<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 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 - 9,688,343 shares as of November 11, 1998
<PAGE> 2
RAILAMERICA, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - September 30, 1998 and
December 31, 1997 1
Consolidated Statements of Income -
For the three and nine months ended
September 30, 1998 and 1997 2
Consolidated Statements of Cash Flows - For the
nine months ended September 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 5 Other Information 24
Item 6 Exhibits and Reports on Form 8-K 24
Signatures
</TABLE>
<PAGE> 3
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,523,931 $ 3,745,534
Accounts receivable 12,260,750 8,388,291
Notes receivable 859,378 1,103,409
Inventories 12,852,106 5,013,106
Other current assets 1,846,232 497,207
------------- -------------
Total current assets 29,342,397 18,747,547
Property, plant and equipment, net 97,652,463 74,900,836
Notes receivable, less current portions 1,286,515 1,339,169
Investment in Great Southern Railway Limited 1,931,492 1,789,995
Other assets 2,779,386 2,021,433
Excess of cost over net assets of companies acquired, net 2,104,461 2,036,023
------------- -------------
Total assets $ 135,096,714 $ 100,835,003
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,937,124 $ 3,923,036
Current maturities of subordinated debt 212,392 212,392
Accounts payable 13,288,065 6,084,119
Accrued expenses and income taxes payable 4,590,267 3,327,497
------------- -------------
Total current liabilities 20,027,848 13,547,044
------------- -------------
Long-term debt, less current maturities 63,645,240 43,875,163
Subordinated debt, less current maturities 761,196 3,265,490
Deferred gain on sale/leaseback 441,220 --
Deferred income taxes 8,276,028 7,067,237
Minority interest 7,703,993 6,266,243
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value, 30,000,000 shares authorized;
10,183,132 issued and 9,787,133 outstanding at September 30, 1998;
9,129,564 issued and 8,858,375 outstanding at December 31, 1997 10,183 9,130
Additional paid-in capital 28,000,446 23,350,732
Retained earnings 8,310,306 4,883,973
Accumulated other comprehensive income 77,021 15,373
Less treasury stock (395,999 and 271,189 shares, respectively, at cost) (2,156,767) (1,445,382)
------------- -------------
Total stockholders' equity 34,241,189 26,813,826
------------- -------------
Total liabilities and stockholders' equity $ 135,096,714 $ 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 three and nine months ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues:
Transportation - railroad $ 8,868,419 $ 5,909,747 $ 21,352,090 $ 15,585,067
Transportation - motor carrier 1,459,643 -- 3,277,588 --
Manufacturing 10,126,386 6,267,837 29,784,931 16,298,913
Other 519,779 956,038 1,187,968 1,580,257
------------ ------------ ------------ ------------
Total operating revenue 20,974,227 13,133,622 55,602,577 33,464,237
------------ ------------ ------------ ------------
Operating expenses:
Transportation - railroad 4,749,144 3,632,157 10,916,954 8,825,742
Transportation - motor carrier 1,293,555 -- 2,888,068 --
Cost of goods sold - manufacturing 6,919,321 4,532,148 21,149,602 11,833,380
Selling, general and administrative 3,287,378 2,346,922 9,052,623 6,496,109
Depreciation and amortization 1,068,401 665,411 2,662,970 1,909,216
------------ ------------ ------------ ------------
Total operating expenses 17,317,799 11,176,638 46,670,217 29,064,447
------------ ------------ ------------ ------------
Operating income 3,656,428 1,956,984 8,932,360 4,399,790
Interest expense (1,371,607) (812,315) (3,597,802) (2,345,488)
Other income (expense) 202,132 553,696 759,692 461,368
Minority interest in income of subsidiary (570,150) (296,340) (1,437,750) (381,840)
------------ ------------ ------------ ------------
Income from continuing operations before
income taxes 1,916,803 1,402,025 4,656,500 2,133,830
Provision for income taxes 490,622 465,013 1,164,928 720,354
------------ ------------ ------------ ------------
Income from continuing operations 1,426,181 937,012 3,491,572 1,413,476
Discontinued operations
Loss from operations of discontinued Motor
Carrier segment (less applicable income tax
benefit of $0, $28,000, $40,000 and $96,000
respectively) -- (45,762) (65,241) (156,848)
------------ ------------ ------------ ------------
Net Income $ 1,426,181 $ 891,250 $ 3,426,331 $ 1,256,628
============ ============ ============ ============
===================================================================================================================================
Basic earnings per common share
Continuing operations $ 0.15 $ 0.11 $ 0.37 $ 0.17
Discontinued operations 0.00 (0.01) (0.01) (0.02)
------------ ------------ ------------ ------------
Net income $ 0.15 $ 0.10 $ 0.36 $ 0.15
============ ============ ============ ============
Diluted earnings per common share
Continuing operations $ 0.14 $ 0.10 $ 0.35 $ 0.17
Discontinued operations 0.00 0.00 (0.01) (0.02)
------------ ------------ ------------ ------------
Net income $ 0.14 $ 0.10 $ 0.34 $ 0.15
============ ============ ============ ============
Weighted average common shares outstanding:
Basic 9,781,752 8,477,995 9,508,970 8,134,595
============ ============ ============ ============
Diluted 10,350,482 9,522,653 10,338,020 9,227,013
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
2
<PAGE> 5
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,426,331 $ 1,256,628
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,061,196 2,478,972
Minority interest in income of subsidiary 1,437,750 381,840
Gain on sale of properties (48,659) (634,228)
Write-off of deferred acquisition costs 109,756 --
Deferred income taxes 768,995 556,973
Changes in operating assets and liabilities,
net of acquisitions and dispositions:
Accounts receivable (2,762,467) (966,211)
Inventories (6,105,481) (1,364,434)
Other current assets (1,337,805) 13,793
Accounts payable 5,573,953 (608,732)
Accrued expenses 1,213,380 31,370
Deposits and other 131,163 (132,055)
------------ ------------
Net cash provided by operating activities 5,468,112 1,013,916
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (23,885,220) (4,743,361)
Proceeds from sale of properties 1,681,229 268,570
Acquisitions, net of cash acquired (1,722,428) (7,389,903)
Deferred acquisition costs and other (257,857) (359,222)
------------ ------------
Net cash used in investing activities (24,184,276) (12,223,916)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 42,632,181 23,098,787
Principal payments on debt and capital leases (26,925,936) (20,339,305)
Sale of common stock 1,032,168 8,271,818
Proceeds from exercise of stock options 799,875 --
Purchase of treasury stock (711,385) --
Deferred financing costs paid (873) (308,218)
Deferred loan costs paid (331,469) (288,601)
------------ ------------
Net cash provided by financing activities 16,494,561 10,434,481
------------ ------------
Net decrease in cash (2,221,603) (775,519)
Cash, beginning of period 3,745,534 3,879,972
------------ ------------
Cash, end of period $ 1,523,931 $ 3,104,453
============ ============
</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 of RailAmerica, Inc. and all of
its consolidated subsidiaries, (the "Company"), 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
September 30, 1998 and December 31, 1997, and the results of operations
and cash flows for the three and nine months ended September 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 three and nine months ended
September 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. 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 Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Income from continuing operations $ 1,426 $ 937 $ 3,492 $ 1,413
Interest from convertible debt 12 38 75 114
------- ------- ------- -------
Income from continuing operations
available to common stockholders $ 1,438 $ 975 $ 3,567 $ 1,527
======= ======= ======= =======
Weighted average shares outstanding 9,782 8,478 9,509 8,135
Assumed conversion of options and
warrants 171 235 220 282
Assumed conversion of convertible debt 397 810 609 810
------- ------- ------- -------
Weighted average shares outstanding 10,350 9,523 10,338 9,227
======= ======= ======= =======
</TABLE>
3. INVENTORIES:
Inventories consist of the following as of September 30, 1998 and
December 31, 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Raw materials $ 6,478,340 $ 3,404,234
Work in process 2,501,489 1,109,318
Finished goods 1,162,451 300,853
Replacement or repair parts for equipment
and road property 3,142,167 1,054,830
----------- -----------
13,284,447 5,869,235
Less, advances related to materials 432,341 856,129
----------- -----------
Inventories in excess of contract advances $12,852,106 $ 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 and the Company's
valuation allowance on Ferronor's net operating loss carry forward.
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 September
30, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Land $ 19,405,361 $ 17,360,124
Buildings and improvements 10,685,859 4,526,069
Railroad track and improvements 43,095,518 38,997,858
Locomotives, transportation and other equipment 33,812,016 21,255,647
------------ ------------
106,998,754 82,139,698
Less accumulated depreciation 9,346,291 7,238,862
------------ ------------
$ 97,652,463 $ 74,900,836
============ ============
</TABLE>
6. ACQUISITION:
In January 1998, the Company acquired, through its wholly owned
subsidiary Kalyn/Siebert, Inc. ("KSI"), 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,
$.001 par value ("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 KSI.
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 financial data present the
consolidated results of operations of the Company 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).
Nine Months
Ended September 30,
1997
-------------------
Revenue $38,537
Income from continuing operations before taxes 2,426
Net income $ 1,453
Net income per share - Basic $0.18
6
<PAGE> 9
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. ACQUISITIONS, continued
In August 1998, the Company, through its newly formed, wholly-owned
subsidiary, Ventura County Railroad Company, Inc. ("VCRR"), entered
into a long term lease/purchase agreement to operate a 13-mile rail
line serving the Port of Hueneme and the Oxnard Harbor District in
Oxnard, California, located approximately 50 miles north of Los
Angeles. VCRR's operations commenced September 1, 1998 and are included
in the results of domestic rail operations as of that date.
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%. On September 30, 1998, the Company accepted a proposal by
National Bank of Canada as agent to increase the existing credit
facility to $100 million for purposes of future acquisitions of
transportation related businesses.
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. In the third quarter of 1998, $345,000 of KSI's convertible
subordinated debentures were converted into 153,333 shares of Common
Stock.
8. 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)
8. COMPREHENSIVE INCOME, continued
For the Company, other comprehensive income consists of foreign
currency translation adjustments that amounted to $61,648 and
($158,421) for the nine months ended September 30, 1998 and 1997,
respectively. Comprehensive income for the nine months ended September
30, 1998 and 1997 amounted to $3,487,981 and $1,098,207, 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.
9. DISCONTINUED OPERATIONS:
Operating results of the discontinued operations, as shown below,
include the operations of the Motor Carrier segment for the three
months ended March 31, 1998 and the three and nine months ended
September 30, 1997. The motor carrier operations have been included in
continuing operations for the nine months ended September 30, 1998,
since the disposition of the segment was not completed by that time.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- ---------------------
1997 1998* 1997
------------- ------- -------
(Thousands)
<S> <C> <C> <C>
Revenues $ 1,745 $ 1,827 $ 5,358
Depreciation and amortization 98 95 290
Operating income (loss) 7 (35) (73)
Loss before taxes (74) (105) (253)
Benefit for income taxes 28 40 96
Net loss $ (46) $ (65) $ (157)
</TABLE>
* - Includes only three months ended March 31, 1998.
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. Additionally, the Company
is 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. In August 1998, the Company, through its new subsidiary,
Ventura County Railroad Company, Inc. ("VCRR"), entered into a long term
lease/purchase agreement to operate a 13-mile rail line serving the Port of
Hueneme and the Oxnard Harbor District in Oxnard, California, located
approximately 50 miles north of Los Angeles. VCRR's operations commenced
September 1, 1998. 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, Canada, 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, motor carrier
operations and corporate overhead.
RAILROAD OPERATIONS
The Company's railroad subsidiaries operated over 2,400 miles of rail
lines as of September 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
9
<PAGE> 12
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 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; (xii) 13
miles of rail line in California which are operated under a long term
lease/purchase agreement; and (xiii) and 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 agricultural commodities, coal, 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 California consists of finished autos,
chemicals, plastic and paper products. The Company's haulage of products in
Chile consists of iron ore, limestone, copper and other commodities.
RESULTS OF DOMESTIC RAILROAD OPERATIONS
The discussion of results of operations that follows reflects the
consolidated results of the Company's domestic railroad operations for the three
and nine months ended September 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, and SCXY from September 8, 1997. In addition, the results of
railroad operations includes VCRR from September 1, 1998. Consequently, the
results of operations for the three and nine months ended September 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 Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Transportation revenue $ 4,047,448 $ 3,544,747 $11,061,119 $10,894,067
Other revenue 216,631 683,354 568,188 1,120,153
----------- ----------- ----------- -----------
Total revenue 4,264,079 4,228,101 11,629,307 12,014,220
----------- ----------- ----------- -----------
Operating Expenses:
Maintenance of way 480,332 538,261 1,474,930 1,733,499
Maintenance of equipment 159,775 154,744 502,077 509,745
Transportation 905,497 944,229 2,535,150 2,681,664
Equipment rental 152,843 207,978 445,069 606,068
General and administrative 772,694 691,326 2,152,902 1,980,661
Depreciation and amortization 415,217 376,910 1,160,020 1,121,619
----------- ----------- ----------- -----------
Total operating expenses 2,886,358 2,913,448 8,270,148 8,633,256
----------- ----------- ----------- -----------
Operating income 1,377,721 1,314,653 3,359,159 3,380,964
Interest and other expenses 757,306 712,154 2,176,858 2,104,299
----------- ----------- ----------- -----------
Income before income taxes $ 620,415 $ 602,499 $ 1,182,301 $ 1,276,665
=========== =========== =========== ===========
</TABLE>
COMPARISON OF DOMESTIC RAILROAD OPERATING RESULTS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997.
OPERATING REVENUES. Transportation revenue increased by $0.5 million, or
14.2%, to $4.0 million for the three months ended September 30, 1998 from $3.5
million for the three months ended September 30, 1997. The domestic
transportation revenue per carload decreased from $312 to $309 primarily due to
the difference in product mix hauled. Domestic carloads handled totaled 13,097
for the three months ended September 30, 1998, an increase of 1,750 or 15.4%,
compared to 11,347 carloads in the prior year period. The increase was primarily
the result of agricultural commodities being shipped in the third quarter of
1998 which were held in stock in prior quarters of 1998. Domestic carloads
handled by comparable railroad properties increased by 10.6%.
Other revenues decreased by approximately $0.5 million, or 68.3%, to
$0.2 million for the three months ended September 30, 1998 from $0.7 million for
the three months ended September 30, 1997. Other revenues consist of gain on
sales of railroad assets, easement sales, railroad lease and rental income and
other miscellaneous income. The decrease was primarily due to certain gains
recognized in the third quarter of 1997 from sales of assets.
OPERATING EXPENSES. Operating expenses remained fairly constant at $2.9
million for the three months ended September 30, 1998 and 1997. Operating
expenses, as a percentage of transportation revenue, were 71.3% and 82.2%,
respectively, for the three months ended September 30, 1998 and 1997. The
decrease was primarily due to the increased traffic in 1998.
Maintenance of way, maintenance of equipment and transportation expenses
all remained fairly constant for the three months ended September 30, 1998 and
1997.
11
<PAGE> 14
Equipment rental decreased by approximately $0.1 million, or 26.5%, for
the three months ended September 30, 1998 as compared to the prior year period.
The decrease is primarily due to increased utilization of the Company's leased
railcar fleet.
General and administrative expenses increased by approximately $0.1
million, or 11.8%, to $0.8 million for the three months ended September 30, 1998
from $0.7 million for the three months ended September 30, 1997.
INTEREST AND OTHER EXPENSES. Interest and other expenses remained fairly
constant at $0.7 million for the three months ended September 30, 1998 and 1997.
COMPARISON OF DOMESTIC RAILROAD OPERATING RESULTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997.
OPERATING REVENUES. Transportation revenue increased by $0.2 million, or
1.5%, to $11.1 million for the nine months ended September 30, 1998 from $10.9
million for the nine months ended September 30, 1997. The domestic
transportation revenue per carload decreased from $325 to $317 primarily due to
the difference in product mix hauled between 1998 and 1997. Domestic carloads
handled totaled 34,888 for the nine months ended September 30, 1998, an increase
of 1,344 or 4.0%, compared to 33,544 carloads in the prior year period. Domestic
carloads handled by comparable railroad properties, which represent railroads
operated for each nine-month period ending September 30, 1998 and 1997,
increased by 2.0%.
Other revenues decreased by approximately $0.6 million, or 49.3%, for the
nine months ended September 30, 1998 compared to the prior year period. Other
revenues for the nine months ended September 30, 1998 and 1997 consist of gain
on sales of railroad assets, easement sales, railroad lease and rental income
and other miscellaneous income. The decrease was primarily due to certain gains
recognized in the first nine months of 1997 from sales of assets.
OPERATING EXPENSES. Operating expenses decreased by $0.4 million, or
4.2%, to $8.3 million for the nine months ended September 30, 1998 from $8.6
million for the nine months ended September 30, 1997. Operating expenses, as a
percentage of transportation revenue, were 74.8% and 79.2% for the nine months
ended September 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 $0.3 million, or
14.9%, to $1.5 million for the nine months ended September 30, 1998 from $1.7
million for the nine months ended September 30, 1997. The decrease was primarily
due to increased track work being performed in Texas and Michigan in 1997 as
part of maintenance programs.
Maintenance of equipment expenses remained fairly constant at $0.5
million for the nine months ended September 30, 1998 and 1997.
12
<PAGE> 15
Transportation expense decreased by approximately $0.1 million, or 5.5%,
to $2.5 million for the nine months ended September 30, 1998 from $2.7 million
for the nine months ended September 30, 1997.
Equipment rental decreased by approximately $0.2 million, or 26.6%, to
$0.4 million for the nine months ended September 30, 1998 from $0.6 million for
the nine months ended September 30, 1997. The decrease is primarily due to
increased utilization of the Company's leased railcar fleet.
General and administrative expenses increased by approximately $0.2
million, or 8.7%, to $2.2 million for the nine months ended September 30, 1998
from $2.0 million for the nine months ended September 30, 1997.
INTEREST AND OTHER EXPENSES. Interest and other expenses increased by
approximately $0.1 million, or 3.4%, to $2.2 million for the nine months ended
September 30, 1998 from $2.1 million for the nine months ended September 30,
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
nine months ended September 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 Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Transportation revenue $ 4,820,971 $ 2,365,000 $ 10,290,971 $ 4,691,000
Other revenue 16,029 175,000 37,029 175,000
------------ ------------ ------------ ------------
Total revenue 4,837,000 2,540,000 10,328,000 4,866,000
------------ ------------ ------------ ------------
Operating Expenses:
Transportation 3,022,000 1,718,305 5,859,000 3,226,126
General and administrative 423,773 387,000 1,406,626 831,000
Depreciation and amortization 222,000 127,695 471,000 316,000
------------ ------------ ------------ ------------
Total operating expenses 3,667,773 2,233,000 7,736,626 4,373,126
------------ ------------ ------------ ------------
Operating income 1,169,227 307,000 2,591,374 492,874
Other income (expense) 34,227 351,534 330,147 355,660
Minority interest in earnings (570,150) (296,340) (1,437,750) (381,840)
------------ ------------ ------------ ------------
Income before income taxes $ 633,304 $ 362,194 $ 1,483,771 $ 466,694
============ ============ ============ ============
</TABLE>
COMPARISON OF INTERNATIONAL RAILROAD OPERATING RESULTS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997.
OPERATING REVENUES. Transportation revenue increased by $2.5 million, or
103.8%, to $4.8 million for the three months ended September 30, 1998 from $2.4
million for the three months ended September 30, 1997. Ferronor's carloads
handled totaled 17,167 for the three months ended September 30, 1998, an
increase of 10,786, or 169.0%, compared to 6,381 carloads in the three months
ended September 30, 1997. The increases were due primarily to Ferronor beginning
rail operations out of the Los Colorados mine in July 1998.
OPERATING EXPENSES. Operating expenses increased by approximately $1.5
million, or 64.3%, to $3.7 million for the three months ended September 30, 1998
from $2.2 million for the three months ended September 30, 1997. The increases
were due primarily to Ferronor beginning rail operations out of the Los
Colorados mine in July 1998. Operating expenses, as a percentage of
transportation revenue, were 76.1% and 94.4% for the three months ended
September 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) decreased by approximately
$0.3 million, or 90.3%, to $34,227 for the three months ended September 30, 1998
from $351,534 for the three months ended September 30, 1997.
COMPARISON OF INTERNATIONAL RAILROAD OPERATING RESULTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997.
OPERATING REVENUES. Transportation revenue increased by $5.6 million,
or 119.4%, to $10.3
14
<PAGE> 17
million for the nine months ended September 30, 1998 from $4.7 million for the
nine months ended September 30, 1997. Ferronor's carloads handled totaled 50,826
for the nine months ended September 30, 1998, an increase of 36,178, or 247.0%,
compared to 14,648 carloads for the nine months ended September 30, 1997. The
increase was partially due to the prior year period including only seven months
of operations. In addition, Ferronor began moving iron ore out of the El
Algarrabo mine in late March 1998 and the Los Colorados mine in July 1998. These
moves have significantly increased Ferronor's car loadings and operating
revenue.
OPERATING EXPENSES. Operating expenses increased by approximately $3.4
million, or 76.9%, to $7.7 million for the nine months ended September 30, 1998
from $4.4 million for the nine months ended September 30, 1997. The increase was
partially due to the prior year period including only seven months of operations
in addition to Ferronor commencing movement of iron ore out of the El Algarrabo
mine in late March 1998 and the Los Colorados mine in July 1998. Operating
expenses, as a percentage of transportation revenue, were 75.2% and 93.2% for
the nine months ended September 30, 1998 and nine months ended September 30,
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) decreased by approximately
$0.1 million, or 7.2%, to $0.3 million for the nine months ended September 30,
1998 from $0.4 million for the nine months ended September 30, 1997.
TRAILER MANUFACTURING OPERATIONS
The discussion of results of operations that follows reflects the results
of Kalyn/Siebert, Inc. ("KSI") for the periods indicated and Kalyn/Siebert
Canada ("KSC") from January 1, 1998, the effective date of the Company's
acquisition of Fabrex, Inc. and its affiliate. As a result, the results of
operations for the three and nine months ended September 30, 1998 are not
comparable to the prior year period in certain material respects.
KSI, located in Gatesville, Texas, was established in 1968 and
manufactures a broad range of specialty truck trailers. KSI products are
marketed to customers in the construction, trucking, agricultural, railroad,
utility and oil industries. In addition, a substantial portion of KSI's sales
are to the military and several other local and federal government agencies.
Government sales represented approximately 49.1% of KSI's sales for the nine
months ended September 30, 1998 and 35.9% of total manufacturing sales for the
first nine 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 KSI 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.
KSI's manufacturing operations are conducted in thirteen Company-owned
buildings, totaling
15
<PAGE> 18
approximately 198,000 square feet on a 25.5 acre site, which were constructed
over the period 1969 to 1997. KSI 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 KSI trailer design. KSI 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 and expects the facility to
be fully operational by early 1999.
COMPARISON OF OPERATING RESULTS OF TRAILER MANUFACTURING FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997
The following table sets forth the income and expense items for the three
months ended September 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
-----------------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------ ------------------------
<S> <C> <C> <C> <C>
Net sales $10,126,386 100.0% $ 6,267,837 100.0%
Cost of goods sold 6,919,321 68.3% 4,532,148 72.3%
----------- ------- ----------- -------
Gross profit 3,207,065 31.7% 1,735,689 27.7%
Selling, general and
administrative expenses 876,794 8.7% 495,486 7.9%
Depreciation and amortization 254,430 2.5% 116,850 1.9%
----------- ------- ----------- -------
Income from operations 2,075,841 20.5% 1,123,353 17.9%
Interest and other expenses 114,936 1.1% 71,434 1.1%
----------- ------- ----------- -------
Income before taxes $ 1,960,905 19.4% $ 1,051,919 16.8%
=========== ======= =========== =======
</TABLE>
NET SALES. Net sales increased by approximately $3.8 million, or 61.6%,
to $10.1 million for the three months ended September 30, 1998 from $6.3 million
for the three months ended September 30, 1997. The net sales increase consisted
of $2.7 million in sales from KSC in 1998 and an increase of $1.1 million in
KSI's sales. KSI sold 211 trailers for the three months ended September 30, 1998
and 202 trailers for the three months ended September 30, 1997. The increase in
KSI's sales volume increased net sales for the three months ended September 30,
1998 by approximately $0.3 million compared to the three months ended September
30, 1997. KSC sold 69 trailers during the three months ended September 30, 1998.
KSI's average price per trailer sold was approximately $34,900 for the three
months ended September 30, 1998 and $31,000 for the three months ended September
30, 1997. The increase in average price per trailer increased KSI's sales by
approximately $0.8 million. Sales to governmental agencies represented 48.8% and
35.0% of net sales for the three months ended September 30, 1998 and 1997,
respectively. KSI's increase in sales for the three months ended September 30,
1998 compared to the three months ended September 30, 1997 was
16
<PAGE> 19
principally due to an increase in government contract production.
COST OF GOODS SOLD. Cost of goods sold increased by approximately $2.4
million, or 52.7% to $6.9 million for the three months ended September 30, 1998
from $4.5 million for the three months ended September 30, 1997. The cost of
goods sold increase consisted of $2.1 million from KSC in 1998 and an increase
of $0.3 million in KSI's cost of goods sold. Cost of goods sold was 68.3% of net
sales for the three months ended September 30, 1998 compared to 72.3% for the
three months ended September 30, 1997. KSI's and KSC's cost of goods sold were
65.1% and 77.3%, respectively, for the three months ended September 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased approximately $0.4 million, or 77.2%, to $0.9
million for the three months ended September 30, 1998 from $0.5 million for the
three months ended September 30, 1997. KSC's selling, general and administrative
expenses were $0.3 million for 1998, while KSI's selling, general and
administrative expenses increased approximately $0.1 million, or 27.2%, to $0.6
million for the three months ended September 30, 1998 from $0.5 million for the
three months ended September 30, 1997.
COMPARISON OF OPERATING RESULTS OF TRAILER MANUFACTURING FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997
The following table sets forth the income and expense items for the
nine months ended September 30, 1998 and 1997 and the percentage relationship of
income and expense items to net sales for the periods indicated:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-----------------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------ ------------------------
<S> <C> <C> <C> <C>
Net sales $29,784,931 100.0% $16,298,913 100.0%
Cost of goods sold 21,149,602 71.0% 11,833,380 72.6%
----------- ------- ----------- -------
Gross profit 8,635,329 29.0% 4,465,533 27.4%
Selling, general and
administrative expenses 2,478,502 8.3% 1,408,671 8.6%
Depreciation and amortization 632,623 2.1% 348,190 2.1%
----------- ------- ----------- -------
Income from operations 5,524,204 18.5% 2,708,672 16.6%
Interest and other expenses 274,373 0.9% 200,165 1.2%
----------- ------- ----------- -------
Income before taxes $ 5,249,831 17.6% $ 2,508,507 15.4%
=========== ======= =========== =======
</TABLE>
NET SALES. Net sales increased by approximately $13.5 million, or
82.7%, to $29.8 million for the nine months ended September 30, 1998 from $16.3
million for the nine months ended September 30, 1997. The net sales increase
consisted of $8.0 million in sales from KSC in 1998 and an increase of $5.5
million in KSI's sales. KSI sold 662 trailers for the nine months ended
September 30, 1998 and 522 trailers for the nine months ended September 30,
1997. The increase in KSI's sales volume increased net sales for the first nine
months of 1998 by approximately $4.4 million compared to the first nine months
of 1997. KSC sold 174 trailers for the nine months ended
17
<PAGE> 20
September 30, 1998. KSI's average price per trailer sold was approximately
$32,900 for the nine months ended September 30, 1998 and $31,200 for the nine
months ended September 30, 1997. The increase in average price per trailer
increased KSI's sales by approximately $1.1 million. Sales to governmental
agencies represented 35.9% and 38.4% of net sales for the nine months ended
September 30, 1998 and 1997, respectively. KSI's increase in sales for the nine
months ended September 30, 1998 compared to the nine months ended September 30,
1997 was principally due to an increase in government contract production. The
trailer manufacturing division had a backlog of orders consisting of
approximately $22.5 million at September 30, 1998 compared to $22.2 million at
September 30, 1997.
COST OF GOODS SOLD. Cost of goods sold increased by approximately $9.3
million, or 78.7% to $21.1 million for the nine months ended September 30, 1998
from $11.8 million for the nine months ended September 30, 1997. The cost of
goods sold increase consisted of $6.2 million from KSC in 1998 and an increase
of $3.1 million in KSI's cost of goods sold. Cost of goods sold was 71.0% of net
sales for the nine months ended September 30, 1998 compared to 72.6% for the
nine months ended September 30, 1997. KSI's and KSC's cost of goods sold were
68.6% and 77.4%, respectively, for the nine months ended September 30, 1998. The
decrease in KSI'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 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.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased approximately $1.1 million, or 75.9%, to $2.5
million for the nine months ended September 30, 1998 from $1.4 million for the
nine months ended September 30, 1997, but decreased slightly as a percentage of
net sales. KSC's selling, general and administrative expenses were $0.7 million
for 1998, while KSI's selling, general and administrative expenses increased
$0.4 million from the nine months ended September 30, 1997 compared to the nine
months ended September 30, 1998.
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 three and nine months ended September 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.
Management is currently in negotiation to dispose of either substantially all of
the assets or the stock of the Company's motor carrier segment.
18
<PAGE> 21
The following table sets forth the operating revenues and expenses for the
Company's motor carrier operations for the three and nine months ended September
30, 1998 and 1997.
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Transportation revenue $ 1,459,643 $ 1,745,262 $ 5,104,862 $ 5,290,396
Operating Expenses:
Transportation 1,293,555 1,507,713 4,498,739 4,592,210
General and administrative 114,609 133,026 440,207 421,695
Depreciation and amortization 101,460 97,536 304,515 285,209
----------- ----------- ----------- -----------
Total operating expenses 1,509,624 1,738,275 5,243,461 5,299,114
----------- ----------- ----------- -----------
Operating Income (expense) (49,981) 6,987 (138,599) (8,718)
Other expense 82,044 77,491 228,022 196,669
----------- ----------- ----------- -----------
Loss before income taxes $ 132,025 $ 70,504 $ 366,621 $ 205,387
=========== =========== =========== ===========
</TABLE>
COMPARISON OF MOTOR CARRIER OPERATING RESULTS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997
The results of motor carrier operations have been included in continuing
operations for the three months ended September 30, 1998 and as discontinued
operations for the three months ended September 30, 1997, as previously
reported.
Operating revenue decreased $0.3 million, or 16.4%, to $1.5 million for
the three months ended September 30, 1998 from $1.8 million for the three months
ended September 30, 1997. The decrease was primarily due to a temporary shut
down at one of Steel City's largest customers.
OPERATING EXPENSES. Operating expenses decreased $0.2 million, or 13.2%,
to $1.5 million for the three months ended September 30, 1998 from $1.7 million
for the three months ended September 30, 1997. Operating expenses, as a
percentage of operating revenue, were 103.4% and 99.6% for the three months
ended September 30, 1998 and 1997, respectively. The increase as a percentage of
revenue was primarily due to certain fixed costs being spread over a lower
revenue base.
Transportation expense decreased $0.2 million, or 14.2%, to $1.3 million
for the three months ended September 30, 1998 from $1.5 million for the three
months ended September 30, 1997. The decrease was primarily due to variable
costs related to the decreased level of operating revenue.
General and administrative expenses, depreciation and amortization and
other expense all remained fairly constant for the three months ended September
30, 1998 and 1997.
COMPARISON OF MOTOR CARRIER OPERATING RESULTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997
The results of motor carrier operations have been included in continuing
operations
19
<PAGE> 22
commencing April 1, 1998, as disposal of the segment was not completed within
twelve months. The results of motor carrier operations have been included as
discontinued operations for the nine months ended September 30, 1997, as
previously reported.
Operating revenue decreased $0.2 million, or 3.5%, to $5.1 million for
the nine months ended September 30, 1998 from $5.3 million for the nine months
ended September 30, 1997. The decrease was primarily due to a temporary shut
down at one of Steel City's largest customers during the third quarter of 1998.
OPERATING EXPENSES. Operating expenses decreased $0.1 million, or 1.1%,
to $5.2 million for the nine months ended September 30, 1998 from $5.3 million
for the nine months ended September 30, 1997. Operating expenses, as a
percentage of operating revenue, were 102.7% and 100.2% for the nine months
ended September 30, 1998 and 1997, respectively. The increase as a percentage of
revenue was primarily due to certain fixed costs being spread over a lower
revenue base.
Transportation expense decreased $0.1 million, or 2.0%, to $4.5 million
for the nine months ended September 30, 1998 from $4.6 million for the nine
months ended September 30, 1997. The decrease was primarily due to variable
costs related to the decreased level of operating revenue.
General and administrative expenses, depreciation and amortization and
other expense all remained fairly constant for the nine months ended September
30, 1998 and 1997.
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 and tax return preparation. The
Company believes that this presentation will facilitate a better understanding
of the changes in the results of the Company's operations. Corporate overhead,
which is included in selling, general and administrative expenses in the
consolidated statements of income, increased by approximately $0.5 million, or
19.7%, to $2.7 million for the nine months ended September 30, 1998 from $2.2
million for the nine months ended September 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.
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 $5.5 million for
the nine months ended September 30, 1998.
20
<PAGE> 23
Cash used in investing activities was $24.2 million for the nine months
ended September 30, 1998. The Company's main use of cash during the first nine
months of 1998 was for the purchase of property, plant and equipment with an
aggregate cost of approximately $23.9 million. Over $10.4 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 $16.5 million for
the nine months ended September 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 $15.7 million primarily due to the above mentioned
capital expenditures by Ferronor.
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. The Revolver balance as of September 30, 1998 was
$43.7 million.
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.
On September 30, 1998, the Company accepted a proposal by National Bank
of Canada as agent to increase the Revolver to $100 million for purposes of
future acquisitions of transportation related businesses.
As of September 30, 1998, the Company had working capital of $9.3 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 are being
converted into long-term debt. Cash on hand as of September 30, 1998 was $1.5
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 KSI of approximately
$250,000. In addition, the Company anticipates capital expenditures of
approximately $13.2 million over the next three years related to Ferronor's new
20-year take-or-pay contract. The Company anticipates paying for this project
expansion with debt financing. The
21
<PAGE> 24
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 $2.5
million. The Company anticipates this project will be funded through the
issuance of additional 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
acquisitions 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 November 1, 1998, the Company had approximately $11.3 million of availability
under the Revolver.
INFLATION
Inflation in recent years has not had a significant impact on the
Company's operations. The Company believes that inflation will not adversely
affect the Company in the future unless it increases substantially and the
Company is unable to pass through such increases in its freight rates and
trailer prices.
IMPACT OF YEAR 2000
The "Year 2000 Issue" is the result of computer programs that were
written using two digits rather than four to define the applicable year. If the
Company's computer programs with date-sensitive functions are not Year 2000
compliant, they may recognize a date "00" as the Year 1900 rather than the Year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, inability to interchange information with connecting
railroads or engage in similar normal business activities
Many of our systems and related software are currently Year 2000
compliant and we have a program in place designed to bring the remaining
software and systems into Year 2000 compliance in time to minimize any
significant detrimental affect on operations. We are utilizing internal
personnel and outside vendors to identify Year 2000 problems, modify and/or
update programs and hardware and test the modifications.
We rely on third parties, particularly the Class I railroads, for much of
our information in our
22
<PAGE> 25
domestic rail operations. In addition, our trailer manufacturing segment relies
heavily on third party suppliers for its raw materials. We have initiated
efforts to evaluate the status of these suppliers' efforts and to determine
alternatives and contingency plan requirements. An inability of a connecting
railroad to process information could cause delays in services to customers and
the inability of the Company to invoice and collect on shipments. Failure of a
third party supplier to deliver parts to our manufacturing facilities could
cause either a slow down in production and/or a temporary shut down of the
facility.
The total costs associated with required modifications to become Year
2000 compliant is not expected to be material to the Company's financial
position. The estimated total cost of the Year 2000 Project is approximately
$0.25 million. The total amount expended through September 30, 1998 is
approximately $0.15 million.
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third party suppliers and customers,
the Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Company believes that, with
the implementation of new business systems and completion of the program as
scheduled, the possibility of significant interruptions of normal operations
should be minimized.
Readers are cautioned that forward-looking statements contained in the
Impact of Year 2000 should be read in conjunction with the Company's disclosures
under the heading "Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of 1995" which
immediately follows this section.
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
23
<PAGE> 26
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 KSI 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
In September 1998, the Company entered into an agreement with Canadian
Pacific Railway to purchase the Esquimalt and Nanaimo Railway Company ("E&N").
The transaction includes the sale of a 68-mile section of rail line between Port
Alberni and Nanaimo, and the lease of a 113 miles of rail line running from
Victoria-to-Nanaimo and Parksville-to-Courtenay for purposes of freight and
passenger rail service on Vancouver Island. E&N currently operates a daily
passenger rail service under contract with VIA Rail Canada, from Victoria to
Courtenay. The primary commodities moved are forest/paper products, minerals and
chemicals.
On August 24, 1998, the Company announced its share repurchase program,
whereby the Board of Directors has authorized the repurchase of up to one
million shares of its common stock. Purchases are being made in the open market
and will continue until all of such shares are repurchased or until the Company
determines to terminate the repurchase program.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
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)
24
<PAGE> 27
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 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
- ----------
(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.
25
<PAGE> 28
(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 Securities 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
Securities 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.
The Company filed the following report on Form 8-K during the quarter
ended September 30, 1998:
1. A Current Report on Form 8-K, dated September 3, 1998, was
filed in connection with the amendment of the Company's
Common Stock Purchase Rights Agreement.
26
<PAGE> 29
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 11, 1998
By: /s/ Gary O. Marino
--------------------------------------
Gary O. Marino as Chairman,
Chief Executive Officer and as
Principal Financial Officer
27
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