<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 MARCH 31, 2000
Commission File No. 0-20618
RAILAMERICA, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 65-0328006
(State or Other Jurisdiction (IRS Employer
of Incorporation) Identification Number)
5300 BROKEN SOUND BLVD, N.W.
BOCA RATON, FLORIDA 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 - 18,502,605 shares as of May 12, 2000
<PAGE> 2
RAILAMERICA, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - March 31, 2000 and
December 31, 1999 1
Consolidated Statements of Income - For the three months
ended March 31, 2000 and 1999 2
Consolidated Statement of Stockholders' Equity - For the
year ended December 31, 1999 and the three months ended
March 31, 2000 3
Consolidated Statements of Cash Flows - For the three
months ended March 31, 2000 and 1999 4
Notes to Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3 Market Risk Disclosure 20
PART II OTHER INFORMATION
Item 1 Legal Proceedings 21
Item 2 Changes in Securities and Use of Proceeds 21
Item 4 Submission of Matters to a Vote of Security Holders 21
Item 6 Exhibits and Reports on Form 8-K 22
Signatures
</TABLE>
<PAGE> 3
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 4,384 $ 11,598
Accounts and notes receivable 67,781 40,857
Inventories 11,696 9,929
Other current assets 7,163 3,500
Net assets of discontinued operation -- 14,996
--------- ---------
Total current assets 91,024 80,880
Property, plant and equipment, net 733,865 347,617
Notes receivable, less current portion 1,670 2,123
Investment in affiliates 4,817 4,667
Other assets 20,208 8,642
--------- ---------
Total assets $ 851,584 $ 443,929
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 17,693 $ 17,811
Accounts payable 39,086 23,732
Accrued expenses 33,948 15,379
Net liabilities of discontinued operation 22,133 --
--------- ---------
Total current liabilities 112,860 56,922
--------- ---------
Long-term debt, less current maturities 478,571 145,016
Subordinated debt, less current maturities -- 100,000
Convertible subordinated debt, less current maturities 22,433 22,449
Other liabilities 28,650 16,374
Deferred income taxes 73,893 15,382
Minority interest 9,387 9,489
Commitments and contingencies
Redeemable convertible preferred stock, $0.01 par value,
$25 liquidation value, 1,000,000 shares authorized;
290,400 and 378,400 shares outstanding, respectively 6,807 8,830
Stockholders' equity:
Common stock, $0.001 par value, 30,000,000 shares authorized;
19,530,110 issued and 18,628,121 outstanding at March 31, 2000;
12,610,725 issued and 11,894,136 outstanding at December 31, 1999 20 13
Additional paid-in capital 115,251 52,305
Retained earnings 14,813 18,171
Accumulated other comprehensive income (5,436) 3,486
Treasury stock (901,989 and 716,589 shares, respectively, at cost) (5,665) (4,508)
--------- ---------
Total stockholders' equity 118,983 69,467
--------- ---------
Total liabilities and stockholders' equity $ 851,584 $ 443,929
========= =========
</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 months ended March 31, 2000 and 1999
(in thousands, except earnings per share)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
--------------- --------------
<S> <C> <C>
Operating revenue:
Transportation - railroad $ 78,325 $ 9,288
Other 1,701 937
-------- --------
Total operating revenue 80,026 10,225
-------- --------
Operating expenses:
Transportation - railroad 47,681 4,920
Selling, general and administrative 11,410 2,683
Acquisition related costs 739 --
Depreciation and amortization 6,230 994
-------- --------
Total operating expenses 66,060 8,597
-------- --------
Operating income 13,966 1,628
Interest expense (11,606) (1,318)
Amortization of financing costs (1,148) (132)
Other income (expense) 809 (124)
Foreign exchange loss (3,432) --
-------- --------
(Loss) income from continuing operations before
income taxes (1,411) 54
(Benefit) provision for income taxes (522) 16
-------- --------
(Loss) income from continuing operations (889) 38
Discontinued operations:
(Loss) Income from operations of discontinued segment
(net of applicable income taxes of ($91) and $469) (77) 1,165
-------- --------
(Loss) income before extraordinary item (966) 1,203
Extraordinary loss from early extinguishment of debt (net of tax) (2,216) --
-------- --------
Net (loss) income $ (3,182) $ 1,203
======== ========
====================================================================================================
Net (loss) income available to common stockholders $ (3,357) $ 962
======== ========
Basic and diluted earnings per common share
Continuing operations $ (0.06) $ (0.02)
Discontinued operations (0.01) 0.12
Extraordinary item (0.13) 0.00
-------- --------
Net (loss) income $ (0.20) $ 0.10
======== ========
Weighted average common shares
outstanding:
Basic 16,469 10,118
======== ========
Diluted 16,469 10,118
======== ========
</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, 1999 and three months ended March 31, 1998
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Stockholders' Equity
----------------------------------------------------------------------------------------------
Number of Additional Other
Shares Par Paid-in Retained Comprehensive Treasury
Issued Value Capital Earnings Income Stock Total
------------- -------- ------------- ------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 10,207 $ 10 $ 28,278 $ 9,285 $ 471 $ (3,283) $ 34,761
Net income -- -- -- 9,921 -- -- 9,921
Other comprehensive income
Cumulative translation -- -- -- -- 3,015 -- 3,015
---------
Total comprehensive income 12,936
---------
Issuance of common stock 1,438 1 12,028 -- -- -- 12,029
Purchase of treasury stock -- -- -- -- -- (1,224) (1,224)
Exercise of stock options 141 -- 581 -- -- -- 581
Tax benefut exercise of options -- -- 152 -- -- -- 152
Conversion of debt 564 1 3,332 -- -- -- 3,333
Conversion of preferred stock 261 1 2,006 -- -- -- 2,007
Issuance of warrants -- -- 5,928 -- -- -- 5,928
Preferred stock dividends
and accretion -- -- -- (1,036) -- -- (1,036)
--------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 1999 12,611 13 52,305 18,170 3,486 (4,507) 69,467
Net loss -- -- -- (3,182) -- -- (3,182)
Other comprehensive income
Cumulative translation -- -- -- -- (8,922) -- (8,922)
---------
Total comprehensive income (12,104)
---------
Issuance of common stock 6,652 7 60,891 -- -- -- 60,898
Exercise of stock options -- -- 2 -- -- -- 2
Conversion of preferred stock 267 -- 2,053 -- -- -- 2,053
Purchase of treasury stock -- -- -- -- -- (1,158) (1,158)
Preferred stock dividends
and accretion -- -- -- (175) -- -- (175)
--------- --------- --------- --------- --------- --------- ---------
Balance, March 31, 2000 19,530 $ 20 $ 115,251 $ 14,813 $ (5,436) $ (5,665) $ 118,983
========= ========= ========= ========= ========= ========= =========
</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 three months ended March 31, 2000 and 1999
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,182) $ 1,203
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,966 1,429
Write-off of deferred loan costs 2,546 --
Interest paid in kind 1,266 --
Minority interest in income of subsidiary (102) 365
Equity interest in earnings of affiliate (186) --
Loss (gain) on sale or disposal of properties 33 (19)
Deferred income taxes (6,278) 256
Changes in operating assets and liabilities,
net of acquisitions and dispositions:
Accounts receivable 6,502 (926)
Inventories (3,919) (1,241)
Other current assets 1,845 (314)
Accounts payable 1,859 222
Accrued expenses 6,188 1,235
Other liabilities (539) --
Deposits and other (5,541) (62)
--------- ---------
Net cash provided by operating activities 8,459 2,148
--------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (8,764) (13,576)
Proceeds from sale of properties 74 6
Acquisitions, net of cash acquired (150,269) --
Deposit on purchase agreement -- (18,464)
Cash held in discontinued operations 263 --
Deferred acquisition costs and other (1,114) (646)
--------- ---------
Net cash used in investing activities (159,810) (32,680)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 174,446 44,142
Principal payments on long-term debt (15,745) (32,074)
Sale of convertible preferred stock -- 4,095
Sale of common stock -- 11,954
Proceeds from exercise of stock options 2 193
Purchase of treasury stock (1,157) (636)
Deferred loan costs paid (13,160) (349)
--------- ---------
Net cash provided by financing activities 144,386 27,325
--------- ---------
Net decrease in cash (6,965) (3,207)
Effect of exchange rates on cash (249) --
Cash, beginning of period 11,598 5,760
--------- ---------
Cash, end of period $ 4,384 $ 2,553
========== =========
</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
March 31, 2000 and December 31, 1999, and the results of operations and
cash flows for the three months ended March 31, 2000 and 1999.
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 1999 annual report on Form 10-K. Capitalized
terms used but not otherwise defined herein have the meanings set forth
in the Company's 1999 annual report on Form 10-K.
2. EARNINGS PER SHARE:
For the three months ended March 31, 2000 and 1999, basic earnings per
share is calculated using the weighted average number of common shares
outstanding during the period. Income from continuing operations is
reduced by preferred stock dividends and accretion for the basic
earnings per share computation.
Diluted earnings per share is calculated using the sum of the weighted
average number of common shares outstanding plus potentially dilutive
common shares arising out of stock options and warrants. Options and
warrants totaling $5.1 million were excluded from the diluted earnings
per share calculation for the first quarter of 2000. Assumed conversion
of $24.4 million of convertible debt and the convertible preferred
stock are anti-dilutive and are not included in the calculation.
The following is a summary of the income from continuing operations
available for common stockholders and weighted average shares (in
thousands):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Income (loss) from continuing operations $ (888) $ 38
Preferred stock dividends and accretion (175) (241)
------- -------
Loss from continuing operations available
to common stockholders (basic and diluted) $(1,063) $ (203)
======= =======
</TABLE>
5
<PAGE> 8
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following as of March 31,
2000 and December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Land $ 135,131 $ 34,345
Buildings and improvements 13,789 8,683
Railroad track and improvements 436,641 186,670
Locomotives, transportation and other equipment 171,443 135,309
--------- ---------
757,004 365,007
Less accumulated depreciation 23,139 17,390
---------- ---------
$733,865 $347,617
========== =========
</TABLE>
In February 2000, the Company acquired RailTex, Inc. This acquisition
accounted for approximately $390 million of the fixed asset additions
for the quarter.
4. ACQUISITION:
On February 4, 2000, the Company acquired RailTex, Inc. for
approximately $128 million in cash, assumption of $111 million in debt
and approximately 6.6 million shares of the Company's Common Stock,
valued at $60.9 million. RailTex, which operates 25 railroads over 4,100
miles of rail lines in North America, became a wholly-owned subsidiary
of the Company. RailTex shareholders received $13.50 in cash and
two-thirds of a share of RailAmerica common stock in exchange for each
share of RailTex stock. This transaction was financed through the
issuance of new debt, see Note 6.
This acquisition has been accounted for as a purchase and its results
have been consolidated since the acquisition date. The final purchase
price allocation will be based upon a final determination of the fair
value of the net assets acquired. In accordance with EITF 95-3,
"Recognition of Liabilities in Connection with a Purchase Business
Combination", the Company recorded liabilities of $11.2 million which
related to severance and change of control payments to former RailTex
employees.
6
<PAGE> 9
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. ACQUISITION, continued
The following unaudited pro forma summary presents the consolidated
results of operations as if the acquisition had occurred at the
beginning of the periods presented and does 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). The three months ended March 31, 1999 also include the
acquisitions of Freight Australia, which occurred in April 1999,
RaiLink, Ltd., which occurred in July 1999 and Toledo, Peoria and
Western Railroad, which occurred in August 1999 as if these acquisitions
had occurred on January 1, 1999.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
2000 1999
---- ----
<S> <C> <C>
Operating revenue $ 94,100 $ 93,782
(Loss) income from continuing operations $ (1,836) $ 3,406
Net (loss) income $ (4,129) $ 4,571
Earnings per share - continuing operations
Basic $ (0.12) $ 0.17
Diluted $ (0.12) $ 0.17
Earnings per share - net (loss) income
Basic $ (0.26) $ 0.29
Diluted $ (0.26) $ 0.29
</TABLE>
5. OTHER ASSETS:
Other assets consist of the following as of March 31, 2000 and December
31, 1999 (in thousands):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Deferred loan costs $ 14,629 $ 6,657
Deposits and other 5,579 1,985
-------- -------
$ 20,208 $ 8,642
======== =======
</TABLE>
6. LONG-TERM DEBT:
In February 2000, the Company entered into a credit agreement and two
bridge note facilities in connection with the acquisition of RailTex and
the refinancing of most of the Company's and RailTex's existing debt.
The credit agreement provides (1) a $125 million Term A loan, bearing
interest at LIBOR plus 3.00% (2) a $205 million Term B loan, bearing
interest at LIBOR plus 3.25%, and (3) a $50 million revolving credit
facility which includes $30 million of U.S. dollar denominated loans,
$10 million of Canadian dollar denominated loans and $10 million of
Australian dollar denominated loans with an interest rate of LIBOR plus
3.00%, or a Canadian equivalent. The loans are provided by a syndicate
of banks with Donaldson, Lufkin & Jenrette as syndication agent and The
Bank of Nova Scotia as administrative agent. All of the Stock of all the
Company's U.S. subsidiaries, excluding Kalyn/Siebert, serve as
collateral for the credit facilities.
7
<PAGE> 10
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. LONG-TERM DEBT, continued
The Term A loan requires principal payments of 5% in 2000, 10% in 2001,
15% in 2002, 20% in 2003, 25% in both 2004 and 2005. The Term B loan
requires principal payments of 1% per year through 2005 and a balloon
maturity at December 31, 2006. The revolving loan matures on December
31, 2005.
The Company's new credit facilities include covenants which impose
financial and operating restrictions on RailAmerica's ability to, among
other things: incur more debt; pay dividends, redeem or repurchase its
stock or make other distributions; make acquisitions or investments;
use assets as security in other transactions; enter into transactions
with affiliates; merge or consolidate with others; dispose of assets or
use asset sale proceeds; create liens on its assets; and extend credit.
The new credit facilities also contain financial covenants that will
require the Company to meet a number of financial ratios and tests.
The Company, through its wholly-owned subsidiary RailAmerica
Transportation Corp., issued $95 million of subordinated bridge notes,
under a securities purchase agreement with DLJ Bridge Finance, Inc.
These notes mature on February 4, 2001 and have an initial interest
rate of 13% per annum, which rate increases every three months based on
the highest specified rates. The Company, through its wholly-owned
subsidiary Palm Beach Rail Holding, Inc. issued $55 million of asset
sale bridge notes, under a securities purchase agreement with DLJ
Bridge Finance, Inc. These notes mature on February 4, 2001 and have an
initial interest rate of 15% per annum, which rate increases on August
4 ,2000 and November 4, 2000 based on the highest of specified rates.
The asset sale bridge notes are collateralized by the assets of
Kalyn/Siebert I, Inc. and its subsidiaries, which are accounted for as
discontinued operations held for sale. A majority of the asset sale
bridge notes are included in discontinued operations as the proceeds
from the sale of Kalyn/Siebert are required to be used to pay down the
asset sale bridge notes.
In connection with the issuance of the subordinated bridge notes, the
purchasers of such notes are entitled to receive warrants to purchase
common stock at an exercise price of $7.75 per share commencing in May
2001 to the extent the subordinated bridge notes are then outstanding.
In connection with the issuance of the asset sale bridge notes, the
purchasers of such notes are entitled to receive warrants to purchase
common stock at an exercise price of $7.75 per share commencing in
August 2000 to the extent the asset sale bridge notes are then
outstanding. The maximum number of shares issuable upon exercise of all
these warrants would be 1,604,330, subject to specified anti-dilution
adjustments.
In connection with the February 2000 debt refinancing, including the
refinancing of RailTex's debt, the Company recorded an extraordinary
charge of $2.2 million for early extinguishment of debt, net of income
taxes, in the first quarter of 2000.
8
<PAGE> 11
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. COMMON STOCK TRANSACTIONS:
On August 24, 1998, the Company's Board of Directors authorized a share
repurchase program to buy back up to 1,000,000 shares of its Common
Stock (limited to $2 million per year pursuant to the new credit
facilities). Purchases will be made from time to time in the open
market and will continue until all of such shares are purchased or
until the Company determines to terminate the repurchase program.
During the year 2000, the Company has purchased 311,250 shares with a
total cost of $2.0 million.
8. NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the first quarter of 2000, $2.2 million of the redeemable
convertible preferred stock was converted into the Company's Common
Stock.
In connection with the RailTex acquistion, the Company refinanced $223
million of its debt and $111 million of debt that it assumed from
RailTex using its new credit facilities described in Note 6. The
Company also issued 6.6 million shares of its Common Stock, valued at
$60.9 million as part of the purchase price.
9. DISCONTINUED OPERATIONS:
In November 1999, the Company adopted a plan to sell its trailer
manufacturing operations. This business has been accounted for as a
discontinued operation and the results of operations have been excluded
from continuing operations in the consolidated statements of operations
for all periods presented.
Total revenue for the trailer manufacturing segment was $9.4 million
and $10.4 million for the the three months ended March 31, 2000 and
1999, respectively. Income (loss) before income taxes for the trailer
manufacturing segment was ($0.1 million) and $1.6 million for the three
months ended March 31, 2000 and 1999, respectively. Total assets in
this division as of March 31, 2000 and December 31, 1999 were $38.2
million and $28.8 million, respectively. Total liabilities in this
division as of March 31, 2000 and December 31, 1999 were $60.3 million,
which included a majority of the asset sale bridge notes, and $13.9
million, respectively. Interest of $1.0 million was allocated to the
discontinued operations for the first quarter of 2000.
9
<PAGE> 12
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. SEGMENT INFORMATION
The Company's continuing operations have been classified into two
business segments: North American rail transportation and International
rail transportation. The North American rail transportation segment
includes the operations of the Company's railroad subsidiaries in the
United States and Canada and the international rail transportation
segment includes the operations of the Company's railroad subsidiaries
in Chile and Australia. During 1999, the Company's trailer
manufacturing segment was classified as a discontinued operation and is
reported that way for all periods presented.
Business segment information for the three months ended March 31, 2000
and 1999 follows (in thousands):
THREE MONTHS ENDED MARCH 31, 2000:
<TABLE>
<CAPTION>
NORTH AMERICAN INTERNATIONAL CORPORATE AND
CONSOLIDATED RAILROADS RAILROADS OTHER
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenue $ 80,026 $ 48,205 $ 31,342 $ 479
Depreciation and amortization $ 6,230 $ 4,161 $ 1,817 $ 252
Operating income (loss) $ 13,966 $ 10,437 $ 5,735 $(2,206)
Total assets $851,584 $619,421 $201,953 $30,210
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999:
<TABLE>
<CAPTION>
NORTH AMERICAN INTERNATIONAL CORPORATE AND
CONSOLIDATED RAILROADS RAILROADS OTHER
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenue $ 10,225 $ 5,492 $ 4,219 $ 514
Depreciation and amortization $ 994 $ 500 $ 273 $ 221
Operating income (loss) $ 1,628 $ 1,486 $ 950 $ (808)
Total assets $146,143 $67,132 $44,652 34,359
</TABLE>
10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
RailAmerica, Inc. (together with its consolidated subsidiaries, the
"Company" or "RailAmerica") is the largest owner and operator of short line
freight railroads in North America and a leading owner and operator of regional
freight railroads in Australia and Chile. RailAmerica owns, leases, operates or
has equity interests in, a diversified portfolio of 50 railroads with
approximately 12,500 miles of track located in the United States, Australia,
Canada and Chile. Through its diversified portfolio of rail lines, the Company
operates in numerous geographic regions with varying concentrations of
commodities hauled. The Company believes that individual economic and seasonal
cycles in each region may partially offset each other. The Company recognizes
railroad transportation revenue after services are provided.
On February 4, 2000, the Company acquired RailTex, Inc. ("RailTex")
through a merger of one of its wholly-owned subsidiaries with and into RailTex
for approximately $128 million in cash, assumption of $111 million in debt and
approximately 6.6 million shares of the Company's common stock, valued at $60.9
million. RailTex owns and operates 25 short line freight railroads with
approximately 4,100 miles of track concentrated in the southeastern, midwestern,
Great Lakes and New England regions of the United States and eastern Canada. In
connection with the acquisition, the Company entered into a credit agreement
providing $330 million of senior term loans and $50 million of senior revolving
loans. In addition, a wholly-owned subsidiary of the Company issued $95 million
of subordinated bridge notes and another wholly-owned subsidiary issued $55
million of subordinated asset sale bridge notes in connection with the
acquisition.
Set forth below is a discussion of the historical results of operations
for the Company's North American and international railroad operations and
discontinued trailer manufacturing as well as a discussion of corporate
overhead.
NORTH AMERICAN RAILROAD OPERATIONS
The Company's historical results of operations include the operations
of its acquired railroads from the dates of acquisition as follows:
NAME OF RAILROAD DATE OF ACQUISITION
RaiLink properties (6 railroads) August 1, 1999
Toledo, Peoria and Western Railroad ("TPW") September 1, 1999
RailTex, Inc. (25 railroads) February 4, 2000
As a result, the results of operations for the three months ended March
31, 2000 and 1999 are not comparable in various material respects and are not
indicative of the results which would have occurred had the acquisitions been
completed at the beginning of the periods presented.
The following table sets forth the operating revenues and expenses
(in thousands) 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.
11
<PAGE> 14
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
--------------------
2000 1999
---- ----
<S> <C> <C>
Revenue:
Transportation revenue $ 47,639 $5,219
Other revenue 566 273
-------- ------
Total revenue 48,205 5,492
-------- ------
Operating expenses:
Maintenance of way 5,228 815
Maintenance of equipment 3,670 261
Transportation 17,461 1,268
Equipment rental 200 112
General and administrative 7,046 1,051
Depreciation and amortization 4,161 500
-------- ------
Total operating expenses 37,766 4,007
-------- ------
Operating income $ 10,439 $1,485
======== ======
</TABLE>
COMPARISON OF NORTH AMERICAN RAILROAD OPERATING RESULTS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999.
OPERATING REVENUES. Transportation revenue increased by $42.4 million,
or 813%, to $47.6 million for the three months ended March 31, 2000 from $5.2
million for the three months ended March 31, 1999. The increase was primarily
due to increased carloads as a result of the acquisitions of TPW, RaiLink and
RailTex. The North American transportation revenue per carload decreased to $264
from $325 primarily due to the acquisition of two rail lines that haul at a
lower rate per car than the Company's other rail lines. North American carloads
handled totaled 178,370 for the three months ended March 31, 2000, an increase
of 163,461 compared to 14,909 carloads in the prior year period. The increase
was primarily due to the acquisitions of TPW, RaiLink and RailTex which moved a
total of 163,940 carloads for the three month period ended March 31, 2000. The
Company's "same railroad" transportation revenue and car loadings increased by
9% and 3%, respectively, from the first quarter of 1999 to the first quarter of
2000.
Other revenues increased by approximately $0.3 million, or 107%, to
$0.6 million for the three months ended March 31, 2000 from $0.3 million for the
three months ended March 31, 1999. Other revenues for the three months ended
March 31, 2000 and 1999 consist of gain on sales of railroad assets, railroad
lease and rental income and other miscellaneous income. The increase was due to
the acquisition of RaiLink which contributed $0.3 million in other revenue for
the three months ended March 31, 2000.
OPERATING EXPENSES. Operating expenses increased by $33.8 million, or
843%, to $37.8 million for the three months ended March 31, 2000 from $4.0
million for the three months ended March 31, 1999. The increase was due to the
acquisitions of TPW, RaiLink and RailTex which contributed $34.0 million in
operating expenses for the three months ended March 31, 2000 offset by a slight
decrease in operating expenses for the Company's "same railroad" properties.
Operating expenses, as a percentage of transportation revenue, were 78.3% and
73.0% for the three months ended March 31, 2000 and 1999, respectively. The
12
<PAGE> 15
increase was primarily due to acquisition related costs at RailTex and operating
inefficiencies at TPW. Management anticipates that the operating ratio will
decrease over the next 12 months as the recent acquisitions are integrated.
INTERNATIONAL RAILROAD OPERATIONS
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 for the three months ended March 31, 1999
include only Ferronor. The results of operations for the three months ended
March 31, 2000 also include the operations of Freight Australia.
In Australia, the Company owns Freight Australia, a regional
freight railroad operating in the State of Victoria. Freight Australia is the
Company's wholly-owned Australian subsidiary that purchased the assets and
business of V/Line Freight Corporation from the Government of the State of
Victoria, Australia on April 30, 1999.
As a result, the results of operations for the three months
ended March 31, 2000 and 1999 are not comparable in certain material respects
and are not indicative of the results which would have occurred had the
acquisition been consummated at the beginning of the respective periods.
The following table sets forth the operating revenues and expenses
(in thousands) for the Company's international railroad operations for the
periods indicated.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
---------------------------
2000 1999
---------------------------
<S> <C> <C>
Revenue:
Transportation revenue $30,686 $ 4,069
Other revenue 656 150
--------- ---------
Total revenue 31,342 4,219
------- --------
Operating Expenses:
Transportation 21,533 2,447
General and administrative 2,416 549
Depreciation and amortization 1,817 273
------- --------
Total operating expenses 25,766 3,269
------ -------
Operating income 5,576 950
Other income (expense) (6,054) (225)
Minority interest in earnings 102 (365)
-------- -------
Income (loss) before income taxes $ (376) $ 360
========= ======
</TABLE>
13
<PAGE> 16
COMPARISON OF INTERNATIONAL RAILROAD OPERATING RESULTS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999.
FERRONOR.
OPERATING REVENUES. Transportation revenue increased $0.9 million, or
22%, to $5.0 million for the three months ended March 31, 2000 from $4.1 million
for the three months ended March 31, 1999. Ferronor's carloads handled totaled
25,688 for the three months ended March 31, 2000, an increase of 4,446, or 21%,
compared to 21,242 for the three months ended March 31, 1999. The increase in
both carloads and revenue is related to the commencement of operations in the
fourth quarter of 1999 on a new long-term contract.
OPERATING EXPENSES. Operating expenses increased $1.0 million, or 33%, to
$4.3 million for the three months ended March 31, 2000 from $3.3 million for the
three months ended March 31, 1999. The increase was due to certain start up
costs related to a new long-term contract which commenced in late 1999.
Operating expenses, as a percentage of transportation revenue, were 85.6% and
80.3% for the three months ended March 31, 2000 and 1999, respectively. The
operating ratio increase was due primarily to the start up costs related to the
new shipments.
OTHER INCOME (EXPENSE). Other income (expense) decreased $0.6 million, or
300%, to $(0.8) million net expense for the three months ended March 31, 2000
from $(0.2) million net expense for the three months ended March 31, 1999. The
increase in net expense was due primarily to an exchange rate loss of $0.7
million recorded for the three months ended March 31, 2000.
FREIGHT AUSTRALIA.
OPERATING REVENUES. Operating revenues were $26.4 million for the three
months ended March 31, 2000. These revenues consisted of $21.2 million of
freight revenue, $4.5 million of track access fees and $0.7 million of other
operating revenue.
OPERATING EXPENSES. Operating expenses were $21.3 million for the three
months ended March 31, 2000. These expenses consisted of $18.2 million of
transportation costs, $1.7 million of general and administrative costs and $1.4
million in depreciation. Freight Australia's operating ratio for the three
months ended March 31, 2000 was 80.9%.
OTHER INCOME (EXPENSE). Other income (expense) was a net expense of $5.3
million. This amount primarily consisted of $2.3 million in interest expense and
an exchange rate loss of $3.0 million for the period.
TRAILER MANUFACTURING OPERATIONS
The discussion of results of operations that follows reflects
the results of Kalyn/Siebert L.P. ("KSI") and Kalyn/Siebert Canada ("KSC") for
the periods indicated.
In November 1999, the Company adopted a plan to sell its
trailer manufacturing operations. This business has been classified as a
discontinued operation and the results of operations have been excluded from
continuing operations in the consolidated statements of operations for all
periods presented.
14
<PAGE> 17
The following table sets forth the income and expense items (in
thousands) of the Company's trailer manufacturing operations for the three
months ended March 31, 2000 and 1999 and the percentage relationship of income
and expense items to net sales:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-------------------------------------------------
MARCH 31, 2000 MARCH 31, 1999
----------------------- -------------------
<S> <C> <C> <C> <C>
Net sales $ 9,408 100.0% $ 10,418 100.0%
Cost of goods sold 6,750 71.7% 7,717 74.1%
-------- ------ ---------- -------
Gross profit 2,658 28.3% 2,701 25.9%
Selling, general and administrative
Expenses 1,169 12.4% 833 8.0%
Depreciation and amortization 258 2.7% 255 2.4%
--------- ------- ----------- -------
Income from operations $1,231 13.1% $ 1,613 15.5%
========= ==========
</TABLE>
COMPARISON OF OPERATING RESULTS OF TRAILER MANUFACTURING FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999
NET SALES. Net sales decreased by $1.0 million, or 9.7%, to $9.4
million for the three months ended March 31, 2000 from $10.4 million for the
three months ended March 31, 1999. The net sales decrease resulted from a
decrease of $1.1 million in KSC's sales which was partially offset by an
increase of $0.1 million in KSI's sales. The decrease in KSC's sales was due to
a slow down in the eastern Canadian economy and therefore a reduction in orders
received over late 1999 and early 2000. KSI sold 161 trailers for the three
months ended March 31, 2000 compared to 194 trailers for the three months ended
March 31, 1999. KSC sold 52 trailers for the three months ended March 31, 2000
compared to 103 trailers for the three months ended March 31, 1999. KSI's
average price per trailer sold was approximately $41,500 for the three months
ended March 31, 2000 and $38,300 for the three months ended March 31, 1999. The
decrease in number of trailers produced by KSI and the increase in average price
per trailer relates to the mix of trailers produced. KSI produced a higher
percentage of trailers for the commercial market in 2000 as compared to 1999.
The commercial trailers typically are more specialized and have a higher price
per trailer. KSC's average price per trailer sold was approximately $36,700 for
the three months ended March 31, 2000 and $31,500 for the three months ended
March 31, 1999. Sales to governmental agencies represented 22.9% and 44.1% of
KSI's net sales for the three months ended March 31, 2000 and 1999,
respectively. The trailer manufacturing division had a backlog of orders
consisting of approximately $18.3 million at both March 31, 2000 and 1999.
COST OF GOODS SOLD. Cost of goods sold decreased by approximately $1.0
million, or 12.5% to $6.7 million for the three months ended March 31, 2000 from
$7.7 million for the three months ended March 31, 1999. The cost of goods sold
decrease consisted of a decrease of $0.1 million in KSI's cost of goods sold and
a decrease of $0.9 million in KSC's cost of goods sold. Cost of goods sold was
71.7% of net sales for the three months ended March 31, 2000 compared to 74.1%
for the three months ended March 31, 1999. The improvement in gross margin was
due to the mix of sales between KSI and KSC. KSI's sales, which have a higher
gross margin, represented a larger percentage of the total sales in the 2000
period versus the 1999 period. KSI's and KSC's cost of goods sold were 67.4% and
85.1%, respectively, for the three months ended March 31, 2000, compared to
69.3% and 83.8% for the three months ended March 31, 1999.
15
<PAGE> 18
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased by $0.3 million, or 40.3%, to $1.2 million for
the three months ended March 31, 2000 from $0.8 million for the three months
ended March 31, 1999. KSI's and KSC's selling, general and administrative
expenses were $0.8 million and $0.4 million, respectively, for the three months
ended March 31, 2000 compared to $0.6 million and $0.2 million for the three
months ended March 31, 1999. KSI's selling, general and administrative expenses
increased primarily due to increased sales efforts and increased sales
commissions on commercial trailer sales in the first quarter of 2000 versus the
first quarter of 1999. KSC's selling, general and administrative expenses
increased primarily due to increased sales efforts, foreign exchange rate
fluctuations and installation of certain computer systems.
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 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 $1.3 million, or 124%, to $2.3 million for the three months
ended March 31, 2000 from $1.0 million for the three months ended March 31,
1999. The increase was primarily due to the addition of employees and facility
costs to manage the acquisitions of TPW, RaiLink, Freight Australia and RailTex.
Corporate overhead as a percentage of operating revenue decreased from 10% to 3%
from the three months ended March 31, 1999 to the three months ended March 31,
2000.
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 $8.5 million for
the three months ended March 31, 2000. This amount includes $3.2 million in net
loss and $8.0 million in depreciation and amortization.
Cash used in investing activities was $159.8 million for the three
months ended March 31, 2000. The primary uses of cash during the quarter were
for the acquisition of RailTex, including costs, for $150.3 million, and the
purchase of property, plant and equipment with an aggregate cost of
approximately $8.8 million.
Cash provided by financing activities was $144.4 million for the three
months ended March 31, 2000. This consisted primarily of net borrowings under
new credit facilities of $158.7 million used to fund the RailTex acquisition
partially offset by cash used for deferred loan costs of $13.2 million.
In February 2000, the Company entered into a credit agreement and two
bridge note facilities in connection with the acquisition of RailTex and the
refinancing of substantially all of the Company's and RailTex's existing debt.
The credit agreement provides (1) a $125 million Term A loan, (2) a $205 million
16
<PAGE> 19
Term B loan, and (3) a $50 million revolving credit facility which includes $30
million of U.S. dollar denominated loans, $10 million of Canadian dollar
denominated loans and $10.0 million of Australian dollar denominated loans. The
Term A loan and the revolving loans mature on December 31, 2005 and the Term B
loans mature December 31, 2006. At the Company's option, the senior credit
facilities will bear interest at either (1) the alternative base rate ("ABR")
(defined as greater of (i) The Bank of Nova Scotia's prime rate and (ii) the
Federal Funds Effective Rate plus 0.005%) plus 1.75% for the revolving credit
facilities and for the Term A loan facility and 2.00% for the Term B loan
facility, or (2) the reserve-adjusted LIBO rate plus 3.00% for the revolving
credit facility and for the Term A loan facility and the 3.25% for the Term B
loan facility; provided, that the additional amounts added to ABR and the LIBO
rate for the revolving credit facility and the term A loan facility discussed
above will be subject to adjustment based on changes in the Company's leverage
ratio effective two fiscal quarters after the closing of the new credit
facilities. The default rate under the credit agreement is 2.0% above the
otherwise applicable rate. The loans are collateralized by substantially all of
the Company's assets other than those of KSI and its subsidiaries and Ferronor.
The loans are guaranteed by all the Company's subsidiaries other than KSI and
its subsidiaries and Ferronor. Freight Australia guarantees only the Australian
dollar revolving loans and the Company's Canadian subsidiaries guarantee only
the Canadian dollar revolving loans. The loans are provided by a syndicate of
banks with Donaldson, Lufkin & Jenrette as syndication agent and The Bank of
Nova Scotia as administrative agent.
Pursuant to the refinancing of RailAmerica's and RailTex's debt in
February 2000, the Company recorded an extraordinary charge for the three months
ended March 31, 2000 for the loss on early extinguishment of debt of $2.2
million, after-tax.
The Company's new credit facilities include numerous covenants imposing
significant financial and operating restrictions on its business. The covenants
place restrictions on the Company's ability to, among other things: incur more
debt; pay dividends, redeem or repurchase its stock or make other distributions;
make acquisitions or investments; use assets as security in other transactions;
enter into transactions with affiliates; merge or consolidate with others;
dispose of assets or use asset sale proceeds; create liens on its assets; and
extend credit.
The new credit facilities also contain financial covenants that will
require the Company to meet a number of financial ratios and tests. The
Company's ability to meet these ratios and tests and to comply with other
provisions of the new credit facilities can be affected by events beyond its
control. The Company's failure to comply with the obligations in the new credit
facilities could result in an event of default under the new credit facilities,
which, if not cured or waived, could permit acceleration of the indebtedness or
other indebtedness which would have a material adverse effect on the Company.
Interest on the new credit facility is payable at variable rates. To
partially mitigate the interest rate risk on the new credit facilities the
Company entered into two three year interest rate swaps in May 2000. The
interest rate swaps lock in a blended rate of 10.35% on $212.5 million of debt
for the three year period. Fluctuations in the market interest rate will affect
the cost of the Company's borrowings. Assuming current debt levels the effect of
a 1% increase in interest rates would result in an increase in interest expense
of $1.3 million for the twelve months ended March 31, 2001.
The Company has announced an asset rationalization plan to sell certain
non-strategic assets. The plan, which includes the rationalization of some of
the Company's smaller railroads and specialty truck trailer business, is geared
toward paying down the debt from the new credit facilities, including the
revolver.
17
<PAGE> 20
In connection with the RailTex acquisition, the Company's wholly-owned
subsidiary RailAmerica Transportation Corp., issued $95 million of subordinated
bridge notes, under a securities purchase agreement with DLJ Bridge Finance,
Inc. These notes mature on February 4, 2001 and have an initial interest rate of
13% per annum, which rate increases every three months based on the highest
specified rates. The Company anticipates that it will repay the subordinated
bridge notes through the issuance of additional long-term debt and/or equity
securities. In February 2000, the Company's wholly-owned subsidiary Palm Beach
Rail Holding, Inc., issued $55 million of subordinated asset sale bridge notes,
under a securities purchase agreement with DLJ Bridge Finance, Inc. These notes
mature on February 4, 2001 and have an initial interest rate of 15% per annum,
which rate increases on August 4, 2000 and November 4, 2000 based on the highest
of specified rates. The asset sale bridge notes are collateralized by the assets
of Kalyn/Siebert I, Inc. and its subsidiaries, which are accounted for as
discontinued operations held for sale. The Company intends to repay a portion of
the asset sale bridge notes from the proceeds of the sale of its trailer
manufacturing operations. In addition it will explore available alternatives to
repay any remaining balance on the notes. There can be no assurance that the
Company will be able to repay any or all of these bridge notes.
In connection with the issuance of the subordinated bridge notes, the
purchasers of such notes are entitled to receive warrants to purchase common
stock at an exercise price of $7.75 per share commencing in May 2001 to the
extent the subordinated bridge notes are then outstanding. In connection with
the issuance of the asset sale bridge notes, the purchasers of such notes are
entitled to receive warrants to purchase common stock at an exercise price of
$7.75 per share commencing in August 2000 to the extent the asset sale bridge
notes are then outstanding. The maximum number of shares issuable upon exercise
of all these warrants would be 1,604,330, subject to specified anti-dilution
adjustments.
As of March 31, 2000, the Company had a working capital deficit of
$22.0 million compared to working capital of $24.0 million as of December 31,
1999. The decrease in working capital was primarily related to the
classification of a majority of the asset sale bridge notes as current due to
the expected sale of the trailer manufacturing division. Cash on hand was $4.4
million as of March 31, 2000 compared to $11.6 million as of December 31, 1999.
The Company's cash flows from operations historically have been sufficient to
meet our 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. The
Company anticipates using cash flows and borrowings for anticipated capital
expenditures of $40 million for the upgrading of existing North American rail
lines and purchases of locomotives and equipment. The Company anticipates
capital expenditures of $10.6 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 was used
to fund certain of the capital expenditures. Additionally, Ferronor has a
commitment letter to fund the remainder of the expansion and anticipates closing
on this financing during 2000. Freight Australia's capital expenditures are
estimated to be $18.5 million over the next twelve months and the Company
anticipates paying for these through cash generated from Freight Australia's
operations. 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.
18
<PAGE> 21
The Company anticipates debt service for the next twelve months to be
approximately $56 million including principal and interest. It is anticipated
that a portion of the debt service will be paid from the operating cash flow of
Freight Australia. A material change in the currency exchange rate between the
U.S. dollar and Australian dollar could adversely affect the Company's ability
to service the debt.
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 May 10, 2000, the Company had $38.0 million of availability under the
revolving line of credit facility. In addition, the Company has approximately
$10 million in cash on hand at May 10, 2000.
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.
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 or disposition of railroads,
assets and other 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 companies; an adverse change in currency
exchange rates, interest rates or fuel costs; 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; the inability to integrate acquired businesses; the Company's failure
to achieve expected synergies; failure to service debt; the Company's failure to
successfully market and sell non-core properties and assets; 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.
19
<PAGE> 22
ITEM 3. MARKET RISK
FOREIGN CURRENCY. The Company's foreign currency risk arises from
owning and operating railroads in Canada and Australia. At March 31, 2000, the
Company had not entered into any transactions to manage this risk. A decrease in
either of these foreign currencies would negatively impact the Company's
earnings for the affected period.
The financial position and results of operations of the Company's
Canadian and Australian subsidiaries are measured using the local currency as
the functional currency. Assets and liabilities are translated into U.S. dollars
at exchange rates in effect at period-end, while revenues and expenses are
translated at average exchange rates prevailing during the period. The resulting
translation gains and losses are charged directly to accumulated other
comprehensive income, a component of stockholders' equity, and are not included
in income until realized through the sale or liquidation of the investment. At
March 31, 2000, the accumulated other comprehensive income totaled ($5.4
million), or 5% of total stockholders' equity.
It is anticipated that a portion of the debt service will be paid from
the operating cash flow of Freight Australia. A material change in the currency
exchange rate between the U.S. dollar and the Australian dollar could adversely
affect the Company's ability to service the debt.
INTEREST RATES. The Company's interest rate risk results from holding
variable rate debt obligations, as an increase in interest rates would result in
lower earnings and increased cash outflows.
The interest rate on the new credit facility is payable at variable
rates. To partially mitigate the interest rate risk on the new credit facilities
the Company entered into two three year interest rate swaps in May 2000. The
interest rate swaps lock in a blended rate of 10.35% on $212.5 million of debt
for the three year period. Fluctuations in the market interest rate will affect
the cost of the Company's borrowings. The effect of a 1% increase in interest
would result in an increase in interest expense of $1.3 million for the twelve
months ended March 31, 2001.
DIESEL FUEL. The Company is exposed to fluctuations in diesel fuel
prices, as an increase in the price of diesel fuel would result in lower
earnings and increased cash outflows. Prior to the Company's acquisition of
RailTex, RailTex had entered into a contract to hedge against fuel prices with a
cap which fixed the price of 725,000 gallons of diesel fuel per month for the
period July 1999 to June 2000 at $0.4500 per gallon.
20
<PAGE> 23
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 3, 2000, Tolko Industries Ltd. Filed a property damage claim for
CDN$35 million against the Mackenzie Northern Railway, and others, in connection
with a fire that allegedly occurred on or about May 4, 1998. The Company intends
to vigorously defend this claim and has insurance coverage to approximately
CDN$20 million to cover this claim. At this time, the Company's insurer has
reserved CDN$15 million; however, the Company is unable to assess the merits of
this claim. Any loss in excess of the Company's insurance policy coverage may
materially affect the Company's earnings, cash flow and financial condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable
(b) Not applicable
(c) In connection with the issuance by two of the Company's
subsidiaries of an aggregate of $150 million of bridge notes,
the purchasers of such notes are entitled to receive, under
certain circumstances, warrants to purchase up to an aggregate
of 1,604,330 shares of the Company's common stock at an
exercise price of $7.75 per share. The warrants are being held
in escrow. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources" in Part I.
(d) Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A Special Meeting of Stockholders of the Company was held on
February 1, 2000.
(b) Not applicable.
(c) The only matter voted on at the Special Meeting of
Stockholders was the approval of the issuance of up to
7,781,811 shares of the Company's common stock in the merger
of Cotton Acquisition Corp., a wholly-owned subsidiary of the
Company, with and into RailTex, Inc. Following the merger,
RailTex became the surviving corporation and a wholly-owned
subsidiary of the Company. The tabulation of votes on that
matter was as follows:
FOR AGAINST VOTES WITHHELD
--------- ------- --------------
8,861,881 105,809 19,700
(d) Not applicable.
21
<PAGE> 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed the following reports on Form 8-K during the quarter
ended March 31, 2000:
1. Current report on Form 8-K, dated January 26, 2000, was filed with the
Securities and Exchange Commission on January 26, 2000 in connection
with the Company's amendment of its 1998 Common Stock Purchase Rights
Agreement
2. Current report on Form 8-K, dated February 4, 2000, was filed with the
Securities and Exchange Commission on February 4, 2000 in connection
with the Company's acquisition of the common stock of RailTex, Inc.
22
<PAGE> 25
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: May 15, 2000
By: /s/ GARY O. MARINO
----------------------------
Gary O. Marino as Chairman,
Chief Executive Officer and
as Principal Financial Officer
23
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,384,000
<SECURITIES> 0
<RECEIVABLES> 67,781,000
<ALLOWANCES> 0
<INVENTORY> 11,696,000
<CURRENT-ASSETS> 91,024,000
<PP&E> 733,865,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 851,584,000
<CURRENT-LIABILITIES> 112,860,000
<BONDS> 478,571,000
6,807,000
0
<COMMON> 20,000
<OTHER-SE> 118,963,000
<TOTAL-LIABILITY-AND-EQUITY> 851,584,000
<SALES> 0
<TOTAL-REVENUES> 80,026,000
<CGS> 0
<TOTAL-COSTS> 66,060,000
<OTHER-EXPENSES> 3,770,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,606,000
<INCOME-PRETAX> (1,411,000)
<INCOME-TAX> (522,000)
<INCOME-CONTINUING> (889,000)
<DISCONTINUED> (77,000)
<EXTRAORDINARY> (2,216,000)
<CHANGES> 0
<NET-INCOME> (3,182,000)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
