<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 March 31, 1996
--------------
Commission File No. 0-20618
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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 - 4,672,910 shares as of May 14, 1996
<PAGE> 2
RAILAMERICA, INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
QUARTER ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - 1
March 31, 1996 and December 31, 1995
Consolidated Statements of Income - 2
For the three months ended
March 31, 1996 and 1995
Consolidated Statements of Cash Flows -
For the three months ended March 31,
1996 and 1995 3
Notes to Consolidated Financial
Statements 4
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 15
Signatures
</TABLE>
<PAGE> 3
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,526,767 $ 3,488,866
Restricted cash 175,000 175,000
Accounts receivable 3,029,248 2,194,828
Inventories 4,058,837 3,360,838
Other current assets 342,195 415,870
Deferred income taxes 329,000 329,000
------------ ------------
Total current assets 9,461,047 9,964,402
Property, plant and equipment, net 27,953,707 25,547,541
Excess of cost over net assets of companies acquired, net 2,996,884 3,032,192
Other assets, net 1,690,042 1,519,827
------------ ------------
Total assets $ 42,101,680 $ 40,063,962
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term deb $ 1,106,726 $ 969,929
Current maturities of subordinated debt 212,392 1,879,057
Accounts payable 2,820,050 2,093,740
Income taxes payable 160,788 560,788
Accrued expenses 1,098,599 1,420,227
------------ ------------
Total current liabilities 5,398,555 6,923,741
------------ ------------
Long-term debt, less current maturities 20,429,484 17,181,288
------------ ------------
Subordinated debt, less current maturities 3,637,176 3,690,274
------------ ------------
Deferred income taxes 3,210,254 3,120,000
------------ ------------
Commitments and contingent liabilities - -
Stockholders' equity:
Common stock, $.001 par value, 30,000,000 shares authorized;
4,862,910 issued and 4,672,910 outstanding at March 31, 1996 and
4,848,991 issued and 4,658,991 outstanding at December 31, 1995 4,863 4,849
Additional paid-in capital 7,647,853 7,599,313
Retained earnings 2,651,702 2,439,895
Cumulative translation adjustment 87,546 70,355
Less treasury stock (190,000 shares at cost) (965,753) (965,753)
------------ ------------
Total stockholders' equity 9,426,211 9,148,659
------------ ------------
$ 42,101,680 $ 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 three months ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Revenues:
Transportation revenue - railroads and distribution $ 2,666,580 $ 1,605,362
Transportation revenue - motor carrier 1,718,791 721,213
Manufacturing revenue 3,453,214 4,320,549
Other 96,984 18,154
------------ -------------
7,935,569 6,665,278
------------ -------------
Operating expenses:
Transportation expenses - railroads and distribution 1,295,418 868,091
Transportation expenses - motor carrier 1,667,139 638,035
Cost of goods sold - manufacturing 2,706,843 3,231,994
Selling, general and administrative 1,455,562 1,032,025
------------ -------------
7,124,962 5,770,145
------------ -------------
Operating income 810,607 895,133
------------ -------------
Other income (expense):
Interest expense (453,740) (316,025)
Other, net (20,666) 106,443
------------ -------------
(474,406) (209,582)
------------ -------------
Income before income taxes 336,201 685,551
Provision for income taxes 124,394 255,000
------------ -------------
Net income $ 211,807 $ 430,551
============ =============
- -----------------------------------------------------------------------------------------
Net earnings attributable to common shares and
dilutive common share equivalents (for primary) $ 211,807 $ 536,346
============ =============
Earnings per common share and dilutive common
share equivalents:
Primary $ 0.05 $ 0.09
============ =============
Fully Diluted $ 0.05 $ 0.09
============ =============
Weighted average common shares and common
share equivalents outstanding:
Primary 4,680,141 5,900,532
============ =============
Fully Diluted 5,489,542 6,011,643
============ =============
</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 three months ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 211,807 $ 430,551
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 508,585 383,040
Gain on sale of properties (21,185) -
Employee grants 48,554 -
Deferred income taxes 90,254 238,000
Changes in operating assets and liabilities:
Accounts receivable (834,420) 725,077
Inventories (697,999) (986,274)
Other current assets 73,675 (56,819)
Accounts payable 726,310 276,530
Income taxes payable (400,000) -
Accrued liabilities (321,628) (257,230)
Deposits and other (96,830) (36,324)
----------- ------------
Net cash provided by operating activities (712,877) 716,551
----------- ------------
Cash flows from investing activities:
Purchase of properties (1,481,478) (257,266)
Proceeds from sale of properties 91,650 -
Acquisition of Steel City - (993,423)
Deferred acquisition costs and other (101,746) (84,923)
----------- ------------
Net cash used in investing activities (1,491,574) (1,335,612)
----------- ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 3,450,479 6,613,439
Principal payments on debt (3,202,430) (6,608,208)
Sale of common stock - 2,448,022
Decrease in restricted cash - 35,000
Deferred loan costs (5,697) (37,895)
----------- ------------
Net cash provided by financing activities 242,352 2,450,358
----------- ------------
Net increase in cash (1,962,099) 1,831,297
Cash, beginning of period 3,488,866 470,214
----------- ------------
Cash, end of period $ 1,526,767 $ 2,301,511
=========== ============
</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 March 31, 1996 and December 31, 1995, and the results of
operations and cash flows for the three months ended March 31, 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 three months ended March 31, 1996, primary earnings per share is
based on the weighted average number of common shares outstanding during
the three month period. Fully diluted earnings per share was computed,
in addition to the above computation, assuming the conversion of the
convertible subordinated notes payable. The stock options and warrants
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 three months ended March 31, 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 March 31, 1996 and December
31, 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Raw materials $ 2,078,674 $ 1,737,683
Work in process 885,144 642,265
Finished goods 1,031,788 771,842
Replacement or repair parts for equipment
and road property 238,279 209,048
----------- -----------
4,233,885 3,360,838
Less, advances related to materials 175,048 -
----------- -----------
Inventories in excess of contract advances $ 4,058,837 $ 3,360,838
=========== ===========
</TABLE>
4 FINANCING:
On March 15, 1996, the Company purchased 100 railroad tank cars for a
purchase price of approximately $1.25 million. Virtually all of the cars
are currently leased to shippers. 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 tank cars. The term loan matures March 2003 bears interest at
8.3% and calls for 84 equal monthly installments inclusive of principal
and interest of $16,441 with a payment at maturity of $375,000.
During February 1996, the Company entered into a term loan for purchase of
equipment in the principal amount of $167,181 maturing February 2001. The
loan agreement calls for 60 monthly installments beginning in March 1996
and bears interest at 7.5%.
5
<PAGE> 8
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 multi-modal transportation company that historically has
acquired and developed shortline railroads formed primarily through the
acquisition of light density rail lines from larger railroads. 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 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 increases the Company's assets,
liabilities, revenue and expenses.
The Company's objectives are to foster the 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 Prairie Holding Corporation ("PHC") which owns Dakota Rail, Inc. ("DRI"), a
shortline railroad headquartered in Hutchinson, Minnesota, effective September
1, 1995 and the purchase of substantially all of the assets and business of the
Seagraves, Whiteface and Lubbock Railroad Company and the Floydada and
Plainview Railroad Company, effective November 1, 1995. 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 and distribution operations, motor carrier operations and
the trailer manufacturing operations. The discussion of the motor carrier
operations addresses the results of operations of Steel City Carriers and
RailAmerica Intermodal Services ("RIS") for the periods February 10, 1995
through March 31, 1995 and the three months ended March 31, 1996. 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 increased by $178,078
(or 47.8%) to $550,238 in the three month period ended March 31, 1996 compared
to $372,160 for the prior year period. The increase was related to the
additional costs incurred to manage the new subsidiaries acquired during 1995
including Steel City, DRI, RIS, West Texas and Lubbock
6
<PAGE> 9
Railroad Company ("WTLR") and Plainview Terminal Company ("PTC").
RAILROAD AND DISTRIBUTION OPERATIONS
The Company's railroad subsidiaries operated approximately 450 miles of
rail line as of March 31, 1996. Currently, these consist of: (i) 133 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 made available to the Company pursuant to an operating agreement
with the Commonwealth of Pennsylvania; (v) ten 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, effective September 1, 1995 and; (vii) 113 miles of rail
line and 4 miles of trackage rights in West Texas, purchased as of November 1,
1995.
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.
In keeping with the general nature of business in its Michigan area,
agricultural commodities have represented the substantial majority of the
Company's annual carloadings. Although the acquisitions of South Central
Tennessee Railroad Corporation ("SCTR"), Delaware Valley Railway Company
("DVRC"), DRI, WTLR and PTC 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 grain 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 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.
7
<PAGE> 10
RESULTS OF RAILROAD AND DISTRIBUTION OPERATIONS
The discussion of results of operations that follows reflects the
consolidated results of the Company's Railroad and Distribution Operations for
the three months ended March 31, 1996 and March 31, 1995. Effective September
1, 1995 and November 1, 1995, the Company acquired DRI and WTLR, respectively.
As a result, the results of operations for the three months ended March 31,
1996 are not comparable to the prior year period in certain material respects.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND
1995
REVENUES. The table below compares the Company's revenues for its
railroad and distribution operations for the periods shown.
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------------------------------------------
March 31, 1996 March 31, 1995
-------------------------- -------------------------
Gross % Change Gross % Change
Revenues From 1995 Revenues From 1994
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Transportation Revenue $2,666,580 66.1% $1,605,362 44.5%
Other Revenue 79,850 339.8% 18,154 (49.8%)
---------- ----------
Total Revenue $2,746,430 69.2% $1,623,516 41.5%
========== ==========
</TABLE>
Transportation revenues for the three month period ended March 31, 1996
increased $1,061,218 (or 66.1%) compared to the prior year period primarily due
to the acquisitions of WTLR and DRI, which contributed $594,184 and $167,069,
respectively, and increases in Michigan and Tennessee transportation revenue of
$213,333 and $101,181 resulting from increased carloadings and freight rates.
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 increased from $382 to $406 per car due to
increased rates and divisions of revenue with connecting carriers. Carloads
handled totaled 6,566 for the three months ended March 31, 1996, an increase of
2,365 (or 56.3%) compared to 4,201 carloads in the prior year period. The
increase was primarily the result of the acquisitions of the two new Texas
railroads (WTLR and PTC) and DRI which handled 1,523 and 215 carloads,
respectively, for the three month period ended March 31, 1996. In addition,
Michigan and Tennessee carloads increased 607 and 121, respectively.
Other revenues increased by $61,696 for the three months ended March 31,
1996 compared to the prior year period. Other revenues for the three months
ended March 31, 1996 and 1995 primarily represented rental of locomotives,
sales of surplus rail and material, certain miscellaneous assets and
non-operating real estate.
8
<PAGE> 11
OPERATING EXPENSES. 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
-----------------------------------------
March 31, 1996 March 31, 1995
-------------- --------------
% Change % Change
Expenses From 1995 Expenses From 1994
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Maintenance of way $ 483,071 65.6% $ 291,640 33.1%
Maintenance of equipment 230,038 78.3% 129,045 36.1%
Transportation 568,101 26.0% 450,730 62.2%
Equipment rental 14,208 522.4% (3,364) (106.4%)
Selling, general and
administrative 325,143 55.3% 209,380 89.8%
----------- -----------
Total operating expenses $ 1,620,561 50.4% $ 1,077,431 52.4%
=========== ===========
</TABLE>
Operating expenses of $1,620,561 for the three month period ended March
31, 1996 increased by $543,130 (or 50.4%) compared to operating expenses of
$1,077,431 for the prior year period. Maintenance of way expenses increased
$191,431 (or 65.6%) for the three month period primarily due to the addition of
WTLR and DRI maintenance of way expenses and increased depreciation expense.
Maintenance of equipment expenses increased $100,993 (or 78.3%) primarily due
to the addition of WTLR and DRI expenses. Transportation expense increased by
$117,371 (or 26.0%) compared to the 1995 period, primarily due to the addition
of WTLR and DRI transportation expense. Equipment rental increased by $17,572
(or 522.4%) for the three 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 $115,763 (or 55.3%) compared
to the 1994 three month period primarily due to the addition of WTLR and DRI
expenses.
Operating expenses, as a percentage of transportation revenue, were 60.8%
and 67.1% for the three months ended March 31, 1996 and 1995, respectively.
The decrease was primarily due to the decrease in transportation costs as a
percentage of revenue. 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 (EXPENSE). Interest expense of $267,597 for the three months
ended March 31, 1996 increased approximately 70% compared to the prior year
period. Such increase was primarily due to the financing of the WTLR and DRI
acquisitions partially offset by decreased interest rates on certain of the
debt. Other income of $901 for the three months ended March 31, 1996 decreased
from $91,282 in the prior year period. The decrease was due to income derived
from the reversal of certain accrued liabilities in 1995.
9
<PAGE> 12
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 50 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 quarter 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 from February 10, 1995 through March 31, 1995
and the three month period ended March 31, 1996.
<TABLE>
<CAPTION>
1996 1995
------------------ -----------------
<S> <C> <C> <C> <C>
Transportation revenue $1,718,791 100.0% $721,213 100.0%
---------- --------
Direct operating expenses 1,595,282 92.8% 598,988 83.1%
Depreciation expense 71,857 4.2% 39,047 5.4%
Selling, general and administrative
expenses 175,842 10.2% 59,809 8.3%
---------- --------
Total expenses 1,842,981 107.2% 697,844 96.8%
---------- --------
Operating income (loss) (124,190) (7.2%) 23,369 3.2%
Other expenses (net) 48,922 2.8% 24,450 3.4%
---------- --------
Net loss $ (173,112) (10.0%) $ (1,081) (0.2%)
========== ========
</TABLE>
TRANSPORTATION REVENUE - Transportation revenues for the three month
period ended March 31, 1996 increased $997,578 (or 138%) 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 49 days versus
91 days in 1996. In addition, RIS began shipping during the fourth quarter of
1995.
10
<PAGE> 13
DIRECT OPERATING EXPENSES - Direct operating expenses were 92.8% of
transportation revenue for the three months ended March 31, 1996 compared to
83.1% 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 impact from adverse weather in 1996. The winter weather in 1996 caused
many roads in Ontario and the northern United States to be closed for extended
periods of time. This caused lost revenue and increased costs to Steel City
Carriers as a percentage of revenue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses were 10.2% of transportation revenue for the three
months ended March 31, 1996 compared to 8.3% for the prior year period. The
increase was primarily due to increased payroll costs and increased costs
related to the winter weather in 1996.
Management anticipates increased gross revenues over the remainder of 1996
for both Steel City Carriers and RIS based upon transportation contracts
recently executed with new customers, increased marketing activity and
improvement in the weather conditions.
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 began 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"), in February 1996 of a
second $18.7 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 expansion is estimated to cost approximately
$300,000 and is anticipated to be 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,
11
<PAGE> 14
RailAmerica Financial Services ("RFS") and RailAmerica Equipment Corporation
for the three month periods ended March 31, 1996 and the results of Kalyn and
RFS for the three month period ended March 31, 1995.
The following table sets forth the income and expense items for the three
months ended March 31, 1996 and 1995 and the percentage relationship of income
and expense items to net sales for the periods indicated:
<TABLE>
<CAPTION>
For the Three Months Ended
-------------------------------------
March 31, 1996 March 31, 1995
------------------- ------------------
<S> <C> <C> <C> <C>
Net sales $3,470,348 100.0% $4,320,549 100.0%
Cost of goods sold 2,706,843 78.0% 3,231,994 74.8%
---------- ----------
Gross profit 763,505 22.0% 1,088,555 25.2%
Selling, general and
administrative expenses 404,339 11.7% 390,226 9.0%
---------- ----------
Income from operations 359,166 10.3% 698,329 16.2%
Other expenses (net) (98,313) 2.8% (119,132) 2.8%
---------- ----------
Net Income Before Taxes $ 260,853 7.5% $ 579,197 13.4%
========== ==========
</TABLE>
NET SALES. Net sales consist of trailers sales, part sales and repair
income. Trailer sales represent approximately 96% of the net sales in both
1996 and 1995. Kalyn sold 141 trailers for the three months ended March 31,
1996 and 237 trailers for the three months ended March 31, 1995. The average
price per trailer sold was $24,432 for the three months ended March 31, 1996
and $18,197 for the three months ended March 31, 1995. Sales to governmental
agencies represented 16.5% and 19.6% of Kalyn's net sales for the three months
ended March 31, 1996 and 1995, respectively. During the first quarter of 1996,
Kalyn was in the process of building 5 proto-type trailers in connection with
the October 1995 TACOM $27 million contract. The sale of these trailers for
approximately $850,000 will be recognized upon completion of inspection and
testing by TACOM, which management expects to occur in the fourth quarter of
1996. Full production under the contract will begin immediately after
acceptance by TACOM of the proto-type trailers. The decrease in sales for the
three month period ended March 31, 1996 compared to the three month period
ended March 31, 1995 was partially due the above contract work as well as the
federal government budget impasse which resulted in a suspension of new trailer
orders from the government and a slowdown in commercial orders during the
fourth quarter of 1995. Commercial orders have increased during the first
quarter of 1996. Kalyn's backlog of orders was approximately $10.9 million as
of March 31, 1996 compared to $7.0 million at March 31, 1995.
12
<PAGE> 15
COST OF GOODS SOLD. Cost of goods sold was 78.0% of net sales for the
three months ended March 31, 1996 compared to 74.8% for the three months ended
March 31, 1995. The decrease was partially due to the 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
lower cost per unit produced. Historically, commercial sales have had a higher
cost of sale and lower gross profit margin than government sales. Management
anticipates gross profit as a percentage of net revenue to increase over the
next twelve months as sales increase and a larger percentage of sales are 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 increased $14,113 to 11.7% of net sales during the three months ended
March 31, 1996 compared to 9.0% of net sales for the prior year period.
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.
As of March 31, 1996, the Company had working capital of $4.1 million
compared to working capital of $3.0 million as of December 31, 1995. Cash on
hand as of March 31, 1996 was $1.5 million compared to $3.5 million as of
December 31, 1995. The decrease in cash from December 31, 1995 to March 31,
1996 is due primarily to the payoff of $1,666,665 of subordinated notes
payable. The Company's cash flows from operations have been historically
sufficient, and are currently sufficient to meet its ongoing operating
requirements, excluding certain capital requirements for property, plant and
equipment which, from time to time, have been funded through additional
financing, and to satisfy the Company's debt service 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 of approximately $1,000,000 during this period and purchases of tractors
and trailers for 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.
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. This expansion cost approximately $100,000 and was funded out of
13
<PAGE> 16
operating cash flow and required no outside financing.
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 is estimated to cost approximately $300,000 and will
be funded through operating cash flow and advance payments from TACOM.
Management believes that the capital resources available to the Company
will be sufficient to meet the needs of the Company on a long-term basis,
excluding 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.
However, the Company has recently entered into a letter of intent with a large
investment banking firm to raise up to $15 million of new equity or
subordinated debt financing. The Company's $15 million revolving line of
credit allows acquisition advances of up to $10 million for such acquisitions.
The Company has drawn down $4.25 million of these advances to fund its
acquisition of substantially all of the assets of the Seagraves, Whiteface and
Lubbock Railroad and the Floydada and Plainview Railroad Company on November 1,
1995.
SELECT BALANCE SHEET AND CASH FLOW ITEMS - COMBINED OPERATIONS
Current assets decreased from $10.0 million as of December 31, 1995 to
$9.5 million as of March 31, 1996. Current liabilities decreased from $6.9
million as of December 31, 1995 to $5.4 million as of March 31, 1996. The
decrease in current assets and current liabilities was due primarily to the
payoff of approximately $1.7 million of short-term subordinated notes which
matured in January 1996.
Property, plant and equipment increased by $2.4 million during 1996
primarily due to improvements made to the Company's various rail lines, Kalyn's
new plant construction and acquisition of transportation equipment for the
motor carrier segment, less current period depreciation.
Other assets as of March 31, 1996 were $4.7 million and consisted of
excess of cost over net assets of companies acquired of $3.0 million, deferred
loan costs of $0.6 million, deferred acquisition and other costs of $0.5
million, and deposits and other of $0.6 million.
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 and PTC. 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 new Revolver has a three year
14
<PAGE> 17
maturity 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 Company refinanced approximately
$7.1 million of debt including debt used to acquire Kalyn and Steel City with
the Revolver. The Revolver is collateralized by substantially all of the assets
of the Company, Kalyn, HESR, Saginaw Valley Railway Company, RIS, Steel City
Carriers and WTLR. As of March 31, 1996, the Company had approximately $0.6
million available under the Revolver.
The Company's cash used in operating activities was $712,877 for the three
month period ended March 31, 1996. The primary components of this were
increases in accounts receivable and inventory and income taxes paid offset by
the net income for the three month period ended March 31, 1996 plus the non
cash items.
The Company's cash used in investing activities was $1,491,574 for the
three months ended March 31, 1996. The primary component was $1,481,478 paid
for capital expenditures.
The Company's cash provided by financing activities was $242,352 for the
three months ended March 31, 1996. The primary component of this consisted of
the net proceeds from borrowings on the Revolver.
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
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
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)+
10.17 Security Agreement, dated October 30, 1992, between U.S. Concord,
Inc. and HESR(3)
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)
15
<PAGE> 18
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)
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)+
10.48 Stock Purchase Agreement between Transborder Air Cargo., JLC
Container Station, Inc., the undersigned stockholders of the
Companies, RailAmerica, Inc. and a subsidiary corporation of
RailAmerica, Inc. to be designated at or prior to the Closing(11)
10.49 Purchase and Sale Agreement dated November 30, 1995, by and between
CSX
16
<PAGE> 19
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)
11 Computation of Per Share Earnings
21 Subsidiaries of Registrant(11)
27 Financial Data Schedule (for SEC use only)
- --------------------
(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
17
<PAGE> 20
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.
+ Executive Compensation Plan or Arrangement.
(b) Reports on Form 8-K.
A Form 8-KA amending Form 8-K, dated November 1, 1995 was
filed on January 12, 1996 to disclose both the financial
statements of Seagraves, Whiteface and Lubbock Railroad Company
("SWL") and the Floydada and Plainview Railroad Company ("FPR"),
whose assets were acquired by the Company, and the Company's
financial statements following the acquisition of substantially
all the assets of SWL and FPR. The following is a list of
financial statements that were filed:
(a) Financial Statements of business acquired
Unaudited consolidated balance sheet as of March 31, 1995
Unaudited consolidated statement of operations and
accumulated deficit for the year ended March 31, 1995
Unaudited consolidated schedule of direct costs for the
year ended March 31, 1995
Unaudited consolidated schedule of general and administrative
expenses
Independent Auditor's Report
Consolidated balance sheet as of March 31, 1994
Consolidated statement of operations and deficit for the year
ended March 31, 1994
Consolidated statement of cash flows for the year ended March
31, 1994
Notes to consolidated March 31, 1994 financial statements
18
<PAGE> 21
Consolidated schedule of operating expenses for the year ended
March 31, 1994
Consolidated schedule of general and administrative
expenses for the year ended March 31, 1994
Unaudited combined balance sheet as of September 30, 1995 and
March 31, 1995
Unaudited combined statements of income for the six and
three months ended September 30, 1995 and 1994
Notes to unaudited combined financial statements
(b) Pro Forma Financial Statements
Pro forma consolidated balance sheet as of September 30, 1995
Pro forma consolidated statement of income for the nine
and six months ended September 30, 1995
Pro forma consolidated statement of income for the
years ended December 31, 1994 and March 31, 1995
19
<PAGE> 22
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: May 15, 1996 By: /s/Gary O. Marino
-----------------------------------
Gary O. Marino, on behalf
of the Company as Chairman,
and as Chief Executive Officer
(Principal Financial Officer)
<PAGE> 1
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<S> <C>
Adjustments to net income:
Net Income $ 211,807
Interest reduction on conversion of warrants
and options 40,726
---------
Adjusted net income $ 252,533
=========
Adjustments to shares outstanding:
Actual weighted average shares outstanding 4,680,141
Conversion of the redeemable convertible
subordinated debt 809,401
---------
Adjusted shares outstanding 5,489,542
=========
Fully Diluted earnings per share $ .05
=========
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 1,526,767
<SECURITIES> 0
<RECEIVABLES> 3,029,248
<ALLOWANCES> 0
<INVENTORY> 4,058,837
<CURRENT-ASSETS> 9,461,047
<PP&E> 27,953,707
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,101,680
<CURRENT-LIABILITIES> 5,398,555
<BONDS> 20,429,484
0
0
<COMMON> 4,863
<OTHER-SE> 9,421,348
<TOTAL-LIABILITY-AND-EQUITY> 42,101,680
<SALES> 3,453,214
<TOTAL-REVENUES> 7,935,569
<CGS> 2,706,843
<TOTAL-COSTS> 7,124,962
<OTHER-EXPENSES> 20,666
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 453,740
<INCOME-PRETAX> 336,201
<INCOME-TAX> 124,394
<INCOME-CONTINUING> 211,807
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 211,807
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
