<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
-------------
Commission File No. 0-20618
RAILAMERICA, INC.
------------------------------------------------------
(Exact name of Registrant 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 - 9,757,538 shares as of August 10, 1998
<PAGE> 2
RAILAMERICA, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - June 30, 1998 and
December 31, 1997 1
Consolidated Statements of Income -
For the six and three months ended
June 30, 1998 and 1997 2
Consolidated Statements of Cash Flows - For the
six months ended June 30, 1998 and 1997 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 22
Item 6 Exhibits and Reports on Form 8-K 22
Signatures
</TABLE>
<PAGE> 3
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,042,492 $ 3,745,534
Accounts receivable 11,586,382 8,388,291
Notes receivable 859,378 1,103,409
Inventories 12,471,847 5,013,106
Other current assets 1,601,558 497,207
------------- -------------
Total current assets 29,561,657 18,747,547
Property, plant and equipment, net 89,815,510 74,900,836
Notes receivable, less current portions 1,288,772 1,339,169
Investment in Great Southern Railway Limited 1,931,492 1,789,995
Other assets 2,886,459 2,021,433
Excess of cost over net assets of companies acquired, net 2,143,610 2,036,023
------------- -------------
Total assets $ 127,627,500 $ 100,835,003
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 6,426,450 $ 3,923,036
Current maturities of subordinated debt 212,392 212,392
Accounts payable 10,924,504 6,084,119
Accrued expenses and income taxes payable 3,303,854 3,327,497
------------- -------------
Total current liabilities 20,867,200 13,547,044
------------- -------------
Long-term debt, less current maturities 56,947,257 43,875,163
Subordinated debt, less current maturities 1,159,294 3,265,490
Deferred income taxes 8,000,561 7,067,237
Minority interest 7,133,843 6,266,243
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value, 30,000,000 shares authorized;
10,023,727 issued and 9,752,538 outstanding at June 30, 1998;
9,129,564 issued and 8,858,375 outstanding at December 31, 1997 10,024 9,130
Additional paid-in capital 27,610,861 23,350,732
Retained earnings 6,884,124 4,883,973
Accumulated other comprehensive income 459,718 15,373
Less treasury stock (271,189 shares at cost) (1,445,382) (1,445,382)
------------- -------------
Total stockholders' equity 33,519,345 26,813,826
------------- -------------
Total liabilities and stockholders' equity $ 127,627,500 $ 100,835,003
============= =============
</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, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues:
Transportation - railroad $ 6,902,544 $ 5,366,649 $ 12,483,671 $ 9,675,320
Transportation - motor carrier 1,817,945 -- 1,817,945 --
Manufacturing 11,075,820 5,957,057 19,658,545 10,031,076
Other 396,056 272,597 668,189 624,219
------------ ------------ ------------ ------------
Total operating revenue 20,192,365 11,596,303 34,628,350 20,330,615
------------ ------------ ------------ ------------
Operating expenses:
Transportation - railroad 3,389,206 2,953,778 6,167,810 5,193,585
Transportation - motor carrier 1,594,513 -- 1,594,513 --
Cost of goods sold - manufacturing 8,038,524 4,180,183 14,230,281 7,301,232
Selling, general and administrative 3,019,353 2,338,471 5,765,245 4,149,187
Depreciation and amortization 893,043 673,168 1,594,569 1,243,805
------------ ------------ ------------ ------------
Total operating expenses 16,934,639 10,145,600 29,352,418 17,887,809
------------ ------------ ------------ ------------
Operating income 3,257,726 1,450,703 5,275,932 2,442,806
Interest expense (1,233,017) (823,739) (2,226,195) (1,533,173)
Other income (expense) 406,095 1,420 557,560 (92,328)
Minority interest in income of subsidiary (605,700) (66,060) (867,600) (85,500)
------------ ------------ ------------ ------------
Income from continuing operations before
income taxes 1,825,104 562,324 2,739,697 731,805
Provision for income taxes 427,591 198,528 674,306 255,341
------------ ------------ ------------ ------------
Income from continuing operations 1,397,513 363,796 2,065,391 476,464
Discontinued operations
Loss from operations of discontinued Motor
Carrier segment (less applicable income tax
benefit of $0, $30,000, $40,000 and $68,000
respectively) -- (49,406) (65,241) (111,086)
------------ ------------ ------------ ------------
Net Income $ 1,397,513 $ 314,390 $ 2,000,150 $ 365,378
============ ============ ============ ============
===============================================================================================================
Basic earnings per common share
Continuing operations $ 0.15 $ 0.04 $ 0.22 $ 0.06
Discontinued operations 0.00 0.00 (0.01) (0.01)
------------ ------------ ------------ ------------
Net income $ 0.15 $ 0.04 $ 0.21 $ 0.05
============ ============ ============ ============
Diluted earnings per common share
Continuing operations $ 0.14 $ 0.04 $ 0.21 $ 0.06
Discontinued operations 0.00 0.00 (0.01) (0.01)
------------ ------------ ------------ ------------
Net income $ 0.14 $ 0.04 $ 0.20 $ 0.05
============ ============ ============ ============
Weighted average common shares and common
share equivalents outstanding:
Basic 9,560,522 8,411,252 9,372,579 7,967,944
============ ============ ============ ============
Diluted 10,401,003 9,393,768 10,331,789 8,269,791
============ ============ ============ ============
</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, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,000,150 $ 365,378
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,869,256 1,570,169
Minority interest in income of subsidiary 867,600 85,500
Gain on sale of properties (6,083) (21,938)
Deferred income taxes 493,528 175,261
Changes in operating assets and liabilities, net of acquisitions and
dispositions:
Accounts receivable (2,156,820) (2,164,274)
Inventories (5,725,222) 254,316
Other current assets (1,093,131) (172,043)
Accounts payable 3,210,392 516,507
Accrued expenses (73,194) 151,824
Deposits and other 494,810 2,709
------------ ------------
Net cash (used in) provided by operating activities (118,714) 763,409
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (13,844,788) (2,929,696)
Proceeds from sale of properties 47,659 163,600
Acquisitions, net of cash acquired (1,722,428) (7,389,903)
Deferred acquisition costs and other (209,952) (147,248)
------------ ------------
Net cash used in investing activities (15,729,509) (10,303,247)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 29,636,420 17,299,269
Principal payments on debt and capital leases (16,085,467) (17,248,495)
Sale of common stock 1,032,168 7,589,345
Proceeds from exercise of stock options 771,375 --
Deferred financing costs paid (873) (90,833)
Deferred loan costs paid (208,442) (274,855)
------------ ------------
Net cash provided by financing activities 15,145,181 7,274,431
------------ ------------
Net decrease in cash (703,042) (2,265,407)
Cash, beginning of period 3,745,534 3,879,972
------------ ------------
Cash, end of period $ 3,042,492 $ 1,614,565
============ ============
</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 of a recurring nature, and disclosures
necessary to present fairly the financial position of the Company as of
June 30, 1998 and December 31, 1997, and the results of operations and
cash flows for the six and three months ended June 30, 1998 and 1997.
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 1997 annual report on Form 10-K. Capitalized
terms used but not otherwise defined herein have the meanings set forth
in the Company's 1997 annual report on Form 10-K.
2. EARNINGS PER SHARE:
In 1997, the Company adopted Statement of Accounting Standards No. 128,
"Earnings Per Share", which requires the presentation of both basic and
diluted earnings per share. For the six and three months ended June 30,
1998 and 1997, basic earnings per share is based on the weighted
average number of common shares outstanding during the period. Diluted
earnings per share is based on the sum of the weighted average number
of common shares outstanding plus common stock equivalents arising out
of stock options, warrants and convertible debt. The convertible debt
is anti-dilutive for the six and three months ended June 30, 1997 and
is therefore not included in the computation. Earnings per share
information for 1997 has been restated to conform to the requirements
of the standard.
The following is a summary of the net income available for common
stockholders and weighted average shares for the diluted calculation:
4
<PAGE> 7
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. EARNINGS PER SHARE, continued
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Income from continuing operations $1,398 $ 364 $2,065 $ 476
Interest from convertible debt 25 38 63 --
------ ----- ------ -----
Income from continuing operations
available to common stockholders $1,423 $ 402 $2,128 $ 476
====== ===== ====== =====
Weighted average shares outstanding 9,561 8,411 9,373 7,968
Assumed conversion of options and
warrants 220 173 244 302
Assumed conversion of convertible debt 620 810 714 --
------ ----- ------ -----
Weighted average shares outstanding 10,401 9,394 10,331 8,270
====== ===== ====== =====
</TABLE>
3. INVENTORIES:
Inventories consist of the following as of June 30, 1998 and December
31, 1997:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Raw materials $ 5,991,885 $ 3,404,234
Work in process 1,873,009 1,109,318
Finished goods 1,300,374 300,853
Replacement or repair parts for equipment
and road property 3,311,899 1,054,830
------------ -----------
12,477,167 5,869,235
Less, advances related to materials (5,320) (856,129)
------------ -----------
Inventories in excess of contract advances $ 12,471,847 $ 5,013,106
============ ===========
</TABLE>
4. 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.
5
<PAGE> 8
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following as of June 30,
1998 and December 31, 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Land $17,509,382 $17,360,214
Buildings and improvements 7,609,997 4,526,069
Railroad track and improvements 41,901,167 38,997,858
Locomotives, transportation and other equipment 31,567,042 21,255,647
----------- -----------
98,587,588 82,139,698
Less accumulated depreciation 8,772,078 7,238,862
----------- -----------
$89,815,510 $74,900,836
=========== ===========
</TABLE>
6. ACQUISITION:
In January 1998, the Company acquired, through its wholly owned
subsidiary Kalyn/Siebert, Inc. all of the outstanding stock of Canadian
truck trailer manufacturer Fabrex, Inc. and its affiliate, Service
Remorques Plus, Inc. (collectively "Fabrex") for approximately $1.5
million in cash and 70,000 shares of RailAmerica common stock and
assumption of approximately $1.0 million of long-term debt. Fabrex's
operations have been combined into Kalyn/Siebert Canada, Inc. ("KSC"),
a wholly owned subsidiary of Kalyn/Siebert, Inc. This acquisition has
been accounted for as a purchase and its results have been consolidated
since January 1, 1998. Fabrex, a manufacturer of specialty bulk-hauling
truck trailers used in the solid waste, agricultural and construction
industries, was founded in 1985 and is located in Trois Rivieres,
Quebec.
The following unaudited pro forma summary presents the consolidated
results of operations as if the acquisition of Fabrex has 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>
Six Months
Ended June 30,
1997
--------
<S> <C>
Revenue $ 23,712
Income from continuing operations before taxes 926
Net income $ 496
Net income per share $ 0.06
</TABLE>
6
<PAGE> 9
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. LONG-TERM DEBT:
On June 16, 1998 , the Company's revolving line of credit ("Revolver")
was increased from $40 million to $55 million by National Bank of
Canada as agent for Comerica Bank N.A. and Southtrust Bank, N.A. The
Revolver bears interest, at the option of the Company, at either the
bank's prime rate plus 0.25% or the one, three or six month LIBOR plus
2.5%.
The Company's $2.0 million Series A Convertible debentures were
converted into 375,427 shares of Common Stock in the second quarter of
1998.
8. DISCONTINUED OPERATIONS:
Operating results of the discontinued operations, as shown below,
include the operations of the Motor Carrier division for the three
months ended March 31, 1998 and the six and three months ended June 30,
1997. The motor carrier operations have been included in continuing
operations for the three months ended June 30, 1998 since the sale of
the division was not completed by that time.
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
------------ ----------
1997 1998* 1997
---- ----- ----
(Thousands)
<S> <C> <C> <C>
Revenues $ 1,840 $ 1,827 $ 3,614
Depreciation and amortization 98 95 192
Operating (loss) (31) (35) (80)
Loss before taxes (80) (105) (179)
Benefit for income taxes 31 40 68
Net loss $ (49) $ (65) $ (111)
</TABLE>
* - Includes only three months ended March 31, 1998.
9. COMPREHENSIVE INCOME:
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income", which
established standards for reporting and display of comprehensive income
and its components in a full set of financial statements. Comprehensive
income is defined as the change in stockholders' equity during a period
from transactions from nonowner sources. Comprehensive income consists
of net income and other comprehensive income, which includes all other
nonowner changes in stockholders' equity.
7
<PAGE> 10
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. COMPREHENSIVE INCOME, continued
For the Company, other comprehensive income consists of foreign
currency translation adjustments that amounted to credits of $444,345
and ($58,796) for the six months ended June 30, 1998 and 1997,
respectively. Comprehensive income for the six months ended June 30,
1998 and 1997 amounted to $2,426,494 and $306,582, respectively. The
Cumulative Adjustment amount previously reported as a separate
component of stockholders' equity is now included in Accumulated Other
Comprehensive Income in the Consolidated Balance Sheets.
10. SUBSEQUENT EVENTS:
In July 1998, the Company acquired, through its wholly-owned subsidiary
Plainview Terminal Company, a 60,000 square foot commercial office
building in Boca Raton, Florida.
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") owns and operates short line and regional railroads and provides
freight services over more than 2,400 miles of track in the United States and
the Republic of Chile. RailAmerica also owns a specialty truck trailer
manufacturer, Kalyn/Siebert, Inc. ("KSI") with production facilities located in
Gatesville, Texas and Trois Rivieres, Quebec, Canada. The Company is also a
member of the Great Southern Railway Limited ("GSR") consortium, which operates
the 4,000 mile transcontinental passenger rail service in Australia.
The Company's historical growth has resulted primarily from the
execution of its acquisition strategy and internal growth. In accordance with
its acquisition strategy, in September 1997, 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"). Additionally, in April 1998, the Company, through its
wholly-owned subsidiary Saginaw Valley Railway Company, acquired a 51 mile rail
line in Michigan. The Company expanded its trailer manufacturing operations with
the acquisition of Fabrex, Inc. and its affiliate, Service Remorques Plus, Inc.
(collectively "Fabrex"), in January 1998. Fabrex, located in Trois Rivieres,
Quebec, is a manufacturer of specialty bulk-hauling truck trailers used in the
solid waste, agricultural and construction industries.
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
any other reporting period.
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 lines as of June 30, 1998. These consist of: (i) 187 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 is negotiating to purchase from the
Commonwealth of Pennsylvania and 27 miles of which are operated under a freight
easement with the Commonwealth of Pennsylvania; (v) 10 miles of rail line
9
<PAGE> 12
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 operating pursuant to a contract with the State of Minnesota; (vii)
104 miles of rail line which it owns 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 it owns 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 each customer's local operating area. The
Company's haulage of products in Michigan includes 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 DOMESTIC 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, 1998 and 1997. The results of railroad operations include
the operations of Evansville Terminal Company ("ETC") from July 1, 1996 to
September 30, 1997, Gettysburg Railway from November 1996 to September 1997,
Ferronor from February 20, 1997 and SCXY from September 8, 1997. Consequently,
the results of operations for the six and three months ended June 30, 1998 are
not comparable to the corresponding periods of the prior year 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 Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
------------ ------------ ---------- --------
<S> <C> <C> <C> <C>
Revenue:
Transportation revenue $ 3,539,544 $ 3,717,649 $ 7,013,671 $ 7,349,320
Other revenue 227,024 179,797 351,557 436,799
------------ ----------- ----------- -----------
Total revenue 3,766,568 3,897,446 7,365,228 7,786,119
------------ ----------- ----------- -----------
Operating Expenses:
Maintenance of way 468,710 606,870 994,598 1,195,238
Maintenance of equipment 157,826 161,178 342,302 355,001
Transportation 807,045 899,791 1,629,653 1,737,435
Equipment rental 214,056 225,939 292,226 398,090
General and administrative 728,689 638,866 1,380,208 1,289,335
Depreciation and amortization 390,559 373,108 744,803 744,709
------------ ----------- ----------- -----------
Total operating expenses 2,766,885 2,905,752 5,383,790 5,719,808
------------ ----------- ----------- -----------
Operating income 999,683 991,694 1,981,438 2,066,311
Interest and other expenses 721,316 722,948 1,419,552 1,392,145
------------ ----------- ----------- -----------
Income before income taxes $ 278,367 $ 268,746 $ 561,886 $ 674,166
============ =========== =========== ===========
</TABLE>
COMPARISON OF DOMESTIC RAILROAD OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE
30, 1998 AND 1997.
Operating Revenues. Transportation revenue decreased by $0.3 million,
or 4.6%, to $7.0 million for the six months ended June 30, 1998 from $7.3
million for the six months ended June 30, 1997. The domestic transportation
revenue per carload decreased from $331 to $322 primarily due to the difference
in product mix hauled between 1998 and 1997. Domestic carloads handled totaled
21,793 for the six months ended June 30, 1998, a decrease of 410, or 1.8%,
compared to 22,203 carloads in the prior year period. The decrease was primarily
the result of low agricultural commodity prices, which resulted in commodities
being stored and not shipped during the first six months of 1998.
Other revenues decreased by approximately $0.1 million for the six
months ended June 30, 1998 compared to the prior year period. Other revenues for
the six months ended June 30, 1998 and 1997 consist of gain on sales of railroad
assets, easement sales, railroad lease and rental income and other miscellaneous
income.
Operating expenses. Operating expenses decreased by approximately $0.3
million, or 5.9%, to $5.4 million for the six months ended June 30, 1998 from
$5.7 million for the six months ended June 30, 1997. Operating expenses, as a
percentage of transportation revenue, were 76.8% and 77.8% for the six months
ended June 30, 1998 and 1997, respectively. Management anticipates the operating
ratio to remain fairly constant over the next twelve months at its current level
exclusive of seasonality.
Maintenance of way expenses decreased by approximately $0.2 million, or
16.8%, to $1.0 million for the six months ended June 30, 1998 from $1.2 million
for the six months ended June 30, 1997.
11
<PAGE> 14
Maintenance of equipment expenses remained fairly constant at $0.35
million for the six months ended June 30, 1998 and 1997.
Transportation expense decreased by approximately $0.1 million, or
6.2%, to $1.6 million for the six months ended June 30, 1998 from $1.7 million
for the six months ended June 30, 1997. The decrease was primarily attributable
to the decrease in carloads from 1997 to 1998.
Equipment rental decreased by approximately $0.1 million, or 26.6%, to
$0.3 million for the six months ended June 30, 1998 from $0.4 million for the
six months ended June 30, 1997. The decrease was primarily due to fewer carloads
moving during the period and better utilization of the Company's rail car fleet.
Selling, general and administrative expenses increased by approximately
$0.1 million, or 7.1%, to $1.4 million for the six months ended June 30, 1998
from $1.3 million for the six months ended June 30, 1997.
Interest and Other Expenses. Interest and other expenses remained
fairly constant at $1.4 million for the six months ended June 30, 1998 and 1997.
COMPARISON OF DOMESTIC RAILROAD OPERATING RESULTS FOR THE THREE MONTHS ENDED
JUNE 30, 1998 AND 1997.
Operating Revenues. Transportation revenue decreased by $0.2 million,
or 4.8%, to $3.5 million for the three months ended June 30, 1998 from $3.7
million for the three months ended June 30, 1997. The domestic transportation
revenue per carload decreased from $335 to $323 primarily due to the difference
in product mix hauled. Domestic carloads handled totaled 10,952 for the three
months ended June 30, 1998, a decrease of 150, or 1.4%, compared to 11,102
carloads in the prior year period. The decrease was primarily the result of low
agricultural commodity prices, which resulted in commodities being stored and
not shipped during the second quarter of 1998.
Other revenues remained fairly constant at $0.2 million for the three
months ended June 30, 1998 and 1997. Other revenues consist of gain on sales of
railroad assets, easement sales, railroad lease and rental income and other
miscellaneous income.
Operating expenses. Operating expenses decreased by approximately $0.1
million, or 4.8%, to $2.8 million for the three months ended June 30, 1998 from
$2.9 million for the three months ended June 30, 1997. Operating expenses, as a
percentage of transportation revenue, were 78.2% for each of the three months
ended June 30, 1998 and 1997.
Maintenance of way expenses decreased by approximately $0.1 million, or
22.8%, to $0.5 million for the three months ended June 30, 1998 from $0.6
million for the three months ended June 30, 1997.
Maintenance of equipment expenses remained fairly constant at $0.2
million for the three months ended June 30, 1998 and 1997.
Transportation expense decreased by approximately $0.1 million, or
10.3%, to $0.8 million for the three months ended June 30, 1998 from $0.9
million for the three months ended June 30, 1997.
Equipment rental remained fairly constant at $0.2 million for the three
months ended June 30,
12
<PAGE> 15
1998 and 1997.
Selling, general and administrative expenses increased by approximately
$0.1 million, or 14.1%, to $0.7 million for the three months ended June 30, 1998
from $0.6 million for the three months ended June 30, 1997.
Interest and Other Expenses. Interest and other expenses remained
fairly constant at $0.7 million for the three months ended June 30, 1998 and
1997.
INTERNATIONAL RAILROAD OPERATIONS
Ferronor. In February 1997, the Company, through a newly formed,
wholly-owned subsidiary, RailAmerica de Chile S.A., acquired 55% of the
outstanding voting stock of Empresa de Transporte Ferrovario, S.A. ("Ferronor").
Ferronor owns and operates approximately 1,400 miles of rail line serving
northern Chile. The Company was joined in the purchase of Ferronor by Andres
Pirazzoli y Cia, Ltda. ("APCO"), a Chilean transportation and distribution
company.
Ferronor operates the only north-south railroad in northern Chile,
extending from La Calera near Santiago, where it connects with Chile's southern
railway, Ferrocarril del Pacifico, S.A., to its northern terminus at Iquique,
approximately 120 miles south of the Peruvian border. It also operates several
east-west branch lines that link a number of iron, copper and limestone mines
and production facilities with several Chilean Pacific port cities. Ferronor
also serves Argentina and Bolivia through traffic interchanged with the General
Belgrano Railroad and the Ferrocarriles Antofagasta Bolivia.
The operations of Ferronor are included in the consolidated operations
of the Company from March 1, 1997. As a result, the results of operations for
the six and three months ended June 30, 1998 are not comparable to the
corresponding period of the prior year in certain material respects.
The following table sets forth the operating revenues and expenses for
the Company's international railroad operations for the periods indicated. All
results of operations discussed in this section are for the Company's
international railroads only, unless otherwise indicated.
13
<PAGE> 16
<TABLE>
<CAPTION>
For the Six For the Four
For the Three Months Months Months
Ended June 30, Ended Ended
1998 1997 June 30, 1998 June 30, 1997
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Transportation revenue $ 3,363,000 $ 1,649,000 $ 5,470,000 $ 2,326,000
Other revenue -- -- 21,000 --
----------- ----------- ----------- -----------
Total revenue 3,363,000 1,649,000 5,491,000 2,326,000
----------- ----------- ----------- -----------
Operating Expenses:
Transportation 1,719,000 1,060,000 2,837,000 1,507,821
General and administrative 536,726 353,000 982,853 444,000
Depreciation and amortization 153,000 144,000 249,000 188,305
----------- ----------- ----------- -----------
Total operating expenses 2,408,726 1,557,000 4,068,853 2,140,126
----------- ----------- ----------- -----------
Operating income 954,274 92,000 1,422,147 185,874
Other income (expense) 210,291 54,800 295,920 4,126
Minority interest in earnings (605,700) (66,060) (867,600) (85,500)
----------- ----------- ----------- -----------
Income before income taxes $ 558,865 $ 80,740 $ 850,467 $ 104,500
=========== =========== =========== ===========
</TABLE>
COMPARISON OF INTERNATIONAL RAILROAD OPERATING RESULTS FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997.
Operating Revenues. Transportation revenue increased by $3.1 million,
or 135.2%, to $5.5 million for the six months ended June 30, 1998 from $2.3
million for the six months ended June 30, 1997. Ferronor's carloads handled
totaled 33,659 for the six months ended June 30, 1998, an increase of 25,392, or
307.1%, compared to 8,267 carloads for the six months ended June 30, 1997. The
increase was due to the prior year period including only four months of
operations. In addition, Ferronor began moving iron ore out of the El Algarrabo
mine in late March 1998. This move has significantly increased Ferronor's
carloadings and operating revenue.
Operating expenses. Operating expenses increased by approximately $1.9
million, or 90.1%, to $4.1 million for the six months ended June 30, 1998 from
$2.1 million for the six months ended June 30, 1997. Operating expenses, as a
percentage of transportation revenue, were 74.1% and 92.0% for the six months
ended June 30, 1998 and 1997, respectively. The improvement is primarily due to
cost reductions implemented by the Company including reduction in employees.
Other income (expense). Other income (expense) increased by
approximately $0.3 million to $0.3 million for the six months ended June 30,
1998 from $4,126 for the six months ended June 30, 1997.
COMPARISON OF INTERNATIONAL RAILROAD OPERATING RESULTS FOR THE THREE MONTHS
ENDED JUNE 30, 1998 AND 1997.
Operating Revenues. Transportation revenue increased by $1.7 million,
or 103.9%, to $3.4 million for the three months ended June 30, 1998 from $1.6
million for the three months ended June
14
<PAGE> 17
30, 1997. Ferronor's carloads handled totaled 24,622 for the three months ended
June 30, 1998, an increase of 19,206, or 354.6%, compared to 5,416 carloads in
the three months ended June 30, 1997. The increases were due primarily to
Ferronor beginning rail operations out of the El Algarrabo mine in late March
1998.
Operating expenses. Operating expenses increased by approximately $0.9
million, or 54.7%, to $2.4 million for the three months ended June 30, 1998 from
$1.6 million for the three months ended June 30, 1997. Operating expenses, as a
percentage of transportation revenue, were 71.6% and 94.4% for the three months
ended June 30, 1998 and 1997, respectively. The improvement is primarily due to
cost reductions implemented by the Company including a reduction in employees.
Other income (expense). Other income (expense) increased by
approximately $0.2 million, or 283.7%, to $0.2 million for the three months
ended June 30, 1998 from $54,800 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 periods indicated and
Kalyn/Siebert Canada ("KSC") from January 1, 1998. As a result, the results of
operations for the six and three months ended June 30, 1998 are not comparable
to the prior year period in certain material respects.
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 49.3% of Kalyn's sales for the six
months ended June 30, 1998 and 36.0% of total manufacturing sales for the first
six months of 1998. Management anticipates that the percentage of sales to
government agencies will remain relatively constant over the next twelve months
based upon contracts that Kalyn has entered into with such entities. KSC,
located in Trois Rivieres, Quebec, was established in 1985 and manufactures
bulk-hauling truck trailers. KSC products are marketed to the solid waste,
agricultural and construction industries.
Kalyn's manufacturing operations are conducted in 13 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.
KSC's manufacturing operations are currently being conducted out of a
45,000 square foot facility. In April 1998, KSC purchased a 105,000 square foot
manufacturing facility located adjacent to its current facility. KSC started
limited production in the new facility in June 1998.
15
<PAGE> 18
COMPARISON OF OPERATING RESULTS OF TRAILER MANUFACTURING FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1997
The following table sets forth the income and expense items for the six
months ended June 30, 1998 and 1997 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, 1998 June 30, 1997
------------- -------------
<S> <C> <C> <C> <C>
Net sales $19,658,545 100.0% $10,031,076 100.0%
Cost of goods sold 14,230,281 72.4% 7,301,232 72.8%
----------- ----- ----------- -----
Gross profit 5,428,264 27.6% 2,729,844 27.2%
Selling, general and
administrative expenses 1,601,708 8.2% 913,185 9.1%
Depreciation and amortization 378,193 1.9% 231,340 2.3%
----------- ----- ----------- -----
Income from operations 3,448,363 17.5% 1,585,319 15.8%
Interest and other expenses 159,437 0.8% 128,731 1.3%
----------- ----- ----------- -----
Net Income Before Taxes $ 3,288,926 16.7% $ 1,456,588 14.5%
=========== ===== =========== =====
</TABLE>
Net Sales. Net sales increased by approximately $9.6 million, or 96.0%,
to $19.7 million for the six months ended June 30, 1998 from $10.0 million for
the six months ended June 30, 1997. The net sales increase consisted of $5.3
million in sales from KSC in 1998 and an increase of $4.3 million in Kalyn's
sales. Kalyn sold 452 trailers for the six months ended June 30, 1998 and 320
trailers for the six months ended June 30, 1997. The increase in Kalyn's sales
volume increased net sales by approximately $4.0 million from the first six
months of 1997 to the first six months of 1998. KSC sold 105 trailers for the
six months ended June 30, 1998. Kalyn's average price per trailer sold was
approximately $34,000 for the six months ended June 30, 1998 and $30,000 for the
six months ended June 30, 1997. The increase in average price per trailer
increased Kalyn's sales by approximately $1.3 million. Sales to governmental
agencies represented 36.0% and 40.7% of net sales for the six months ended June
30, 1998 and 1997, respectively. Kalyn's increase in sales for the six months
ended June 30, 1998 compared to the six months ended June 30, 1997 was
principally due to an increase in government contract production. The trailer
manufacturing division had a backlog of orders consisting of approximately $25.4
million at June 30, 1998 compared to $12.5 million at June 30, 1997.
Cost of Goods Sold. Cost of goods sold increased by approximately $6.9
million, or 94.9% to $14.2 million for the six months ended June 30, 1998 from
$7.3 million for the six months ended June 30, 1997. The cost of goods sold
increase consisted of $4.1 million from KSC in 1998 and an increase of $2.8
million in Kalyn's cost of goods sold. Cost of goods sold was 72.4% of net sales
for the six months ended June 30, 1998 compared to 72.8% for the six months
ended June 30, 1997. Kalyn's and KSC's cost of goods sold were 70.5% and 77.5%,
respectively, for the six months ended June 30, 1998. The decrease in Kalyn's
cost of goods sold was partially due to certain fixed costs of manufacturing
being spread over a larger revenue base in 1998. Additionally, government orders
16
<PAGE> 19
represented a higher percentage of the sales in 1998 than in 1997. 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 $0.7 million, or 75.4%, to $1.6
million for the six months ended June 30, 1998 from $0.9 million for the six
months ended June 30, 1997, but decreased slightly as a percentage of net sales.
KSC's selling, general and administrative expenses were $0.5 million for 1998,
while Kalyn's selling, general and administrative expenses increased $0.2
million from the six months ended June 30, 1997 to the six months ended June 30,
1998.
COMPARISON OF OPERATING RESULTS OF TRAILER MANUFACTURING FOR THE THREE MONTHS
ENDED JUNE 30, 1998 AND 1997
The following table sets forth the income and expense items for the
three months ended June 30, 1998 and 1997 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, 1998 June 30, 1997
------------- -------------
<S> <C> <C> <C> <C>
Net sales $11,075,820 100.0% $ 5,957,057 100.0%
Cost of goods sold 8,038,524 72.6% 4,180,183 70.2%
----------- ----- ----------- -----
Gross profit 3,037,296 27.4% 1,776,874 29.8%
Selling, general and
administrative expenses 812,970 7.4% 513,139 8.6%
Depreciation and amortization 182,613 1.6% 116,334 2.0%
----------- ----- ----------- -----
Income from operations 2,041,713 18.4% 1,147,401 19.2%
Interest and other expenses 88,750 0.8% 66,836 1.1%
----------- ----- ----------- -----
Net Income Before Taxes $ 1,952,963 17.6% $ 1,080,565 18.1%
=========== ===== =========== =====
</TABLE>
Net Sales. Net sales increased by approximately $5.1 million, or 85.9%,
to $11.1 million for the three months ended June 30, 1998 from $6.0 million for
the three months ended June 30, 1997. The net sales increase consisted of $3.5
million in sales from KSC in 1998 and an increase of $1.6 million in Kalyn's
sales. Kalyn sold 254 trailers for the three months ended June 30, 1998 and 176
trailers for the three months ended June 30, 1997. The increase in Kalyn's sales
volume increased net sales by approximately $2.5 million from the three months
ended June 30, 1997 to the three months ended June 30, 1998. KSC sold 72
trailers during the three months ended June 30, 1998. Kalyn's average price per
trailer sold was approximately $32,800 for the three months ended June 30, 1998
and $32,700 for the three months ended June 30, 1997. Sales to governmental
agencies represented 41.6% and 46.9% of net sales for the three months ended
June 30, 1998 and 1997,
17
<PAGE> 20
respectively. Kalyn's increase in sales for the three months ended June 30, 1998
compared to the three months ended June 30, 1997 was principally due to an
increase in government contract production.
Cost of Goods Sold. Cost of goods sold increased by approximately $3.9
million, or 92.3%, to $8.0 million for the three months ended June 30, 1998 from
$4.1 million for the three months ended June 30, 1997. The cost of goods sold
increase consisted of $2.7 million from KSC in 1998 and an increase of $1.2
million in Kalyn's cost of goods sold. Cost of goods sold was 72.6% of net sales
for the three months ended June 30, 1998 compared to 70.2% for the three months
ended June 30, 1997. Kalyn's and KSC's cost of goods sold were 70.9% and 76.1%,
respectively, for the three months ended June 30, 1998.
Selling, General and Administrative. Selling, general and
administrative expenses increased approximately $0.3 million, or 58.4%, to $0.8
million for the three months ended June 30, 1998 from $0.5 million for the three
months ended June 30, 1997, but decreased slightly as a percentage of net sales.
KSC's selling, general and administrative expenses were $0.3 million for 1998,
while Kalyn's selling, general and administrative expenses remain fairly
constant at $0.5 million from the three months ended June 30, 1998 and 1997.
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 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 $0.2 million, or 12.1%, to $1.6 million for
the six months ended June 30, 1998 from $1.4 million for the six months ended
June 30, 1997. The increase was related to the additional costs incurred to
manage the subsidiaries acquired since the second quarter of 1997 and to
strengthen the management team in order to handle the Company's current and
anticipated growth.
RailAmerica Equipment Corporation ("REC"). REC leases railroad
equipment to various railroads and shippers. Operating revenue, which is
included in the other operating income in the consolidated income statements,
increased by $0.1 million, or 46.3%, to $0.3 million for the six months ended
June 30, 1998 from $0.2 for the six months ended June 30, 1997. Operating income
remains fairly constant at $0.1 million for the six months ended June 30, 1998
and 1997.
REC's operating revenue increased by $0.1 million, or 59.0%, to $0.2
million for the three months ended June 30, 1998 from $0.1 million for the three
months ended June 30, 1997. Operating
18
<PAGE> 21
income increased by $34,000, or 109.3%, to $65,000 for the three months ended
June 30, 1998 from $31,000 for the three months ended June 30, 1997.
Motor Carrier 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, 1998 and 1997.
Since the Company's acquisition of Steel City Carriers in February 1995, 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 is currently in negotiation to sell
either substantially all of the assets or the stock of the Company's motor
carrier segment.
The motor carrier operations have been included in continuing
operations for the three months ended June 30, 1998. Operating revenue was $1.8
million for the three months ended June 30, 1998. Operating expenses, which
included depreciation of $0.1 million, were $1.9 million for the three months
ended June 30, 1998. This produced an operating loss of approximately $50,000.
Other expenses, which were primarily interest expense, were $0.1 million for the
three months ended June 30, 1998.
Loss from discontinued operations was approximately $111,000 for the
six months ended June 30, 1997 and $49,000 for the three months ended June 30,
1997. Loss from discontinued operations was approximately $65,000 for the three
months ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES - COMBINED OPERATIONS
The discussion of liquidity and capital resources that follows reflects
the consolidated results of the Company, including all subsidiaries.
The Company's cash used in operating activities was $0.1 million for
the six months ended June 30, 1998. The primary use of cash were increases in
accounts receivable and inventory mostly offset by the net income and increase
in accounts payable.
Cash used in investing activities was $15.7 million for the six months
ended June 30, 1998. The Company's main use of cash during the first six months
of 1998 was for the purchase of property, plant and equipment with an aggregate
cost of approximately $13.8 million. Over $7.2 million of these purchases were
by Ferronor to upgrade its track in anticipation of the new contracts which
began in the second half of 1998. In addition, the acquisition of Fabrex used
$1.7 million in cash.
The Company's cash provided by financing activities was $15.1 million
for the six months ended June 30, 1998, consisting of the net proceeds of
approximately $1.0 million from exercise of warrants and sale of stock and $0.8
million from the exercise of stock options. In addition, the Company's net
borrowings increased by $13.5 million primarily due to the above mentioned
capital expenditures at Ferronor.
19
<PAGE> 22
The Company's long term debt represents financing of property and
equipment, as well as the acquisition financing for many of the Company's
subsidiaries. Certain of this indebtedness was refinanced through the Company's
revolving line of credit (the "Revolver") with National Bank of Canada, as
agent. The Revolver bears interest, at the option of the Company, at either the
bank's prime rate plus 0.25% or the one, three or six month LIBOR plus 2.5%. The
Revolver is collateralized by substantially all of the assets of the Company and
certain of its subsidiaries.
On June 16, 1998, the Revolver was increased from $40 million to $55
million by National Bank of Canada, Comerica Bank N.A. and Southtrust Bank, N.A.
at which time the maturity date was extended to May 2001.
As of June 30, 1998, the Company had working capital of $8.7 million
compared to working capital of $5.2 million as of December 31, 1997. The most
significant change related to certain short-term financing that were refinanced
into long-term debt during or after the period-end. Cash on hand as of June 30,
1998 was $3.0 million compared to $3.7 million as of December 31, 1997. The
Company's cash flows from operations historically have been sufficient to meet
its ongoing operating requirements and to satisfy the Company's interest
requirements.
The Company expects that its future cash flows will be sufficient for
its current and contemplated operations for at least the next twelve months, 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 $2.8 million and capital expenditures at Kalyn of approximately
$250,000. In addition, the Company anticipates capital expenditures of
approximately $23.6 million over the next three years related to Ferronor's new
20-year take-or-pay contract with CMH. The Company anticipates paying for this
project expansion with debt financing. The Company also is in the process of
purchasing and equipping an additional facility in Quebec, Canada for its newly
purchased specialty trailer manufacturer. The costs of this project are
estimated at an additional $0.5 million. The Company anticipates this project
will be funded with debt. The Company anticipates spending approximately $1.5
million over the next six months to refurbish the office building that it
purchased in July 1998. The Company anticipates financing this project through
its Revolver. 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. As
of August 1, 1998, the Company had approximately $13.7 million of availability
under the Revolver.
20
<PAGE> 23
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.
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 1933, 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 further growth in
transportation-related assets; the acquisition of additional railroads and other
transportation-related companies; the increased usage of the Company's existing
rail lines; the growth of gross revenues; and the sufficiency of the Company's
cash flows 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:
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 obtaining future government contracts; 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; a decline
in the market acceptability of railroad services; an organization or
unionization of a material segment of the Company's employee base; the effect of
competitive pricing; and 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.
21
<PAGE> 24
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1997 annual meeting on June 18, 1998 at which Gary
O. Marino, Richard Rampell and Douglas R. Nichols were re-elected as Directors
of the Company. In addition, the Company's 1998 Omnibus Executive Compensation
Plan was adopted. At the meeting votes were cast as follows:
<TABLE>
<CAPTION>
In Favor Against Abstentions
--------- ------- -----------
<S> <C> <C> <C>
Re-election of Gary O. Marino as Director 8,071,344 97,792 -0-
Re-election of Richard Rampell as Director 8,071,344 97,792 -0-
Re-election of Douglas R. Nichols as Director 8,071,344 97,792 -0-
Adoption of 1998 Omnibus Executive
Compensation Plan 4,024,428 547,948 34,190
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
a. Exhibits
<S> <C>
3.1 Amended and Restated Articles of Incorporation of Registrant(3)
3.2 By-laws of Registrant(1)
4.1 Form of Common Stock Purchase Rights Agreement, dated as of January 6,
1998, between the Registrant and American Stock Transfer & Trust
Company(10)
10.35 Employment Agreement between Robert B. Coward and Kalyn/Siebert
Incorporated(2)
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.(4)
10.41 Employment Agreement between Gary O. Marino and RailAmerica,
Inc.(11)+
10.43 Stock Option Agreement, dated November 11, 1994, between RailAmerica,
Inc. and Gary O. Marino(3)+
10.45 RailAmerica, Inc. 1995 Non-Employee Director Stock Option Plan(3)
10.46 RailAmerica, Inc. 1995 Employee Stock Purchase Plan(3)
10.47 RailAmerica, Inc. Corporate Senior Executive Bonus Plan(3)+
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.(5)
10.55 Confidential Private Placement Memorandum dated September 20,
1996.(6)
10.56 Stock Purchase Agreement, dated as of September 20, 1996, by and
among Otter Tail Valley Railroad Company, Inc. and Dakota Rail,
Inc.(7)
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
</TABLE>
22
<PAGE> 25
<TABLE>
<S> <C>
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.(8)
10.58 Agreement for sale of certain assets, rights and obligations of
Burlington Northern Railroad Company to Minnesota Northern Railroad,
Inc.(8)
10.59 RailAmerica, Inc. Nonqualified Deferred Compensation Trust.(8)+
10.60 Nonqualified Deferred Compensation Agreement between RailAmerica,
Inc. and Gary O. Marino(8)+
10.63 RailAmerica, Inc. 1998 Executive Incentive Compensation Plan(9)+
21 Subsidiaries of Registrant(11)
27 Financial Data Schedule
</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 a part of the
Registrant's Post-Effective Amendment No. 2 on Form SB-2, dated October 17,
1994, Registration No. 33-49026.
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) Incorporated by reference to the Appendix A of the Company's Proxy
Statement filed with the Security and Exchange Commission on April 30,
1998.
(10) Incorporated by reference to exhibit No. 4.1 filed as part of the
Registrant's Registration Statement on Form 8-A, filed with the Security
and Exchange Commission on January 6, 1998.
(11) Incorporated by reference to the same exhibit number filed as part of the
Company's Form 10-Q for the quarter ended March 31, 1998, filed with the
Securities and Exchange Commission on May 14, 1998.
+ Executive Compensation Plan or Arrangement.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended June 30, 1998.
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: August 10, 1998
By: /s/Gary O. Marino
-------------------------------
Gary O. Marino as Chairman,
Chief Executive Officer and as
Principal Financial Officer
24
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 3,042,492
<SECURITIES> 0
<RECEIVABLES> 11,586,382
<ALLOWANCES> 0
<INVENTORY> 12,471,847
<CURRENT-ASSETS> 29,561,657
<PP&E> 89,815,510
<DEPRECIATION> 0
<TOTAL-ASSETS> 127,627,500
<CURRENT-LIABILITIES> 20,867,200
<BONDS> 56,947,257
0
0
<COMMON> 10,024
<OTHER-SE> 33,509,321
<TOTAL-LIABILITY-AND-EQUITY> 127,627,500
<SALES> 19,658,545
<TOTAL-REVENUES> 34,628,350
<CGS> 14,230,281
<TOTAL-COSTS> 29,352,418
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 2,226,195
<INCOME-PRETAX> 2,739,697
<INCOME-TAX> 674,306
<INCOME-CONTINUING> 2,065,391
<DISCONTINUED> (65,241)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,000,150
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.21
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