<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 September 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 - 8,829,275 shares as of November 13, 1997
<PAGE> 2
RAILAMERICA, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - September 30, 1997
and December 31, 1996 1
Consolidated Statements of Income - For the nine and
three months ended September 30, 1997 and 1996 2
Consolidated Statements of Cash Flows - For the
nine months ended September 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 9
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 21
Item 6 Exhibits and Reports on Form 8-K 22
Signatures
</TABLE>
<PAGE> 3
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash $ 3,104,453 $ 3,879,972
Accounts receivable 8,405,364 4,575,958
Inventories 5,071,088 3,104,555
Other current assets 607,661 462,867
------------ ------------
Total current assets 17,188,566 12,023,352
Property, plant and equipment, net 72,843,254 54,148,966
Other, net 3,341,208 2,426,615
Excess of cost over net assets of companies acquired, net 2,833,762 2,965,853
------------ ------------
Total assets $ 96,206,790 $ 71,564,786
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 3,665,846 $ 1,752,926
Current maturities of subordinated debt 212,392 212,392
Accounts payable 6,081,886 3,162,953
Accrued expenses and income taxes payable 2,644,458 1,811,739
------------ ------------
Total current liabilities 12,604,582 6,940,010
------------ ------------
Long-term debt, less current maturities 40,980,980 38,401,119
------------ ------------
Subordinated debt, less current maturities 3,318,588 3,477,882
------------ ------------
Deferred income taxes 7,584,898 6,753,668
------------ ------------
Commitments and contingencies
Minority interest 5,796,840 --
------------ ------------
Stockholders' equity:
Common stock, $.001 par value, 30,000,000 shares authorized;
9,044,453 issued and 8,773,264 outstanding at September 30, 1997;
6,125,410 issued and 5,888,410 outstanding at December 31, 1996 9,044 6,125
Additional paid-in capital 22,710,633 11,773,036
Common stock subscribed -- 2,340,000
Retained earnings 4,737,587 2,944,774
Cumulative translation adjustment (90,980) 67,441
Less treasury stock (271,189 and 237,000 shares at cost, respectively) (1,445,382) (1,139,269)
------------ ------------
Total stockholders' equity 25,920,902 15,992,107
------------ ------------
Total liabilities and stockholders' equity $ 96,206,790 $ 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 nine and three months ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues:
Transportation - railroads - domestic $ 3,544,747 $ 1,913,844 $ 11,384,767 $ 6,676,372
Transportation - railroad - international 2,365,000 - 4,691,000 -
Manufacturing 6,267,837 3,432,189 16,298,913 11,573,409
Other 956,038 565,972 1,580,257 1,407,878
------------ ------------ ------------ ------------
13,133,622 5,912,005 33,954,937 19,657,659
------------ ------------ ------------ ------------
Operating expenses:
Transportation - railroads - domestic 1,913,852 921,231 5,310,327 2,994,009
Transportation - railroad - international 1,718,305 - 3,226,126 -
Cost of goods sold - manufacturing 4,532,148 2,670,683 11,833,380 8,938,913
Selling, general and administrative 2,346,922 1,339,095 6,404,898 3,904,166
Depreciation and amortization 665,411 423,634 1,901,416 1,172,634
------------ ------------ ------------ ------------
11,176,638 5,354,643 28,676,147 17,009,722
------------ ------------ ------------ ------------
Operating income 1,956,984 557,362 5,278,790 2,647,937
Interest expense (812,315) (512,734) (2,345,488) (1,373,078)
Other income 553,696 56,188 461,368 16,329
Minority interest (296,340) - (381,840) -
------------ ------------ ------------ ------------
Income from continuing operations before
income taxes 1,402,025 100,816 3,012,830 1,291,188
Provision for income taxes 465,013 38,000 1,063,164 478,000
------------ ------------ ------------ ------------
Income from continuing operations 937,012 62,816 1,949,666 813,188
Discontinued operations
Loss from operations of discontinued Motor
Carrier segment (less applicable income tax
benefit of $34,000 and $23,000, respectively, and
benefit of $96,000 and $148,000, respectively) (45,762) (38,085) (156,848) (250,340)
------------ ------------ ------------ ------------
Net Income $ 891,250 $ 24,731 $ 1,792,818 $ 562,848
============ ============ ============ ============
- ---------------------------------------------------------------------------------------------------------------------
Primary earnings per common share
Continuing operations $ 0.11 $ 0.02 $ 0.23 $ 0.17
Discontinued operations (0.01) (0.01) (0.02) (0.05)
------------ ------------ ------------ ------------
Net income $ 0.10 $ 0.01 $ 0.21 $ 0.12
============ ============ ============ ============
Fully diluted earnings per common share
Continuing operations $ 0.10 $ 0.02 $ 0.22 $ 0.17
Discontinued operations (0.01) (0.01) (0.02) (0.05)
------------ ------------ ------------ ------------
Net income $ 0.09 $ 0.01 $ 0.20 $ 0.12
============ ============ ============ ============
Weighted average common shares and common
share equivalents outstanding:
Primary 8,808,572 4,646,832 8,535,651 4,661,943
============ ============ ============ ============
Fully Diluted 9,808,777 4,646,832 9,542,651 4,661,943
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
2
<PAGE> 5
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,792,818 $ 562,848
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,478,972 1,556,165
Minority interest 381,840 --
Gain on sale of properties (634,228) (942,190)
Employee stock grants -- 48,554
Deferred income taxes 899,783 75,712
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (1,845,211) (2,038,491)
Inventories (1,364,434) 122,187
Other current assets 13,793 (103,385)
Accounts payable (608,732) 535,611
Income taxes payable (105,538) (560,788)
Accrued liabilities 136,908 182,975
Deposits and other (132,055) (478)
------------ ------------
Net cash provided by operating activities 1,013,916 (561,280)
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (4,743,361) (3,850,280)
Acquisition of 55% of Ferronor (7,389,903) --
Proceeds from sales of properties 268,570 1,163,753
Deferred acquisition costs and other (359,222) (471,186)
------------ ------------
Net cash used in investing activities (12,223,916) (3,157,713)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt and capital leases 23,098,787 8,018,838
Principal payments on debt and capital leases (20,339,305) (7,551,800)
Sale of common stock 8,271,818 4,147,280
Purchase of treasury stock -- (173,516)
Deferred financing costs (308,218) --
Deferred loan costs (288,601) (10,265)
------------ ------------
Net cash provided by financing activities 10,434,481 4,430,537
------------ ------------
Net decrease in cash (775,519) 711,544
Cash, beginning of period 3,879,972 3,488,866
------------ ------------
Cash, end of period $ 3,104,453 $ 4,200,410
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE> 6
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of Management, the consolidated financial statements
contain all adjustments which are those of a recurring nature, and
disclosures necessary to present fairly the financial position of the
Company as of September 30, 1997 and December 31, 1996, and the results
of operations and cash flows for the nine and three months ended
September 30, 1997 and 1996.
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.
On June 30, 1997, the Company sold all the outstanding stock of Huron
Distribution Services, a wholly-owned subsidiary, to Transportation
Management Services ("TMS"), a company owned by RailAmerica's Vice
Chairman. On September 30, 1997, the Company sold all the outstanding
stock of Evansville Terminal Company, a wholly-owned subsidiary, to a
group of companies one of which is owned by RailAmerica's Vice
Chairman. Effective September 30, 1997, the Company sold all of the
outstanding stock of Gettysburg Scenic Rail Tours, a wholly-owned
subsidiary, to TMS and substantially all the property, plant and
equipment of Gettysburg Railway.
In February 1997, Statements of Financial Accounting Standards ("SFAS")
No. 128 "Earnings Per Share" was issued. SFAS No. 128 established new
standards for computing and presenting earnings per share ("EPS"). This
statement replaces the presentation of primary EPS and will require
dual presentation of basic and diluted EPS. SFAS No. 128 is effective
for financial statements issued for periods ended after December 15,
1997 and requires restatement of all prior-period EPS data presented.
The Company has not yet determined the impact, if any, the adoption of
SFAS No. 128 will have on the Company's financial statements.
4
<PAGE> 7
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. EARNINGS PER SHARE:
For the nine and three months ended September 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.
For the nine and three months ended September 30, 1996, primary and
fully diluted earnings per share were based on the weighted average
number of common shares outstanding during the periods. The stock
options, warrants and convertible subordinated notes payable
outstanding were anti-dilutive and have been excluded from weighted
average number of shares outstanding for both primary and fully diluted
earnings per share.
3. ACQUISITION
On February 19, 1997, the Company acquired, through its wholly owned
subsidiary, RailAmerica de Chile, S.A., a majority interest in Empresa
de Transporte Ferroviario S.A. ("Ferronor"), a 1,400 mile railroad
serving northern Chile. RailAmerica was joined in the purchase of
Ferronor by Andres Pirazzoli y Cia, Ltda. ("APCO"). The purchase price
paid by RailAmerica/APCO for substantially all of the stock of
Ferronor, was approximately $12.3 million and was funded 55% by
RailAmerica and 45% by APCO. This acquisition has been accounted for as
a purchase and Ferronor's results have been consolidated since the
acquisition.
In accordance with the Shareholders' Agreement between RailAmerica and
APCO, RailAmerica controls the appointment of a majority of the Board
of Directors of Ferronor, including the Chairman. APCO maintains
certain minority rights under the Shareholders Agreement, such as the
right to block the appointment of Ferronor's General Manager and to
request his removal under certain circumstances. Additionally, APCO had
the right to approval of Ferronor's provisional business plan.
In accordance with EITF 96-16, the Company considered these minority
rights in determining whether to consolidate Ferronor and has concluded
that consolidation is appropriate based upon the Company's ownership
position, and its level of control of the Board of Directors and senior
management.
5
<PAGE> 8
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. ACQUISITION, continued
The following unaudited pro forma summary presents the consolidated
results of operations as if the acquisition of Ferronor had occurred at
the beginning of the period presented and do not purport to be
indicative of what would have occurred had the acquisition been made as
of that date or results which may occur in the future (in thousands
except per share data).
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Revenue $35,187
Income from continuing operations before income taxes $ 3,115
Net income $ 1,895
Net income per share $ 0.22
</TABLE>
4. INVENTORIES:
Inventories consist of the following as of September 30, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Raw materials $ 3,039,382 $ 2,284,683
Work in process 1,282,208 635,780
Finished goods 324,613 881,817
Replacement or repair parts for equipment
and road property 1,608,873 381,309
----------- -----------
6,255,076 4,183,589
Less, advances related to materials (1,183,988) (1,079,034)
----------- -----------
Inventories in excess of contract advances $ 5,071,088 $ 3,104,555
=========== ===========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following as of
September 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Land $17,359,870 $14,881,734
Buildings and improvements 3,656,559 3,344,128
Railroad track and improvements 38,869,083 27,369,412
Locomotives, vehicles and other equipment 19,937,060 13,671,118
----------- -----------
79,822,572 59,266,392
Less accumulated depreciation 6,979,318 5,117,426
----------- -----------
$72,843,254 $54,148,966
=========== ===========
</TABLE>
6
<PAGE> 9
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. PROPERTY, PLANT AND EQUIPMENT, continued
The Company acquired approximately 44 miles of rail line in Minnesota
in September 1997. The Company sold all the property, plant and
equipment of the Gettysburg Railway, with a approximate net book value
of $1.25 million, as of September 30, 1997.
6. OTHER REVENUE
Other revenue as of September 30, 1997 and 1996 consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Gain on sale of properties and
easements $ 660,629 $ 942,009
Rental income 592,552 383,525
Other 327,076 82,344
---------- ----------
$1,580,257 $1,407,878
========== ==========
</TABLE>
7. 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.
8. DISCONTINUED OPERATIONS:
Operating results of the discontinued operations, as shown below,
include the operations of the Motor Carrier division for the three
months and nine months ended September 30, 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
(Thousands)
<S> <C> <C> <C> <C>
Revenues $ 1,745 $ 1,850 $ 5,358 $ 5,481
Depreciation and amortization 98 94 290 269
Operating income (loss) 7 1 (73) (222)
Loss before taxes (74) (61) (253) (398)
Benefit for income taxes 28 23 96 148
Net loss $ (46) $ (38) $ (157) $ (250)
</TABLE>
Net assets of the discontinued business held for sale at September
30, 1997 consisted of current assets of $0.8 million, noncurrent
assets of $5.1 million, and total liabilities of $4.3 million.
7
<PAGE> 10
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. SUBSEQUENT EVENTS:
On October 31, 1997, the Company acquired a minority interest in the
Great Southern Railway Limited ("GSR"). GSR completed the acquisition
of the assets and business comprising the passenger rail service of
the Australian National Railway Commission.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
RailAmerica, Inc. (together with its consolidated subsidiaries, the
"Company") principal operations include the operation of short line railroads
and trailer manufacturing. The Company hauls varied products for its customers
corresponding to their local operating areas, which historically have consisted
primarily of agricultural commodities. The Company's trailer production
facility, located in Texas, manufactures a broad range of specialty truck
trailers which are marketed to a customer base from the commercial and
government sectors.
The Company's historical growth has resulted primarily from the
execution of its acquisition strategy and internal growth. In accordance with
the acquisition 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.
Additionally, the Company acquired a 60 mile rail line in and around Hinckley,
Minnesota. The Company began operation of the rail line September 8, 1997,
through its wholly-owned subsidiary St. Croix Valley Railroad Company ("SCXY").
The number of miles of track operated by RailAmerica has grown to approximately
950 miles in the United States and 2,350 miles worldwide at September 30, 1997.
The Company has added railroad properties to its portfolio primarily
through the acquisition of branch and light density rail lines from larger
railroads. Because of the acquisitions and variations in the structure, timing
and size of portfolio additions, the Company's results of operations in any
reporting period may not be directly comparable to its results of operations in
other reporting periods.
Set forth below is a discussion of the results of operations for the
Company's railroad operations, trailer manufacturing operations and corporate
overhead and other.
RAILROAD OPERATIONS
The Company's railroad subsidiaries operated approximately 2,350 miles
of rail lines as of September 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
lease with the Wilmington & Northern Railroad Company; (vi) 44 miles of rail
line which the Company is
9
<PAGE> 12
operating pursuant to a contract with the State of Minnesota; (vii) 104 miles of
rail line and 4 miles of trackage rights in West Texas; (viii) 131 miles of rail
line which it owns in the state of Washington; (ix) 72 miles of rail line which
it owns in central Minnesota; (x) 204 miles of rail line it owns in northern
Minnesota and 37 miles of trackage rights; (xi) 44 miles of rail line it owns in
central Minnesota and 16 miles of trackage rights; and (xii) 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 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.
RESULTS OF RAILROAD OPERATIONS
The discussion of results of operations that follows reflects the
consolidated results of the Company's Railroad Operations for the nine and three
months ended September 30, 1997 and 1996. The results of railroad operations
include the operations of Evansville Terminal Company ("ETC") from July 1, 1996,
Cascade and Columbia River Railroad, Inc. ("CCRR") from September 6, 1996, Otter
Tail Valley Railroad, Inc. ("OTVR") from October 1, 1996, Gettysburg Railway and
Gettysburg Scenic Rail Tours from November 1, 1996, Minnesota Northern Railroad,
Inc. ("MNR") from December 28, 1996, Ferronor from February 20, 1997 and SCXY
from September 8, 1997. As a result, the results of operations for the nine and
three months ended September 30, 1997 are not comparable to the prior year
periods in certain material respects.
The following table sets forth the operating revenues and expenses for
the Company's domestic railroad operations for the periods indicated. All
results of operations discussed in this section are for the Company's domestic
railroads only, unless otherwise indicated.
10
<PAGE> 13
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Transportation revenue $ 3,544,747 $ 1,913,844 $11,384,767 $ 6,676,372
Other revenue 683,354 475,553 1,120,153 1,208,160
----------- ----------- ----------- -----------
Total revenue 4,228,101 2,389,397 12,504,920 7,884,532
----------- ----------- ----------- -----------
Operating Expenses:
Maintenance of way 538,261 253,103 1,659,908 790,536
Maintenance of equipment 154,744 149,550 509,745 464,027
Transportation 944,229 413,512 2,634,164 1,440,266
Equipment rental 207,978 105,066 437,870 299,180
General and administrative 691,326 328,657 1,889,450 960,813
Depreciation and amortization 376,910 287,041 1,113,819 782,796
----------- ----------- ----------- -----------
Total operating expenses 2,913,448 1,536,929 8,244,956 4,737,618
----------- ----------- ----------- -----------
Operating income 1,314,653 852,468 4,259,964 3,146,914
Interest and other expenses 712,154 259,559 2,104,299 793,106
----------- ----------- ----------- -----------
Income before income taxes $ 602,499 $ 592,909 $ 2,155,665 $ 2,353,808
=========== =========== =========== ===========
</TABLE>
COMPARISON OF RAILROAD OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND 1996
Operating Revenue. Transportation revenue increased by $4.7 million, or
70.5%, from $6.7 million for the nine months ended September 30, 1996 to $11.4
million for the nine months ended September 30, 1997. CCRR, which was acquired
in September 1996, had transportation revenue of approximately $2.0 million in
the first nine months of 1997 compared to $0.2 million for the first nine months
of 1996. MNR, which was acquired in December 1996, had transportation revenue of
approximately $1.6 million in the first nine months of 1997. OTVR, which was
acquired in September 1996, had transportation revenue of approximately $1.3
million during the first nine months of 1997. Gettysburg Railway, which was
acquired in November 1996, had transportation revenue of approximately $0.4
million in the first nine months of 1997. In addition, the transportation
revenue for the nine months ended September 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 Huron and
Eastern Railway Company ("HESR") resulting from decreased agricultural shipments
in the first nine months of 1997 compared to the first nine months of 1996.
Additionally, transportation revenue from South Central Tennessee Railroad
("SCTR") decreased approximately $0.4 million due to a decrease in demurrage
revenue charged to a shipper. The domestic transportation revenue per carload
decreased from $399 to $339 per car primarily due to the acquisitions during
1996 of railroads with lower rates per carload than the Company's existing
railroads. Domestic carloads handled totaled 33,544 for the nine months ended
September 30, 1997, an increase of 16,714, or 99.3% compared to 16,830 carloads
in the prior year period. The increase was primarily the result of the
acquisitions of MNR, which handled 7,826 in the first nine months of 1997, CCRR,
which handled 5,712 carloads in the first nine months of 1997, OTVR, which
11
<PAGE> 14
handled 4,109 carloads in the first nine months of 1997 and Gettysburg Railway,
which handled 1,206 carloads in the first nine months of 1997. These increased
car loadings were partially offset by a decrease of 1,184 carloads from the
HESR. Ferronor handled 14,648 carloads during the period from February 20 to
September 30, 1997.
Other revenues decreased by approximately $0.1 million, or 7.3%, from
$1.2 million for the nine months ended September 30, 1996 to $1.1 million for
the nine months ended September 30, 1997. Other revenues for the nine months
ended September 30, 1997 and 1996 consist of gain on sales of railroad assets,
easement sales, railroad lease and rental income and other miscellaneous income.
Operating Expenses. Operating expenses increased by approximately $3.5
million, or 74.0%, from $4.7 million for the nine months ended September 30,
1996 to $8.2 million for the nine months ended September 30, 1997. Operating
expenses for the nine months ended September 30, 1997 have been reduced by
approximately $0.3 million due to a reimbursement received by the Company from a
connecting carrier. Operating expenses, as a percentage of transportation
revenue, were 71.0% and 72.4% for the nine months ended September 30, 1996 and
1997, respectively. The increase was primarily due to costs associated with the
unusually 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.
Maintenance of way expenses increased by approximately $0.9 million, or
110%, from $0.8 million for the nine months ended September 30, 1996 to $1.7
million for the nine months ended September 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 $0.3
million for the nine months ended September 30, 1997. CCRR, which was acquired
September 1996, had maintenance of way expenses of approximately $0.15 million
for the nine months ended September 30, 1997. Gettysburg Railway, which was
acquired in November 1996, had maintenance of way expenses of approximately $0.1
million for the nine months ended September 30, 1997. In addition to the above
acquisitions, West Texas and Lubbock Railroad's ("WTLR") and HESR's maintenance
of way expenses increased approximately $0.1 million and $0.1 million,
respectively, from the first nine months of 1996 to the first nine months of
1997 due to increased track work being performed as part of maintenance
programs.
Maintenance of equipment expenses increased by approximately $0.05
million, or 9.9%, from approximately $0.45 million for the nine months ended
September 30, 1996 to $0.5 million for the nine months ended September 30, 1997
primarily due to certain acquisitions which occurred during the second half of
1996.
Transportation expense increased by approximately $1.2 million, or
82.9%, from $1.4 million for the nine months ended September 30, 1996 to $2.6
million for the nine months ended September 30, 1997 primarily due to certain
acquisitions in the second half of 1996. MNR incurred approximately $0.5 million
of transportation expenses during the nine months ended September 30, 1997. CCRR
incurred approximately $0.3 million of transportation expense for the nine
months ended September 30, 1997. OTVR, which was acquired in October 1996,
incurred approximately $0.2 million of transportation expense for the nine
months ended September 30, 1997. Gettysburg
12
<PAGE> 15
Railway and Gettysburg Scenic Rail Tours incurred approximately $0.25 million of
transportation expense for the nine months ended September 30, 1997.
Equipment rental increased by approximately $0.1 million or 46.4%, from
approximately $0.3 million for the nine months ended September 30, 1996 to
approximately $0.4 million for the nine months ended September 30, 1997.
Selling, general and administrative expenses increased by approximately
$0.9 million, or 96.7%, from $1.0 million for the nine months ended September
30, 1996 to $1.9 million for the nine months ended September 30, 1997 primarily
due to certain acquisitions which occurred during the second half of 1996. MNR
incurred general and administrative expenses of approximately $0.3 million for
the nine months ended September 30, 1997. CCRR incurred general and
administrative expenses of approximately $0.3 million for the nine months ended
September 30, 1997. Gettysburg Railway incurred general and administrative
expenses of approximately $0.1 million for the nine months ended September 30,
1997. OTVR incurred general and administrative expenses of approximately $0.1
million for the nine months ended September 30, 1997.
Interest and Other Expenses. Interest and other expenses increased by
approximately $1.3 million, or 165% from $0.8 million for the nine months ended
September 30, 1996 to $2.1 million for the nine months ended September 30, 1997.
Such increase was primarily due to the financing of the acquisitions of CCRR,
MNR, OTVR and Gettysburg Railway. The interest expense during the first nine
months of 1997 attributable to these three acquisitions was $0.5 million, $0.3
million, $0.3 million, and $0.1 million, respectively.
Ferronor. On February 19, 1997, the Company acquired a 55% equity
interest in Ferronor, a 1,400 mile regional railroad in the Republic of Chile.
The operations of Ferronor have been included in the consolidated operations of
the Company effective February 20, 1997. Ferronor had operating revenue of $4.9
million, operating expenses (including depreciation) of $4.4 million and
operating income of $0.5 million for the period from February 20, 1997 to
September 30, 1997.
COMPARISON OF RAILROAD OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER
30, 1997 AND 1996.
Operating Revenues. Transportation revenue increased by $1.6 million,
or 85.2%, from $1.9 million for the three months ended September 30, 1996 to
$3.5 million for the three months ended September 30, 1997. CCRR had
transportation revenue of approximately $0.7 million in the third quarter of
1997 compared to $0.2 million for the third quarter of 1997. MNR had revenue of
approximately $0.5 million in the third quarter of 1997. OTVR had revenue of
approximately $0.6 million during the third quarter of 1997. Gettysburg Scenic
Rail Tours and Gettysburg Railway had combined transportation revenue of $0.2
million for the third quarter of 1997. The domestic transportation revenue per
carload decreased from $362 to $313 per car primarily due to the acquisitions
during 1996 of railroads with lower rates per carload than the Company's
existing railroads. Domestic carloads handled totaled 11,341 for the three
months ended September 30, 1997, an increase of 6,055, or 115%, compared to
5,286 carloads in the prior year period. The increase was primarily the result
of the acquisitions of MNR, which handled 2,919 carloads in the third
13
<PAGE> 16
quarter of 1997; CCRR, which handled 2,031 carloads in the third quarter of
1997; OTVR, which handled 1,665 carloads in the third quarter of 1997; and
Gettysburg Railway, which handled 411 carloads in the third quarter of 1997.
These increased carloadings were partially offset by a decrease of 151 carloads
from WTLR. Ferronor handled 6,381 carloads during the three months ended
September 30, 1997.
Other revenues increased by approximately $0.2 million for the three
months ended September 30, 1997 compared to the prior year period. Other
revenues for the three months ended September 30, 1997 and 1996 consist of gain
on sales of railroad assets, easement sales, railroad lease and rental income
and other miscellaneous income.
Operating expenses. Operating expenses increased by approximately $1.4
million, or 89.5%, from $1.5 million for the three months ended September 30,
1996 to $2.9 million for the three months ended September 30, 1997. Operating
expenses, as a percentage of transportation revenue, were 80.3% and 82.2% for
the three months ended September 30, 1996 and 1997, respectively.
Maintenance of way expenses increased by approximately $0.3 million, or
112.7%, from $0.25 million for the quarter ended September 30, 1996 to $0.5
million for the quarter ended September 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 September
30, 1997. OTVR had maintenance of way expenses of approximately $0.05 million
for the quarter ended September 30, 1997. Gettysburg Railway had maintenance of
way expenses of approximately $0.5 for the quarter ended September 30, 1997.
Maintenance of equipment expenses increased by approximately $5,000, or
3.5%, from $0.15 million for the quarter ended September 30, 1996 to $0.15
million for the quarter ended September 30, 1997.
Transportation expense increased by approximately $0.5 million, or
128.3%, from $0.4 million for the quarter ended September 30, 1996 to $0.9
million for the quarter ended September 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 September 30, 1997. CCRR
incurred approximately $0.1 million of transportation expense for the quarter
ended September 30, 1997. OTVR incurred approximately $0.1 of transportation
expense for the quarter ended September 30, 1997. Gettysburg Railway and
Gettysburg Scenic Rail Tours combined incurred approximately $0.2 of
transportation expense for the quarter ended September 30, 1997.
Equipment rental increased by approximately $0.1 million, or 97.9%,
from $0.1 million for the quarter ended September 30, 1996 to $0.2 million for
the quarter ended September 30, 1997.
Selling, general and administrative expenses increased by approximately
$0.4 million, or 110.3%, from $0.3 million for the quarter ended September 30,
1996 to $0.7 million for the quarter ended September 30, 1997 primarily due to
certain acquisitions which occurred during the second half of 1996. MNR incurred
general and administrative expenses of approximately $.01 million for the
quarter ended September 30, 1997. CCRR incurred general and administrative
expenses of approximately $0.1 million for the quarter ended September 30, 1997.
Gettysburg Railway incurred general and administrative expenses of approximately
$0.05 million for the quarter ended September 30, 1997. OTVR incurred general
and administrative expenses of approximately $0.05 million for the three months
ended September 30, 1997.
14
<PAGE> 17
Interest and Other Expenses. Interest and other expenses increased by
approximately $0.45 million, or 174.4%, from $0.3 million for the three months
ended September 30, 1996 to $0.7 million for the three months ended September
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
September 30, 1997 attributable to these three acquisitions was $0.2 million,
$0.1 million and $0.1 million, respectively.
Ferronor. The operations of Ferronor are included in the consolidated
operations of the Company. Ferronor had operating revenue of $2.5 million,
operating expenses (including depreciation) of $42.2 million and operating
income of $0.3 million for the three months ended September 30, 1997.
TRAILER MANUFACTURING OPERATIONS
The discussion of results of operations that follows reflects the
results of Kalyn/Siebert, Inc. ("Kalyn") for the period indicated. 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. Government sales
represented approximately 43% of Kalyn's sales for the first nine months of
1997. Management anticipates that sales to government agencies will become a
larger percentage of sales over the next several years based upon contracts that
Kalyn has received from the Government.
Kalyn's manufacturing operations are conducted in thirteen Company
owned buildings, totaling approximately 198,000 square feet on a 25.5 acre site,
which were constructed over the period 1969 to 1997. 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.
15
<PAGE> 18
COMPARISON OF OPERATING RESULTS OF TRAILER MANUFACTURING FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996
The following table sets forth the income and expense items for the
nine months ended September 30, 1997 and 1996 and the percentage relationship of
income and expense items to net sales for the periods indicated:
<TABLE>
<CAPTION>
For the Nine Months Ended
------------------------------------------
September 30, 1997 September 30, 1996
------------------- -------------------
<S> <C> <C> <C> <C>
Net sales $16,298,913 100.0% $11,573,409 100.0%
Cost of goods sold 11,833,380 72.6% 8,938,913 77.2%
----------- ----- ----------- -----
Gross profit 4,465,533 27.4% 2,634,496 22.8%
Selling, general and
administrative expenses 1,408,671 8.6% 1,085, 409 9.4%
Depreciation and amortization 348,190 2.2% 324,948 2.8%
----------- ----- ----------- -----
Income from operations 2,708,672 16.6% 1,224,139 10.5%
Interest and other expenses 200,165 1.2% 258,404 2.3%
----------- ----- ----------- -----
Net Income Before Taxes $ 2,508,507 15.4% $ 965,735 8.3%
=========== ===== =========== =====
</TABLE>
Net Sales. Net sales increased by approximately $4.7 million, or 40.8%,
from $11.6 million for the nine months ended September 30, 1996 to $16.3 million
for the nine months ended September 30, 1997. Net sales consist of trailer
sales, part sales and repair income. Trailer sales represent approximately 95%
of the net sales in both 1997 and 1996. Kalyn sold 444 trailers for the nine
months ended September 30, 1996 and 502 trailers for the nine months ended
September 30, 1997. The increase in sales volume increased net sales by
approximately $1.5 million. The average price per trailer sold was approximately
$25,000 for the nine months ended September 30, 1996 and approximately $30,000
for the nine months ended September 30, 1997. The increase in average price per
trailer increased net sales by approximately $2.2 million. Sales to governmental
agencies represented 20.0% and 38.4% of Kalyn's net sales for the nine months
ended September 30, 1996 and 1997, respectively. During the first half of 1996,
Kalyn was in the process of building five prototype trailers in connection with
a government contract received in October 1995. Full production under the
contract began during the first quarter of 1997. The increase in sales for the
nine months ended September 30, 1997 compared to the nine months ended September
30, 1996 was principally due to the above contract production. Kalyn produced 75
Tactical Vans during the first nine months of 1997. Kalyn's backlog of orders
for both government and commercial sales was approximately $22.2 million as of
September 30, 1997 compared to $8.6 million at September 30, 1996.
Cost of Goods Sold. Cost of goods sold increased by approximately $2.9
million, or 32.4%, from $8.9 million for the nine months ended September 30,
1996 to $11.8 million for the nine months ended September 30, 1997. Cost of
goods sold was 77.2% of net sales for the nine months ended September 30, 1996
compared to 72.6% for the nine months ended September 30, 1997. The decrease was
partially due to certain fixed costs of manufacturing being spread over a larger
revenue
16
<PAGE> 19
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 1995, 1996 and 1997.
Selling, General and Administrative. Selling, general and
administrative expenses increased approximately $0.3 million from the first nine
months of 1996 to the first nine months of 1997 but decreased slightly as a
percentage of net sales.
COMPARISON OF OPERATING RESULTS OF TRAILER MANUFACTURING FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996
The following table sets forth the income and expense items for the
three months ended September 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
----------------------------------------
September 30, 1997 September 30, 1996
------------------- ------------------
<S> <C> <C> <C> <C>
Net sales $6,267,837 100.0% $3,432,189 100.0%
Cost of goods sold 4,532,148 72.3% 2,670,683 77.8%
---------- ----- ---------- -----
Gross profit 1,735,689 27.7% 761,506 22.2%
Selling general and
administrative expenses 495,486 7.9% 314,012 9.1%
Depreciation and amortization 116,850 1.9% 109,425 3.2%
---------- ----- ---------- -----
Income from operations 1,123,353 17.9% 338,069 9.8%
Interest and other expenses 71,434 1.1% 41,502 1.2%
---------- ----- ---------- -----
Net Income Before Taxes $1,051,919 16.8% $ 296,567 8.6%
========== ===== ========== =====
</TABLE>
Net Sales. Net sales increased by approximately $2.8 million, or 82.6%,
from $3.4 million for the three months ended September 30, 1996 to $6.3 million
for the three months ended September 30, 1997. Trailer sales represent
approximately 95% of the net sales in both 1997 and 1996. Kalyn sold 145
trailers for the three months ended September 30, 1996 and 202 trailers for the
three months ended September 30, 1997. The increase in sales volume increased
net sales by approximately $1.3 million from the third quarter of 1996 to the
third quarter of 1997. The average price per trailer sold was approximately
$23,000 for the three months ended September 30, 1996 and $31,000 for the three
months ended September 30, 1997. The increase in average price per trailer
increased sales by approximately $1.5 million. Sales to governmental agencies
represented 24% and
17
<PAGE> 20
35% of Kalyn's net sales for the three months ended September 30, 1996 and 1997,
respectively. The increase in sales for the three months ended September 30,
1997 compared to the three months ended September 30, 1996 was principally due
to government contract production that began in the first quarter of 1997.
Cost of Goods Sold. Cost of goods sold increased by approximately $1.9
million, or 69.7% from $2.7 million for the three months ended September 30,
1996 to $4.5 million for the three months ended September 30, 1997. Cost of
goods sold was 77.8% of net sales for the three months ended September 30, 1996
compared to 72.3% for the three months ended September 30, 1997. 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
significantly 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 $0.2 million from the third
quarter of 1996 to the third quarter of 1997 but decreased slightly as a
percentage of net sales.
CORPORATE OVERHEAD AND OTHER
Corporate Overhead. Corporate overhead, which benefits all of the
Company's segments, has not been allocated to the business segments for this
analysis. Corporate overhead services performed for the Company's segments
include overall strategic planning, marketing, accounting, legal services,
finance, cash management, payroll, engineering and tax return preparation. The
Company believes that this presentation will facilitate a better understanding
of the changes in the results of the Company's operations. Corporate overhead,
which is included in selling, general and administrative expenses in the
consolidated statements of income, increased by approximately $0.5 million, or
27.5%, from $1.7 million for the nine months ended September 30, 1996 to $2.2
million for the nine months ended September 30, 1997. The increase was related
to the additional costs incurred to manage the new subsidiaries acquired during
the second half of 1996 and first half of 1997 and to establish a management
team to handle the Company's anticipated growth.
RailAmerica Equipment Corporation ("REC"). REC leases railroad tank
cars, flat cars and locomotives to various railroads and shippers. Operating
revenue increased $0.1 million from $0.2 million for the nine months ended
September 30, 1996 to $0.3 million for the nine months ended September 30, 1997.
Operating income increased $63,000 from $78,000 for the nine months ended
September 30, 1996 to $141,000 for the nine months ended September 30, 1997. The
increase in both operating revenue and income were a result of a tank car lease
entered into in March 1996. Operating revenue remained fairly constant at
approximately $0.1 million for both the three months ended September 30, 1997
and 1996. Operating income remained fairly constant at approximately
18
<PAGE> 21
$50,000 for the three months ended September 30, 1997 and 1996.
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 nine and three months ended
September 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 operations. 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 within the near future.
Loss from discontinued operations decreased by $0.1 million from $0.25
million for the nine months ended September 30, 1996 to $0.15 million for the
nine months ended September 30, 1997. Loss from discontinued operations remained
fairly constant for the three months ended September 30, 1996 compared to the
three months ended September 30, 1997 at approximately $40,000.
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 $1.0 million
for the nine months ended September 30, 1997.
Cash used in investing activities was $12.3 million for the nine months
ended September 30, 1997. The Company's main use of cash during the first nine
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 $4.8
million during the first nine months of 1997 primarily due to the purchase of
locomotives and improvements made to the Company's various rail lines.
The Company's cash provided by financing activities was $10.4 million
for the nine months ended September 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, net proceeds of approximately $3.1 million from the conversion of a
substantially all of the Company's Class B Warrants and $0.5 million from
exercise of stock options. In addition, the Company's net borrowings increased
by $2.8 million.
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 its 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
19
<PAGE> 22
six month LIBOR plus 2.5%. The Revolver is collateralized by substantially all
of the assets of the Company, Kalyn, HESR, Saginaw Valley Railway Company, RIS,
CCRR, Steel City Carriers, WTLR, OTVR and Gettysburg Railway.
On May 3, 1997, the Company's Revolver was increased from $25 million
to $40 million by National Bank of Canada and Comerica Bank N.A. at which time
the maturity date was extended to May 2000. Further, the Company signed a
proposal letter from National Bank of Canada in October 1997 to increase the
Revolver to $55 million.
As of September 30, 1997, the Company had working capital of $4.6
million compared to working capital of $5.1 million as of December 31, 1996. The
decrease was primarily due to the inclusion of Ferronor in the consolidated
balance sheet. Cash on hand as of September 30, 1997 was $3.1 million compared
to $3.9 million as of December 31, 1996. The decrease in cash from December 31,
1996 to September 30, 1997 is due primarily to the purchase of an equity
interest in Ferronor in February 1997 and pay down 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 believes 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 $2.5 million and capital expenditures at Kalyn of approximately
$300,000. In addition, the Company anticipates capital expenditures of
approximately $26.3 million over the next three years related to Ferronor's new
20-year take-or-pay contract with CMH. 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.
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 November 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. The Company believes that inflation will not adversely
affect the Company in the future unless it increases substantially and the
Company is unable to pass through such increases in its freight rates and
trailer prices.
20
<PAGE> 23
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 statements regarding growth in transportation-related
assets; future acquisition of railroads and other transportation-related
companies, the development of additional transportation-related businesses;
increase in usage of the Company's existing rail lines; 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 limitation, the following: the Company's dependence on
government contracts; decline in demand for transportation services; the effect
of economic conditions generally and particularly in the markets served by the
Company; 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.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1996 annual meeting on June 26, 1997 at which John
Marino and John Sullivan were re-elected as Directors of the Company. In
addition the number of shares reserved for issuance pursuant to the Company's
1995 Stock Incentive Plan was increased by 750,000 shares.
At the meeting votes were cast as follows:
<TABLE>
<CAPTION>
In Favor Against Abstentions
-------- ------- -----------
<S> <C> <C> <C>
Re-election of John Marino as Director 6,001,350 885,607 0
Re-election of John Sullivan as Director 6,001,050 885,907 0
Increase in shares reserved for issuance in the 1995
Stock Incentive Plan 2,500,171 1,428,864 21,710
</TABLE>
21
<PAGE> 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
<TABLE>
<S> <C>
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)
10.32 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(16)+
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
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
</TABLE>
22
<PAGE> 25
<TABLE>
<S> <C>
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)+
10.62 Agreement for Purchase of Railroad Assets of Delaware Valley Railway Company,
Inc.
11 Computation of Per Share Earnings
21 Subsidiaries of Registrant
27 Financial Data Schedule (for SEC use only)
</TABLE>
- ------------
(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.
23
<PAGE> 26
(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.
(16) Incorporated by reference to the Appendix A of the Company's Proxy
Statement filed with the Securities and Exchange Commission on June 2,
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
third quarter of 1997.
24
<PAGE> 27
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: November 13, 1997
By: /s/Gary O. Marino
--------------------------
Gary O. Marino, on behalf
of the Company as Chairman,
Chief Executive Officer and as
Principal Financial Officer
<PAGE> 1
AGREEMENT FOR
PURCHASE OF RAILROAD ASSETS OF
DELAWARE VALLEY RAILWAY COMPANY, INC.
BY
DELAWARE TRANSPORTATION GROUP, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
1. DESCRIPTION OF BUSINESS SOLD....................................................................1
2. CONSIDERATION FOR THE SALE......................................................................5
3. DUE DILIGENCE...................................................................................7
4. SURFACE TRANSPORTATION BOARD APPROVAL...........................................................7
5. REPRESENTATIONS AND WARRANTIES..................................................................8
6. LIABILITY AND INDEMNITY........................................................................12
7. OBLIGATIONS ARE CONTINUING.....................................................................16
8. INSPECTION AND CONDITION OF RAIL LINE..........................................................16
9. LIENS AND ENCUMBRANCES.........................................................................17
10. FUNDING DATE...................................................................................18
11. PRORATION AND EXPENSES.........................................................................19
12. TRANSFER OF OPERATIONS.........................................................................19
13. ASSIGNMENT OF FREIGHT TRANSPORTATION CONTRACTS.................................................20
14. APPLICABLE LAW.................................................................................20
15. NOTICES........................................................................................20
16. CONFIDENTIALITY................................................................................21
17. ENTIRE AGREEMENT; INTEGRATION OF AGREEMENT.....................................................21
18. APPROVAL BY SELLER'S BOARD.....................................................................22
19. ATTORNEYS' FEES AND COSTS......................................................................22
20. CAPTIONS.......................................................................................22
21. SUCCESSORS.....................................................................................22
22. CONSTRUCTION...................................................................................22
23. COUNTERPARTS...................................................................................23
24. TRANSITIONAL EMPLOYEES.........................................................................23
25. DEFAULT........................................................................................23
26. CROSS-DEFAULT..................................................................................23
27. DISPUTE RESOLUTION.............................................................................24
Exhibit A Quitclaim Deed
Exhibit B Bill of Sale
Exhibit C Tangible Personal Property
Exhibit D Agreements to be Assigned to Buyer in Whole or in Part
</TABLE>
<PAGE> 2
AGREEMENT FOR
PURCHASE OF RAILROAD ASSETS OF
DELAWARE VALLEY RAILWAY COMPANY, INC.
BY
DELAWARE TRANSPORTATION GROUP, INC.
This Agreement is effective as of the 30th day of September, 1997 (the
"Effective Date"), between DELAWARE VALLEY RAILWAY COMPANY, INC., a Delaware
corporation (hereinafter referenced as "Seller") , and DELAWARE TRANSPORTATION
GROUP, INC., a Delaware corporation (hereinafter referenced as "Buyer").
WHEREAS, Seller desires to sell and convey to Buyer, on the terms and
conditions set forth in this Agreement, Seller's ownership interest in its
Gettysburg Division, operating under the fictitious name Gettysburg Railway
("GR"), comprising rail line segments located in Adams and Cumberland Counties,
Pennsylvania, the rail freight transportation business which Seller conducts on
these rail line segments, and certain other rights, obligations and assets as
specified in this Agreement; and
WHEREAS, Buyer desires to purchase, pursuant to the terms and
conditions set forth in this Agreement, the Gettysburg Division assets including
the rail line segments, the rail freight transportation business which Seller
conducts thereon, and certain other assets, rights and obligations as specified
in this Agreement.
NOW THEREFORE, Buyer and Seller agree as follows:
1. DESCRIPTION OF BUSINESS SOLD.
(a) Seller shall convey to Buyer, by a Quitclaim Deed delivered to
Buyer on the date of Funding (as hereinafter defined), all of Seller' s interest
in the Gettysburg Division rail line segments located in Adams and Cumberland
Counties, Pennsylvania, including those segments formerly known as USRA Line
912, extending from and between Mt. Holly Springs, Pennsylvania
1
<PAGE> 3
at Milepost 7.84, and Gettysburg, Pennsylvania at Milepost 31.20 and a certain
outparcel located near Mt. Holly Springs and the Conrail interchange.
The rail line segments being sold, including Seller's related rail
corridor real property interests being conveyed, are described specifically in
Attachment 1 to the Quitclaim Deed, set forth in Exhibit A attached hereto, and
together with Seller's leasehold and other interests are referenced hereinafter
as "Rail Lines". The conveyance shall include all fee interests, easements,
rights of way, leases, minerals and water rights over, under, across, and
attributable to the real property interests, including that certain Deed of
Easement to the CSX interchange and engine house property originally granted by
easement from Gettysburg College to Gettysburg Railroad Company ("GRC") and then
granted by GRC to Seller.
(b) Seller's conveyance to Buyer shall also include all buildings,
facilities, fixtures, and leasehold and other improvements located on or
appurtenant to the Rail Lines.
(c) Seller shall convey to Buyer, by delivering to Buyer on the
date of Funding a Bill of Sale in the form set forth in Exhibit "B" attached
hereto, all of Seller's interest in all rail, ties, spikes, tie plates, rail
anchors, bridges, culverts, signaling equipment, and other supporting
structures, ballast, track materials, and supplies that are not improvements
that constitute the Rail Lines, but which then are present on the real property
comprising the Rail Lines, and Seller shall leave behind all uninstalled rail
and other track material (collectively, the "Track").
(d) Seller's conveyance to Buyer by Bill of Sale shall also include
equipment, small tools and inventory located in the Engine House, office
equipment, maintenance equipment on wheels and radios, furniture, and
furnishings located in the Gettysburg Railway office, and other tangible
personal property listed on Exhibit "C", with only such additions and deletions
as may occur in the
2
<PAGE> 4
ordinary and necessary conduct of the rail operations between the date hereof
and the Funding Date in connection with the replacement of any such items (all
items described in this provision being collectively referred to as the
"Tangible Personal Property").
(e) Seller hereby assigns to Buyer, as of the Effective Date,
subject to all terms and conditions set forth in this Agreement, the following:
(i) all leases of real and personal property utilized in the
railroad operations, or otherwise, as listed in Exhibit "D" (the "Leases"); and
Buyer shall hereafter become responsible for, and assume the Seller's
obligations under, such Leases, except that Seller shall retain the rights to
acquire a certain crane from Blairsville Eastern Incorporated or Sloan Cornell
and the Seller shall retain the sole responsibility to pay the purchase price
associated with the crane;
(ii) all agreements relating to railroad operations including,
without limitation, all operating agreements, interchange agreements, freight
transportation contracts, licenses, other contracts, commitments and
understandings with governmental agencies, rail car leases, and customers,
including those agreements listed on Exhibit "D" (collectively, the
"Contracts"), and specifically including assignment of that certain trackage
rights agreement by and between DVRC and Conrail accessing the Conrail
interchange at Mt. Holly Springs, and that certain Option to Purchase the stock
shares of Gettysburg Passenger Service, Inc., a Pennsylvania corporation
("GPS"), GPS being the tenant pursuant to a certain station house lease with
Gettysburg College. Buyer hereby accepts the assignment of all such rights and
obligations in accordance with their terms and the terms of this Agreement, and
Buyer shall hereafter become responsible for, and assume the Seller's
obligations under, such contracts; and
3
<PAGE> 5
(iii) all of Seller's trackage rights authority to operate over
and across any lines connecting to or interchanging with the Rail Lines, if any
("Trackage Rights").
If any Lease or Contract pertains to the Rail Lines and inadvertently
is not identified in Exhibit "D", Seller promptly shall provide to Buyer a copy
of any such Lease or Contract immediately upon locating it. It is the intent of
both Seller and Buyer that all assignments related to the Rail Lines shall be
effective as of the Funding Date.
(f) Seller hereby assigns to Buyer, as of the Funding Date, the
following:
(i) all customer lists, technical information and data,
machinery and equipment warranties and service contracts, permits, licenses,
authorizations and regulatory approvals, and all other files and relating to the
operations of the Rail Lines, including the rights to the fictitious name
"Gettysburg Railway" (collectively, the "Intangible Personal Property"); and
(ii) all existing property records, tax and assessment records,
valuation maps, data and information related to railroad operations, including,
without limitation, inventory records, vendor lists, customer lists and records
(the "Records").
(g) Seller hereby assigns to Buyer and Buyer assumes responsibility,
as of the Funding Date, for the following (collectively, the "Cornell
Contracts"):
(i) That certain Employment Contract between James Cornell and
Seller, dated November 15, 1996; and
(ii) that certain Contract between James Cornell, Seller, GPS
and GSRT dated September 27, 1996.
4
<PAGE> 6
(h) The Rail Lines, Track, Leases, Contracts, Trackage Rights,
Tangible Personal Property, Intangible Personal Property, Records, and Cornell
Contracts are sometimes hereinafter collectively referred to as the "Gettysburg
Assets."
2. CONSIDERATION FOR THE SALE.
(a) Purchase Price. The purchase price to be paid by Buyer for the
Rail Lines and other rights and interests to be sold by the Seller hereunder
shall be One Million Four Hundred Fifty Thousand and NO/100 Dollars
($1,450,000.00). The purchase price shall not include the acquisition of any
locomotives or rolling stock operated on the Rail Lines.
(b) Terms of Payment. The Purchase Price of $1,450,000.00 shall be
paid by delivery to Seller of a promissory note from the Buyer, with scheduled
maturity by or before December 31, 1997, as per subparagraph (c) below.
(c) Short Term Note and Stock Pledge. Seller shall accept from Buyer
a Promissory Note ("Short Term Note") in the full amount of the Purchase Price
intended to provide bridge loan financing to Buyer. This Short Term Note shall
accrue interest at the rate of eight and one-half percent (8.50%) per annum.
Principal and interest shall be payable in a single, balloon payment due by or
before the December 31, 1997 maturity date. In the event that Buyer has a
binding commitment for its permanent take-out financing and is in the final
stages of closing on that financing, then Buyer shall have a grace period of up
to twenty (20) days from the maturity date to complete payment of the Short Term
Note.
In the event that Buyer assigns its rights under this Agreement, and
closes in the name of a subsidiary or affiliate, this Short Term Note shall be
given by such assignee but guaranteed by Buyer. The Short Term Note shall be
secured by a collateral assignment and possessory pledge of all of the
5
<PAGE> 7
issued and outstanding stock of the assignee corporation, or of Buyer if no
assignment is made. The possessory pledge shall be accomplished by delivery of
signed stock powers as to all of the outstanding stock of the Buyer Corporation,
into an escrow to be held by Seller's attorney. Buyer shall pay all its costs
associated with the preparation and delivery of this Short Term Note and the
stock pledge, including any transfer taxes associated with same.
Buyer acknowledges and recognizes that its purchase of the Gettysburg
Division Assets will initially be subject and subordinate to the existing
mortgage and blanket liens in favor of National Bank of Canada ("NBC"). The NBC
mortgage and liens shall remain in place until such time as Buyer arranges its
permanent, take-out financing by or before the December 31, 1997 maturity date,
at which time Buyer shall repay the Short Term Note, in full, and Seller shall
deliver releases of the NBC mortgage and liens at Seller's expense. The Buyer's
repayment of the Short Term Note shall include at least $1,160,000 of principal
repayment in the form of cash and a sum not to exceed $290,000 by delivery of
Buyer's longer term promissory note, described in subparagraph (d) below.
(d) Purchase Money Note and Mortgage. In order to effect the
above-referenced take-out financing arrangement by or before December 31, 1997,
Seller shall accept a Promissory Note ("Purchase Money Note") from Buyer in a
principal amount to be agreed upon by the parties, but not to exceed Two Hundred
Ninety Thousand Dollars ($290,000.00). This Purchase Money Note shall bear
interest at the rate of eight and one-half percent (8.5%) per annum for a term
of five (5) years. Principal and accrued interest shall be amortized over a
twenty (20) year schedule and paid in fifty-nine (59) equal monthly installments
with a single, balloon payment of all outstanding principal and accrued interest
due in full upon the fifth (5th) anniversary date of the Purchase Money Note.
Said Purchase Money Note shall be guaranteed by Delaware Transportation Group,
Inc. and secured
6
<PAGE> 8
by a first-priority mortgage lien (the "Purchase Money Mortgage") on all of the
Buyer's real property, including all Rail Line segments, rail corridors, the CSX
interchange and engine house grants of easement, aforesaid, and all outparcels
but excluding Track, in form and substance acceptable to the Seller. Seller's
security shall also include a collateral assignment of all real property leases
and collateral assignment of that certain Option to purchase the stock shares of
Gettysburg Passenger Service, Inc., a Pennsylvania corporation ("GPS"). Buyer
shall pay all costs associated with the preparation, delivery and recording of
the mortgage and the collateral assignment documents, including any transfer or
recording taxes associated with same.
Seller agrees that Buyer may convey the Rail Lines to its affiliate,
Pennsylvania Land Company, LLC, a Delaware limited liability company after
repayment of the Short Term Note and subject to the lien of the Purchase Money
Mortgage, without release to Buyer.
3. DUE DILIGENCE.
The sale contemplated by this Agreement is subject to a Buyer's due
diligence period which shall be completed, and shall expire, as of September 30,
1997. Buyer may terminate this transaction at any time by or before September
30th with no further obligation.
4. SURFACE TRANSPORTATION BOARD APPROVAL.
Buyer represents that Buyer is not a "carrier" within the meaning of 49
U.S.C. Section 10102(5). Promptly, so as to not cause any delay in the Funding
Date, Buyer, at its sole expense, shall prepare and file such documents as may
be required to secure approval or exemption from approval by the Surface
Transportation Board ("STB") of Buyer's purchase from Seller. Buyer shall permit
Seller to review prior to filing all documents proposed by Buyer to be filed
with the STB, or any court, to secure legal approval or exemption of this
transaction.
7
<PAGE> 9
5. REPRESENTATIONS AND WARRANTIES.
(a) Seller hereby represents and warrants to Buyer, and Buyer's
successors and assignees, the following facts, as of the date of this Agreement
and as of the date of Funding:
(i) Seller is a corporation duly organized, validly
existing, and in good standing under the laws of the
State of Delaware, and is qualified to do business as a
foreign corporation in the State of Pennsylvania under
the fictitious name "Gettysburg Railway";
(ii) Seller has the corporate power and authority to enter
into this Agreement and carry out its obligations under
this Agreement;
(iii) Except as disclosed in Section 18 hereof, which approval
shall be obtained before Funding, the execution,
delivery and performance of this Agreement have been
duly authorized and approved by all necessary corporate
actions of Seller, and no further corporate proceedings
of Seller are required to complete the transactions
covered by this Agreement;
(iv) All of Seller's obligations set forth in this Agreement
constitute legal, valid and binding obligations of
Seller which are enforceable against Seller in
accordance with their terms, except to the extent
enforcement may be limited by bankruptcy, insolvency or
reorganization law;
8
<PAGE> 10
(v) There is no provision in the Certificate of
Incorporation or By-Laws of Seller which prohibits the
execution of this Agreement or consummation of the
transactions covered by this Agreement;
(vi) The negotiations related to this Agreement have been
handled by Seller on its own behalf, without
intervention of any agent or other person, so that no
party has a valid claim on this basis for any finder's
fee, brokerage commission, or other similar payment in
connection with any of the transactions included in this
Agreement;
(vii) Seller has duly filed with the appropriate agencies of
the United States, the State of Pennsylvania, the State
of Delaware, and appropriate local governments or
political subdivisions within that State, all tax
returns and reports required to be filed and has paid
all taxes required thereunder;
(viii) To Seller's knowledge, except for existing arbitration
awards or lawsuits, there is no pending or threatened
litigation or arbitration proceeding, or administrative
proceeding or investigation, against or affecting the
properties or assets comprising the Rail Lines, or
Seller's rights to conduct rail freight transportation
operations over the Rail Lines as Seller conducts those
operations on the date of this Agreement, the result of
which forseeably would materially adversely affect
Buyer's ability to conduct rail freight transportation
operations over the Rail Lines following the date of
Funding;
9
<PAGE> 11
(ix) Seller has received no written notice of any pending or
threatened civil, criminal, or administrative actions
with respect to any hazardous or toxic substance on or
adjacent to the Rail Lines;
(x) The financial records, data and information provided to
Buyer as to the operations of the Rail Lines are
accurate, and fairly reflect the information intended to
be stated therein;
(xi) The Seller has furnished to Buyer true and correct
copies of the Leases and the Contracts referred to in
Exhibit "D";
(xii) The Seller has furnished, or will furnish, to Buyer a
complete list of accounts payable or accounts receivable
in the ordinary course of Seller's business, with regard
to the Gettysburg Division operations, and will update
that list through September, 1997, at Buyer's request;
(xiii) No representation or warranty by Seller in this
Agreement contains any untrue statement of a material
fact, nor omits any material fact that is necessary to
make any representation or warranty not materially
misleading.
(b) Buyer hereby represents and warrants to Seller, and Seller's
successors and assignees, the following facts as of the date of this Agreement
and as of the date of Funding:
(i) Buyer, or its assignee, is a corporation duly organized,
validly existing and in good standing under the laws of
the State of Delaware, and by the date of Funding will
be qualified to do business in the State of
Pennsylvania;
10
<PAGE> 12
(ii) Buyer has all requisite corporate authority to purchase
Seller's rights and properties which are conveyed to
Buyer by this Agreement;
(iii) The execution of this Agreement and consummation of the
transactions which are a part of this Agreement have
been duly authorized and approved by all necessary
corporate actions by Buyer, and immediately upon
execution of this Agreement by Buyer's authorized
representative, all of Buyer's obligations set forth in
or referenced in this Agreement shall constitute legal,
valid and binding obligations of Buyer, or Buyer's
successors or assignees, which obligations are
enforceable against Buyer in accordance with their terms
against Buyer or Buyer's successors or assignees;
(iv) There is no provision in the Articles of incorporation
or By-Laws of Buyer which prohibits the execution of
this Agreement or consummation of the transactions
covered by this Agreement;
(v) The negotiations related to this Agreement have been
handled by Buyer on its own behalf, without intervention
of any agent or party, and in such manner as not to give
rise to any valid claim by any party for any finder's
fee, brokerage commission, or other similar payment in
connection with any of the transactions included in this
Agreement;
(vi) No representation or warranty by Buyer in this Agreement
contains any untrue statement of a material fact, nor
omits any material fact
11
<PAGE> 13
that is necessary to make any representation or warranty
not materially misleading.
6. LIABILITY AND INDEMNITY.
(a) Cooperation in Defense. Buyer and Seller agree that, for one (1)
year following the date of Funding, they will cooperate as necessary in defense
of any claim, demand, investigation or litigation arising out of Seller's or
Buyer's ownership or operation of the Rail Line.
(b) Definition of Losses. In this Agreement, the term "Losses" shall
include all costs, expenses, fees or liabilities of, or in any way related to:
(i) any violation of law or regulation, (ii) any damage to property, the
environment or natural resources, (iii) any bodily injury or death of any
person, or (iv) the breach of any contract, including this Agreement to the
extent set forth in this Agreement. "Losses" shall include, but not be limited
to, all costs of claims, activities in response to enforcement, costs of
investigation and remediation, damages, judgments, awards, orders, decrees,
payments, fines, penalties, assessments, court costs, and attorney, consultant
and expert witness fees, and shall include cost recovery or contribution claims
made pursuant to CERCLA or similar federal or state laws.
(c) General Liability and Indemnity.
(i) Seller's General Liability and Indemnity. Except as
provided in Subparagraph (d) of this Section
(environmental liability), Seller shall be responsible
for, and shall indemnify, defend and hold harmless Buyer
fully against, all Losses, which: (A) arise out of
Seller's ownership or operation of the Rail Lines on or
prior to the date of Funding; or (B) result from any
breach by Seller of any of its
12
<PAGE> 14
representations and warranties set forth in Sections
5(a) and 9 of this Agreement, or any failure by Seller
to perform any of its obligations under this Agreement;
or (C) arise out of Seller's failure to obtain release
of the NBC mortgage and blanket liens at such time as
Buyer has repaid the Short Term Note in full as per
Section 2(c) hereof.
(ii) Buyer's General Liability and Indemnity. Except as
provided in Subparagraph (d) of this Section
(environmental liability), and further except for Losses
resulting from one or more of Seller's representations
or warranties set forth in this Agreement containing any
untrue or materially misleading statement of a material
fact, or omitting any material fact that is necessary to
prevent that representation or warranty from being
materially misleading, Buyer shall be responsible for,
and shall indemnify, defend and hold harmless Seller
fully against, regardless of any negligence or alleged
negligence of Seller, all Losses which: (A) arise out of
Buyer's ownership or operation of the Rail Lines after
12:01 a.m. on the day following the date of Funding; or
(B) result from any breach by Buyer of any of its
representations or warranties set forth in Section 5(b)
of this Agreement, or any failure by Buyer to perform
any of its obligations under this Agreement.
13
<PAGE> 15
(d) Environmental Liability and Indemnity.
(i) Buyer's Acknowledgments with Respect to the Rail Lines.
Buyer acknowledges that Seller has provided Buyer with
full access to inspect the Rail Lines. Buyer further
acknowledges that Seller makes only those
representations and warranties to Buyer concerning the
existence of any hazardous or toxic substances on or
near the Rail Lines, or compliance of the Rail Lines
with any statutes, ordinances, rules, regulations,
orders or decisions with regard to hazardous or toxic
substances on or near the Rail Lines, which are
expressly set forth in Section 5(a)(ix) of this
Agreement.
(ii) Seller's Environmental Liability and Indemnity.
Notwithstanding any other liability or indemnification
provision in this Agreement, Seller shall be responsible
for, and shall indemnify, defend and hold harmless Buyer
(including its successors and assignees) fully against,
Losses incurred due to any claim, demand or litigation,
to the extent it is based on any violation or
requirement of any applicable environmental statute,
ordinance, rule, regulation, order or decision, and the
Losses arise from: (A) any chemical material or
substance that is now, or at the time in question is,
regulated or governed by any law, the release of which
creates any liability under any applicable law; or (B)
any other material which, when released, would cause
significant ecological damage (items described by (A) or
(B) above are
14
<PAGE> 16
referenced hereinafter as "Hazardous Materials") located
on, under or near the Rail Lines, where such Losses:
I. Were caused by one or more acts of Seller that
occurred on or prior to the date of Funding;
II. result from any written claim made by a party
other than Buyer or one of Buyer's affiliates
("Claims") that is delivered to Seller within
one (1) year following the date of Funding; and
III. exceed $10,000 in the aggregate in any year.
(iii) Buyer's Environmental Liability and Indemnity. As part
of the consideration for this Agreement, and
notwithstanding any other liability or indemnification
provision in this Agreement, Buyer shall be responsible
for, and shall indemnify, defend, and hold harmless
Seller fully against, regardless of any negligence or
alleged negligence of Seller, Losses incurred due to any
claim, demand or litigation, to the extent it is based
on any violation or requirement of any applicable
environmental statute, ordinance, rule, regulation,
order or decision, and the Losses arise from any
Hazardous Materials located on, under or near the Rail
Lines, where such Losses either:
I. were not caused by one or more acts of Seller,
or Seller's predecessor in title, regardless of
when the act or omission giving rise to the
Claim occurred;
15
<PAGE> 17
II. regardless of cause, do not result from a Claim
delivered to Seller within one (1) year of the
date of Funding; or
III. were caused by Seller and result from a Claim
delivered to Seller within one (1) year of
Funding, but only up to $10,000 in the aggregate
in any year.
(iv) Buyer to Comply with Hazardous Materials Laws. Buyer
agrees to comply with all federal, state and local laws,
regulations and rules concerning handling and disposal
of Hazardous Materials.
(e) Other Liabilities and Indemnities. In addition to the foregoing
allocations of liabilities and indemnity as set forth in this Section, Seller
and Buyer agree that Seller and RailAmerica shall indemnify, defend and hold
harmless Buyer and John Marino, individually, against any claims, attorneys'
fees or expenses arising out of any arbitration awards or orders entered against
Seller or RailAmerica, Inc., or any lawsuits filed or judgments obtained against
Seller or RailAmerica, Inc.
7. OBLIGATIONS ARE CONTINUING.
The representations, warranties and obligations of Buyer and Seller in
this Agreement are continuing and survive the Funding, and delivery of the
Quitclaim Deed. Terms of continuing obligations in this Agreement are subject to
amendment only by a written contract signed by both Buyer and Seller, or their
respective successors or assignees.
8. INSPECTION AND CONDITION OF RAIL LINE.
(a) As of the Funding Date, Buyer acknowledges that Buyer has
inspected the Rail Line, including all improvements and structures on the Rail
Line. Buyer further acknowledges that
16
<PAGE> 18
(i) except as set forth in Paragraph 5(a)(ix) of this Agreement, no
representation has been made by Seller to Buyer concerning the state or
condition of the Rail Line or the other Gettysburg Division Assets, or the age
of any improvements on the Rail Line; (ii) Buyer has not relied upon any
statement or declaration of Seller, oral or in writing, as an inducement to
entering into this Agreement, other than as stated in this Agreement; and (iii)
the sole consideration for execution of this Agreement by Buyer is set forth in
this Agreement.
(b) SELLER HEREBY DISCLAIMS ANY REPRESENTATION OR WARRANTY, WHETHER
EXPRESS OR IMPLIED, AS TO THE DESIGN OR CONDITION OF THE RAIL LINE OR THE OTHER
GETTYSBURG DIVISION ASSETS, ITS MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR
PURPOSE, THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE RAIL LINE, OR THE
CONFORMITY OF THE RAIL LINE TO ITS INTENDED USES. SELLER SHALL NOT BE LIABLE TO
BUYER FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING STRICT LIABILITY IN
TORT) WITH RESPECT TO THE DESIGN, CONDITION, QUALITY, SAFETY, MERCHANTABILITY,
OR FITNESS FOR ANY PARTICULAR PURPOSES, OF THE RAIL LINE OR THE OTHER GETTYSBURG
DIVISION ASSETS, OR THE CONFORMITY OF THE RAIL LINE OR THE OTHER GETTYSBURG
DIVISION ASSETS, TO ITS INTENDED USES. SELLER OFFERS, AND BUYER ACCEPTS, THE
RAIL LINE IN "AS IS, WHERE IS" AND "WITH ALL FAULTS" CONDITION, AND SUBJECT TO
ALL LIMITATIONS ON SELLER'S RIGHTS, INTEREST, AND TITLE TO THE PROPERTY
COMPRISING THE RAIL LINE.
9. LIENS AND ENCUMBRANCES.
17
<PAGE> 19
Seller represents, warrants and covenants that, except as set forth in
Section 2 hereof, the Rail Lines are, or will be, free and clear of all
mortgages and other liens as of Funding. The only encumbrances presently
affecting the Rail Lines of which Seller is aware are described in the
agreements identified in Exhibit "D", attached hereto, and may encumber the Rail
Lines on the terms and conditions set forth in those agreements.
10. FUNDING DATE.
(a) The funding of this transaction shall occur at a time mutually
convenient to the parties but no later than Friday, October 31, 1997, at the
corporate offices of Seller in Boca Raton, Florida ("Funding"). For all other
purposes hereunder, including calculation of the additional purchase price,
closing shall be considered effective as of September 30, 1997.
(b) At Funding, Seller shall deliver to Buyer the following
documents:
(i) A sufficient number of original counterparts of an
executed Quitclaim Deed to the Rail Lines, in exact form
as the Quitclaim Deed attached hereto as Exhibit "A", to
enable Buyer to file an original Quitclaim Deed in each
of Adams and Cumberland Counties, Pennsylvania;
(ii) An executed Bill of Sale in the form of the Bill of Sale
attached hereto as Exhibit "B";
(iii) A copy of Seller's Articles of Incorporation and
By-Laws; and
(iv) An opinion of counsel for Seller to Buyer with respect
to those items represented by Seller to Buyer in
Sections 5(a)(i), 5(a)(ii), 5(a)(iii), 5(a)(iv), and
5(a)(v) of this Agreement.
(c) At Funding, Buyer shall deliver to Seller:
18
<PAGE> 20
(i) A copy of Buyer's Articles of Incorporation and By-Laws;
(ii) An opinion of counsel for Buyer to Seller with respect
to those items represented by Buyer to Seller in
Paragraphs 5(b)(i), 5(b)(ii), 5(b)(iii), and 5(b)(iv) of
this Agreement.
11. PRORATION AND EXPENSES.
Real estate taxes, prepaid rentals, utilities, and other income or fees
attributable to the Rail Line interests transferred to Buyer under the terms of
this Agreement, shall be prorated between Seller and Buyer in such manner as to
allocate to Seller all income, taxes and expenses attributable to the Rail Lines
as of the Effective Date, and to allocate to Buyer all income, taxes and
expenses attributable to the Rail Lines after the Effective Date. To the extent
practicable, the balance of the Purchase Price paid by Buyer to Seller at
Funding shall be adjusted based upon this proration. To the extent that this
proration cannot be computed or completed as of Funding, settlement upon the
remaining prorated items shall be paid, in full, no later than sixty (60) days
following the date of Funding.
Buyer shall bear the expense of any real estate transfer taxes, excise
taxes, sales taxes, and recording fees attributable to the sale and conveyance
of the Rail Lines, and the real and personal property, governed by this
Agreement. Each party shall pay its own professional fees and expenses of
document preparation.
12. TRANSFER OF OPERATIONS.
All rail operations on the Rail Lines shall be transferred from Seller
to Buyer at 12:01 a.m. on the day following the Funding Date and all prorations
shall be determined based upon the Funding
19
<PAGE> 21
Date. Except with the prior written consent of Buyer, the Seller shall conduct
all rail operations in the ordinary course of business between the Effective
Date and the Funding Date.
13. ASSIGNMENT OF FREIGHT TRANSPORTATION CONTRACTS.
As of Effective Date, Seller hereby assigns to the Buyer all of the
following freight transportation contracts: (a) those freight transportation
contracts that apply to traffic moving to or from facilities on or along the
Rail Lines; and (b) those freight transportation contracts with or involving
shippers or receivers that have facilities on or along the Rail Lines and which
would apply to one or more shipments to or from a facility on or along the Rail
Lines.
14. APPLICABLE LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida.
15. NOTICES.
All notices and other communications under this Agreement shall be in
writing and deemed properly served if delivered by hand to the party addressed
or, if mailed, when received by the United States Postal Service in registered
or certified mail, postage prepaid, or, if sent by a national overnight service,
when received by the carrier service in a prepaid mailer, return receipt
requested, addressed as follows:
Buyer: Delaware Transportation Group, Inc.
Attn: Mr. John H. Marino, President
4343-B Ridgewood Center Drive
Woodbridge, Virginia 22192
with a copy to: Jeffrey T. Twardy, Esquire
Jeffrey T. Twardy, P.C.
7369 McWhorter Place, Suite 411
Annandale, Virginia 22003
20
<PAGE> 22
Seller: Delaware Valley Railway Company, Inc.
c/o Rail America, Inc.
Attn: Mr. Gary O. Marino, CEO
301 Yamato Road, Suite 1190
Boca Raton, Florida 33431
with a copy to: Mr. Jack Conser
Rail America, Inc.
301 Yamato Road, Suite 1190
Boca Raton, Florida 33431
and Scott G. Williams, Esquire
Shutts & Bowen
250 South Australian Avenue, Suite 500
West Palm Beach, Florida 33401
Either party hereto may change its address or addressee to which notices are to
be given by providing written notice of the change to the other party.
16. CONFIDENTIALITY.
Except to the extent that the terms of this Agreement are required to
be disclosed by the STB or the State regulatory agency, by order of any court of
competent jurisdiction or any governmental agency, or by parties involved in
financing this purchase, each party to this Agreement shall not disclose the
contents of this Agreement to any other party, without the prior written consent
of the other party to this Agreement. The parties agree to a joint press release
acknowledging this transaction at Funding.
17. ENTIRE AGREEMENT; INTEGRATION OF AGREEMENT.
This document, together with all Exhibits attached hereto, constitutes
the entire agreement between Buyer and Seller relating to this transaction. Any
other prior or contemporaneous agreements, understandings, representations or
statements, whether oral or written, relating to this transaction are merged
herein. The headings and titles to provisions in this Agreement are for
21
<PAGE> 23
convenience only, and shall not be deemed to modify or affect the rights or
duties of Buyer or Seller. All rights and obligations of Buyer and Seller set
forth in this Agreement, or in any Exhibit attached hereto, are integral parts
of this Agreement. The consideration inducing Buyer and Seller to enter into
this Agreement includes all of the commitments by Buyer to Seller, and by Seller
to Buyer, as set forth in this Agreement, including terms set forth in the
Exhibits attached hereto.
18. APPROVAL BY SELLER'S BOARD.
The Seller's obligations under this Agreement have been approved by the
Seller's Board of Directors subject to, and conditioned upon, review and
ratification of this Agreement by the Board's designee. In the event that the
Board's designee does not approve of the final Agreement, either party may elect
to terminate this Agreement and all deposits shall be refunded, in full, to the
Buyer. Thereafter, Seller and Buyer shall be released as to any further
obligations to each other hereunder.
19. ATTORNEYS' FEES AND COSTS. In the event of any litigation or
arbitration of disputes between the parties arising out of or relating to this
Agreement, the prevailing party shall be entitled to recover all costs incurred
and reasonable attorneys' fees, including attorneys' fees in all investigations,
trials, bankruptcies, arbitration proceedings and appeals.
20. CAPTIONS. The captions of this Agreement are for convenience and
reference only and in no way define, describe, extend or limit the scope or
intent of this Agreement or the intent of any provision in it.
21. SUCCESSORS. This Agreement shall be binding on and inure to the
benefit of the parties and their respective successors, assigns and personal
representatives.
22. CONSTRUCTION. This Agreement shall not be construed against either
party regardless of who is responsible for its drafting.
22
<PAGE> 24
23. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which will
constitute one and the same instrument.
24. TRANSITIONAL EMPLOYEES
Seller's employee, Al Sauer, shall assist Buyer during transition, on a
half-time basis, for up to sixty (60) days after Funding, with Buyer being
responsible for one-half (50%) of his current actual compensation. At the end of
such sixty (60) day transitional period, Buyer shall have the option to employ
Al Sauer either full-time or part-time, at Buyer's cost and subject to
negotiation of appropriate arrangements with Al Sauer. To the extent utilized by
Seller, Seller shall reimburse Buyer for a pro-rata share of the Administrative
Assistant's costs after Funding, such Administrative Assistant to be employed by
Buyer at Buyer's Gettysburg, Pennsylvania offices.
25. DEFAULT.
If the Buyer refuses or fails to close this Agreement within the time
specified, Seller may seek specific performance of Buyer's obligations
hereunder. If, for any reason other than failure of Seller to render its title
marketable after diligent effort, the Seller refuses or fails to close this
Agreement, the Buyer may seek specific performance, whereupon all parties shall
be relieved of all obligations under the Agreement. In the event that either
party fails, neglects, or refuses to perform its post-closing obligations under
the Agreement, the other party may, at its option, seek specific performance or
elect to pursue an action for damages resulting from the defaulting party's
breach.
26. CROSS-DEFAULT.
The parties hereto acknowledge that their obligations to close this
transaction are contingent upon the simultaneous closing on the stock and asset
sale and purchase transaction involving
23
<PAGE> 25
RailAmerica, Inc. and Buyer and pertaining to the stock shares of Gettysburg
Scenic Rail Tours ("GST"), equipment, rolling stock and the locomotives (as
defined therein), and other assets. A default by Buyer in its contract with
RailAmerica, Inc. shall be deemed a default by Buyer hereunder. Likewise, a
default by RailAmerica, Inc. in this same transaction shall be deemed a default
by Seller hereunder.
27. DISPUTE RESOLUTION. The parties hereto agree to resolve any
disputes regarding this agreement, by binding arbitration, in Florida, under the
rules of the American Arbitration Association, then in effect, upon written
notice form one party to another. Each party shall be responsible for its
appropriate share of any costs of such arbitration.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
Witnesses as to Buyer: BUYER:
____________________________________ DELAWARE TRANSPORTATION GROUP,
INC., a Delaware corporation
____________________________________
Print Name
/s/ Wendy Lynn Beninda /s/ John H. Marino
____________________________________ By: ______________________________
Wendy Lynn Beninda JOHN H. MARINO, President
24
<PAGE> 26
Witnesses as to Seller: SELLER:
/s/ Gary O. Marino
____________________________________ DELAWARE VALLEY RAILWAY COMPANY,
Gary O. Marino INC., a Delaware corporation
____________________________________
Print Name
____________________________________ By:/s/ Donald D. Redfearn
______________________________
DONALD D. REDFEARN,
____________________________________ Executive Vice President
Print Name
25
<PAGE> 1
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS FROM CONTINUING OPERATIONS
PRIMARY EARNINGS PER SHARE FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
<TABLE>
<S> <C>
Net income $1,792,818
==========
Weighted average common shares and common share equivalents 8,138,110
Assumed exercise of options and warrants 397,541
----------
Adjusted shares outstanding 8,535,651
==========
Primary earnings per share $ 0.21
==========
PRIMARY EARNINGS PER SHARE FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1997
Net income $ 891,250
==========
Weighted average common shares and common share equivalents 8,477,995
Assumed exercise of options and warrants 330,577
----------
Adjusted shares outstanding 8,808,572
==========
Primary earnings per share $ 0.10
==========
</TABLE>
<PAGE> 2
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS FROM CONTINUING OPERATIONS
FULLY DILUTED EARNINGS PER SHARE FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30,
1997
<TABLE>
<S> <C>
Net income $1,792,818
Interest reduction on conversion of convertible debt 113,232
----------
Adjusted net income $1,906,050
==========
Weighted average common shares and common share equivalents 8,138,110
Assumed exercise of options and warrants 595,140
Conversion of convertible debt 809,401
----------
Adjusted shares outstanding 9,542,651
==========
Fully diluted earnings per share $ 0.20
==========
FULLY DILUTED EARNINGS PER SHARE FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1997
Net income $ 891,250
Interest reduction on conversion of convertible debt 37,744
----------
Adjusted net income $ 928,994
==========
Weighted average common shares and common share equivalents 8,478,675
Assumed exercise of options and warrants 521,381
Conversion of convertible debt 809,401
----------
Adjusted shares outstanding 9,808,777
==========
Fully diluted earnings per share $ 0.09
==========
</TABLE>
<PAGE> 1
EXHIBIT 21 - SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
Subsidiary and Name Under Which Subsidiary Does Business State of Incorporation
- -------------------------------------------------------- ----------------------
<S> <C>
Cascade and Columbia River Railroad Company, Inc. Delaware
Dakota Rail, Inc. South Dakota
Delaware Valley Railway Company, Inc. Delaware
Florida Rail Lines, Inc. Delaware
Huron and Eastern Railway Company, Inc. Michigan
Kalyn/Siebert Incorporated Texas
Minnesota Northern Railroad, Inc. Delaware
Otter Tail Valley Railroad Company, Inc. Minnesota
Plainview Terminal Company Texas
Prairie Holding Corporation Florida
RailAmerica Australia, Inc. Delaware
RailAmerica Australia Pty Ltd Australia
RailAmerica de Chile, S.A. Chile
RailAmerica Carriers, Inc. Ontario, Canada
RailAmerica Equipment Corporation Delaware
RailAmerica Intermodal Services, Inc. Delaware
Saginaw Valley Railway Company, Inc. Delaware
South Central Tennessee Railroad Corporation Delaware
St. Croix Valley Railroad Company, Inc. Delaware
Steel City Carriers, Inc. Ontario, Canada
U.S. Rail Lines, Inc. Delaware
West Texas and Lubbock Railroad Company, Inc. Texas
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,104,453
<SECURITIES> 0
<RECEIVABLES> 8,405,364
<ALLOWANCES> 0
<INVENTORY> 5,071,088
<CURRENT-ASSETS> 17,188,566
<PP&E> 72,843,254
<DEPRECIATION> 0
<TOTAL-ASSETS> 96,206,790
<CURRENT-LIABILITIES> 12,604,582
<BONDS> 40,980,980
0
0
<COMMON> 9,044
<OTHER-SE> 25,911,858
<TOTAL-LIABILITY-AND-EQUITY> 96,206,790
<SALES> 16,298,913
<TOTAL-REVENUES> 33,954,937
<CGS> 11,833,380
<TOTAL-COSTS> 28,676,147
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,345,488
<INCOME-PRETAX> 3,012,830
<INCOME-TAX> 1,063,164
<INCOME-CONTINUING> 1,949,666
<DISCONTINUED> (156,848)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,792,818
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.22
</TABLE>
