<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, 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 - 18,565,397 shares as of August 12, 2000
<PAGE> 2
RAILAMERICA, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - June 30, 2000 and
December 31, 1999 1
Consolidated Statements of Income - For the three and six
months ended June 30, 2000 and 1999 2
Consolidated Statement of Stockholders' Equity - For the
six months ended June 30, 2000 3
Consolidated Statements of Cash Flows - For the six
months ended June 30, 2000 and 1999 4
Notes to Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3 Market Risk Disclosure 22
PART II OTHER INFORMATION
Item 1 Legal Proceedings 23
Item 4 Submission of Matters to a Vote of Security Holders 23
Item 6 Exhibits and Reports on Form 8-K 24
Signatures
</TABLE>
<PAGE> 3
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 9,041 $ 11,598
Accounts and notes receivable 57,056 40,857
Inventories 11,968 9,929
Other current assets 7,958 3,500
Net assets of discontinued operation 19,338 14,996
--------- ---------
Total current assets 105,361 80,880
Property, plant and equipment, net 737,238 347,617
Investment in affiliates 4,739 4,667
Other assets 21,371 10,765
--------- ---------
Total assets $ 868,709 $ 443,929
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 20,553 $ 17,811
Current portion of asset sale bridge loan 37,063 --
Accounts payable 41,210 23,732
Accrued expenses 38,224 15,379
--------- ---------
Total current liabilities 137,050 56,922
Long-term debt, less current maturities 383,880 145,016
Subordinated debt 96,790 101,968
Convertible subordinated debt 20,706 20,481
Other liabilities 28,742 16,374
Deferred income taxes 66,552 15,382
Minority interest 9,684 9,489
--------- ---------
743,404 365,632
--------- ---------
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 6,827 8,830
--------- ---------
Stockholders' equity:
Common stock, $0.001 par value 20 13
Additional paid-in capital 115,262 52,305
Retained earnings 22,200 18,171
Accumulated other comprehensive income (12,504) 3,486
Treasury stock (1,027,839 and 716,589 shares, respectively, at cost) (6,500) (4,508)
--------- ---------
Total stockholders' equity 118,478 69,467
--------- ---------
Total liabilities and stockholders' equity $ 868,709 $ 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 and six months ended June 30, 2000 and 1999
(in thousands, except earnings per share)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------- --------------------------
2000 1999 2000 1999
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Operating revenue $ 96,047 $ 28,816 $ 177,047 $ 39,878
-------- -------- --------- --------
Operating expenses:
Transportation 53,448 17,595 102,103 23,352
Selling, general and administrative 17,511 5,122 28,750 7,805
Acquisition related costs 1,185 -- 1,924 --
Gain on sale and impairment of assets (net) (7,785) -- (7,785) --
Depreciation and amortization 7,983 1,726 14,384 2,720
-------- -------- --------- --------
Total operating expenses 72,342 24,443 139,376 33,877
-------- -------- --------- --------
Operating income 23,705 4,373 37,671 6,001
Interest expense (11,456) (3,071) (23,062) (4,388)
Amortization of financing costs (1,490) (856) (2,638) (988)
Minority interest and other income (expense) 198 (409) 1,007 (534)
Foreign exchange gain (loss) 189 2,005 (3,243) 2,005
-------- -------- --------- --------
Income from continuing operations before
income taxes 11,146 2,042 9,735 2,096
Provision for income taxes 3,558 653 3,036 668
-------- -------- --------- --------
Income from continuing operations 7,588 1,389 6,699 1,428
Discontinued operations:
(Loss) income from operations of discontinued segment
(net of applicable income taxes of ($215), $804, ($293)
and $1,272, respectively) (35) 1,359 (112) 2,523
-------- -------- --------- --------
Income before extraordinary item 7,553 2,748 6,587 3,951
Extraordinary loss from early extinguishment of debt
(net of tax) -- -- (2,216) --
-------- -------- --------- --------
Net income $ 7,553 $ 2,748 $ 4,371 $ 3,951
======== ======== ========= ========
====================================================================================================================================
Net income available to common stockholders $ 7,387 $ 2,482 $ 4,029 $ 3,444
======== ======== ========= ========
Basic earnings per common share
Continuing operations $ 0.40 $ 0.10 $ 0.36 $ 0.09
Discontinued operations -- 0.12 -- 0.23
Extraordinary item -- -- (0.13) --
-------- -------- --------- --------
Net income $ 0.40 $ 0.22 $ 0.24 $ 0.32
======== ======== ========= ========
Diluted earnings per common share
Continuing operations $ 0.36 $ 0.10 $ 0.36 $ 0.08
Discontinued operations -- 0.12 -- 0.23
Extraordinary item -- -- (0.13) --
-------- -------- --------- --------
Net income $ 0.36 $ 0.22 $ 0.23 $ 0.31
======== ======== ========= ========
Weighted average common shares outstanding
Basic 18,516 11,115 17,493 10,617
======== ======== ========= ========
Diluted 21,883 11,553 17,684 11,004
======== ======== ========= ========
</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 six months ended June 30, 2000
(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, 1999 12,611 $13 $ 52,305 $ 18,171 $ 3,486 $(4,508) $ 69,467
Net income -- -- -- 4,371 -- -- 4,371
Cumulative translation
adjustments -- -- -- -- (15,990) -- (15,990)
---------
Total comprehensive income (11,619)
---------
Issuance of common stock 6,652 7 60,900 -- -- -- 60,907
Exercise of stock options -- -- 4 -- -- -- 4
Conversion of redeemable
convertible preferred stock 267 -- 2,053 -- -- -- 2,053
Purchase of treasury stock -- -- -- -- -- (1,992) (1,992)
Preferred stock dividends
and accretion -- -- -- (342) -- -- (342)
------- --- -------- -------- -------- ------- ---------
Balance, June 30, 2000 19,530 $20 $115,262 $ 22,200 $(12,504) $(6,500) $ 118,478
======= === ======== ======== ======== ======= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 6
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended June 30, 2000
(in thousands)
(Unaudited)
2000 1999
--------- --------
Cash flows from operating activities:
Net income $ 4,371 $ 3,951
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 18,484 4,316
Write-off a deferred loan costs 2,498 --
Interest paid in kind 2,063 --
Miniority interest in income of subsidiary 195 381
Equity interest in earnings of affiliate (129) --
(Gain) loss on sale or disposal of properties (7,834) 337
Deferred income taxes (10,465) 1,629
Changes in operating assets and liabilities,
net of acquisitions and dispositions:
Accounts receivable 13,016 407
Inventories (3,558) 369
Other current assets 1,322 (1,190)
Accounts payable (3,269) 4,826
Accrued expenses 11,422 (3,577)
Other liabilities (133) 166
Deposits and other (8,678) 1,415
--------- --------
Net cash provided by operating activities 19,305 13,029
--------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment (23,244) (25,554)
Proceeds from sale of properties 9,574 103
Acquisitions, net of cash acquired (149,969) (5,206)
Deposit on purchase agreement -- --
Cash held in discontinued operations 170 --
Deferred acquisition costs and other (1,379) (393)
--------- --------
Net cash used in investing activities (164,848) (31,050)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 207,104 51,087
Principal payments on long-term debt (48,208) (37,930)
Sale of convertible preferred stock -- 4,095
Sale of common stock -- 11,914
Proceeds from exercise of stock options 4 337
Preferred stock dividends paid (281) (410)
Purchase of treasury stock (1,992) (636)
Deferred financing costs paid (13,219) (810)
--------- --------
Net cash provided by financing activities 143,408 27,647
--------- --------
Net (decrease) increase in cash (2,135) 9,626
Effect of exchange rates on cash (422) --
Cash, beginning of period 11,598 5,760
--------- --------
Cash, end of period $ 9,041 $ 15,386
========= ========
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, 2000 and December 31, 1999, and the results of operations and
cash flows for the three and six months ended June 30, 2000 and 1999.
The results of operations for the three and six months ended June 30,
2000 are not necessarily indicative of the results to be expected for
the full year.
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. Certain prior period
amounts have been reclassified to conform with the current period
presentation.
2. EARNINGS PER SHARE:
For the three and six months ended June 30, 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.
For the three months ended June 30, 2000, 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, warrants, convertible debt and convertible preferred
stock. Options and warrants totaling 4.2 million were excluded from the
diluted earnings per share calculation for the six and three months
ended June 30, 2000 as the exercise price of these options and warrants
were greater than the average market price of the Common Stock. Assumed
conversion of the redeemable convertible preferred stock and the $22.5
million of convertible debt are anti-dilutive for the six months ended
June 30, 2000 and 1999 and the three months ended June 30, 1999 and
have 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 from continuing operations
available for common stockholders and weighted average shares (in
thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income from continuing operations $ 7,588 $ 1,389 $ 6,699 $ 1,428
Preferred stock dividends and accretion (166) (266) (342) (507)
-------- -------- -------- --------
Income from continuing operations available
to common stockholders (basic) 7,422 1,123 6,357 921
Interest on convertible debt 288 -- -- --
Preferred stock dividends and accretion 166 -- -- --
-------- -------- -------- --------
Income from continuing operations available
to common stockholders (diluted) $ 7,876 $ 1,123 $ 6,357 $ 921
======== ======== ======== ========
Weighted average shares outstanding (basic) 18,516 11,115 17,493 10,617
Assumed conversion of options and warrants 122 438 191 387
Assumed conversion of convertible securities 3,245 -- -- --
-------- -------- -------- --------
Weighted average shares outstanding (diluted) 21,883 11,553 17,684 11,004
======== ======== ======== ========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following as of June 30,
2000 and December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Land $134,164 $ 34,345
Buildings and improvements 13,404 8,683
Railroad track and improvements 429,642 186,670
Locomotives, transportation and other equipment 184,303 135,309
-------- --------
761,513 365,007
Less accumulated depreciation 24,275 17,390
-------- --------
$737,238 $347,617
======== ========
</TABLE>
In February 2000, the Company acquired RailTex, Inc. This acquisition
resulted in approximately $390 million of the fixed asset additions.
The Company recognized a $9.0 million gain on the sale of land of a
Texas railroad in June 2000. In addition, the Company recognized a $0.5
million loss on sale and an asset impairment charge of $0.8 million in
the second quarter of 2000 related to its tractor and trailer fleet. The
net effect of these transactions has been reflected in operating
expenses in the consolidated statement of income.
6
<PAGE> 9
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. ACQUISITION:
On February 4, 2000, the Company acquired RailTex, Inc. for $128 million
in cash, assumption of $111 million in debt and 6.6 million shares of
the Company's Common Stock, valued at $60.9 million. RailTex, the
operator of 25 railroads over 4,100 miles of rail lines in North
America, became a wholly-owned subsidiary of the Company. This
transaction was financed through the issuance of new debt (see Note 6).
The acquisition of RailTex has been accounted for as a purchase and its
results have been consolidated since the acquisition date. The final
purchase price allocation was based upon of the fair value of the net
assets acquired. As part of the purchase price and 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.
The following unaudited pro forma summary presents the consolidated
results of operations as if the acquisition of RailTex 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 six months ended June 30, 1999 also include
the purchases 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 Six Months Ended
June 30,
------------------------
2000 1999
----------- -----------
<S> <C> <C>
Operating revenue $ 191,121 $ 187,332
Income from continuing operations $ 9,122 $ 4,495
Net income $ 6,794 $ 7,018
Earnings per share - continuing operations
Basic $ 0.47 $ 0.22
Diluted $ 0.47 $ 0.21
Earnings per share - net income
Basic $ 0.35 $ 0.36
Diluted $ 0.34 $ 0.32
</TABLE>
7
<PAGE> 10
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. OTHER ASSETS:
Other assets consist of the following as of June 30, 2000 and December
31, 1999 (in thousands):
2000 1999
------- -------
Deferred loan costs $13,745 $ 6,657
Notes receivable 1,668 2,123
Deposits and other 5,958 1,985
------- -------
$21,371 $10,765
======= =======
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%. In May 2000, the Company entered into interest rate swaps which
lock in a blended rate of 10.35% on $212.5 million of this debt for a
three-year period. All of the Stock of all the Company's U.S.
subsidiaries, excluding Kalyn/Siebert I, Inc. (a discontinued
operation), and 65% of the stock of the Company's foreign subsidiaries
serve as collateral for the credit facilities.
The Term A loan requires principal payments of 5% in 2000, 10% in 2001,
15% in 2002, 20% in 2003, and 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 credit facilities include covenants which impose financial
and operating 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
credit facilities also contain financial covenants that require the
Company to meet a number of financial ratios and tests.
8
<PAGE> 11
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. LONG-TERM DEBT, continued
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.,
bearing interest at an initial rate of 13% per annum, and increasing
every three months based on the highest specified rates. The
subordinated bridge note was fully paid off in August 2000 (see note
11). 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. A majority of the
asset sale bridge notes are included in current liabilities and the
related interest expense is 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. $20 million of these notes were paid
in August 2000 (see note 11).
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
these warrants is 0.6 million, subject to specified anti-dilution
adjustments. In August 2000, 0.3 million of the warrants were issued.
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.
7. NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the first quarter of 2000, $2.2 million of redeemable
convertible preferred stock was converted into the Company's Common
Stock.
In connection with the RailTex acquisition, the Company refinanced $223
million of its debt and $111 million of debt that it assumed from
RailTex using the 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
<PAGE> 12
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. COMMON STOCK:
The Company's common stock issued and outstanding as of June 30, 2000
was 19,530,444 and 18,502,605, respectively, and 12,610,725 and
11,894,136, respectively, as of December 31, 1999. There are 60,000,000
shares authorized.
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 Company's 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.
In June 2000, the Company engaged JW Genesis to assist the Company's
Board of Directors in evaluating the issuance of the subordinated debt,
and issued three-year warrants to purchase 150,000 shares of the
Company's common stock to JW Genesis. Of these warrants, 75,000 are at
an exercise price of $5.50 and 75,000 are at an exercise price of
$6.50.
9. DISCONTINUED OPERATION:
In November 1999, the Company adopted a plan to sell its trailer
manufacturing operations, Kalyn/Siebert. 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 income for all periods presented.
Total revenue for this business was $21.5 million and $23.0 million for
the six months ended June 30, 2000 and 1999, respectively. Income
(loss) before income taxes for this business was ($0.4 million) and
$3.8 million for the six months ended June 30, 2000 and 1999,
respectively. Total assets in this business as of June 30, 2000 and
December 31, 1999 were $29.6 million and $28.8 million, respectively.
Total liabilities in this business as of June 30, 2000 and December 31,
1999 were $44.8 million, which excluded a majority of the asset sale
bridge notes, and $13.9 million, respectively. Interest of $3.5 million
was allocated to the discontinued operations for the first six months
of 2000 relating to the asset sale bridge notes.
10. SEGMENT INFORMATION
The Company's continuing operations have been classified into two
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. Because the Company's trailer manufacturing segment was
classified as a discontinued operation its net assets are included in
corporate and other.
10
<PAGE> 13
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. SEGMENT INFORMATION, continued
Segment information for the six months ended June 30, 2000 and 1999
follows (in thousands):
Six Months Ended June 30, 2000:
<TABLE>
<CAPTION>
North American International Corporate and
Consolidated Railroads Railroads Other
------------ -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue $177,047 $112,542 $ 63,600 $ 905
Depreciation and amortization $ 14,384 $ 9,997 $ 3,461 $ 926
Operating income (loss) $ 37,671 $ 31,824 $ 12,272 $ (6,425)
Total assets $868,709 $539,133 $108,446 $ 221,130
Six Months Ended June 30, 1999:
North American International Corporate and
Consolidated Railroads Railroads Other
------------ -------------- ------------- -------------
Revenue $ 39,878 $13,018 $ 25,761 $ 1,099
Depreciation and amortization $ 2,720 $ 1,020 $ 1,257 $ 443
Operating income (loss) $ 6,001 $ 2,620 $ 5,131 $ (1,750)
Total assets $292,631 $16,499 $204,382 $ 71,750
</TABLE>
11. SUBSEQUENT EVENTS
In August 2000, the Company, through its wholly-owned subsidiary
RailAmerica Transportation Corp., issued 130,000 units each consisting
of $1,000 of 12 7/8% senior subordinated notes due 2010 and warrants to
purchase 10.857 shares of RailAmerica common stock for $6.60 per share.
Warrants issued totaled 1.4 million. The price per unit was $940.38 and
gross proceeds were $122.2 million. The Company used the net proceeds
of the offering to permanently finance most of the bridge debt incurred
in connection with its acquisition of RailTex (see note 6).
12. CONTINGENCIES
In the second quarter of 2000, certain parties filed property damage
claims totaling approximately CND$50 million against the Mackenzie
Northern Railway and others, in connection with fires that allegedly
occurred in 1998. We intend to vigorously defend these claims, and
have insurance coverage to approximately CND$20 million to cover
these claims. Because the actions are in their early stages and the
claimants have not yet asserted the legal basis for their claims, the
Company is unable to assess the merits of the claims; however, our
insurer has reserved CND$15 million for these matters. A loss, if any,
in excess of our insurance policy coverage may adversely affect our
cash flow and financial condition.
11
<PAGE> 14
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 49 railroads with
approximately 12,400 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 types 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 purchased RailTex, Inc. ("RailTex")
for $128 million in cash, assumption of $111 million in debt and 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.
Set forth below is a discussion of the historical results of operations
for the Company's North American and international railroad operations, its
discontinued trailer manufacturing operations, and corporate overhead and other.
NORTH AMERICAN RAILROAD OPERATIONS
The Company's historical results of operations include the operations
of its acquired railroads from the following dates:
NAME OF RAILROAD
RaiLink properties (6 railroads) August 1, 1999
Toledo, Peoria and Western Railroad ("TPW") September 1, 1999
RailTex, Inc. (25 railroads) February 4, 2000
Accordingly, the results of operations for the three and six months
ended June 30, 2000 and 1999 are not comparable in various material respects,
and may not be 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 (which consist
of its U.S. and Canadian railroads) for the periods indicated.
12
<PAGE> 15
<TABLE>
<CAPTION>
For the three months For the six months
Ended June 30, Ended June 30,
-------------------- ------------------
2000 1999 2000 1999
-------- ------ --------- -------
<S> <C> <C> <C> <C>
Operating revenue:
Transportation revenue $ 54,312 $5,487 $ 97,686 $10,705
Other revenue 9,051 1,202 14,856 2,313
-------- ------ --------- -------
Total operating revenue 63,363 6,689 112,542 13,018
-------- ------ --------- -------
Operating expenses:
Maintenance of way 6,647 890 11,875 1,705
Maintenance of equipment 3,495 197 7,238 468
Transportation 18,326 1,385 33,110 2,653
Equipment rental 3,753 895 7,531 1,833
Gain on sale of assets (9,036) -- (9,036) --
General and administrative 12,955 1,667 20,003 2,719
Depreciation and amortization 5,836 520 9,997 1,020
-------- ------ --------- -------
Total operating expenses 41,976 5,554 80,718 10,398
-------- ------ --------- -------
Operating income $ 21,387 $1,135 $ 31,824 $ 2,620
======== ====== ========= =======
</TABLE>
COMPARISON OF NORTH AMERICAN RAILROAD OPERATING RESULTS FOR THE THREE MONTHS
ENDED JUNE 30, 2000 AND 1999.
OPERATING REVENUES. Transportation revenue increased by $48.8 million, or
890%, to $54.3 million for the three months ended June 30, 2000 from $5.5
million for the three months ended June 30, 1999. North American carloads
totaled 220,233 for the three months ended June 30, 2000, an increase of 205,233
compared to 15,000 carloads in the prior year period. The increase was primarily
due the acquisitions of TPW, RaiLink and RailTex. The North American
transportation revenue per carload decreased to $248 from $337 primarily because
the acquired rail lines haul at a lower rate per car than the Company's other
rail lines. The Company's "same railroad" operating revenue and car loadings
decreased by 2% and 1%, respectively, from the three months ended June 30, 1999
compared to the three months ended June 30, 2000.
Other revenues increased by approximately $7.8 million, or 653%, to
$9.1 million for the three months ended June 30, 2000 from $1.2 million for the
three months ended June 30, 1999. Other revenues for the three months ended
June 30, 2000 and 1999 consist of car hire income, railroad lease and rental
income and other miscellaneous income. The increase was due primarily to the
acquisitions of RailTex, RaiLink and TPW which on a combined basis contributed
$6.3 million in other revenue for the three months ended June 30, 2000.
OPERATING EXPENSES. Operating expenses increased by $36.4 million, or
656%, to $42.0 million for the three months ended June 30, 2000 from $5.6
million for the three months ended June 30, 1999. The increase was due to the
acquisitions of TPW, RaiLink and RailTex which contributed $45.7 million in
operating expenses for the three months ended June 30, 2000 offset by a $9.0
million gain on sale of land of a Texas railroad and a slight decrease in
operating expenses for the Company's "same railroad" properties. Operating
expenses, as a percentage of operating revenue, exclusive of the land sale gain,
were 80.5% and 83.0% for the three months ended June 30, 2000 and 1999,
respectively.
13
<PAGE> 16
COMPARISON OF NORTH AMERICAN RAILROAD OPERATING RESULTS FOR THE SIX MONTHS ENDED
JUNE 30, 2000 AND 1999.
OPERATING REVENUES. Transportation revenue increased by $87.0 million, or
813%, to $97.7 million for the six months ended June 30, 2000 from $10.7 million
for the six months ended June 30, 1999. North American carloads totaled 398,603
for the six months ended June 30, 2000, an increase of 368,694 compared to
29,909 carloads in the prior year period. These increases were primarily due to
the acquisitions of TPW, RaiLink and RailTex. The North American transportation
revenue per carload decreased to $261 from $331 primarily because the acquired
rail lines haul at a lower rate per car than the Company's other rail lines. The
Company's "same railroad" operating revenue and car loadings increased by 6% and
1%, respectively, from the first six months of 1999 compared to the first six
months of 2000.
Other revenues increased by approximately $12.5 million, or 542%, to
$14.9 million for the six months ended June 30, 2000 from $2.3 million for the
six months ended June 30, 1999. Other revenues for the six months ended June 30,
2000 and 1999 consist of car hire income, railroad lease and rental income and
other miscellaneous income. The increase was due primarily to the acquisitions
of RailTex, RaiLink and TPW which on a combined basis contributed $11.5 million
in other revenue for the six months ended June 30, 2000.
OPERATING EXPENSES. Operating expenses increased by $70.3 million, or
676%, to $80.7 million for the six months ended June 30, 2000 from $10.4 million
for the six months ended June 30, 1999. The increase was due to the acquisitions
of TPW, RaiLink and RailTex which on a combined basis contributed $80.1 million
in operating expenses for the six months ended June 30, 2000 offset by a $9.0
million gain on sale of land on a Texas railroad and a slight decrease in
operating expenses for the Company's "same railroad" properties. Operating
expenses, as a percentage of operating revenue, exclusive of the land sale gain,
were 79.8% and 79.9% for the six months ended June 30, 2000 and 1999,
respectively.
INTERNATIONAL RAILROAD OPERATIONS
All results of operations discussed in this section are for the
Company's international railroads, consisting of Ferronor for all periods
indicated and Freight Australia since May 1, 1999
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. Accordingly, the results of operations for the
three and six months ended June 30, 2000 and 1999 are not comparable in certain
material respects and may not be 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.
14
<PAGE> 17
<TABLE>
<CAPTION>
For the three months For the six months
Ended June 30, Ended June 30,
---------------------- ---------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating revenue:
Transportation revenue $31,412 $20,072 $62,098 $24,141
Other revenue 846 1,470 1,502 1,620
------- ------- ------- -------
Total revenue 32,258 21,542 63,600 25,761
------- ------- ------- -------
Operating expenses:
Transportation 21,272 14,205 42,805 16,652
General and administrative 2,805 2,172 5,062 2,721
Depreciation and amortization 1,644 984 3,461 1,257
------- ------- ------- -------
Total operating expenses 25,721 17,361 51,328 20,630
------- ------- ------- -------
Operating income $ 6,537 $ 4,181 $12,272 $ 5,131
======= ======= ======= =======
</TABLE>
COMPARISON OF INTERNATIONAL RAILROAD OPERATING RESULTS FOR THE THREE MONTHS
ENDED JUNE 30, 2000 AND 1999.
FERRONOR.
OPERATING REVENUES. Transportation revenue increased $1.2 million, or
30%, to $5.4 million for the three months ended June 30, 2000 from $4.1 million
for the three months ended June 30, 1999. Ferronor's carloads totaled 27,403 for
the three months ended June 30, 2000, an increase of 5,234, or 23.6%, compared
to 22,169 for the three months ended June 30, 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 $1.3 million, or 36%, to
$4.7 million for the three months ended June 30, 2000 from $3.5 million for the
three months ended June 30, 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 87.7% and 83.6% for
the three months ended June 30, 2000 and 1999, respectively. The operating ratio
increase was due primarily to the start up costs related to the new shipments.
FREIGHT AUSTRALIA.
OPERATING REVENUES. Transportation revenue increased $ 10.1 million, or
63.5%, to $26.0 million for the three months ended June 30, 2000 from $15.9
million for the three months ended June 30, 1999. Transportation revenue
consisted of $21.7 million in freight revenue and $4.3 million in track access
fees for the three months ended June 30, 2000. Transportation revenue consisted
of $12.8 million in freight revenue and $3.1 million in track access fees for
the period May 1, 1999 to June 30, 1999. Other revenues decreased $0.6 million,
or 42.5%, to $0.8 million for the three months ended June 30, 2000 from $1.5
million for the three months ended June 30, 1999. The increase in the
transportation revenue was due primarily to the 1999 period including only two
months of operations as well as the impact of certain new grain contracts
obtained in late 1999 and early 2000.
OPERATING EXPENSES. Operating expenses increased $3.8 million, or 21.7%,
to $21.1 million for the three months ended June 30, 2000 from $13.8 million for
the three months ended June 30, 1999. The increase in operating expenses was
primarily due to the 1999 period including only two months of
15
<PAGE> 18
operations. Operating expenses, as a percentage of operating revenue, were 78.6%
and 79.3% for the three months ended June 30, 2000 and 1999, respectively.
COMPARISON OF INTERNATIONAL RAILROAD OPERATING RESULTS FOR THE SIX MONTHS ENDED
JUNE 30, 2000 AND 1999.
FERRONOR.
OPERATING REVENUES. Transportation revenue increased $2.1 million, or
26%, to $10.3 million for the six months ended June 30, 2000 from $8.2 million
for the six months ended June 30, 1999. Ferronor's carloads totaled 53,091 for
the six months ended June 30, 2000, an increase of 9,680, or 22.3%, compared to
43,411 for the six months ended June 30, 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 $2.3 million, or 35%, to
$9.0 million for the six months ended June 30, 2000 from $6.7 million for the
six months ended June 30, 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 86.8% and 80.8% for
the six months ended June 30, 2000 and 1999, respectively. The operating ratio
increase was due primarily to the start up costs related to the new shipments.
FREIGHT AUSTRALIA.
OPERATING REVENUES. Transportation revenue increased $35.8 million, or
224.9%, to $51.8 million for the six months ended June 30, 2000 from $15.9
million for the six months ended June 30, 1999. Transportation revenue consisted
of $43.0 million in freight revenue and $8.8 million in track access fees for
the six months ended June 30, 2000. Transportation revenue consisted of $12.8
million in freight revenue and $3.1 million in track access fees for the period
May 1, 1999 to June 30, 1999. Other revenues were comparable at $1.5 million for
both the six months ended June 30, 2000 and 1999. The increase in transportation
revenue was primarily due to the 1999 period including only two months of
operations.
OPERATING EXPENSES. Operating expenses increased $28.7 million, or
207.8%, to $42.5 million for the six months ended June 30, 2000 from $13.8
million for the six months ended June 30, 1999. The increase in operating
expenses were due to the 1999 period including only two months of operations.
Operating expenses, as a percentage of operating revenue, were 79.7% and 79.3%
for the six months ended June 30, 2000 and 1999, respectively.
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.
16
<PAGE> 19
COMPARISON OF OPERATING RESULTS OF TRAILER MANUFACTURING FOR THE THREE MONTHS
ENDED JUNE 30, 2000 AND 1999
The following table sets forth the income and expense items (in
thousands) of the Company's trailer manufacturing operations for the three
months ended June 30, 2000 and 1999 and the percentage relationship of income
and expense items to net sales:
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------------------------------------
June 30, 2000 June 30, 1999
---------------------- ---------------------
<S> <C> <C> <C> <C>
Net sales $12,045 100.0% $12,539 100.0%
Cost of goods sold 8,797 73.0% 9,275 74.0%
------- ----- ------- -----
Gross profit 3,248 27.0% 3,264 26.0%
Selling, general and administrative
Expenses 1,056 8.8% 967 7.7%
Depreciation and amortization 261 2.2% 262 2.1%
------- ----- ------- -----
Income from operations $ 1,931 16.0% $ 2,035 16.2%
======= =======
</TABLE>
NET SALES. Net sales decreased by $0.5 million, or 3.9%, to $12.0
million for the three months ended June 30, 2000 from $12.5 million for the
three months ended June 30, 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 $0.6 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. Sales to governmental agencies
represented 34.6% and 45.0% of KSI's net sales for the three months ended June
30, 2000 and 1999, respectively.
COST OF GOODS SOLD. Cost of goods sold decreased by approximately $0.5
million, or 5.2% to $8.8 million for the three months ended June 30, 2000 from
$9.3 million for the three months ended June 30, 1999. Cost of goods sold was
73.0% of net sales for the three months ended June 30, 2000 compared to 74.0%
for the three months ended June 30, 1999. The improvement in gross margin was
due to the mix of sales between KSI and KSC.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses of $1.1 million for the three months ended June 30, 2000
was comparable to $1.0 million for the three months ended June 30, 1999.
COMPARISON OF OPERATING RESULTS OF TRAILER MANUFACTURING FOR THE SIX MONTHS
ENDED JUNE 30, 2000 AND 1999
The following table sets forth the income and expense items
(in thousands) of the Company's trailer manufacturing operations for the six
months ended June 30, 2000 and 1999 and the percentage relationship of income
and expense items to net sales:
17
<PAGE> 20
<TABLE>
<CAPTION>
For the Six Months Ended
-----------------------------------------------------
June 30, 2000 June 30, 1999
---------------------- ----------------------
<S> <C> <C> <C> <C>
Net sales $21,453 100.0% $22,956 100.0%
Cost of goods sold 15,547 72.5% 16,992 74.0%
------- ----- ------- -----
Gross profit 5,906 27.5% 5,964 26.0%
Selling, general and administrative
Expenses 2,225 10.4% 1,800 7.8%
Depreciation and amortization 519 2.4% 517 2.3%
------- ----- ------- -----
Income from operations $ 3,162 14.7% $ 3,647 15.9%
======= ===== ======= =====
</TABLE>
NET SALES. Net sales decreased by $1.5 million, or 6.5%, to $21.5
million for the six months ended June 30, 2000 from $23.0 million for the six
months ended June 30, 1999. The net sales decrease resulted from a decrease of
$2.2 million in KSC's sales which was partially offset by an increase of $0.7
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. Sales to governmental agencies represented 29.3% and
44.6% of KSI's net sales for the six months ended June 30, 2000 and 1999,
respectively. The trailer manufacturing division had a backlog of orders of
$15.7 million at June 30, 2000 and $20.8 million at June 30, 1999.
COST OF GOODS SOLD. Cost of goods sold decreased by approximately $1.4
million, or 8.5% to $15.5 million for the six months ended June 30, 2000 from
$17.0 million for the six months ended June 30, 1999. Cost of goods sold was
72.5% of net sales for the six months ended June 30, 2000 compared to 74.0% for
the six months ended June 30, 1999. The improvement in gross margin was due to
the mix of sales between KSI and KSC.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased by $0.4 million, or 23.6%, to $2.2 million for
the six months ended June 30, 2000 from $1.8 million for the six months ended
June 30, 1999. Selling, general and administrative expenses increased primarily
due to increased sales efforts, foreign exchange rate fluctuations and
installation of certain computer systems.
CORPORATE OVERHEAD AND OTHER
CORPORATE OVERHEAD. Corporate overhead, which benefits all of the
Company's segments, has not been allocated to the business segments for this
analysis. Corporate overhead services include overall strategic planning,
marketing, accounting, legal services, finance, cash management, payroll,
engineering and tax return preparation. The Company believes that this
presentation facilitates 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 $2.9 million, or 125%, to $5.2 million for the six months ended June
30, 2000 from $2.3 million for the six months ended June 30, 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
decreased from 6% of operating revenue for the six months ended June 30, 1999 to
3% for the six months ended June 30, 2000.
Pursuant to the refinancing of RailAmerica's and RailTex's debt in
February 2000, the Company recorded an extraordinary charge for the six months
ended June 30, 2000 for the loss on early extinguishment of debt of $2.2
million, after-tax.
18
<PAGE> 21
The Company also recognized a $3.4 million, after-tax, foreign exchange loss
related to the refinancing of debt associated with the acquisition of Freight
Australia.
The Company recognized a $0.5 million loss on sale and an asset
impairment charge of $0.8 million in the second quarter of 2000 related to its
tractor and trailer fleet.
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 $19.3 million
for the six months ended June 30, 2000. This amount includes $4.4 million in net
income and $18.5 million in depreciation and amortization.
Cash used in investing activities was $164.8 million for the six months
ended June 30, 2000. The primary uses of cash during the six month period were
for the acquisition of RailTex, including costs, for $150.0 million, and the
purchase of property, plant and equipment with an aggregate cost of $23.2
million.
Cash provided by financing activities was $143.4 million for the six
months ended June 30, 2000. This consisted primarily of net borrowings under the
Company's credit facilities of $158.9 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 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. All of the Stock of all the Company's U.S. subsidiaries,
excluding Kalyn/Siebert I, Inc. (a discontinued operation), and 65% of the stock
of the Company's foreign subsidiaries serve as collateral for the credit
facilities.
The Term A loan requires principal payments of 5% in 2000, 10% in 2001,
15% in 2002, 20% in 2003, and 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 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 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
19
<PAGE> 22
Company's failure to comply with the obligations in the 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 Company's credit facility is payable at variable rates.
To partially mitigate the interest rate risk on the credit facilities the
Company entered into 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 a three year
period. Fluctuations in the market interest rate will affect the cost of the
Company's remaining borrowings. Assuming current debt levels the effect of a 1%
increase in interest rates on this remaining debt would result in an increase
debt in interest expense of $1.3 million for the twelve months ended June 30,
2001.
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., bearing interest at
an initial rate of 13% per annum, and increasing every three months based on the
highest specified rates. The Company fully repaid the subordinated bridge notes
through the issuance of senior subordinated notes in August 2000. The Company,
through its 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. The
Company repaid $20 million of the asset sale bridge notes through the issuance
of senior subordinated notes in August 2000. The Company intends to repay the
remaining balance of the asset sale bridge notes from the proceeds of the sale
of its trailer manufacturing operations.
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 these warrants would be 0.6 million, subject to
specified anti-dilution adjustments. In August 2000, 0.3 million of the warrants
were issued.
In August 2000, the Company, through its wholly-owned subsidiary
RailAmerica Transportation Corp., issued 130,000 units each consisting of $1,000
of 12 7/8% senior subordinated notes due 2010 and warrants to purchase 10.857
shares of its common stock for $6.60 per share. Warrants issued totaled 1.4
million. The price per unit was $940.38 and gross proceeds were $122.2 million.
The Company used the net proceeds of the offering to pay off the $95 million
bridge and pay down $20 million of the asset sale bridge notes incurred in
connection with its acquisition of RailTex. The indenture under which the notes
were issued also contains numerous covenants imposing significant financial and
operating restrictions on the Company's business.
As of June 30, 2000, the Company had a working capital deficit of $31.7
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 $9.0 million as of June 30,
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.
20
<PAGE> 23
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 under its revolver for
anticipated capital expenditures of $30 million for the upgrading of existing
North American rail lines and purchases of locomotives and equipment. The
Company anticipates capital expenditures of $10 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 $15 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 under its loan agreements, 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 anticipates debt service for the next twelve months,
exclusive of the asset sale bridge notes, to be approximately $63 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 August 1, 2000, the Company had $35.8 million of availability under the
revolving line of credit facility. In addition, the Company has approximately
$10 million in cash on hand at August 1, 2000.
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. The Company has received proceeds of $11.3 million through June 30,
2000 as part of this asset rationalization plan.
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.
21
<PAGE> 24
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.
Results actually achieved thus may differ materially from expected results
included in these statements.
ITEM 3. MARKET RISK
FOREIGN CURRENCY. The Company's foreign currency risk arises from
owning and operating railroads in Canada and Australia. At June 30, 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. A majority of the Company's revenue and debt
in Chile is U.S. dollar indexed therefore the Company is not negatively impacted
by a decline in the value of the Chilean Peso.
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
June 30, 2000, the accumulated other comprehensive income totaled ($12.5
million), or 11% of total stockholders' equity.
It is anticipated that a portion of the Company's 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.
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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 Company's credit facility is payable at
variable rates. To partially mitigate the interest rate risk on the new credit
facilities the Company entered into 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 a three-year period. Fluctuations in the market interest rate will affect
the cost of the Company's remaining borrowings. The effect of a 1% increase in
interest on the remaining borrowings would result in an increase in interest
expense of $1.3 million for the twelve months ended June 30, 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. No fuel hedging is in place
after June 30, 2000. The effect of a $0.01 increase in fuel prices would result
in an increase in fuel expense of approximately $40,000 per month.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the second quarter of 2000, certain parties filed property damage
claims totaling approximately CND$50 million against the Mackenzie Northern
Railway and others, in connection with fires that allegedly occurred in 1998. We
intend to vigorously defend these claims, and have insurance coverage to
approximately CND$20 million to cover these claims. Because the actions are in
their early stages and the claimants have not yet asserted the legal basis for
their claims, the Company is unable to assess the merits of the claims; however,
our insurer has reserved CND$15 million for these matters. A loss, if any, in
excess of our insurance policy coverage may adversely affect our cash flow and
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 2000 annual meeting on June 22, 2000 at which John
Marino, John Sullivan and William Pagonis were re-elected as Directors of the
Company. In addition, the Company's number of shares authorized to be issued was
increased, the Company's 1998 Executive Incentive Compensation Plan was amended
and the Company's 1995 Non-Employee Director 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 John Marino 15,841,544 -- 1,126,983
Re-election of John Sullivan 15,841,560 -- 1,126,967
Election of William Pagonis 15,841,185 -- 1,127,342
Increase in authorized shares of the Company's
Common Stock 15,319,373 1,641,163 35,991
Amendment of 1998 Executive Incentive Compensation Plan 8,500,768 2,596,659 179,276
Amendment of the 1995 Non-employee Directors Stock Option Plan 9,291,416 1,804,227 177,061
</TABLE>
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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 June 30, 2000:
1. Current report on Form 8-K, dated April 18, 2000, was filed with the
Securities and Exchange Commission in connection with the Company's
amendment of its 1998 Common Stock Purchase Rights Agreement
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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 14, 2000
By: /s/ GARY O. MARINO
----------------------
Gary O. Marino, Chairman
and Chief Executive Officer
By: /S/ BENNETT MARKS
----------------------
Bennett Marks, Chief
Financial Officer, Sr. Vice
President and Principal
Accounting Officer
25
