements of Shareholders' Equity. For purposes of
SFAS 130, the Company's other comprehensive income or loss was comprised of net
currency translation adjustments. Paragraph 9(f) of Statement 109 "prohibits
recognition of a deferred tax liability or asset for differences related to
assets and liabilities that under FASB Statement No. 52, "Foreign Currency
Translation,' are remeasured from the local currency into the functional
currency using historical rates". Therefore, other comprehensive income is not
being shown net of tax.
16. SEGMENT INFORMATION
During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 establishes new
standards for reporting information about operating segments in annual and
interim financial statements, requiring that public business enterprises report
financial and descriptive information about its reportable segments based on a
management approach. SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas and major customers.
In applying the requirements of this statement, each of the Company's geographic
areas described below were determined to be an operating segment as defined by
the statement, but have been aggregated as allowed by the statement for
reporting purposes. As a result, the Company continues to have one reportable
segment, which is the operation of short line railroads.
F-75
<PAGE> 158
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents information about the Company by geographic
area (in thousands). Identifiable Assets include property and equipment,
intangible assets and other long-term assets, excluding organization and
acquisition costs and deferred financing costs.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Total Revenues:
United States................................. $157,640 $146,358 $134,496
Canada........................................ 20,122 13,841 13,855
Other foreign................................. 83 821 440
-------- -------- --------
Total.................................... $177,845 $161,020 $148,791
======== ======== ========
Operating Income:
United States................................. $ 25,319 $ 23,463 $ 19,225
Canada........................................ 5,320 3,307 3,906
Other foreign................................. 13 882 (130)
-------- -------- --------
Total.................................... $ 30,652 $ 27,652 $ 23,001
======== ======== ========
Identifiable Assets:
United States................................. $284,220 $280,717 $244,034
Canada........................................ 21,257 18,855 19,293
Other foreign................................. 21,095 20,133 18,367
-------- -------- --------
Total.................................... $326,572 $319,705 $281,694
======== ======== ========
</TABLE>
During 1999, the Company served more than 1,100 customers who shipped and
received a wide variety of products. Although most of the Company's railroads
have a well-diversified customer base, several have one or two dominant
customers. The Company's largest customer in 1999, 1998 and 1997 was CN,
representing 6.7%, 7.0% and 8.1% of operating revenues, respectively.
F-76
<PAGE> 159
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. GUARANTOR FINANCIAL STATEMENT INFORMATION
In anticipation of being a guarantor of debt, below are consolidating
financial statements of the Guarantor Subsidiaries, Non-Guarantor Subsidiaries
and the Company on a consolidated basis. Guarantor Subsidiaries include the
parent company, RailTex, and all U.S. subsidiaries. Non-Guarantor Subsidiaries
include all Canadian subsidiaries. Operating revenue and operating expense
eliminations are due to inter-company leases for locomotives and equipment
between the Guarantor parent and the non-guarantor subsidiaries.
CONSOLIDATING STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------
GUARANTOR NON-
PARENT AND GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES............................... $159,238 $ 19,720 $ (1,113) $177,845
OPERATING EXPENSES:
Transportation................................. 51,570 7,145 (999) 57,716
General and administrative..................... 34,688 1,749 -- 36,437
Equipment...................................... 16,641 2,632 (17) 19,256
Maintenance of way............................. 15,130 2,058 (97) 17,091
Depreciation and amortization.................. 15,875 818 -- 16,693
-------- -------- -------- --------
Total operating expenses............... 133,904 14,402 (1,113) 147,193
-------- -------- -------- --------
OPERATING INCOME................................. 25,334 5,318 -- 30,652
INTEREST EXPENSE................................. (9,273) (1,162) -- (10,435)
INCOME FROM SUBSIDIARIES......................... 2,124 -- (2,124) --
OTHER INCOME, NET................................ 3,291 (240) -- 3,051
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE............ 21,476 3,916 (2,124) 23,268
INCOME TAXES..................................... (7,597) (1,792) -- (9,389)
-------- -------- -------- --------
NET INCOME BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE................. 13,879 2,124 (2,124) 13,879
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE (NET OF INCOME TAXES)................ -- -- -- --
-------- -------- -------- --------
NET INCOME....................................... $ 13,879 $ 2,124 $ (2,124) $ 13,879
======== ======== ======== ========
</TABLE>
F-77
<PAGE> 160
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------------------------
GUARANTOR
PARENT AND NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................... $ 160 $ 1,641 $ -- $ 1,801
Accounts receivable.......................... 29,092 2,147 -- 31,239
Intercompany accounts receivable............. -- 3,384 (3,384) --
Prepaid expense and other current assets..... 1,923 (4) -- 1,919
Inventories.................................. 650 202 -- 852
Deferred tax assets, net..................... 1,569 -- -- 1,569
-------- ------- -------- ------------
Total current assets................. 33,394 7,370 (3,384) 37,380
-------- ------- -------- ------------
PROPERTY AND EQUIPMENT, NET.................... 272,714 21,257 -- 293,971
-------- ------- -------- ------------
OTHER ASSETS:
Investments in Brazilian railroad
companies................................. 21,095 -- -- 21,095
Other, net................................... 25,118 116 (12,510) 12,724
-------- ------- -------- ------------
Total other assets................... 46,213 116 (12,510) 33,819
-------- ------- -------- ------------
Total assets......................... $352,321 $28,743 $(15,894) $ 365,170
======== ======= ======== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term notes payables.................... $ -- $ -- $ -- $ --
Current portion of long-term debt............ 1,010 -- -- 1,010
Accounts payable............................. 16,384 1,616 -- 18,000
Intercompany accounts payable................ 3,384 -- (3,384) --
Accrued liabilities.......................... 16,191 1,813 -- 18,004
-------- ------- -------- ------------
Total current liabilities............ 36,969 3,429 (3,384) 37,014
-------- ------- -------- ------------
DEFERRED INCOME TAXES, NET..................... 29,048 2,224 -- 31,272
LONG-TERM DEBT, LESS CURRENT PORTION........... 101,088 10,387 -- 111,475
OTHER LIABILITIES.............................. 13,977 -- -- 13,977
-------- ------- -------- ------------
Total liabilities.................... 181,082 16,040 (3,384) 193,738
-------- ------- -------- ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN BRAZILIAN
INVESTMENTS.................................. 11,561 -- -- 11,561
-------- ------- -------- ------------
SHAREHOLDERS' EQUITY:
Preferred Stock.............................. -- -- -- --
Common Stock................................. 929 73 (73) 929
Paid-in capital.............................. 86,095 2,252 (2,252) 86,095
Retained earnings............................ 73,855 10,185 (10,185) 73,855
Deferred compensation........................ (1,201) -- -- (1,201)
Accumulated other comprehensive income....... -- 193 -- 193
-------- ------- -------- ------------
Total shareholders' equity........... 159,678 12,703 (12,510) 159,871
-------- ------- -------- ------------
Total liabilities and shareholders'
equity............................. $352,321 $28,743 $(15,894) $ 365,170
======== ======= ======== ============
</TABLE>
F-78
<PAGE> 161
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------
GUARANTOR
PARENT AND NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 13,879 $ 2,124 $ (2,124) $ 13,879
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 15,875 818 -- 16,693
Deferred income taxes................................... 952 363 -- 1,315
Provision for losses on accounts receivable............. 271 156 -- 427
Amortization of deferred financing costs................ 404 48 -- 452
Income from subsidiaries................................ (2,124) -- 2,124 --
Gain on sale of assets.................................. (3,005) (36) -- (3,041)
Gain on sale of subsidiary.............................. (511) -- -- (511)
Other................................................... 566 13 -- 579
Change in working capital:
Accounts receivable, including intercompany accounts
receivable.......................................... 4,112 (1,100) 800 3,812
Prepaid expenses and other current assets............. 188 19 -- 207
Accounts payable and accrued liabilities, including
intercompany accounts payable....................... (1,641) 1,284 (800) (1,157)
-------- ------- -------- ------------
Net cash provided by operating activities......... 28,966 3,689 -- 32,655
-------- ------- -------- ------------
INVESTING ACTIVITIES:
Purchase of property and equipment........................ (22,829) (2,090) -- (24,919)
Proceeds from sale of property and equipment.............. 12,301 38 -- 12,339
Proceeds from sale of subsidiary.......................... 675 -- -- 675
Investment in Brazilian railroad company.................. (540) -- -- (540)
Organization and acquisition costs........................ -- 18 -- 18
Decrease in other long-term assets........................ 547 -- -- 547
-------- ------- -------- ------------
Net cash used in investing activities............. (9,846) (2,034) -- (11,880)
-------- ------- -------- ------------
FINANCING ACTIVITIES:
Decrease in short-term notes payable...................... (215) -- -- (215)
Proceeds from long-term debt.............................. 272 -- -- 272
Principal payments on long-term debt and capital leases... (3,469) -- -- (3,469)
Net decrease in working capital facilities................ (14,581) (2,012) -- (16,593)
Deferred financing costs.................................. (768) (80) -- (848)
Issuance of common stock.................................. 76 -- -- 76
-------- ------- -------- ------------
Net cash used in financing activities............. (18,685) (2,092) -- (20,777)
-------- ------- -------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... -- 560 -- 560
-------- ------- -------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 435 123 -- 558
CASH AND CASH EQUIVALENTS, beginning of year................ (275) 1,518 -- 1,243
-------- ------- -------- ------------
CASH AND CASH EQUIVALENTS, end of year...................... $ 160 $ 1,641 $ -- $ 1,801
======== ======= ======== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................. $ 9,347 $ 1,187 -- $ 10,534
Income taxes.............................................. 6,734 624 -- 7,358
Non-cash investing and financing activities:
Grants.................................................... 6,652 -- -- 6,652
Capital leases............................................ 31 -- -- 31
Tax benefit from exercise of non-qualified stock
options................................................. 61 -- -- 61
Amortization of deferred compensation..................... 598 -- -- 598
</TABLE>
F-79
<PAGE> 162
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------
GUARANTOR
PARENT AND NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES............................. $147,943 $ 13,532 $ (455) $161,020
OPERATING EXPENSES:
Transportation............................... 48,944 4,911 (370) 53,485
General and administrative................... 29,680 1,173 2 30,855
Equipment.................................... 16,728 2,117 (8) 18,837
Maintenance of way........................... 14,730 1,282 (79) 15,933
Depreciation and amortization................ 13,516 742 -- 14,258
-------- -------- -------- --------
Total operating expenses............. 123,598 10,225 (455) 133,368
-------- -------- -------- --------
OPERATING INCOME............................... 24,345 3,307 -- 27,652
INTEREST EXPENSE............................... (10,104) (1,132) -- (11,236)
INCOME FROM SUBSIDIARIES....................... 987 -- (987) --
OTHER INCOME, NET.............................. 4,427 (212) -- 4,215
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE... 19,655 1,963 (987) 20,631
INCOME TAXES................................... (6,948) (905) -- (7,853)
-------- -------- -------- --------
NET INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE...................... 12,707 1,058 (987) 12,778
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE (NET OF INCOME TAXES).............. (1,632) (71) -- (1,703)
-------- -------- -------- --------
NET INCOME..................................... $ 11,075 $ 987 $ (987) $ 11,075
======== ======== ======== ========
</TABLE>
F-80
<PAGE> 163
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------------
GUARANTOR
PARENT AND NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ (275) $ 1,518 $ -- $ 1,243
Accounts receivable............................... 33,137 2,341 -- 35,478
Intercompany accounts receivable.................. 337 2,245 (2,582) --
Prepaid expense and other current assets.......... 2,276 111 -- 2,387
Inventories....................................... 742 107 -- 849
Deferred tax assets, net.......................... 1,906 -- -- 1,906
-------- -------- -------- --------
Total current assets...................... 38,123 6,322 (2,582) 41,863
-------- -------- -------- --------
PROPERTY AND EQUIPMENT, NET......................... 273,029 18,750 -- 291,779
-------- -------- -------- --------
OTHER ASSETS:
Investments in Brazilian railroad companies....... 19,994 -- -- 19,994
Other, net........................................ 18,991 104 (10,386) 8,709
-------- -------- -------- --------
Total other assets........................ 38,985 104 (10,386) 28,703
-------- -------- -------- --------
Total assets.............................. $350,137 $ 25,176 $(12,968) $362,345
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term notes payables......................... $ 215 $ -- $ -- $ 215
Current portion of long-term debt................. 6,617 1,951 -- 8,568
Accounts payable.................................. 19,779 795 -- 20,574
Intercompany accounts payable..................... 2,245 337 (2,582) --
Accrued liabilities............................... 16,716 1,013 -- 17,729
-------- -------- -------- --------
Total current liabilities................. 45,572 4,096 (2,582) 47,086
-------- -------- -------- --------
DEFERRED INCOME TAXES, NET.......................... 28,434 1,860 -- 30,294
LONG-TERM DEBT, LESS CURRENT PORTION................ 113,226 9,756 -- 122,982
OTHER LIABILITIES................................... 6,835 -- -- 6,835
-------- -------- -------- --------
Total liabilities......................... 194,067 15,712 (2,582) 207,197
-------- -------- -------- --------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN BRAZILIAN INVESTMENTS.......... 11,000 -- -- 11,000
-------- -------- -------- --------
SHAREHOLDERS' EQUITY:
Preferred Stock................................... -- -- -- --
Common Stock...................................... 927 73 (73) 927
Paid-in capital................................... 85,115 2,252 (2,252) 85,115
Retained earnings................................. 59,976 8,061 (8,061) 59,976
Deferred compensation............................. (948) -- -- (948)
Accumulated other comprehensive income............ -- (922) -- (922)
-------- -------- -------- --------
Total shareholders' equity................ 145,070 9,464 (10,386) 144,148
-------- -------- -------- --------
Total liabilities and shareholders'
equity.................................. $350,137 $ 25,176 $(12,968) $362,345
======== ======== ======== ========
</TABLE>
F-81
<PAGE> 164
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------
GUARANTOR
PARENT AND NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income................................................ $ 11,075 $ 987 $ (987) $ 11,075
Adjustments to reconcile net income to net cash provided
by operating activities:
Cumulative effect of a change in accounting principle... 2,633 114 -- 2,747
Depreciation and amortization........................... 13,516 742 -- 14,258
Deferred income taxes................................... 5,161 271 -- 5,432
Provision for losses on accounts receivable............. 155 32 -- 187
Amortization of deferred financing costs................ 351 37 -- 388
Income from subsidiaries................................ (987) -- 987 --
Gain on sale of assets.................................. (1,867) -- -- (1,867)
Gain on sale of minority interest....................... (2,045) -- -- (2,045)
Other................................................... 32 50 -- 82
Change in working capital:
Accounts receivable, including intercompany accounts
payable............................................. (871) (665) (1,029) (2,565)
Prepaid expenses and other current assets............. 24 (46) -- (22)
Accounts payable and accrued liabilities, including
intercompany accounts payable....................... 1,299 (1,551) 1,029 777
-------- -------- -------- --------
Net cash provided by operating activities......... 28,476 (29) -- 28,447
-------- -------- -------- --------
INVESTING ACTIVITIES:
Purchase of property and equipment........................ (28,597) (1,723) -- (30,320)
Proceeds from sale of property and equipment.............. 2,288 -- -- 2,288
Purchase of new properties and related equipment and other
costs................................................... (13,096) -- -- (13,096)
Proceeds from sale of minority interest................... 10,861 -- -- 10,861
Organization and acquisition costs........................ (58) (21) -- (79)
Increase in other long-term assets........................ (1,637) 20 -- (1,617)
-------- -------- -------- --------
Net cash used in investing activities............. (30,239) (1,724) -- (31,963)
-------- -------- -------- --------
FINANCING ACTIVITIES:
Decrease in short-term notes payable...................... (355) -- -- (355)
Proceeds from long-term debt.............................. 21,900 -- -- 21,900
Principal payments on long-term debt and capital leases... (16,687) -- -- (16,687)
Net decrease in working capital facilities................ (2,000) 1,250 -- (750)
Deferred financing costs.................................. -- (3) -- (3)
Issuance of common stock.................................. 247 -- -- 247
-------- -------- -------- --------
Net cash provided by financing activities......... 3,105 1,247 -- 4,352
-------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... -- (163) -- (163)
-------- -------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 1,342 (669) -- 673
CASH AND CASH EQUIVALENTS, beginning of year................ (1,617) 2,187 -- 570
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end of year...................... $ (275) $ 1,518 $ -- $ 1,243
======== ======== ======== ========
</TABLE>
(continued)
F-82
<PAGE> 165
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------
GUARANTOR
PARENT AND NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................. $ 10,100 $ 1,107 $ -- $ 11,207
Income taxes.............................................. 1,816 698 -- 2,514
Non-cash investing and financing activities:
Grants.................................................... 2,918 -- -- 2,918
Capital Leases............................................ 1,959 -- -- 1,959
Tax benefit from exercise of non-qualified stock
options................................................. 76 -- -- 76
Amortization of deferred compensation..................... 50 -- -- 50
Liabilities and long-term debt assumed in connection with
the acquisition of railroad companies:
Fair value of assets acquired............................. 15,809 -- -- 15,809
Cash paid for capital stock............................... 14,003 -- -- 14,003
-------- -------- -------- --------
Liabilities and long-term debt assumed.................... $ 1,806 $ -- $ -- $ 1,806
======== ======== ======== ========
</TABLE>
F-83
<PAGE> 166
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------
GUARANTOR
PARENT AND NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES.................................. $135,625 $ 13,611 $ (445) $148,791
OPERATING EXPENSES:
Transportation.................................... 46,434 4,809 (373) 50,870
General and administrative........................ 29,753 961 (13) 30,701
Equipment......................................... 15,776 2,062 (8) 17,830
Maintenance of Way................................ 12,444 1,056 (51) 13,449
Depreciation and amortization..................... 12,124 816 -- 12,940
-------- -------- -------- --------
Total operating expenses.................. 116,531 9,704 (445) 125,790
-------- -------- -------- --------
OPERATING INCOME.................................... 19,094 3,907 -- 23,001
INTEREST EXPENSE.................................... (8,616) (1,911) -- (10,527)
INCOME FROM SUBSIDIARIES............................ 975 -- (975) --
OTHER INCOME, NET................................... 4,367 (169) -- 4,198
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE.................. 15,820 1,827 (975) 16,672
INCOME TAXES........................................ (5,196) (852) -- (6,048)
-------- -------- -------- --------
NET INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE.............................. 10,624 975 (975) 10,624
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE (NET OF INCOME TAXES)................... -- -- -- --
-------- -------- -------- --------
NET INCOME.......................................... $ 10,624 $ 975 $ (975) $ 10,624
======== ======== ======== ========
</TABLE>
F-84
<PAGE> 167
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------
GUARANTOR
PARENT AND NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income................................................ $ 10,624 $ 975 $ (975) $ 10,624
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 12,124 816 -- 12,940
Deferred income taxes................................... 1,942 240 -- 2,182
Provision for losses on accounts receivable............. 637 1 -- 638
Amortization of deferred financing costs................ 335 49 -- 384
Income from subsidiaries................................ (975) -- 975 --
Gain on sale of assets.................................. (6,771) -- -- (6,771)
Write down of investments............................... 2,100 -- -- 2,100
Other................................................... (272) (3) -- (275)
Change in working capital:
Accounts receivable, including intercompany accounts
receivable.......................................... (4,999) (501) (475) (5,975)
Prepaid expenses and other current assets............. (126) 67 -- (59)
Accounts payable and accrued liabilities, including
intercompany accounts payable....................... 9,576 58 475 10,109
-------- -------- -------- --------
Net cash provided by operating activities......... 24,195 1,702 -- 25,897
-------- -------- -------- --------
INVESTING ACTIVITIES:
Purchase of property and equipment........................ (34,199) (1,308) -- (35,507)
Proceeds from sale of property and equipment.............. 7,327 -- -- 7,327
Purchase of new properties and related equipment and other
costs................................................... (25,978) -- -- (25,978)
Investment in Brazilian railroad companies................ (1,362) -- -- (1,362)
Sale of preferred shares in Brazilian railroad company.... 2,758 -- -- 2,758
Organization and acquisition costs........................ (53) (44) -- (97)
Increase in other long-term assets........................ (167) 15 -- (152)
-------- -------- -------- --------
Net cash used in investing activities............. (51,674) (1,337) -- (53,011)
-------- -------- -------- --------
FINANCING ACTIVITIES
Increase in short-term notes payable...................... 218 -- -- 218
Proceeds from long-term debt.............................. 74,790 210 -- 75,000
Principal payments on long-term debt and capital leases... (52,456) (942) -- (53,398)
Net Increase in working capital facilities................ 4,000 -- -- 4,000
Deferred financing costs.................................. (367) (2) -- (369)
Issuance of common stock.................................. 74 -- -- 74
-------- -------- -------- --------
Net cash provided by financing activities......... 26,259 (734) -- 25,525
-------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... -- 51 -- 51
-------- -------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... (1,220) (318) -- (1,538)
CASH AND CASH EQUIVALENTS, beginning of year................ (397) 2,505 -- 2,108
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end of year...................... $ (1,617) $ 2,187 $ -- $ 570
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................. $ 7,069 $ 1,893 -- $ 8,962
Income taxes.............................................. 1,678 926 -- 2,604
Non-cash investing and financing activities
Grants.................................................... 352 -- -- 352
Capital Leases............................................ 1,844 -- -- 1,844
Tax benefit from exercise of non-qualified stock
options................................................. 100 -- -- 100
</TABLE>
F-85
<PAGE> 168
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. SUBSEQUENT EVENTS
In January 2000, RailTex Global Investments, LLC ("LLC"), a limited
liability company in which the Company owns a 50.5% membership interest, sold
all of its shares in FCA to existing shareholders for U.S. $6.4 million. Also in
January, RailTex International Holdings, Inc. ("RIHI"), a wholly-owned
subsidiary of RailTex, sold all of its remaining membership interest in the LLC
and, thus, indirectly, the LLC's shares in America Latina Logistica, S.A.
("ALL"), the parent corporation of FSA, to Global Environmental Fund ("GEF") for
U.S. $3.4 million. Concurrent with the sale of RailTex's ALL shares to GEF,
RailTex's obligations to repurchase any of the Brazilian interests previously
sold to GEF terminated. The Company received total proceeds on both of these
transactions of U.S. $9.8 million, which were used to reduce its senior credit
facilities and for general corporate purposes. RailTex recorded a gain of U.S.
$130,000, or $0.01 per share, from these transactions in the month of January
2000.
On February 4, 2000, RailAmerica acquired all of the outstanding stock of
RailTex for approximately $325 million, including the assumption of all of the
Company's outstanding long-term debt. Each outstanding share of common stock of
the Company was converted into the right to receive (i) $13.50 in cash, and (ii)
0.666667 shares of common stock, par value $0.001 per share of RailAmerica
common stock. As a result of the acquisition, RailTex became a wholly-owned
operating subsidiary of RailAmerica.
F-86
<PAGE> 169
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(RailAmerica logo)
RAILAMERICA TRANSPORTATION CORP.
OFFER TO EXCHANGE
$130,000,000
ALL OUTSTANDING
12 7/8% SENIOR SUBORDINATED NOTES
DUE 2010
FOR
REGISTERED
12 7/8% SENIOR SUBORDINATED NOTES
DUE 2010
------------------------------------------
PROSPECTUS
------------------------------------------
SEPTEMBER 25, 2000
--------------------------------------------------------------------------------
We have not authorized any dealer, sales representative or any other person to
give any information or to make any representations not contained in this
prospectus or the accompanying letter of transmittal. This prospectus and the
accompanying letter of transmittal do not offer to sell or buy any securities in
any jurisdiction where it is unlawful
--------------------------------------------------------------------------------
<PAGE> 170
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Registrant has authority under Section 145 of the Delaware General
Corporation Law to indemnify its directors and officers to the extent provided
for in such statute. The Registrant's Certificate of Incorporation provides for
indemnification of the Registrant's officers and directors to the extent
permitted under the Delaware General Corporation Law.
The Registrant's Certificates of Incorporation limits the liability of
Directors to the maximum extent permitted by Delaware General Corporation Law.
Delaware law provides that the directors of a corporation will not be personally
liable to such corporation or its stockholders for monetary damages for breach
of their fiduciary duties as directors, except for liability (i) for any breach
of their duty of loyalty to the corporation or its stockholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct of a
knowing violation of law; (iii) for unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law; or (iv) for any transaction from which the director
derives an improper personal benefit. The Registrant's Certificate of
Incorporation provides that the Registrant shall indemnify its Directors and
officers to the fullest extent permitted by Delaware law and requires the
Registrant to advance expenses to such Directors and officers to defend any
action for which rights of indemnification are provided in the Certificate of
Incorporation, and also permits the Board of Directors to grant such rights to
its employees and agents.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim of indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<S> <C>
1.1 Purchase Agreement, dated August 9, 2000, between
RailAmerica Transportation Corp., RailAmerica, Inc., the
Guarantors named therein, Donaldson, Lufkin & Jenrette
Securities Corporation, Barclays Bank PLC and Scotia Capital
(USA) Inc.*
3.1 Certificate of Incorporation of RailAmerica Transportation
Corp.*
3.2 By-laws of RailAmerica Transportation Corp.*
4.1 Indenture, dated as of August 14, 2000, between RailAmerica
Transportation Corp., the Guarantors named therein and Wells
Fargo Bank Minnesota, N.A.*
4.2 Notes Registration Rights Agreement, dated as of August 14,
2000, between RailAmerica Transportation Corp., the
Guarantors named therein, Donaldson Lufkin & Jenrette
Securities Corporation, Barclays Bank PLC and Scotia Capital
(USA) Inc.*
5.1 Opinion of Greenberg Traurig, P.A.
21.1 Subsidiaries of RailAmerica Transportation Corp.
23.1 Consent of Greenberg Traurig, P.A. (contained in exhibit
5.1)
23.2 Consent of PricewaterhouseCoopers LLP (RailAmerica, Inc.)
23.3 Consent of Arthur Andersen Langton Clarke (Ferronor)
</TABLE>
II-1
<PAGE> 171
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<S> <C>
23.4 Consent of PricewaterhouseCoopers LLP (V/Line Freight
Corporation)
23.5 Consent of PricewaterhouseCoopers LLP (RaiLink Ltd.)
23.6 Consent of Ernst & Young LLP (The Toledo, Peoria and Western
Railroad Corporation)
23.7 Consent of Arthur Andersen LLP (RailTex, Inc.)
24.1 Power of Attorney (filed with the signature page)*
25.1 Statement of Eligibility of Trustee
99.1 Form of Letter of Transmittal with respect to Exchange Offer
99.2 Form of Notice of Guaranteed Delivery
</TABLE>
------------------------------
* Previously Filed.
ITEM 22. UNDERTAKINGS
1. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
2. The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
3. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
4. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this registration statement when it became effective.
II-2
<PAGE> 172
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant has duly caused this Amendment No. 1 to this Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, hereunto duly
authorized, in the City of Boca Raton, Florida, on September 22, 2000.
RAILAMERICA TRANSPORTATION CORP.
By: /s/ DONALD D. REDFEARN
------------------------------------
Donald D. Redfearn
Executive Vice President
The following direct and indirect parents and subsidiaries of registrant
may guarantee the notes and are co-registrants under this Amendment No. 1 to
this Registration Statement on Form S-4.
NAME OF CO-REGISTRANT
------------------------------------------
RAILAMERICA, INC.
PALM BEACH RAIL HOLDING, INC.
AUSTIN & NORTHWESTERN RAILROAD COMPANY, INC.
BOSTON CENTRAL FREIGHT RAILROADS, INC.
CASCADE AND COLUMBIA RIVER RAILROAD COMPANY, INC.
CENTRAL OREGON & PACIFIC RAILROAD, INC.
CENTRAL RAILROAD COMPANY OF INDIANA
CONNECTICUT SOUTHERN RAILROAD, INC.
DAKOTA RAIL, INC.
DALLAS, GARLAND & NORTHEASTERN RAILROAD, INC.
DALLAS, GARLAND & NORTHEASTERN RAILROAD, INC.
DELAWARE VALLEY RAILWAY COMPANY, INC.
FLORIDA RAIL LINES, INC.
GEORGIA SOUTHWESTERN RAILROAD, INC.
HURON AND EASTERN RAILWAY COMPANY, INC.
INDIANA & OHIO CENTRAL RAILROAD, INC.
INDIANA & OHIO RAIL CORP.
INDIANA & OHIO RAILWAY COMPANY
INDIANA SOUTHERN RAILROAD, INC.
MARKSMAN CORP.
MID-MICHIGAN RAILROAD, INC.
MISSOURI & NORTHERN ARKANSAS RAILROAD COMPANY, INC.
NEW ENGLAND CENTRAL RAILROAD, INC.
NEW ORLEANS LOWER COAST RAILROAD COMPANY, INC.
NORTH CAROLINA AND VIRGINIA RAILROAD COMPANY, INC.
OTTER TAIL VALLEY RAILROAD COMPANY, INC.
PITTSBURGH INDUSTRIAL RAILROAD, INC.
PLAINVIEW TERMINAL COMPANY
PRAIRIE HOLDINGS CORPORATION
RAIL OPERATING SUPPORT GROUP, INC.
RAILAMERICA AUSTRALIA, INC.
RAILAMERICA EQUIPMENT CORPORATION
RAILAMERICA INTERMODAL SERVICES, INC.
RAILINK ACQUISITION INC.
RAILTEX ACQUISITION CORP.
RAILTEX DISTRIBUTION SERVICES, INC.
RAILTEX, INC.
RAILTEX INTERNATIONAL HOLDINGS, INC.
RAILTEX LOGISITICS, INC.
RAILTEX SERVICES CO., INC.
SAGINAW VALLEY RAILWAY COMPANY, INC.
SAN DIEGO & IMPERIAL VALLEY RAILROAD COMPANY, INC.
SOUTH CAROLINA CENTRAL RAILROAD COMPANY, INC.
SOUTH CENTRAL TENNESSEE RAILROAD CORP., INC.
THE TOLEDO, PEORIA & WESTERN RAILROAD CORPORATION
TOLEDO, PEORIA & WESTERN RAILWAY CORPORATION
VENTURA COUNTY RAILROAD CO., INC.
WEST TEXAS AND LUBBOCK RAILROAD COMPANY, INC.
as Guarantors
By: /s/ DONALD D. REDFEARN
------------------------------------
Donald D. Redfearn
Executive Vice President
II-3
<PAGE> 173
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement on Form S-4 has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
** Chairman, President and September 22, 2000
----------------------------------------------------- Chief Executive Officer
Gary O. Marino (Principal Executive
Officer)(1)
/s/ DONALD D. REDFEARN Chief Administrative September 22, 2000
----------------------------------------------------- Officer, Executive Vice
Donald D. Redfearn President, Secretary and
Director(1)
** Chief Financial Officer(1) September 22, 2000
-----------------------------------------------------
Bennett Marks
** Director(2) September 22, 2000
-----------------------------------------------------
John H. Marino
** Director(2) September 22, 2000
-----------------------------------------------------
Douglas R. Nichols
** Director(2) September 22, 2000
-----------------------------------------------------
Richard Rampell
** Director(2) September 22, 2000
-----------------------------------------------------
Charles Swinburn
** Director(2) September 22, 2000
-----------------------------------------------------
John M. Sullivan
** Director(2) September 22, 2000
-----------------------------------------------------
Ferd C. Meyer, Jr.
** Director(2) September 22, 2000
-----------------------------------------------------
William G. Pagonis
</TABLE>
------------------------
(1) Holds such office(s) at the Registrant and all Guarantors.
(2) Holds such office at RailAmerica, Inc. only.
**By: /s/ DONALD D. REDFEARN
----------------------------------------------------
Donald D. Redfearn
Attorney-in-fact
II-4
