<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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)
(Zip Code)
(561) 994-6015
--------------------------------------------------------
(Issuer's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes XX No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Common Stock, par value $.001 - 8,449,535 shares as of August 18, 1997
<PAGE> 2
RAILAMERICA, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - June 30, 1997
and December 31, 1996 1
Consolidated Statements of Income -
For the six and three months ended
June 30, 1997 and 1996 2
Consolidated Statements of Cash Flows - For the
six months ended June 30, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 23
Signatures
</TABLE>
<PAGE> 3
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash $ 1,585,565 $ 3,879,972
Accounts receivable 7,642,232 4,575,958
Inventories 2,915,239 3,104,555
Other current assets 802,910 462,867
------------ ------------
Total current assets 12,945,946 12,023,352
Property, plant and equipment, net 56,300,251 54,148,966
Investment in and advances to majority-owned subsidiary 7,640,298 --
Other, net 2,576,303 2,426,615
Excess of cost over net assets of companies acquired, net 2,875,835 2,965,853
------------ ------------
Total assets $ 82,338,633 $ 71,564,786
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,919,716 $ 1,752,926
Current maturities of subordinated debt 212,392 212,392
Accounts payable 3,536,258 3,162,953
Accrued expenses and income taxes payable 1,912,563 1,811,739
------------ ------------
Total current liabilities 7,580,929 6,940,010
------------ ------------
Long-term debt, less current maturities 39,643,843 38,401,119
------------ ------------
Subordinated debt, less current maturities 3,371,686 3,477,882
------------ ------------
Deferred income taxes 7,249,573 6,753,668
------------ ------------
Commitments and contingencies
Redeemable convertible preferred stock, $.001 par value, 1,000,000 -- --
shares authorized
Stockholders' equity:
Common stock, $.001 par value, 30,000,000 shares authorized;
8,694,620 issued and 8,457,620 outstanding at June 30, 1997;
6,125,410 issued and 5,888,410 outstanding at December 31, 1996 8,694 6,125
Additional paid-in capital 21,700,023 11,773,036
Common stock subscribed -- 2,340,000
Retained earnings 3,868,509 2,944,774
Cumulative translation adjustment 54,645 67,441
Less treasury stock (237,000 shares at cost) (1,139,269) (1,139,269)
------------ ------------
Total stockholders' equity 24,492,602 15,992,107
------------ ------------
Total liabilities and stockholders' equity $ 82,338,633 $ 71,564,786
============ ============
</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 six and three months ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues:
Transportation - railroad $ 4,208,349 $ 2,095,948 $ 7,840,020 $ 4,762,528
Manufacturing 5,957,057 4,688,006 10,031,076 8,141,220
Other 272,597 744,892 624,219 841,876
------------ ------------ ------------ ------------
10,438,003 7,528,846 18,495,315 13,745,624
------------ ------------ ------------ ------------
Operating expenses:
Transportation - railroad 1,893,778 1,017,107 3,396,475 2,072,778
Cost of goods sold - manufacturing 4,180,183 3,637,295 7,301,232 6,268,230
Selling, general and administrative 1,985,471 1,331,294 3,613,976 2,565,046
Depreciation and amortization 529,168 387,402 1,047,700 749,025
------------ ------------ ------------ ------------
8,588,600 6,373,098 15,359,383 11,655,079
------------ ------------ ------------ ------------
Operating income 1,849,403 1,155,748 3,135,932 2,090,545
Equity in income of majority-owned subsidiary 80,740 -- 104,500 --
Interest expense (823,739) (455,526) (1,533,173) (860,344)
Other expenses (53,380) (19,193) (96,454) (39,859)
------------ ------------ ------------ ------------
Income from continuing operations before
income taxes 1,053,024 681,029 1,610,805 1,190,342
Provision for income taxes 389,901 252,000 598,151 440,000
------------ ------------ ------------ ------------
Income from continuing operations 663,123 429,029 1,012,654 750,342
Discontinued operations
Loss from operations of discontinued Motor
Carrier segment (less applicable income tax
benefit of $31,000 and $61,000, respectively, and
benefit of $68,000 and $125,000, respectively) (49,406) (102,719) (111,086) (212,225)
------------ ------------ ------------ ------------
Net Income $ 613,717 $ 326,310 $ 901,568 $ 538,117
============ ============ ============ ============
====================================================================================================================
Primary earnings per common share
Continuing operations $ 0.08 $ 0.09 $ 0.12 $ 0.15
Discontinued operations (0.01) (0.02) (0.01) (0.03)
------------ ------------ ------------ ------------
Net income $ 0.07 $ 0.07 $ 0.11 $ 0.12
============ ============ ============ ============
Fully diluted earnings per common share
Continuing operations $ 0.07 $ 0.09 $ 0.12 $ 0.14
Discontinued operations (0.00) (0.02) (0.01) (0.03)
------------ ------------ ------------ ------------
Net income $ 0.07 $ 0.07 $ 0.11 $ 0.11
============ ============ ============ ============
Weighted average common shares and common
share equivalents outstanding:
Primary 8,603,144 5,665,998 8,403,526 5,664,208
============ ============ ============ ============
Fully Diluted 9,412,545 6,475,399 9,212,927 6,473,609
============ ============ ============ ============
</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 six months ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 901,568 $ 538,117
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,409,171 1,030,200
Equity in income of affiliated company (104,500) --
Gain on sale of properties (21,938) (605,545)
Employee stock grants -- 48,554
Deferred income taxes 518,071 291,780
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (3,066,274) (1,460,631)
Inventories 189,316 95,560
Other current assets (340,043) (101,258)
Accounts payable 373,305 237,252
Income taxes payable (105,538) (400,000)
Accrued liabilities 206,362 (175,227)
Deposits and other 46,707 (64,429)
------------ -----------
Net cash provided by operating activities 6,207 (565,627)
------------ -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (2,207,696) (3,267,213)
Acquisition of 55% of Ferronor (7,445,701) --
Proceeds from sales of properties 163,600 937,702
Deferred acquisition costs and other (147,248) (295,511)
------------ -----------
Net cash used in investing activities (9,637,045) (2,625,022)
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt and capital leases 17,299,269 6,793,680
Principal payments on debt and capital leases (17,186,495) (5,643,574)
Sale of common stock 7,589,345 --
Purchase of treasury stock -- (71,003)
Deferred financing costs (90,833) --
Deferred loan costs (274,855) (5,987)
------------ -----------
Net cash provided by financing activities 7,336,431 1,073,116
------------ -----------
Net decrease in cash (2,294,407) (2,117,533)
Cash, beginning of period 3,879,972 3,488,866
------------ -----------
Cash, end of period $ 1,585,565 $ 1,371,333
============ ===========
</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 June 30, 1997 and December 31, 1996, and the results of
operations and cash flows for the six and three months ended June 30,
1997 and 1996.
On February 19, 1997, the Company acquired a 55% equity interest in
Empresa de Transporte Ferrovario S.A. ("Ferronor"). The Company has
accounted for its interest in Ferronor using the equity method.
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 1996 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 six and three months ended June 30, 1997, primary and fully
diluted earnings per share are based on the weighted average number of
common and common equivalent shares outstanding 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)
2 EARNINGS PER SHARE, continued
For the six and three months ended June 30, 1996, primary earnings per
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.
3. INVESTMENT IN AND ADVANCES TO MAJORITY-OWNED SUBSIDIARY:
Included in the Company's continuing operations at June 30, 1997 is an
equity interest of 55% in Empresa de Transporte Ferrovario S.A.
("Ferronor"), a railroad serving northern Chile with approximately
1,400 miles of rail line. Ferronor's functional currency is the Chilean
Peso.
A summary of financial information of Ferronor as of and for the four
and three month periods ended June 30, 1997 is set forth below (in
Thousands):
<TABLE>
<S> <C>
Current assets $ 4,589
Noncurrent assets 16,661
-------
Total assets 21,250
-------
Current liabilities 7,865
Noncurrent liabilities 176
-------
Total liabilities 8,041
-------
Net assets $13,209
=======
Four Months Ended June 30, 1997:
Railroad revenue $ 2,326
=======
Net income $ 190
=======
Three Month Ended June 30, 1997:
Railroad revenue $ 1,649
=======
Net income $ 143
=======
</TABLE>
5
<PAGE> 8
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4 INVENTORIES:
Inventories consist of the following as of June 30, 1997 and December
31, 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Raw materials $ 2,902,925 $ 2,284,683
Work in process 1,000,614 635,780
Finished goods 694,378 881,817
Replacement or repair parts for equipment
and road property 783,346 381,309
----------- -----------
5,381,263 4,183,589
Less, advances related to materials (2,466,024) (1,079,034)
----------- -----------
Inventories in excess of contract advances $ 2,915,239 $ 3,104,555
=========== ===========
</TABLE>
5. DISCONTINUED OPERATIONS:
Operating results of the discontinued operations, as shown below,
include the operations of the Motor Carrier division for the three
months and six months ended June 30, 1997.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------- ---------------
1997 1996 1997 1996
------- ------- ------- ------
(Thousands)
<S> <C> <C> <C> <C>
Revenues $ 1,840 $ 1,913 $ 3,614 $3,631
Operating loss (31) (99) (80) (223)
Loss before taxes ( 80) (164) (179) (337)
Benefit for income taxes 31 61 68 125
Net loss $ ( 49) $ (103) $ (111) $ (212)
</TABLE>
Net assets of the discontinued business held for sale at June 30,
1997 consisted of current assets of $0.962 million, noncurrent assets
of $5.186 million, and total liabilities of $5.561 million.
6. INCOME TAX PROVISION:
The difference between the U.S. federal statutory tax rate and the
Company's effective rate from continuing operations is primarily due
to the Chilean tax rate on income from Ferronor.
6
<PAGE> 9
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 acquires, develops and
operates shortline railroads formed primarily through the acquisition of light
density rail lines from larger railroads. The Company also operates in the truck
trailer manufacturing business through its wholly-owned subsidiary
Kalyn/Siebert, Inc. ("Kalyn"), a manufacturer of a broad range of truck
trailers, located in Gatesville, Texas.
The Company's objectives are to create a diversified transportation
company by acquiring additional railroads and other transportation-related
companies. In accordance with this strategy, in February 1997, the Company
purchased a majority interest in the stock of Empresa de Transporte Ferrovario
S.A. ("Ferronor"), a railroad serving northern Chile with approximately 1,400
miles of rail line.
Set forth below is a discussion of the results of operations for the
Company's railroad operations, trailer manufacturing operations and motor
carrier operations (discontinued 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 increased by approximately $0.32 million, or
29.6%, from $1.1 million for the six month period ended June 30, 1996 to $1.42
million for the six month period ended June 30, 1997. The increase was related
to the additional costs incurred to manage the new subsidiaries acquired during
the second half of 1996 and 1997 including Evansville Terminal Company ("ETC"),
Cascade and Columbia River Railroad Company, Inc. ("CCRR"), Otter Tail Valley
Railroad Company, Inc. ("OTVR"), Gettysburg Railway, Gettysburg Scenic Rail
Tours, Inc. ("GSRT"), Minnesota Northern Railroad, Inc. ("MNR") and Ferronor.
RAILROAD OPERATIONS
The Company's railroad subsidiaries operated approximately 2,360 miles
of rail line as of June 30, 1997. These consist of: (i) 136 miles of rail line
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 pursuant to a contract with the State
of Minnesota; (vii) 104
7
<PAGE> 10
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; (ix) 131 miles of rail line
which it owns in the state of Washington; (x) 23 miles of rail line which it
owns in southern Pennsylvania; (xi) 72 miles of rail line which it owns in
central Minnesota; (xii) 204 miles of rail line it owns in northern Minnesota
and 37 miles of trackage rights; and (xiii) 1,400 miles of rail line in northern
Chile.
The Company provides its customers with local rail freight services
with access to the nation's rail system for delivery of products both
domestically and internationally. The Company hauls varied products for its
customers based upon market demands in its local operating areas. The Company's
haulage of products in Michigan include agricultural commodities, automotive
parts, chemicals and fertilizer, ballast and other stone products. The Company's
haulage of products in Tennessee includes wood chips, paper, chemicals and
processed food products. The Company's haulage of products in Pennsylvania and
Delaware includes iron and steel products, chemicals, agricultural products,
lumber and processed food products. The Company's haulage of products in
Minnesota includes plastics, lumber, denatured alcohol, scrap iron and steel.
The Company's haulage of products in Texas consists of cotton, sodium sulfate,
chemicals, fertilizer, scrap iron and steel. The Company's haulage of products
in Indiana consists of agricultural commodities and plastics. The Company's
haulage of products in Washington consists of wood chips, lumber, minerals,
cement and various agricultural products. The Company's haulage of products in
Chile consists of copper, iron ore, limestone and other commodities.
In keeping with the general nature of business in its Michigan, Texas
and Minnesota market areas, agricultural commodities have represented a
significant portion of the Company's annual carloadings. Although the
acquisitions of South Central Tennessee Railroad Corporation ("SCTR"), Delaware
Valley Railway Company ("DVRC"), Dakota Rail, Inc. ("DRI") and CCRR have helped
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's operations could be
materially and adversely affected by factors such as adverse weather conditions
and fluctuations in grain prices. Additionally, sellers of commodities tend to
hold shipments if they anticipate price increases for their commodities. Such
actions could 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. The Company
anticipates that the acquisition of Ferronor will help insulate it from its
dependence on agricultural commodities.
RESULTS OF RAILROAD OPERATIONS
The discussion of results of operations that follows reflects the
consolidated results of the Company's Railroad Operations for the six and three
months ended June 30, 1997 and 1996. The results of railroad operations include
the operations of ETC effective July 1, 1996, CCRR from September 6, 1996, OTVR
from October 1, 1996, Gettysburg Railway and GSRT from November
8
<PAGE> 11
1, 1996 and MNR from December 28, 1996. As a result, the results of operations
for the six and three months ended June 30, 1997 are not comparable to the prior
year periods in certain material respects.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
The table below compares the components of the Company's revenues from
its railroad operations for the periods shown.
<TABLE>
<CAPTION>
For the Six Months Ended
------------------------------------------------
June 30, 1997 June 30, 1996
------------------- ------------------------
Gross % Change Gross % Change
Revenues From 1996 Revenues From 1995
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Transportation Revenue $7,840,020 64.6% $4,762,528 62.1%
Other Revenue 436,799 (40.4%) 732,607 511.5%
---------- ----------
Total Revenue $8,276,819 50.6% $5,495,135 79.7%
========== ==========
</TABLE>
TRANSPORTATION REVENUES. Transportation revenues for the six month
period ended June 30, 1997 increased by $3.1 million, or 64.6%, compared to the
prior year period primarily due to acquisitions which occurred during the second
half of 1996. CCRR, which was acquired in September 1996, had transportation
revenue of approximately $1.3 million in the first six months of 1997. MNR,
which was acquired in December 1996, had transportation revenue of approximately
$1.1 million in the first six months of 1997. OTVR, which was acquired in
September 1996, had transportation revenue of approximately $0.8 million during
the first six months of 1997. In addition, the transportation revenue for the
six months ended June 30, 1997 includes an increase in freight revenue of $0.5
million based upon an agreement reached with a connecting carrier. These
increases in transportation revenue were partially offset by a decrease of
approximately $0.4 million in revenue from HESR due to a decrease in the
agricultural shipments in the first six months of 1997 compared to the first six
months of 1996. Additionally, transportation revenue from SCTR decreased
approximately $0.3 million due to a decrease in demurrage revenue charged to a
shipper. The transportation revenue per carload decreased from $413 to $353 per
car primarily due to the acquisitions during 1996 of railroads with lower rates
per carload than the Company's other railroads. Domestic carloads handled
totaled 22,203 for the six months ended June 30, 1997, an increase of 10,659, or
92.3% compared to 11,544 carloads in the prior year period. The increase was
primarily the result of the acquisitions of MNR, which handled 4,907 in the
first six months of 1997, CCRR, which handled 3,681 carloads in the first six
months of 1997, OTVR, which handled 2,444 carloads in the first six months of
1997 and Gettysburg Railway, which handled 795 carloads in the first six months
of 1997. These increased carloadings were partially offset by a decrease of
1,134 carloads from HESR. Ferronor handled 8,454 carloads during the period from
February 20 to June 30, 1997.
9
<PAGE> 12
OTHER REVENUES. Other revenues decreased by $0.3 million, or 40.4%,
from $0.7 million for the six months ended June 30, 1996 to $0.4 million for the
six months ended June 30, 1997. Other revenues for the six months ended June 30,
1996 consisted primarily of a gain on the sale of 22 miles of rail line and a
car repair shop in the state of Indiana. The gain on the sale was approximately
$582,000. This increase was partially offset by lease income received by the
newly acquired railroads. Additionally, other revenues for the six months ended
June 30, 1996 and other revenue for the six months ended June 30, 1997
represented rental of locomotives, sales of surplus rail and material, certain
miscellaneous assets and non-operating real estate.
OPERATING EXPENSES. The table below is a comparison of operating
expenses (which do not include interest expense and other expense) for the
periods shown.
<TABLE>
<CAPTION>
For the Six Months Ended
----------------------------------
June 30, 1997 June 30, 1996
------------- -------------
% Change % Change
Expenses From 1996 Expenses From 1995
---------- --------- -------- ---------
<S> <C> <C> <C> <C>
Maintenance of way $1,121,647 108.7% $ 537,433 58.8%
Maintenance of equipment 355,001 12.9% 314,477 77.9%
Transportation 1,689,935 64.6% 1,026,754 31.6%
Equipment rental 229,892 18.4% 194,114 50.7%
Selling, general and
administrative 1,198,124 89.5% 632,156 81.3%
Depreciation and
amortization 736,909 48.6% 495,755 28.5%
---------- ----------
Total operating expenses $5,331,508 66.6% $3,200,689 48.3%
========== ==========
</TABLE>
Operating expenses increased by approximately $2.1 million, or 66.6%,
from $3.2 million for the six months ended June 30, 1996 to $5.3 million for the
six months ended June 30, 1997. Operating expenses for the six months ended June
30, 1997 have been reduced by approximately $280,000 due to a reimbursement
received by the Company from a connecting carrier. Maintenance of way expenses
increased by approximately $0.6 million, or 108.7%, from $0.5 million for the
six month period ended June 30, 1996 to $1.1 million for the six month period
ended June 30, 1997 primarily due to certain acquisitions which occurred during
the second half of 1996. MNR, which was acquired in December 1996, had
maintenance of way expenses of approximately $156,000 for the six months ended
June 30, 1997. CCRR, which was acquired September 1996, had maintenance of way
expenses of approximately $105,000 for the six months ended June 30, 1997.
Gettysburg Railway, which was acquired in November 1996, had maintenance of way
expenses of approximately $60,000 for the six months ended June 30, 1997.
10
<PAGE> 13
In addition to the above acquisitions, WTLR's and HESR's maintenance of way
expenses increased approximately $92,000 and $84,000, respectively, from the
first six months of 1996 to the first six months of 1997 due to increased track
work being performed as part of maintenance programs.
Maintenance of equipment expenses increased by approximately $41,000,
or 12.9%, from $314,477 for the six month period ended June 30, 1996 to $355,001
for the six month period ended June 30, 1997 primarily due to certain
acquisitions which occurred during the second half of 1996.
Transportation expense increased by approximately $0.7 million, or
64.6%, from $1.0 million for the six month period ended June 30, 1996 to $1.7
million for the six month period ended June 30, 1997 primarily due to certain
acquisitions in the second half of 1996. MNR incurred approximately $0.3 million
of transportation expenses during the six months ended June 30, 1997. CCRR
incurred approximately $0.2 million of transportation expense for the six months
ended June 30, 1997. OTVR, which was acquired in October 1996, incurred
approximately $0.1 million of transportation expense for the six months ended
June 30, 1997. Gettysburg Railway incurred approximately $0.1 million of
transportation expense for the six months ended June 30, 1997.
Equipment rental increased by approximately $36,000, or 18.4%, from
$194,114 for the six month period ended June 30, 1996 to $229,892 for the six
month period ended June 30, 1997.
Selling, general and administrative expenses increased by approximately
$0.6 million, or 89.5%, from $0.6 million for the six month period ended June
30, 1996 to $1.2 million for the six month period ended June 30, 1997 primarily
due to certain acquisition which occurred during the second half of 1996. MNR
incurred general and administrative expenses of approximately $0.15 million for
the six months ended June 30, 1997. CCRR incurred general and administrative
expenses of approximately $0.2 million for the six months ended June 30, 1997.
Gettysburg Railway incurred general and administrative expenses of approximately
$0.1 million for the six months ended June 30, 1997. OTVR incurred general and
administrative expenses of approximately $0.1 million for the six months ended
June 30, 1997.
Operating expenses, as a percentage of transportation revenue, were
68.0% and 67.2% for the six months ended June 30, 1997 and 1996, respectively.
The increase was primarily due to costs associated with the adverse weather in
Minnesota and Michigan during the first quarter of 1997 and certain start up
costs for acquisitions which occurred during the fourth quarter of 1996.
Management anticipates that operating expenses as a percentage of revenue will
remain fairly constant over the next twelve months at the first half 1997 level
exclusive of seasonal fluctuations.
OTHER INCOME (EXPENSE). Interest expense increased by approximately
$0.8 million, or 150.4% from $0.5 million for the six months ended June 30, 1996
to $1.3 million for the six months ended June 30, 1997. Such increase was
primarily due to the financing of the acquisitions of CCRR, MNR and OTVR. The
interest expense during the first six months of 1997 attributable to these three
acquisitions was $0.4 million, $0.2 million and $0.2 million, respectively.
Other income (expense) decreased by approximately $55,000 from $925 of income
for the six months ended June 30, 1996 to $53,740 of expense for the six months
ended June 30,
11
<PAGE> 14
1997.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND
JUNE 30, 1996.
The table below compares the Company's revenues for its railroad
operations for the periods shown.
<TABLE>
<CAPTION>
For the Three Months Ended
-----------------------------------------------
June 30, 1997 June 30, 1996
--------------------- ----------------------
Gross % Change Gross % Change
Revenues From 1996 Revenues From 1995
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Transportation Revenue $4,208,349 100.8% $2,095,949 57.3%
Other Revenue 179,797 (72.5%) 652,756 542.1%
---------- ----------
Total Revenue $4,388,146 59.6% $2,748,705 91.7%
========== ==========
</TABLE>
TRANSPORTATION REVENUES. Transportation revenues for the three month
period ended June 30, 1997 increased by approximately $2.1 million, or 100.8%,
compared to the prior year period primarily due to acquisitions which occurred
during the second half of 1996. CCRR had transportation revenue of approximately
$0.7 million in the second quarter of 1997. MNR had revenue of approximately
$0.6 million in the second quarter of 1997. OTVR had revenue of approximately
$0.4 million during the second quarter of 1997. In addition, the transportation
revenue for the three months ended June 30, 1997 includes an increase in freight
revenue of $0.5 million based upon an agreement reached with a connecting
carrier. Additionally, transportation revenue from WTLR increased approximately
$0.2 million due to an increase in carloads. These increases in transportation
revenue were partially offset by a decrease of approximately $0.1 million in
transportation revenue from HESR due to a decrease in the agricultural shipments
in the second quarter of 1997 compared to the second quarter of 1996 and a
decrease of $0.2 million in transportation revenue from SCTR due to a decrease
in demurrage charged to a shipper. The transportation revenue per carload
decreased from $421 to $379 per car primarily due to the acquisitions during
1996 of railroads with lower rates per carload than the Company's other
railroads. Domestic carloads handled totaled 11,102 for the three months ended
June 30, 1997, an increase of 6,124, or 123%, compared to 4,978 carloads in the
prior year period. The increase was primarily the result of the acquisitions of
MNR, which handled 2,518 carloads in the second quarter of 1997, CCRR, which
handled 1,924 carloads in the second quarter of 1997, OTVR, which handled 1,163
carloads in the second quarter of 1997 and Gettysburg Railway, which handled 442
carloads in the second quarter of 1997. Additionally, WTLR's carloads increased
548 for the second quarter of 1997 compared to the second quarter of 1996. These
increased carloadings were partially offset by a decrease of 364 carloads from
HESR. Ferronor handled 5,603 carloads during the three month period ended June
30, 1997.
OTHER REVENUES. Other revenues decreased by approximately $0.5 million
for the three
12
<PAGE> 15
months ended June 30, 1997 compared to the prior year period. Other revenues for
the three months ended June 30, 1996 consisted primarily of a gain of
approximately $582,000 on the sale of 22 miles of rail line and a car repair
shop in the State of Indiana. Additionally, other revenue for the three months
ended June 30, 1996 and other revenue for the three months ended June 30, 1997
primarily represented rental of locomotives, sales of surplus rail and material,
certain miscellaneous assets and non-operating real estate.
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
--------------------------------------
June 30, 1997 June 30, 1996
------------- -------------
% Change % Change
Expenses From 1996 Expenses From 1995
---------- --------- -------- ---------
<S> <C> <C> <C> <C>
Maintenance of way $ 606,870 161.8% $ 231,811 36.3%
Maintenance of equipment 161,178 9.8% 146,737 44.5%
Transportation 899,791 96.2% 458,653 39.2%
Equipment rental 225,939 25.6% 179,906 36.1%
Selling, general and
administrative 638,866 102.7% 315,107 65.1%
Depreciation and
amortization 373,108 50.5% 247,914 32.6%
---------- ----------
Total operating expenses $2,905,752 83.9% $1,580,128 42.2%
========== ==========
</TABLE>
Operating expenses increased by approximately $1.3 million, or 83.9%,
from $1.6 million for the three month period ended June 30, 1996 to $2.9 million
for the three month period ended June 30, 1997. Maintenance of way expenses
increased by approximately $0.4 million, or 161.8%, from $0.2 million for the
quarter ended June 30, 1996 to $0.6 million for the quarter ended June 30, 1997
primarily due to certain acquisitions which occurred during the second half of
1996. MNR had maintenance of way expenses of approximately $0.1 million for the
quarter ended June 30, 1997. CCRR had maintenance of way expenses of
approximately $0.05 million for the quarter ended June 30, 1997. Gettysburg
Railway had maintenance of way expenses of approximately $31,000 for the quarter
ended June 30, 1997. In addition to the above acquisitions, WTLR's and HESR's
maintenance of way expenses increased approximately $62,000 and $58,000,
respectively, from the second quarter of 1996 to the second quarter of 1997 due
to increased track work being performed as part of maintenance programs.
Maintenance of equipment expenses increased by approximately $14,000,
or 9.8%, from $147,000 for the quarter ended June 30, 1996 to $161,000 for the
quarter ended June 30, 1997.
Transportation expense increased by approximately $0.4 million, or
96.2%, from $0.5
13
<PAGE> 16
million for the quarter ended June 30, 1996 to $0.9 million for the quarter
ended June 30, 1997 primarily due to certain acquisitions in the second half of
1996. MNR incurred approximately $0.2 million of transportation expense during
the quarter ended June 30, 1997. CCRR incurred approximately $0.1 million of
transportation expense for the quarter ended June 30, 1997. OTVR incurred
approximately $78,000 of transportation expense for the quarter ended June 30,
1997. Gettysburg Railway incurred approximately $52,000 of transportation
expense for the quarter ended June 30, 1997.
Equipment rental increased by approximately $46,000, or 25.6%, from
$180,000 for the quarter ended June 30, 1996 to $226,000 for the quarter ended
June 30, 1997.
Selling, general and administrative expenses increased by approximately
$0.3 million, or 102.7%, from $0.3 million for the quarter ended June 30, 1996
to $0.6 million for the quarter ended June 30, 1997 primarily due to certain
acquisitions which occurred during the second half of 1996. MNR incurred general
and administrative expenses of approximately $70,000 for the quarter ended June
30, 1997. CCRR incurred general and administrative expenses of approximately
$0.1 million for the quarter ended June 30, 1997. Gettysburg Railway incurred
general and administrative expenses of approximately $34,000 for the quarter
ended June 30, 1997. OTVR incurred general and administrative expenses of
approximately $42,000 for the three months ended June 30, 1997.
Operating expenses, as a percentage of transportation revenue, were
69.1% and 75.4% for the three months ended June 30, 1997 and 1996, respectively.
OTHER INCOME (EXPENSE). Interest expense increased by approximately
$0.4 million, or 72.5%, from $0.3 million for the three months ended June 30,
1996 to $0.7 million for the three months ended June 30, 1997. Such increase was
primarily due to the financing of the acquisitions of CCRR, MNR and OTVR. The
interest expense during the three months ended June 30, 1997 attributable to
these three acquisitions was $0.2 million, $0.14 million and $0.1 million,
respectively. Other income (expense) decreased $22,400 from the prior year
period.
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 exercises strict quality control by screening suppliers and conducting
inspections throughout the production process.
As a consequence of significant increases in sales order volume, during
1995 and 1996
14
<PAGE> 17
Kalyn expanded its manufacturing facility to partially address this increased
demand by building additional manufacturing space upon land that Kalyn owns. The
expansion was also completed to accommodate the receipt of a contract with the
U.S. Army Tank Automotive Command ("TACOM") pursuant to which Kalyn has agreed
to exclusively produce over a three-year period all of TACOM's requirements for
twelve-ton, tactical semi-trailer vans ("Tactical Vans"). TACOM has advised
Kalyn that over the term of this agreement, orders could be placed for up to 345
Tactical Vans, which could generate sales of up to approximately $27 million. In
February 1996, Kalyn was awarded an additional requirements contract by TACOM.
Pursuant to the terms of such agreements, TACOM is not required to purchase a
minimum number of Tactical Vans or other trailers. During 1996, Kalyn also built
a new paint booth building to accommodate the additional volume of trailer
orders. Kalyn's plant is currently operating one shift, although Kalyn believes
manufacturing capacity can be increased by adding a partial second shift.
RESULTS OF TRAILER MANUFACTURING OPERATIONS
The discussion of results of operations that follows reflects the
results of Kalyn, and RailAmerica Equipment Corporation ("REC") for the six and
three months ended June 30, 1997 and 1996. REC leases railroad tank cars, flat
cars and locomotives to various railroads and shippers.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
The following table sets forth the income and expense items for the six
months ended June 30, 1997 and 1996 and the percentage relationship of income
and expense items to net sales for the periods indicated:
<TABLE>
<CAPTION>
For the Six Months Ended
-----------------------------
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 10,031,076 100.0% $ 8,141,220 100.0%
Cost of goods sold 7,301,232 72.8% 6,268,230 77.0%
------------ -----------
Gross profit 2,729,844 27.2% 1,872,990 23.0%
Selling, general and
administrative expenses 913,185 9.1% 771,397 9.5%
Depreciation and amortization 231,340 2.3% 215,523 2.6%
------------ -----------
Income from operations 1,585,319 15.8% 886,070 10.9%
Other expenses (net) (128,731) 1.3% (216,402) 2.7%
------------ -----------
Net Income Before Taxes $ 1,456,588 14.5% $ 669,668 8.2%
============ ===========
</TABLE>
15
<PAGE> 18
NET SALES. Net sales consist of trailer sales, part sales and repair
income. Net sales increased by approximately $1.9 million, or 18.8%, from $8.1
million for the six month period ended June 30, 1996 to $10.0 million for the
six month period ended June 30, 1997. Trailer sales represent approximately 95%
of the net sales in both 1997 and 1996. Kalyn sold 320 trailers for the six
months ended June 30, 1997 and 299 trailers for the six months ended June 30,
1996. The increase in sales volume increased net sales by approximately $0.5
million. The average price per trailer sold was $30,184 for the six months ended
June 30, 1997 and $25,779 for the six months ended June 30, 1996. The increase
in average price per trailer increased net sales by approximately $1.4 million.
Sales to governmental agencies represented 40.7% and 18.2% of Kalyn's net sales
for the six months ended June 30, 1997 and 1996, respectively. During the first
half of 1996, Kalyn was in the process of building 5 prototype trailers in
connection with the October 1995 TACOM contract. Full production under the
contract began during the first quarter of 1997. The increase in sales for the
six month period ended June 30, 1997 compared to the six month period ended June
30, 1996 was principally due to the above contract work. Kalyn produced 45
Tactical Vans during the first six months of 1997. Kalyn's backlog of orders for
both government and commercial sales was approximately $12.5 million as of June
30, 1997 compared to $10.0 million at June 30, 1996.
COST OF GOODS SOLD. Cost of goods sold increased by approximately $1.0
million, or 16.5%, from $6.3 million for the six month period ended June 30,
1996 to $7.3 million for the six month period ended June 30, 1997. Cost of goods
sold was 72.8% of net sales for the six months ended June 30, 1997 compared to
77.0% for the six months ended June 30, 1996. The decrease was partially due to
certain fixed costs of manufacturing being spread over a larger revenue base in
1997. Additionally, government orders represented a higher percentage of the
sales in 1997 than in 1996. 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,
government sales have had a lower cost of goods sold and higher gross profit
margin than commercial 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 expenses increased approximately $142,000 from the first six
months of 1996 to the first six months of 1997 but decreased slightly as a
percentage of net sales.
REC. Revenue for REC for the six month period ended June 30, 1997
increased by approximately $115,000 from $92,135 for the six month period ended
June 30, 1996 to $207,142 for the six month period ended June 30, 1997 as a
result of tank car leases entered into during March 1996. Selling, general and
administrative expense increased by approximately $44,000 from $34,890 for the
six month period ended June 30, 1996 to $78,767 for the six month period
16
<PAGE> 19
ended June 30, 1997. The increase was due to costs associated with management
and operation of the tank car fleet. Depreciation and amortization expenses also
increased by approximately $23,000 from $13,710 for the six month period ended
June 30, 1996 to $36,327 for the six month period ended June 30, 1997 due to the
addition of the tank cars. Interest expense increased approximately $35,000 from
$21,725 in the six month period ended June 30, 1996 to $56,882 for the six month
period ended June 30, 1997 due to financing the purchase of the tank cars, flat
cars and locomotives.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND
1996
The following table sets forth the income and expense items for the
three months ended June 30, 1997 and 1996 and the percentage relationship of
income and expense items to net sales for the periods indicated:
<TABLE>
<CAPTION>
For the Three Months Ended
-------------------------------------
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 5,957,057 100.0% $ 4,688,006 100.0%
Cost of goods sold 4,180,183 70.2% 3,637,295 77.6%
------------ -----------
Gross profit 1,776,874 29.8% 1,050,711 22.4%
Selling general and
administrative expenses 513,139 8.6% 421,577 9.0%
Depreciation and amortization 116,334 2.0% 107,169 2.3%
------------ -----------
Income from operations 1,147,401 19.0% 521,965 11.1%
Other expenses (net) (66,836) 1.1% (119,298) 2.5%
------------ -----------
Net Income Before Taxes $ 1,080,565 17.9% $ 402,667 8.6%
============ ===========
</TABLE>
NET SALES. Net sales consist of trailer sales, part sales and repair
income. Net sales increased by approximately $1.3 million, or 27.1%, from $4.7
million for the three month period ended June 30, 1996 to $6.0 million for the
three month period ended June 30, 1997. Trailer sales represent approximately
95% of the net sales in both 1997 and 1996. Kalyn sold 176 trailers for the
three months ended June 30, 1997 and 158 trailers for the three months ended
June 30, 1996. The increase in sales volume increased net sales by approximately
$0.5 million from the second quarter of 1996 to the second quarter of 1997. The
average price per trailer sold was $32,663 for the three months ended June 30,
1997 and $28,406 for the three months ended June 30, 1996. The increase in
average price per trailer increased sales by approximately $0.8 million. Sales
to governmental agencies represented 46.9% and 19.3% of Kalyn's net sales for
17
<PAGE> 20
the three months ended June 30, 1997 and 1996, respectively. The increase in
sales for the three month period ended June 30, 1997 compared to the three month
period ended June 30, 1996 was principally due to TACOM contract work that began
in the first quarter of 1997.
COST OF GOODS SOLD. Cost of goods sold increased by approximately $0.5
million, or 14.9% from $3.6 million for the three month period ended June 30,
1996 to $4.2 million for the three month period ended June 30, 1997. Cost of
goods sold was 70.2% of net sales for the three months ended June 30, 1997
compared to 77.6% for the three months ended June 30, 1996. The decrease was
partially due to certain fixed costs of manufacturing being spread over a larger
revenue base in 1997. Additionally, government orders represented a higher
percentage of the sales in 1997 than in 1996. 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 expenses increased approximately $0.1 million from the second
quarter of 1996 to the second quarter of 1997 but decreased slightly as a
percentage of net sales.
REC. Revenue for REC remained fairly constant at approximately $92,000
for both the three month period ended June 30, 1997 and 1996. Selling, general
and administrative expense increased by approximately $9,000 from $34,890 for
the three month period ended June 30, 1996 to $43,845 for the three month period
ended June 30, 1997. Depreciation and amortization expenses also increased by
approximately $4,000 from $13,710 for the three month period ended June 30, 1996
to $18,164 for the three month period ended June 30, 1997. Interest expense
increased by approximately $9,000 from $21,725 for the three month period ended
June 30, 1996 to $31,051 for the three month period ended June 30, 1997.
RESULTS OF MOTOR CARRIER OPERATIONS (Discontinued Operations)
The discussion of results of operations that follows reflects the
results of Steel City Carriers and RailAmerica Intermodal Services ("RIS") for
the six and three month periods ended June 30, 1997 and 1996.
Since the Company's acquisition of Steel City Carriers, its performance
and development have not met the Company's expectations. Accordingly, in March
1997 the Company adopted a formal plan to discontinue its motor carrier
operations and refocus the Company's efforts on expanding its core railroad
business. The Company's Board of Directors approved the plan of discontinuance
on March 20, 1997. Management anticipates selling either substantially all of
the assets or the stock of the Company's motor carrier subsidiaries during 1997.
18
<PAGE> 21
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
The following table sets forth the income and expense items for the six
months ended June 30, 1997 and 1996 and the percentage relationship of income
and expense items to transportation revenue for the periods indicated:
<TABLE>
<CAPTION>
For the Six Month Period Ended
------------------------------
June 30, 1997 June 30, 1996
---------------- -----------------------
<S> <C> <C> <C> <C>
Transportation revenue $ 3,613,177 100.0% $ 3,631,452 100.0%
------------ -----------
Direct operating expenses 3,191,474 88.3% 3,346,411 92.2%
Selling, general and administrative
expenses 309,049 8.6% 333,133 9.2%
Depreciation and amortization 192,180 5.3% 174,895 4.8%
------------ -----------
Total operating expenses 3,692,703 102.2% 3,854,439 106.1%
============ -----------
Operating loss $ (79,526) (2.2%) $ (222,987) (6.1%)
============ ===========
</TABLE>
TRANSPORTATION REVENUE - Transportation revenue remained fairly
constant from the first six months of 1996 to the first six months of 1997.
DIRECT OPERATING EXPENSES - Direct operating expenses decreased by
approximately $155,000, or 4.6% from $3.3 million for the six month period ended
June 30, 1996 to $3.2 million for the six month period ended June 30, 1997.
Direct operating expenses represented 88.3% of transportation revenue for the
six month period ended June 30, 1997 compared to 92.2% for the six month period
ended June 30, 1996. The decrease was due to decreased equipment maintenance and
repairs and the unusually extreme weather in early 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 increased costs during 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses decreased slightly as a percentage of transportation
revenue for the first quarter of 1997 compared to the first quarter of 1996. The
decrease was due to efficiencies achieved by combining of the operations of
Steel City Carriers and RIS into Steel City Carriers in late 1996.
19
<PAGE> 22
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND
1996
The following table sets forth the income and expense items for the
three months ended June 30, 1997 and 1996 and the percentage relationship of
income and expense items to transportation revenue for the periods indicated:
<TABLE>
<CAPTION>
For the Three Month Period Ended
--------------------------------
June 30, 1997 June 30, 1996
------------------- ------------------
<S> <C> <C> <C> <C>
Transportation revenue $ 1,839,598 100.0% $ 1,912,661 100.0%
----------- -----------
Direct operating expenses 1,616,869 88.0% 1,754,963 91.8%
Selling, general and administrative
expenses 155,715 8.5% 167,529 8.8%
Depreciation and amortization 97,731 5.3% 88,966 4.7%
----------- -----------
Total operating expenses 1,870,315 101.7% 2,011,458 105.2%
----------- -----------
Operating income (loss) $ (30,717) 1.7% $ (98,797) (5.2%)
=========== ===========
</TABLE>
TRANSPORTATION REVENUE - Transportation revenues remained fairly
constant from the second quarter of 1996 to the second quarter of 1997.
DIRECT OPERATING EXPENSES - Direct operating expenses decreased by
approximately $138,000, or 7.9% from $1.8 million for the three month period
ended June 30, 1996 to $1.6 million for the three month period ended June 30,
1997. Direct operating expenses represented 88.0% of transportation revenue for
the three month period ended June 30, 1997 compared to 91.8% for the three month
period ended June 30, 1996. The decrease was due primarily to decreased
equipment maintenance and repairs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses decreased slightly as a percentage of transportation
revenue for the second quarter of 1997 compared to the second quarter of 1996.
The decrease was due to efficiencies achieved by combining of the operations of
Steel City Carriers and RIS into Steel City Carriers in late 1996.
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 provided by operating activities was $6,207 for the
six month period ended June 30, 1997.
20
<PAGE> 23
Cash used in investing activities was $9.6 million for the six month
period ended June 30, 1997. The Company's main use of cash during the first six
months of 1997 was for the purchase of a 55% equity interest in Ferronor, which
cost $7.4 million. In addition, property, plant and equipment increased $2.2
million during the first six months of 1997 primarily due to the purchase of
locomotives and improvements made to the Company's various rail lines offset by
depreciation taken.
The Company's cash provided by financing activities was $7.3 million
for the six month period ended June 30, 1997 consisting of the net proceeds of
approximately $4.6 million from the issuance of 1,670,000 shares of the
Company's common stock in a private placement transaction completed in January
1997 and net proceeds of approximately $2.7 million from the conversion of a
substantially all of the Company's Class B Warrants.
The Company's long term debt represents financing of property and
equipment, as well as the acquisition financing for Ferronor, SCTR, Kalyn, Steel
City Carriers, Dakota Rail, WTLR, ETC, CCRR, MNR, OTVR and Gettysburg Railway.
Certain of this indebtedness was refinanced through a $25 million revolving line
of credit (the "Revolver") with National Bank of Canada. The Revolver bears
interest, at the option of the Company, 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,
SGVY, RIS, CCRR, Steel City Carriers, WTLR and OTVR.
On May 3, 1997, the Company received from National Bank of Canada and
Comerica Bank N.A. an increase to the Revolver to $40 million which also
extended the maturity date of the Revolver to May 2000.
As of June 30, 1997, the Company had working capital of $5.4 million
compared to working capital of $5.1 million as of December 31, 1996. Cash on
hand as of June 30, 1997 was $1.6 million compared to $3.9 million as of
December 31, 1996. The decrease in cash from December 31, 1996 to June 30, 1997
is due primarily to the purchase of an equity interest in Ferronor in February
1997 and paydown on the Company's Revolver. The Company's cash flows from
operations have been historically sufficient to meet its ongoing operating
requirements, capital expenditures for property, plant and equipment, and to
satisfy the Company's interest requirements.
The Company expects that its future cash flow will be sufficient for
its current and contemplated operations for at least the next twelve months, and
will be used for, among other things, anticipated capital expenditures for the
upgrading of existing rail lines and purchases of locomotives and equipment of
approximately $2.0 million and capital expenditures at Kalyn of approximately
$300,000. The Company does not presently anticipate any other significant
capital expenditures over the next twelve months. To the extent possible, the
Company will seek to finance any further acquisitions of property, plant and
equipment in order to allow its cash flow from operations to be devoted to other
uses, including debt reduction and acquisition requirements.
21
<PAGE> 24
The Company's long-term business strategy includes the selective
acquisition of additional transportation-related businesses. Accordingly, the
Company may require additional equity and/or debt capital in order to consummate
an 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 $40 million revolving line of credit allows acquisition loan advances
of up to $35 million for such acquisitions. As of August 1, 1997, the Company
had approximately $10.7 million of availability under the $40 million 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.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
The foregoing Management's Discussion and Analysis contains various
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which represent the Company's expectations or beliefs concerning
future events, including the following: statements regarding the further growth
in transportation-related assets; the acquisition of additional railroads and
other transportation-related companies; the development of additional
transportation-related businesses; the increased usage of the Company's existing
rail lines; the growth of gross revenues; and the sufficiency of the Company's
cash flow for the Company's future liquidity and capital resource needs. The
Company cautions that these statements are further qualified by important
factors that could cause actual results to differ materially from those in the
forward-looking statements, including, without limitations, the following:
decline in demand for transportation services; the effect of economic conditions
generally and particularly in the markets served by the Company; orders under
the TACOM agreements; the Company's dependence upon the agricultural industry as
a significant user of the Company's rail services; the Company's dependence upon
the availability of financing for acquisitions of railroads and other
transportation-related companies and the development of additional
transportation-related businesses; a decline in the market acceptability of
railroad services; the effect of competitive pricing; the regulation of the
Company by federal, state and local regulatory authorities. Any material adverse
change in the financial condition or results of operations of Kalyn would have a
material adverse impact on the Company. Results actually achieved thus may
differ materially from expected results included in these statements.
22
<PAGE> 25
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(9)
3.2 By-laws of Registrant(1)
4.2 Class B Warrant(2)
4.3 Unit Purchase Warrant(2)
4.4 Series A Convertible Subordinated Debentures(7)
10.14 RailAmerica, Inc. 1992 Stock Option Plan(1)+
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(10)
10.33 Stock Purchase Agreement between 823215 Ontario, Inc. and
RailAmerica, Inc. dated February 6, 1995(10) 10.35 Employment
Agreement between Robert B. Coward and Kalyn/Siebert
Incorporated(6)
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.(7)
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.(7)
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(9)
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.(8)
10.41 Employment Agreement between Gary O. Marino and RailAmerica,
Inc.(9)+ 10.42 Employment Agreement between John H. Marino and
RailAmerica, Inc.(9)+ 10.43 Stock Option Agreement, dated
November 11, 1994, between RailAmerica, Inc. and Gary O.
Marino(9)+
10.44 RailAmerica, Inc. 1995 Stock Incentive Plan(9)+
10.45 RailAmerica, Inc. 1995 Non-Employee Director Stock Option
Plan(9)
10.46 RailAmerica, Inc. 1995 Employee Stock Purchase Plan(9)
10.47 RailAmerica, Inc. Corporate Senior Executive Bonus Plan(9)+
10.49 Purchase and Sale Agreement dated November 30, 1995, by and
between CSX
23
<PAGE> 26
Transportation, Inc. and Saginaw Valley Railway Company, Inc.
(10)
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(10)
10.51 Asset Purchase Agreement dated January 26, 1996 by and between
TEMCO Corporation and RailAmerica Equipment Corporation(10)
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.(11)
10.53 Agreement entered into by and between R. Frank Unger, Trustee of
Sagamore National Corporation, Indiana HiRail Corporation and
RailAmerica, Inc.(11)
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.(12)
10.55 Confidential Private Placement Memorandum dated September 20,
1996.(13)
10.56 Stock Purchase Agreement, dated as of September 20, 1996, by
and among Otter Tail Valley Railroad Company, Inc. and Dakota
Rail, Inc.(14)
10.57 Commitment letter relating to $40,000,000 Revolving Line of
Credit/Term Loan Facility, dated March 3, 1997, by and between
National Bank of Canada, Comerica Bank, 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., West Texas and Lubbock Railroad Company, Inc.,
Plainview Terminal Company, Cascade and Columbia River Railroad
Company, Inc., Minnesota Northern Railroad Company, Inc. and
Delaware Valley Railway Company, Inc.(15)
10.58 Agreement for sale of certain assets, rights and obligations
of Burlington Northern Railroad Company to Minnesota Northern
Railroad, Inc.(15)
10.59 RailAmerica, Inc. Nonqualified Deferred Compensation Trust.(15)+
10.60 Nonqualified Deferred Compensation Agreement between
RailAmerica, Inc. and Gary O. Marino(15)+
10.61 Nonqualified Deferred Compensation Agreement between
RailAmerica, Inc. and John H. Marino(15)+
11 Computation of Per Share Earnings
21 Subsidiaries of Registrant(15)
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
24
<PAGE> 27
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-QSB for the quarter ended June 30, 1995, filed
with the Securities and Exchange Commission on August 9, 1995.
(8) Incorporated by reference to the exhibit number 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.
(9) 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.
(10) 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.
(11) Incorporated by reference to the same exhibit number filed as part of
the Company's Form 10-QSB for the quarter ended July 30, 1996, filed
with the Securities and Exchange Commission on August 12, 1996.
(12) 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 12, 1996.
(13) 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.
(14) 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.
(15) 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 March 31, 1997.
+ Executive Compensation Plan or Arrangement.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
second quarter of 1997.
25
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RAILAMERICA, INC.
Date: August 18, 1997 By: /s/Gary O. Marino
-------------------------
Gary O. Marino, on behalf
of the Company as Chairman,
and as Chief Executive Officer
(Principal Financial Officer)
26
<PAGE> 1
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS FROM CONTINUING OPERATIONS
FULLY DILUTED EARNINGS PER SHARE FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
<TABLE>
<S> <C>
Net income $1,012,654
Interest reduction on conversion of convertible debt 75,488
----------
Adjusted net income $1,088,142
==========
Weighted average common shares and common share equivalents 8,403,526
Conversion of convertible debt 809,401
----------
Adjusted shares outstanding 9,212,927
==========
Fully diluted earnings per share $ 0.12
==========
FULLY DILUTED EARNINGS PER SHARE FOR THE THREE MONTH PERIOD ENDED JUNE 30, 1997
Net income $ 663,123
Interest reduction on conversion of convertible debt 37,363
----------
Adjusted net income $ 700,486
==========
Weighted average common shares and common share equivalents 8,603,144
Conversion of convertible debt 809,401
----------
Adjusted shares outstanding 9,412,545
==========
Fully diluted earnings per share $ 0.07
==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 1,585,565
<SECURITIES> 0
<RECEIVABLES> 7,642,232
<ALLOWANCES> 0
<INVENTORY> 2,915,239
<CURRENT-ASSETS> 12,945,946
<PP&E> 56,300,251
<DEPRECIATION> 0
<TOTAL-ASSETS> 82,338,633
<CURRENT-LIABILITIES> 7,580,929
<BONDS> 39,643,843
0
0
<COMMON> 8,694
<OTHER-SE> 24,483,908
<TOTAL-LIABILITY-AND-EQUITY> 82,338,633
<SALES> 10,031,076
<TOTAL-REVENUES> 18,495,315
<CGS> 7,301,232
<TOTAL-COSTS> 15,359,383
<OTHER-EXPENSES> 96,454
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,533,173
<INCOME-PRETAX> 1,610,805
<INCOME-TAX> 598,151
<INCOME-CONTINUING> 1,012,654
<DISCONTINUED> (111,086)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 901,568
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
