10-Q 1 g69358qe10-q.txt RAILAMERICA, INC FORM 10-Q DATED 03/31/01 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, 2001 -------------- 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 - 18,786,644 shares as of May 11, 2001 2 RAILAMERICA, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q QUARTER ENDED MARCH 31, 2001
PAGE ---- PART I. FINANCIAL INFORMATION........................................................3 ITEM I. FINANCIAL STATEMENTS..................................................3 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................................15 PART II. OTHER INFORMATION...........................................................21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................21
2 3 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS RAILAMERICA, INC. CONSOLIDATED BALANCE SHEET March 31, 2001 and December 31, 2000
March 31, December 31, 2001 2000 --------- ------------ ASSETS Current assets: Cash and cash equivalents $ 7,094 $ 13,090 Restricted cash in escrow 2,918 4,539 Accounts and notes receivable 59,345 62,864 Other current assets 18,681 19,551 --------- --------- Total current assets 88,038 100,044 Property, plant and equipment, net 703,914 715,020 Other assets 22,609 24,639 --------- --------- Total assets $ 814,561 $ 839,703 ========= ========= LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 20,999 $ 20,558 Accounts payable 40,326 39,752 Accrued expenses 47,016 47,305 --------- --------- Total current liabilities 108,341 107,615 Long-term debt, less current maturities 335,987 338,298 Subordinated debt 141,144 141,411 Deferred income taxes 83,030 87,288 Minority interest and other liabilities 43,364 35,044 --------- --------- 711,866 709,656 --------- --------- Commitments and contingencies Redeemable convertible preferred stock, $0.01 par value, $25 liquidation value; 1,000,000 shares authorized; 278,400 shares issued and outstanding at March 31, 2001 and December 31, 2000 6,642 6,613 --------- --------- Stockholders' equity: Common stock, $0.001 par value, 60,000,000 shares authorized; 18,668,802 shares and 18,623,320 shares issued and outstanding at March 31, 2001 and December 31, 2000, respectively 19 19 Additional paid-in capital 118,701 118,502 Retained earnings 31,813 29,162 Accumulated other comprehensive income (loss) (54,480) (24,249) --------- --------- Total stockholders' equity 96,053 123,434 --------- --------- Total liabilities, redeemable preferred stock and stockholders' equity $ 814,561 $ 839,703 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 3 4 RAILAMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the three months ended March 31, 2001 and 2000 (in thousands, except earnings per share) (unaudited)
2001 2000 -------- -------- Operating revenue $ 91,955 $ 80,807 -------- -------- Operating expenses: Transportation 51,014 49,067 Selling, general and administrative 16,935 11,533 Net gain on sale of assets (667) -- Depreciation and amortization 6,730 6,265 -------- -------- Total operating expenses 74,012 66,865 -------- -------- Operating income 17,943 13,942 Interest expense, including amortization costs of $1,096 and $1,148 respectively (14,447) (12,754) Non-railroad operations, net (133) 24 Minority interest and other income (expense) 238 (2,623) -------- -------- Income (loss) from continuing operations before income taxes 3,601 (1,411) Provision (benefit) for income taxes 813 (522) -------- -------- Income (loss) from continuing operations 2,788 (889) Loss from operations of discontinued segment (net of tax) -- (77) -------- -------- Income (loss) before extraordinary item 2,788 (966) Extraordinary loss from early extinguishment of debt (net of tax) -- (2,216) -------- -------- Net income (loss) $ 2,788 $ (3,182) ======== ======== ------------------------------------------------------------------------------------------------ Net income (loss) available to common stockholders $ 2,629 $ (3,357) ======== ======== Basic earnings per common share: Continuing operations $ 0.15 $ (0.06) Discontinued operations -- (0.01) Extraordinary item -- (0.13) -------- -------- Net income (loss) $ 0.15 $ (0.20) ======== ======== Diluted earnings per common share: Continuing operations $ 0.14 $ (0.06) Discontinued operations -- (0.01) Extraordinary item -- (0.13) -------- -------- Net income (loss) $ 0.14 $ (0.20) ======== ======== Weighted average common shares outstanding: Basic 18,642 16,469 ======== ======== Diluted 21,446 16,469 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 4 5 RAILAMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the three months ended March 31, 2001 and 2000 (in thousands) (unaudited)
2001 2000 --------- --------- Cash flows from operating activities: Net income (loss) $ 2,788 $ (3,182) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,980 7,966 Write-off of deferred loan costs -- 2,546 Interest paid in kind -- 1,266 Minority interest in income of subsidiary 379 (102) Equity interest in earnings of affiliate -- (186) (Gain) loss on sale or disposal of properties (667) 33 Deferred income taxes (7,483) (6,278) Changes in operating assets and liabilities, net of acquisitions and dispositions: Accounts receivable 85 6,502 Other current assets (382) (2,073) Accounts payable 2,705 1,859 Accrued expenses 614 6,188 Other liabilities 416 (539) Deposits and other (33) (5,541) --------- --------- Net cash provided by operating activities 6,402 8,459 --------- --------- Cash flows from investing activities: Purchase of property, plant and equipment (10,444) (8,764) Proceeds from sale of properties and investments 152 74 Acquisitions, net of cash acquired -- (150,269) Cash held in discontinued operations -- 263 Change in restricted cash in escrow 1,534 -- Deferred acquisition costs and other (129) (1,114) --------- --------- Net cash used in investing activities (8,887) (159,810) --------- --------- Cash flows from financing activities: Proceeds from issuance of long-term debt 34,321 174,446 Principal payments on long-term debt (36,836) (15,745) Proceeds from exercise of stock options 370 2 Purchase of treasury stock (345) (1,157) Deferred financing costs paid -- (13,160) --------- --------- Net cash (used in) provided by financing activities (2,490) 144,386 --------- --------- Net decrease in cash (4,975) (6,965) Effect of exchange rates on cash (1,021) (249) Cash, beginning of period 13,090 11,598 --------- --------- Cash, end of period $ 7,094 $ 4,384 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 5 6 RAILAMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the consolidated financial statements contain all adjustments of a recurring nature, and disclosures necessary to present fairly the financial position of the Company as of March 31, 2001 and December 31, 2000, and the results of operations and cash flows for the three months ended March 31, 2001 and 2000. 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 2000 annual report on Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation. 2. NEW ACCOUNTING PRONOUNCEMENT The Company adopted the provisions of Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" on January 1, 2001. SFAS No. 133 requires that all derivative instruments be reported on the balance sheet at their fair values. For derivative instruments designated as cash flow hedges, the effective portion of any hedge is reported in accumulated other comprehensive income (loss) until it is recorded in earnings during the same period in which the hedged item affects earnings. The ineffective portion of all hedges is recognized in current period earnings. Changes in the fair values of derivative instruments that are not designated as hedges are recorded in current period earnings. As a result of adopting SFAS No. 133, the Company recorded a charge to comprehensive income for the cumulative effect of this charge through December 31, 2000 of $4.4 million which represents the liability recorded for the Company's interest rate swap agreements of $7.1 million, less the tax benefit of $2.7 million. 3. EARNINGS PER SHARE For the three months ended March 31, 2001 and 2000, 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 March 31, 2001, 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 and convertible debt. Options and warrants totaling 3.3 million were excluded from the diluted earnings per share calculation for the first quarter of 2001 as their impact was anti-dilutive. Additionally, assumed conversion of the convertible preferred stock is anti-dilutive and is not included in the calculation for the three months ended March 31, 2001. 6 7 RAILAMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. EARNINGS PER SHARE (continued) For the three months ended March 31, 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 and warrants. Options and warrants totaling 5.1 million were excluded from the diluted earnings per share calculation for the first quarter of 2000 as their impact was anti-dilutive. Assumed conversion of convertible debt and the convertible preferred stock are also anti-dilutive and are not included in the calculation for the three months ended March 31, 2000. The following is a summary of the income from continuing operations available for common stockholders and weighted average shares (in thousands):
2001 2000 -------- -------- Income (loss) from continuing operations $ 2,788 $ (889) Preferred stock dividends and accretion (159) (175) -------- -------- Income (loss) from continuing operations available to common stockholders (basic) 2,629 (1,064) Interest on convertible debt 279 -- -------- -------- Income (loss) from continuing operations available to common stockholders (diluted) $ 2,908 $ (1,064) ======== ======== 2001 2000 -------- -------- Weighted average shares outstanding (basic) 18,642 16,469 Options and warrants 591 -- Convertible debentures 2,213 -- -------- -------- Weighted average shares outstanding (diluted) 21,446 16,469 ======== ========
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 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 acquisition was accounted for as a purchase and its results have been consolidated since the acquisition date. 7 8 RAILAMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following unaudited pro forma summary presents the consolidated results of operations as if the acquisition had occurred at the beginning 2000 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). FOR THE THREE MONTHS ENDED MARCH 31, 2000 ------------------ Operating revenue $94,881 Loss from continuing operations $(1,836) Net loss $(4,129) Net loss per share $(0.26) 5. DISCONTINUED OPERATIONS Total revenue for the trailer manufacturing business was $9.4 million for the three months ended March 31, 2000. Loss before income taxes for the trailer manufacturing business was ($0.1) million for the three months ended March 31, 2000. 6. COMPREHENSIVE INCOME (LOSS) Other comprehensive income consists of foreign currency translation adjustments and unrealized gains and losses on derivative instruments designated as hedges. The following table reconciles net income to comprehensive income for the three-month periods ended March 31, 2001 and 2000. Three months ended March 31, --------------------- 2001 2000 ------- ------- Net income (loss) $ 2,788 $ (3,182) Other compreehensive income (loss): Cumulative effect of accounting change, net of taxes (see Note 2) (4,388) -- Unrealized loss on derivatives designated as hedges, net of taxes (1,960) -- Change in accumulated translation adjustments (23,883) (8,922) ------- ------- Total comprehensive loss $ (27,443) $ (12,104) ======= ======= 8 9 RAILAMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 7. CONTINGENCIES In the second quarter of 2000, certain parties filed property damage claims totaling approximately $32.5 million against Mackenzie Northern Railway, a wholly-owned subsidiary of RailAmerica, and others in connection with a fire that allegedly occurred in 1998. The Company intends to vigorously defend these claims and has insurance coverage to approximately $13 million to cover these claims. The Company's insurer has reserved $9.8 million for these matters. Any loss in excess of the Company's insurance policy coverage may materially affect the Company's earnings, cash flow and financial condition. 8. 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. The Company's trailer manufacturing segment, which is excluded from this table, was classified as a discontinued operation and sold during 2000. Business segment information for the three months ended March 31, 2001 and 2000 follows (in thousands): THREE MONTHS ENDED MARCH 31, 2001:
NORTH AMERICAN INTERNATIONAL CONSOLIDATED RAILROADS RAILROADS CORPORATE AND OTHER ------------ --------- --------- ------------------- Revenue $ 91,955 $ 61,818 $ 29,997 $ 140 Depreciation and amortization $ 6,730 $ 4,131 $ 2,217 $ 382 Operating income (loss) $ 17,943 $ 14,122 $ 7,047 $ (3,226) Total assets $ 814,561 $ 569,793 $ 120,524 $ 124,244
THREE MONTHS ENDED MARCH 31, 2000:
CONSOLIDATED NORTH AMERICAN INTERNATIONAL CORPORATE AND OTHER ------------ -------------- ------------- ------------------- Revenue $ 80,807 $ 49,179 $ 31,342 $ 286 Depreciation and amortization $ 6,265 $ 4,161 $ 1,817 $ 287 Operating income (loss) $ 13,942 $ 10,437 $ 5,735 $ (2,230) Total assets $851,584 $619,421 $201,953 $ 30,210
9 10 RAILAMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) 9. GUARANTOR FINANCIAL STATEMENT INFORMATION In August 2000, RailAmerica Transportation Corp. ("Issuer"), a wholly-owned subsidiary of RailAmerica, Inc. ("Parent"), sold units including 12 7/8% senior subordinated notes, which are registered with the Securities and Exchange Commission. The notes are guaranteed by the Parent , the domestic subsidiaries of the Issuer and Palm Beach Rail Holding, Inc. RAILAMERICA, INC. CONSOLIDATING BALANCE SHEET At March 31, 2001
Non Company Guarantor Guarantor Issuer (Parent) Subsidiaries Subsidiaries Eliminations Consolidated ---------- ----------- -------------- ------------- ---------------------------- ASSETS Current Assets: Cash $ -- $ 6 $ 312 $ 6,776 $ -- $ 7,094 Cash held in escrow -- -- 2,075 843 -- 2,918 Accounts and notes receivable -- 1,733 27,317 31,994 (1,699) 59,345 Other current assets 122 2,023 6,498 10,038 -- 18,681 --------- --------- --------- --------- --------- --------- Total current assets 122 3,762 36,202 49,652 (1,699) 88,038 Property, plant and equipment, net 53 616 424,585 278,659 -- 703,914 Other assets 13,832 2,381 3,349 3,046 -- 22,609 Investment in and advances to affiliates 440,304 165,099 13,526 (133,999) (484,930) -- --------- --------- --------- --------- --------- --------- Total assets $ 454,311 $ 171,859 $ 477,662 $ 197,358 $(486,629) $ 814,561 ========= ========= ========= ========= ========= ========= LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term debt $ 15,009 $ -- $ 1,343 $ 6,346 $ (1,699) $ 20,999 Accounts payable -- 942 16,873 22,511 -- 40,326 Accrued expenses 4,787 1,572 23,381 17,276 -- 47,016 --------- --------- --------- --------- --------- --------- Total current liabilities 19,796 2,514 41,597 46,133 (1,699) 108,341 Long-term debt, less current maturities 302,216 -- 12,538 21,233 -- 335,987 Subordinated debt 117,981 20,627 (0) 2,536 -- 141,144 Deferred income taxes (24,751) (8,457) 104,511 11,727 -- 83,030 Minority interest and other liabilities 10,239 -- 8,650 19,060 5,415 43,364 Redeemable convertible preferred stock -- 6,642 -- -- -- 6,642 Stockholders' equity: Common stock -- 19 (1,345) 30,089 (28,744) 19 Additional paid-in capital -- 118,701 310,232 47,996 (358,228) 118,701 Retained earnings 35,178 31,813 29,620 38,574 (103,372) 31,813 Accumulated other comprehensive income (6,348) -- (28,141) (19,990) -- (54,480) --------- --------- --------- --------- --------- --------- Total stockholders' equity 28,829 150,533 310,367 96,669 (490,345) 96,053 --------- --------- --------- --------- --------- --------- Total liabilities, redeemable preferred stock and stockholders' equity $ 454,311 $ 171,859 $ 477,661 $ 197,358 $(486,629) $ 814,561 ========= ========= ========= ========= ========= =========
10 11 RAILAMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) 9. GUARANTOR FINANCIAL STATEMENT INFORMATION, CONTINUED RAILAMERICA, INC. CONSOLIDATING STATEMENT OF INCOME For the three months ended March 31, 2001
Non Company Guarantor Guarantor Issuer (Parent) Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------- ------------- ------------- -------------- Operating revenue $ -- $ 120 $ 45,273 $ 46,563 $ -- $ 91,955 -------- -------- -------- -------- -------- -------- Operating expenses: Transportation -- -- 22,088 28,926 -- 51,014 Selling, general and administrative 42 3,580 9,427 3,886 -- 16,935 Gain on sale and impairment of assets (net) -- -- (699) 32 -- (667) Depreciation and amortization 257 30 3,293 3,149 -- 6,730 -------- -------- -------- -------- -------- -------- Total operating expenses 300 3,610 34,110 35,993 -- 74,012 -------- -------- -------- -------- -------- -------- Operating (loss) income (300) (3,491) 11,163 10,570 -- 17,943 Interest expense (2,025) (507) (9,473) (2,442) -- (14,447) Non railroad operations -- -- -- (133) -- (133) Equity in earnings of subsidiaries 6,613 5,171 -- -- (11,784) -- Minority interest and other income (expense) -- -- 1,309 (1,071) -- 238 -------- -------- -------- -------- -------- -------- Income from continuing operations before income taxes 4,288 1,173 2,999 6,924 (11,784) 3,601 Provision for income taxes (883) (1,614) 1,204 2,106 -- 813 -------- -------- -------- -------- -------- -------- Net income $ 5,172 $ 2,788 $ 1,795 $ 4,818 $(11,784) $ 2,788 ======== ======== ======== ======== ======== ========
11 12 RAILAMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) 9. GUARANTOR FINANCIAL STATEMENT INFORMATION, CONTINUED RAILAMERICA, INC. CONSOLIDATING STATEMENT OF CASH FLOW For the three months ended March 31, 2001
Non Company Guarantor Guarantor Issuer (Parent) Subsidiaries Subsidiaries Eliminations Consolidated --------- ---------- ------------ ------------ ------------ ------------- Cash flows from operating activities: Net income (loss) $ 5,172 $ 2,788 $ (9,989) $ 4,818 $ -- $ 2,788 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,157 223 3,356 3,244 -- 7,980 Write-off of deferred loan costs -- 17 (17) -- -- -- Minority interest in income of subsidiary -- -- -- 379 -- 379 Gain on sale or disposal of properties -- -- (667) -- -- (667) Deferred income taxes (885) (1,615) (2,217) (2,766) -- (7,483) Changes in operating assets and liabilities, net of acquisitions and dispositions: Accounts receivable 11 2 6,850 (6,778) -- 85 Other current assets (99) (1,194) (159) 1,070 -- (382) Accounts payable (74) 405 2,995 (621) -- 2,705 Accrued expenses (5,101) 240 246 5,229 -- 614 Other liabilities -- -- -- 416 -- 416 Deposits and other -- 11 401 (445) -- (33) -------- ------- -------- -------- ------- -------- Net cash provided by operating activities 181 877 800 4,544 -- 6,402 -------- ------- -------- -------- ------- -------- Cash flows from investing activities: Purchase of property, plant and equipment -- (9) (4,331) (6,104) -- (10,444) Proceeds from sale of properties -- -- 152 -- -- 152 Change in cash in escrow -- -- 450 1,084 -- 1,534 Deferred acquisition costs and other -- (129) -- -- -- (129) -------- ------- -------- -------- ------- -------- Net cash used in investing activities -- (138) (3,729) (5,020) -- (8,887) -------- ------- -------- -------- ------- -------- Cash flows from financing activities: Proceeds from issuance of long-term debt 34,000 -- 27 294 -- 34,321 Principal payments on long-term debt (36,490) -- (313) (33) -- (36,836) Disbursements/receipts on intercompany debt 2,309 (766) 508 (2,051) -- -- Proceeds from exercise of stock options -- 370 -- -- -- 370 Purchase of treasury stock -- (345) -- -- -- (345) -------- ------- -------- -------- ------- -------- Net cash (used in) provided by financing activities (181) (741) 221 (1,790) -- (2,490) -------- ------- -------- -------- ------- -------- Net decrease in cash -- (2) (2,707) (2,266) -- (4,975) Effect of exchange rates on cash -- -- -- (1,021) -- (1,021) Cash, beginning of period -- 7 2,942 10,141 -- 13,090 -------- ------- -------- -------- ------- -------- Cash, end of period $ -- $ 5 $ 235 $ 6,854 $ -- $ 7,094 ======== ======= ======== ======== ======= ========
12 13 RAILAMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands) 9. GUARANTOR FINANCIAL STATEMENT INFORMATION, CONTINUED RAILAMERICA, INC. CONSOLIDATING STATEMENT OF INCOME For the three months ended March 31, 2000
NON COMPANY GUARANTOR GUARANTOR ISSUER (PARENT) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ----------- ----------- ----------- ------------ ------------ Operating revenue: $ -- $ -- $ 38,013 $ 42,794 $ -- $ 80,807 ------- ------- -------- -------- ------- -------- Operating expenses: Transportation -- -- 21,328 27,739 -- 49,067 Selling, general and administrative 91 2,144 5,729 3,569 -- 11,533 Depreciation and amortization 171 31 3,229 2,834 -- 6,265 ------- ------- -------- -------- ------- -------- Total operating expenses 262 2,175 30,286 34,142 -- 66,865 ------- ------- -------- -------- ------- -------- Operating (loss) income (262) (2,175) 7,727 8,652 -- 13,942 Interest expense (7,682) (739) (969) (3,364) -- (12,754) Non-railroad operations, net -- -- -- 24 -- 24 Equity in earnings of subsidiaries 5,850 (3,182) -- -- (2,668) Minority interest and other income (expense) 64 21 174 (2,882) -- (2,623) ------- ------- -------- -------- ------- -------- (Loss) income from continuing operations before income taxes (2,030) (6,075) 6,932 2,430 (2,668) (1,411) Provision for income taxes (2,994) (1,030) 2,573 929 -- (522) ------- ------- -------- -------- ------- -------- Income (loss) from continuing operations 964 (5,045) 4,359 1,501 (2,668) (889) Loss from operations of discontinued segments (net of tax) -- -- -- (77) -- (77) ------- ------- -------- -------- ------- -------- Income (loss) before extraordinary item 964 (5,045) 4,359 1,424 (2,668) (966) Extraordinary loss from early extinguishment of debt (net of tax) -- (1,232) (57) (927) -- (2,216) ------- ------- -------- -------- ------- -------- Net income (loss) $ 964 $(6,277) $ 4,302 $ 497 $(2,668) $ (3,182) ======= ======= ======== ======== ======= ========
13 14 RAILAMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands) 9. GUARANTOR FINANCIAL STATEMENT INFORMATION RAILAMERICA, INC. CONSOLIDATING STATEMENT OF CASH FLOWS For the three months ended March 31, 2000
NON COMPANY GUARANTOR GUARANTOR ISSUER (PARENT) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ---------- ------------- ------------- ------------ ------------ Cash flows from operating activities: Net income (loss) $ 964 $ (6,277) $ 4,302 $ 497 $-- $ (514) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 912 308 3,403 3,343 -- 7,966 Write-off of deferred loan costs -- 1,323 14 1,209 -- 2,546 Interest paid in kind -- -- -- 1,266 -- 1,266 Minority interest in income of subsidiary -- -- -- (102) -- (102) Equity interest in earnings of affiliate (5,850) 3,182 -- (186) -- (2,854) Loss on sale or disposal of properties -- -- 33 -- -- 33 Deferred income taxes (2,994) (1,786) 2,575 (4,073) -- (6,278) Changes in operating assets and liabilities, net of acquisitions and dispositions: Accounts receivable -- 27 6,102 373 -- 6,502 Other current assets (104) (321) 2,287 (3,935) -- 2,073) Accounts payable (419) 459 1,186 633 -- 1,859 Accrued expenses 6,524 325 1,508 (2,169) -- 6,188 Other liabilities -- -- -- (539) -- (539) Deposits and other -- 501 (3,251) (2,791) -- (5,541) --------- -------- -------- -------- --- --------- Net cash (used in) provided by operating activities (967) (2,259) 18,159 (6,474) -- 8,459 --------- -------- -------- -------- --- --------- Cash flows from investing activities: Purchase of property, plant and equipment (15) (50) (3,309) (5,390) -- (8,764) Proceeds from sale of properties -- -- 74 -- -- 74 Acquisitions, net of cash acquired (150,269) -- -- -- -- (150,269) Cash held in discontinued operations -- -- -- 263 -- 263 Deferred acquisition costs and other -- (1,114) -- -- -- (1,114) --------- -------- -------- -------- --- --------- Net cash used in investing activities (150,284) (1,164) (3,235) (5,127) -- (159,810) --------- -------- -------- -------- --- --------- Cash flows from financing activities: Proceeds from issuance of long-term debt 168,771 1,004 352 4,319 -- 174,446 Principal payments on long-term debt (6,075) (6,713) (1,058) (1,899) -- (15,745) Disbursements/receipts on intercompany debt 207 10,228 990 (11,425) -- -- Proceeds from exercise of stock options -- 2 -- -- -- 2 Purchase of treasury stock -- (1,157) -- -- -- (1,157) Deferred financing costs paid (11,652) -- -- (1,508) -- (13,160) --------- -------- -------- -------- --- --------- Net cash provided (used in) by financing activities 151,251 3,364 284 (10,513) -- 144,386 --------- -------- -------- -------- --- --------- Net decrease in cash -- (59) 15,208 (22,114) -- (6,965) Effect of exchange rates on cash -- -- -- (249) -- (249) Cash, beginning of period -- 92 5,499 6,007 -- 11,598 --------- -------- -------- -------- --- --------- Cash, end of period $ -- $ 33 $ 20,707 $(16,356) $-- $ 4,384 ========= ======== ======== ======== === =========
14 15 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, or operates a diversified portfolio of 39 railroads with approximately 11,000 miles of track located in the United States, Australia, Canada, Chile and Argentina. 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 issuance of approximately 6.6 million shares of the Company's common stock valued at $60.9 million. RailTex owned and operated 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 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 RailTex, Inc. (25 railroads) February 4, 2000 The Company disposed of certain railroads during 2000 as follows: Minnesota Northern Railroad August 2000 St Croix Valley Railroad August 2000 South Central Tennessee Railroad December 2000 Pittsburgh Industrial Railroad December 2000 Ontario L'Orignal Railway December 2000 As a result, the results of operations for the three months ended March 31, 2001 and 2000 are not comparable in various material respects and are not indicative of the results which would have occurred had the acquisitions or dispositions been completed at the beginning of the periods presented. 15 16 COMPARISON OF NORTH AMERICAN RAILROAD OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000. 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. For the Three Months Ended March 31, ---------------------- 2001 2000 ------- ------- Operating revenue $61,818 $49,179 ------- ------- Operating expenses: Maintenance of way 6,671 5,228 Maintenance of equipment 3,217 3,743 Transportation 18,585 14,784 Equipment rental 3,918 3,778 General and administrative 11,174 7,048 Depreciation and amortization 4,131 4,161 ------- ------- Total operating expenses 47,696 38,742 ------- ------- Operating income $14,122 $10,437 ======= ======= OPERATING REVENUE. Operating revenue increased by $12.6 million, or 26%, to $61.8 million for the three months ended March 31, 2001 from $49.2 million for the three months ended March 31, 2000. The increase was primarily due to increased carloads as a result of the acquisition of RailTex in February 2000. RailTex generated revenues of approximately $14.1 million for the month of January 2000, which are not included in the Company's 2000 results. In addition, the Company disposed of certain properties during 2000 which generated revenues of $2.1 million during the first three months of 2000. North American transportation revenue per carload decreased to $239 in 2001 from $264 in 2000. This decrease is primarily due to the mix of commodities hauled in the first quarter of 2001 and the devaluation of the Canadian dollar. Approximately 25% of the Company's North American revenues are generated in Canada and the Canadian dollar declined approximately 5% in the first quarter of 2001 compared to the first quarter of 2000. North American carloads handled totaled 228,110 for the three months ended March 31, 2001, an increase of 49,740 compared to 178,370 carloads in the prior year period. On a "same railroad" basis, pro forma for the acquisition of RailTex and the sale of certain properties in 2000, carloads increased 4% to 228,110 in 2001 from 219,735 in 2000. Coal traffic increased 28% and bridge traffic increased 12% from the first quarter of 2000. These amounts are partially offset by declines in automobile, lumber products and chemical carloads due to the weak economic conditions in 2001 compared to 2000. 16 17 OPERATING EXPENSES. Operating expenses increased by $9.0 million, or 23%, to $47.7 million for the three months ended March 31, 2001 from $38.7 million for the three months ended March 31, 2000. The increase was due to the acquisition of RailTex in February 2000 which had approximately $12.4 million of operating expenses in January 2000 partially offset by reductions from the sold properties of $1.5 million. In addition fuel prices increased from approximately $1.02 per gallon in 2000 to $1.06 per gallon in 2001. Operating expenses, as a percentage of operating revenue was at 77.2% and 78.8% for the three months ended March 31, 2001 and 2000, respectively. On a "same railroad" basis, pro forma for the acquisition of RailTex and the sale of certain properties in 2000, the operating ratio improved to 77.2% in 2001 from 80.8% in 2000. These improvements resulted primarily from the synergies realized from the RailTex acquisition. INTERNATIONAL RAILROAD OPERATIONS The following table sets forth the operating revenues and expenses (in thousands) for the Company's international railroad operations for the periods indicated. For the Three Months Ended March 31, ------------------------------------- 2001 2000 --------------- --------------- Operating revenues $29,997 $31,342 Operating expenses: Transportation 18,624 21,533 General and administrative 2,109 2,257 Depreciation and amortization 2,217 1,817 --------------- --------------- Total operating expenses 22,950 25,607 --------------- --------------- Operating income $7,047 $5,735 =============== =============== COMPARISON OF INTERNATIONAL OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000. OPERATING REVENUE. Operating revenues decreased $1.3 million, or 4%, to $30.0 million for the three months ended March 31, 2001 from $31.3 million for the three months ended March 31, 2000. Freight Australia's revenues decreased to $23.9 million for the three months ended March 31, 2001 from $26.3 million for the three months ended March 31, 2000, while Ferronor's revenues increased to $6.1 million from $5.0 million during the same periods. The decline in Freight Australia's revenues is primarily due to the 15% decline in the Australian dollar. For the three months ended March 31, 2001 the average exchange rate was $0.53 Australian Dollars to the U.S. Dollar compared to $0.62 for the three months ended March 31, 2000. On a constant currency basis, Freight Australia's revenues increased 8% to $28.4 million for the three months ended March 31, 2001 from $26.4 million for the three months ended March 31, 2000. Total carloads were 81,749 for the three months ended March 31, 2001, an increase of 7,758, or 10%, compared to 73,991 for the three months ended March 31, 2000. Freight Australia's and Ferronor's carloads increased to 54,316 and 27,613, respectively, for the three months ended March 31, 2001 from 48,761 and 25,230, respectively, for the three months ended March 31, 2000. The increase in carloads was primarily due to an increase in intermodal traffic during the first quarter of 2001 at Freight Australia compared to the first three months of 2000. 17 18 OPERATING EXPENSES. Operating expenses decreased $2.6 million, or 10%, to $23.0 million for the three months ended March 31, 2001 from $25.6 million for the three months ended March 31, 2000. Freight Australia's operating expenses decreased $3.5 million to $17.8 million for the three months ended March 31, 2001 from $21.3 million for the three months ended March 31, 2000, while Ferronor's operating expenses increased $0.9 million to $5.2 million from $4.3 million during the same periods. Operating expenses, as a percentage of operating revenue, were 76.5% and 81.7% for the three months ended March 31, 2001 and 2000, respectively. The decline in Freight Australia's operating expenses is primarily due the decline in the Australian dollar. However, the improvement in the operating ratio, which is not impacted by the decline in the Australian dollar, is due primarily to increased revenues in Australia while being able to hold costs consistent. CORPORATE OVERHEAD AND OTHER CORPORATE OVERHEAD. Corporate overhead, which benefits all of the Company's segments, has not been allocated to the business segments for this analysis. Corporate overhead services include overall strategic planning, marketing, accounting, legal services, finance, cash management, payroll, engineering and tax return preparation. The Company believes that this presentation will facilitate a better understanding of the changes in the results of the Company's operations. Corporate overhead, which is included in selling, general and administrative expenses in the consolidated statements of income, increased $1.4 million to $3.7 million for the three months ended March 31, 2001 from $2.3 million for the three months ended March 31, 2000. The increase was primarily due to the addition of employees and facility costs to manage the acquisitions of TPW, RaiLink, Freight Australia and RailTex, which were acquired in 1999 and 2000. INTEREST EXPENSE. Interest expense, including amortization of deferred financing costs, increased from $12.8 million for the three months ended March 31, 2000 to $14.4 million for the three months ended March 31, 2001. This increase is primarily due to the acquisition of RailTex in February 2000 and the associated debt which was outstanding for only two months during the three months ended March 31, 2000 as compared to the entire period for the three months ended March 31, 2001. The Company has two interest rate swaps to limit its variable interest rate exposure on a total amount of $212.5 million of debt. As a result, the recent interest rate reductions have only benefited the Company to the extent of the unhedged portion of its variable rate debt, approximately $100 million. In May 2001, the Company amended one of its interest rate swap agreements to reduce the fixed interest rate on $137.5 million of debt by approximately 54 basis points resulting in an interest savings of approximately $450,000 for the remainder of 2001. 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 $6.4 million for the three months ended March 31, 2001. This amount includes $2.8 million in net income and $8.0 million in depreciation and amortization. Cash used in investing activities was $8.9 million for the three months ended March 31, 2001. The primary use of cash during the quarter was the purchase of property, plant and equipment with an aggregate cost of approximately $10.4 million. 18 19 Cash used in financing activities was $2.5 million for the three months ended March 31, 2001. This consisted primarily of the scheduled payments on the Company's Senior Credit Facilities. As of March 31, 2001, the Company had a working capital deficit of $20.3 million compared to working capital deficit of $7.6 million as of December 31, 2000. The Company's cash flows from operations and borrowing under its credit agreements 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 anticipates using these cash sources to fund anticipated capital expenditures of $35 million for the upgrading of existing rail lines and purchases of locomotives and equipment during the remainder of 2001. To the extent possible, the Company may 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 to be approximately $65 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, 2001, the Company had $29.1 million of availability under the revolving line of credit facility. In addition, the Company has approximately $13.4 million in cash on hand at May 10, 2001. 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. 19 20 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. 20 21 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None. (b) Reports on Form 8-K. There were no reports filed on Form 8-K during the three months ended March 31, 2001. 21 22 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, 2001 By: /s/ Bennett Marks ----------------------------- Bennett Marks Senior Vice President, Chief Financial Officer and Principal Accounting Officer 22