<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, 1999
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.)
5300 BROKEN SOUND BLVD., N.W. BOCA RATON, FL 33487
------------------------------------------------------
(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 [X] 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 - 11,507,005 shares as of August 12, 1999
<PAGE> 2
RAILAMERICA, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - June 30, 1999 and
December 31, 1998 1
Consolidated Statements of Income - For the six and three
months ended June 30, 1999 and 1998 2
Consolidated Statement of Stockholders' Equity - For the year
ended December 31, 1998 and the six months ended June 30, 1999 3
Consolidated Statements of Cash Flows - For the six
months ended June 30, 1999 and 1998 4
Notes to Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 3 Market Risk Disclosure 29
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 29
Item 5 Other Information 29
Item 6 Exhibits and Reports on Form 8-K 30
Signatures
</TABLE>
<PAGE> 3
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 15,385,784 $ 5,760,342
Accounts receivable 26,536,190 11,047,536
Notes receivable 859,378 859,378
Inventories 13,589,038 13,579,286
Other current assets 2,855,951 1,666,093
------------- -------------
Total current assets 59,226,341 32,912,635
Property, plant and equipment, net 245,539,719 101,833,373
Notes receivable, less current portions 1,300,773 1,284,200
Investment in Great Southern Railway Limited 1,938,942 1,938,942
Deposit on purchase agreements -- 1,962,067
Other assets 10,755,075 3,056,755
Excess of cost over net assets of companies acquired, net 2,189,412 2,241,964
------------- -------------
Total assets $ 320,950,262 $ 145,229,936
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 3,242,801 $ 3,804,217
Current maturities of subordinated debt 200,794 244,542
Accounts payable 18,189,308 10,124,714
Accrued expenses and income taxes payable 10,389,844 4,132,892
------------- -------------
Total current liabilities 32,022,747 18,306,365
------------- -------------
Long-term debt, less current maturities 81,753,608 68,010,338
Subordinated debt, less current maturities 100,000,000 53,098
Convertible subordinated debt, less current maturities 7,018,500 610,850
Other liabilities 18,764,105 427,288
Deferred income taxes 7,443,113 8,242,000
Minority interest 8,318,693 7,937,992
Commitments and contingencies
Redeemable convertible preferred stock, $0.01 par value,
$25 liquidation value, 1,000,000 shares authorized;
464,400 and 300,600 outstanding, respectively 10,739,956 6,881,684
Stockholders' equity:
Common stock, $.001 par value, 30,000,000 shares authorized;
11,827,708 issued and 11,175,919 outstanding at June 30, 1999;
10,207,477 issued and 9,631,188 outstanding at December 31, 1998 11,828 10,207
Additional paid-in capital 43,932,683 28,277,533
Retained earnings 12,729,231 9,285,122
Accumulated other comprehensive income 2,134,864 470,820
Less treasury stock (651,789 and 576,289 shares, respectively, at cost) (3,919,066) (3,283,361)
------------- -------------
Total stockholders' equity 54,889,540 34,760,321
------------- -------------
Total liabilities and stockholders' equity $ 320,950,262 $ 145,229,936
============= =============
</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, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues:
Transportation - railroad $ 25,558,249 $ 6,902,544 $ 34,846,004 $ 12,483,671
Transportation - motor carrier -- 1,817,945 -- 1,817,945
Manufacturing 12,538,619 11,075,820 22,956,261 19,658,545
Other 2,530,168 396,056 3,467,509 668,189
------------ ------------ ------------ ------------
Total operating revenue 40,627,036 20,192,365 61,269,774 34,628,350
------------ ------------ ------------ ------------
Operating expenses:
Transportation - railroad 16,867,653 3,389,206 21,787,319 6,167,810
Transportation - motor carrier -- 1,594,513 -- 1,594,513
Cost of goods sold - manufacturing 9,275,299 8,038,524 16,992,484 14,230,281
Selling, general and administrative 6,089,228 3,019,353 9,605,435 5,765,245
Depreciation and amortization 1,987,378 893,043 3,236,788 1,594,569
------------ ------------ ------------ ------------
Total operating expenses 34,219,558 16,934,639 51,622,026 29,352,418
------------ ------------ ------------ ------------
Operating income 6,407,477 3,257,726 9,647,747 5,275,932
Interest and other expense (2,187,563) (826,922) (3,375,142) (1,668,635)
Minority interest in income of subsidiary (15,300) (605,700) (380,700) (867,600)
------------ ------------ ------------ ------------
Income from continuing operations before
income taxes 4,204,614 1,825,104 5,891,905 2,739,697
Provision for income taxes 1,457,000 427,591 1,941,000 674,306
------------ ------------ ------------ ------------
Income from continuing operations 2,747,614 1,397,513 3,950,905 2,065,391
Discontinued operations
Loss from operations of discontinued Motor
Carrier segment (less applicable income tax
benefit of $40,000) -- -- -- (65,241)
------------ ------------ ------------ ------------
Net Income $ 2,747,614 $ 1,397,513 $ 3,950,905 $ 2,000,150
============ ============ ============ ============
=======================================================================================================================
Income from continuing operations available
to common stockholders (basic) $ 2,481,591 $ 1,397,513 $ 3,444,109 $ 2,065,391
============ ============ ============ ============
Basic earnings per common share
Continuing operations $ 0.22 $ 0.15 $ 0.32 $ 0.22
Discontinued operations 0.00 0.00 0.00 (0.01)
------------ ------------ ------------ ------------
Net income $ 0.22 $ 0.15 $ 0.32 $ 0.21
============ ============ ============ ============
Diluted earnings per common share
Continuing operations $ 0.21 $ 0.14 $ 0.31 $ 0.21
Discontinued operations 0.00 0.00 0.00 (0.01)
------------ ------------ ------------ ------------
Net income $ 0.21 $ 0.14 $ 0.31 $ 0.20
============ ============ ============ ============
Weighted average common shares outstanding:
Basic 11,115,279 9,560,522 10,616,796 9,372,579
============ ============ ============ ============
Diluted 13,594,406 10,401,003 11,431,737 10,331,789
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
2
<PAGE> 5
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the year ended December 31, 1998 and six months ended June 30, 1999
<TABLE>
<CAPTION>
Stockholders' Equity
----------------------------------------------------------------------------------------------
Number of Additional Cumulative
Shares Par Paid-in Retained Translation Treasury
Issued Value Capital Earnings Adjustment Shares Total
---------- ---------- ----------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 9,129,564 9,130 23,350,732 4,883,973 15,373 (1,445,382) 26,813,826
Net income -- -- -- 4,401,149 -- -- 4,401,149
Other comprehensive income
Cumulative translation -- -- -- -- 455,447 455,447
------------
Total comprehensive income 4,856,596
------------
Issuance of common stock 138,786 138 677,039 -- -- -- 677,177
Purchase of treasury stock -- -- -- -- -- (1,837,979) (1,837,979)
Exercise of stock options 237,950 238 870,637 -- -- -- 870,875
Tax benefit exercise of options -- -- 178,000 -- -- -- 178,000
Exercise of warrants 167,000 167 934,501 -- -- -- 934,668
Conversion of debt 534,177 534 2,266,624 -- -- -- 2,267,158
---------- ---------- ----------- ------------ ---------- ----------- ------------
Balance, December 31, 1998 10,207,477 10,207 28,277,533 9,285,122 470,820 (3,283,361) 34,760,321
Net income -- -- -- 3,950,905 -- -- 3,950,905
Other comprehensive income
Cumulative translation 1,664,044 1,664,044
------------
Total comprehensive income 5,614,949
------------
Issuance of common stock 1,437,888 1,438 12,057,034 -- -- -- 12,058,472
Purchase of treasury stock -- -- -- -- -- (635,705) (635,705)
Exercise of stock options 79,600 80 336,483 -- -- -- 336,563
Conversion of debt 102,743 103 231,070 -- -- -- 231,173
Issuance of warrants -- -- 3,030,563 -- -- -- 3,030,563
Preferred stock dividends
and accretion -- -- -- (506,796) -- -- (506,796)
---------- ---------- ----------- ------------ ---------- ----------- ------------
Balance, June 30, 1999 11,827,708 $ 11,828 $43,932,683 $ 12,729,231 $2,134,864 $(3,919,066) $ 54,889,540
========== ========== =========== ============ ========== =========== ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE> 6
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,950,905 $ 2,000,150
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,315,469 1,869,256
Minority interest in income of subsidiary 380,700 867,600
Loss (gain) on sale or disposal of properties 337,388 (6,083)
Deferred income taxes 1,629,102 493,528
Changes in operating assets and liabilities,
net of acquisitions and dispositions:
Accounts receivable 407,038 (2,156,820)
Inventories 368,866 (5,725,222)
Other current assets (1,189,858) (1,093,131)
Accounts payable 4,825,875 3,210,392
Accrued expenses (3,577,064) (73,194)
Other liabilities 166,036 --
Deposits and other 1,414,610 494,810
------------ ------------
Net cash provided by (used in) operating activities 13,029,067 (118,714)
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (25,553,625) (13,844,788)
Proceeds from sale of properties 103,155 47,659
Acquisitions, net of cash acquired (5,206,179) (1,722,428)
Deferred acquisition costs and other (393,620) (209,952)
------------ ------------
Net cash used in investing activities (31,050,269) (15,729,509)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 51,086,973 29,636,420
Principal payments on debt and capital leases (37,929,513) (16,085,467)
Sale of convertible preferred stock 4,095,000 --
Sale of common stock 11,913,553 1,032,168
Proceeds from exercise of stock options 336,563 771,375
Preferred stock dividends paid (410,124) --
Purchase of treasury stock (635,705) --
Deferred financing costs paid (333,400) (873)
Deferred loan costs paid (476,704) (208,442)
------------ ------------
Net cash provided by financing activities 27,646,643 15,145,181
------------ ------------
Net increase in cash 9,625,442 (703,042)
Cash, beginning of period 5,760,342 3,745,534
------------ ------------
Cash, end of period $ 15,385,784 $ 3,042,492
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE> 7
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, 1999 and December 31, 1998, and the results of operations and
cash flows for the six and three months ended June 30, 1999 and 1998.
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 1998 annual report on Form 10-K. Capitalized
terms used but not otherwise defined herein have the meanings set forth
in the Company's 1998 annual report on Form 10-K.
2. EARNINGS PER SHARE:
For the six and three months ended June 30, 1999 and 1998, basic
earnings per share is computed using the weighted average number of
common shares outstanding during the period. Net income available to
common stockholders is reduced by preferred stock dividends for the
basic earnings per share computation. For the three months ended June
30, 1999 and 1998 and the six months ended June 30, 1998, 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. Assumed conversion of
the redeemable convertible preferred stock is anti-dilutive for the six
months ended June 30, 1999 and has been excluded from the weighted
average shares outstanding for diluted earnings per share.
5
<PAGE> 8
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. EARNINGS PER SHARE, continued
The following is a summary of the income available for common
stockholders and weighted average shares (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Income from continuing operations $ 2,748 $ 1,398 $ 3,951 $ 2,065
Preferred stock dividends and accretion (266) -- (507) --
-------- ------- -------- -------
Income from continuing operations available
to common stockholders (basic) 2,482 1,398 3,444 2,065
Interest from convertible debt 55 25 62 63
Preferred stock dividends and accretion 266 -- -- --
-------- ------- -------- -------
Income from continuing operations available
to common stockholders (diluted) $ 2,803 $ 1,423 $ 3,506 $ 2,218
======== ======= ======== =======
Weighted average shares outstanding 11,115 9,561 10,617 9,373
Assumed conversion of options and warrants 437 220 388 244
Assumed conversion of convertible securities 2,042 620 427 714
-------- ------- -------- -------
Weighted average shares outstanding 13,594 10,401 11,432 10,331
======== ======= ======== =======
</TABLE>
3. INVENTORIES:
Inventories consist of the following as of June 30, 1999 and
December 31, 1998.
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Raw materials $ 7,848,523 $ 5,207,154
Work in process 1,680,574 2,504,344
Finished goods 859,399 2,225,223
Replacement or repair parts for equipment
and road property 3,205,862 3,647,885
------------ ------------
13,594,358 13,584,606
Less, advances related to materials (5,320) (5,320)
------------ ------------
Inventories in excess of contract advances $ 13,589,038 $ 13,579,286
============ ============
</TABLE>
6
<PAGE> 9
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. ACQUISITION:
On April 30, 1999, the Company, through its wholly owned Australian
subsidiary, Freight Victoria Limited ("Freight Victoria"), completed the
acquisition of the assets and liabilities comprising the railroad
freight business of V/Line Freight Corporation ("VLF"), a corporation
established by the Government of the State of Victoria, Australia. VLF
was established in March 1997 as part of Victoria's public
transportation privatization process and assumed many of the activities
formerly carried out by the V/Line Freight business unit of the Public
Transportation Corporation of the Government of Victoria.
Under the Sale of Assets Agreement (the "Agreement") dated February 22,
1999 by and between the Company, Freight Victoria and VLF, Freight
Victoria acquired all of the locomotives, wagons, motor vehicles,
equipment, stock, spare parts inventory and accounts receivable, certain
business, brand and trade names and trade marks, and the outstanding
business contracts of VLF for a purchase price of AUD$73.4 million in
cash (approximately U.S.$49.0 million). The purchase price has been
allocated to assets acquired. In connection with the acquisition,
Freight Victoria also entered into other agreements, including a primary
infrastructure lease (the "Infrastructure Lease") with the Director of
Public Transport of Australia and various facilities leases, access
agreements, maintenance and service agreements and other miscellaneous
agreements. Pursuant to the Infrastructure Lease, Freight Victoria
received a 45-year lease of the non-electrified intrastate Victorian
railway tracks and infrastructure. Pursuant to certain other agreements,
Freight Victoria is responsible for, among other things, track and
rolling stock maintenance, train control, access to the railway
infrastructure by other rail operators and safety and signaling. Under a
letter issued by Freight Victoria in connection with its bid for the VLF
business, Freight Victoria prepaid in cash the net present value of the
rental payments for the Infrastructure Lease totaling AUD$89.7 million
(approximately U.S.$60.0 million). Freight Victoria commenced operations
of the rail-based freight business on May 1, 1999.
7
<PAGE> 10
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. ACQUISITION, continued
This acquisition has been accounted for as a purchase and its results
have been consolidated since May 1, 1999. The following unaudited pro
forma summary presents the consolidated results of operations as if the
acquisition of Freight Victoria 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 Six Months
Ended June 30, Ended June 30,
1998 1999
-------- -------
<S> <C> <C>
Revenue $ 79,221 $95,848
Income (loss) from continuing operations
before income taxes $ (3,600) $10,478
Net income (loss) $ (2,073) $ 1,220
Net income (loss) per share $ (0.26) $ 0.06
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following as of June 30,
1999 and December 31, 1998:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Land $ 23,748,202 $ 19,427,529
Buildings and improvements 13,386,577 11,225,554
Railroad track and improvements 102,552,620 44,700,349
Locomotives, transportation and other equipment 119,085,497 36,582,042
------------ ------------
258,772,896 111,935,474
Less accumulated depreciation 13,233,177 10,102,101
------------ ------------
$245,539,719 $101,833,373
============ ============
</TABLE>
In January 1999, the Company through a newly formed subsidiary E&N
Railway Company Ltd. ("ENR") acquired the assets of the Esquimalt and
Nanaimo Railway ("E&N") from the Canadian Pacific Railway ("CPR"). The
transaction includes the purchase of a 68-mile section of rail line
between Port Alberni, British Columbia and Nanaimo, British Columbia and
the lease of a 113-mile section of rail line from Victoria-to-Nanaimo
and from Parksville-to-Courtenay on British Columbia's Vancouver
Island. The purchase of the assets of the E&N Railway accounts for
approximately $10.8 million of fixed asset additions for the quarter
ended March 31, 1999. The deposit on the asset purchase agreement of
$1.96 million at December 31, 1998 was applied to this transaction.
8
<PAGE> 11
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. OTHER ASSETS:
Other assets consist of the following as of June 30, 1999 and December
31, 1998:
1999 1998
----------- ----------
Deferred loan costs, net $ 7,055,529 $ 636,733
Deferred acquisition costs 675,648 871,422
Immigrant Investor note 1,027,508 955,198
Deposits and other 1,996,390 593,402
----------- ----------
$10,755,075 $3,056,755
=========== ==========
The increase in deferred loan costs relates primarily to fees paid and
costs of warrants issued related to the financing of the Freight
Victoria acquisition. For further details see note 7.
7. DEBT:
To facilitate the acquisition of VLF, Freight Victoria obtained a $100
million bridge loan from Barclays Bank PLC under a senior secured loan
facility. Upon the execution of the facility, the Company issued to
Barclays Bank PLC warrants to acquire 750,000 shares of the Company's
Common Stock at an exercise price of $9.75 per share.
The bridge loan is due and payable on April 30, 2000. The Company has
the option to convert the bridge loan into a term loan which would
mature April 30, 2009. If the Company exercises the option to convert
the bridge loan it will be required to pay a 1% fee of the converted
balance in additional fees and issue warrants equal to 10% of the
Company's outstanding common stock. The bridge loan bears interest at a
rate equal to the London Interbank Offered Rate plus the applicable
margin. The applicable margin initially is 500 basis points and
increases by 50 basis points every 90 days. The Company has agreed with
Barclays Bank PLC that if the bridge loan is not repaid by November 30,
1999 the Company has to issue 10,000 warrants and the interest rate
increases by 200 basis points. If the bridge loan converts to a term
loan, the lender will have the right to elect to fix the interest rate.
The bridge loan is guaranteed by the Company and is collateralized by
liens on all of the assets of Freight Victoria and by a pledge of the
stock of certain of the Company's subsidiaries. The facility agreement
contains significant restrictions on RailAmerica and its subsidiaries
that are a party to the agreement, including without limitation
restrictions on additional indebtedness, liens, sales of assets and
capital expenditures. The Company is pursuing its available
alternatives for refinancing the bridge loan.
9
<PAGE> 12
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. DEBT, continued
In addition to the bridge loan the Company issued AUD$6 million in
convertible debt to certain vendors of Freight Victoria ("Vendor
Debt"). The Vendor Debt is convertible into the Company's common stock
at the current market price. This debt is convertible into Freight
Victoria stock at the option of the Company. The Company also issue
$2.64 million of convertible debt in lieu of cash payments for fees
owed to its investment banker in the transaction. The convertible debt
bears interest at 6%, is convertible into the Company's common stock at
$9.83 per share and was converted in July 1999.
On July 23, 1999, the Company's Revolver was increased to $125 million
by a consortium of banks 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 maturity date of the Revolver was extended to April 2002.
In the first quarter of 1999, $231,000 of convertible subordinated
debentures were converted into 102,743 shares of Common Stock.
8. COMPREHENSIVE INCOME:
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. For the
Company, other comprehensive income consists of foreign currency
translation adjustments that amounted to $1,664,044 and $444,345 for
the six months ended June 30, 1999 and 1998, respectively.
Comprehensive income for the six months ended June 30, 1999 and 1998
amounted to $5,614,949 and $2,444,495, respectively.
9. COMMON STOCK TRANSACTIONS:
In March 1999, the Company completed a private placement of
approximately $12.5 million of restricted common stock. Pursuant to the
offering, the Company sold approximately 1.4 million shares of its
common stock at a price of $8.8125 per share and issued approximately
212,000 warrants to purchase an equivalent number of shares of common
stock at an exercise price of $10.125 per share within one year of the
transaction's closing date. First London Securities Corporation, of
which Douglas Nichols, a director of the Company, is President and
principal shareholder, acted as placement agent and received
approximately $0.4 million in fees and cost reimbursement and one-year
warrants to purchase 141,504 shares of the Company's common stock at an
exercise price of $10.125.
10
<PAGE> 13
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. 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.
11. NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company obtained a $100 million bridge loan to acquire the assets
of Freight Victoria. A majority of the loan was paid directly to the
Victorian government for the purchase. A $3.0 million fee was paid to
Barclays bank. Warrants valued at approximately $3.0 million were
issued in conjunction with the acquisition. The Company also issued
$2.64 million of convertible debt to its investment banker in the
transaction for fees in lieu of a cash payment.
The Company had a deposit of $1,962,067 on its books at December 31,
1998. This amount was used to purchase rail assets in British Columbia,
Canada in January of 1999.
In the first quarter of 1999, $231,000 of convertible subordinated
debentures were converted into 102,743 shares of Common Stock.
12. 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. Effective, December 1, 1998, the Company
ceased all motor carrier operations and leased substantially all of the
operating assets of Steel City Carriers, Ltd. to Laidlaw Carriers,
Inc., an operating subsidiary of Ontario-based Contrans Corporation and
other third parties. The leases are for a period of 18 to 24 months. In
addition, the Company has entered into an agreement to sell its Ontario
real estate that was previously used in its motor carrier operations.
Three Months Ended
March 31, 1998
------------------
(Thousands)
Revenues $ 1,827
Depreciation and amortization 95
Operating income (loss) (35)
Loss before taxes (105)
Benefit for income taxes 40
Net loss $ (65)
11
<PAGE> 14
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13. SEGMENT INFORMATION:
The Company's continuing operations have been classified into three
business segments: North American railroads, international railroads
and manufacturing. Business segment information for the six months
ended June 30, 1999 and 1998 (dollar amounts in thousands):
SIX MONTHS ENDED JUNE 30, 1999:
<TABLE>
<CAPTION>
North
International American
Consolidated Rail Rail Manufacturing Other
------------ ------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Revenue $ 61,270 $ 25,761 $11,454 $22,956 $ 1,099
Operating income (loss) $ 9,628 $ 5,131 $ 2,620 $ 3,627 $ (1,750)
Identifiable assets $320,950 $204,382 $16,499 $28,319 $ 71,750
Depreciation and
Amortization $ 3,237 $ 1,257 $ 1,020 $ 517 $ 443
Capital expenditures $ 27,833 $ 11,616 $13,458 $ 715 $ 2,044
Interest expense $ 4,505 $ 2,399 $ 1,470 $ 117 $ 519
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998:
<TABLE>
<CAPTION>
North
International American
Consolidated Rail Rail Manufacturing Other
------------ ------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Revenue $ 34,628 $ 5,491 $ 7,365 $19,658 $ 2,114
Operating income (loss) $ 5,276 $ 1,422 $ 1,981 $ 3,448 $ (1,575)
Identifiable assets $127,628 $33,899 $30,116 $19,998 $ 43,615
Depreciation and
Amortization $ 1,595 $ 249 $ 745 $ 378 $ 223
Capital expenditures $ 14,025 $ 7,211 $ 3,171 $ 2,262 $ 1,381
Interest expense $ 2,226 $ 333 $ 1,404 $ 182 $ 307
</TABLE>
Geographical segment information for the six months ended June 30, 1999
and 1998 (dollar amounts in thousands):
SIX MONTHS ENDED JUNE 30, 1999:
<TABLE>
<CAPTION>
Consolidated United States Canada Chile Australia
------------ ------------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Revenue $ 61,270 $ 24,245 $11,264 $ 8,361 $ 17,400
Operating income $ 9,628 $ 3,538 $ 959 $ 1,528 $ 3,603
Identifiable assets $320,950 $ 91,550 $25,018 $43,222 $161,160
Depreciation and
Amortization $ 3,237 $ 1,336 $ 643 $ 546 $ 712
Capital expenditures $ 27,833 $ 4,139 $12,078 $ 6,497 $ 5,119
Interest expense $ 4,505 $ 1,586 $ 521 $ 830 $ 1,568
</TABLE>
12
<PAGE> 15
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13. SEGMENT INFORMATION, continued:
SIX MONTHS ENDED JUNE 30, 1998:
<TABLE>
<CAPTION>
Consolidated United States Canada Chile Australia
------------ ------------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Revenue $ 34,629 $ 22,004 $ 7,134 $ 5,491 $ --
Operating income $ 5,276 $ 3,250 $ 604 $ 1,422 $ --
Identifiable assets $127,628 $ 78,400 $15,329 $31,899 $ 2,000
Depreciation and
Amortization $ 1,595 $ 1,129 $ 217 $ 249 $ --
Capital expenditures $ 14,025 $ 3,691 $ 3,123 $ 7,211 $ --
Interest expense $ 2,226 $ 1,751 $ 142 $ 333 $ --
</TABLE>
14. SUBSEQUENT EVENTS:
On May 28, 1999, the Company commenced an all-cash tender offer for the
common shares of Railink Ltd, a rail freight system in Canada, at a
price of approximately US$6.00 (Cdn. $8.75) per share. The
consideration tendered to the Railink shareholders totaled nearly US$50
million and, combined with the assumption of approximately US$20
million in debt, resulted in a transaction valued at approximately
US$70 million. On July 26, 1999, the conditions of the offer were
fulfilled or waived and approximately 98% of Railink's outstanding
shares were tendered and purchased by RailAmerica. Funding for the
transaction was provided principally by a consortium of banks led by
National Bank of Canada through its newly expanded Revolver. The
balance was funded through proceeds from a private offering.
13
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
RailAmerica, Inc. (together with its consolidated subsidiaries, the
"Company") is an international owner and operator of freight railroads. The
Company operates 25 railroads over more than 8,000 miles of track in the United
States, Australia, Canada 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 January 1999, the Company through a newly formed
subsidiary E&N Railway Company Ltd. ("ENR") acquired the assets of the Esquimalt
and Nanaimo Railway ("E&N") from the Canadian Pacific Railway ("CPR"). The
transaction includes the sale of a 68-mile section of rail line between Port
Alberni and Nanaimo and the lease of a 113-mile section of rail line from
Victoria-to-Nanaimo and from Parksville-to-Courtenay on British Columbia's
Vancouver Island. On April 30, 1999, the Company, through its wholly-owned
subsidiary, Freight Victoria, acquired certain assets of the V/Line Freight
Corporation railroad in Australia. The transaction included the purchase of 107
locomotives and over 2,600 rail cars, which will provide rail freight service
across southeastern Australia over approximately 3,000 miles of track. The track
and real estate are being leased from the Victorian government on a long-term
basis. Freight Victoria commenced operations on May 1, 1999.
Set forth below is a discussion of the results of operations for the
Company's North American railroad operations, International railroad operations,
trailer manufacturing operations and corporate overhead.
NORTH AMERICAN RAILROAD OPERATIONS
The Company's North American railroad subsidiaries operated
approximately 1,150 miles of rail line as of June 30, 1999. 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) 44
miles of rail line which the Company is operating pursuant to a contract with
the State of Minnesota; (v) 104 miles of rail line which it owns and 4 miles of
trackage rights in West Texas; (vi) 131 miles of rail line which it owns and 6
miles of trackage rights in the state of Washington; (vii) 72 miles of rail line
which it owns in central Minnesota; (viii) 204 miles of rail line it owns in
northern Minnesota and 37 miles of trackage rights;
14
<PAGE> 17
(ix) 44 miles of rail line it owns in central Minnesota and 16 miles of trackage
rights; (x) 13 miles it leases in Southern California; and (xi) a 68-mile
section of owned rail line and a 113-mile section of leased rail line on
Vancouver Island, British Columbia, Canada.
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
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 California includes
autos, wood, paper and food products. The Company's haulage of products on
Vancouver Island, British Columbia, Canada consists of forest/paper products,
mineral, and chemical products. ENR also operates a rail passenger service on
Vancouver Island pursuant to an agreement with VIA Rail.
RESULTS OF NORTH AMERICAN RAILROAD OPERATIONS
The discussion of results of operations that follows reflects the
consolidated results of the Company's North American railroad operations for the
six and three months ended June 30, 1999 and 1998. The results of North American
railroad operations include the operations of ENR and Ventura County Railway
("VCRR") from January 1, 1999 to June 30, 1999. As a result, the results of
operations for the six and three months ended June 30, 1999 are not comparable
to the corresponding period of the prior year in certain material respects.
15
<PAGE> 18
The following table sets forth the operating revenues and expenses for
the Company's North American railroad operations for the periods indicated. All
results of operations discussed in this section are for the Company's North
American railroads only, unless otherwise indicated (in thousands).
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- -----------------------
1999 1998 1999 1998
------ ------ ------- ------
<S> <C> <C> <C> <C>
Revenue:
Transportation revenue $5,487 $3,540 $10,705 $7,014
Other revenue 475 227 749 351
------ ------ ------- ------
Total revenue 5,962 3,767 11,454 7,365
------ ------ ------- ------
Operating expenses:
Maintenance of way 890 469 1,705 995
Maintenance of equipment 187 158 447 342
Transportation 1,385 807 2,653 1,630
Equipment rental 178 214 290 292
General and administrative 1,667 729 2,719 1,380
Depreciation and amortization 520 390 1,020 745
------ ------ ------- ------
Total operating expenses 4,827 2,767 8,834 5,384
------ ------ ------- ------
Operating income 1,135 1,000 2,620 1,981
Interest and other expenses 712 722 1,477 1,419
------ ------ ------- ------
Income before income taxes $ 423 $ 278 $ 1,143 $ 562
====== ====== ======= ======
</TABLE>
COMPARISON OF NORTH AMERICAN RAILROAD OPERATING RESULTS FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998.
OPERATING REVENUES. Transportation revenue increased by $3.7 million, or
53%, to $10.7 million for the six months ended June 30, 1999 from $7.0 million
for the six months ended June 30, 1998. The increase was primarily due to
increased carloads. The North American transportation revenue per carload
increased to $331 from $322 primarily due to the addition of ENR which receives
a higher per carload rate than the Company's other railroads. North American
carloads handled totaled 29,909 for the six months ended June 30, 1999, an
increase of 8,116, or 37%, compared to 21,793 carloads in the prior year period.
The increase was partially due to the acquisitions of ENR and VCRR which moved
3,827 and 1,509, respectively, for the six month period ended June 30, 1999. In
addition, the Company's wholly-owned subsidiary Saginaw Valley Railway acquired
51 miles of rail line in April 1998 and moved 723 more carloads during the first
six months of 1999 as compared to the same period in 1998. The Company's "same
railroad" car loadings increased by 9% from the first six months of 1998 to the
first six months of 1999 due primarily to increases in carloadings at the
Company's Michigan and Minnesota railroads.
Other revenues increased by approximately $0.4 million, or 113%, to $0.7
million for the six months ended June 30, 1999 from $0.4 million for the six
months ended June 30, 1998. Other revenues for the six months ended June 30,
1999 and 1998 consist of gain on sales of railroad assets, railroad lease and
rental income and other miscellaneous income.
OPERATING EXPENSES. Operating expenses increased by approximately $3.4
million, or 64%, to $8.8 million for the six months ended June 30, 1999 from
$5.4 million for the six months ended June 30, 1998. The increase was primarily
due to the acquisitions of ENR and VCRR which had $2.2 million and $0.4 million,
respectively, in operating expenses for the six months ended June 30,
16
<PAGE> 19
1999 and the write off of $0.6 million in costs related to the discontinuance of
the Delaware Valley Railway ("DVRC"). Operating expenses, as a percentage of
transportation revenue, were 82.5% and 76.8% for the six months ended June 30,
1999 and 1998, respectively. The increase was primarily due to the write off of
costs at DVRC. Exclusive of these cost write offs the operating ratio was 76.9%.
Management anticipates a slight improvement in the operating ratio over the next
12 months, exclusive of seasonality.
Maintenance of way expenses increased by approximately $0.7 million, or
71%, to $1.7 million for the six months ended June 30, 1999 from $1.0 million
for the six months ended June 30, 1998. The increase was primarily due to
maintenance of way expenses at ENR and VCRR of $0.4 million and $0.1 million,
respectively, for the six months ended June 30, 1999 and costs related to the
discontinuance of DVRC of $0.1 million.
Maintenance of equipment expenses increased by approximately $0.1
million, or 31%, to $0.4 million for the six months ended June 30, 1999 from
$0.3 million for the six months ended June 30, 1998. The increase was primarily
due to an increase in the Company's locomotive and railcar fleet from 1998 to
1999.
Transportation expense increased by approximately $1.0 million, or 63%,
to $2.7 million for the six months ended June 30, 1999 from $1.6 million for the
six months ended June 30, 1998. The increase is due primarily to the
transportation expenses at ENR and VCRR of $0.7 million and $0.2 million,
respectively, for the six months ended June 30, 1999.
Equipment rental remained fairly constant at $0.3 million for the six
months ended June 30, 1999 and 1998.
Selling, general and administrative expenses increased by approximately
$1.3 million, or 97%, to $2.7 million for the six months ended June 30, 1999
from $1.4 million for the six months ended June 30, 1998. The increase was
primarily due to the selling, general and administrative expenses at ENR and
VCRR of $0.6 million and $0.1 million, respectively, for the six months ended
June 30, 1999 and the write off of costs at DVRC of $0.5 million.
INTEREST AND OTHER EXPENSES. Interest and other expenses remained fairly
constant at $1.4 million for the six months ended June 30, 1999 and 1998.
COMPARISON OF NORTH AMERICAN RAILROAD OPERATING RESULTS FOR THE THREE MONTHS
ENDED JUNE 30, 1999 AND 1998.
OPERATING REVENUES. Transportation revenue increased by $1.9 million, or
55%, to $5.5 million for the three months ended June 30, 1999 from $3.5 million
for the three months ended June 30, 1998. The increase was primarily due to
increased carloads. The North American transportation revenue per carload
increased to $337 from $323 primarily due to the addition of ENR which receives
a higher per carload rate than the Company's other railroads. North American
carloads handled totaled 15,000 for the three months ended June 30, 1999, an
increase of 4,048, or 37.0%, compared to 10,952 carloads in the prior year
period. The increase was partially due to the acquisitions of ENR and VCRR which
moved 1,982 carloads and 920 carloads, respectively, for the three month period
ended June 30, 1999. The Company's "same railroad" car loadings increased by 12%
from the second quarter of 1998 to the second quarter of 1999 due primarily to
increases in car
17
<PAGE> 20
loadings at the Company's Michigan and Minnesota railroads.
Other revenues increased by approximately $0.3 million, or 109%, to $0.5
million for the three months ended June 30, 1999 from $0.2 million for the three
months ended June 30, 1998. Other revenues for the three months ended June 30,
1999 and 1998 consist of gain on sales of railroad assets, railroad lease and
rental income and other miscellaneous income.
OPERATING EXPENSES. Operating expenses increased by approximately $2.1
million, or 74%, to $4.8 million for the three months ended June 30, 1999 from
$2.8 million for the three months ended June 30, 1998. The increase was
primarily due to the acquisitions of ENR and VCRR which had $1.2 million and
$0.2 million, respectively, in operating expenses for the three months ended
June 30, 1999 and the write off of $0.6 million in costs related to the
discontinuance of DVRC. Operating expenses, as a percentage of transportation
revenue, were 88% and 77% for the three months ended June 30, 1999 and 1998,
respectively. The increase was primarily due to the write off of costs at DVRC.
Exclusive of these cost write offs the operating ratio was 77%.
Maintenance of way expenses increased by approximately $0.4 million, or
90%, to $0.9 million for the three months ended June 30, 1999 from $0.5 million
for the three months ended June 30, 1998. The increase was primarily due to
maintenance of way expenses at ENR and VCRR of $0.2 million and $0.1 million for
the three months ended June 30, 1999, respectively, and costs related to the
discontinuance of DVRC of $0.1 million.
Maintenance of equipment expenses remained fairly constant at $0.2
million for the three months ended June 30, 1999 and 1998.
Transportation expense increased by approximately $0.6 million, or 72%,
to $1.4 million for the three months ended June 30, 1999 from $0.8 million for
the three months ended June 30, 1998. The increase is due primarily to the
transportation expenses at ENR and VCRR of $0.4 million and $0.1 million,
respectively for the three months ended June 30, 1999.
Equipment rental remained fairly constant at $0.2 million for the three
months ended June 30, 1999 and 1998.
Selling, general and administrative expenses increased by approximately
$0.9 million, or 129%, to $1.7 million for the three months ended June 30, 1999
from $0.7 million for the three months ended June 30, 1998. The increase was
primarily due to the write off of costs related to the discontinuance of the
DVRC of approximately $0.5 million and the selling, general and administrative
expenses at ENR and VCRR of $0.3 million and $0.1 million, respectively, for the
three months ended June 30, 1999.
INTEREST AND OTHER EXPENSES. Interest and other expenses remained fairly
constant at $0.7 million for the three months ended June 30, 1999 and 1998.
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
18
<PAGE> 21
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.
FREIGHT VICTORIA. On April 30, 1999, the Company, through its wholly
owned Australian subsidiary, Freight Victoria Limited ("Freight Victoria"),
completed the acquisition of the assets and liabilities comprising the railroad
freight business of V/Line Freight Corporation ("VLF"), a corporation
established by the Government of the State of Victoria, Australia. VLF was
established in March 1997 as part of Victoria's public transportation
privatization process and assumed many of the activities formerly carried out by
the V/Line Freight business unit of the Public Transportation Corporation of the
Government of Victoria.
Under the Sale of Assets Agreement (the "Agreement") dated February 22,
1999 by and between the Company, Freight Victoria and VLF, Freight Victoria
acquired all of the locomotives, wagons, motor vehicles, equipment, stock, spare
parts inventory and accounts receivable, certain business, brand and trade names
and trade marks, and the outstanding business contracts of VLF. In connection
with the acquisition, Freight Victoria also entered into other agreements,
including a primary infrastructure lease (the "Infrastructure Lease") with the
Director of Public Transport of Australia and various facilities leases, access
agreements, maintenance and service agreements and other miscellaneous
agreements. Pursuant to the Infrastructure Lease, Freight Victoria received a
45-year lease of the non-electrified intrastate Victorian railway tracks and
infrastructure, a network consisting of over 3,000 miles of track. Pursuant to
certain other agreements, Freight Victoria is responsible for, among other
things, track and rolling stock maintenance, train control, access to the
railway infrastructure by other rail operators and safety and signaling. Under a
letter issued by Freight Victoria in connection with its bid for the VLF
business, Freight Victoria prepaid in cash the net present value of the rental
payments for the Infrastructure Lease. Freight Victoria commenced operations of
the rail-based freight business on May 1, 1999.
19
<PAGE> 22
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. The results of
international railroad operations include the operations of Freight Victoria
from May 1, 1999 to June 30, 1999. As a result, the results of operations for
the six and three months ended June 30, 1999 are not comparable to the
corresponding period of the prior year in certain material respects.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
1999 1998 1999 1998
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenue:
Transportation revenue $ 20,072 $ 3,363 $ 24,141 $ 5,470
Other revenue 1,470 -- 1,620 21
-------- ------- -------- -------
Total revenue 21,542 3,363 25,761 5,491
-------- ------- -------- -------
Operating Expenses:
Transportation 14,205 1,719 16,652 2,837
General and administrative 2,172 537 2,721 983
Depreciation and amortization 984 153 1,257 249
-------- ------- -------- -------
Total operating expenses 17,361 2,409 20,630 4,069
-------- ------- -------- -------
Operating income 4,181 954 5,131 1,422
Other income (expense) (1,171) 210 (1,510) 296
Minority interest in earnings (15) (606) (381) (868)
-------- ------- -------- -------
Income before income taxes $ 2,995 $ 559 $ 3,240 $ 850
======== ======= ======== =======
</TABLE>
COMPARISON OF INTERNATIONAL RAILROAD OPERATING RESULTS FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998.
FERRONOR.
OPERATING REVENUES. Transportation revenue increased by $2.7 million, or
50%, to $8.2 million for the six months ended June 30, 1999 from $5.5 million
for the six months ended June 30, 1998. Ferronor's carloads handled totaled
43,411 for the six months ended June 30, 1999, an increase of 9,752, or 29.0%,
compared to 33,659 carloads in the six months ended June 30, 1998. The increase
in both carloads and revenue is due 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. These increases were offset slightly by a decrease in the
international traffic out of Argentina and Bolivia due to the slow down in the
world economy in the second quarter of 1999.
OPERATING EXPENSES. Operating expenses increased by approximately $2.5
million, or 65%, to $6.6 million for the six months ended June 30, 1999 from
$4.1 million for the six months ended June 30, 1998. The increase was due 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 80.8% and 74.1% for the six months
ended June 30, 1999 and 1998, respectively.
OTHER INCOME (EXPENSE). Other (expense) increased by approximately $1.5
million, or 510%, to an expense of $1.2 million for the six months ended June
30, 1999 from $0.3 million in income for the six months ended June 30, 1998. The
increase is primarily due to foreign exchange rate loses of approximately $0.8
million and interest on long term debt incurred for project financing related to
the two new mine operations of $0.7 million. The foreign exchange rate losses
relate to certain long-term debt that is tied to the U.S. dollar while
Ferronor's functional currency is the Chilean peso.
20
<PAGE> 23
FREIGHT VICTORIA
OPERATING REVENUES. Operating revenues were $17.4 million for the period
May 1, 1999 through June 30, 1999. These revenues consisted of $12.8 million of
freight revenue, $3.1 million of track access fees and $1.5 million of other
operating revenue.
OPERATING EXPENSES. Operating expenses were $13.8 million for the period
May 1, 1999 through June 30, 1999. These expenses consisted of $1.8 million of
maintenance of way costs, $1.2 million of maintenance of equipment costs, $8.5
million in transportation costs, $1.6 million of general and administrative
costs and $0.7 million in depreciation. Freight Victoria's operating ratio for
the two months period was 79.3%.
OTHER INCOME (EXPENSE). Other (expense), net was $0.4 million. This
amount consisted of $1.6 million in interest expense, $0.7 million in
amortization of funding costs related to the bridge financing and $1.7 million
in exchange rate gain. The exchange rate gain relates to the $100 million bridge
loan financing which is borrowed in U.S. dollars while Freight Victoria's
functional currency is the Australian dollar.
COMPARISON OF INTERNATIONAL RAILROAD OPERATING RESULTS FOR THE THREE MONTHS
ENDED JUNE 30, 1999 AND 1998.
FERRONOR
OPERATING REVENUES. Transportation revenue increased by $0.8 million, or
23%, to $4.1 million for the three months ended June 30, 1999 from $3.4 million
for the three months ended June 30, 1998. Ferronor's carloads handled totaled
22,169 for the three months ended June 30, 1999, a decrease of 2,453, or 10.0%,
compared to 24,622 carloads in the three months ended June 30, 1998.
OPERATING EXPENSES. Operating expenses increased by approximately $1.1
million, or 46%, to $3.5 million for the three months ended June 30, 1999 from
$2.4 million for the three months ended June 30, 1998. The increase was due 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 83.6% and 71.6% for the three months
ended June 30, 1999 and 1998, respectively.
OTHER INCOME (EXPENSE). Other (expense) increased by approximately $0.9
million, or 450%, to an expense of $0.7 million for the three months ended June
30, 1999 from $0.2 million in other income for the three months ended June 30,
1998. The increase is primarily due to foreign exchange rate losses of
approximately $0.5 million and interest on long term debt project financing of
approximately $0.4 million. The foreign exchange rate losses relate to certain
long-term debt that is tied to the U.S. dollar while Ferronor's functional
currency is the Chilean peso.
21
<PAGE> 24
TRAILER MANUFACTURING OPERATIONS
The discussion of results of operations that follows reflects the results
of Kalyn/Siebert, Inc. ("KSI") and Kalyn/Siebert Canada ("KSC") for the periods
indicated. During the second quarter of 1999, KSI's assets and operations were
moved into a Texas limited partnership, Kalyn/Siebert L.P. KSI is the 1% general
partner and a newly formed, wholly-owned subsidiary of the Company, KS Boca,
Inc., is the 99% limited partner.
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 44.6% of KSI's sales for the first
six months of 1999 and 29.6% of total manufacturing sales for the first six
months of 1999. Management anticipates that the percentage of sales to
government agencies will remain relatively constant over the next several years
based upon contracts that KSI 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 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 conducted in two Company owned
buildings, totaling approximately 150,000 square feet on a 36.7-acre site.
COMPARISON OF OPERATING RESULTS OF TRAILER MANUFACTURING FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND 1998
The following table sets forth the income and expense items for the six
months ended June 30, 1999 and 1998 and the percentage relationship of income
and expense items to net sales for the periods indicated (in thousands):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
----------------------------------------------------------
JUNE 30, 1999 JUNE 30, 1998
---------------------- -------------------------
<S> <C> <C> <C> <C>
Net sales $22,956 100.0% $ 19,658 100.0%
Cost of goods sold 16,992 74.0% 14,230 72.4%
------- ----- -------- -----
Gross profit 5,964 26.0% 5,428 27.6%
Selling, general and
administrative expenses 1,800 7.8% 1,602 8.2%
Depreciation and amortization 517 2.3% 378 1.9%
------- ----- -------- -----
Income from operations 3,647 15.9% 3,448 17.5%
Other income (expense) 149 0.7% (159) (0.8%)
------- ----- -------- -----
Net Income Before Taxes $ 3,796 16.5% $ 3,289 16.7%
======= ===== ======== =====
</TABLE>
22
<PAGE> 25
NET SALES. Net sales increased by approximately $3.3 million, or 17%,
to $23.0 million for the six months ended June 30, 1999 from $19.7 million for
the six months ended June 30, 1998. The net sales increase consisted of an
increase of $0.5 million in KSI's sales and $2.8 million in KSC's sales. The
increase was primarily due to trailers produced in the KSC facility acquired in
April 1998. KSI sold 400 trailers for the six months ended June 30, 1999 and 452
trailers for the six months ended June 30, 1998. KSC sold 215 trailers for the
six months ended June 30, 1999 and 105 trailers for the six months ended June
30, 1998. KSI's average price per trailer sold was approximately $40,000 for the
six months ended June 30, 1999 and $34,000 for the six months ended June 30,
1998. KSC's average price per trailer sold was approximately $32,000 for the six
months ended June 30, 1999 and $44,000 for the six months ended June 30, 1998.
The decrease in average price per trailer is due to the changing mix in
production at KSC. They are currently producing more flat-bed trailers then they
were in 1998 and they have a lower price per unit. Sales to governmental
agencies represented 44.6% and 49.3% of KSI's net sales for the six months ended
June 30, 1999 and 1998, respectively. The trailer manufacturing division had a
backlog of orders consisting of approximately $20.8 million at June 30, 1999
compared to $25.4 million at June 30, 1998.
COST OF GOODS SOLD. Cost of goods sold increased by approximately $2.8
million, or 19.4% to $17.0 million for the six months ended June 30, 1999 from
$14.2 million for the six months ended June 30, 1998. The cost of goods sold
increase consisted of an increase of $2.8 million in KSC's cost of goods sold.
Cost of goods sold was 74.0% of net sales for the six months ended June 30, 1999
compared to 72.4% for the six months ended June 30, 1998. The increase was due
to a higher percentage of sales being from KSC, which has a lower gross profit
margin on its trailer sales then KSI. KSI's and KSC's cost of goods sold were
68.3% and 84.4%, respectively, for the six months ended June 30, 1999, compared
to 70.5% and 77.5% for the six months ended June 30, 1998. KSC's cost of goods
sold percentage was higher in 1999 due to the utilization of the new facility
being at a lower rate than the old KSC facility.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased slightly to $1.8 million for the six months
ended June 30, 1999 from $1.6 million for the six months ended June 1998 but
decreased as a percentage of sales. KSI's and KSC's selling, general and
administrative expenses were $1.2 million and $0.6 million, respectively, for
the six months ended June 30, 1999.
COMPARISON OF OPERATING RESULTS OF TRAILER MANUFACTURING FOR THE THREE MONTHS
ENDED JUNE 30, 1999 AND 1998
The following table sets forth the income and expense items for the
three months ended June 30, 1999 and 1998 and the percentage relationship of
income and expense items to net sales for the periods indicated (in thousands):
23
<PAGE> 26
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
---------------------------------------------------------
JUNE 30, 1999 JUNE 30, 1998
---------------------- ------------------------
<S> <C> <C> <C> <C>
Net sales $12,539 100.0% $ 11,076 100.0%
Cost of goods sold 9,275 74.0% 8,039 72.6%
------- ----- -------- -----
Gross profit 3,264 26.0% 3,037 27.4%
Selling, general and
administrative expenses 967 7.7% 813 7.4%
Depreciation and amortization 262 2.1% 182 1.6%
------- ----- -------- -----
Income from operations 2,035 16.2% 2,042 18.4%
Other income (expense) 128 1.0% (89) 0.8%
------- ----- -------- -----
Net Income Before Taxes $ 2,163 17.3% $ 1,953 17.6%
======= ===== ======== =====
</TABLE>
NET SALES. Net sales increased by approximately $1.4 million, or 13%,
to $12.5 million for the three months ended June 30, 1999 from $11.1 million for
the three months ended June 30, 1998. The net sales increase consisted of an
increase of $0.2 million in KSI's sales and $1.2 million in KSC's sales. The
increase was primarily due to trailers produced in the KSC facility acquired in
April 1998. KSI sold 206 trailers for the three months ended June 30, 1999 and
254 trailers for the three months ended June 30, 1998. KSC sold 112 trailers for
the three months ended June 30, 1999 and 72 trailers for the three months ended
June 30, 1998. KSI's average price per trailer sold was approximately $41,700
for the three months ended June 30, 1999 and $34,900 for the three months ended
June 30, 1998. KSC's average price per trailer sold was approximately $32,700
for the three months ended June 30, 1999 and $44,300 for the three months ended
June 31, 1998. Sales to governmental agencies represented 45.0% and 46.1% of
KSI's net sales for the three months ended June 30, 1999 and 1998, respectively.
COST OF GOODS SOLD. Cost of goods sold increased by approximately $1.2
million, or 15.4% to $9.3 million for the three months ended June 30, 1999 from
$8.0 million for the three months ended June 30, 1998. The cost of goods sold
increase consisted of a decrease of $0.1 million in KSI's cost of goods sold and
an increase of $1.3 million in KSC's cost of goods sold. Cost of goods sold was
74.0% of net sales for the three months ended June 30, 1999 compared to 72.6%
for the three months ended June 30, 1998. KSI's and KSC's cost of goods sold
were 67.5% and 84.8%, respectively, for the three months ended June 30, 1999,
compared to 70.9% and 76.2% for the three months ended June 30, 1998. KSC's cost
of goods sold percentage was higher in 1999 due to the utilization of the new
facility being at a lower rate than the old KSC facility.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased slightly to $0.9 million for the three months
ended June 30, 1999 from $0.8 million for the three months ended June 30, 1998
but remained at a constant percentage of sales. KSI's and KSC's selling, general
and administrative expenses were $0.6 million and $0.3 million, respectively,
for the three months ended June 30, 1999.
24
<PAGE> 27
CORPORATE OVERHEAD
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, tax return preparation, investor relations, etc. 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 approximately $0.4 million, or 20%, to $2.2
million for the six months ended June 30, 1999 from $1.9 million for the six
months ended June 30, 1998. The increase was primarily due to costs associated
with managing and overseeing the new operations acquired within the last twelve
months.
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 $13.0 million
for the six months ended June 30, 1999. This amount includes $4.0 million in net
income, $4.3 million in depreciation and an increase in accounts payable of $4.8
million.
Cash used in investing activities was $31.1 million for the six months
ended June 30, 1999. The Company's main use of cash during the first six months
of 1999 was $6.9 million for the acquisition of Freight Victoria and $25.6
million for the purchase of property, plant and equipment. Approximately $10.8
million of these purchases were for the purchase of the assets of the E&N
Railway.
The Company's cash provided by financing activities was $27.6 million
for the six months ended June 30, 1999 consisting of the net proceeds of
approximately $12.0 million from the private placement of restricted common
stock and $4.1 million from the sale of preferred stock. In addition, the
Company's net borrowings increased by $13.2 million primarily due to the above
mentioned purchase of E&N assets.
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"). The Revolver is collateralized by
substantially all of the assets of the Company and certain of its subsidiaries.
On July 23, 1999, the Company's Revolver was increased from $85
million to $125 million by a consortium of banks 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 maturity date of the Revolver was extended to July 2002.
25
<PAGE> 28
To facilitate the acquisition of VLF, Freight Victoria obtained a $100
million bridge loan from Barclays Bank PLC under a senior secured loan facility.
Upon the execution of the facility, the Company issued to Barclays Bank PLC
warrants to acquire 750,000 shares of the Company's Common Stock at an exercise
price of $9.75 per share.
The bridge loan is due and payable on April 30, 2000. The Company has
the option to convert the bridge loan into a term loan which would mature April
30, 2009. If the Company exercises the option to convert the bridge loan, on
April 30, 2000, it will be required to pay a 1% fee of the converted balance in
additional fees and issue warrants equal to 10% of the Company's outstanding
common stock. The bridge loan bears interest at a rate equal to the London
Interbank Offered Rate plus the applicable margin. The applicable margin
initially is 500 basis points and increases by 50 basis points every 90 days.
The Company has agreed with Barclays Bank PLC that if the bridge loan is not
repaid by November 30, 1999 the Company has to issue 10,000 warrants and the
interest rate increases by 200 basis points. If the bridge loan converts to a
term loan, the lender will have the right to elect to fix the interest rate. The
bridge loan is guaranteed by the Company and is collateralized by liens on all
of the assets of Freight Victoria and by a pledge of the stock of certain of the
Company's subsidiaries. The facility agreement contains significant restrictions
on RailAmerica and its subsidiaries that are a party to the agreement, including
without limitation restrictions on additional indebtedness, liens, sales of
assets and capital expenditures. The Company is pursuing its available
alternatives for refinancing the bridge loan.
As of June 30, 1999, the Company had working capital of $27.2 million
compared to working capital of $14.6 million as of December 31, 1998. Cash on
hand as of June 30, 1999 was $15.4 million compared to $5.8 million as of
December 31, 1998. The increases in working capital and cash primarily related
to the acquisition of Freight Victoria. The Company's cash flows from operations
historically have been sufficient to meet its ongoing operating requirements,
capital expenditures for property, plant, and equipment, and to satisfy the
Company's interest requirements.
The Company expects that its future cash 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 $3.6 million and capital expenditures at KSI of approximately $0.3
million. In addition, the Company anticipates capital expenditures of
approximately $10.0 million over the next twelve months primarily related to new
Ferronor contracts received since its acquisition by the Company. Ferronor
closed on a debt financing in the first quarter of 1999 that will be used to
fund certain of the capital expenditures. Additionally, Ferronor has a loan
commitment to fund the remainder of the expansion and anticipates closing on
this financing later in 1999. The Company anticipates spending approximately
$0.5 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. Freight Victoria's capital expenditures are estimated to be $10.0
million over the next twelve months and the Company anticipates paying for these
through cash generated from Freight Victoria's operations. The Company does not
presently
26
<PAGE> 29
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 6, 1999, the Company had approximately $7.1 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 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 materials to our
manufacturing facilities could cause either a slow down in production and/or
27
<PAGE> 30
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
$0.35 million. The total amount expended through June 30, 1999 is approximately
$0.25 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.
The Company is currently investigating the status of the Year 2000
compliance of our recent acquisitions, Freight Victoria and RaiLink Ltd.
Readers are cautioned that forward-looking statements contained in this
Impact of Year 2000 discussion 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 follows below in 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 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
28
<PAGE> 31
organization or unionization of a material segment of the Company's employee
base; the effect of competitive pricing; the inability to integrate acquired
businesses; and the regulation of the Company by federal, state, local and
foreign 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.
ITEM 3. MARKET RISK DISCLOSURE
The Company has exposure to market risk for changes in interest rates
relating to certain of its debt obligations. The Revolver's interest rate is
tied to either the bank's prime rate or LIBOR at the option of the Company. The
Revolver had a balance of approximately $55 million as of June 30, 1999.
Interest on the $100 million bridge loan used for the acquisition of V/Line
Freight is tied to London Interbank Offered Rate. Certain of the Company's debt
in its Chilean subsidiary has interest rates which are tied to LIBOR.
The $100 million bridge loan is between Barclays Bank PLC and Freight
Victoria, an Australian company. In connection with this loan, matters arise
with respect to financial accounting and reporting for foreign currency
translation. Therefore, the Company has exposure to fluctuations in the value
of the Australian dollar.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1998 annual meeting on June 24, 1998 at which
Donald Redfearn and Charles Swinburn were re-elected as Directors of the
Company. In addition, the Company's 1995 Non-Employee Directors Stock Option
Plan was amended. At the meeting votes were cast as follows:
<TABLE>
<CAPTION>
IN FAVOR AGAINST ABSTENTIONS
--------- ------- -----------
<S> <C> <C> <C>
Re-election of Donald Redfearn as Director 8,254,311 5,363 --
Re-election of Charles Swinburn as Director 8,254,311 5,363 --
Amendment of 1995 Non-Employee Directors
Stock Option Plan 8,005,179 229,179 24,775
</TABLE>
Gary Marino, John Marino, Richard Rampell and John Sullivan all continued as
directors of the Company after the meeting.
ITEM 5. OTHER INFORMATION
On May 28, 1999, the Company commenced an all-cash tender offer for the common
shares of Railink Ltd, a rail freight system in Canada, at a price of
approximately US$6.00 (Cdn. $8.75) per share. The consideration tendered to the
Railink shareholders totaled nearly US$50 million and, combined with the
assumption of approximately US$20 million in debt, resulted in a transaction
valued at approximately US$70 million. On July 26, 1999, the conditions of the
offer were fulfilled or waived and approximately 98% of Railink's outstanding
shares were tendered and purchased by RailAmerica. Funding for the transaction
was provided principally by a consortium of banks led by
29
<PAGE> 32
National Bank of Canada through its newly expanded Revolver. The balance was
funded through proceeds from a private offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K.
The Company filed the following reports on Form 8-K during the quarter
ended March 31, 1999:
1. A Current Report on Form 8-K, dated April 30, 1999, was filed with
the Securities and Exchange Commission on May 17, 1999 in
connection with the Company's acquisition of the railroad freight
business of V/Line Freight Corporation. An amendment to the Form
8-K was filed with the Securities and Exchange Commission on
July 16, 1999.
30
<PAGE> 33
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 12, 1999
By: /s/ Gary O. Marino
------------------------------
Gary O. Marino as Chairman,
Chief Executive Officer and as
Principal Financial Officer
31
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<CASH> 15,385,784
<SECURITIES> 0
<RECEIVABLES> 26,536,190
<ALLOWANCES> 0
<INVENTORY> 13,589,038
<CURRENT-ASSETS> 59,226,341
<PP&E> 245,539,719
<DEPRECIATION> 0
<TOTAL-ASSETS> 320,950,262
<CURRENT-LIABILITIES> 32,022,747
<BONDS> 81,753,608
10,739,956
0
<COMMON> 11,828
<OTHER-SE> 54,877,712
<TOTAL-LIABILITY-AND-EQUITY> 320,950,262
<SALES> 22,956,261
<TOTAL-REVENUES> 61,269,774
<CGS> 16,992,484
<TOTAL-COSTS> 51,622,026
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,505,312
<INCOME-PRETAX> 5,891,905
<INCOME-TAX> 1,941,000
<INCOME-CONTINUING> 3,950,905
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,950,905
<EPS-BASIC> 0.32
<EPS-DILUTED> 0.31
</TABLE>
