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
June 30, 1998
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
(Address of principal executive 78209
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 July 31, 1998: 9,193,963
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAILTEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -----------------
1998 1997 1998 1997
--------- --------- ------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES.................... $ 39,135 $ 37,365 $77,547 $71,540
OPERATING EXPENSES:
Transportation...................... 14,546 13,556 28,476 26,193
General and administrative.......... 5,743 6,098 11,202 11,844
Equipment........................... 4,790 4,694 9,205 9,171
Maintenance of way.................. 4,157 3,689 8,737 6,967
Depreciation and amortization....... 3,665 3,103 7,186 6,088
--------- --------- --------- ---------
Total operating expenses........... 32,901 31,140 64,806 60,263
--------- --------- --------- ---------
OPERATING INCOME...................... 6,234 6,225 12,741 11,277
INTEREST EXPENSE...................... (2,669) (2,606) (5,356) (4,972)
OTHER INCOME.......................... 202 348 548 299
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES............ 3,767 3,967 7,933 6,604
INCOME TAXES.......................... (1,301) (1,549) (2,985) (2,611)
--------- --------- --------- ---------
NET INCOME............................$ 2,466 $ 2,418 $ 4,948 $ 3,993
========= ========= ========= =========
BASIC EARNINGS PER SHARE..............$ 0.27 $ 0.26 $ 0.54 $ 0.44
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF BASIC
SHARES OF COMMON STOCK OUTSTANDING.... 9,189 9,158 9,180 9,145
DILUTED EARNINGS PER SHARE............$ 0.27 $ 0.26 $ 0.54 $ 0.43
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF DILUTED
SHARES OF COMMON STOCK OUTSTANDING.... 9,238 9,223 9,234 9,213
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31,
1998 1997
--------- ---------
ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 1,595 $ 570
Accounts receivable, less doubtful receivables
of $1,605; $1,563 in 1997 ......................... 25,990 32,171
Prepaid expenses and other current assets .......... 1,982 2,527
Deferred tax assets, net ........................... 1,777 1,777
--------- ---------
Total current assets .............................. 31,344 37,045
--------- ---------
PROPERTY AND EQUIPMENT, less accumulated depreciation
of $47,469; $41,122 in 1997 ....................... 269,547 259,444
--------- ---------
OTHER ASSETS:
Investments in Brazilian railroad companies ........ 17,809 17,809
Investment in Central Properties, Inc. ............ 14,020 --
Other, net ......................................... 5,226 5,610
--------- ---------
Total other assets ................................ 37,055 23,419
--------- ---------
Total assets ...................................... $ 337,946 $ 319,908
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term notes payable ........................... $ -- $ 384
Current portion of long-term debt .................. 10,226 7,763
Accounts payable ................................... 13,009 18,829
Accrued liabilities ................................ 14,691 17,434
--------- ---------
Total current liabilities ......................... 37,926 44,410
DEFERRED INCOME TAXES, NET ........................... 22,659 20,521
LONG-TERM DEBT ....................................... 130,122 112,893
SENIOR SUBORDINATED NOTES PAYABLE .................... 5,000 5,000
OTHER LIABILITIES .................................... 3,909 3,826
--------- ---------
Total liabilities ................................. 199,616 186,650
--------- ---------
COMMITMENTS AND CONTINGENCIES
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
9,193,963; 9,160,924 in 1997 ..................... 919 916
Paid-in capital .................................... 84,119 83,799
Retained earnings .................................. 53,852 48,901
Cumulative translation adjustment .................. (560) (358)
--------- ---------
Total shareholders' equity ........................ 138,330 133,258
--------- ---------
Total liabilities and shareholders' equity ........ $ 337,946 $ 319,908
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-------------------
1998 1997
------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income..................................................... $ 4,948 $ 3,993
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................................ 7,186 6,088
Deferred income taxes ........................................ 2,215 760
Amortization of deferred financing costs ..................... 195 191
Provision for losses on accounts receivable .................. 6 108
Gain on sale of assets ....................................... (409) (260)
Other ........................................................ 32 --
Changes in working capital:
Accounts receivable ........................................ 6,175 (692)
Prepaid expenses ........................................... 545 1,019
Accounts payable and accrued liabilities ................... (8,301) 1,479
------- --------
Net cash provided by operating activities .................... 12,592 12,686
------- --------
INVESTING ACTIVITIES:
Purchase of investment in Central Properties, Inc.............. (14,020) --
Purchase of Detroit, Toledo and Ironton, including
related costs ................................................ -- (25,996)
Purchase of investment in Brazilian railroad company .......... -- (1,346)
Sale of preferred shares of Brazilian railroad company ........ -- 2,758
Purchase of property and equipment............................. (16,405) (13,335)
Proceeds from sale of property and equipment .................. 457 400
(Increase) decrease in other long-term assets ................. (358) 293
------- --------
Net cash used in investing activities ........................ (30,326) (37,226)
------- --------
FINANCING ACTIVITIES:
Payments of short-term notes payable .......................... (570) (352)
Proceeds from long-term debt .................................. 19,500 22,000
Principal payments on long-term debt .......................... (1,387) (1,422)
Net increase in working capital facility ...................... 1,000 3,000
Issuance of common stock ...................................... 247 73
Deferred financing costs ...................................... (3) --
------- --------
Net cash provided by financing activities .................... 18,787 23,299
------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ......................... (28) (123)
------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS ......................... 1,025 (1,364)
CASH AND CASH EQUIVALENTS, beginning of period .................. 570 2,108
------- --------
CASH AND CASH EQUIVALENTS, end of period......................... $ 1,595 $ 744
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest...................................................... $ 5,275 $ 4,494
Income taxes ................................................. 1,775 1,633
Non-cash investing and financing activities:
Capital leases ............................................... 905 345
Grants ....................................................... 149 18
Tax benefit from exercise of non-qualified stock
options ................................................... 76 100
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<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, 1997. 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 June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("FAS 130"). FAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. This statement is effective for fiscal years beginning
after December 15, 1997. Because the Company's component of comprehensive
income, foreign currency translation adjustment, is immaterial to the financial
condition or results of operations for the three months and six months ended
June 30, 1998 and 1997, the amounts are not reported or displayed in the
financial statements.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Post-Retirement Benefits". The Company does not provide post-retirement or
post-employment benefits to its employees.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"). FAS 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. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Initial application of this statement should be as of the beginning of an
entity's fiscal quarter. Earlier application of this statement is encouraged,
but it is permitted only as of the beginning of any fiscal quarter that begins
after the issuance of this statement. 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 ("AcSEC")
issued Statement of Position 98-5 "Reporting on the Costs of Start-up
Activities" ("SOP 98-5"). SOP 98-5 requires the costs of start-up activities and
organization costs, as defined, to be expensed as incurred. The SOP is effective
for fiscal years beginning after December 15, 1998. Earlier application is
encouraged, initial application will be reported as a cumulative effect of a
change in accounting principle and restatement of previously issued financial
statements is not permitted. The Company currently capitalizes the costs of
start-up activities and organization costs associated with the acquisition of
new railroad properties and amortizes these costs over five years. As of January
1, 1998, the Company would have reported a cumulative effect of a change in
accounting principle in the amount of $1.5 million, net of associated income
taxes. Prospectively, the Company's results of operations will reflect higher
costs associated with the acquisition of new railroad properties.
5
<PAGE>
3. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of
the basic and diluted per-share computation for net income (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
------ ------ ------ ---------
<S> <C> <C> <C> <C>
Numerator:
Net income-numerator for basic and diluted earnings per share .. $2,466 $2,418 $4,948 $ 3,993
====== ====== ====== =========
Denominator:
Denominator for basic earnings per share-weighted average shares 9,189 9,158 9,180 9,145
Effect of dilutive securities:
Employee and Director stock options .......................... 49 65 54 68
------ ------ ------ ---------
Denominator for diluted earnings per share-adjusted
weighted average shares ...................................... 9,238 9,223 9,234 9,213
====== ====== ====== =========
Basic earnings per share ......................................... $ 0.27 $ 0.26 $ 0.54 $ 0.44
====== ====== ====== =========
Diluted earnings per share ....................................... $ 0.27 $ 0.26 $ 0.54 $ 0.43
====== ====== ====== =========
</TABLE>
4. DERIVATIVE ACCOUNTING PRINCIPLES
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 has entered into two commodity collar transactions to hedge
market risks of diesel fuel prices. The first collar is effective April 1, 1998
and terminates March 31, 1999 and represents notional amounts totaling 250,000
gallons per month with a cap price of $0.5600 per gallon and a floor price of
$0.4375 per gallon.
The second collar is effective July 1, 1998 and terminates June 30, 1999
and represents 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. At June 30,
1998, the Company had not entered into any interest rate swaps contracts.
5. COMMITMENTS AND CONTINGENCIES
The Oregon Department of Environmental Quality ("DEQ") has filed an
administrative action against one of the Company's railroads for alleged
violations of the Clean Water Act by the disposal of landslide debris into a
waterway. The administrative action requires the railroad to cease and desist
all further disposal of slide material and to develop a plan for the appropriate
disposal of future material and subjects the Company to a potential civil
penalty of up to $10,000 per day of violation. Upon receipt of the
administrative action the Company filed an answer denying the charges and
asserted various affirmative defenses to the violation and requested an informal
conference to see if the matter could be resolved. The representatives from the
DEQ and the Company met in November 1997 to discuss an informal resolution of
the administrative proceedings and the DEQ agreed to dismiss the administrative
enforcement actions if the Company would develop, with the assistance of an
appropriate environmental consultant, a landslide excavation and debris disposal
plan. A plan was prepared, with the assistance of an environmental consultant,
which has been submitted to the DEQ. The DEQ has not responded formally but the
Company believes it will be able to resolve the matter and have the
administrative proceedings withdrawn.
6
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In connection with the alleged Clean Water Act violation discussed above,
the Environmental Protection Agency ("EPA") has commenced a criminal
investigation. In connection with the investigation, a subpoena was issued on
October 29, 1997, requesting various documents from the Company. Additionally,
in March and June of 1998, several employees were subpoenaed to testify in front
of a grand jury related to this criminal investigation. The Company and the
employees complied with these subpoenas and there has been no additional action
by the EPA. The Company intends to vigorously defend its position but is unable
to predict the outcome of this investigation.
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.
6. INVESTMENT IN CENTRAL PROPERTIES, INC.
On June 23, 1998, the Company acquired 100% of the outstanding stock of
Central Properties, Inc. ("CPI"). The stock was originally held in a voting
trust pending Surface Transportation Board ("STB") approval which was received
effective July 26, 1998. As a result, the equity method of accounting has been
applied to the Company's investment in CPI at June 30, 1998. CPI was a privately
held company which owns 100% of the stock of two railroads in Ohio and Indiana.
The Central Railroad of Indianapolis ("CERA") operates under a lease from
Norfolk Southern over approximately 73 miles of rail line in north central
Indiana. The Central Railroad of Indiana ("CIND") currently owns and operates
over 81 miles of rail line between Cincinnati, Ohio and Shelbyville, Indiana.
The purchase price was $14.3 million including a 14.0 million cash payment and
the assumption of approximately $266,000 of long-term debt. This acquisition was
funded by borrowings under the Company's $75 million U.S. acquisition facility.
The Company began actively operating the two railroads on August 1, 1998. As a
result, beginning August 1, 1998, the acquisition will be accounted for using
the purchase method of accounting.
7
<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, 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
more than 3,900 at June 30, 1998.
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") and Central Properties, Inc., 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.
8
<PAGE>
RECENT DEVELOPMENTS
Effective August 24, 1998, Ronald A. Rittenmeyer will join the Company as
President and Chief Executive Officer. Mr. Rittenmeyer comes to RailTex from
Ryder TRS, where he had served as President and Chief Operating Officer since
1997. As COO of Ryder TRS, Mr. Rittenmeyer ran an investor-owned consumer
truck-rental company with more than 4,200 dealers in North America. Prior to
Ryder TRS, Mr. Rittenmeyer was President and Chief Operating Officer of Merisel,
Inc. From 1994 to 1995, Mr. Rittenmeyer was employed by Burlington Northern,
Inc. until it merged into the Santa Fe Railroad, most recently as Chief
Operating Officer. Mr. Rittenmeyer also spent nearly 20 years with Frito Lay in
a number of positions rising to become Vice President of Operations.
On June 23, 1998, the Company acquired 100% of the outstanding stock of
Central Properties, Inc. ("CPI"). The stock was originally held in a voting
trust pending Surface Transportation Board ("STB") approval which was received
effective July 26, 1998. CPI was a privately held company which owns 100% of the
stock of two railroads in Ohio and Indiana. The Central Railroad of Indianapolis
("CERA") operates under a lease from Norfolk Southern over approximately 73
miles of rail line in north central Indiana. The Central Railroad of Indiana
("CIND") currently owns and operates over 81 miles of rail line between
Cincinnati, Ohio and Shelbyville, Indiana. The purchase price was $14.3 million
including a 14.0 million cash payment and the assumption of approximately
$266,000 of long-term debt. The Company began actively operating the two
railroads on August 1, 1998.
Approximately 30% of the Company's carloads interchange with the Union
Pacific Railroad ("UP"). As a result, the Company has been impacted by the
congestion the UP is experiencing primarily through car supply issues and
increased operating expenses due to overtime associated with running trains on
unscheduled days and delays caused by waiting for access to UP yards.
Additionally, revenues have been lost to other modes of transportation as
customers avoid the service problems caused by the UP congestion. To the extent
that the UP problems continue or worsen, the Company's results of operations
could be materially adversely impacted.
The Company owns investments in two Brazilian railroad companies, Ferrovia
Centro Atlantica, S.A. ("FCA") and Ferrovia Sul Atlantico, S.A. ("FSA"). During
1997 and continuing into 1998, certain Asian countries have experienced a
financial crisis resulting in the devaluation of their currencies. The Asian
crisis has increased speculation the Brazilian currency ("Real") would be
devalued. In response to the Asian crisis, the Brazilian government invoked
certain fiscal measures in an effort to stabilize the Real and avert significant
devaluation. However, there can be no assurances that these measures will
prevent future currency devaluations.
Additionally, the economic uncertainty related to Brazil has impacted the
ability of FCA and FSA to finance short-term capital needs. As a result, the
Board of Directors of FSA implemented a call for additional capital
contributions from the existing shareholders. The Company decided not to
participate in the capital call, and, as a result, its equity percentage will be
diluted from 6.0% to as low as 4.0%. The respective Board of Directors of FCA
and FSA may implement additional capital contribution calls from the existing
shareholders. In the event the Company does not participate in the capital call,
its equity percentage could be further diluted.
As a result of the acquisition of Consolidated Rail Corporation
("Conrail") by CSX Transportation, Inc. ("CSX") and Norfolk Southern Railway
Company ("NS"), Conrail's rail lines will be divided between CSX and NS which
may cause revenue to be diverted from the New England Central Railroad, Inc.
("NECR") and the Indiana Southern Railroad, Inc., ("ISRR"), wholly-owned
subsidiaries of RailTex, Inc. Filings made by CSX and NS with the STB indicated
that traffic with revenues of approximately $1.6 million will be diverted from
the NECR. NECR estimated that traffic with revenues of as much as $8.0 million
and the ISRR estimated that traffic with revenues of $1.5 million could be
diverted on an annual basis. In addition, the INOH, a wholly-owned subsidiary of
RailTex, Inc., believed the division of rail lines between CSX and NS will cause
operating inefficiencies for INOH. As a result, NECR, ISRR and INOH filed
requests with the STB for limited trackage rights to remedy the potential loss
of revenue and rectify operating inefficiencies. As a result, the NECR and ISRR
were awarded additional trackage rights by the STB and the INOH negotiated
additional trackage rights with NS. The Company is unable to predict if the
additional trackage rights awarded will remedy the potential loss of revenue or
rectify operating inefficiencies.
9
<PAGE>
In order to improve its overall profitability and financial returns, the
Company has performed an analysis of its portfolio railroad properties with the
objective of identifying those properties which do not meet the Company's
overall financial objectives and which do not offer significant revenues or
operating expansion opportunities. As a result, the Company may divest certain
railroad properties in the near term.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
The Company's net income for the three months ended June 30, 1998
increased by approximately $48,000, or 2.0%, to $2.5 million from $2.4 million
in the prior year period and basic and diluted earnings per share increased 3.8%
to $0.27 per share from $0.26 per share in the prior year period.
OPERATING REVENUES. Operating revenues for the three months ended June 30,
1998 increased by $1.8 million, or 4.7%, to $39.1 million from $37.4 million in
the prior year period. Carloads transported increased by 12,492 carloads, or
10.2%, to 134,734 carloads from 122,242 carloads in the prior year period.
Freight revenues for the three months ended June 30, 1998 increased by
$1.6 million, or 5.0%, to $33.8 million from $32.2 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 June 30, 1998 and 1997.
FREIGHT REVENUES AND CARLOADS COMPARISON BY COMMODITY GROUP
(DOLLARS IN THOUSANDS, EXCEPT PER CARLOAD AMOUNTS)
<TABLE>
<CAPTION>
AVERAGE FREIGHT
REVENUES PER
FREIGHT REVENUES CARLOADS CARLOAD(1)
----------------------------------------- -------------------------------------- -----------
1998 1997 1998 1997 1998 1997
-------------------- ----------------- ----------------- ----------------- ---- ----
% 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> <C>
Lumber & forest products ...... $7,215 21.4% $ 6,200 19.3% 17,907 13.3% 16,342 13.4% $403 $379
Coal ............................ 4,442 13.1 4,644 14.4 23,366 17.3 24,558 20.1 190 189
Chemicals ....................... 4,244 12.6 3,799 11.8 12,984 9.6 12,279 10.0 327 309
Scrap paper & paper products .... 2,898 8.6 3,113 9.7 8,666 6.4 8,907 7.3 334 349
Scrap metal & metal products .... 2,827 8.4 2,487 7.7 10,678 7.9 9,444 7.7 265 263
Farm products ................... 2,314 6.8 2,393 7.4 9,265 6.9 9,303 7.6 250 257
Food products ................... 1,818 5.4 1,704 5.3 6,884 5.1 6,427 5.3 264 265
Railroad equipment .............. 1,797 5.3 838 2.6 16,647 12.4 5,336 4.4 108 157
Non-metallic ores................ 1,591 4.7 1,560 4.8 9,324 6.9 9,274 7.6 171 168
Minerals & stone................. 1,526 4.5 1,446 4.5 4,483 3.3 4,141 3.4 340 349
Autos ........................... 1,122 3.3 1,279 4.0 6,658 4.9 6,658 5.4 168 192
Petroleum products .............. 978 2.9 1,321 4.1 2,996 2.2 3,366 2.8 326 393
Other ........................... 1,022 3.0 1,390 4.4 4,876 3.8 6,207 5.0 210 224
------- ----- ------- ----- ------- ----- ------- -----
Total ......................... $33,794 100.0% $32,174 100.0% 134,734 100.0% 122,242 100.0% $251 $263
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
- ----------------------------
(1) Calculated as freight revenues divided by carloads.
The increase in freight revenues and carloadings is primarily due to
increases in railroad equipment (11,311) and lumber and forest products (1,565)
due to the transportation of empty coal freight cars at one of the Company's
railroads for the UP and an increase in moves for an existing customer.
10
<PAGE>
Non-freight revenues for the three months ended June 30, 1998 increased by
approximately $150,000, or 2.9%, to $5.3 million from $5.2 million in the prior
year period. Non-freight revenues include joint facilities, switching,
demurrage, car hire and car repair services performed for third parties and
lease income. These non-freight revenues contributed 13.6% and 13.9% of
operating revenues in the three months ended June 30, 1998 and 1997,
respectively. The increase in non-freight revenues is primarily due to a special
project to install fiber optic cable at one of the Company's railroads.
OPERATING EXPENSES. Operating expenses for the three months ended June 30,
1998 increased by $1.8 million, or 5.7%, to $32.9 million from $31.1 million in
the prior year period. The Company's operating ratio (operating expenses divided
by operating revenues) increased for the period to 84.1%, compared to 83.3% in
the prior year period, primarily due to higher depreciation and amortization,
reflecting the Company's increased capital improvement programs, and an increase
in purchased services and casualties and insurance expense offset by an improved
labor ratio and lower diesel fuel costs.
The following table sets forth a comparison of the Company's operating
expenses during the three month periods ended June 30, 1998 and 1997, in dollars
and as a percentage of operating revenues:
OPERATING EXPENSES COMPARISON
(DOLLARS IN THOUSANDS)
1998 1997
--------------------- --------------------
% OF OPERATING % OF OPERATING
DOLLARS REVENUES DOLLARS REVENUES
------- ---------- ------- ----------
Labor and benefits ............. $12,048 30.7% $11,640 31.1%
Equipment rents ................ 4,491 11.4 4,204 11.2
Depreciation and amortization .. 3,665 9.4 3,103 8.3
Diesel fuel .................... 2,453 6.3 2,896 7.8
Purchased services ............. 2,765 7.1 2,207 5.9
Casualties and insurance ....... 1,863 4.8 1,460 3.9
Materials ...................... 1,640 4.2 1,341 3.6
Joint facilities ............... 1,073 2.7 1,117 3.0
Other .......................... 2,903 7.4 3,172 8.5
------- ---- ------- ----
Total ........................ $32,901 84.1% $31,140 83.3%
======= ==== ======= ====
Labor and benefits for the three months ended June 30, 1998 increased by
approximately $408,000, or 3.5%, to $12.0 million from $11.6 million in the
prior year period. The increase in labor and benefits is primarily a result of
an increase in total employment at the Company's railroads due to an increase in
carloadings.
Equipment rents for the three months ended June 30, 1998 increased by
approximately $287,000, or 6.8%, to $4.5 million from $4.2 million in the prior
year period. The increase in equipment rents is primarily attributable to an
increase in locomotive and railcar leases.
Depreciation and amortization for the three months ended June 30, 1998
increased by approximately $562,000, or 18.1%, to $3.7 million from $3.1 million
in the prior year period. The increase in depreciation and amortization is
primarily a result of capital asset additions for track rehabilitation and
increased vehicle and locomotive depreciation related to fleet expansion.
Diesel fuel expense for the three months ended June 30, 1998 decreased by
approximately $443,000, or 15.3%, to $2.5 million from $2.9 million in the prior
year period. The decrease in diesel fuel expense is primarily a result of a
$0.16 per gallon, or 21%, decrease in average fuel prices as compared to the
prior year period.
11
<PAGE>
Purchased services for the three months ended June 30, 1998 increased by
approximately $558,000, or 25.3%, to $2.8 million from $2.2 million in the prior
year period. The increase in purchased services is primarily a result of
increased contract labor related to maintenance projects and an increase in
certain information technology fees as a result of additional resources devoted
to a computer system rollout.
Casualties and insurance expense for the three months ended June 30, 1998
increased by approximately $403,000, or 27.6%, to $1.9 million from $1.5 million
in the prior year period. The increase in casualties and insurance expense is a
result of increased derailment and property damage costs.
Materials expense for the three months ended June 30, 1998 increased by
approximately $299,000, or 22.3%, to $1.6 million from $1.3 million in the prior
year period. The increase in materials expense is primarily due to an increase
in car repair materials.
Joint facilities expense for the three months ended June 30, 1998
decreased by approximately $44,000, or 3.9%, to $1.1 million due primarily to
trackage rights credits.
Other expenses for the three months ended June 30, 1998 decreased by
approximately $269,000, or 8.5%, to $2.9 million from $3.2 million in the prior
year period. The decrease in other expenses is primarily attributable to a
decrease in bad debt expense and bank fees.
INTEREST EXPENSE. Interest expense for the three months ended June 30,
1998 increased by approximately $63,000, or 2.4%, to $2.7 million from $2.6
million in the prior year period due primarily to an increase in borrowings for
capital asset additions.
OTHER INCOME. Other income for the three months ended June 30, 1998
decreased by approximately $146,000, or 42.0%, to $202,000 from $348,000 in the
prior year period primarily due to less gain from the sale of non-operating
assets for the three months ended June 30, 1998.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30,
1997.
The Company's net income for the six months ended June 30, 1998 increased
by approximately $955,000, or 23.9%, to $4.9 million from $4.0 million in the
prior year period, basic earnings per share increased 22.7% to $0.54 per share
from $0.44 per share in the prior year period and diluted earnings per share
increased 25.6% to $0.54 per share from $0.43 per share in the prior year
period.
OPERATING REVENUES. Operating revenues for the six months ended June 30,
1998 increased by $6.0 million, or 8.4%, to $77.5 million from $71.5 million in
the prior year period. Carloads transported increased by 29,587 carloads, or
12.8%, to 261,527 carloads from 231,940 carloads in the prior year period.
Freight revenues for the six months ended June 30, 1998 increased $5.3
million, or 8.6%, to $67.0 million from $61.7 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 six months ended
June 30, 1998 and 1997.
12
<PAGE>
FREIGHT REVENUES AND CARLOADS COMPARISON BY COMMODITY GROUP
(DOLLARS IN THOUSANDS, EXCEPT PER CARLOAD AMOUNTS)
<TABLE>
<CAPTION>
AVERAGE FREIGHT
REVENUES PER
FREIGHT REVENUES CARLOADS CARLOAD(1)
----------------------------------------- -------------------------------------- -----------
1998 1997 1998 1997 1998 1997
-------------------- ----------------- ----------------- ----------------- ---- ----
% 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 & forest products ....... $13,863 20.7% $11,831 19.2% 34,754 13.3% 31,519 13.6% $399 $375
Coal ........................... 8,945 13.4 8,071 13.1 49,227 18.8 43,237 18.6 182 187
Chemicals ...................... 8,313 12.4 7,483 12.1 25,700 9.8 23,509 10.1 323 318
Scrap metal & metal products ... 5,849 8.7 4,693 7.6 21,268 8.1 17,079 7.4 275 275
Scrap paper & paper products ... 5,805 8.7 6,154 10.0 17,475 6.7 17,021 7.3 332 362
Farm products .................. 5,073 7.6 5,295 8.6 20,129 7.7 21,259 9.2 252 249
Food products .................. 3,494 5.2 3,354 5.4 13,121 5.0 12,576 5.4 266 267
Non-metallic ores .............. 3,118 4.7 3,138 5.1 17,353 6.6 17,535 7.6 180 179
Railroad equipment ............. 2,857 4.3 1,644 2.7 23,648 9.0 10,342 4.5 121 159
Minerals & stone................ 2,758 4.1 2,673 4.3 8,079 3.1 7,989 3.4 341 335
Autos .......................... 2,528 3.8 2,344 3.8 14,572 5.6 12,672 5.5 173 185
Petroleum products ............. 2,289 3.4 2,675 4.3 6,565 2.5 6,837 2.9 349 391
Other .......................... 2,086 3.0 2,338 3.8 9,636 3.8 10,365 4.5 216 226
------- ----- ------- ----- ------- ----- ------- -----
Total ........................ $66,978 100.0% $61,693 100.0% 261,527 100.0% 231,940 100.0% $256 $266
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
(1) Calculated as freight revenues divided by carloads.
The increase in freight revenues and carloadings is primarily due to
increases in railroad equipment (13,306), coal (5,990), scrap metal and metal
products (4,189) and lumber and forest products (3,235) primarily due to the
transportation of empty coal freight cars at one of the Company's railroads for
UP and increased business with existing customers.
Non-freight revenues for the six months ended June 30, 1998 increased by
approximately $722,000, or 7.3%, to $10.6 million from $9.8 million in the prior
year period. Non-freight revenues include joint facilities, switching,
demurrage, car hire and car repair services performed for third parties and
lease income. These non-freight revenues contributed 13.6% and 13.8% of
operating revenues in the six months ended June 30, 1998 and 1997, respectively.
The increase is primarily due to increases in car hire, car repair, switching
and joint facilities income from Amtrak and a special project to install fiber
optic cable at one of the Company's railroads.
OPERATING EXPENSES. Operating expenses for the six months ended June 30,
1998 increased by $4.5 million, or 7.5%, to $64.8 million from $60.3 million in
the prior year period. The Company's operating ratio (operating expenses divided
by operating revenues) decreased for the period to 83.6% compared to 84.2% in
the prior year period, primarily a result of lower diesel fuel costs.
The following table sets forth a comparison of the Company's operating
expenses during the six month periods ended June 30, 1998 and 1997, in dollars
and as a percentage of operating revenues:
13
<PAGE>
OPERATING EXPENSES COMPARISON
(DOLLARS IN THOUSANDS)
1998 1997
------------------ -----------------
% OF OPERATING % OF OPERATING
DOLLARS REVENUES DOLLARS REVENUES
------- ------- ------- -------
Labor and benefits .............. $23,889 30.8% $21,894 30.6%
Equipment rents ................. 8,791 11.3 8,292 11.6
Depreciation and amortization ... 7,186 9.3 6,088 8.5
Diesel fuel ..................... 5,104 6.6 6,072 8.5
Purchased services .............. 5,021 6.5 4,274 6.0
Casualties and insurance ........ 3,383 4.4 2,683 3.7
Materials ....................... 3,036 3.9 2,683 3.7
Joint facilities ................ 2,336 3.0 2,186 3.1
Other ........................... 6,060 7.8 6,091 8.5
------- ---- ------- ----
Total ......................... $64,806 83.6% $60,263 84.2%
======= ==== ======= ====
Labor and benefits for the six months ended June 30, 1998 increased by
$2.0 million, or 9.1%, to $23.9 million from $21.9 million in the prior year
period. The increase in labor and benefits is primarily a result of an increase
in profit sharing incentives at one of the Company's railroads due to increased
profitability at the railroad, increase in overtime related to an increase in
traffic volume on certain railroads and as a result of UP service problems and
an increase in total employment.
Equipment rents for the six months ended June 30, 1998 increased by
approximately $499,000, or 6.0%, to $8.8 million from $8.3 million in the prior
year period. The increase in equipment rents is primarily attributable to an
increase in locomotive leases.
Depreciation and amortization for the six months ended June 30, 1998
increased by approximately $1.1 million, or 18.0%, to $7.2 million from $6.1
million in the prior year period. The increase in depreciation and amortization
is primarily due to capital expenditures for track rehabilitation and an
increase in vehicle and locomotive depreciation due to fleet expansion.
Diesel fuel expense for the six months ended June 30, 1998 decreased by
approximately $968,000, or 15.9%, to $5.1 million from $6.1 million in the prior
year period. The decrease in diesel fuel expense is primarily a result of a
$0.19, or 23.8%, decrease in average fuel prices as compared to the prior year
period.
Purchased services for the six months ended June 30, 1998 increased by
approximately $747,000, or 17.5%, to $5.0 million from $4.3 million in the prior
year period. The increase in purchased services is primarily a result of
increased contract labor related to maintenance projects and increased legal and
consulting expense related to training, public relations, information technology
and labor and compensation issues.
Casualties and insurance expense for the six months ended June 30, 1998
increased by approximately $700,000, or 26.1%, to $3.4 million from $2.7 million
in the prior year period. The increase in casualties and insurance expense is a
result of increased derailment and property damage costs.
Materials expense for the six months ended June 30, 1998 increased by
approximately $353,000, or 13.2%, to $3.0 million from $2.7 million in the prior
year period. The increase in materials expense is primarily due to an increase
in locomotive and car repair materials due to routine and non-routine
maintenance.
Joint facilities expense for six months ended June 30, 1998 increased by
approximately $150,000, or 6.9%, to $2.3 million from $2.2 million in the prior
year period due primarily to an increase in carload activity.
14
<PAGE>
Other expenses for the six months ended June 30, 1998, decreased by
approximately $31,000, or 0.5%, to $6.1 million. The decrease is a result of
lower bad debt expense and bank fees offset by increased property taxes,
telephone and communication expense and travel expense.
INTEREST EXPENSE. Interest expense for the six months ended June 30, 1998
increased by approximately $384,000, or 7.7%, to $5.4 million from $5.0 million
in the prior year period due primarily to an increase in borrowings for capital
asset additions.
OTHER INCOME. Other income for the six months ended June 30, 1998
increased by approximately $249,000, or 83.3%, to $548,000 from $299,000 in the
prior year period due primarily to more gains on the sale of non-operating
assets in the current year period.
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 six months ended June 30, 1998, the Company generated cash from
operations of $12.6 million and borrowed a total of $6.5 million on its credit
facilities which was primarily used to fund capital expenditures as follows (in
thousands):
Track..........................................$ 8,119
Locomotives.................................... 3,318
Detroit, Toledo and Ironton ("DTI") track
rehabilitation................................ 3,382
Technology..................................... 720
Other.......................................... 866
-------
$16,405
=======
On June 23, 1998, the Company acquired 100% of the outstanding stock of
Central Properties, Inc. ("CPI"). The purchase price was $14.3 million including
a 14.0 million cash payment and the assumption of approximately $266,000 of
long-term debt. This acquisition was funded by borrowings under the Company's
$75.0 million U.S. acquisition facility ("U.S. Acquisition Facility").
At June 30, 1998, the Company had long-term senior debt, capital leases
and senior subordinated debt outstanding totaling $145.3 million, which
constituted 51.2% of its total capitalization. Comparable figures at December
31, 1997 were $125.7 million and 48.5%, respectively.
At June 30, 1998, availability under the Company's U.S. Acquisition
Facility, $10.0 million U.S. working capital facility ("U.S. Working Capital
Facility"), CDN $25.0 million Canadian acquisition agreement, and CDN $5.0
million Canadian working capital facility ("Canadian Working Capital Facility")
was, in U.S. dollars, $44.4 million, $5.0 million, $17.0 million and $2.7
million, respectively. The unused portion of all of the Company's senior bank
credit facilities are subject to a 0.25% commitment fee.
As shown in the table above, the Company has spent approximately $3.4
million on rehabilitation of the DTI track in 1998 and expects to spend an
additional $1.6 million in 1998. The Company currently anticipates that its
maintenance capital expenditure requirements in 1998 for track, excluding DTI
track rehabilitation, locomotives and equipment will be $22.0 million.
Additionally, computer hardware, software and related capital expenditures are
currently expected to be $3.0 million.
15
<PAGE>
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 June 30, 1998, the Company was in compliance
with all covenants.
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. The Company further believes that these facilities
will be renewed and extended upon expiration.
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 STB's cost
or inflation indices.
SEASONALITY
Except for revenue from shipment of 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 June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"). FAS 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. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Initial application of this statement should be as of the beginning of an
entity's fiscal quarter. Earlier application of this statement is encouraged,
but it is permitted only as of the beginning of any fiscal quarter that begins
after the issuance of this statement. 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.
YEAR 2000 COMPLIANCE
The Company is currently in the process of evaluating its information
technology infrastructure for the year 2000 compliance. The Company does not
expect that the cost to modify its information technology infrastructure to be
year 2000 compliant will be material to its financial condition or results of
operations. The Company does not anticipate any material disruption in its
operations as a result of any failure by the Company to be in compliance.
The Company is currently investigating the year 2000 compliance status of
its suppliers and customers. If it appears that some of its suppliers will be
unable to become year 2000 compliant, the Company will switch to suppliers that
are already year 2000 compliant. However, if any of the Company's significant
suppliers or customers, including Class I railroads, do not successfully and
timely achieve year 2000 compliance the Company's business or operations may be
adversely affected.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
(A) The Annual Meeting of Shareholders was held on May 27, 1998.
(B)In accordance with the bylaws of the Company, the following directors were
elected to serve for a three year term expiring in 2001 and until their
respective successors are elected and qualified:
Robert M. Ayres, Jr.
Robert R. Lende
(C)(1) The directors named in (b) above were elected by the following votes:
NOMINEE FOR WITHHELD
- ------- --- --------
Robert M. Ayres, Jr. 8,421,886 69,799
Robert R. Lende 8,423,840 67,845
(C)(2)A majority of shares were voted to approve Arthur Andersen LLP as the
Company's auditors for the 1998 fiscal year. The vote was 8,464,316 for,
13,866 against and 13,503 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A). EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
27.1 Financial Data Schedule.
(B). REPORTS ON FORM 8-K
None
17
<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: August 13, 1998 By: /s/ BRUCE M. FLOHR
------------------------------
Name: BRUCE M. FLOHR
Title:Chairman of the Board,
Chief Executive Officer
and Director
Date: August 13, 1998 By: /s/ CLEMENT J. WYDRA
-----------------------------
Name: CLEMENT J. WYDRA
Title:Controller and Chief Accounting
Officer
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,595
<SECURITIES> 0
<RECEIVABLES> 27,595
<ALLOWANCES> 1,605
<INVENTORY> 0
<CURRENT-ASSETS> 31,344
<PP&E> 317,016
<DEPRECIATION> 47,469
<TOTAL-ASSETS> 337,946
<CURRENT-LIABILITIES> 37,926
<BONDS> 145,348
0
0
<COMMON> 919
<OTHER-SE> 137,411
<TOTAL-LIABILITY-AND-EQUITY> 337,946
<SALES> 0
<TOTAL-REVENUES> 77,547
<CGS> 0
<TOTAL-COSTS> 64,806
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 5,356
<INCOME-PRETAX> 7,933
<INCOME-TAX> 2,985
<INCOME-CONTINUING> 4,948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,948
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
</TABLE>
