<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
Commission File No. 0-20618
-------
RAILAMERICA, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 65-0328006
------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
301 Yamato Road, Suite 1190, Boca Raton, Florida 33431
--------------------------------------------------------------
(Address of principal executive offices)
(407) 994-6015
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes XX No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock, par value $.001 - 6,112,910 shares as of November 14, 1996
<PAGE> 2
RAILAMERICA, INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - 1
September 30, 1996 and December 31, 1995
Consolidated Statements of Income -
For the nine and three months ended
September 30, 1996 and 1995 2
Consolidated Statements of Cash Flows -
For the nine months ended September 30, 1996 and 1995 3
Notes to Consolidated Financial
Statements 4
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 7 Exhibits and Reports on Form 8-K 22
Signatures
</TABLE>
<PAGE> 3
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 4,200,410 $ 3,488,866
Restricted cash 175,000 175,000
Accounts receivable 4,513,954 2,194,828
Inventories 3,238,651 3,360,838
Other current assets 527,957 415,870
Deferred income taxes 329,000 329,000
------------- ------------
Total current assets 12,984,972 9,964,402
Property, plant and equipment, net 37,263,068 25,547,541
Other, net 2,383,999 1,519,827
Excess of cost over net assets of companies acquired, net 2,911,599 3,032,192
------------- ------------
Total assets $ 55,543,638 $ 40,063,962
============= ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,538,937 $ 969,929
Current maturities of subordinated debt 212,392 1,879,057
Accounts payable 2,629,351 2,093,740
Income taxes payable - 560,788
Accrued expenses 1,603,202 1,420,227
------------- ------------
Total current liabilities 5,983,882 6,923,741
------------- ------------
Long-term debt, less current maturities 29,092,536 17,181,288
------------- ------------
Subordinated debt, less current maturities 3,530,980 3,690,274
------------- ------------
Deferred income taxes 3,195,712 3,120,000
------------- ------------
Commitments and contingent liabilities - -
Stockholders' equity:
Common stock, $.001 par value, 30,000,000 shares authorized;
6,112,910 issued and 5,875,910 outstanding at September 30, 1996 and
4,848,991 issued and 4,658,991 outstanding at December 31, 1995 6,113 4,849
Additional paid-in capital 11,793,883 7,599,313
Retained earnings 3,002,741 2,439,895
Cumulative translation adjustment 77,060 70,355
Less treasury stock (237,000 and 190,000 shares at cost, respectively) (1,139,269) (965,753)
------------- ------------
Total stockholders' equity 13,740,528 9,148,659
------------- ------------
$ 55,543,638 $ 40,063,962
============= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1
<PAGE> 4
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the nine and three months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
------------------------------- -------------------------------
1996 1995 1996 1995
------------ ------------ ------------- -------------
<S> <C>
Operating revenues:
Transportation - railroad $ 1,913,844 $ 1,590,515 $ 6,676,372 $ 4,528,441
Transportation - motor carrier 1,849,793 1,543,313 5,481,245 3,713,581
Manufacturing 3,432,189 5,053,132 1,573,409 14,469,856
Other 565,972 147,602 1,407,848 281,068
------------ ------------ ------------- -------------
7,761,798 8,334,562 25,138,874 22,992,946
------------ ------------ ------------- -------------
Operating expenses:
Transportation - railroad 921,231 798,807 2,994,009 2,223,189
Transportation - motor carrier 1,606,875 1,345,182 4,953,286 3,192,384
Cost of goods sold - manufacturing 2,670,683 3,732,409 8,938,913 10,820,836
Selling, general and administrative 1,487,461 1,276,095 4,385,665 3,405,957
Depreciation and amortization 517,644 396,123 1,441,539 1,072,706
------------ ------------ ------------- -------------
7,203,894 7,548,616 22,713,412 20,715,072
------------ ------------ ------------- -------------
Operating income 557,904 785,946 2,425,462 2,277,874
Interest expense (574,062) (390,005) (1,548,051) (1,037,039)
Other income (expense) 55,889 (157,390) 15,831 138,562
------------ ------------ ------------- -------------
Income before income taxes 39,731 238,551 893,242 1,379,397
Provision for income taxes 15,000 56,000 330,394 469,000
------------ ------------ ------------- -------------
Net income $ 24,731 $ 182,551 $ 562,848 $ 910,397
============ ============ ============= =============
==============================================================================================================================
Net earnings attributable to common
shares and dilutive common share
equivalents (for primary) $ 24,731 $ 252,753 $ 562,848 $ 1,110,018
============ ============ ============= =============
Earnings per common share and dilutive
common share equivalents:
Primary $ 0.01 $ 0.04 $ 0.12 $ 0.18
============ ============ ============= =============
Fully Diluted $ 0.01 $ 0.04 $ 0.12 $ 0.17
============ ============ ============= =============
Weighted average common shares and
common share equivalents outstanding:
Primary 4,646,832 6,248,589 4,661,943 6,191,825
============ ============ ============= =============
Fully Diluted 4,646,832 7,057,990 4,661,943 6,759,256
============ ============ ============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE> 5
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 562,848 $ 910,397
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,556,165 1,363,955
Gain on sale of properties (942,190) (172,686)
Employee grants 48,554 137,696
Deferred income taxes 75,712 282,327
Changes in operating assets and liabilities:
Accounts receivable (2,038,491) 122,247
Inventories 122,187 (815,990)
Other current assets (103,385) (177,879)
Note receivable - 15,121
Accounts payable 535,611 267,508
Income taxes payable (560,788) -
Accrued liabilities 182,975 (32,436)
Deposits and other (478) (107,704)
----------- -----------
Net cash (used in) provided by operating activities (561,280) 1,792,556
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (3,850,280) (1,742,267)
Proceeds from sale of properties 1,163,753 244,900
Acquisition of Steel City - (993,423)
Acquisition of Dakota Rail, Inc. net of cash acquired - (1,553,614)
Deferred acquisition costs and other (471,186) (277,471)
----------- -----------
Net cash used in investing activities (3,157,713) (4,321,875)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 8,018,838 28,953,322
Principal payments on debt (7,551,800) (25,303,014)
Sale of common stock 4,147,280 2,387,051
Purchase of treasury stock (173,516) (965,390)
Preferred stock dividends paid - (50,000)
Decrease in restricted cash - 290,000
Deferred loan costs (10,265) (412,352)
----------- -----------
Net cash provided by financing activities 4,430,537 4,899,617
----------- -----------
Net increase in cash 711,544 2,370,298
Cash, beginning of period 3,488,866 470,214
----------- -----------
Cash, end of period $ 4,200,410 $ 2,840,512
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 6
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 BASIS OF PRESENTATION:
The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of Management, the consolidated financial statements
contain all adjustments which are those of a recurring nature, and
disclosures necessary to present fairly the financial position of the
Company as of September 30, 1996 and December 31, 1995, and the
results of operations and cash flows for the nine and three months
ended September 30, 1996 and 1995.
The accounting principles which materially affect the financial
position, results of operations and cash flows of the Company are set
forth in Notes to the Consolidated Financial Statements which are
included in the Company's financial statements contained in the
Company's 1995 annual report on Form 10-KSB. Capitalized terms used
but not otherwise defined herein have the meanings set forth in the
Company's annual report on Form 10- KSB.
2 EARNINGS PER SHARE:
For the nine and three months ended September 30, 1996, primary and
fully diluted earnings per share were based on the weighted average
number of common shares outstanding during the periods. The stock
options, warrants and convertible subordinated notes payable
outstanding are anti-dilutive and have been excluded from weighted
average number of shares outstanding for both primary and fully
diluted earnings per share.
For the nine and three months ended September 30, 1995, primary
earnings per common share was computed on net income increased by pro
forma reductions in interest expense resulting from the assumed
exercise of warrants, options and conversion of redeemable convertible
preferred stock for the periods outstanding, and the resulting assumed
reduction of outstanding indebtedness, divided by the weighted average
number of common and common equivalent shares outstanding during the
period under the modified treasury stock method. Fully diluted
earnings per share was computed, in addition to the above computation,
assuming the conversion of the convertible subordinated notes payable
and using the higher of the average market price or the end of the
quarter market price.
4
<PAGE> 7
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3 INVENTORIES:
Inventories consist of the following as of September 30, 1996 and
December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Raw materials $ 2,522,640 $ 1,737,683
Work in process 572,798 642,265
Finished goods 159,848 771,842
Replacement or repair parts for equipment
and road property 580,978 209,048
-------------- --------------
3,836,264 3,360,838
Less, customer advances related to materials 597,613 -
-------------- --------------
Inventories in excess of contract advances $ 3,238,651 $ 3,360,838
============== ==============
</TABLE>
4 PROPERTY, PLANT AND EQUIPMENT:
On June 30, 1996, the Company acquired approximately 40 miles of rail
line in the state of Indiana. The purchase price including costs was
approximately $1.1 million. The Company simultaneously sold for cash
approximately 22 miles of the rail line to an unrelated party and sold
a railcar repair shop which was located along the rail line to another
unrelated party. The combined gain on sale of these two properties
was approximately $582,000 and is included on the consolidated
statements of income as other revenue. The Company continues to own
the remaining 18 miles of rail line and operates the 22 miles pursuant
to an operating agreement through a newly formed subsidiary,
Evansville Terminal Company ("ETC").
On September 6, 1996, the Company, through its newly formed
subsidiary, Cascade and Columbia River Railroad Company ("CCRR"),
completed the purchase of a 131 mile rail line in north central
Washington from Burlington Northern Santa Fe ("BNSF"). The purchase
price was $7.8 million in cash. The acquisition was financed through a
loan from the National Bank of Canada. The assets acquired consist
primarily of land, buildings, track and track materials.
5
<PAGE> 8
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4 PROPERTY, PLANT AND EQUIPMENT, continued
Property, plant and equipment consist of the following as of September
30, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Land $ 8,951,988 $ 5,669,201
Buildings and improvements 3,104,577 2,656,577
Railroad track and improvements 17,678,082 11,948,501
Locomotives, vehicles and other
equipment 12,366,283 8,880,137
-------------- --------------
42,100,930 29,154,416
Less accumulated depreciation 4,837,862 3,606,875
-------------- --------------
$ 37,263,068 $ 25,547,541
============== ==============
</TABLE>
5 LONG-TERM DEBT:
On March 15, 1996, the Company purchased 100 railroad tank cars for a
purchase price of approximately $1.25 million. Substantially all of
the cars are leased. The purchase was financed through a note payable
with First Union Commercial Corporation. The financing consisted of a
$1.25 million term loan collateralized by the acquired railroad cars.
The term loan matures March 2003, bears interest at 8.3% and is
repayable in 84 equal monthly installments inclusive of principal and
interest of $16,441, plus a balloon payment at maturity of $375,000.
The aggregate annual maturities of long-term debt are as follows net
of discount amortization:
<TABLE>
<CAPTION>
Twelve Months Ended
September 30,
-------------
<S> <C>
1997 $ 1,538,937
1998 1,514,028
1999 1,858,168
2000 23,662,011
2001 637,186
Thereafter 1,421,143
------------
$ 30,631,473
============
</TABLE>
6
<PAGE> 9
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. STOCKHOLDER' EQUITY
During the third quarter of 1996, the Company completed the sale of
1,250,000 shares of its common stock at a price of $3.60 per share to
accredited investors in a private placement transaction.
7. SUBSEQUENT EVENTS
On October 11, 1996 the Company, through its wholly-owned subsidiary
Dakota Rail, Inc., completed the purchase of all of the outstanding
stock of Otter Tail Valley Railroad, Inc. ("OTVR") for $4.25 million
in cash. The acquisition has been accounted for as a purchase.
Accordingly, the purchase price was allocated to the assets acquired
and liabilities assumed, based on the fair values at the date of
acquisition. The results of OTVR operations will be consolidated with
those of the Company commencing October 1, 1996.
On October 21, 1996, the Company closed on a $10 million increase in
its $15 million revolving line of credit with National Bank of Canada.
The increased facility will be at an interest rate of 0.5% above
prime. The maturity date of the entire $25 million revolver was
extended to October 1999.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
RailAmerica, Inc. (together with its consolidated subsidiaries, the
"Company") is a multimodal transportation company that historically has
acquired and developed shortline railroads formed primarily through the
acquisition of light density rail lines from larger railroads. In 1994, the
Company expanded its operations in the transportation industry through its
acquisition of Kalyn/Siebert, Inc. ("Kalyn"), a manufacturer of a broad range
of truck trailers, located in Gatesville, Texas and in 1995 through the
purchase of substantially all of the assets of Steel City Truck Lines, Limited
("Steel City"), a regional motor carrier located in Sault Ste. Marie, Ontario,
Canada. The acquisitions resulted in the establishment of the Company's
trailer manufacturing operations and motor carrier operations and substantially
increased the Company's assets, liabilities, revenue and expenses.
The Company's objectives are to foster growth of its existing
subsidiaries and to create a diversified transportation company by acquiring
additional railroads and other transportation-related companies. Examples of
this strategy are the acquisitions of all of the issued and outstanding stock
of Otter Tail Valley Railroad Company, Inc. ("OTVR"), a shortline railroad
headquartered in Fergus Falls, Minnesota, effective October 1, 1996 and the
purchase of a 131 mile rail line in north central Washington from Burlington
Northern Santa Fe on September 6, 1996. The Company also intends to expand
into other transportation-related areas through selective acquisitions.
The Company intends to increase traffic on its existing rail lines by
offering additional services such as intermodal transportation, distribution
and logistics services, and through the integration of Steel City into the
Company's transportation division. Further, Kalyn has the capability of
manufacturing trailers and other types of intermodal equipment for use by Steel
City and the Company's railroads, which management expects will help to further
develop synergy among the consolidated group.
Set forth below is a discussion of the results of operations for the
Company's railroad operations, motor carrier operations and the trailer
manufacturing operations. The corporate overhead, which benefits all of the
Company's segments, has not been allocated to the business segments for this
analysis. The Company feels that this presentation will facilitate a better
understanding of the changes in the results of the Company's operations.
Corporate overhead, which is included in selling, general and administrative
expenses in the consolidated statements of income, increased by approximately
$350,000 (or 25.1%) to $1,745,100 in the nine month period ended September 30,
1996 compared to $1,395,376 for the prior year period. The increase was
related to the additional costs incurred to manage the new subsidiaries
acquired or formed during 1995 and 1996 including Steel City, Dakota Rail, Inc.
("DRI"), RailAmerica Intermodal Services ("RIS"), West Texas and Lubbock
Railroad Company ("WTLR"), RailAmerica Equipment Corporation ("REC"), Plainview
Terminal Company ("PTC"), Evansville Terminal
8
<PAGE> 11
Company ("ETC") and Cascade and Columbia River Railroad Company ("CCRR").
RAILROAD OPERATIONS
The Company's railroad subsidiaries operated approximately 635 miles
of rail line as of September 30, 1996. Currently, these consist of: (i) 136
miles of which it owns in Michigan; (ii) 4 miles of trackage rights and 45
miles of rail line which are owned by the State of Michigan and operated
pursuant to an agreement with Michigan Department of Transportation; (iii) 49
miles of rail line leased from the South Central Tennessee Railroad Authority
near Nashville, Tennessee and 3 miles of trackage rights; (iv) 45 miles of rail
line in Pennsylvania, 18 miles of which the Company has agreed to purchase from
the Commonwealth of Pennsylvania for a price to be determined and 27 miles of
which are operated under a freight easement with the Commonwealth of
Pennsylvania; (v) 10 miles of rail line in Delaware made available to the
Company pursuant to a ten-year lease with the Wilmington & Northern Railroad
Company; (vi) 44 miles of rail line which the Company is operating and will
ultimately purchase pursuant to a contract for deed from the State of
Minnesota; (vii) 113 miles of rail line and 4 miles of trackage rights in West
Texas; (viii) 51 miles of rail line in the State of Indiana, 18 miles of which
it owns and 33 miles of which it operates under an operating agreement and;
(ix) 131 miles of rail line which it owns in the State of Washington.
The Company provides local rail freight services for its customers
providing access to the nation's rail system for shipment of products both
domestically and internationally. The Company hauls varied products for its
customers corresponding to the local markets it serves. The Company's traffic
base in Michigan includes agricultural commodities, automotive parts, chemicals
and fertilizer, ballast and other stone products. The Company's traffic base
in Tennessee includes wood chips, paper, chemicals and processed food products.
The Company's traffic base in Pennsylvania and Delaware includes iron and steel
products, chemicals, agricultural products, lumber and processed food products.
The Company's traffic base in Minnesota includes plastics, lumber, denatured
alcohol, scrap iron and steel. The Company's traffic base in Texas consists of
cotton, sodium sulfate, chemicals, fertilizer, scrap iron and steel. The
Company's traffic base in Indiana consists of agricultural commodities and
plastics. The Company's traffic base in Washington consists of woodchips,
lumber, minerals, cement and agricultural products.
In keeping with the general nature of business in its Michigan and
Texas areas, agricultural commodities have represented a majority of the
Company's annual carloadings. Although the acquisitions of South Central
Tennessee Railroad Corporation ("SCTR"), Delaware Valley Railway Company
("DVRC"), DRI, ETC, and CCRR will help to diversify the Company's traffic base
and mitigate seasonal fluctuations, the Company believes that, absent
additional acquisitions in industrial areas, agricultural commodities will
continue to represent the primary component of the Company's rail traffic base.
As a result, the Company could be materially and adversely affected by factors
such as weather and fluctuations in agricultural commodity prices, that
generally affect the agricultural industry. Additionally, sellers of
commodities tend to hold shipments if they anticipate price increases for their
commodities. This circumstance can cause the Company's results of operations
to fluctuate from period to period as a result of fluctuations
9
<PAGE> 12
in the prices of those commodities. Moreover, agricultural commodities are
generally shipped from September to May and the Company handles most of its
traffic during such periods.
RESULTS OF RAILROAD OPERATIONS
The discussion of results of operations that follows reflects the
consolidated results of the Company's Railroad Operations for the nine and
three months ended September 30, 1996 and September 30, 1995. Effective
September 1, 1995 and November 1, 1995, the Company acquired DRI and WTLR,
respectively. Also, effective June 30, 1996 and September 6, 1996, the Company
acquired ETC and CCRR, respectively. As a result, the results of operations
for the nine and three month periods ended September 30, 1996 are not
comparable to the prior year periods in certain material respects.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND SEPTEMBER 30, 1995
REVENUES. The table below compares the Company's revenues for its
railroad operations for the periods shown.
<TABLE>
<CAPTION>
For the Nine Months Ended
---------------------------------------------------------
September 30, 1996 September 30, 1995
--------------------------- -------------------------------
Gross % Change Gross % Change
Revenues From 1995 Revenues From 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Transportation Revenue $ 6,676,372 47.4% $ 4,528,441 34.0%
Other Revenue 1,208,160 330.0% 281,068 87.9%
----------- -----------
Total Revenue $ 7,884,532 63.9% $ 4,809,509 36.3%
=========== ===========
</TABLE>
TRANSPORTATION REVENUES. Transportation revenues for the nine month
period ended September 30, 1996 increased approximately $2.1 million (or 47.4%)
compared to the prior year period primarily due to the acquisitions of WTLR,
DRI and CCRR which contributed revenues of approximately $1.4 million, $0.5
million and $0.2 million, respectively. The net increase in total revenues for
the nine month period was comprised of an increase in both transportation
revenue and other revenue. The transportation revenue per carload increased
from $370 to $397 per car due to increased rates and divisions of revenue with
connecting carriers. Carloads handled totaled 16,830 for the nine months ended
September 30, 1996, an increase of 4,576 (or 37.3%) compared to 12,254 carloads
in the prior year period. The carload increase was primarily the result of the
acquisitions of Texas railroads (WTLR and PTC), DRI, ETC and CCRR.
OTHER REVENUES. Other revenues increased by $927,092 for the nine
months ended September 30, 1996 compared to the prior year period. Other
revenues for the nine months ended September 30, 1996 consisted primarily of a
gain on the sale of 22 miles of rail line and
10
<PAGE> 13
a car repair shop in the State of Indiana. The gain on the sale was
approximately $582,000. Other revenues for the period ending September 30, 1996
also included a gain of approximately $230,000 on the sale of 9.25 miles of
track in Texas. Additionally, other revenue for the nine months ended
September 30, 1996 and other revenue for the nine months ended September 30,
1995 primarily represented rental of locomotives, sales of surplus rail and
material, certain miscellaneous assets and non-operating real estate.
The table below is a comparison of operating expenses (which do not
include interest expense and other income) for the periods shown.
<TABLE>
<CAPTION>
For the Nine Months Ended
-----------------------------------------
September 30, 1996 September 30, 1995
------------------ ------------------
% Change % Change
Expenses From 1995 Expenses From 1994
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Maintenance of way $ 790,536 42.1% $ 556,464 102.3%
Maintenance of equipment 462,027 57.1% 294,189 8.9%
Transportation 1,440,266 26.1% 1,142,280 32.5%
Equipment rental 299,180 29.9% 230,256 (7.2%)
Selling, general and
administrative 960,813 69.3% 567,636 11.4%
Depreciation and
amortization 782,796 34.8% 580,522 27.1%
---------- ----------
Total operating expenses $4,737,618 40.5% $3,371,347 28.6%
========== ==========
</TABLE>
OPERATING EXPENSES. Operating expenses were approximately $4.7
million for the nine month period ended September 30, 1996, an increase of
$1.4 million (or 40.5%) compared to operating expenses of $3.4 million for
the prior year period. Maintenance of way expenses increased $234,072 (or
42.1%) for the nine month period primarily due to the addition of WTLR, DRI,
ETC, and CCRR. Maintenance of equipment expenses increased $169,838 (or 57.1%)
primarily due to the addition of WTLR. Transportation expense increased by
$297,986 (or 26.1%) compared to the 1995 period, primarily due to the addition
of DRI and WTLR. Equipment rental increased by $68,924 (or 29.9%) for the nine
month period, primarily due to an increase in car hire expense in Tennessee
based upon the increase in carloadings. Selling, general and administrative
expenses increased by $393,177 (or 69.3%) compared to the 1995 nine month
period primarily due to the addition of WTLR and DRI expenses. Depreciation
increased $202,274 (or 34.8%) due to the addition of WTLR, DRI, ETC, AND CCRR.
Operating expenses, as a percentage of transportation revenue, were
71.0% and 74.4% for the nine months ended September 30, 1996 and 1995,
respectively, as a result of the reasons
11
<PAGE> 14
discussed above. Management anticipates that operating expenses as a
percentage of revenue will remain fairly constant over the next twelve months
at their current level, exclusive of seasonal fluctuations.
OTHER INCOME (EXPENSES). Interest expense was $798,703 for the nine
months ended September 30, 1996, which amount is approximately 79.2% higher
than the interest expense for the prior year period. Such increase was
primarily due to the financing of the WTLR, DRI and CCRR acquisitions. Other
income (expense) of $5,597 for the nine months ended September 30, 1996
decreased from $162,249 in the prior year period. The decrease was primarily
due to income derived from the reversal of certain accrued liabilities in 1995.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
AND SEPTEMBER 30, 1995.
REVENUES. The table below compares the Company's revenues for its
operations for the periods shown.
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------------------------------------------
September 30, 1996 September 30, 1995
--------------------------- ---------------------------
Gross % Change Gross % Change
Revenues From 1995 Revenues From 1994
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Transportation Revenue $ 1,913,844 20.3% $ 1,590,515 45.8%
Other Revenue 475,553 194.9% 147,602 137.4%
----------- -----------
Total Revenue $ 2,389,397 36.4% $ 1,738,117 50.7%
=========== ===========
</TABLE>
TRANSPORTATION REVENUES. Transportation revenues for the three month
period ended September 30, 1996 increased $323,329 (or 20.3%) compared to the
prior year period primarily due to the acquisitions of WTLR, DRI, ETC and CCRR
which contributed $467,905, $131,172, $46,079 and $153,180 respectively. These
increases were partially offset by a decrease in Michigan transportation
revenue of $468,557. This decrease in Michigan was due primarily to flooding
in the third quarter of 1996 which created washouts on certain portions of the
rail line and delayed shipments until the washouts could be repaired. The net
increase in total revenues for the three month period was comprised of an
increase in both transportation revenue and other revenue. The transportation
revenue per carload decreased from $396 to $362 per car due primarily to
decreased rates in Michigan. Carloads handled totaled 5,286 for the three
months ended September 30, 1996, an increase of 1,271 (or 31.7%) compared to
4,015 carloads in the prior year period. The increase in number of car loads
was primarily the result of the acquisitions of the new railroads WTLR (1,121
carloads), DRI (177 carloads), ETC (204 carloads), and CCRR (444 carloads) for
the three month period ended September 30, 1996. In addition, Tennessee
carloads increased 115 for the three months ended September 30, 1996 compared
to the prior year period. These amounts were offset by a decrease in Michigan
carloads of 786.
12
<PAGE> 15
OTHER REVENUES. Other revenues increased by $327,951 for the three
months ended September 30, 1996 compared to the prior year period. Other
revenues for the three months ended September 30, 1996 consisted primarily of a
gain of approximately $230,000 on the sale of 9.25 miles of rail line in the
State of Texas. Additionally, other revenue for the three months ended
September 30, 1996 and other revenue for the three months ended September 30,
1995 primarily represented rental of locomotives, sales of surplus rail and
material, certain miscellaneous assets and non-operating real estate.
The table below is a comparison of operating expenses (which do not
include interest expense and other income) for the periods shown.
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------------------
September 30, 1996 September 30, 1995
------------------ ------------------
% Change % Change
Expenses From 1995 Expenses From 1994
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Maintenance of way $ 253,103 16.1% $ 217,953 247.4%
Maintenance of equipment 149,550 27.3% 117,437 (15.0%)
Transportation 413,512 14.2% 361,992 29.2%
Equipment rental 105,066 3.6% 101,425 (10.2%)
Selling, general and
administrative 328,657 50.0% 219,043 (15.7)
Depreciation and
amortization 287,041 40.3% 204,660 26.5%
---------- ----------
Total operating expenses $1,536,929 25.7% $1,222,510 20.4%
========== ==========
</TABLE>
OPERATING EXPENSES. Operating expenses were approximately $1.5
million for the three month period ended September 30, 1996, an increase of
$314,419 (or 25.7%) compared to operating expenses of approximately $1.2
million for the prior year period. Maintenance of way expenses increased
$35,150 (or 16.1%) for the three month period primarily due to the addition of
WTLR DRI, ETC, and CCRR maintenance of way expenses. Maintenance of equipment
expenses increased $32,113 (or 27.3%) primarily due to the addition of WTLR
expenses. Transportation expense increased by $51,520 (or 14.2%) compared to
the 1995 period, primarily due to the addition of WTLR, DRI, ETC and CCRR
transportation expense. Equipment rental increased by $3,641 (or 3.6%) for the
three month period. Selling, general and administrative expenses increased by
$109,614 (or 50.0%) compared to the 1995 three month period primarily due to
the addition of WTLR, DRI, ETC and CCRR expenses. Depreciation and
amortization expense increased by $82,381 (or 40.3%) due to the addition of
WTLR, DRI, ETC and CCRR.
Operating expenses, as a percentage of transportation revenue, were
80.3% and 76.9% for
13
<PAGE> 16
the three months ended September 30, 1996 and 1995, respectively.
OTHER INCOME (EXPENSE). Interest expense was $264,231 for the three
months ended September 30, 1996, which amount is approximately 97.7% higher
than the interest expense in the prior year period. Such increase was
primarily due to the financing of the WTLR, DRI and CCRR acquisitions. Other,
net for the three months ended September 30, 1996 increased $9,071 from the
prior year period.
MOTOR CARRIER OPERATIONS
On February 10, 1995, the Company completed the purchase of
substantially all of the assets of Steel City, a regional motor carrier located
in Sault Ste. Marie, Ontario, Canada. Steel City operates a fleet of
approximately 140 tractors and trailers, and currently serves more than 75
customers in the steel, paper and lumber industries by transporting a broad
variety of products within Canada and between Canada and the United States,
particularly Michigan, Ohio, Indiana, New York and Wisconsin. The Company
acquired and has continued to expand the operations of Steel City through its
Canadian subsidiary Steel City Carriers.
The Company entered into its first intermodal contract in the fourth
quarter of 1995 and began operations under the contract in November 1995
through its subsidiary RIS. In the first half of 1996 RIS, obtained several
additional contracts and expanded its operations.
RESULTS OF MOTOR CARRIER OPERATIONS
The discussion of results of operations that follows reflects the
results of Steel City Carriers and RIS for the nine months ended September 30,
1996 and the period from February 10, 1995 to September 30, 1995.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
For the Nine Months Ended
----------------------------------------
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C> <C> <C>
Transportation revenue $5,481,245 100.0% $3,713,581 100.0%
---------- ----------
Direct operating expenses 4,953,286 90.4% 3,192,384 86.0%
Selling, general and administrative
expenses 481,499 8.8% 374,280 10.1%
Depreciation and amortization 268,905 4.9% 165,847 4.5%
---------- ----------
Total expenses 5,703,690 104.1% 3,732,511 100.5%
---------- ----------
</TABLE>
14
<PAGE> 17
<TABLE>
<S> <C> <C> <C> <C>
Operating loss (222,445) (4.1%) (18,930) (.5%)
Other expenses (net) (175,471) (3.2%) (160,257) (4.3%)
---------- ----------
Net loss $ (397,916) (7.3%) $ (179,187) (4.8%)
========== ==========
</TABLE>
TRANSPORTATION REVENUE - Transportation revenue for the nine month
period ended September 30, 1996 increased approximately $1.8 million (or
47.6%) compared to the prior year. The increase was primarily due to the
acquisition of Steel City effective February 10, 1995. The 1995 period
consisted of only 232 days versus 274 days in 1996. In addition, RIS began
shipping during the fourth quarter of 1995. RIS had transportation revenue of
$234,566 for the nine months ended September 30, 1996 compared to $191 for the
prior year period.
Management anticipates that transportation revenue will be positively
affected in the last three months of 1996 for both Steel City Carriers and RIS
as a result of transportation contracts recently executed with new customers,
increased marketing activity and improved weather conditions.
DIRECT OPERATING EXPENSES - Direct operating expenses were 90.4% of
transportation revenue for the nine months ended September 30, 1996 compared to
86.0% for the prior year period. The increase was due to increased equipment
maintenance and repairs, a significant increase in fuel costs from 1995 to 1996
and the unusually extreme winter weather in 1996. The extreme winter weather
caused many roads in Ontario and the northern United States to be closed for
extended periods of time, resulting in lost revenue and increased costs to
Steel City Carriers as a percentage of revenue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses deceased slightly as a percentage of transportation
revenue for the nine months ended September 30, 1996 compared to the prior year
period. This decrease was due to economies of scale achieved due to the
increased revenue in 1996.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
AND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
For the Three Months Ended
-----------------------------------
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C> <C> <C>
Transportation revenue $1,849,793 100.0% $1,543,313 100.0%
---------- ----------
Direct operating expenses 1,606,875 86.9% 1,345,182 87.2%
Selling, general and administrative
expenses 148,366 8.0% 173,777 11.2%
</TABLE>
15
<PAGE> 18
<TABLE>
<S> <C> <C> <C> <C>
Depreciation and amortization 94,010 5.1% 80,007 5.2%
---------- ---------
Total expenses 1,849,251 100.0% 1,598,966 103.6%
---------- ---------
Operating income (loss) 542 0.0% (55,653) (3.6%)
Other expenses (net) (61,627) (3.3%) (95,454) (6.2%)
---------- ---------
Net (loss) $ (61,085) (3.3%) $(151,107) (9.8%)
========== =========
</TABLE>
TRANSPORTATION REVENUE - Transportation revenues for the three month
period ended September 30, 1996 increased $306,480 (or 19.9%) compared to the
prior year. The increase was primarily due to the increase in miles driven by
Steel City from 1995 to 1996 and the inclusion of RIS operations in 1996. RIS
had transportation revenue of $53,280 for the three months ended September 30,
1996.
DIRECT OPERATING EXPENSES - Direct operating expenses remained fairly
constant as a percentage of transportation revenue for the three months ended
September 30, 1996 compared to the prior year period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses decreased as a percentage of transportation revenue for
the three months ended September 30, 1996 compared to the prior year period due
to certain costs cutting procedures that were implemented during 1996.
TRAILER MANUFACTURING OPERATIONS
Kalyn, located in Gatesville, Texas, was established in 1968 and
manufactures a broad range of specialty truck trailers. Kalyn products are
marketed to customers in the construction, trucking, agricultural, railroad,
utility and oil industries. In addition, a substantial portion of Kalyn's
sales are to the military and several other local and federal government
agencies.
Kalyn builds all the structural parts of its trailers using primarily
steel bars and plates. The major manufacturing steps include cutting, bending
and welding of steel and, once assembled, sand blasting, cleaning and painting.
The axles and running gears are purchased as sub-assemblies which are
integrated into the Kalyn trailer design. Kalyn contracts out any necessary
machining. Kalyn's plant is currently operating one shift, although the
Company believes manufacturing capacity can be increased by adding a partial
second shift. As a consequence of significant increases in sales order volume,
during 1995 Kalyn expanded its manufacturing facility to partially address this
increased demand by adding 15,000 sq. ft. of manufacturing space upon land that
Kalyn owns. Kalyn recently completed construction of an additional 16,000 sq.
ft. expansion of its manufacturing facility upon land that it owns. This
expansion was necessitated by Kalyn's receipt in October 1995 of a $27 million
contract from the U.S. Army Tank Automotive Command ("TACOM"), and in February
1996, a second $18.7
16
<PAGE> 19
million contract from TACOM, and in April 1996, of an additional contract from
the General Services Administration with an estimated value of approximately
$25 million. The total expansion cost approximately $400,000 and was completed
in the second quarter of 1996.
RESULTS OF TRAILER MANUFACTURING OPERATIONS
The discussion of results of operations that follows reflects the
results of Kalyn, RailAmerica Financial Services ("RFS") and RailAmerica
Equipment Corporation ("REC") for the nine and three months ended September 30,
1996. RFS and REC are leasing companies. REC currently leases railroad tank
cars, flat cars and locomotives to various railroads and shippers. RFS is
currently inactive.
COMPARISON OF OPERATING RESULTS OF KALYN FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996 AND SEPTEMBER 30, 1995
The following table sets forth the income and expense items of Kalyn
for the nine months ended September 30, 1996 and 1995 and the percentage
relationship of income and expense items to net sales for the periods
indicated:
<TABLE>
<CAPTION>
For the Nine Months Ended
-----------------------------------
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C> <C> <C>
Net sales $ 11,573,409 100.0% $ 14,469,856 100.0%
Cost of goods sold 8,938,913 77.2% 10,820,836 74.8%
------------- ------------
Gross profit 2,634,496 22.8% 3,649,020 25.2%
Selling, general and
administrative expenses 1,085,409 9.4% 1,031,730 7.1%
Depreciation and amortization 324,948 2.8% 307,190 2.1%
------------- ------------
Income from operations 1,224,139 10.5% 2,310,100 16.0%
Other expenses (net) (258,404) (2.3%) (435,412) (3.0%)
------------- ------------
Net Income Before Taxes $ 965,735 8.3% $ 1,874,688 13.0%
============= ============
</TABLE>
NET SALES. Net sales consist of trailer sales, part sales and repair
income. Trailer sales represent approximately 95% of net sales in both 1996
and 1995. Kalyn sold 444 trailers for the nine months ended September 30, 1996
and 725 trailers for the nine months ended September 30, 1995. The average
price per trailer sold was $24,814 for the nine months ended September
17
<PAGE> 20
30, 1996 and $18,636 for the nine months ended September 30, 1995. Sales to
governmental agencies represented 20% and 30% of Kalyn's net sales for the nine
months ended September 30, 1996 and 1995, respectively. During the first
quarter of 1996, Kalyn was in the process of building 5 prototype trailers in
connection with the October 1995 TACOM $27 million contract. Full production
under the contract will begin immediately after acceptance by TACOM of the
prototype trailers. Management anticipates full production to begin in the
fourth quarter of 1996. The decrease in sales for the nine month period ended
September 30, 1996 compared to the nine month period ended September 30, 1995
was partially due to the above contract work as well as the federal government
budget impasse during the fourth quarter of 1995 and early 1996 which resulted
in a suspension of new trailer orders from the government. Kalyn's backlog of
orders for both government and commercial sales was approximately $8.6 million
as of September 30, 1996 compared to $3.9 million at September 30, 1995.
COST OF GOODS SOLD. Cost of goods sold was 77.2% of net sales for the
nine months ended September 30, 1996 compared to 74.8% for the six months ended
September 30, 1995. The increase was partially due to certain fixed costs of
manufacturing being spread over a smaller revenue base in 1996. Additionally,
commercial orders represented a higher percentage of sales in 1996 than in
1995. Commercial trailers have more variations in design which generally
require greater expertise in the manufacturing process. Government contracts
are typically for larger quantities of similar style trailers. This creates
greater economies of scale in the production process which translates into a
relatively lower cost per unit produced. Historically, commercial sales have
had a higher cost of goods sold and lower gross profit margins than government
sales. Management anticipates gross profit as a percentage of net revenue to
increase over the next twelve months as a relatively larger percentage of sales
are attributable to government agencies based upon the new contracts that were
received during the fourth quarter of 1995 and first quarter of 1996.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative costs remained fairly constant during the nine months ended
September 30, 1996 compared to the nine months ended September 30, 1995.
REC AND RFS. Revenue for REC and RFS for the nine months ended
September 30, 1996 increased from $0 to $199,688 compared to the prior period
due to the addition of REC. Selling, general and administrative cost increased
$75,933 from $36,935 in the prior period to $112,868 for the nine months ended
September 30, 1996. This increase was due to the addition of REC.
Depreciation and amortization expenses also increased to $28,896 from $1,430 in
the prior period, due to the addition of REC.
COMPARISON OF OPERATING RESULTS OF KALYN FOR THE THREE MONTHS ENDED SEPTEMBER
30, 1996 AND SEPTEMBER 30, 1995
The following table sets forth the income and expense items for Kalyn
for the three months ended September 30, 1996 and 1995 and the percentage
relationship of income and expense items to net sales for the periods
indicated:
18
<PAGE> 21
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------------
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C> <C> <C>
Net sales $ 3,432,189 100.0% $ 5,053,132 100.0%
Cost of goods sold 2,670,683 77.8% 3,732,409 73.9%
----------- -----------
Gross profit 761,506 22.2% 1,320,723 26.1%
Selling, general and
administrative expenses 314,012 9.1% 357,490 7.1%
Depreciation and amortization 109,425 3.2% 104,770 2.1%
----------- -----------
Income from operations 338,069 9.8% 858,463 17.0%
Other expenses (net) (41,502) (1.2%) (162,870) (3.2%)
----------- -----------
Net Income Before Taxes $ 296,567 8.6% $ 695,593 13.8%
=========== ===========
</TABLE>
NET SALES. Net sales consist of trailer sales, part sales and repair
income. Trailer sales represented approximately 96% of the net sales in 1996
and 97% of net sales in 1995. Kalyn sold 145 trailers for the three months
ended September 30, 1996 and 249 trailers for the three months ended September
30, 1995. The average price per trailer sold was $22,826 for the three months
ended September 30, 1996 and $19,534 for the three months ended September 30,
1995. Sales to governmental agencies represented 24% and 38% of Kalyn's net
sales for the three months ended September 30, 1996 and 1995, respectively.
The decrease in sales for the three month period ended September 30, 1996
compared to the three month period ended September 30, 1995 was primarily due
to the federal government budget impasse which resulted in a suspension of new
trailer orders from the government.
COST OF GOODS SOLD. Cost of goods sold was 77.8% of net sales for the
three months ended September 30, 1996 compared to 73.9% for the three months
ended September 30, 1995. The increase was partially due to certain fixed
costs of manufacturing being spread over a smaller revenue base in 1996.
Additionally, commercial orders represented a higher percentage of the sales in
1996 than in 1995. Commercial trailers have more variations in design which
generally require greater expertise in the manufacturing process. Government
contracts are typically for larger quantities of similar style trailers. This
creates greater economies of scale in the production process which translates
into a relatively lower cost per unit produced. Historically, commercial sales
have had a higher cost of goods sold and lower gross profit margin than
government sales.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative costs remained fairly constant during the three months ended
September 30, 1996 compared to the three months
19
<PAGE> 22
ended September 30, 1995.
REC AND RFS. Revenue for REC and RFS for the three months ended
September 30, 1996 increased from $0 to $90,419 compared to the prior period
due to the addition of REC. Selling, general and administrative cost increased
$32,676 from $17,162 in the prior period to $50,315 for the nine months ended
September 30, 1996. This increase was due to the addition of REC.
Depreciation and amortization expenses also increased to $14,133 from $477 in
the prior period, due to the addition of REC.
LIQUIDITY AND CAPITAL RESOURCES - COMBINED OPERATIONS
The discussion of liquidity and capital resources that follows
reflects the consolidated results of the Company, including all subsidiaries.
The Company's cash used in operating activities was $561,280 for the
nine month period ended September 30, 1996. However, approximately $2.0
million and $0.9 million of the cash used in operating activities is
attributable to an increase in the Company's accounts receivable and a gain on
the sale of property, respectively. The Company's accounts receivable
increased from $2.2 million as of December 31, 1995 to $4.5 million as of
September 30, 1996 primarily as a result of seasonal factors and timing of
certain balances at Kalyn/Siebert, Inc that were collected in October. Cash
was also used to pay federal and state income taxes of $560,788. See the
discussion below regarding cash flow from investing activities for more
information regarding the cash provided by the Company's sale of property.
The Company's cash used in investing activities was $3.2 million for
the nine month period ended September 30, 1996. One of the Company's main uses
of cash in the nine month period ended September 30, 1996 was for the purchase
of property, plant and equipment. Property, plant and equipment increased by
$11.7 million during 1996 primarily due to purchase of 131 miles of rail line
in the State of Washington, improvements made to the Company's various other
rail lines, Kalyn's new plant construction, described below, and acquisition of
transportation equipment for the motor carrier segment, less current period
depreciation. During late 1995, Kalyn began construction of an additional
16,000 sq. ft. addition to its manufacturing facility upon land that it owns.
This expansion was necessitated by Kalyn's receipt in October 1995 of a $27
million contract with TACOM. The expansion cost approximately $300,000 and was
funded through operating cash flow and advance payments from TACOM. Partially
offsetting its cash expenditures for investing activities, the Company
generated $1.2 million of proceeds from sale of properties. See the discussion
in the results of railroad operations of other revenue.
The Company's cash provided by financing activities was $4.4 million
for the nine months ended September 30, 1996. The primary components of this
consisted of the net proceeds from borrowings on the Revolver and the issuance
of 1,250,000 shares of the company's common stock at a price of $3.60 per share
to accredited investors in a private placement transaction. The net proceeds
from the private placement were approximately $4.15 million.
20
<PAGE> 23
The Company's long term debt represents financing of property and
equipment, as well as the acquisition financing for SCTR, Kalyn, Steel City,
DRI, WTLR, PTC, ETC, and CCRR. Certain of this indebtedness has been
refinanced effective September 29, 1995 by a $15 million revolving line of
credit ("Revolver") with National Bank of Canada. The Revolver matures in
October 1999 and bears interest at either the bank's prime rate plus 0.5% or
the one, three or six month LIBOR plus 2.5%. The Revolver is collateralized by
substantially all of the assets of the Company, Kalyn, HESR, Saginaw Valley
Railway Company, RIS, CCRR, Steel City Carriers and WTLR.
On October 21, 1996, the Company closed on a $10 million increase in
its $15 million revolving line of credit with National Bank of Canada. The
increased facility will be at an interest rate of 0.5% above prime. The
maturity date of the entire $25 million revolver was extended to October 1999.
As of November 1, 1996, the Company has approximately $2.0 million available
under the Revolver.
As of September 30, 1996, the Company had working capital of $7.0
million compared to working capital of $3.0 million as of December 31, 1995.
Cash on hand as of September 30, 1996 was $4.2 million compared to $3.5 million
as of December 31, 1995. The increase in cash from December 31, 1995 to
September 30, 1996 is due to the factors discussed above. The Company's cash
flows from operations have been historically sufficient, and are currently
sufficient to meet its ongoing operating requirements, capital requirements for
property, plant and equipment, and to satisfy the Company's interest expense
requirements.
The Company expects that its future cash flows will be sufficient for
its current and contemplated operations for at least the next twelve months,
including anticipated capital expenditures for the upgrading of existing rail
lines and purchase of locomotives and equipment of approximately $1,500,000
during this period and capital expenditures at Kalyn and Steel City Carriers of
approximately $500,000. The Company, with its present subsidiaries, does not
expect any other significant capital expenditures over the next twelve months.
To the extent possible, the Company intends to finance its acquisitions of
property, plant and equipment to allow its cash flow from operations to be
devoted to other uses, including debt reduction and acquisition requirements.
Because the Company's long-term business strategy includes the
selective acquisition of additional transportation-related businesses, the
Company will, most likely, require additional equity and/or debt capital in
order to consummate a significant acquisition or undertake major development
activities. It is impossible to predict the amount of capital that may be
required for such acquisitions or development, and there is no assurance that
sufficient financing for such activities will be available on terms acceptable
to the Company, if at all. The Company's $25 million revolving line of credit
allows acquisition advances of up to $20 million for such acquisitions. The
Company drew down $8.9 million of these advances to fund its acquisition of
both ETC and CCRR.
21
<PAGE> 24
INFLATION
Inflation in recent years has not had a significant impact on the
Company's operations, and it is not expected to adversely affect the Company in
the future unless it increases substantially, and the Company is unable to pass
through the increases in its freight rates and trailer prices.
PART II. OTHER INFORMATION
<TABLE>
<CAPTION>
ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a. Exhibits
<S> <C>
3.1 Amended and Restated Articles of Incorporation of Registrant
(10)
3.2 By-laws of Registrant(1)
4.2 Class B Warrant(2)
4.3 Representatives' Warrant(2)
4.4 Series A Convertible Subordinated Debentures(8)
10.10 Third Party Agreement, dated December 19, 1990, between
HESR and TSBY(1)
10.14 RailAmerica, Inc. 1992 Stock Option Plan(1)+
10.18 Equipment Finance Lease, dated March 8, 1993, among Charter
Financial, Inc., the Company, HESR, SGVY and RSC(2)
10.19 Purchase Money Security Agreement, dated March 8, 1993, as
amended, among Charter Financial, Inc., the Company, HESR,
SGVY and RSC(2)
10.21 Purchase Money Loan and Security Agreement, dated April
1993, among Charter Financial, Inc., Tilden Financial Corp.,
the Company, HESR, SGVY, and RSC(2)
10.23 Loan Agreement among RailAmerica, Inc., South Central
Tennessee Railroad Corporation, South Central Tennessee
Railroad Company, Inc. and Charter Financial, Inc., dated
as of December 31, 1993(5)
10.24 Lease Agreement between South Central Tennessee Railroad
Authority and South Central Tennessee Railroad Company, Inc.
dated October 16, 1984(3)
10.32 Stock Purchase Agreement between Steel City Truck Lines
Limited, Josef Bichler and RailAmerica, Inc. dated December
19, 1994(11)
10.33 Stock Purchase Agreement between 823215 Ontario, Inc. and
RailAmerica, Inc. dated February 6, 1995(11)
10.34 Loan documents in connection with RailAmerica's acquisition
of Kalyn/Siebert Incorporated(6)
10.35 Employment Agreement between Robert B. Coward and
Kalyn/Siebert Incorporated(6)
10.36 Loan documents in connection with RailAmerica's acquisition
of the assets of Steel City Truck Lines limited(7)
10.37 Stock Purchase Agreement, dated July 11, 1995, among
RailAmerica, Inc., Brain E. Muir, Elli M.A. Mills and
Kimberly Hughes, Prairie Holding Corporation and Dakota
Rail, Inc.(8)
</TABLE>
22
<PAGE> 25
<TABLE>
<S> <C>
10.38 Settlement Agreement, entered into March 15, 1995, by Eric
D. Gerst and RailAmerica, Inc., RailAmerica Services
Corporation and Huron and Eastern Railway Company, Inc.(8)
10.39 Loan Agreement, dated September 29, 1995, by and between
RailAmerica, Inc., Kalyn/Siebert Incorporated, RailAmerica
Intermodal Services, Inc., RailAmerica Carriers, Inc.,
Steel City Carriers, Inc., Saginaw Valley Railway Company,
Inc., Huron and Eastern Railway Company, Inc. and National
Bank of Canada(10)
10.40 Asset Purchase Agreement, dated October 11, 1995, by and
among Seagraves, Whiteface & Lubbock
Railroad Co., American Railway Corporation, TEMCO
Corporation and RailAmerica, Inc.(9)
10.41 Employment Agreement between Gary O. Marino and RailAmerica,
Inc.(10)+
10.42 Employment Agreement between John H. Marino and RailAmerica,
Inc.(10)+
10.43 Stock Option Agreement, dated November 11, 1994, between
RailAmerica, Inc. and Gary O. Marino(10)+
10.44 RailAmerica, Inc. 1995 Stock Incentive Plan(10)+
10.45 RailAmerica, Inc. 1995 Non-Employee Director Stock Option
Plan(10)
10.46 RailAmerica, Inc. 1995 Employee Stock Purchase Plan(10)
10.47 RailAmerica, Inc. Corporate Senior Executive Bonus Plan(10)+
10.49 Purchase and Sale Agreement dated November 30, 1995, by and
between CSX Transportation, Inc. and Saginaw Valley Railway
Company, Inc.(11)
10.50 Stock Purchase Agreement dated October 1, 1995 by and
between RailAmerica, Inc. and the holders of all the issued
and outstanding shares of the Company's Preferred Stock(11)
10.51 Asset Purchase Agreement dated January 26, 1996 by and
between TEMCO Corporation and RailAmerica Equipment
Corporation(11)
10.52 Agreement of Sale dated July 18, 1996 by and between the
Commonwealth's Department of Transportation and Delaware
Valley Railway Company, Inc., a wholly owned subsidiary of
RailAmerica, Inc.(12)
10.53 Agreement entered into by and between R. Frank Unger,
Trustee of Sagamore National Corporation, Indiana HiRail
Corporation and RailAmerica, Inc.(12)
10.54 Asset Purchase Agreement, dated August 5, 1996, by and among
Burlington Northern Railroad Company and Cascade and
Columbia River Railroad Company, a subsidiary of
RailAmerica, Inc.(13)
10.55 Confidential Private Placement Memorandum dated September
20, 1996(14)
10.56 Stock Purchase Agreement, dated as of September 20, 1996, by
and among Otter Tail Valley Railroad Company, Inc. and the
shareholders of Otter Tail Valley Railroad Company, Inc. and
Dakota Rail, Inc.(15)
10.57 Proposal letter, dated July 19, 1996, between RailAmerica,
Inc. and various Named Subsidiaries and National Bank of
Canada
21 Subsidiaries of Registrant. Amended as follows:
Cascade and Columbia River Railroad Company was formed
September 1, 1996 and became a wholly owned subsidiary of
the Company.
27 Financial Data Schedule (for SEC use only)
</TABLE>
23
<PAGE> 26
<TABLE>
<S> <C>
(1) Incorporated by reference to the same exhibit number filed as part of
the Registrant's Registration Statement on Form S-1, Registration No.
33-49026.
(2) Incorporated by reference to the same exhibit number filed as part of
the Registrant's Post-Effective Amendment No. 3 on Form SB-2 dated
November 25, 1994, Registration No. 33-49026.
(3) Incorporated by reference to the same exhibit number filed as part of
the Company's annual report on Form 10-KSB, filed with the Securities
and Exchange Commission on March 31, 1993.
(4) Incorporated by reference to the same exhibit number filed as part of
the Registrant's Post-Effective Amendment No. 4 on Form SB-2 dated
December 14, 1994, Registration No. 33-49026.
(5) Incorporated by reference to the same exhibit number filed as part of
the Company's Form 10-KSB for the year ended December 31, 1993, filed
with the Securities and Exchange Commission on April 15, 1994.
(6) Incorporated by reference to the same exhibit number filed as a part
of the Registrant's Post-Effective Amendment No. 2 on Form SB-2, dated
October 17, 1994, Registration No. 33-49026.
(7) Incorporated by reference to the same exhibit number filed as part of
the Company's Form 10-KSB for the year ended December 31, 1994, filed
with the Securities and exchange Commission on March 30, 1995.
(8) Incorporated by reference to the same exhibit number filed as part of
the Company's Form 10-QSB for the quarter ended June 30, 1995, filed
with the Securities and Exchange Commission on August 9, 1995.
(9) Incorporated by reference to the exhibit 2.1 filed as part of the
Company's Form 8-K as of November 1, 1995, filed with the Securities
and Exchange Commission on November 3, 1995.
(10) Incorporated by reference to the same exhibit number filed as part of
the Company's Form 10-QSB for the quarter ended September 30, 1995,
filed with the Securities and Exchange Commission on November 12, 1995.
(11) Incorporated by reference to the same exhibit number filed as part of
the Company's Form 10-KSB for the year ended December 31, 1995, filed
with the Securities and exchange Commission on April 12, 1996.
</TABLE>
24
<PAGE> 27
<TABLE>
<S> <C>
(12) Incorporated by reference to the same exhibit number filed as part of
the Company's Form 10-QSB for the quarter ended June 30, 1996, filed
with the Securities and Exchange Commission on August 12, 1996
(13) Incorporated by reference to the exhibit 2.1 filed as part of the
Company's Form 8-K as of September 6, 1996, filed with the Securities
and Exchange Commission on September 20, 1996.
(14) Incorporated by reference to the exhibit A filed as part of the
Company's Form 8-K as of September 30, 1996, filed with the
Securities and Exchange Commission on October 17, 1996.
(15) Incorporated by reference to the exhibit 2.1 filed as part of the
Company's Form 8-K as of October 11, 1996, filed with the Securities
and Exchange Commission on October 25, 1996.
+ Executive Compensation Plan or Arrangement.
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the quarter
ended September 30, 1996:
1. A Form 8-K, dated September 6, 1996, was filed as a result
of completing the purchase of a 131 mile rail line in north
central Washington from Burlington Northern Santa Fe.
2. A Form 8-K dated September 30, 1996, was filed as a result
of completing a Private Placement Offering of 1,250,000
shares of the Company's common stock.
3. A Form 8-K dated October 11, 1996, was filed as a result of
completing the purchase of all of the outstanding stock of
Otter Tail Valley Railroad, Inc. for $4.25 million.
</TABLE>
25
<PAGE> 28
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RAILAMERICA, INC.
Date: November 14, 1996 By: /s/Gary O. Marino
-----------------------------
Gary O. Marino, President,
and Chief Executive Officer
(Principal Executive Officer
and Principal Financial
Officer)
<PAGE> 1
EXHIBIT 10.57
[LOGO]
NATIONAL CANADA
FINANCE CORP.
A National Bank of Canada Subsidiary
5200 Town Center Circle
Suite 306
Boca Raton, FL 33486
407-367-1700 - FAX 407-367-1705
July 19, 1996
Mr. Gary O. Marino, CEO
RailAmerica, Inc.
307 Yamato Road
Suite 1190
Boca Raton, Florida 33431
RE: RailAmerica Proposal Letter
Dear Gary:
Based on the information provided to us, and our discussions to date, National
Bank of Canada ("NBC") is pleased to provide you with the following proposal.
This proposal is not intended, nor should be construed, to be a commitment to
lend and is subject to further analysis by NBC, as well as the terms and
conditions including, but not limited to those contained herein.
BORROWERS: RailAmerica, Inc. and Various Named Subsidiaries
CREDIT FACILITY: A) $15,000,000 Revolving Line of Credit
B) $10,000,000 Acquisition Revolving Line of Credit
-----------
$25,000,000 Total
SUBLIMITS: A) Up to $10,000,000 Available for Acquisitions of
Transportation Related Businesses.
A) Standby or Trade Letters of Credit: $250,000
ADVANCED PARAMETER: Availability will be tied to a monthly asset ratio
test which is calculated as follows: Eligible Accounts
Receivable less than 90 days from invoice date PLUS
Eligible Inventory PLUS Eligible Appraised Fair Market
Value of Real Estate PLUS Eligible Appraised Forced
Liquidation Value of Machinery & Equipment. This sum is
DIVIDED by the total loan balance outstanding under
Facility A and B and must at all times exceed 1.4:1.
TERM: 3 years from closing
PURPOSE: To refinance 1995 Credit Agreement and provide for the
financing of future acquisitions of transportation
related businesses. NOTE: Each acquisition advance
under Facilities A & B requires NBC's written consent,
which after receipt of all required information, shall
not be unreasonably withheld.
RATE: A) Prime plus .50% OR LIBOR (1,3 or 6 month) plus 2.5%
B) Prime plus .50%
<PAGE> 2
FEE: B) Three quarter (.75%) percent of $75,000.
Payable as follows: 1/2 at closing and 1/2 six months
after closing date.
ADMINISTRATIVE FEE: $2,500 will be charged with each new
acquisition advance.
UNUSED LINE FEE: A&B) One quarter of one percent (.25%) per
annum on unused credit facilities calculated and
payable quarterly.
LETTER OF CREDIT FEES: Standby: 1.25% per annum; Trade Letters of
Credit: Standard and Customary
AUDIT FEES: $400.00 a day plus expenses (audits conducted
semi-annually and capped at $9,000 annually).
PREPAYMENT: .50% of total committed facilities in year 1;
.25% in year 2; and .10% in year 3.
SECURITY: First priority lien and security interests in
certain existing assets, all future and assets acquired
under Facility A & B, and all non-financed future
assets fo RailAmerica, Inc. and all named subsidiaries,
but not limited to accounts receivable, inventory,
contract rights, real estate, machinery and equipment,
patents, trademarks, licenses and other general
intangibles, instruments, documents and all proceeds
and products thereof.
FINANCIAL COVENANTS: Financial Covenants will remain as defined in
Section 8.16 (letter g through m) of the Loan Agreement
dated September 29, 1995 unless otherwise redefined
below:
Tangible Net Worth: Borrower(s) shall maintain
a tangible net worth (which is defined as net worth
plus subordinated debt less goodwill and other
intangibles) of not less than the sum of $10,000,000
plus (i) 100% of the consolidated net income for each
quarterly period subsequent to the quarter ended March
31, 1996 plus (ii) the aggregate net proceeds of any
subordinated debt or equity offerings.
Debt Ratio: Borrower(s) shall maintain a debt
ratio (which is defined as total liabilities less
subordinated debt divided by tangible net worth) of not
less than 2.85 to 1 from the quarter ended March 31,
1996 through and including December 30, 1996; of not
less than 2.0:1 from fiscal year end December 31, 1996
and all times thereafter.
REPORTING REQUIREMENTS: Reporting requirements will remain as defined
in Section 8.16 of the Loan Agreement dated September
29, 1995.
CONDITIONS PRECEDENT
TO FUNDING UNDER
FACILITY B: - Either a) equity offering or subordinated
debt issuance (strong letter of intent may be
acceptable) of a minimum of $10,000,000 or b)
tangible net worth exceeds $20,000.000.
<PAGE> 3
- Acquisition advances under Facilities A & B
require NBC's written consent, which after receipt of
all required information, shall not be unreasonably
withheld. Additionally, all assets acquired under
Facilities A & B will pledged to NBC.
- No material adverse change in the business or
financial condition of RailAmerica, Inc. and
Subsidiaries, and no covenants defaults exist at time
of funding.
- Final credit approval.
EXPENSES: RailAmerica shall pay all legal, audit, filing
fees and other customary charges for a transaction of
this nature.
If the foregoing is satisfactory and compatible with RailAmerica's financing
requirements, please issue a good faith deposit to NBC in the amount of
$10,000.00 concurrently with acceptance of this letter. This deposit will be:
A) Returned to RailAmerica less expenses if NBC does not approve
this proposed transaction with 30 days from acceptance of this
proposal letter.
B) Retained by NBC and credited, less expenses, against
RailAmerica's closing costs, if this proposed transaction is
consummated.
C) Retained by NBC if the proposed transaction is approved
within a 30 day period from the date of acceptance of this
proposal letter from RailAmerica, and RailAmerica elects not to
consummate the transaction with NBC.
This discussion letter supersedes any previous discussions or proposal
letter(s) and will expire on July 26, 1996, unless accepted by RailAmerica as
provided below or extended in writing by NBC. Please understand that this is a
proposal only and is not a commitment, and is subject to formal approval by NBC
Management.
NBC appreciates the opportunity you have given us to restructure RailAmerica's
financing requirements.
Sincerely,
/s/ Michael S. Bloomenfeld
- --------------------------
Michael S. Bloomenfeld
Vice President & Manger
Accepted by RailAmerica, Inc. this 22nd day of July, 1996.
By: /s/ Gary O. Marino
------------------------------
As Its: CEO
-------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 4,200,410
<SECURITIES> 0
<RECEIVABLES> 4,513,954
<ALLOWANCES> 0
<INVENTORY> 3,238,651
<CURRENT-ASSETS> 12,984,972
<PP&E> 37,263,068
<DEPRECIATION> 0
<TOTAL-ASSETS> 55,543,638
<CURRENT-LIABILITIES> 5,983,882
<BONDS> 29,092,536
0
0
<COMMON> 6,113
<OTHER-SE> 13,734,415
<TOTAL-LIABILITY-AND-EQUITY> 55,543,638
<SALES> 11,573,409
<TOTAL-REVENUES> 25,138,874
<CGS> 8,938,913
<TOTAL-COSTS> 22,713,412
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,548,051
<INCOME-PRETAX> 893,242
<INCOME-TAX> 330,394
<INCOME-CONTINUING> 562,848
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 562,848
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
