<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
-------------
Commission File No. 0-20618
-------
RAILAMERICA, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 65-0328006
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
301 YAMATO ROAD, SUITE 1190, BOCA RATON, FLORIDA 33431
------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(561) 994-6015
---------------------------
(Issuer's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes XX No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Common Stock, par value $.001 - 8,829,275 shares as of November 13, 1997
<PAGE> 2
RAILAMERICA, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - June 30, 1997
and December 31, 1996 1
Consolidated Statements of Income -
For the six and three months ended
June 30, 1997 and 1996 2
Consolidated Statements of Cash Flows - For the
six months ended June 30, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 5 Other Information 20
Item 6 Exhibits and Reports on Form 8-K 21
Signatures
</TABLE>
<PAGE> 3
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,614,565 $ 3,879,972
Accounts receivable 8,378,232 4,575,958
Inventories 3,465,239 3,104,555
Other current assets 809,910 462,867
------------ ------------
Total current assets 14,267,946 12,023,352
Property, plant and equipment, net 72,932,251 54,148,966
Other, net 2,605,303 2,426,615
Excess of cost over net assets of companies acquired, net 2,875,835 2,965,853
------------ ------------
Total assets $ 92,681,335 $ 71,564,786
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 2,021,716 $ 1,752,926
Current maturities of subordinated debt 212,392 212,392
Accounts payable 7,237,460 3,162,953
Accrued expenses and income taxes payable 2,821,563 1,811,739
------------ ------------
Total current liabilities 12,293,131 6,940,010
------------ ------------
Long-term debt, less current maturities 39,819,843 38,401,119
------------ ------------
Subordinated debt, less current maturities 3,371,686 3,477,882
------------ ------------
Deferred income taxes 7,271,740 6,753,668
------------ ------------
Minority Interest in Consolidated Subsidiary 5,500,500 --
------------ ------------
Commitments and contingencies
Redeemable convertible preferred stock, $.001 par value, 1,000,000 -- --
shares authorized
Stockholders' equity:
Common stock, $.001 par value, 30,000,000 shares authorized;
8,694,620 issued and 8,457,620 outstanding at June 30, 1997;
6,125,410 issued and 5,888,410 outstanding at December 31, 1996 8,694 6,125
Additional paid-in capital 21,700,023 11,773,036
Common stock subscribed -- 2,340,000
Retained earnings 3,846,342 2,944,774
Cumulative translation adjustment 8,645 67,441
Less treasury stock (237,000 shares at cost) (1,139,269) (1,139,269)
------------ ------------
Total stockholders' equity 24,424,435 15,992,107
------------ ------------
Total liabilities and stockholders' equity $ 92,681,335 $ 71,564,786
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
1
<PAGE> 4
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the six and three months ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------------- ---------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues:
Transportation - railroads - domestic $ 4,208,349 $ 2,095,948 $ 7,840,020 $ 4,762,528
Transportation - railroad - international 1,649,000 -- 2,326,000 --
Manufacturing 5,957,057 4,688,006 10,031,076 8,141,220
Other 272,597 744,892 624,219 841,876
------------ ------------ ------------ ------------
12,087,003 7,528,846 20,821,315 13,745,624
------------ ------------ ------------ ------------
Operating expenses:
Transportation - railroads - domestic 1,893,778 1,017,107 3,396,475 2,072,778
Transportation - railroad - international 1,060,000 -- 1,507,821 --
Cost of goods sold - manufacturing 4,180,183 3,637,295 7,301,232 6,268,230
Selling, general and administrative 2,338,471 1,331,294 4,057,976 2,565,046
Depreciation and amortization 673,168 387,402 1,236,005 749,025
------------ ------------ ------------ ------------
10,145,600 6,373,098 17,499,509 11,655,079
------------ ------------ ------------ ------------
Operating income 1,941,403 1,155,748 3,321,806 2,090,545
Interest expense (823,739) (455,526) (1,533,173) (860,344)
Other expenses 1,420 (19,193) (92,328) (39,859)
Minority interest in consolidated subsidiary (66,060) -- (85,500) --
------------ ------------ ------------ ------------
Income from continuing operations before
income taxes 1,053,024 681,029 1,610,805 1,190,342
Provision for income taxes 389,901 252,000 598,151 440,000
------------ ------------ ------------ ------------
Income from continuing operations 663,123 429,029 1,012,654 750,342
Discontinued operations
Loss from operations of discontinued Motor
Carrier segment (less applicable income tax
benefit of $31,000 and $61,000, respectively, and
benefit of $68,000 and $125,000, respectively) (49,406) (102,719) (111,086) (212,225)
------------ ------------ ------------ ------------
Net Income $ 613,717 $ 326,310 $ 901,568 $ 538,117
============ ============ ============ ============
=================================================================================================================================
Primary earnings per common share
Continuing operations $ 0.08 $ 0.09 $ 0.12 $ 0.15
Discontinued operations (0.01) (0.02) (0.01) (0.03)
------------ ------------ ------------ ------------
Net income $ 0.07 $ 0.07 $ 0.11 $ 0.12
============ ============ ============ ============
Fully diluted earnings per common share
Continuing operations $ 0.07 $ 0.09 $ 0.12 $ 0.14
Discontinued operations 0.00 (0.02) (0.01) (0.03)
------------ ------------ ------------ ------------
Net income $ 0.07 $ 0.07 $ 0.11 $ 0.11
============ ============ ============ ============
Weighted average common shares and common
share equivalents outstanding:
Primary 8,603,144 5,665,998 8,403,526 5,664,208
============ ============ ============ ============
Fully Diluted 9,412,545 6,475,399 9,212,927 6,473,609
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
2
<PAGE> 5
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 901,568 $ 538,117
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,570,169 1,030,200
Minority Interest 85,500 --
Gain on sale of properties (21,938) (605,545)
Employee stock grants -- 48,554
Deferred income taxes 518,072 291,780
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (3,043,274) (1,460,631)
Inventories 254,316 95,560
Other current assets (172,043) (101,258)
Accounts payable 516,507 237,252
Income taxes payable (105,538) (400,000)
Accrued liabilities 257,362 (175,227)
Deposits and other 2,708 (64,429)
------------ ------------
Net cash provided by operating activities 763,409 (565,627)
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (2,929,696) (3,267,213)
Acquisition of 55% of Ferronor (7,389,903) --
Proceeds from sales of properties 163,600 937,702
Deferred acquisition costs and other (147,248) (295,511)
------------ ------------
Net cash used in investing activities (10,303,247) (2,625,022)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt and capital leases 17,299,269 6,793,680
Principal payments on debt and capital leases (17,248,495) (5,643,574)
Sale of common stock 7,589,345 --
Purchase of treasury stock -- (71,003)
Deferred financing costs (90,833) --
Deferred loan costs (274,855) (5,987)
------------ ------------
Net cash provided by financing activities 7,274,431 1,073,116
------------ ------------
Net decrease in cash (2,265,407) (2,117,533)
Cash, beginning of period 3,879,972 3,488,866
------------ ------------
Cash, end of period $ 1,614,565 $ 1,371,333
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE> 6
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 BASIS OF PRESENTATION:
The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of Management, the consolidated financial statements
contain all adjustments which are those of a recurring nature, and
disclosures necessary to present fairly the financial position of the
Company as of June 30, 1997 and December 31, 1996, and the results of
operations and cash flows for the six and three months ended June 30,
1997 and 1996.
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.
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.
2 EARNINGS PER SHARE:
For the six and three months ended June 30, 1997, primary and fully
diluted earnings per share are based on the weighted average number of
common and common equivalent shares outstanding under the modified
treasury stock method. Fully diluted earnings per share was computed,
in addition to the above computation, assuming the conversion of the
convertible subordinated notes payable and using the higher of the
average market price or the end of the quarter market price.
4
<PAGE> 7
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. EARNINGS PER SHARE, continued
For the six and three months ended June 30, 1996, primary earnings per
share was computed on net income increased by pro forma reductions in
interest expense resulting from the assumed exercise of warrants,
options and conversion of redeemable convertible preferred stock for
the periods outstanding, and the resulting assumed reduction of
outstanding indebtedness, divided by the weighted average number of
common and common equivalent shares outstanding during the period under
the modified treasury stock method. Fully diluted earnings per share
was computed, in addition to the above computation, assuming the
conversion of the convertible subordinated notes payable and using the
higher of the average market price or the end of the quarter market
price.
3. 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. ACQUISITIONS, 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 $22,053
Income from continuing operations before income taxes $ 1,713
Net income $ 988
Net income per share $ 0.12
</TABLE>
4. INVENTORIES:
Inventories consist of the following as of June 30, 1997 and December
31, 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Raw materials $ 2,902,925 $ 2,284,683
Work in process 1,000,614 635,780
Finished goods 694,378 881,817
Replacement or repair parts for equipment
and road property 1,333,346 381,309
----------- -----------
5,931,263 4,183,589
Less, advances related to materials (2,466,024) (1,079,034)
----------- -----------
Inventories in excess of contract advances $ 3,465,239 $ 3,104,555
=========== ===========
</TABLE>
6
<PAGE> 9
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. DISCONTINUED OPERATIONS:
Operating results of the discontinued operations, as shown below,
include the operations of the Motor Carrier division for the three
months and six months ended June 30, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -----------------------
1997 1996 1997 1996
-------- -------- -------- -------
(Thousands)
<S> <C> <C> <C> <C>
Revenues $ 1,840 $ 1,913 $ 3,614 $ 3,631
Operating loss (31) (99) (80) (223)
Loss before taxes (80) (164) (179) (337)
Benefit for income taxes 31 61 68 125
Net loss $ (49) $ (103) $ (111) $ (212)
</TABLE>
Net assets of the discontinued business held for sale at June 30,
1997 consisted of current assets of $0.962 million, noncurrent assets
of $5.186 million, and total liabilities of $5.561 million.
6. INCOME TAX PROVISION:
The difference between the U.S. federal statutory tax rate and the
Company's effective rate from continuing operations is primarily due
to the Chilean tax rate on income from Ferronor.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
RailAmerica, Inc. (together with its consolidated subsidiaries, the
"Company") 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. The
number of miles of track operated by RailAmerica has grown to approximately
1,000 miles in the United States and 2,400 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 2,400 miles
of rail line as of June 30, 1997. These consist of: (i) 136 miles of rail line
which it owns in Michigan; (ii) 4 miles of trackage rights and 45 miles of rail
line which are owned by the State of Michigan and operated pursuant to an
agreement with Michigan Department of Transportation; (iii) 49 miles of rail
line leased from the South Central Tennessee Railroad Authority near Nashville,
Tennessee and 3 miles of trackage rights; (iv) 45 miles of rail line in
Pennsylvania, 18 miles of which the Company has agreed to purchase from the
Commonwealth of Pennsylvania for a price to be determined and 27 miles of which
are operated under a freight easement with the Commonwealth of Pennsylvania; (v)
10 miles of rail line in Delaware made available to the Company pursuant to a
ten-year lease with the Wilmington & Northern Railroad Company; (vi) 44 miles of
rail line which the Company is operating pursuant to a contract with the State
of Minnesota; (vii) 104 miles of rail line and 4 miles of trackage rights in
West Texas; (viii) 51 miles of rail line in the state of Indiana, 18 miles of
which
8
<PAGE> 11
it owns and 33 miles of which it operates under an operating agreement; (ix) 131
miles of rail line which it owns in the state of Washington; (x) 23 miles of
rail line which it owns in southern Pennsylvania; (xi) 72 miles of rail line
which it owns in central Minnesota; (xii) 204 miles of rail line it owns in
northern Minnesota and 37 miles of trackage rights; and (xiii) 1,400 miles of
rail line in northern Chile.
The Company provides its customers with local rail freight services
with access to the nation's rail system for delivery of products both
domestically and internationally. The Company hauls varied products for its
customers based upon market demands in its local operating areas. The Company's
haulage of products in Michigan include agricultural commodities, automotive
parts, chemicals and fertilizer, ballast and other stone products. The Company's
haulage of products in Tennessee includes wood chips, paper, chemicals and
processed food products. The Company's haulage of products in Pennsylvania and
Delaware includes iron and steel products, chemicals, agricultural products,
lumber and processed food products. The Company's haulage of products in
Minnesota includes plastics, lumber, denatured alcohol, scrap iron and steel.
The Company's haulage of products in Texas consists of cotton, sodium sulfate,
chemicals, fertilizer, scrap iron and steel. The Company's haulage of products
in Indiana consists of agricultural commodities and plastics. The Company's
haulage of products in Washington consists of wood chips, lumber, minerals,
cement and various agricultural products. The Company's haulage of products in
Chile consists of copper, iron ore, limestone and other commodities.
RESULTS OF RAILROAD OPERATIONS
The discussion of results of operations that follows reflects the
consolidated results of the Company's Railroad Operations for the six and three
months ended June 30, 1997 and 1996. The results of railroad operations include
the operations of 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 and Ferronor from February 20, 1997. As a
result, the results of operations for the six and three months ended June 30,
1997 are not comparable to the prior year periods in certain material respects.
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.
9
<PAGE> 12
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------- ----------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Transportation revenue $4,208,349 $2,095,949 $7,840,020 $4,762,528
Other revenue 179,797 652,756 436,799 732,607
---------- ---------- ---------- ----------
Total revenue 4,388,146 2,748,705 8,276,819 5,495,135
---------- ---------- ---------- ----------
Operating Expenses:
Maintenance of way 606,870 231,811 1,121,647 537,433
Maintenance of equipment 161,178 146,737 355,001 314,477
Transportation 899,791 458,653 1,689,935 1,026,754
Equipment rental 225,939 179,906 229,892 194,114
General and administrative 638,866 315,107 1,198,124 632,156
Depreciation and amortization 373,108 247,914 736,909 495,755
---------- ---------- ---------- ----------
Total operating expenses 2,905,752 1,580,128 5,331,508 3,200,689
---------- ---------- ---------- ----------
Operating income 1,482,394 1,168,577 2,945,311 2,294,446
Interest and other expenses 642,208 267,316 1,287,645 533,547
---------- ---------- ---------- ----------
Income before income taxes $ 840,186 $ 901,261 $1,657,666 $1,760,899
========== ========== ========== ==========
</TABLE>
COMPARISON OF RAILROAD OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996
OPERATING REVENUES. Transportation revenues increased by $3.1 million,
or 64.6%, from $4.7 million for the six month period ended June 30, 1996 to $7.8
million for the six month period ended June 30, 1997. CCRR, which was acquired
in September 1996, had transportation revenues of approximately $1.3 million in
the first six months of 1997. MNR, which was acquired in December 1996, had
transportation revenues of approximately $1.1 million in the first six months of
1997. OTVR, which was acquired in September 1996, had transportation revenues of
approximately $0.8 million during the first six months of 1997. In addition, the
transportation revenue for the six months ended June 30, 1997 includes an
increase in freight revenue of $0.5 million based upon an agreement reached with
a connecting carrier. These increases in transportation revenue were partially
offset by a decrease of approximately $0.4 million in revenue from Huron and
Eastern Railway Company ("HESR") resulting from decreased agricultural shipments
in the first six months of 1997 compared to the first six months of 1996.
Additionally, transportation revenue from South Central Tennessee Railroad
("SCTR") decreased approximately $0.3 million due to a decrease in demurrage
revenue charged to a shipper. The transportation revenue per carload decreased
from $413 to $353 per car primarily due to the acquisitions during 1996 of
railroads with lower rates per carload than the Company's existing railroads.
Domestic carloads handled totaled 22,203 for the six months ended June 30, 1997,
an increase of 10,659, or 92.3% compared to 11,544 carloads in the prior year
period. The increase was primarily the result of the acquisitions of MNR, which
handled 4,907 in the first six months of 1997, CCRR, which handled 3,681
carloads in the first six months of 1997, OTVR, which handled 2,444 carloads in
the first six months of 1997 and Gettysburg Railway, which handled 795 carloads
in the first six months of 1997. These increased car loadings were partially
offset by a decrease of 1,134 carloads from the HESR. Ferronor handled 8,454
carloads during the period from February 20 to June 30, 1997.
10
<PAGE> 13
Other revenues decreased by $0.3 million, or 40.4%, from $0.7 million
for the six months ended June 30, 1996 to $0.4 million for the six months ended
June 30, 1997. Other revenues for the six months ended June 30, 1996 consisted
primarily of a gain of $582,000 on the sale of 22 miles of rail line and a car
repair shop. This increase was partially offset by lease revenue received by the
newly acquired railroads. Additionally, other revenues for the six months ended
June 30, 1996 and 1997 represented rental of railroad equipment and
non-operating real estate, sales of surplus rail and materials, certain
miscellaneous assets and non-operating real estate.
OPERATING EXPENSES. Operating expenses increased by approximately $2.1
million, or 66.6%, from $3.2 million for the six months ended June 30, 1996 to
$5.3 million for the six months ended June 30, 1997. Operating expenses for the
six months ended June 30, 1997 have been reduced by approximately $280,000 due
to a reimbursement received by the Company from a connecting carrier. Operating
expenses, as a percentage of transportation revenue, were 67.2% and 68.0% for
the six months ended June 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 $0.6 million, or
108.7%, from $0.5 million for the six months ended June 30, 1996 to $1.1 million
for the six months ended June 30, 1997 primarily due to certain acquisitions
which occurred during the second half of 1996. MNR, which was acquired in
December 1996, had maintenance of way expenses of approximately $156,000 for the
six months ended June 30, 1997. CCRR, which was acquired September 1996, had
maintenance of way expenses of approximately $105,000 for the six months ended
June 30, 1997. Gettysburg Railway, which was acquired in November 1996, had
maintenance of way expenses of approximately $60,000 for the six months ended
June 30, 1997. In addition to the above acquisitions, West Texas and Lubbock
Railroad's ("WTLR") and HESR's maintenance of way expenses increased
approximately $92,000 and $84,000, respectively, from the first six months of
1996 to the first six months of 1997 due to increased track work being performed
as part of maintenance programs.
Maintenance of equipment expenses increased by approximately $41,000,
or 12.9%, from approximately $314,000 for the six months ended June 30, 1996 to
$355,000 for the six months ended June 30, 1997 primarily due to certain
acquisitions which occurred during the second half of 1996.
Transportation expense increased by approximately $0.7 million, or
64.6%, from $1.0 million for the six months ended June 30, 1996 to $1.7 million
for the six months ended June 30, 1997 primarily due to certain acquisitions in
the second half of 1996. MNR incurred approximately $0.3 million of
transportation expenses during the six months ended June 30, 1997. CCRR incurred
approximately $0.2 million of transportation expense for the six months ended
June 30, 1997. OTVR, which was acquired in October 1996, incurred approximately
$0.1 million of transportation expense for the six months ended June 30, 1997.
Gettysburg Railway incurred approximately $0.1 million of transportation expense
for the six months ended June 30, 1997.
Equipment rental increased by approximately $36,000, or 18.4%, from
approximately
11
<PAGE> 14
$194,000 for the six months ended June 30, 1996 to approximately $230,000 for
the six months ended June 30, 1997.
Selling, general and administrative expenses increased by approximately
$0.6 million, or 89.5%, from $0.6 million for the six months ended June 30, 1996
to $1.2 million for the six months ended June 30, 1997 primarily due to certain
acquisitions which occurred during the second half of 1996. MNR incurred general
and administrative expenses of approximately $0.15 million for the six months
ended June 30, 1997. CCRR incurred general and administrative expenses of
approximately $0.2 million for the six months ended June 30, 1997. Gettysburg
Railway incurred general and administrative expenses of approximately $0.1
million for the six months ended June 30, 1997. OTVR incurred general and
administrative expenses of approximately $0.1 million for the six months ended
June 30, 1997.
INTEREST AND OTHER EXPENSES. Interest and other expenses increased by
approximately $0.8 million, or 141.3% from $0.5 million for the six months ended
June 30, 1996 to $1.3 million for the six months ended June 30, 1997. Such
increase was primarily due to the financing of the acquisitions of CCRR, MNR and
OTVR. The interest expense during the first six months of 1997 attributable to
these three acquisitions was $0.4 million, $0.2 million and $0.2 million,
respectively.
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 $2.3
million, operating expenses (including depreciation) of $2.1 million and
operating income of $0.2 million for the period from February 20, 1997 to June
30, 1997.
COMPARISON OF RAILROAD OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30,
1997 AND 1996.
OPERATING REVENUES. Transportation revenues for the three months ended
June 30, 1997 increased by approximately $2.1 million, or 100.8%, compared to
the prior year period primarily due to acquisitions which occurred during the
second half of 1996. CCRR had transportation revenue of approximately $0.7
million in the second quarter of 1997. MNR had revenue of approximately $0.6
million in the second quarter of 1997. OTVR had revenue of approximately $0.4
million during the second quarter of 1997. In addition, the transportation
revenue for the three months ended June 30, 1997 includes an increase in freight
revenue of $0.5 million based upon an agreement reached with a connecting
carrier. Additionally, transportation revenue from WTLR increased approximately
$0.2 million due to an increase in carloads. These increases in transportation
revenue were partially offset by a decrease of approximately $0.1 million in
transportation revenue from HESR due to a decrease in the agricultural shipments
in the second quarter of 1997 compared to the second quarter of 1996 and a
decrease of $0.2 million in transportation revenue from SCTR due to a decrease
in demurrage charged to a shipper. The transportation revenue per carload
decreased from $421 to $379 per car primarily due to the acquisitions during
1996 of railroads with lower rates per carload than the Company's existing
railroads. Domestic carloads handled totaled 11,102 for the three months ended
June 30, 1997, an increase of 6,124, or 123%, compared to 4,978 carloads in the
prior
12
<PAGE> 15
year period. The increase was primarily the result of the acquisitions of MNR,
which handled 2,518 carloads in the second quarter of 1997; CCRR, which handled
1,924 carloads in the second quarter of 1997; OTVR, which handled 1,163 carloads
in the second quarter of 1997; and Gettysburg Railway, which handled 442
carloads in the second quarter of 1997. Additionally, WTLR's carloads increased
548 for the second quarter of 1997 compared to the second quarter of 1996. These
increased carloadings were partially offset by a decrease of 364 carloads from
HESR. Ferronor handled 5,603 carloads during the three months ended June 30,
1997.
Other revenues decreased by approximately $0.5 million for the three
months ended June 30, 1997 compared to the prior year period. Other revenues for
the three months ended June 30, 1996 consisted primarily of a gain of
approximately $582,000 on the sale of 22 miles of rail line and a car repair
shop. Additionally, other revenue for the three months ended June 30, 1996 and
1997 primarily represented rental of railroad equipment and real estate, sales
of surplus rail and material, certain miscellaneous assets and non-operating
real estate.
OPERATING EXPENSES. Operating expenses increased by approximately $1.3
million, or 83.9%, from $1.6 million for the three months ended June 30, 1996 to
$2.9 million for the three months ended June 30, 1997. Operating expenses, as a
percentage of transportation revenue, were 75.4% and 69.1% for the three months
ended June 30, 1996 and 1997, respectively.
Maintenance of way expenses increased by approximately $0.4 million, or
161.8%, from $0.2 million for the quarter ended June 30, 1996 to $0.6 million
for the quarter ended June 30, 1997 primarily due to certain acquisitions which
occurred during the second half of 1996. MNR had maintenance of way expenses of
approximately $0.1 million for the quarter ended June 30, 1997. CCRR had
maintenance of way expenses of approximately $0.05 million for the quarter ended
June 30, 1997. Gettysburg Railway had maintenance of way expenses of
approximately $31,000 for the quarter ended June 30, 1997. In addition to the
above acquisitions, WTLR's and HESR's maintenance of way expenses increased
approximately $62,000 and $58,000, respectively, from the second quarter of 1996
to the second quarter of 1997 due to increased track work being performed as
part of maintenance programs.
Maintenance of equipment expenses increased by approximately $14,000,
or 9.8%, from $147,000 for the quarter ended June 30, 1996 to $161,000 for the
quarter ended June 30, 1997.
Transportation expense increased by approximately $0.4 million, or
96.2%, from $0.5 million for the quarter ended June 30, 1996 to $0.9 million for
the quarter ended June 30, 1997 primarily due to certain acquisitions in the
second half of 1996. MNR incurred approximately $0.2 million of transportation
expense during the quarter ended June 30, 1997. CCRR incurred approximately $0.1
million of transportation expense for the quarter ended June 30, 1997. OTVR
incurred approximately $78,000 of transportation expense for the quarter ended
June 30, 1997. Gettysburg Railway incurred approximately $52,000 of
transportation expense for the quarter ended June 30, 1997.
Equipment rental increased by approximately $46,000, or 25.6%, from
$180,000 for the quarter ended June 30, 1996 to $226,000 for the quarter ended
June 30, 1997.
Selling, general and administrative expenses increased by approximately
$0.3 million, or 102.7%, from $0.3 million for the quarter ended June 30, 1996
to $0.6 million for the quarter ended June 30, 1997 primarily due to certain
acquisitions which occurred during the second half of 1996.
13
<PAGE> 16
MNR incurred general and administrative expenses of approximately $70,000 for
the quarter ended June 30, 1997. CCRR incurred general and administrative
expenses of approximately $0.1 million for the quarter ended June 30, 1997.
Gettysburg Railway incurred general and administrative expenses of approximately
$34,000 for the quarter ended June 30, 1997. OTVR incurred general and
administrative expenses of approximately $42,000 for the three months ended June
30, 1997.
INTEREST AND OTHER EXPENSES. Interest and other expenses increased by
approximately $0.4 million, or 140.2%, from $0.3 million for the three months
ended June 30, 1996 to $0.7 million for the three months ended June 30, 1997.
Such increase was primarily due to the financing of the acquisitions of CCRR,
MNR and OTVR. The interest expense during the three months ended June 30, 1997
attributable to these three acquisitions was $0.2 million, $0.14 million and
$0.1 million, respectively.
FERRONOR. The operations of Ferronor are included in the consolidated
operations of the Company. Ferronor had operating revenue of $1.65 million,
operating expenses (including depreciation) of $1.55 million and operating
income of $0.1 million for the three months ended June 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 41% of Kalyn's sales for the first six 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 1996. 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.
14
<PAGE> 17
COMPARISON OF OPERATING RESULTS OF TRAILER MANUFACTURING FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1996
The following table sets forth the income and expense items for the six
months ended June 30, 1997 and 1996 and the percentage relationship of income
and expense items to net sales for the periods indicated:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
---------------------------------------------------------------
JUNE 30, 1997 JUNE 30, 1996
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Net sales $ 10,031,076 100.0% $ 8,141,220 100.0%
Cost of goods sold 7,301,232 72.8% 6,268,230 77.0%
------------ ------- ------------ -------
Gross profit 2,729,844 27.2% 1,872,990 23.0%
Selling, general and
administrative expenses 913,185 9.1% 771,397 9.5%
Depreciation and amortization 231,340 2.3% 215,523 2.6%
------------ ------- ------------ -------
Income from operations 1,585,319 15.8% 886,070 10.9%
Interest and other expenses (128,731) 1.3% (216,402) 2.7%
------------ ------- ------------ -------
Net Income Before Taxes $ 1,456,588 14.5% $ 669,668 8.2%
============ ======= ============ =======
</TABLE>
NET SALES. Net sales increased by approximately $1.9 million, or 23.2%,
from $8.1 million for the six months ended June 30, 1996 to $10.0 million for
the six months ended June 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 299 trailers for the six months ended
June 30, 1996 and 320 trailers for the six months ended June 30, 1997. The
increase in sales volume increased net sales by approximately $0.5 million. The
average price per trailer sold was approximately $26,000 for the six months
ended June 30, 1996 and approximately $30,000 for the six months ended June 30,
1997. The increase in average price per trailer increased net sales by
approximately $1.4 million. Sales to governmental agencies represented 18.2% and
40.7% of Kalyn's net sales for the six months ended June 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 to build Tactical Vans. Full production under the
contract began during the first quarter of 1997. The increase in sales for the
six month period ended June 30, 1997 compared to the six month period ended June
30, 1996 was principally due to the above contract production. Kalyn produced 45
Tactical Vans during the first six months of 1997. Kalyn's backlog of orders for
both government and commercial sales was approximately $23.3 million as of
September 30, 1997 compared to $10.0 million at June 30, 1996.
COST OF GOODS SOLD. Cost of goods sold increased by approximately $1.0
million, or 16.5%, from $6.3 million for the six months ended June 30, 1996 to
$7.3 million for the six months ended June 30, 1997. Cost of goods sold was
77.0% of net sales for the six months ended June 30, 1996 compared to 72.8% for
the six months ended June 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 higher percentage of the sales in
1997 than in 1996. Commercial
15
<PAGE> 18
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 $142,000 from the first six
months of 1996 to the first six months of 1997 but decreased slightly as a
percentage of net sales.
COMPARISON OF OPERATING RESULTS OF TRAILER MANUFACTURING FOR THE THREE MONTHS
ENDED JUNE 30, 1997 AND 1996
The following table sets forth the income and expense items for the
three months ended June 30, 1997 and 1996 and the percentage relationship of
income and expense items to net sales for the periods indicated:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-------------------------------------------------------------
JUNE 30, 1997 JUNE 30, 1996
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net sales $ 5,957,057 100.0% $ 4,688,006 100.0%
Cost of goods sold 4,180,183 70.2% 3,637,295 77.6%
----------- ------- ----------- -------
Gross profit 1,776,874 29.8% 1,050,711 22.4%
Selling general and
administrative expenses 513,139 8.6% 421,577 9.0%
Depreciation and amortization 116,334 2.0% 107,169 2.3%
----------- ------- ----------- -------
Income from operations 1,147,401 19.0% 521,965 11.1%
Interest and other expenses (66,836) 1.1% (119,298) 2.5%
----------- ------- ----------- -------
Net Income Before Taxes $ 1,080,565 17.9% $ 402,667 8.6%
=========== ======= =========== =======
</TABLE>
NET SALES. Net sales consist of trailer sales, part sales and repair
income. Net sales increased by approximately $1.3 million, or 27.1%, from $4.7
million for the three month period ended June 30, 1996 to $6.0 million for the
three month period ended June 30, 1997. Trailer sales represent approximately
95% of the net sales in both 1997 and 1996. Kalyn sold 176 trailers for the
three months ended June 30, 1997 and 158 trailers for the three months ended
June 30, 1996. The increase in sales volume increased net sales by approximately
$0.5 million from the second quarter of 1996 to the second quarter of 1997. The
average price per trailer sold was $32,663 for the three months ended June 30,
1997 and $28,406 for the three months ended June 30, 1996. The increase in
average price per trailer increased sales by approximately $0.8 million. Sales
to governmental agencies represented 19.3% and 46.9% of Kalyn's net sales for
the three months ended June 30, 1996 and
16
<PAGE> 19
1997, respectively. The increase in sales for the three months ended June 30,
1997 compared to the three months ended June 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 $0.5
million, or 14.9% from $3.6 million for the three months ended June 30, 1996 to
$4.2 million for the three months ended June 30, 1997. Cost of goods sold was
77.6% of net sales for the three months ended June 30, 1996 compared to 70.2%
for the three months ended June 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 $0.1 million from the second
quarter of 1996 to the second 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 $0.3 million, or
29.6%, from $1.1 million for the six months ended June 30, 1996 to $1.4 million
for the six months ended June 30, 1997. The increase was related to the
additional costs incurred to manage the new subsidiaries acquired during the
second half of 1996 and first six months 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 $0.1 million for the six months ended June
30, 1996 to $0.2 million for the six months ended June 30, 1997. Operating
income increased $48,000 from $44,000 for the six months ended June 30, 1996 to
$92,000 for the six month period ended June 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 June 30, 1997 and 1996. Operating income
remained fairly constant at approximately $50,000 for the three months ended
June 30, 1997 and 1996.
17
<PAGE> 20
MOTOR CARRIER OPERATIONS (DISCONTINUED OPERATIONS). The discussion of
results of operations that follows reflects the results of Steel City Carriers
and RailAmerica Intermodal Services ("RIS") for the six and three months ended
June 30, 1997 and 1996. Since the Company's acquisition of Steel City Carriers,
its performance and development have not met the Company's expectations.
Accordingly, in March 1997 the Company adopted a formal plan to discontinue its
motor carrier operations and refocus the Company's efforts on expanding its core
railroad 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 during 1997.
Loss from discontinued operations decreased by $0.1 million from $0.2
million for the six months ended June 30, 1996 to $0.1 million for the six
months ended June 30, 1997. Loss from discontinued operations decreased by
approximately $0.05 million from $0.1 million for the three months ended June
30, 1996 to $0.05 million for the three months ended June 30, 1997.
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 $0.8 million
for the six months ended June 30, 1997.
Cash used in investing activities was $10.3 million for the six months
ended June 30, 1997. The Company's main use of cash during the first six months
of 1997 was for the purchase of a 55% equity interest in Ferronor, which cost
$7.4 million. In addition, property, plant and equipment increased $2.9 million
during the first six months of 1997 primarily due to the purchase of locomotives
and improvements made to the Company's various rail lines.
The Company's cash provided by financing activities was $7.3 million
for the six months ended June 30, 1997 consisting of the net proceeds of
approximately $4.6 million from the issuance of 1,670,000 shares of the
Company's common stock in a private placement transaction completed in January
1997 and net proceeds of approximately $2.7 million from the conversion of a
substantially all of the Company's Class B Warrants.
The Company's long term debt represents financing of property and
equipment, as well as the acquisition financing for Ferronor, SCTR, Kalyn, Steel
City Carriers, Dakota Rail, WTLR, ETC, CCRR, MNR, OTVR and Gettysburg Railway.
Certain of this indebtedness was refinanced through a $25 million revolving line
of credit (the "Revolver") with National Bank of Canada. The Revolver bears
interest, at the option of the Company, at either the bank's prime rate plus
0.5% or the one, three or six month LIBOR plus 2.5%. The Revolver is
collateralized by substantially all of the assets of the Company, Kalyn, HESR,
Saginaw Valley Railway Company, RIS, CCRR, Steel City Carriers, WTLR and OTVR.
18
<PAGE> 21
On May 3, 1997, the Company received from National Bank of Canada and
Comerica Bank N.A. an increase to the Revolver to $40 million which also
extended the maturity date of the Revolver to May 2000.
As of June 30, 1997, the Company had working capital of $2.0 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 June 30, 1997 was $1.6 million compared to
$3.9 million as of December 31, 1996. The decrease in cash from December 31,
1996 to June 30, 1997 is due primarily to the purchase of an equity interest in
Ferronor in February 1997 and 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 expects that its future cash flow will be sufficient for
its current and contemplated operations for at least the next twelve months, and
will be used for, among other things, anticipated capital expenditures for the
upgrading of existing rail lines and purchases of locomotives and equipment of
approximately $2.5 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 August 1, 1997, the Company
had approximately $10.7 million of availability under the $40 million Revolver.
INFLATION
Inflation in recent years has not had a significant impact on the
Company's operations, and it is not expected to adversely affect the Company in
the future unless it increases substantially, and the Company is unable to pass
through the increases in its freight rates and trailer prices.
19
<PAGE> 22
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
The foregoing Management's Discussion and Analysis contains various
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which represent the Company's expectations or beliefs concerning
future events, including the following: statements regarding the further growth
in transportation-related assets; the acquisition of additional railroads and
other transportation-related companies; the development of additional
transportation-related businesses; the increased usage of the Company's existing
rail lines; the growth of gross revenues; and the sufficiency of the Company's
cash flow for the Company's future liquidity and capital resource needs. The
Company cautions that these statements are further qualified by important
factors that could cause actual results to differ materially from those in the
forward-looking statements, including, without limitations, the following:
decline in demand for transportation services; the effect of economic conditions
generally and particularly in the markets served by the Company; orders under
the TACOM agreements; the Company's dependence upon the agricultural industry as
a significant user of the Company's rail services; the Company's dependence upon
the availability of financing for acquisitions of railroads and other
transportation-related companies and the development of additional
transportation-related businesses; a decline in the market acceptability of
railroad services; the effect of competitive pricing; the regulation of the
Company by federal, state and local regulatory authorities. Any material adverse
change in the financial condition or results of operations of Kalyn would have a
material adverse impact on the Company. Results actually achieved thus may
differ materially from expected results included in these statements.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On June 30, 1997, the Company sold all the outstanding shares of stock
of its wholly-owned subsidiary Huron Distribution Services ("HDS") to
Transportation Management Services ("TMS") for approximately $55,000. TMS is
owned by the Vice Chairman of the Company.
20
<PAGE> 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
3.1 Amended and Restated Articles of Incorporation of Registrant(9)
3.2 By-laws of Registrant(1)
4.2 Class B Warrant(2)
4.3 Unit Purchase Warrant(2)
4.4 Series A Convertible Subordinated Debentures(7)
10.14 RailAmerica, Inc. 1992 Stock Option Plan(1)+
10.23 Loan Agreement among RailAmerica, Inc., South Central Tennessee
Railroad Corporation, South Central Tennessee Railroad Company, Inc.
and Charter Financial, Inc., dated as of December 31, 1993(5)
10.32 Stock Purchase Agreement between Steel City Truck Lines Limited,
Josef Bichler and RailAmerica, Inc. dated December 19, 1994(10)
10.33 Stock Purchase Agreement between 823215 Ontario, Inc. and
RailAmerica, Inc. dated February 6, 1995(10) 10.35 Employment
Agreement between Robert B. Coward and Kalyn/Siebert Incorporated(6)
10.37 Stock Purchase Agreement, dated July 11, 1995, among RailAmerica,
Inc., Brain E. Muir, Elli M.A. Mills and Kimberly Hughes, Prairie
Holding Corporation and Dakota Rail, Inc.(7)
10.38 Settlement Agreement, entered into March 15, 1995, by Eric D. Gerst
and RailAmerica, Inc., RailAmerica Services Corporation and Huron
and Eastern Railway Company, Inc.(7)
10.39 Loan Agreement, dated September 29, 1995, by and between
RailAmerica, Inc., Kalyn/Siebert Incorporated, RailAmerica
Intermodal Services, Inc., RailAmerica Carriers, Inc., Steel City
Carriers, Inc., Saginaw Valley Railway Company, Inc., Huron and
Eastern Railway Company, Inc. and National Bank of Canada(9)
10.40 Asset Purchase Agreement, dated October 11, 1995, by and among
Seagraves, Whiteface & Lubbock Railroad Co., American Railway
Corporation, TEMCO Corporation and RailAmerica, Inc.(8)
10.41 Employment Agreement between Gary O. Marino and RailAmerica,
Inc.(9)+
10.42 Employment Agreement between John H. Marino and RailAmerica,
Inc.(9)+
10.43 Stock Option Agreement, dated November 11, 1994, between
RailAmerica, Inc. and Gary O. Marino(9)+
10.44 RailAmerica, Inc. 1995 Stock Incentive Plan(9)+
10.45 RailAmerica, Inc. 1995 Non-Employee Director Stock Option Plan(9)
10.46 RailAmerica, Inc. 1995 Employee Stock Purchase Plan(9)
10.47 RailAmerica, Inc. Corporate Senior Executive Bonus Plan(9)+
10.49 Purchase and Sale Agreement dated November 30, 1995, by and between
CSX 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
21
<PAGE> 24
Preferred Stock(10)
10.51 Asset Purchase Agreement dated January 26, 1996 by and between TEMCO
Corporation and RailAmerica Equipment Corporation(10)
10.52 Agreement of Sale dated July 18, 1996 by and between the
Commonwealth's Department of Transportation and Delaware Valley
Railway Company, Inc., a wholly-owned subsidiary of RailAmerica,
Inc.(11)
10.53 Agreement entered into by and between R. Frank Unger, Trustee of
Sagamore National Corporation, Indiana HiRail Corporation and
RailAmerica, Inc.(11)
10.54 Asset Purchase Agreement, dated August 5, 1996, by and among
Burlington Northern Railroad Company and Cascade and Columbia River
Railroad Company, a subsidiary of RailAmerica, Inc.(12)
10.55 Confidential Private Placement Memorandum dated September 20,
1996.(13)
10.56 Stock Purchase Agreement, dated as of September 20, 1996, by and
among Otter Tail Valley Railroad Company, Inc. and Dakota Rail,
Inc.(14)
10.57 Commitment letter relating to $40,000,000 Revolving Line of
Credit/Term Loan Facility, dated March 3, 1997, by and between
National Bank of Canada, Comerica Bank, RailAmerica, Inc.,
Kalyn/Siebert, Incorporated, RailAmerica Intermodal Services, Inc.,
RailAmerica Carriers, Inc., Steel City Carriers, Inc., Saginaw
Valley Railway Company, Inc., Huron and Eastern Railway Company,
Inc., West Texas and Lubbock Railroad Company, Inc., Plainview
Terminal Company, Cascade and Columbia River Railroad Company, Inc.,
Minnesota Northern Railroad Company, Inc. and Delaware Valley
Railway Company, Inc.(15)
10.58 Agreement for sale of certain assets, rights and obligations of
Burlington Northern Railroad Company to Minnesota Northern Railroad,
Inc.(15)
10.59 RailAmerica, Inc. Nonqualified Deferred Compensation Trust.(15)+
10.60 Nonqualified Deferred Compensation Agreement between RailAmerica,
Inc. and Gary O. Marino(15)+
10.61 Nonqualified Deferred Compensation Agreement between RailAmerica,
Inc. and John H. Marino(15)+
11 Computation of Per Share Earnings
21 Subsidiaries of Registrant(15)
- ----------
(1) Incorporated by reference to the same exhibit number filed as part of the
Registrant's Registration Statement on Form S-1, Registration No.
33-49026.
(2) Incorporated by reference to the same exhibit number filed as part of the
Registrant's Post-Effective Amendment No. 3 on Form SB-2, dated November
25, 1994, Registration No. 33-49026.
(3) Incorporated by reference to the same exhibit number filed as part of the
Company's annual report on Form 10-KSB, filed with the Securities and
Exchange Commission on March 31, 1993.
(4) Incorporated by reference to the same exhibit number filed as part of the
Registrant's Post-Effective Amendment No. 4 on Form SB-2, dated December
14, 1994, Registration No.
22
<PAGE> 25
33-49026.
(5) Incorporated by reference to the same exhibit number filed as part of the
Company's Form 10-KSB for the year ended December 31, 1993, filed with the
Securities and Exchange Commission on April 15, 1994.
(6) Incorporated by reference to the same exhibit number filed as a part of
the Registrant's Post-Effective Amendment No. 2 on Form SB-2, dated
October 17, 1994, Registration No. 33-49026.
(7) Incorporated by reference to the same exhibit number filed as part of the
Company's Form 10-QSB for the quarter ended June 30, 1995, filed with the
Securities and Exchange Commission on August 9, 1995.
(8) Incorporated by reference to the exhibit number 2.1 filed as part of the
Company's Form 8-K as of November 1, 1995, filed with the Securities and
Exchange Commission on November 3, 1995.
(9) Incorporated by reference to the same exhibit number filed as part of the
Company's Form 10-QSB for the quarter ended September 30, 1995, filed with
the Securities and Exchange Commission on November 12, 1995.
(10) Incorporated by reference to the same exhibit number filed as part of the
Company's Form 10-KSB for the year ended December 31, 1995, filed with the
Securities and Exchange Commission on April 12, 1996.
(11) Incorporated by reference to the same exhibit number filed as part of the
Company's Form 10-QSB for the quarter ended July 30, 1996, filed with the
Securities and Exchange Commission on August 12, 1996.
(12) Incorporated by reference to the exhibit 2.1 filed as part of the
Company's Form 8-K as of September 6, 1996, filed with the Securities and
Exchange Commission on September 12, 1996.
(13) Incorporated by reference to the exhibit A filed as part of the Company's
Form 8-K as of September 30, 1996, filed with the Securities and Exchange
Commission on October 17, 1996.
(14) Incorporated by reference to the exhibit 2.1 filed as part of the
Company's Form 8-K as of October 11, 1996, filed with the Securities and
Exchange Commission on October 25, 1996.
(15) Incorporated by reference to the same exhibit number filed as part of the
Company's Form 10-KSB for the year ended December 31, 1995, filed with the
Securities and Exchange Commission on March 31, 1997.
+ Executive Compensation Plan or Arrangement.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the second
quarter of 1997.
23
<PAGE> 26
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
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS FROM CONTINUING OPERATIONS
<TABLE>
<S> <C>
FULLY DILUTED EARNINGS PER SHARE FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
Net income $1,012,654
Interest reduction on conversion of convertible debt 75,488
----------
Adjusted net income $1,088,142
==========
Weighted average common shares and common share equivalents 8,403,526
Conversion of convertible debt 809,401
----------
Adjusted shares outstanding 9,212,927
==========
Fully diluted earnings per share $ 0.12
==========
FULLY DILUTED EARNINGS PER SHARE FOR THE THREE MONTH PERIOD ENDED JUNE 30, 1997
Net income $ 663,123
Interest reduction on conversion of convertible debt 37,363
----------
Adjusted net income $ 700,486
==========
Weighted average common shares and common share equivalents 8,603,144
Conversion of convertible debt 809,401
----------
Adjusted shares outstanding 9,412,545
==========
Fully diluted earnings per share $ 0.07
==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,614,565
<SECURITIES> 0
<RECEIVABLES> 8,378,232
<ALLOWANCES> 0
<INVENTORY> 3,465,239
<CURRENT-ASSETS> 14,267,946
<PP&E> 72,932,251
<DEPRECIATION> 0
<TOTAL-ASSETS> 92,681,335
<CURRENT-LIABILITIES> 12,293,131
<BONDS> 39,819,843
0
0
<COMMON> 8,694
<OTHER-SE> 24,415,741
<TOTAL-LIABILITY-AND-EQUITY> 92,681,335
<SALES> 10,031,076
<TOTAL-REVENUES> 20,821,315
<CGS> 7,301,232
<TOTAL-COSTS> 17,499,509
<OTHER-EXPENSES> 92,328
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,533,173
<INCOME-PRETAX> 1,610,805
<INCOME-TAX> 598,151
<INCOME-CONTINUING> 1,012,654
<DISCONTINUED> (111,086)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 901,568
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
