UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 for the quarterly period ended
March 31, 1997
or
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from _____________________ to _____________________
Commission File Number 34-022552
RAILTEX, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-1948121
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4040 Broadway, Suite 200
SAN ANTONIO, TEXAS 78209
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (210) 841-7600
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] YES [_] NO
Indicate the number of shares outstanding of the Registrant's Common Stock as of
April 30, 1997: 9,152,260.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAILTEX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------
1997 1996
-------- --------
OPERATING REVENUES ............................. $ 34,175 $ 28,609
OPERATING EXPENSES:
Transportation ............................ 12,637 9,121
General and administrative ................ 5,746 5,526
Equipment ................................. 4,477 3,660
Maintenance of way ........................ 3,278 3,096
Depreciation and amortization ............. 2,985 2,276
-------- --------
Total operating expenses ............. 29,123 23,679
-------- --------
OPERATING INCOME ............................... 5,052 4,930
INTEREST EXPENSE ............................... (2,366) (1,479)
OTHER INCOME (EXPENSE) ......................... (49) 265
-------- --------
INCOME BEFORE INCOME TAXES ..................... 2,637 3,716
INCOME TAXES ................................... (1,062) (1,533)
-------- --------
NET INCOME ..................................... $ 1,575 $ 2,183
======== ========
NET INCOME PER SHARE ........................... $ 0.17 $ 0.24
======== ========
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK AND COMMON STOCK
EQUIVALENTS OUTSTANDING ........................ 9,209 9,225
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
- ------ --------- ---------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents .......................... $ 2,905 $ 2,108
Accounts receivable, less doubtful receivables
of $611; $612 in 1996 ............................ 25,926 26,834
Prepaid expenses and other current assets .......... 3,018 3,609
--------- ---------
Total current assets ........................... 31,849 32,551
--------- ---------
PROPERTY AND EQUIPMENT, less accumulated depreciation of
$32,383; $29,741 in 1996 ............................. 233,552 209,420
--------- ---------
OTHER ASSETS:
Investments, at cost ............................... 19,968 21,380
Other .............................................. 6,401 6,119
--------- ---------
Total other assets ............................. 26,369 27,499
--------- ---------
Total assets ................................... $ 291,770 $ 269,470
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Short-term notes payable ........................... $ 98 $ 352
Current portion of long-term debt .................. 13,516 6,361
Accounts payable ................................... 12,587 14,624
Accrued liabilities ................................ 11,512 11,445
--------- ---------
Total current liabilities ...................... 37,713 32,782
--------- ---------
DEFERRED INCOME TAXES, NET ............................. 17,939 17,703
--------- ---------
LONG-TERM DEBT ......................................... 52,051 36,391
--------- ---------
SENIOR NOTES PAYABLE ................................... 50,842 50,952
--------- ---------
SENIOR SUBORDINATED NOTES PAYABLE ...................... 5,000 5,000
--------- ---------
OTHER LIABILITIES ...................................... 3,928 3,939
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 4)
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
of 9,152,260; 9,110,606 in 1996 ................... 915 912
Paid-in capital .................................... 83,725 83,629
Retained earnings .................................. 39,852 38,277
Cumulative translation adjustment .................. (195) (115)
--------- ---------
Total shareholders' equity ..................... 124,297 122,703
--------- ---------
Total liabilities and shareholders' equity ..... $ 291,770 $ 269,470
========= =========
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------
1997 1996
-------- -------
OPERATING ACTIVITIES:
Net income .............................................. $ 1,575 $ 2,183
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ........................ 2,985 2,276
Deferred income taxes ................................ 236 725
Amortization of deferred financing costs ............. 94 100
Provision for losses on accounts receivable .......... 77 151
(Gain) loss on sale of assets ........................ 54 (193)
Changes in working capital:
Accounts receivable ................................ 831 137
Prepaid expenses ................................... 592 511
Accounts payable and accrued liabilities ........... (1,969) 1,424
-------- -------
Net cash provided by operating activities ............ 4,475 7,314
-------- -------
INVESTING ACTIVITIES:
Purchase of investments in Brazilian railroad companies . (1,346) --
Sale of preferred shares of Brazilian railroad company .. 2,758 --
Purchase of Detroit, Toledo and Ironton,
including related costs ................................. (22,642) --
Purchase of property and equipment ...................... (5,079) (5,397)
Proceeds from sale of property and equipment ............ 17 210
Increase in other long-term assets ...................... (38) (64)
-------- -------
Net cash used in investing activities ................. (26,330) (5,251)
-------- -------
FINANCING ACTIVITIES:
Payments of short-term notes payable .................... (255) (616)
Issuance of common stock ................................ 99 --
Proceeds from long-term debt ............................ 22,000 500
Net increase in working capital facility ................ 2,000 --
Principal payments on long-term debt .................... (1,175) (1,014)
-------- -------
Net cash provided by (used in) financing activities ... 22,669 (1,130)
-------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ................... (17) 6
-------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS ................... 797 939
CASH AND CASH EQUIVALENTS, beginning of period ............ 2,108 2,130
-------- -------
CASH AND CASH EQUIVALENTS, end of period .................. $ 2,905 $ 3,069
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest .............................................. $ 3,099 $ 1,870
Income taxes .......................................... 622 177
Non-cash investing and financing activities:
Capital leases ........................................ 6 --
Grants ................................................ 18 221
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The interim consolidated financial statements presented herein include
the accounts of RailTex, Inc. 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. These interim
consolidated financial statements have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). All adjustments have been made to the accompanying interim
consolidated financial statements which are, in the opinion of the Company's
management, necessary for a fair presentation of the Company's operating
results. All adjustments are of a normal recurring nature. 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. It is recommended that these
interim consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 ("1996
Form 10-K"). The results of operations for any interim period are not
necessarily indicative of the results of operations for the entire year. Certain
reclassifications have been made in the prior period financial statements to
conform with the current period presentation.
2. RECENTLY ISSUED PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("FAS 128"), was issued. FAS 128 establishes standards for
computing and presenting earnings per share and applies to entities with
publicly-held common stock or potential common stock. This statement is
effective for financial statements issued for periods ending after December 15,
1997 and when adopted will require restatement of prior years' earnings per
share. Early adoption is not permitted. At March 31, 1997 and 1996, basic and
diluted earnings per share as calculated under FAS 128, would not have an impact
on earnings per share reported by the Company.
3. ACQUISITIONS AND INVESTMENTS
On February 15, 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 Detroit, Toledo and Ironton ("DTI") from the Grand
Trunk Western Railroad, Inc., a subsidiary of Canadian National. IORY acquired
146 miles of track for $22.0 million and, with trackage rights, will operate
over 255 miles of track between Flat Rock, Michigan and Cincinnati, Ohio. The
Company has spent approximately $2.5 million to date for organization costs,
start-up costs and locomotives and expects to spend an additional $4.7 million
in 1997. Additionally, IORY has committed to invest, over a three year period,
approximately $9.7 million to return the former DTI track to Federal Railroad
Administration Class IV standards. The DTI acquisition was funded through
borrowings under the Company's U.S. Acquisition Facility.
On February 28, 1997, RailTex International Holdings, Inc. ("RIHI"), a
subsidiary of the Company, sold 2.8 million shares of preferred stock in the
Ferrovia Centro Atlantica, S.A. for approximately Brazilian Reals ("R") $2.9
million (approximately U.S. $2.8 million) to fund the majority of the additional
investment in the Ferrovia Sul Atlantica, S.A. ("FSA"). At March 31, 1997, RIHI
had invested approximately R$1.4 million (approximately U.S. $1.3 million) of
the additional investment in FSA and is expected to invest the remaining R$1.5
million (U.S. $1.5 million) in 1997.
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. COMMITMENTS AND CONTINGENCIES
In April 1996, one of the Company's railroads received notice of three
environmental site evaluations being conducted by a state environmental agency.
The evaluations are the result of an alleged fuel spill caused by a train
derailment and alleged on-site burial of railroad ties and unreported leaking
underground storage tanks and an alleged release of diesel fuel during
locomotive refueling. The Company believes these evaluations relate to events
that occurred prior to the Company's acquisition of the railroad property. The
Company is cooperating with the state environmental agency to complete these
evaluations. However, the Company may be held liable for some or all expenses
associated with these evaluations and the expenses associated with any necessary
remedial actions. To the extent the Company incurs expenses in connection with
these evaluations, or remedial actions, it may seek to recover such expenses
from the prior owners of the property or other responsible parties. The Company
is unable to predict the probable outcome of these site evaluations or the
amount or range of potential loss arising therefrom.
A Class I Railroad, which interchanges traffic with one of the
Company's railroads has filed a complaint against the Company in the United
States District Court for the Western District of Missouri. In this lawsuit, the
Plaintiff seeks recovery of certain switching and joint facility charges
amounting to approximately $632,000. The Company has interposed certain
defenses, including payment of substantially all of the joint facility charges
and the inapplicability of the switching charges. Since the service for which
the switching charges have been asserted is ongoing, it is likely that
additional charges accruing through the date the lawsuit is resolved will be
asserted. Trial has been held, post trial briefs have been filed and the Company
is currently awaiting a decision from the court. The Company believes it's
defenses have merit and it will ultimately prevail. Therefore, no amounts are
recorded on the books of the Company in anticipation of a loss as a result of
this contingency.
In December 1996, a corporation filed a construction lien against one
of the Company's railroads in the amount of approximately $600,000. The alleged
basis for the construction lien is the provision by the plaintiff of labor and
materials to the Company's railroad in connection with a train derailment in
August 1996. In March 1997, the Company filed a complaint in Federal Court
alleging negligence by the plaintiff. The Company believes that the plaintiff is
solely responsible for any and all damages arising out of the derailment due to
the plaintiff's negligent acts or the omission of its employees and agents. In
April 1997, the plaintiff filed a state action for relief for foreclosure of
construction lien in support of its previous lien filed in December 1996. The
Company believes that the filing and any subsequent enforcement of such lien is
wrongful and constitutes slander of and trespass to title. The Company also
believes it has meritorious defenses and is vigorously defending this
litigation; therefore, no amounts are recorded on the books of the Company in
anticipation of a loss as a result of this contingency.
The Company is also involved in other litigation and various legal
matters which are being defended and handled in the ordinary course of business.
In management's judgment, based on the opinion of the Company's legal counsel
handling such matters, the ultimate liability, if any, from such legal
proceedings will not have a material effect on the Company's financial position
and results of operations. See Note 15 of the 1996 Form 10-K.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED
ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q.
This Form 10-Q contains certain "forward-looking" statements as such
term is defined in The Private Securities Litigation Reform Act of 1995 and
information relating to the Company and its subsidiaries that are based on the
beliefs of the Company's management. When used in this report, the words
"anticipate," "believe," "estimate," "expect" and "intend" and words or phrases
of similar import, as they relate to the Company or its subsidiaries or Company
management, are intended to identify forward- looking statements. Such
statements reflect the current risks, uncertainties and assumptions related to
certain factors including, without limitation, competitive factors, general
economic conditions, customer relations, relationships with vendors, the
interest rate environment, governmental regulation and supervision, seasonality,
distribution networks, product introductions and acceptance, technological
change, changes in industry practices, one-time events and other factors
described herein and in other filings made by the Company with the Securities
and Exchange Commission. Based upon changing conditions, should any one or more
of these risks or uncertainties materialize, or should any underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected, or intended. The
Company does not intend to update these forward-looking statements.
GENERAL
The Company's growth to date has resulted primarily from implementation
of its expansion strategy. The number of miles operated by RailTex has grown to
approximately 3,800 at March 31, 1997.
The Company has added railroad properties to its portfolio primarily
through purchase of track and roadbed, lease of such assets, contracts to
operate such assets under management agreements and purchase of railroad company
common stock. These arrangements typically relate only to the physical assets of
the railroad property, and, except for the purchase of the Indiana & Ohio Rail
Corp. ("INOH"), the Company typically does not contractually assume any of the
operations or liabilities of the divesting carriers. After acquiring the right
to operate each of its railroad properties, the Company must arrange for the
purchase or lease of operating equipment and hire the work force necessary to
operate the railroad. Accordingly, for any railroad property, the historical
results of operations of the railroad property as previously operated are not
necessarily indicative of the results of operations for the property following
commencement of operations by the Company.
Because of variations in the structure, timing and size of portfolio
additions and differences in economics among the Company's portfolio railroads
resulting from the unique terms, rates and other provisions for each railroad's
operation established through negotiation between RailTex and each divesting
carrier, the Company's results of operations in any reporting period are not
directly comparable to (i) its results of operations in other reporting periods
or (ii) the results of operations of other railroad companies. Therefore, care
should be taken when using traditional measurements of railroad operating
performance, such as freight revenues per carload, operating ratio and labor
ratio, in assessing or comparing the Company's operating results.
"Comparable Railroad Properties" for each period are railroad
properties which the Company operated throughout both the full current year
period and the full prior year period. "New Railroad Properties" for each period
are railroad properties which the Company began operating after the start of the
prior year period.
For the three months ended March 31, 1997, compared to the three months
ended March 31, 1996, New Railroad Properties include the INOH, the Connecticut
Southern Railroad, the Ontario L'Orignal Railway, Inc., the Pittsburgh
Industrial Railroad, Inc. and the Detroit, Toledo and Ironton ("DTI").
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH
31, 1996.
The Company's net income for the three months ended March 31, 1997,
decreased approximately $608,000, or 27.9%, to $1.6 million from $2.2 million in
the prior year period and net income per share decreased 29.2% to $0.17 per
share from $0.24 per share in the prior year period. The decrease in net income
and net income per share is primarily the result of a wall collapse at a coal
mine served by one of the Company's subsidiaries, expenses associated with
the start-up of recently acquired railroad properties, and interest expense on
$63.2 million of debt incurred to finance railroad properties acquired in 1996
and 1997 and the Company's investments in Brazilian railroad companies.
OPERATING REVENUES. Operating revenues for the three months ended March
31, 1997 increased by $5.6 million, or 19.5%, to $34.2 million from $28.6
million in the prior year period. Operating revenues attributable to New
Railroad Properties accounted for substantially all of this increase. Operating
revenues for Comparable Railroad Properties increased approximately $242,000, or
1.0%. Carloads transported increased by 23,367 carloads, or 27.1%, to 109,698
carloads from 86,331 carloads in the prior year period. Carloads attributable to
New Railroad Properties accounted for substantially all of this increase.
Carloads attributable to Comparable Railroad Properties increased by 469, or
1.0%, from the prior year period.
In January 1997, a wall at a coal mine served by one of the Company's
subsidiaries collapsed, resulting in the shut down of the mine, which reduced
first quarter operating revenues by approximately $1.0 million. As of the middle
of March the mine began partial operations and the Company resumed transporting
carloads. The mine resumed normal shipments in mid April.
Freight revenues for the three months ended March 31, 1997 increased
$5.2 million, or 21.2%, to $29.5 million from $24.3 million in the prior year
period. The following table compares freight revenues, traffic volume (in
carloads) and average freight revenues per carload by commodity group for the
three months ended March 31, 1997 and 1996.
FREIGHT REVENUES AND CARLOADS COMPARISON BY COMMODITY GROUP
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER CARLOAD AMOUNTS)
<TABLE>
<CAPTION>
AVERAGE FREIGHT
REVENUES PER
FREIGHT REVENUES CARLOADS CARLOAD(1)
------------------------------- ------------------------------ ----------
1997 1996 1997 1996 1997 1996
-------------- -------------- -------------- ------------- ---- ----
% OF % OF % OF % OF
COMMODITY GROUP DOLLARS TOTAL DOLLARS TOTAL NUMBER TOTAL NUMBER TOTAL
- --------------- ------- ----- ------- ----- ------- ----- ------ ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lumber and forest products ...................... $ 5,631 19.1% $ 5,124 21.0% 15,177 13.8% 13,429 15.6% $371 $382
Chemicals ....................................... 3,684 12.5 2,656 10.9 11,230 10.2 8,079 9.4 328 329
Coal ............................................ 3,427 11.6 3,901 16.0 18,679 17.0 19,907 23.1 183 196
Scrap paper and paper products ................. 3,041 10.3 2,432 10.0 8,114 7.4 5,840 6.8 375 416
Farm products ................................... 2,902 9.8 2,052 8.4 11,956 10.9 9,002 10.4 243 228
Scrap metal and metal products ................. 2,206 7.5 2,066 8.5 7,635 7.0 6,036 7.0 289 342
Food products ................................... 1,650 5.6 1,217 5.0 6,149 5.6 4,670 5.4 268 261
Non-metallic ores ............................... 1,578 5.3 1,865 7.7 8,261 7.5 9,547 11.1 191 195
Petroleum products .............................. 1,354 4.6 1,185 4.9 3,471 3.2 2,895 3.4 390 409
Minerals and stone .............................. 1,227 4.2 871 3.6 3,848 3.5 2,968 3.4 319 294
Autos and auto parts ............................ 1,065 3.6 89 0.4 6,014 5.5 124 0.1 177 717
Other ........................................... 1,754 5.9 896 3.6 9,164 8.4 3,834 4.3 191 234
------- ----- ------- ----- ------- ----- ------ ----- ---- ----
Total ...................................... $29,519 100.0% $24,354 100.0% 109,698 100.0% 86,331 100.0% $269 $282
======= ===== ======= ===== ======= ===== ====== ===== ==== ====
</TABLE>
- ------------------
(1) Calculated as freight revenues divided by carloads.
Approximately $5.0 million, or 96.1%, of the increase in freight
revenues for the three months ended March 31, 1997, is attributable to New
Railroad Properties. These properties added 23,717 carloads consisting primarily
of auto and auto parts (5,897), chemicals (2,764), scrap metal and metal
products (2,684), scrap paper and paper products (2,313), farm products (1,432)
and lumber and forest products (996). Freight revenues for
<PAGE>
Comparable Railroad Properties increased approximately $470,000, or 2.0%, while
carloadings for Comparable Railroad Properties increased by 469, or 1.0%,
consisting primarily of increases in farm products (1,522), lumber and forest
products (866), food products (808), chemicals (448) and minerals and stone
(204) due primarily to new business which were offset by decreases in
non-metallic ores (1,372), coal (1,261) and scrap metal and metal products
(1,085). The decreases in non-metallic ores, coal and scrap metal and metal
products are due to less salt transported at one of the Company's subsidiaries
as a result of a milder winter, a wall collapse at a mine served by one of the
Company's subsidiaries, and lack of orders at a steel plant served by one of the
Company's subsidiaries, respectively.
Non-freight revenues for the three months ended March 31, 1997
increased approximately $401,000, or 9.4%, to $4.6 million from $4.2 million in
the prior year period. Non-freight revenues include joint facilities, switching,
demurrage, car hire, car repair and track maintenance services performed for
third parties and lease income. These non-freight revenues contributed 13.6% and
14.9% of operating revenues in the three months ended March 31, 1997 and 1996,
respectively. New Railroad Properties contributed approximately $718,000 in
non-freight revenues during the three months ended March 31, 1997, consisting
primarily of joint facilities income, demurrage and carhire income. Non-freight
revenues for Comparable Railroad Properties decreased approximately $228,000, or
5.5%, primarily as a result of decreased car hire and passenger income which was
partially offset by increases in car repair income
OPERATING EXPENSES. Operating expenses for the three months ended March
31, 1997 increased $5.4 million, or 23.0%, to $29.1 million from $23.7 million
in the prior year period. Substantially all of this increase is due to New
Railroad Properties. The Company's operating ratio (operating expenses divided
by operating revenues) increased for the period to 85.2%, compared to 82.8% in
the prior year period, primarily as a result of expenses associated with the
start-up of recently acquired railroad properties.
The following table sets forth a comparison of the Company's operating
expenses during the three month periods ended March 31, 1997 and 1996, in
dollars and as a percentage of operating revenues:
OPERATING EXPENSES COMPARISON
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
1997 1996
---------------- ----------------
% OF % OF
OPERATING OPERATING
DOLLARS REVENUE DOLLARS REVENUE
------- ------- ------- -------
Labor and benefits ....................... $10,254 30.0% $ 8,425 29.4%
Equipment rents .......................... 4,088 12.0 3,270 11.4
Depreciation and amortization ............ 2,985 8.7 2,276 8.0
Purchased services ....................... 2,067 6.0 1,797 6.3
Casualties and insurance ................. 1,223 3.6 1,597 5.6
Diesel fuel .............................. 3,177 9.3 2,402 8.4
Materials ................................ 1,342 3.9 971 3.4
Other .................................... 3,987 11.7 2,941 10.3
------- ------- ------- -------
Total ............................... $29,123 85.2% $23,679 82.8%
======= ======= ======= =======
Labor and benefits for the three months ended March 31, 1997 increased
approximately $1.8 million, or 21.7%, to $10.2 million from $8.4 million in the
prior year period. Labor and benefits attributable to New Railroad Properties
was approximately $1.8 million, accounting for all of the increase. Labor and
benefits for Comparable Railroad Properties decreased by $38,000.
<PAGE>
Equipment rents for the three months ended March 31, 1997 increased by
approximately $818,000, or 25.0%, to $4.1 million from $3.3 million in the prior
year period. Equipment rents attributable to New Railroad Properties accounted
for substantially all of this increase. Equipment rents for Comparable Railroad
Properties remained flat.
Depreciation and amortization for the three months ended March 31, 1997
increased by approximately $709,000, or 31.2%, to $3.0 million from $2.3 million
in the prior year period. New Railroad Properties accounted for 43.6% of this
increase. The remainder is due to capital projects completed for Comparable
Railroad Properties, increased locomotive depreciation related to fleet
expansion, and depreciation of new computer hardware and software.
Purchased services for the three months ended March 31, 1997 increased
approximately $270,000, or 15.0%, to $2.1 million from $1.8 million in the prior
year period. Purchased services attributable to New Railroad Properties
accounted for 74.4% of this increase. Purchased services for Comparable Railroad
Properties increased by approximately $45,000, or 2.9%. The remainder is
primarily due to increased consulting expense related to management of
information technology under an agreement with EDS.
Casualties and insurance expense for the three months ended March 31,
1997 decreased by approximately $374,000, or 23.4%, to $1.2 million from $1.6
million in the prior year period. Casualties and insurance expense for New
Railroad Properties accounts for an increase of approximately $130,000.
Casualties and insurance expense for Comparable Railroad Properties decreased
$257,000, or 21.3%, due to fewer incidents in the current year period.
Diesel fuel expense for the three months ended March 31, 1997 increased
by approximately $775,000, or 32.2%, to $3.2 million from $2.4 million in the
prior year period. New Railroad Properties accounted for 78.2% of this increase.
Diesel fuel expense for Comparable Railroad Properties increased by
approximately $224,000, or 9.4%, as a 6.7% decrease in consumption was offset by
a $0.09 per gallon, or 12.2%, increase in average fuel prices in the current
year period. The Company has taken several steps to reduce its exposure to fuel
price fluctuations, including entering into a fuel hedging collar for
approximately 32.0% of the Company's estimated annual fuel consumption.
Materials expense for the three months ended March 31, 1997 increased
by approximately $371,000, or 38.2%, to $1.3 million from $1.0 million in the
prior year period. New Railroad Properties accounted for 53.6% of the increase.
The remainder of the increase is primarily a result of increased car repair for
Comparable Railroad Properties.
Other expenses for the three months ended March 31, 1997, including
property and franchise taxes and joint facilities, increased approximately $1.0
million, or 35.6%, to $4.0 million from $3.0 million in the prior year period.
Other expenses for New Railroad Properties was approximately $1.2 million. Other
expenses for Comparable Railroad Properties decreased by approximately $185,000,
or 8.3%, due primarily to decreased property taxes.
INTEREST EXPENSE. Interest expense for the three months ended March 31,
1997 increased by approximately $887,000, or 60.0%, to $2.4 million from $1.5
million in the prior year period due primarily to borrowings totaling $42.0
million to fund acquisitions (including $22.0 million for the DTI acquisition in
February 1997) and an additional $21.2 million to fund the Company's equity
investments in Brazil.
OTHER INCOME (EXPENSES). For the three months ended March 31, 1997,
other expense was $49,000 as compared to income of $265,000 in the prior year
period primarily as a result of a loss on the sale of property of $54,000 for
the three months ended March 31, 1997 as compared to a gain on the sale of
property in the prior year period.
INCOME TAXES. The Company's effective tax rate decreased in the three
months ended March 31, 1997 to 40.3% from 41.3% in the prior year period due
primarily to a lower proportion of earnings from foreign subsidiaries that are
taxed at a higher rate.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied primarily on cash generated from
operations to fund working capital and capital expenditure needs relating to
ongoing operations while relying on contributed capital and borrowed funds to
finance its acquisitions.
During the three months ended March 31, 1997, the Company generated
cash from operations of $4.5 million, of which $3.3 million was used to fund
non-acquisition related capital expenditures and $1.1 million was used to reduce
long-term borrowings. Non-acquisition capital expenditures for the three months
ended March 31, 1997 included $1.5 million for track improvements, $1.3 million
for locomotives, $410,000 for technology, $75,000 for vehicles and other
equipment.
On February 15, 1997, a wholly owned subsidiary of INOH, Indiana & Ohio
Railway Company ("IORY"), purchased substantially all of the assets of the
former Detroit, Toledo and Ironton Railroad ("DTI") from the Grand Trunk Western
Railroad, Inc., a subsidiary of Canadian National. IORY acquired 146 miles of
track for $22.0 million and, with trackage rights, will operate over 255 miles
between Flat Rock, Michigan and Cincinnati, Ohio. The Company has spent
approximately $2.5 million to date for organization costs, start-up costs, and
locomotives and expects to spend an additional $4.7 million in 1997.
Additionally, the Company has committed to invest, over a three year period,
approximately $9.7 million to return the former DTI track to Federal Railroad
Administration Class IV standards, which will be funded through borrowings under
the Company's U.S. Working Capital Facility and the Company's U.S. Acquisition
Facility or through cash generated from operations. The DTI acquisition was
funded through borrowings under the Company's U.S. Acquisition Facility.
On February 28, 1997, RailTex International Holdings, Inc. ("RIHI"), a
subsidiary of the Company, sold 2.8 million shares of preferred stock in
Ferrovia Centro Atlantica, S.A. for approximately Brazilian Reals ("R") $2.9
million (approximately U.S. $2.8 million) to fund the majority of the additional
investment in Ferrovia Sul Atlantica, S.A. ("FSA"). At March 31, 1997, RIHI had
invested approximately R$1.4 million (approximately U.S. $1.3 million) in FSA
and is expected to fund the remaining R$1.5 million (U.S. $1.5 million) in 1997.
At March 31, 1997, the Company had long-term senior debt, capital
leases and senior subordinated debt outstanding totaling $121.4 million, which
constituted 49.4% of its total capitalization. Comparable figures at December
31, 1996 were $98.7 million and 44.6%, respectively.
The Company now anticipates that its maintenance capital expenditure
requirements in 1997 for track, locomotives and equipment on properties it
currently operates will be approximately $15.0 million. Additionally, computer
hardware, software and related capital expenditures are expected to be
approximately $4.5 million.
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 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 debt service. At March 31, 1997, the Company was in compliance
with all covenants.
At March 31, 1997, availability under the U.S. Acquisition Facility,
the U.S. Working Capital Facility, the Canadian Acquisition Facility and the
Canadian Working Capital Facility was, in U.S. dollars, $15.2 million, $8.0
million, approximately $17.4 million and approximately $2.9 million,
respectively. The unused portion of all of the Company's senior bank credit
facilities are subject to a 0.25% commitment fee. Upon utilization of the entire
amount of the Company's U.S. Acquisition Facility, the Company believes it has a
number of viable acquisition financing alternatives available that will result
in additional acquisition capacity. The financing alternatives include, but are
not limited to, an expansion of the current U.S. Acquisition Facility, a private
placement of medium to long-term notes or an additional equity offering.
<PAGE>
The Company believes its cash flow from operations together with
available amounts under the U.S. Working Capital Facility and Canadian Working
Capital Facility will allow it to meet its liquidity and capital expenditure
requirements for railroads it currently operates through the expiration of these
facilities in April 1999.
INFLATION
In recent years, inflation has not had a significant impact on the
Company's operations. The Company's contracts with connecting carriers typically
include clauses that adjust the Company's per car fees based on the Surface
Transportation Board's ("STB") cost or inflation indices.
SEASONALITY
Except for farm products, which represent less than 10.0% of revenues,
the Company's operating revenues from existing operations have not historically
been subject to significant seasonal changes.
ACCOUNTING MATTERS
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("FAS 128"), was issued. FAS 128 establishes standards for
computing and presenting earnings per share and applies to entities with
publicly-held common stock or potential common stock. This statement is
effective for financial statements issued for periods ending after December 15,
1997 and when adopted will require restatement of prior years' earnings per
share. Early adoption is not permitted. The Company believes the adoption of
this statement will not have an impact on earnings per share reported by the
Company.
The remainder of this page is intentionally left blank.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A). EXHIBITS
Exhibit
Number Description Of Document
------ -----------------------
11.1 Statement Regarding Computation of Per Share Earnings.
27.1 Financial Data Schedule.
27.2 Amended Financial Data Schedule for the year ended December
31, 1996.
27.3 Amended Financial Data Schedule for the nine months ended
September 30, 1996.
27.4 Amended Financial Data Schedule for the six months ended June
30, 1996.
27.5 Amended Financial Data Schedule for the three months ended
March 31, 1996.
(B). REPORTS ON FORM 8-K:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in San
Antonio, Texas.
RAILTEX, INC.
Date: May 14, 1997 By: /s/ LAURA D. DAVIES
Name: LAURA D. DAVIES
Title: Vice President and Chief
Financial Officer
Date: May 14, 1997 By: /s/ CLEMENT J. WYDRA
Name: CLEMENT J. WYDRA
Title: Controller and Chief
Accounting Officer
EXHIBIT 11.1
RAILTEX, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------
1997 1996
------ ------
PRIMARY EARNINGS PER SHARE CALCULATION:
Net income ............................................... $1,575 $2,183
====== ======
Weighted average number of common stock and
common stock equivalents outstanding:
Weighted average number of shares of common stock
outstanding......................................... 9,132 9,111
Weighted average number of common stock equivalents
applicable to stock options......................... 77 114
------ ------
Common stock and common stock equivalents ............ 9,209 9,225
====== ======
Earnings per share - primary ......................... $ 0.17 $ 0.24
====== ======
FULLY DILUTED EARNINGS PER SHARE CALCULATION (1):
Net income ............................................... $1,575 $2,183
====== ======
Weighted average number of common stock and
common stock equivalents outstanding:
Weighted average number of shares of common stock
outstanding......................................... 9,132 9,111
Weighted average number of common stock equivalents
applicable to stock options......................... 77 129
------ ------
Common stock assuming full dilution .................. 9,209 9,240
====== ======
Earnings per share - fully diluted ................... $ 0.17 $ 0.24
====== ======
(1) This calculation is submitted in accordance with item 601(b)11 of
regulation S-K although it is not required by APB Opinion No. 15
because it results in dilution of less than 3.0%.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1997
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,905
<SECURITIES> 0
<RECEIVABLES> 26,537
<ALLOWANCES> 611
<INVENTORY> 0
<CURRENT-ASSETS> 31,849
<PP&E> 265,935
<DEPRECIATION> 32,383
<TOTAL-ASSETS> 291,770
<CURRENT-LIABILITIES> 37,713
<BONDS> 121,409
0
0
<COMMON> 915
<OTHER-SE> 123,382
<TOTAL-LIABILITY-AND-EQUITY> 291,770
<SALES> 0
<TOTAL-REVENUES> 34,175
<CGS> 0
<TOTAL-COSTS> 29,123
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 77
<INTEREST-EXPENSE> 2,366
<INCOME-PRETAX> 2,637
<INCOME-TAX> 1,062
<INCOME-CONTINUING> 1,575
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,575
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS AMENDED FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,108
<SECURITIES> 0
<RECEIVABLES> 27,446
<ALLOWANCES> 612
<INVENTORY> 0
<CURRENT-ASSETS> 32,551
<PP&E> 239,161
<DEPRECIATION> 29,741
<TOTAL-ASSETS> 269,470
<CURRENT-LIABILITIES> 32,782
<BONDS> 98,704
0
0
<COMMON> 912
<OTHER-SE> 121,791
<TOTAL-LIABILITY-AND-EQUITY> 269,470
<SALES> 0
<TOTAL-REVENUES> 121,106
<CGS> 0
<TOTAL-COSTS> 99,065
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 783
<INTEREST-EXPENSE> 6,893
<INCOME-PRETAX> 16,669
<INCOME-TAX> 6,708
<INCOME-CONTINUING> 9,961
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,961
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
</TABLE>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS AMENDED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,347
<SECURITIES> 0
<RECEIVABLES> 22,249
<ALLOWANCES> 749
<INVENTORY> 0
<CURRENT-ASSETS> 30,011
<PP&E> 230,119
<DEPRECIATION> 27,526
<TOTAL-ASSETS> 254,320
<CURRENT-LIABILITIES> 27,735
<BONDS> 89,342
0
0
<COMMON> 911
<OTHER-SE> 118,844
<TOTAL-LIABILITY-AND-EQUITY> 254,320
<SALES> 0
<TOTAL-REVENUES> 88,614
<CGS> 0
<TOTAL-COSTS> 72,555
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 381
<INTEREST-EXPENSE> 4,848
<INCOME-PRETAX> 11,899
<INCOME-TAX> 4,786
<INCOME-CONTINUING> 7,113
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,113
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.77
</TABLE>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS AMENDED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1996
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,574
<SECURITIES> 0
<RECEIVABLES> 20,821
<ALLOWANCES> 747
<INVENTORY> 0
<CURRENT-ASSETS> 29,432
<PP&E> 222,585
<DEPRECIATION> 25,140
<TOTAL-ASSETS> 239,558
<CURRENT-LIABILITIES> 25,474
<BONDS> 78,298
0
0
<COMMON> 911
<OTHER-SE> 116,515
<TOTAL-LIABILITY-AND-EQUITY> 239,558
<SALES> 0
<TOTAL-REVENUES> 58,757
<CGS> 0
<TOTAL-COSTS> 48,169
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 301
<INTEREST-EXPENSE> 3,020
<INCOME-PRETAX> 8,008
<INCOME-TAX> 3,204
<INCOME-CONTINUING> 4,804
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,804
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS AMENDED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1996
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,069
<SECURITIES> 0
<RECEIVABLES> 19,732
<ALLOWANCES> 498
<INVENTORY> 0
<CURRENT-ASSETS> 26,063
<PP&E> 202,396
<DEPRECIATION> 24,232
<TOTAL-ASSETS> 291,770
<CURRENT-LIABILITIES> 21,257
<BONDS> 58,401
0
0
<COMMON> 911
<OTHER-SE> 113,899
<TOTAL-LIABILITY-AND-EQUITY> 208,413
<SALES> 0
<TOTAL-REVENUES> 28,609
<CGS> 0
<TOTAL-COSTS> 23,679
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<LOSS-PROVISION> 151
<INTEREST-EXPENSE> 1,479
<INCOME-PRETAX> 3,716
<INCOME-TAX> 1,533
<INCOME-CONTINUING> 2,183
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<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
