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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission File Number 0-20618
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RAILAMERICA, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 65-0328006
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(State or Other Jurisdiction (IRS Employer
of Incorporation) Identification Number)
5300 Broken Sound Blvd, N.W.
BOCA RATON, FLORIDA 33487
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 994-6015
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
Common Stock Purchase Rights
Check whether the registrant (1) has 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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-K contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 23, 2000 computed by reference to the average bid
and asked prices of registrant's common stock reported on NASDAQ on such date
was $96.5 million.
The number of shares outstanding of registrant's Common Stock, $.001
par value per share, as of March 23, 2000 was 18,676,021.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's proxy statement for the Annual Meeting of Stockholders
(the "Definitive Proxy Statement") to be filed with the Commission pursuant to
Regulation 14A is incorporated by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business 3
Item 2. Properties 22
Item 3. Legal Proceedings 28
Item 4. Submission of Matters to a Vote of Security Holders 28
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 29
Item 6. Selected Financial Data 30
Item 7. Management's Discussion and Analysis 31
Item 7a. Market Risk 46
Item 8. Financial Statements 47
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 47
PART III
Item 10. Directors and Executive Officers of the Registrant 48
Item 11. Executive Compensation 48
Item 12. Security Ownership of Certain Beneficial Owners and Management 48
Item 13. Certain Relationships and Related Transactions 48
PART IV
Item 14. Exhibits and Reports on Form 8-K 49
Signatures
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This Form 10-K contains certain "forward-looking" statements within the
meaning of The Private Securities Act of 1995 and information relating to
RailAmerica, Inc. and it subsidiaries that are based on the beliefs of the
Company's management and that involve known and unknown risks and uncertainties.
When used in this report "anticipate," "believe," "estimate," "expect" and
"intend" and words or phrases of similar import, as they relate to the Company
or its subsidiaries or Company management, are intended to identify
forward-looking statements. Such statements reflect the current risks,
uncertainties and assumptions related to certain factors including, without
limitation, currency risk, competitive factors, general economic conditions,
customer relations, relationships with vendors, fuel costs, the interest rate
environment, governmental regulation and supervision, seasonality, technological
change, changes in industry practices, the inability to integrate successfully
the acquired operations, the ability to service debt, one-time events and other
factors described herein and in other filings made by the Company with the
Securities and Exchange Commission. Based upon changing conditions, should any
one or more of these risks or uncertainties materialize, or should any
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated or intended. The
Company undertakes no obligation to update, and the Company does not have a
policy of updating or revising, these forward looking statements.
PART I
ITEM 1. BUSINESS
GENERAL
RailAmerica, Inc. (together with its consolidated subsidiaries, the
"Company" or "RailAmerica") is the largest owner and operator of short line
freight railroads in North America and a leading owner and operator of regional
freight railroads in Australia and Chile. RailAmerica owns/leases, operates or
has equity interests in, a diversified portfolio of 50 railroads with
approximately 12,500 miles of track located in the United States, Australia,
Canada and Chile. Through its diversified portfolio of rail lines, the Company
operates in numerous geographic regions with varying concentrations of
commodities hauled. The Company believes that individual economic and seasonal
cycles in each region may partially offset each other.
The Company was incorporated in Delaware on March 31, 1992 as a holding
company for two pre-existing railroad companies. The Company's principal
executive office is located at 5300 Broken Sound Blvd, N.W., Boca Raton, Florida
33487, and its telephone number at that location is (561) 994-6015.
The Company's strategy is to grow through (i) the integration of the
newly acquired properties, including RailTex, Inc. ("RailTex"), (ii) the
creation of new business and improvement in operating performance of newly added
and currently operated properties and (iii) the continuance of selective
acquisitions in North America and Internationally and divestiture of non-core
lines.
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RECENT DEVELOPMENTS
Since January 1, 1999, the Company has completed the following acquisitions:
o in February 2000, the Company acquired RailTex, a leading owner and
operator of short line freight railroads concentrated in the
southeastern, midwestern, Great Lakes and New England regions of the
United States and in eastern Canada, with approximately 4,100 miles of
freight rail lines in North America, for total consideration of
approximately $128 million in cash, approximately 6.6 million shares of
RailAmerica common stock, valued at $60.8 million, and assumption of
approximately $111 million in debt. As a result of the acquisition,
former RailTex shareholders owned approximately 35 % of the Company's
common stock at the time of the merger;
o in September 1999, the Company acquired The Toledo, Peoria and Western
Railroad Corporation ("TPW"), a regional freight railroad with 369
miles of rail lines in the central United States, for an aggregate
purchase price of $18 million, including the assumption of debt and
subject to closing working capital adjustments;
o in July 1999, the Company acquired RaiLink Ltd. ("RaiLink"), the third
largest freight rail system in Canada, which owns or operates
approximately 1,620 miles of rail lines and has an approximately 26%
interest in a railroad company operating another 740 miles, for an
aggregate purchase price of $71 million, including the assumption of
debt;
o in April 1999, the Company acquired the business of V/Line Freight
Corporation, the freight railroad of Australia's Victorian Government,
with approximately 3,150 miles of rail lines in Australia, for total
consideration of $103 million. The Company operates this business
through its wholly owned subsidiary Freight Victoria Limited, which
does business as Freight Victoria;
o in January 1999, the Company acquired the assets of the Esquimalt and
Nanaimo Railway Company, a 181 mile rail line in British Columbia,
Canada, which operates as E&N Railway Corporation, for an aggregate
purchase price of $11 million.
In November 1999, the Company announced a plan to sell its trailer
manufacturing operations, Kalyn/Siebert. 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.
In February 2000, the Company's wholly owned subsidiary Freight
Victoria announced that it will begin doing business as Freight Australia.
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BUSINESS STRATEGY
The Company's strategy is to expand its position as a leading owner and
operator of short line and regional railroads in selected markets worldwide. Key
elements of this strategy include:
INTEGRATE RECENT ACQUISITIONS INTO THE COMPANY'S OPERATIONS. A key
element to the Company's strategy will be to implement a comprehensive
integration plan focusing on areas such as rationalizing staffing, regionalizing
operations, centralizing corporate functions and management information systems
and the elimination of other duplicative costs including public company costs
and board of director fees. Should the Company be unable to integrate
successfully the acquired operations, the Company's operating results and
financial condition may be materially adversely affected.
GROW INTERNALLY THROUGH FOCUSED SALES, MARKETING EFFORTS AND CUSTOMER
SERVICE. The Company will continue to focus on increasing traffic in each of the
Company's markets by aggressively marketing the Company's customer service to
its customers and bolstering sales efforts. In many cases, customer service and
sales and marketing at railroads that the Company has acquired have been
neglected by the previous owners. The Company has purchased a number of rail
lines from Class I railroads. Due to the size of the Class I railroads and their
concentration on long-haul traffic, the Class I operators typically have not
effectively marketed these branch line operations.
Once the Company acquires a rail property the Company undertakes steps
to improve the local sales and marketing efforts and to increase the railroad's
focus on customer service. Due to the Company's decentralized management
structure and a flexible, cross-trained employee base, the Company is able to
provide flexible and customized solutions that were not previously available to
the customers under the ownership of a Class I operator. This increased focus on
service enables the Company to reestablish relationships with customers who had
previously dropped service.
In addition, the Company's management has been successful at increasing
traffic by further penetrating the acquired railroad's existing customer base.
As a result, typically revenues increase and profitability improves once the
Company acquires and integrates a railroad. The Company's management intends to
continue this successful strategy by deepening its relationships with customers
and further improving upon its local sales and marketing efforts.
MAINTAIN CLOSE RELATIONSHIPS WITH CLASS I RAILROADS. Since all of the
Company's North American short line properties interchange with at least one
Class I railroad, the Company maintains close relationships with all of the
North American Class I railroads. The Company believes that these relationships
will enable the Company to pursue new business opportunities on existing rail
properties and acquire additional short line freight lines from the Class I
railroads.
CONTINUE TO GROW THROUGH SELECTIVE ACQUISITIONS. The Company expects
that opportunities to acquire select North American short line rail properties
will continue to become available over the next several years. The Company
intends to selectively make acquisitions of properties at an attractive purchase
price and with the potential for substantial improvement in revenue and
profitability, in similar geographic regions or clusters so that synergies and
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economies of scale may be achieved. The Company expects that those acquisitions
will increase product diversification in order to further mitigate the effects
of seasonal or cyclical fluctuations.
The Company also expects to make acquisitions in economically and
politically stable international markets as a result of an increasing number of
governments seeking to privatize their national rail systems. In particular, the
Company believes that further acquisition opportunities exist within Australia,
and that the Company has a significant advantage over its competitors in
completing acquisitions of Australian rail properties given its current
operating status in the region. The Company has been successful at improving
operating efficiencies and reducing costs at the recently acquired Freight
Victoria and Ferronor railroads and the Company believes it will be able to
achieve success at other international acquisitions.
DIVERSIFICATION. RailAmerica believes that its revenue diversification
limits its exposure to geographic, economic and customer related risks, while
positioning the Company to take advantage of a broad range of business
opportunities. This diversification, and the stability it provides to the
Company's operations, differentiates it from other regional and short line
carriers. Diversification also enables the Company to develop and maintain close
relationships with essentially all major rail carriers in North America.
DIVESTITURES. In order to capitalize on opportunities more profitable
to its overall portfolio and to minimize the amount of management time and
effort on the smaller properties in its portfolio and to reduce debt, it may
from time to time divest certain of its non-core railroad properties. The
Company believes there is a market for such divestitures among other smaller
short line operating companies and selected strategic buyers.
NORTH AMERICAN RAILROAD OPERATIONS
The Company currently owns, leases and/or operates 43 rail properties
in North America and has equity interests in an additional five rail properties.
All of the Company's North American rail properties are short line railroads
that provide transportation services for both on-line customers and Class I
railroads which interchange with the Company's rail lines. Short line railroads
are typically less than 350 miles long, serve a particular class of customers in
a small geographic area and interchange with Class I railroads. Short line rail
operators primarily serve customers on their line by transporting products to
and from the Class I interchanges. Each of the Company's North American rail
lines is typically the only rail carrier directly serving its customers. The
ability to haul heavy and large quantities of freight as part of a long-distance
haul make the Company's rail services generally a more effective, lower-cost
alternative to other modes of transportation, including motor carriers.
UNITED STATES. The Company owns/leases and operates 33 short line rail
properties in the United States with approximately 5,000 miles of track. The
Company's United States properties are geographically diversified and operate in
24 states. The Company has clusters of rail properties in the southeastern,
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midwestern, Great Lakes and New England regions of the United States. The
Company believes that this cluster strategy provides economies of scale and
helps achieve operational synergies.
CANADA. The Company owns/leases and operates 10 short line rail
properties in Canada with approximately 2,200 miles of track. The Company's
Canadian properties are geographically diversified and operate in six provinces.
The Company has clusters of rail properties in Alberta, southern Ontario and
eastern Quebec. The Company also owns a 26% equity interest in Quebec Railway
Corporation, a railroad company operating five railroads in southeastern Canada.
SALES AND MARKETING. The Company focuses on providing rail service to
its customers that is easily accessible, reliable and cost-effective. Following
commencement of operations, the Company's railroads generally have attracted
increased rail shipments from existing customers and obtained traffic from new
customers who had not previously shipped by rail or had ceased rail shipments.
The Company believes its ability to generate additional traffic is enhanced by
its marketing efforts which are aimed at identifying and responding quickly to
the individual business needs of customers along its rail lines. As part of its
marketing efforts, the Company often schedules more frequent rail service, helps
customers negotiate price and service levels with interchange partners and
assists customers in obtaining the quantity and type of rail equipment required
for their operations. The Company also provides non-scheduled train service on
short notice to accommodate customers' special or emergency needs.
The Company's decentralized management structure is an important
element of its marketing strategy. Significant discretion with respect to sales
and marketing activities is given to the Company's North American regional
marketing managers and international marketing managers. Each regional marketing
manager works closely with personnel of the Company's railroads and with other
members of senior management to develop marketing plans to increase shipments
from existing customers and to develop business from new customers. The Company
also works with the marketing staffs of the connecting Class I carriers to
develop an appropriate array of rail-oriented proposals to meet customers' needs
and with industrial development organizations to locate new rail users. The
Company considers all of its employees to be customer service representatives
and encourages them to initiate and maintain regular contact with shippers.
TRAFFIC. Rail traffic may be categorized as interline, local or bridge
traffic. Interline traffic either originates or terminates with customers
located along a rail line and is interchanged with other rail carriers. Local
traffic both originates and terminates on the same rail line and does not
involve other carriers. Bridge traffic neither originates nor terminates on a
rail carrier's line, but rather passes over the line from one connecting rail
carrier to another.
Traffic which originated or terminated on RailAmerica's lines generated
89% and 100% of the Company's total freight revenue in 1999 and 1998,
respectively. The Company believes that higher levels of interline and local
traffic provide it with greater stability of revenues because such traffic
represents shipments to or from customers located along its lines, unlike bridge
traffic, which cannot be easily diverted to other rail carriers.
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The following table summarizes freight revenue by type of traffic
carried by the Company's railroads in 1999 and 1998, in dollars and as a percent
of total freight revenue.
FREIGHT REVENUE
(DOLLARS IN THOUSANDS)
1999 1998
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Interline $31,905 86.5% $14,979 99.1%
Local 945 2.6% 142 0.9%
Bridge 4,019 10.9% -- --
------- ----- ------- -----
$36,869 100.0% $15,121 100.0%
======= ===== ======= =====
CONNECTING CARRIERS. All of RailAmerica's short line properties
interchange traffic with Class I railroads. The following table summarizes the
Company's significant connecting carriers in 1999 and 1998 by freight revenues
and carloads as a percentage of total interchanged (interline and bridge)
traffic.
INTERCHANGED TRAFFIC
1999 1998
------------------- -----------------------
FREIGHT FREIGHT
REVENUES CARLOADS REVENUES CARLOADS
Canadian Pacific 28.5% 24.4% -- --
Burlington Northern Sante Fe Railway 26.6% 34.2% 63.0% 66.2%
Canadian National Railways 20.4% 21.6% -- --
CSXT Transportation, Inc. 14.6% 10.0% 31.5% 28.2%
Union Pacific Corporation 3.5% 3.3% 1.9% 1.8%
All other railroads 6.4% 6.5% 3.6% 3.8%
------ ------ ------ ------
Total interchanged traffic 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
Charges for interchanged traffic are generally billed to the customers
by the connecting carrier and cover the entire transportation of a shipment from
origin to destination, including the portion that travels over the Company's
lines. The Company's revenues from such traffic are generally collected through
fees paid directly to the Company by the connecting carriers rather than by
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customers on its lines and are payable regardless of whether the connecting
carriers are able to collect from the customers. The fees payable by connecting
carriers are set forth in contracts entered into by each of the Company's
railroads with their respective connecting carriers and are subject to periodic
adjustments.
CUSTOMERS. In 1999, the Company served more than 500 customers in North
America who shipped and/or received a wide variety of products. The Company's
railroads are typically the only rail carriers directly serving their customers.
Although most of the Company's North American railroads have a well-diversified
customer base, several of the smaller rail lines have one or two dominant
customers. In 1999, the Company's 10 largest North American customers accounted
for approximately 39% of North American transportation revenue. One of these
customers accounted for approximately 12% of the Company's North American
transportation revenue.
COMMODITIES. The following table sets forth by number and percentage
the carloads hauled by our North American railroads during the years ended
December 31, 1999, 1998 and 1997.
CARLOADS CARRIED BY COMMODITY GROUP
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- -----------------
COMMODITY CARLOADS % OF TOTAL CARLOADS % OF TOTAL CARLOADS % OF TOTAL
----------------- -------- ---------- -------- ---------- -------- ----------
Railroad equipment 37,023 24% -- 0% -- 0%
Paper and forest products 29,991 19% 9,152 19% 9,797 21%
Agriculture 28,140 18% 15,349 31% 13,185 29%
Steel & scrap steel 10,956 7% 1,695 3% 1,562 3%
Food products 9,736 6% 5,272 11% 4,928 11%
Chemicals/fertilizer 8,522 6% 4,936 10% 4,418 10%
Petroleum products 5,678 4% 135 0% -- 0%
Coal 5,504 4% 4,898 10% 3,877 8%
Containers 5,033 3% -- 0% -- 0%
Minerals & stones 4,066 3% 4,879 10% 5,247 11%
Auto parts 3,415 2% 683 1% 755 2%
Other 6,927 4% 2,520 5% 2,438 5%
----- ----- -----
Total 154,991 100% 49,519 100% 46,207 100%
======= ====== ======
* - Railroad equipment includes bridge traffic on the Company's Ottawa Valley
Railway
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EMPLOYEES. Currently, the Company has approximately 1,300 full-time
railroad employees in North America. A majority of the approximately 400
Canadian employees are subject to collective bargaining agreements as well as
approximately 200 of the 900 United States employees.
SAFETY. The Company endeavors to conduct safe railroad operations for
the benefit and protection of employees, customers and the communities served by
the Company's railroads. The Company's safety program, led by the Assistant Vice
President of Safety, involves all of the Company's employees and is administered
on a daily basis by each Regional Vice President. Operating personnel are
trained and certified in train operations, hazardous materials handling, proper
radio procedures and all other areas subject to governmental rules and
regulations. Each employee involved in train operations is subject to
pre-employment and random drug testing whether or not required by federal
regulation. The Company believes that each of its North American railroads
complies in all material respects with federal, state and local regulations.
Additionally, each railroad is given flexibility to develop more stringent
safety rules based on local requirements or practices. The Company also
participates in governmental and industry sponsored safety programs including
Operation Lifesaver (the national grade crossing awareness program) and the
American Short Line Railroad Association Safety Committee.
COMPETITION. In acquiring rail properties, the Company competes with
other short line and regional railroad operators, some of which have greater
financial resources than the Company. Competition for rail properties is based
primarily upon price, operating history and financing capability. The Company
believes its established reputation as a successful acquirer of short line rail
properties, combined with its managerial resources, effectively positions it to
take advantage of future acquisition opportunities.
The Company's railroads are typically the only rail carriers directly
serving their customers; however, the Company's railroads compete directly with
other modes of transportation, principally motor carriers and, to a lesser
extent, ship and barge operators. The extent of this competition varies
significantly among the Company's railroads. Competition is based primarily upon
the rate charged and the transit time required, as well as the quality and
reliability of the service provided, for an origin-to-destination package. To
the extent other carriers are involved in transporting a shipment, the Company
cannot control the cost and quality of service.
INTERNATIONAL RAILROAD OPERATIONS
AUSTRALIAN RAILROAD OPERATIONS
In Australia, the Company owns Freight Victoria, a regional freight
railroad operating in the State of Victoria. Freight Victoria 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,
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Australia on April 30, 1999 for total consideration of approximately $103
million. The assets purchased from V/Line Freight Corporation included 106
locomotives and over 2,600 rail cars. In addition, Freight Victoria prepaid to
the State of Victoria the rental payments of a 45-year lease to operate 3,150
miles of track. The present value of the lease payments totaled approximately
$60 million.
In February 2000, Freight Victoria announced that it will begin doing
business as Freight Australia.
CUSTOMERS. Freight Victoria's customers span a variety of industries,
with particular emphasis on companies in the Australian agricultural industry
for whom we carry bulk grain and other agricultural products.
MAJOR CONTRACTS. Freight Victoria generates a substantial percentage of
its revenue from contracts with the Australian Wheat Board and the Government of
Victoria's Passenger Rail Authority. In addition, Freight Victoria has recently
entered into a contract with GrainCo, a private Australian agricultural
commodities company.
o AUSTRALIAN WHEAT BOARD - Through a recently renewed five-year contract
with the Australian Wheat Board, Australia's only government-owned
grain export agency, Freight Victoria hauls grain from points on its
rail system to various export terminals throughout the State of
Victoria, including the port of Melbourne and other industrial
locations. Pursuant to this contract, Freight Victoria is guaranteed to
haul 90% of all wheat harvested in Victoria and specified surrounding
areas, and destined for export abroad, and receives fixed-rate fees for
the transportation services. The contract expires in September 2005.
Freight Victoria, under this new contract is provided a 90% guarantee
for additional grain-growing regions of southeastern Australia
(including specified areas of New South Wales) and, correspondingly, a
greater amount of tonnage to be hauled. Australian Wheat Board
represented 19% of Freight Victoria's transportation revenue for the
period May 1, 1999 to December 31, 1999.
o V/LINE PASSENGER - In connection with the acquisition of Freight
Victoria, the Company entered into a long-term agreement granting the
Victoria Passenger Rail Authority track access for its V/Line passenger
train business. Under the contract, Freight Victoria provides track
entitlements and maintenance for the passenger train business and
receives minimum fees of $16 million per year (subject to escalation
each year) in return for providing such access and maintenance. The
contract is non-cancelable and expires in 2006. V/Line Passenger access
revenue represented 23% of Freight Victoria's transportation revenue
for the period May 1, 1999 to December 31, 1999.
o GRAINCO - In September 1999, Freight Victoria entered into a two-year
contract with GrainCo, an Australian agricultural commodities company.
Under the terms of this agreement, Freight Victoria will generate total
revenue of approximately $4 million per year. GrainCo, a private
Australian company, operates an agricultural products brokerage,
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trading and distribution business through facilities located throughout
the state of Victoria, including a large new facility in the Port of
Melbourne. GrainCo handles Australian agricultural product shipments,
including grain, barley and other cereals, destined for both the
domestic Australian market as well as export.
COMMODITIES. The following table sets forth by dollar amount (in
thousands) and percentage Freight Victoria's transportation revenue for the
period from May 1, 1999 to December 31, 1999.
COMMODITY US$ AMOUNT % OF TOTAL
--------- ---------- ----------
Agricultural products 24,613 40%
Track access fees 12,430 21%
Intermodal containers 7,470 12%
Fast track* 6,744 11%
Bulk (i.e. cement, gypsum, stone, logs) 6,213 10%
Interstate 3,484 6%
------- --
Total transportation revenue 60,954 100%
======= ====
* Fast Track - Freight Victoria's Fast Track business transports products
which typically are less than a container load of freight (the majority
of traffic are either parcels or pallets). Services offered to
customers include depot-to-depot, depot-to-door, and door-to-door. The
Fast Track business has six metropolitan sites and services 24 regional
freight centers. Road contractors perform local pick-up and delivery to
and from the freight centers.
EMPLOYEES. Freight Victoria currently has approximately 650 employees.
A majority of these employees are subject to collective bargaining agreements.
CHILEAN RAILROAD OPERATIONS
In February 1997, the Company, through a newly formed, wholly owned
subsidiary, RailAmerica de Chile S.A., acquired 55% of the outstanding voting
stock of Ferronor for approximately $7.2 million. Ferronor owns and operates
approximately 1,400 miles of rail line serving northern Chile. RailAmerica was
joined in the purchase of Ferronor by Andres Pirazzoli y Cia, Ltda. ("APCO"), a
Chilean contractor providing equipment and mechanized services to the forest
industry.
Ferronor operates the only north-south railroad in northern Chile,
extending from La Calera near Santiago, where it connects with Chile's southern
railway, Ferrocarril del Pacifico, S.A., to its northern terminus at Iquique,
approximately 120 miles south of the Peruvian border. It also operates several
east-west branch lines that link a number of iron, copper and limestone mines
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and production facilities with several Chilean Pacific port cities. Ferronor
also serves Argentina and Bolivia through traffic interchanged with the General
Belgrano Railroad and the Ferrocarriles Antofagasta Bolivia.
CUSTOMERS. Ferronor's customers are principally in the mining industry.
Ferronor had two customers who each represented more than 10% of the
transportation revenue in Chile. The customers represented 43% and 40% of the
Chilean transportation revenue for 1999.
MAJOR CONTRACTS. Ferronor, in 1996, entered into a new 20-year
take-or-pay agreement with CMH, a large Chilean mining company. The contract
outlines the terms for the transport of approximately 5.2 million tons of iron
pellets annually, commencing July 1998. The contract guarantees a minimum of 4.0
million tons per year at a rate of US$1.45/ton. The contract has escalators
based on general inflation rates and the cost of fuel. Ferronor expects the
contract to yield a minimum of US$8.6 million per year in additional revenue.
During 1998, Ferronor entered into a new 10-year transportation
contract with SQM Nitratos S.A. that the Company estimates will yield aggregate
revenues of approximately US$68 million. The contract calls for the movement of
approximately 500,000 tons annually of potassium chloride and potassium sulfite
from the Minsal Salt Flats mine in northern Chile to Coya Sur, a distance of 128
miles, with further service 54 miles to Tocopilla, in conjunction with the
Tocopilla railroad. Movements commenced in mid 1998.
COMMODITIES. Iron ore and nitrates accounted for approximately 43% and
40%, respectively, of Ferronor's revenue for 1999.
EMPLOYEES. Ferronor currently has approximately 255 full-time
employees. A majority of Ferronor's employees are subject to collective
bargaining agreements.
TRAILER MANUFACTURING OPERATIONS
Kalyn/Siebert, Inc ("KSI"), located in Gatesville, Texas, was
established in 1968 and manufactures a broad range of specialty truck trailers.
KSI products are marketed to customers in the construction, trucking,
agricultural, railroad, utility, and oil industries. In addition, a substantial
portion of KSI's sales are to the military and several other local and federal
government agencies. During the second quarter of 1999, KSI's assets and
operations were transferred to a Texas limited partnership, Kalyn/Siebert L.P.
KSI is the 1% general partner and a newly formed, wholly owned subsidiary of the
Company, KS Boca, Inc., is the 99% limited partner.
In January 1998, the Company, through its wholly-owned subsidiary, KSI,
acquired all of the outstanding stock of Fabrex, Inc. and its affiliate,
Services Remorques Plus, Inc. Fabrex's operations have been combined into
Kalyn/Siebert Canada ("KSC"), a wholly-owned subsidiary of KSI. KSC is a
manufacturer of specialty bulk-hauling truck trailers located in Trois-Rivieres,
Quebec, Canada. KSC's products are marketed to the solid waste, agricultural and
construction industries.
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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.
PRODUCTS. KSI manufactures an extensive variety of light, medium and
heavy duty truck trailers. The Company's products include the following:
o FLATBED TRAILERS. Flatbed trailers, also known as platform trailers,
are generally used to carry loads such as steel and building materials.
The Company produces a wide variety of flatbed trailers, including
straight frames, drop frames and multi-axle units for specialized
loads. KSI's leading product in this category is the KDP-80, a 48 foot
drop deck flatbed trailer which is purchased primarily by commercial
customers. This trailer has a 10 foot spread on the tandem axle which
allows more weight per axle than narrower tandems.
o LOWBED TRAILERS. Lowbed trailers, also known as lowboy trailers or
California legals, generally haul heavy equipment such as electrical
transformers or grain silos. Lowbed trailers are equipped with up to 18
axles and have the capacity to haul up to 300 ton loads. Heavy
equipment lowbeds are used by heavy haulers, specialized carriers and
riggers, larger construction and engineering firms and
highly-specialized members of the aerospace and automotive industries.
The products constituting this category include the following trailers:
fixed neck lowbed, folding neck lowbed, detachable lowbed, and the
mechanical removable gooseneck, which is KSI's leading trailer by sales
in this product line.
o OTHER PRODUCTS. KSI manufactures a sliding-axle trailer which can be
used to transport heavy equipment such as forklifts and similar
equipment. KSI also manufactures a specialty van trailer for the United
States Tank Automotive Command ("TACOM"), a Department of Defense unit
established to consolidate purchases for various branches of the
military, which has special dolly-style suspensions and removable
landing gear so that it can be shipped on military transport cargo
planes. These specialty van trailers can be used for tactical combat
purposes or as storage containers. Another specialty trailer is a
double drop totally enclosed trailer for hauling rocket engines.
o PARTS AND ACCESSORIES. Replacement parts and accessories are primarily
sold to dealers.
KSC produces specialty bulk-hauling truck trailers used in the
solid-waste, agricultural, and construction industries. Historically,
approximately 85% of KSC's sales have been transfer trailers and 80% of these
have been made in aluminum. KSC began producing dump trailers in 1995. In 1998,
these trailers represented approximately 15% of KSC's sales. The dump trailers
consist of approximately 70% aluminum and 30% steel. During the second half of
1998, KSC began producing KSI flatbed trailers in its newly acquired facility.
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MANUFACTURING AND ENGINEERING. KSI considers its engineering expertise,
combined with the manufacturing experience of its work force, to be key
competitive advantages. KSI utilizes this experience in its marketing by
including manufacturing personnel in initial meetings with potential KSI
customers to assist in defining and meeting the customer's objectives. This team
approach often results in new and unique ways to satisfy customer needs and
facilitates effective communication throughout the organization.
Each of KSI's trailers is manufactured from highly customized designs
based on detailed customer specifications of each aspect of the trailer,
including dimensions, structural requirements, fabrication materials, component
parts and accessories. KSI's computer assisted design allows its engineers to
readily modify trailer component designs and generate new designs based on
customer needs.
KSI builds all the structural parts of its trailers using steel bars
and plates. The major manufacturing steps include cutting, bending and welding
of steel and, once assembled, cleaning and painting. The axles and running gears
are purchased as sub-assemblies which are integrated into the KSI trailer
design. KSI contracts out any necessary machining. KSI exercises strict quality
control by screening suppliers and conducting inspections throughout the
production process.
KSI's ability to manufacture trailers is dependent upon receiving
supplies or components and raw materials from a limited number of sources. To
date, KSI has experienced no material difficulties in procuring supplies,
components or materials. However, if deliveries of such items are delayed, KSI's
production ability may be decreased which could have a negative effect on KSI's
and the Company's results of operations.
KSI's manufacturing operations are conducted in thirteen Company owned
buildings, totaling approximately 198,000 square feet on an 25.5 acre site,
which were constructed between 1969 and 1998. The Company expects that this site
will be able to meet its manufacturing goals for the foreseeable future.
At acquisition date, Fabrex, was producing its trailers at a 45,000
square foot manufacturing facility located in Trios Rivieres, Quebec, Canada,
midway between Montreal and Quebec City. In April 1998, KSC purchased an
additional 105,000 square-foot manufacturing facility on a 36.7 acre site
located adjacent to KSC's existing plant in Trois-Rivieres, Quebec, Canada.
MARKETING AND DISTRIBUTION. KSI's marketing strategy is focused on
offering a broad range of high-quality, customized trailers manufactured to the
design specifications of its customers. These products are marketed and
distributed through a network of approximately 140 independent dealers
throughout North America and through a direct sales force. During 1998
approximately 50% of independent dealers maintained inventories of KSI trailers.
Presently, up to 75% of all of KSI's commercial sales are made to
dealers, with the balance representing direct retail sales by its sales force.
KSI's sales staff consists of a vice president, seven sales managers, and an
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advertising manager. The sales staff is supported by registered mechanical
design engineers and draftsmen. KSC's sales staff consists of a V.P. sales and
five sales managers.
In the United States the majority of sales are done through a network
of dealers. KSC also has access to KSI's extensive dealer base in the United
States.
CUSTOMERS. The majority of sales in the government segment are to the
General Services Administration ("GSA"), the purchasing arm of most non-military
agencies, and to TACOM. KSI has been awarded "Blue Ribbon Contractor" status
with TACOM. As a result of this status, KSI receives a 10% preference on bids
for certain contracts. Sales to governmental agencies represented 35%, 36% and
37% of KSI's manufacturing revenue for the years ended December 31, 1999, 1998
and 1997. A substantial decrease in orders by the GSA and/or TACOM could have a
material adverse effect on KSI's business and results of operations.
KSC's trailers are used in the solid-waste, agricultural and
construction industries. Waste disposal companies are KSC's largest market
segment. In addition, during the second half of 1998 KSC began producing and
marketing KSI type flatbed trailers.
Unit sales of new truck trailers have historically been subject to
substantial variation. Sales of new truck trailers have historically been
subject to a five- to seven-year replacement cycle. Additionally, periods of
economic recession in the United States have previously resulted in declines in
the profitability of the trucking industry. Future decreases in the demand for
truck trailers due to economic downturns or cyclical decreases would likely have
a material adverse effect on RailAmerica's business and results of operations.
BACKLOG. As of December 31, 1999, KSI's backlog of orders was
approximately $14.0 million, compared to $18.3 million as of December 31, 1998.
As of December 31, 1999, KSC's backlog of orders was approximately $2.3 million,
compared to $3.7 million as of December 31, 1998. KSI and KSC include in its
backlog only those orders for trailers for which a confirmed customer order has
been received. KSI manufactures trailers mostly to customer or dealer orders and
does not typically maintain an inventory of "stock" trailers in anticipation of
future orders.
COMPETITION. The Company faces significant competition in the truck
trailer manufacturing industry which is highly competitive and has relatively
low barriers to entry. The Company competes with a number of other trailer
manufacturers, some of which have greater financial resources and higher sales
than KSI. Furthermore, the Company's products compete with alternative forms of
shipping, such as intermodal containers. There can be no assurance that the
Company will be able to continue to compete effectively with existing or
potential competitors or alternative forms of shipping containers.
EMPLOYEES. Currently, KSI has 172 full-time employees in the trailer
manufacturing operation. None of the KSI employees are subject to a collective
bargaining agreement. Currently, KSC has 140 full-time employees in the trailer
manufacturing operation of which approximately 90 are subject to a collective
bargaining agreement.
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REGULATION
UNITED STATES. The Company's subsidiaries in the United States are
subject to various safety and other laws and regulations by numerous government
agencies, including (1) regulation by the Surface Transportation Board ("STB")
and the Federal Railroad Administration ("FRA"), (2) labor related statutes
including the Railway Labor Act, Railroad Retirement Act, the Railroad
Unemployment Insurance Act, and the Federal Employer's Liability Act, and (3)
regulation by agencies in the states in which the Company does business.
Additionally, the Company is subject to STB regulation in connection with its
acquisition of new railroad properties. As a result of the enactment in 1980 of
the Staggers Rail Act, which amended the Interstate Commerce Act, and the
enactment of the ICC Termination Act of 1995, there has been a significant
relaxation in regulation governing rail carriers, which management believes has
greatly simplified the purchase and sale of short line railroad properties and
expedited the closing of such transactions.
The STB has jurisdiction over, among other matters, the construction,
acquisition, or abandonment of rail lines, the consolidation or merger of
railroads, the assumption of control of one railroad by another railroad, the
use by one railroad of another railroad's tracks through lease, joint use or
trackage rights, the rates charged for their transportation services, and the
service provided by rail carriers. The ICC Termination Act replaced the
Interstate Commerce Commission ("ICC") with the STB. The ICC Termination Act
also abolished labor protective conditions applicable to numerous types of rail
transactions. Labor protective conditions cannot be imposed on the sale of a
railroad line to a new carrier. In the sale of a railroad line to a regional
railroad, which is a railroad with annual revenues between $20 million and $250
million, as adjusted by the railroad revenue deflator, labor protection consists
of the payment of up to one year of severance pay for employees affected by the
transaction. In some instances of the sale of a railroad line to a small
railroad, which is a railroad with annual revenues that are less than $20
million, as adjusted by the railroad revenue deflator, labor protection also
consists of the payment of up to one year of severance pay for employees
affected by the transaction. While imposition of labor protective conditions on
line sales and transfers does not subject a rail line buyer to the seller's
collective bargaining agreements, rates of pay, and other labor practices and
does not unionize the buyer's operating and maintenance employees, it does
entitle employees of the buyer or seller who are "adversely affected" by the
transaction in terms of job loss, pay cuts, loss of overtime, loss of hours,
loss of benefits, and moving expenses, to receive over a period of up to six
years payments representing compensation for those losses. Generally, in a line
sale or transfer, only the seller's or transferor's employees are affected.
As a result of the Staggers Rail Act, railroads have received
considerable rate and market flexibility including the ability to obtain
wholesale exemptions from numerous provisions of the Interstate Commerce Act.
The Staggers Rail Act allowed the deregulation of all containerized and truck
trailer traffic handled by railroads. On regulated traffic, railroads and
shippers are permitted to enter into contracts for rates and provision of
transportation services without the need to file tariffs. Moreover, on regulated
traffic, the Staggers Rail Act allows railroads considerable freedom to raise or
lower rates without objection from captive shippers. While the ICC Termination
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Act retained maximum rate regulation on traffic over which railroads have
exclusive control, the new law relieved railroads from the requirements of
filing tariffs and rate contracts with the STB on all traffic other than
agricultural products.
Under the ICC Termination Act, the STB is funded through September 30,
2000. It is unclear whether the STB will be reauthorized in its present form.
Under the ICC Termination Act, states lost their jurisdiction over economic
regulation of interstate railroad transportation. All states retain some
jurisdiction over safety related matters.
The FRA regulates railroad safety and equipment standards, including
track maintenance, handling of hazardous shipments, locomotive and rail car
inspection and repair requirements, and operating practices and crew
qualifications.
AUSTRALIA. Our Australian subsidiary, Freight Victoria, is subject to
regulation in the State of Victoria by the Office of the Regulator-General. The
Office of the Regulator-General (the "ORG") was established by the Office of the
Regulator-General Act. The purpose of the ORG is to create a regulatory
framework for regulated industries which promotes and safeguards competition and
fair and efficient market conduct or, if there is no competitive market, which
promotes the simulation of competitive market conduct and the prevention of
misuse of monopoly power. These objectives were expanded by the Victorian
Government in the RAIL CORPORATIONS ACT 1996 to ensure that rail users have fair
and reasonable access to declared railway services.
The RAIL CORPORATIONS ACT 1996 (the "RCA") regulates the operation of
the State of Victoria's passenger trains and trams and rail network. Part 2A of
the RCA outlines an access regime which potentially applies to railways and rail
infrastructure and gives power to the ORG to regulate access to relevant
services. At present, however, no rail transport services have been declared to
be subject to the regime. ORG and the Department of Infrastructure, however,
advise that a Discussion Paper in relation to the regulation of the rail
transport authority is currently being prepared and is expected to be issued
before the end of April 2000. This paper is likely to contain draft declarations
(in relation to specific rail services which may be made subject to the access
regime in Part 2A) and draft pricing orders.
In the event that any services are declared to be "declared rail
transport services" and thus become subject to the Part 2A access regime, Part
2A provides that:
(1) manager of rail infrastructure and a provider and operator of
rolling stock must: (1) use all reasonable endeavours to meet
the requirements of persons seeking access to the declared
rail transport services;
(2) make a formal proposal of terms and conditions for access
within 14 days after receiving a request for it to do so; and
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(3) at the request of a person seeking, or considering seeking,
access provide to that person information as prescribed by
ORG.
In the following circumstances an application may be made in writing to
ORG, by the operator or a person seeking access, for a determination:
(1) if the operator has not made a formal proposal within 14 days
after receiving a request for it to do so;
(2) if the operator and a person seeking access cannot agree on
the terms and conditions on which access is to be provided;
and
(3) a person considers that their right of access to a declared
rail transport service has been hindered.
A determination of ORG may, among other things:
(1) require the operator to provide access to the service to the
person seeking access;
(2) deal with the terms and conditions of access; and
(3) specify the extent to which the determination overrides an
earlier determination.
In addition, the Governor in the Council may specify policies or
principles which ORG must apply in:
(1) determining any amount to be paid for access to a specified
declared rail transport services; or
(2) determining the terms and conditions of access.
In addition to complying with the above-described regulations, a
manager of rail infrastructure and a provider and operator of rolling stock,
must be accredited under the TRANSPORT ACT 1993. A corporation which manages
rail infrastructure or operates rolling stock without accreditation is liable
for a fine of $250,000.
The Secretary to the Department of Infrastructure may take disciplinary
action against an accredited person if the person has failed to comply with the
requirements of accreditation or has permitted an unsafe practice or acted
negligently. Disciplinary action which the Secretary may take includes
disqualifying the person from holding an accreditation (for a period specified
by the Secretary), suspension of the accreditation, early expiry of the
accreditation and immediate or future cancellation of the accreditation.
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The person has a right of review concerning accreditation decisions and
may apply to the Victorian Civil and Administrative Tribunal for a review of a
decision made by the Secretary. An accreditation is personal to a person who
holds it, it is not capable of being transferred of assigned or otherwise dealt
with by the person who holds it and does not vest by operation of law in any
other person.
The TRANSPORT ACT contains detailed provisions authorizing the
Secretary of the Department of the Infrastructure to carry out inspections and
giving inspectors powers to enter and inspect premises (including, to test
equipment and to seize property if appropriate). All actions must be reasonably
necessary to determine compliance with the Transport Act. A search warrant or
prior written consent of the occupier is necessary for entry into premises.
The Secretary must conduct safety audits of every person accredited at
least once every 12 months, to ensure that the accredited person is complying
with the requirements of accreditation. The Secretary may charge the accredited
person a fee for the safety audit service subject to the limits set out in the
relevant regulations. An accredited person has a duty to inquire into accidents
and incidents.
CANADA. The Company's Canadian railroad subsidiaries are subject to
regulation by various governmental departments and regulatory agencies at the
federal or provincial level depending on whether the railroad operated by the
subsidiary in question falls within federal or provincial jurisdiction. A
Canadian railroad generally falls within the jurisdiction of federal regulation
if the railroad crosses provincial or international borders or if the Parliament
of Canada has declared the railroad to be a federal work or undertaking and in
selected other circumstances. Any company which proposes to construct or operate
a railway in Canada which falls within federal jurisdiction is required to
obtain a certificate of fitness under the Canada Transportation Act ("CTA")
which is issued on proof of insurance. Under the CTA, the sale of a federally
regulated railroad line is not subject to federal approval, although a process
of advertising and negotiations may be required in connection with any proposed
discontinuance of a federal railway. Federal railroads are governed by federal
labor relations laws.
Short lines located within the boundaries of a single province which do
not otherwise fall within the federal jurisdiction are regulated by the laws of
the province in question, including laws as to licensing and labor relations.
Most of Canada's ten provinces have enacted new legislation which is more
favorable to the operation of short line railroads than previous provincial
laws. Many of the provinces require as a condition of licensing under the short
line railroads acts that the licensees comply with federal regulations
applicable to safety and other matters and remain subject to inspection by
federal railway inspectors. Under some provincial legislation, the sale of a
provincially regulated railroad line is not subject to provincial approval,
although a process of advertising and negotiations may be required in connection
with any proposed discontinuance of a provincial railway.
Acquisition of additional railroad operations in Canada, whether
federally or provincially regulated, may be subject to review by the Investment
Canada Act (the "ICA"), a federal statute which applies to every acquisition of
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a Canadian business or establishment of a new Canadian business by a
non-Canadian. Whether or not an acquisition is subject to review under the ICA
is dependent on the book value of the assets of the Canadian business being
acquired. Acquisitions that are subject to review must, before their completion,
satisfy the Minister responsible tor administering the ICA that the acquisition
is of net benefit to Canada.
Any contemplated acquisitions may also be subject to the provisions of
the Competition Act (the "CA"), federal antitrust legislation of general
application. The CA contains merger control provisions which apply to certain
acquisitions. As a result, acquisitions exceeding specified asset and/or revenue
thresholds may be subject to pre-merger notification and subsequent substantive
review prior to their completion.
NORTH AMERICAN RAILROAD INDUSTRY
The U.S. railroad industry is dominated by major Class I railroads,
which operated approximately 120,000 miles of track and represented 91.2% of
total rail industry operating revenues of approximately $35.3 billion in 1998.
In addition to large railroad operators, there were more than 500 short line and
regional railroads, which generated approximately $3.1 billion of operating
revenues and operated approximately 50,000 miles of track at year end 1998.
The railroad industry is subject to regulations of various government
agencies, primarily the STB. For regulatory purposes, the STB classifies
railroads into three groups: Class I, Class II and Class III, based on annual
operating revenue. For 1998, the Class I railroads had operating revenues of at
least $259.4 million, Class II railroads had revenues of $20.8 million to $259.4
million, and Class III railroads had revenues of less than $20.8 million.
In compiling data on the U.S. railroad industry, the Association of
American Railroads ("AAR") uses the STB's revenue threshold for Class I
railroads. Regionals are railroads operating at least 350 miles of rail line
and/or earnings between $40 million and the Class I revenue threshold. Locals
are railroads falling below the Regional thresholds.
1998 INDUSTRY OVERVIEW
NUMBER OF
TYPE OF RAILROAD CARRIERS 1998 REVENUES % OF REVENUES
---------------- --------- ------------- -------------
Class I 9 $32.2 91.2%
Regional 35 1.6 4.5
Local 515 1.5 4.3
--- ----- -----
Total 559 $35.3 100.0%
=== ===== =====
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As a result of deregulation, Class I railroads have been able to
concentrate on core, long-haul routes, while divesting many of their low-density
branch lines to smaller and more cost-efficient freight railroad operators such
as the Company. Divesting branch lines allows Class I railroads to increase
traffic density, improve railcar utilization and avoid rail line abandonment.
The proportion of total track miles operated by short line and regional
railroads in the U.S. has increased dramatically as a result of these
divestitures.
Because of the focus by short line railroads on increasing traffic
volume through increased customer service and more efficient operations, traffic
volume on short line railroads frequently increases after divestiture by Class I
operators. Consequently, these transactions often result in net increases in
divesting carriers' freight traffic because much of the business originating or
terminating on branch lines feeds into divesting carriers' core routes.
Rail traffic may be categorized into three categories: interline, local
and bridge. Interline traffic either originates or terminates with customers
located along a rail line and is interchanged with other rail carriers. Local
traffic both originates and terminates on the same rail line and does not
involve other rail carriers. Bridge traffic neither originates nor terminates on
a rail carrier's line, but rather passes over the line from one connecting
carrier to another.
INTERNATIONAL RAILROAD INDUSTRY
Freight railroad services in countries other than the United States and
Canada are typically conducted at a loss. This is primarily the result of
state-run railroads that are unresponsive to market needs and inefficiently
operated. Due to economic necessity and a lack of cost-effective solutions, many
countries are privatizing their rail operations. Recent examples include Mexico,
Japan (for rail passenger service) and Australia.
In the last several years several states in Australia have privatized
their rail systems. The largest to-date being the V/Line Freight Corporation in
the state of Victoria. It is anticipated that several other state rail systems
as well as the national rail system will be privatized over the next several
years.
ITEM 2. DESCRIPTION OF PROPERTY
NORTH AMERICAN RAILROAD PROPERTIES
The following table sets forth certain information with respect to the
North American railroad properties that the Company owned as of December 31,
1999:
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Date of Track Principal
Railroad Acquisition Miles Structure Location Commodities
- ------------------------------- -------------- -------- ------------ --------------- -------------------------------
Huron and Eastern Railway March 1986 83 Owned Michigan Agricultural products, sugar
May 1988 55 Owned products, fertilizer
45 Leased
2 Trackage
rights
- ------------------------------- -------------- -------- ------------ --------------- -------------------------------
Saginaw Valley Railway Jan. 1991 10 Owned Michigan Agricultural products,
Apr. 1998 51 Owned fertilizer
- ------------------------------- -------------- -------- ------------ --------------- -------------------------------
South Central Tennessee Feb. 1994 49 Leased Tennessee Wood products, frozen
Railroad 3 Trackage potatoes, paper products
rights
- ------------------------------- -------------- -------- ------------ --------------- -------------------------------
Dakota Rail Sept. 1995 44 Contract Minnesota Plastics, lumber, scrap steel
for Deed
- ------------------------------- -------------- -------- ------------ --------------- -------------------------------
West Texas & Lubbock Railroad Nov. 1995 104 Owned Texas Fertilizer, sodium sulfate,
4 Trackage cotton and cotton products
rights
- ------------------------------- -------------- -------- ------------ --------------- -------------------------------
Cascade and Columbia River Sept. 1996 131 Owned Washington Wood products, limestone,
Railroad 6 Trackage agricultural products
rights
- ------------------------------- -------------- -------- ------------ --------------- -------------------------------
Otter Tail Valley Railroad Oct. 1996 72 Owned Minnesota Coal, agricultural products,
fertilizer
- ------------------------------- -------------- -------- ------------ --------------- -------------------------------
Minnesota Northern Railroad Dec. 1996 167 Owned Minnesota Agricultural products, sugar
47 Trackage products, fertilizer, coal,
rights aggregates
- ------------------------------- -------------- -------- ------------ --------------- -------------------------------
St. Croix Valley Railroad Aug. 1997 44 Easement Minnesota Agricultural products,
8 Trackage fertilizer, plastics
rights
- ------------------------------- -------------- -------- ------------ --------------- -------------------------------
Ventura County Railroad Aug. 1998 13 Leased California Automobiles, paper products
- ------------------------------- -------------- -------- ------------ --------------- -------------------------------
E&N Railway Jan. 1999 61 Owned British Lumber, paper products,
120 Leased Columbia propane
- ------------------------------- -------------- -------- ------------ --------------- -------------------------------
Ottawa Valley (RaiLink) July 1999 342 Leased Ontario Bridge traffic, forest
products, mining
- ------------------------------- -------------- -------- ------------ --------------- -------------------------------
Southern Ontario (RaiLink) July 1999 53 Leased Ontario Fuel, metals, agricultural
products
- ------------------------------- -------------- -------- ------------ --------------- -------------------------------
Mackenzie Northern (RaiLink) July 1999 650 Owned Alberta, Fuel, forest products,
Northwest agricultural products
Territory
- ------------------------------- -------------- -------- ------------ --------------- -------------------------------
Coronado Bonnyville (RaiLink) July 1999 271 Owned Alberta Forest products, agricultural
products
- ------------------------------- -------------- -------- ------------ --------------- -------------------------------
Central Western (RaiLink) July 1999 103 Owned Alberta Agricultural products
- ------------------------------- -------------- -------- ------------ --------------- -------------------------------
Lakeland & Waterways (RaiLink) July 1999 202 Owned Alberta Petroleum coke
- ------------------------------- -------------- -------- ------------ --------------- -------------------------------
Toledo, Peoria and Western Sept 1999 273 Owned Indiana, Intermodal, agricultural
Railroad 96 Trackage Illinois, Iowa products, fertilizers,
rights chemicals
- ------------------------------- -------------- -------- ------------ --------------- -------------------------------
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In February 2000, the Company acquired RailTex which operates the
following 25 North American railroad properties:
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Date of Track Principal
Railroad Acquisition* Miles Structure Location Commodities
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Indiana & Ohio Railway June 1996 576 Owned Michigan, Ohio, Autos, railroad equipment,
Leased Indiana agricultural products
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Missouri & Northern Arkansas Dec 1992 497 Owned Missouri, Railroad equipment, coal,
Railroad Sept 1998 10 Leased Arkansas, Kansas agricultural products
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Central Oregon & Pacific Dec 1994 336 Owned Oregon Lumber, paper products
Railroad 105 Leased
8 Trackage
rights
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
New England Central Railroad Feb 1995 330 Owned Vermont, Lumber, paper products
Massachusetts
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Indiana Southern Railroad Apr 1992 170 Owned Indiana Coal
6 Trackage
rights
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Cape Breton & Central Nova Oct 1993 245 Owned Nova Scotia Coal, paper, metals,
Scotia Railway railroad equipment
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Dallas Consolidated (2 rail Feb 1992 92 Leased Texas Food products, Non-metallic
lines) Jan 1999 89 Leased ores, paper products
Oct 1990 107 Leased
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
South Carolina Central Dec 1987 58 Owned South Carolina Chemicals, metals, coal,
Railroad paper products
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Goderich-Exeter Railway Apr 1992 70 Owned Ontario Auto parts, chemicals,
Nov 1998 99 Leased non-metallic ores
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Michigan Consolidated Dec 1987 67 Owned Michigan, Ohio, Agricultural products,
(3 rail lines) Dec 1990 7 Owned Indiana non-metallic ores, chemicals
July 1993 45 Owned
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Georgia Southwestern Railroad June 1989 357 Leased Georgia, Alabama Non-metallic ores, lumber,
June 1995 chemicals
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
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- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Connecticut Southern Sept 1996 23 Owned Connecticut Lumber, paper products,
55 Trackage chemicals
rights
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Virginia Consolidated Nov 1988 75 Leased Virginia, North Coal, lumber
(3 rail lines) Nov 1987 53 Owned Carolina
Apr 1990 82 Leased
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Central Railroad of Indiana June 1998 81 Owned Indiana, Ohio Chemicals, minerals &
stones, metals
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
San Diego & Imperial Valley Oct 1984 153 Trackage California, Petroleum, paper products,
Railroad rights Mexico non-metallic ores
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Carolina Piedmont Railroad Nov 1990 37 Owned South Carolina Chemicals, minerals &
Apr 1997 12 Owned stones, food products
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Pittsburgh Industrial Dec 1996 42 Owned Pennsylvania Chemicals, metals, petroleum
Railroad
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Central Railroad of June 1998 92 Leased Indiana Agricultural products,
Indianapolis Trackage railroad equipment,
rights
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Ontario L'Original Railroad Nov 1996 26 Owned Ontario Metals
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
Texas-New Mexico Railroad Sept 1989 107 Owned Texas, New Non-metallic ores, petroleum
Mexico
- ------------------------------ --------------- -------- ----------- ----------------- ------------------------------
* - Date acquired by RailTex.
CHILEAN RAILROAD PROPERTIES
In February 1997, the Company, through a newly formed, wholly-owned
subsidiary, RailAmerica de Chile S.A., acquired 55% of the outstanding voting
stock of Ferronor. Ferronor owns and operates approximately 1,400 miles of rail
line serving northern Chile. RailAmerica was joined in the purchase of Ferronor
by APCO, a family-owned Chilean transportation and distribution company.
Ferronor operates the only north-south railroad in northern Chile,
extending from La Calera near Santiago, where it connects with Chile's southern
railway, Ferrocarril del Pacifico, S.A., to its northern terminus at Iquique,
approximately 120 miles south of the Peruvian border. It also operates several
east-west branch lines that link a number of iron, copper and limestone mines
and production facilities with several Chilean Pacific port cities. Ferronor
also serves Argentina and Bolivia through traffic interchanged with the General
Belgrano Railroad and the Ferrocarriles Antofagasta Bolivia.
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AUSTRALIAN RAILROAD PROPERTIES
On April 30, 1999, the Company through its wholly owned subsidiary
Freight Victoria, prepaid a 45-year lease to operate 3,150 miles of track in the
State of Victoria, Australia.
TEXAS MANUFACTURING PROPERTIES
KSI's manufacturing operations are conducted in thirteen Company owned
buildings, totaling approximately 198,000 square feet on an 25.5-acre site,
which were constructed over the period from 1969 to 1998. QUEBEC, CANADA
MANUFACTURING PROPERTIES
KSC's manufacturing operations are conducted in two Company owned
buildings, totaling approximately 150,000 square feet on a 36.7-acre site.
ONTARIO, CANADA MOTOR CARRIER PROPERTIES
Steel City Carriers leases a terminal it owns in Sault Ste. Marie,
Ontario, Canada, which includes an office building housing administrative and
dispatch offices, fabricating and service and a shop building. A 5-1/2 acre lot
provides adequate space for the normal loading, unloading, movement and parking
of tractors and trailers as well as for temporarily storing and transferring
some shipments. The Company has entered into an agreement to sell the real
estate and anticipates the sale closing in 12 to 24 months.
NORTH AMERICAN ROLLING STOCK
The following tables summarize the composition of the Company's North
American railroad equipment fleet as of December 31, 1999:
FREIGHT CARS
TYPE OWNED LEASED TOTAL
---- ----- ------------- -----
Covered hopper cars -- 583 583
Open top hopper cars 48 204 252
Tank cars 143 -- 143
Box cars -- 167 167
Wood chip cars -- 78 78
Center-beam flat cars -- 120 120
Flat cars 12 10 22
---- ------- -------
203 1,162 1,365
==== ======= =======
LOCOMOTIVES
HORSEPOWER/UNIT OWNED LEASED TOTAL
--------------- ------ ----------- -----
Over 2000 5 -- 5
1500 to 2000 92 28 120
Under 1500 11 -- 11
---- ------ ----
108 28 136
==== ====== ====
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INTERNATIONAL ROLLING STOCK
The following tables summarize the composition of the Company's
Australian and Chilean railroad equipment fleet as of December 31, 1999:
FREIGHT CARS
------------
TYPE CHILE AUSTRALIA TOTAL
- ---- ----- --------- -----
Covered hopper cars -- 1,157 1,157
Open top hopper cars 198 173 371
Box cars 230 249 479
Intermodal containers -- 646 646
Tank cars -- 335 335
Flat cars 115 84 199
Gondola cars 87 -- 87
----- ----- -----
630 2,644 3,274
===== ===== =====
LOCOMOTIVES
HORSEPOWER/UNIT CHILE AUSTRALIA TOTAL
- --------------- ----- ------------ -----
Over 2000 -- 40 40
1500 to 2000 -- 23 23
Under 1500 32 43 75
---- ---- ----
32 106 138
==== ==== ====
All of the international equipment fleet is owned by the Company.
Based on current and forecasted traffic levels on the Company's
railroads, management believes that its present equipment, combined with the
availability of other rail cars and/or locomotives for hire, is adequate to
support its operations. Management believes that the Company's insurance
coverage with respect to its property and equipment is adequate.
ADMINISTRATIVE OFFICES
The Company maintains its principal executive office in Boca Raton,
Florida. In July 1998, the Company purchased a 59,500 square foot office
building, located in Boca Raton, Florida, for approximately $4.6 million and has
renovated it for an additional $3.2 million. Approximately 17,500 square feet of
this building is being used as the Company's new corporate headquarters. The
remaining 42,000 square feet of space is currently leased to a single tenant.
Freight Victoria's administrative office is in Melbourne, Australia.
Freight Victoria leases approximately 20,000 square feet of space from the
Victorian Government for AUS$310,000 annually. The lease term is May 1, 1999 to
May 31, 2004.
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Ferronor's administrative office is in Coquimbo, Chile. Ferronor owns a
three story 21,600 square foot office building in Coquimbo. This building was
included as part of the February 1997 acquisition of Ferronor by the Company.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of conducting its business, the Company becomes
involved in various legal actions and other claims some of which are currently
pending. Litigation is subject to many uncertainties and the Company may be
unable to accurately predict the outcome of individual litigated matters. Some
of these matters possibly may be decided unfavorably to the Company. It is the
opinion of management that the ultimate liability, if any, with respect to these
matters will not be material. Other than ordinary routine litigation incidental
to the Company's business, no other litigation exists.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1999.
28
29
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Effective March 6, 1997, the Company's common stock began trading on
the Nasdaq National Market under the symbol "Rail". Prior to March 6, 1997, the
Company's common stock traded on the Nasdaq SmallCap Market tier of The Nasdaq
Stock Market. Set forth below is high and low bid information for the common
stock as reported on the NASDAQ system for each quarter of 1998 and 1999. All
such quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commissions and may not reflect actual transactions.
1998 HIGH SALES PRICE LOW SALES PRICE
- ----------------------------------------------------------- ----- ---------------------- ----- ----------------------
First Quarter $ 7 23/32 $ 6
Second Quarter 7 3/16 5 15/16
Third Quarter 6 3/8 5
Fourth Quarter 8 3/4 5 5/16
- ----------------------------------------------------------- ----- ---------------------- ----- ----------------------
1999 HIGH SALES PRICE LOW SALES PRICE
- ---------------------------------------------------------- ----- ---------------------- ------ ----------------------
First Quarter $ 10 1/4 $ 7 11/16
Second Quarter 10 5/16 8 3/4
Third Quarter 10 3/4 9 1/8
Fourth Quarter 9 15/16 7 1/16
- ---------------------------------------------------------- ----- ---------------------- ------ ----------------------
2000 HIGH SALES PRICE LOW SALES PRICE
- ---------------------------------------------------------- ----- ---------------------- ----- ----------------------
First Quarter (through March 21) $ 9 1/16 $ 5 3/4
- ---------------------------------------------------------- ----- ---------------------- ----- ----------------------
As of March 21, 2000, there were 522 holders of record of the common
stock. The Company has never declared or paid a dividend on its common stock.
The ability of the Company to pay dividends in the future will depend on, among
other things, restrictive covenants contained in loan or other agreements to
which the Company may be subject.
29
30
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the financial statements and the notes thereto included elsewhere in this
Annual Report on Form 10-K. The results of operations for the year ended
December 31, 1999 include the results of the railroads acquired in 1999 as
follows: Freight Victoria, effective April 30, 1999, RaiLink, effective August
1, 1999 and TPW, effective September 1, 1999. The statement of operations data
for the years ended December 31, 1997, 1998 and 1999 and the balance sheet data
at December 31, 1998 and 1999 are derived from, and are qualified by reference
to, audited financial statements included elsewhere herein and should be read in
conjunction with those financial statements and the notes thereto. The statement
of operations data set forth below for the periods ended December 31, 1995 and
1996 and the balance sheet data as of December 31, 1995, 1996 and 1997 are
derived from the audited financial statements of the Company not included herein
(thousands, except operating data).
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
----- ------ ----- ----- ----
INCOME STATEMENT DATA
Operating revenue $ 7,205 $ 12,020 $ 24,496 $ 37,256 $125,372
Operating income 541 2,529 3,365 5,497 21,268
Income (loss) from
continuing operations (40) 478 288 113 6,026
Basic earnings per
common share from
continuing operations $ (0.15) $ 0.10 $ 0.02 $ 0.01 $ 0.45
Diluted earnings per
common share from
continuing operations $ (0.15) $ 0.09 $ 0.02 $ 0.01 $ 0.43
Weighted average
common shares - Basic 4,554 4,966 8,304 9,553 11,090
BALANCE SHEET DATA
Total assets $ 34,469 $ 65,215 $ 95,141 $130,964 $443,928
Long-term debt, including
current maturities 16,274 37,788 47,603 66,327 162,827
Subordinated debt,
including current maturities 3,879 2,212 2,212 -- 122,449
Redeemable convertible
preferred stock -- -- -- -- 8,830
Stockholders' equity 9,149 15,992 26,814 34,760 69,314
OPERATING DATA
Freight Carloads 18,505 25,871 69,140 117,535 394,177
Track Mileage 450 930 2,330 2,400 8,400
Number of full time
employees 265 275 542 652 1,707
30
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The Company's principal operations include the operation of North
American short line freight railroads and international regional railroads. The
Company hauls various products, which historically have consisted primarily of
agricultural commodities, for its customers corresponding to their local
operating areas. The Company recognizes railroad transportation revenue after
services are provided.
On February 4, 2000, the Company acquired RailTex through a merger of
one of its wholly owned subsidiaries with and into RailTex for approximately
$128 million in cash, assumption of $111 million in debt and approximately 6.6
million shares of the Company's common stock valued at $60.8 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. In connection with the
acquisition, we entered into a credit agreement providing $330 million of senior
term loans and $50 million of senior revolving loans. In addition, a wholly
owned subsidiary of the Company issued $95 million of subordinated bridge notes
and another wholly owned subsidiary issued $50 million of asset sale bridge
notes, in connection with the acquisition.
Set forth below is a discussion of the historical results of operations
for the Company's North American, international railroad operations and
discontinued trailer manufacturing operations and motor carrier 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
- ---------------- -------------------
Evansville Terminal Company ("ETC") July 1, 1996
(disposed of September 30, 1997)
Cascade and Columbia River Railroad September 6, 1996
Otter Tail Valley Railroad October 1, 1996
Gettysburg Railway and Gettysburg Scenic Rail Tours November 18, 1996
(disposed of October 31, 1997)
Minnesota Northern Railroad December 28, 1996
St. Croix Valley Railroad September 8, 1997
Ventura County Railroad September 1, 1998
E&N Railway January 6, 1999
RaiLink properties (6 railroads) August 1, 1999
Toledo, Peoria and Western Railroad September 1, 1999
31
32
As a result, the results of operations for the years ended December 31,
1999, 1998 and 1997 are not comparable in various material respects and are not
indicative of the results which would have occurred had the acquisitions been
completed at the beginning of the periods presented.
The acquisition of RailTex occurred after the periods presented and
RailTex's results of operations are not included in the discussion.
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.
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
Operating Revenue:
Transportation revenue $38,842 $15,388 $14,737
Other revenue 2,095 802 1,277
------- ------- -------
Total operating revenue 40,937 16,190 16,014
------- ------- -------
Operating Expenses:
Maintenance of way 5,486 1,974 2,231
Maintenance of equipment 1,912 675 678
Transportation 12,232 3,605 3,799
Equipment rental 1,039 347 599
General and administrative 6,927 3,095 2,457
Depreciation and amortization 3,594 1,570 1,337
------- ------- -------
Total operating expenses 31,190 11,266 11,101
------- ------- -------
Operating income 9,747 4,924 4,913
Interest and other expense 5,472 2,852 2,842
------- ------- -------
Income before income taxes $ 4,275 $ 2,072 $ 2,071
======= ======= =======
COMPARISON OF NORTH AMERICAN RAILROAD OPERATING RESULTS FOR THE YEARS
ENDED DECEMBER 31, 1999 AND 1998
OPERATING REVENUES. Transportation revenue increased $23.4 million, or
152%, to $38.8 million for the year ended December 31, 1999 from $15.4 million
for the year ended December 31, 1998. The increase was primarily due to
increased carloads resulting from 1999 acquisitions. The transportation revenue
per carload decreased to $238 from $303 per car primarily due to the acquisition
of a rail line in Canada that hauls a significant amount of bridge traffic at a
lower rate per car than the Company's other rail lines and intermodal traffic on
the newly acquired TPW which also moves at a lower rate per car than the
32
33
Company's other rail lines. Carloads handled totaled 154,991 for the year ended
December 31, 1999, an increase of 105,472, or 213%, compared to 49,519 for the
year ended December 31, 1998. The increase was primarily due to the acquisitions
of E&N Railroad, the RaiLink properties and TPW, which moved 7,839, 77,328 and
16,981 carloads, respectively, for the year ended December 31, 1999. The
Company's "same railroad" car loadings and revenue increased 2% and 5%,
respectively, for the year ended December 31, 1999 compared to the year ended
December 31, 1998.
Other revenue increased $1.3 million, or 161%, to $2.1 million for the
year ended December 31, 1999 from $0.8 million for the year ended December 31,
1998. Other revenues for 1999 and 1998 consist of gain on sales of railroad
assets, easement sales, railroad lease and rental income and other miscellaneous
income. The increase was primarily due to acquisitions of the RaiLink properties
and TPW, which had $0.7 million and $0.4 million, respectively, in other revenue
for the year ended December 31, 1999.
OPERATING EXPENSES. Operating expenses increased $19.9 million, or
177%, to $31.1 million for the year ended December 31, 1999 from $11.3 million
for the year ended December 31, 1998. The increase was primarily due to the
acquisitions of E&N Railroad, the RaiLink properties and TPW, which had $4.4
million, $11.1 million and $3.4 million, respectively, in operating expenses for
the year ended December 31, 1999 and the write-off of $0.6 million in costs
related to the discontinuance of the Delaware Valley Railway. Operating
expenses, as a percentage of transportation revenue, were 80.3% and 73.2% for
1999 and 1998, respectively. Exclusive of the write-off of costs at the Delaware
Valley Railway, the operating ratio was 78.7% for 1999. The increase was due
primarily to higher operating ratios at the railroads acquired in 1999 compared
to the Company's previously existing railroads. Management anticipates an
improvement in the operating ratio over the next twelve months, exclusive of
seasonality, as the new operations are assimilated into the Company's North
American operations.
Maintenance of way expenses increased approximately $3.5 million, or
178%, to $5.5 million for the year ended December 31, 1999 from $2.0 million for
the year ended December 31, 1998. The increase was primarily due to the
maintenance of way expenses at E&N Railroad, the RaiLink properties and TPW of
$0.4 million, $2.3 million and $0.4 million, respectively, for the year ended
December 31, 1999.
Maintenance of equipment increased $1.2 million, or 183%, to $1.9
million for the year ended December 31, 1999 from $0.7 million for the year
ended December 31,1998. The increase was primarily due to the maintenance of
equipment expenses at E&N Railroad, the RaiLink properties and TPW of $0.2
million, $0.8 million and $0.2 million, respectively, for the year ended
December 31, 1999.
Transportation expense increased $8.6 million, or 239%, to $12.2
million for the year ended December 31, 1999 from $3.6 million for the year
ended December 31, 1998. The increase was primarily due to the transportation
expenses at E&N Railroad, the RaiLink properties and TPW of $1.5 million, $5.1
million and $1.6 million, respectively, for the year ended December 31, 1999. In
33
34
addition, the Company's transportation expenses for 1999 were negatively
impacted by the increasing fuel prices throughout the year. Fuel prices have
continued to increase this year, which may continue to have a negative impact on
operating results.
Equipment rental increased $0.7 million, or 199%, to $1.0 million for
the year ended December 31, 1999 from $0.3 million for the year ended December
31, 1998. The increase was primarily due to the equipment rental expenses at E&N
Railroad and TPW of $1.0 million and $0.4 million, respectively, for the year
ended December 31, 1999 partially offset by increased earnings on certain of the
Company's leased rail car fleets.
General and administrative expenses increased $3.8 million, or 124%, to
$6.9 million for the year ended December 31, 1999 from $3.1 million for the year
ended December 31, 1998. The increase was primarily due to general and
administrative expenses at E&N Railroad, the RaiLink properties and TPW of $1.1
million, $1.6 million and $0.4 million, respectively, for the year ended
December 31, 1999 and the write-off of costs at DVRC of $0.6 million.
Depreciation and amortization increased $2.0 million, or 129%, to $3.6
million for the year ended December 31, 1999 from $1.6 million for the year
ended December 31, 1998. The increase was primarily due to the acquisitions in
1999.
INTEREST AND OTHER EXPENSES. Interest and other expenses increased $2.6
million, or 92%, to $5.5 million for the year ended December 31, 1999 from $2.9
million for the year ended December 31, 1998. The increase in interest expense
was primarily due to increased borrowings in connection with the acquisitions of
E&N Railroad, RaiLink and TPW.
COMPARISON OF NORTH AMERICAN RAILROAD OPERATING RESULTS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
OPERATING REVENUES. Transportation revenues increased $0.7 million, or
4.4%, to $15.4 million for the year ended December 31, 1998 from $14.7 million
for the year ended December 31, 1997. The transportation revenue per carload
decreased to $303 from $308 per car primarily due to the difference in product
mix hauled between 1998 and 1997. Carloads handled totaled 49,519 for the year
ended December 31, 1998, an increase of 3,312, or 7.2%, compared to 46,207 for
the year ended December 31, 1997.
Other revenues decreased $0.5 million, or 37.2%, to $0.8 million for
the year ended December 31, 1998 from $1.3 million for the year ended December
31, 1997. Other revenues for 1998 and 1997 consist of gain on sales of railroad
assets, easement sales, railroad lease and rental income and other miscellaneous
income. The decrease was primarily due to certain gains on sale of assets during
1997 with no corresponding sales of assets in 1998.
OPERATING EXPENSES. Operating expenses increased $0.2 million, or 1.8%,
to $11.3 million for the year ended December 31, 1998 from $11.1 million for the
34
35
year ended December 31, 1997. Operating expenses, as a percentage of
transportation revenue, were 73.2% and 75.3% for 1998 and 1997, respectively.
Maintenance of way expenses decreased $0.2 million, or 11.5%, to $2.0
million for the year ended December 31, 1998 from $2.2 million for the year
ended December 31, 1997 primarily due to increased track work being performed as
part of scheduled maintenance programs at the West Texas and Lubbock Railroad
("WTLR") and the Huron and Eastern Railway ("HESR") during 1997.
Maintenance of equipment expenses remained fairly constant at $0.7
million for the years ended December 31, 1998 and 1997.
Transportation expense decreased $0.2 million, or 5.1%, to $3.6 million
for the year ended December 31, 1998 from $3.8 million for the year ended
December 31, 1997 primarily due to the dispositions of ETC, Gettysburg Railway
and Gettysburg Scenic Rail Tours in 1997.
Equipment rental decreased $0.3 million, or 42.0%, to $0.3 million for
the year ended December 31, 1998 from $0.6 million for the year ended December
31, 1997. The decrease is primarily due to increased utilization of the
Company's leased railcar fleet. Cascade and Columbia River Railroad ("CCRR") and
Minnesota Northern Railroad ("MNR") equipment rental expenses decreased by 78.8%
and 137.4% respectively due to increased earnings offsetting equipment rental
expense on their railcar fleets.
General and administrative expenses increased $0.6 million, or 26.0%,
to $3.1 million for the year ended December 31, 1998 from $2.5 million for the
year ended December 31, 1997. MNR had selling, general and administrative
expenses of $0.5 million in 1998 compared to $0.3 million for the year ended
December 31, 1997, an increase of $0.2 million. Otter Tail Valley Railroad had
selling, general and administrative expenses of $0.3 million in 1998 compared to
$0.2 million for the year ended December 31, 1997, an increase of approximately
$0.1 million. St. Croix Valley Railroad had selling, general and administrative
expenses of $0.1 million for the year ended December 31, 1998, an increase of
$0.1 million from $15,000 in 1997.
Depreciation and amortization increased $0.3 million, or 17.4%, to $1.6
million for the year ended December 31, 1998 from $1.3 million for the year
ended December 31, 1997.
INTEREST AND OTHER EXPENSES. Interest and other expenses remained
fairly constant at $2.9 million for the years ended December 31, 1998 and 1997.
INTERNATIONAL RAILROAD OPERATIONS
All results of operations discussed in this section are for the
Company's international railroads only, unless otherwise indicated. The results
of international railroad operations for the years ended December 31, 1998 and
1997 include only Ferronor. The results of operations for the year ended
December 31, 1999 also include the operations of Freight Victoria from May 1,
35
36
1999 to December 31, 1999. As a result, the results of operations for the year
ended December 31, 1999 are not comparable to the prior years in certain
material respects and are not indicative of the results which would have
occurred had the acquisition been consummated at the beginning of the respective
periods.
The following table sets forth the operating revenues and expenses (in
thousands) for the Company's international railroad operations for the periods
indicated.
FOR THE YEAR ENDED
ENDED DECEMBER 31,
---------------------------------------------
1999 1998 1997
---- ---- ----
Revenue:
Transportation revenue $ 80,069 $ 14,915 $ 7,287
Other revenue 2,404 1,009 775
----------- ---------- ----------
Total revenue 82,473 15,924 8,062
----------- --------- ---------
Operating expenses:
Transportation 54,706 8,982 5,113
General and administrative 7,391 1,724 1,137
Depreciation and amortization 4,660 706 267
----------- --------- ---------
Total operating expenses 66,757 11,412 6,517
----------- --------- ---------
Operating income 15,716 4,512 1,545
Other income (expense) (6,867) (1,257) 319
Minority interest in earnings (1,551) (1,672) (851)
----------- --------- ---------
Income before income taxes $ 7,298 $ 1,583 $ 1,013
=========== ========= =========
COMPARISON OF INTERNATIONAL RAILROAD OPERATING RESULTS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
FERRONOR.
OPERATING REVENUES. Transportation revenue increased $4.2 million, or
28%, to $19.1 million for the year ended December 31, 1999 from $14.9 million
for the year ended December 31, 1998. Ferronor's carloads handled totaled 93,835
for the year ended December 31, 1999, an increase of 25,819, or 38%, compared to
68,016 for the year ended December 31, 1998. The increase in both carloads and
revenue is due to Ferronor commencing movement of iron ore out of the El
Algarrabo mine in late March 1998 and, the Los Colorados mine in July 1998 and
nitrates out of the Minsal mine during 1999. These increases were offset
slightly by a decrease in the international traffic out of Argentina and Bolivia
due to the slow down in the world economy in the second quarter of 1998.
OPERATING EXPENSES. Operating expenses increased $4.0 million, or 35%, to
$15.4 million for the year ended December 31, 1999 from $11.4 million for the
year ended December 31, 1998. The increase was due to Ferronor commencing
movement of iron ore out of the El Algarrabo mine in late March 1998 and, the
Los Colorados mine in July 1998 and nitrates out of the Minsal mine during 1999.
Operating expenses, as a percentage of transportation revenue, were 80.7% and
76.5% for the years ended December 31, 1999 and 1998, respectively. The
operating ratio increase was due primarily to the loss in 1999 of international
traffic which is typically higher margin business.
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37
OTHER INCOME (EXPENSE). Other income (expense) decreased $0.6 million, or
46%, to $0.7 million for the year ended December 31, 1999 from $1.3 million for
the year ended December 31, 1998. The decrease in net expense was due primarily
to an exchange rate gain of $0.5 million recorded in 1999.
FREIGHT VICTORIA
OPERATING REVENUES. Operating revenues were $63.4 million for the period
May 1, 1999 through December 31, 1999. These revenues consisted of $48.5 million
of freight revenue, $12.4 million of track access fees and $2.4 million of other
operating revenue.
OPERATING EXPENSES. Operating expenses were $51.3 million for the period
May 1, 1999 through December 31, 1999. These expenses consisted of $10.0 million
of maintenance of way costs, $5.8 million of maintenance of equipment costs,
$26.9 million of transportation costs, $5.2 million of general and
administrative costs and $3.4 million in depreciation. Freight Victoria's
operating ratio for the eight month period ended December 31, 1999 was 81.0%.
OTHER INCOME (EXPENSE). Other income (expense) was a net expense of $6.2
million. This amount primarily consisted of $7.6 million in interest expense and
$3.3 million in amortization of funding costs related to the bridge financing
partially offset by a $4.1 million casualty gain recognized in the fourth
quarter of 1999. Additionally, Freight Victoria recognized an exchange rate gain
of $0.2 million in for the period.
INCOME TAX BENEFIT. Freight Victoria recognized an income tax benefit of
$2.8 million during 1999 based upon enacted tax law changes in Australia.
COMPARISON OF INTERNATIONAL RAILROAD OPERATING RESULTS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997.
OPERATING REVENUES. Transportation revenue increased $7.6 million, or
105%, to $14.9 million for the year ended December 31, 1998 from $7.3 million
for the year ended December 31, 1997. Ferronor's carloads handled totaled 68,016
for the year ended December 31, 1998, an increase of 45,083, or 196.6%, compared
to 22,933 carloads for the year ended December 31, 1997. The increase was
partially due to the prior year period including only ten months of operations.
In addition, Ferronor began moving iron ore out of the El Algarrabo mine in late
March 1998 and the Los Colorados mine in July 1998. These moves have
significantly increased Ferronor's car loadings and operating revenue.
OPERATING EXPENSES. Operating expenses increased $4.9 million, or 75%, to
$11.4 million for the year ended December 31, 1998 from $6.5 million for the
year ended December 31, 1997. The increase was partially due to the prior year
period including only ten months of operations in addition to Ferronor
commencing movement of iron ore out of the El Algarrabo mine in late March 1998
and the Los Colorados mine in July 1998. Operating expenses, as a percentage of
transportation revenue, were 76.5% and 89.4% for the years ended December 31,
1998 and 1997, respectively. The improvement was primarily due to cost
reductions implemented by the Company including a reduction in employees.
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38
OTHER INCOME (EXPENSE). Other income (expense) decreased $1.6 million to
$(1.3) million for the year ended December 31, 1998 from $0.3 million for the
year ended December 31, 1997. The primary reasons for the decrease were the
interest expense on the capital project financings and certain gains on sale of
assets recognized in 1997 with no corresponding gains in 1998.
TRAILER MANUFACTURING OPERATIONS
The discussion of results of operations that follows reflects the
results of KSI for the periods indicated and KSC from January 1, 1998, the
effective date of the Company's acquisition of Fabrex, Inc. and its affiliate.
As a result, the results of operations for the year ended December 31, 1998 are
not comparable to the prior year in certain material respects.
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.
The following table sets forth the income and expense items (in
thousands) of the Company's trailer manufacturing operations for the years ended
December 31, 1999, 1998 and 1997 and the percentage relationship of income and
expense items to net sales:
FOR THE YEAR ENDED DECEMBER 31,
1999 1998 1997
------------------ -------------------- ---------------------
Net sales $44,281 100% $39,887 100% $22,941 100%
Cost of goods sold 33,117 74.8% 28,583 71.7% 16,544 72.1%
-------- -------- --------
Gross profit 11,164 25.2% 11,304 28.3% 6,397 27.9%
Selling, general and
administrative 3,915 8.8% 3,324 8.3% 1,969 8.6%
Depreciation and amortization 1,007 2.3% 835 2.1% 473 2.1%
-------- -------- --------
Income from operations 6,242 14.1% 7,145 17.9% 3,955 17.2%
Other expenses 49 0.1% 222 0.6% 230 1.0%
-------- -------- --------
Income before income taxes $ 6,193 14.0% $ 6,923 17.4% $ 3,725 16.2%
======== ======== ========
COMPARISON OF OPERATING RESULTS OF TRAILER MANUFACTURING FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
NET SALES. Net sales increased $4.4 million, or 11%, to $44.3 million
for the year ended December 31, 1999 from $39.9 million for the year ended
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39
December 31, 1998. The net sales increase consisted of an increase of $5.6
million in sales at KSC from 1998 to 1999 and a decrease of $1.2 million in
KSI's sales from 1998 to 1999. KSI sold 710 trailers for the year ended December
31, 1999 and 895 trailers for the year ended December 31, 1998. The decrease in
KSI's sales volume decreased net sales by $6.4 million. KSC sold 405 trailers
for the year ended December 31, 1999 and 234 trailers for the year ended
December 31, 1998. The increase in KSC's sales volume increased net sales by
$6.5 million. KSI's average price per trailer sold was $41,500 for the year
ended December 31, 1999 and $34,700 for the year ended December 31, 1998. The
increase in average price per trailer increased KSI's sales by $4.8 million.
KSC's average price per trailer sold was $34,900 for the year ended December 31,
1999 and $37,900 for the year ended December 31, 1998. The decrease in average
price per trailer decreased KSC's sales by $0.9 million. Sales to governmental
agencies represented 36%, 48% and 37% of KSI's net sales for 1999, 1998 and
1997, respectively. The trailer manufacturing division had a backlog of orders
consisting of $16.4 million at December 31, 1999 compared to $22.2 million at
December 31, 1998.
COST OF GOODS SOLD. Cost of goods sold increased $4.5 million, or 16%,
to $33.1 million for the year ended December 31, 1999 from $28.6 million for the
year ended December 31, 1998. The cost of goods sold increase consisted of an
increase of $5.1 million at KSC from 1998 to 1999 and a decrease of $0.6 million
in KSI's cost of goods sold from 1998 to 1999. Cost of goods sold was 74.8% of
net sales for the year ended December 31, 1999 compared to 71.7% for the year
ended December 31, 1998. The increase was due to a higher percentage of sales
being from KSC, which has a lower gross profit margin on its trailers then KSI.
KSI's and KSC's cost of goods sold were 69.0% and 85.2%, respectively, for the
year ended December 31, 1999 compared to 68.1% and 81.8%, respectively, for the
year ended December 31, 1998. KSC's cost of goods sold percentage was higher in
1999 due to the utilization of the new facility being at a lower rate of
production than the old KSC facility and also the change in production mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.6 million, or 18%, to $3.9 million for the
year ended December 31, 1999 from $3.3 million for the year ended December 31,
1998. KSC's selling, general and administrative increased $0.6 million from 1998
to 1999, while KSI's selling, general and administrative expenses remained
fairly constant between the periods.
COMPARISON OF OPERATING RESULTS OF TRAILER MANUFACTURING FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
NET SALES. Net sales increased $17.0 million, or 73.9%, to $39.9
million for the year ended December 31, 1998 from $22.9 million for the year
ended December 31, 1997. The net sales increase consisted of $10.2 million in
sales from KSC in 1998 and an increase of $6.8 million in KSI's sales. KSI sold
895 trailers for the year ended December 31, 1998 and 730 trailers for the year
ended December 31, 1997. The increase in KSI's sales volume increased net sales
by $5.0 million. KSC sold 234 trailers for the year ended December 31, 1998.
KSI's average price per trailer sold was $34,700 for the year ended December 31,
1998 and $30,500 for the year ended December 31, 1997. The increase in average
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price per trailer increased KSI's sales by $1.8 million. Sales to governmental
agencies represented 48% and 37% of KSI's net sales for 1998 and 1997,
respectively. KSI's backlog as of December 31, 1998 was $18.3 million compared
to $19.7 million at December 31, 1997. KSC's backlog as of December 31, 1998 was
$3.7 million.
COST OF GOODS SOLD. Cost of goods sold increased $12.0 million, or
72.8%, to $28.6 million for the year ended December 31, 1998 from $16.6 million
for the year ended December 31, 1997. The cost of goods sold increase consisted
of $8.4 million from KSC in 1998 and an increase of $3.6 million in KSI's cost
of goods sold. Cost of goods sold was 71.7% for the year ended December 31, 1998
compared to 72.1% for the year ended December 31, 1997. KSI's and KSC's cost of
goods sold were 68.2% and 81.7%, respectively, for 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.3 million, or 68.8%, to $3.3 million for
the year ended December 31, 1998 from $2.0 million for the year ended December
31, 1997. KSC's selling, general and administrative expenses were $0.9 million
for 1998, while KSI's selling, general and administrative expenses increased
$0.4 million for 1998. The increase was primarily related to KSI's increased
sales during the year as discussed above.
RESULTS OF MOTOR CARRIER OPERATIONS
The discussion of results of operations that follows reflects the
results of Steel City Carriers and RIS for the years ended December 31, 1998 and
1997. Since the Company's acquisition of Steel City Carriers in February 1995,
its performance and development have not met the Company's expectations.
Accordingly, in March 1997 the Company adopted a formal plan to discontinue its
motor carrier operations and refocus the Company's efforts on expanding its core
railroad operations. The Company's Board of Directors approved the plan of
discontinuance on March 20, 1997. Motor Carrier operations are included as
discontinued operations for the first quarter of 1998 and for all of 1997 and
1996. Motor Carrier operations are included in continuing operations from April
1, 1998 to December 1, 1998.
Effective December 1, 1998, the Company ceased all motor carrier
operations and leased substantially all of the operating assets of Steel City
Carriers, Ltd. to Laidlaw Carriers, Inc., an operating subsidiary of Ontario,
Canada-based Contrans Corporation. The leases are for a period of 18 to 24
months. In addition, the Company has entered into an agreement to sell its
Ontario real estate that was previously used in the motor carrier operations.
The following table sets forth the operating revenues and expenses (in
thousands) for the Company's motor carrier operations for the years ended
December 31, 1998 and 1997.
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FOR THE YEAR ENDED
DECEMBER 31,
1998 1997
---- ----
Transportation revenue $ 6,080 $ 7,133
Operating expenses:
Transportation 5,279 6,348
General and administrative 620 599
Depreciation and amortization 401 1,120
------- ---------
Total operating expenses 6,300 8,067
------ ------
Operating income (expense) (220) (934)
Other expense (317) (187)
------- --------
Loss before income taxes ($ 537) ($1,121)
====== ========
COMPARISON OF MOTOR CARRIER OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
The results of motor carrier operations have been included in continuing
operations commencing April 1, 1998, as disposal of the segment was not
completed within twelve months. The results of motor carrier operations have
been included as discontinued operations for the year ended December 31, 1997,
as previously reported.
OPERATING REVENUE. Operating revenue decreased $1.0 million, or 14.8%, to
$6.1 million for the year ended December 31, 1998 from $7.1 million for the year
ended December 31, 1997. The decrease was primarily due to Steel City ceasing
motor carrier operations effective November 30, 1998 and due to a temporary shut
down at one of Steel City's largest customers during the third quarter of 1998.
OPERATING EXPENSES. Operating expenses decreased $1.8 million, or 21.9%,
to $6.3 million for the year ended December 31, 1998 from $8.1 million for the
year ended December 31, 1997. Operating expenses, as a percentage of operating
revenue, were 103.6% and 113.1% for the years ended December 31, 1998 and 1997,
respectively.
Transportation expense decreased $1.0 million, or 16.8%, to $5.3 million
for the year ended December 31, 1998 from $6.3 million for the year ended
December 31, 1997. The decrease was primarily due to variable costs related to
the decreased level of operating revenue.
General and administrative expenses remained fairly constant at $0.6
million for the years ended December 31, 1998 and 1997.
Depreciation and amortization decreased $0.7 million, or 64.2%, to $0.4
million for the year ended December 31, 1998 from $1.1 million for the year
ended December 31, 1997. During 1997, the Company wrote off goodwill of
approximately $0.7 million.
Other expense increased $0.1 million, or 69.5%, to $0.3 million for the
year ended December 31, 1998 from $0.2 million for the year ended December 31,
1997.
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CORPORATE OVERHEAD
Corporate overhead, which benefits all of the Company's business
segments, has not been allocated to the business segments for this analysis.
Corporate overhead services performed for the Company's subsidiaries include
overall strategic planning, marketing, accounting, 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 $1.1 million, or 27%, to $5.2 million for the year ended
December 31, 1999 from $4.1 million for the year ended December 31, 1998.
Corporate overhead increased $0.9 million, or 28.0%, to $4.1 million for the
year ended December 31, 1998 from $3.2 million for the year ended December 31,
1997. The increases in each of the specified periods were related to the
additional costs incurred to manage the acquired subsidiaries and to establish a
strong management team to handle the Company's continued growth.
LIQUIDITY AND CAPITAL RESOURCES - COMBINED OPERATIONS
The discussion of liquidity and capital resources that follows reflects
the consolidated results of the Company, including all subsidiaries.
The Company's cash provided by operating activities was $21.5 million for
the year ended December 31, 1999. This amount includes $9.9 million in net
income and $14.1 million in depreciation and amortization.
Cash used in investing activities was $58.7 million for the year ended
December 31, 1999. The primary use of cash during 1999 was for the purchase of
property, plant and equipment with an aggregate cost of approximately $51.4
million. Approximately $10.8 million of these purchases were for the purchase of
E&N Railroad's assets. The Company also used $8.5 million for acquisitions
during 1999.
Cash provided by financing activities was $43.6 million for 1999,
consisting of net proceeds of $11.9 million from the private placement of
restricted common stock and $4.1 million from the sale of preferred stock. In
addition the Company's net borrowings increased $31.9 million primarily due to
the above mentioned purchase of E&N Railroads assets. Partially offsetting these
amounts was cash used for deferred loan costs of $2.4 million.
In February 2000, the Company entered into a credit agreement and two
bridge note facilities in connection with the acquisition of RailTex and the
refinancing of substantially all of the Company's and RailTex's existing debt.
The credit agreement provides (1) a $125 million Term A loan, (2) a $205 million
Term B loan, and (3) a $50 million revolving credit facility which includes $30
million of U.S. dollar denominated loans, $10 million of Canadian dollar
denominated loans and $10.0 million of Australian dollar denominated loans. The
Term A loan and the revolving loans mature on December 31, 2005 and the Term B
loans mature December 31, 2006. At the Company's option, the senior credit
facilities will bear interest at either (1) the alternative base rate (defined
as greater of (i) The Bank of Nova Scotia's prime rate and (ii) the Federal
Funds Effective Rate plus 0.005%) plus 1.75% for the revolving credit facilities
and for the term A loan facilities and 2.00% for the term B loan facility, or
(2) the reserve-adjusted LIBO rate plus 3.00% for the revolving credit facility
and for the term A loan facility and 3.25% for the term B loan facility;
PROVIDED, that the additional amounts added to ABR and the LIBO rate for the
Revolving Credit Facilities and the Term A loan facility discussed above will be
subject to adjustment based on changes in the Company's leverage ratio effective
two fiscal quarters after the closing of the Senior Credit Facilities. The
default rate under the Senior Credit Facilities is 2.0% above the otherwise
applicable rate. The loans are collateralized by substantially all of
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the Company's assets other than those of KSI and its subsidiaries and Ferronor.
The loans are guaranteed by all the Company's subsidiaries other than KSI and
its subsidiaries and Ferronor. Freight Victoria guarantees only the Australian
dollar revolving loans and the Company's Canadian subsidiaries guarantee only
the Canadian dollar revolving loans. The loans are provided by a syndicate of
banks with Donaldson, Lufkin & Jenrette as syndication agent and The Bank of
Nova Scotia as administrative agent.
Pursuant to the refinancing of RailAmerica's and RailTex's debt in
February 2000, the Company will be taking an extraordinary charge in the first
quarter of 2000 for the loss on early extinguishment of debt.
The Company's new credit facilities include numerous covenants imposing
significant financial and operating restrictions on its business. The covenants
place restrictions on RailAmerica's ability to, among other things:
o incur more debt;
o pay dividends, redeem or repurchase its stock or make other
distributions;
o make acquisitions or investments;
o use assets as security in other transactions;
o enter into transactions with affiliates;
o merge or consolidate with others;
o dispose of assets or use asset sale proceeds;
o create liens on its assets; and
o extend credit.
The new credit facilities also contain financial covenants that will
require the Company to meet a number of financial ratios and tests. The
Company's ability to meet these ratios and tests and to comply with other
provisions of the new credit facilities can be affected by events beyond its
control. RailAmerica's failure to comply with the obligations in the new credit
facilities could result in an event of default under the new credit facilities,
which, if not cured or waived, could permit acceleration of the indebtedness or
other indebtedness which could have a material adverse effect on the Company.
Interest on the new credit facility is payable at variable rates.
Fluctuations in the market interest rate will affect the cost of the Company's
borrowings. The effect of a 1% increase in interest rates would result in an
increase in interest expense of $3.3 million for the year ended December 31,
2000.
In February 2000, in connection with the RailTex acquisition, the
Company's wholly-owned subsidiary, RailAmerica Transportation, Inc., issued $95
million of subordinated bridge notes, under a securities purchase agreement with
DLJ Bridge Finance, Inc. These notes mature on February 4, 2001 and have an
initial interest rate of 13% per annum, which rate increases every three months
based on the highest specified rates. The Company anticipates that it will repay
the subordinated bridge notes through the issuance of additional long-term debt
and/or equity securities. In February 2000, the
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Company's 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 every three months
based on the highest of specified rates. The asset sale bridge notes are
collateralized by the assets of Kalyn/Siebert, L.P. and its subsidiaries, which
are discontinued operations held for sale. The Company intends to repay a
portion of the asset sale bridge notes from the proceeds of the sale of its
trailer manufacturing operations, in addition will explore available
alternatives to repay any remaining balance on the notes. There can be no
assurance that the Company will be able to repay any or all of these bridge
notes.
In connection with the issuance of the subordinated bridge notes, the
purchasers of such notes are entitled to receive warrants to purchase common
stock at an exercise price of $7.75 per share commencing in May 2001 to the
extent the subordinated bridge notes are then outstanding. In connection with
the issuance of the asset sale bridge notes, the purchasers of such notes are
entitled to receive warrants to purchase common stock at an exercise price of
$7.75 per share commencing in August 2000 to the extent the asset sale bridge
notes are then outstanding. The maximum number of shares issuable upon exercise
of all these warrants would be 1,604,330, subject to specified anti-dilution
adjustments.
In January 1999, the Company completed a private offering of $11.6
million of its Series A Convertible Redeemable Preferred Stock ("Preferred
Stock"). The Company sold 464,400 shares of its Preferred Stock at a price of
$25 per share. The Preferred Stock pays annual dividends of 7.5%, is convertible
into shares of the Company's common stock at a price of $8.25 per share and is
non-voting. The Preferred Stock is mandatorily redeemable 5 years from its
issuance. The December 31, 1998 balance sheet includes 300,600 shares which were
issued during 1998. The remainder of the shares were issued in January 1999. The
carrying value of the Preferred Stock is the par value less issuance costs. The
issuance costs are being amortized on a straight-line basis over the life of the
Preferred Stock. 86,000 shares of the Preferred Stock were converted in late
1999 and an additional 80,000 were converted in early 2000.
In March 1999, the Company completed a private offering of
approximately $12.5 million of restricted Common Stock. Pursuant to the
offering, the Company sold approximately 1.4 million shares of its $.001 par
value common stock at a price of $8.8125 per share and issued approximately
210,000 warrants to purchase an equivalent number of shares of common stock at
an exercise price of $10.125 per share within one year of the transaction's
closing date. First London acted as placement agent and received approximately
$0.4 million in fees and cost reimbursement and one-year warrants to purchase
141,653 shares of Common Stock at an exercise price of $10.125. All warrants
related to this transaction expired on March 3, 2000 unexercised.
A majority of the proceeds from the two private offerings were used to
fund a $19 million deposit with the government of Victoria, Australia. This
deposit was used as part of the purchase price of the assets of V/Line Freight
Corporation, which closed April 30, 1999.
In August 1999, the Company issued $22.5 million aggregate principal
amount of its junior convertible subordinated debentures. Interest on the
debentures accrues at the rate of 6% per annum and is payable semi-annually,
commencing January 31, 2000. The debentures are convertible, at the option of
the holder, into shares of RailAmerica at a conversion price of $10 per share,
subjected to adjustment in selected circumstances. The debentures mature on July
31, 2004, are general unsecured obligations and rank subordinate in right of
payment to all senior indebtedness. At RailAmerica's option, the debentures may
be redeemed at par, plus accrued but unpaid interest thereon to the date of
redemption, in whole or in part, if the closing price of RailAmerica's common
stock is above 200% of the conversion price for 10 consecutive trading days.
As of December 31, 1999, the Company had working capital of $24.0
million compared to working capital of $18.5 million as of December 31, 1998.
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Cash on hand was $11.6 million as of December 31, 1999 compared to $5.1 million
as of December 31, 1998. The increases were primarily related to the acquisition
of Freight Victoria and sale of the Company's interest in Great Southern
Railway. The Company's cash flows from operations historically have been
sufficient to meet our ongoing operating requirements, capital expenditures for
property, plant and equipment, and to satisfy the Company's interest
requirements.
The Company expects that its future cash flows will be sufficient for
its current and contemplated operations for at least the next twelve months. The
Company anticipates using cash flows and borrowings for anticipated capital
expenditures of $8.5 million for the upgrading of existing North American rail
lines and purchases of locomotives and equipment. In addition, the Company
anticipates spending $22.7 million of capital expenditures over the next twelve
months on the newly acquired RailTex properties. The Company anticipates capital
expenditures of $10.6 million over the next twelve months primarily related to
new Ferronor contracts received since its acquisition by the Company. Ferronor
closed on a debt financing in the first quarter of 1999 that was used to fund
certain of the capital expenditures. Additionally, Ferronor has a commitment
letter to fund the remainder of the expansion and anticipates closing on this
financing during 2000. Freight Victoria's capital expenditures are estimated to
be $18.5 million over the next twelve months and the Company anticipates paying
for these through cash generated from Freight Victoria's operations. The Company
does not presently anticipate any other significant capital expenditures over
the next twelve months. To the extent possible, the Company will seek to finance
any further acquisitions of property, plant and equipment in order to allow its
cash flow from operations to be devoted to other uses, including debt reduction
and acquisition requirements.
The Company anticipates debt service for the next twelve months to be
approximately $56 million including principal and interest. It is anticipated
that a portion of the debt service will be paid from the operating cash flow of
Freight Victoria. 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.
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 March 1, 2000, the Company had $38.0 million of availability under the
revolving line of credit facility.
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 the increases in its freight rates.
IMPACT OF YEAR 2000
The "Year 2000 Issue" is the result of computer programs that were
written using two digits rather than four to define the applicable year. If the
Company's computer programs with date-sensitive functions are not Year 2000
compliant, they may recognize a date "00" as the Year 1900 rather than the Year
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2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, inability to interchange information with connecting
railroads or engage in similar normal business activities.
As of the date of this annual report, the Company has not experienced
any significant adverse impact on the Company's operations from the transition
to the Year 2000. The Company cannot assure that its operations have not been
affected in a manner that is not yet apparent or in a manner that will arise in
the future. In addition, computer programs that were date sensitive to the Year
2000 may not have been programmed to process the Year 2000 as a leap year, and
negative effects from this remain unknown. As a result, the Company will
continue to monitor its Year 2000 compliance and the Year 2000 compliance of our
suppliers and customers. However, the Company does not anticipate any Year 2000
problems that are reasonably likely to have a material adverse effect on the
Company's operations.
Readers are cautioned that forward-looking statements contained in this
Impact of Year 2000 discussion should be read in conjunction with the Company's
disclosures under the heading "Cautionary Statement for Purposes of the "Safe
Harbor" Provisions of the Private Securities Litigation Reform Act of 1995"
which appears at the beginning of this annual report on Form 10-K.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which establishes accounting and reporting standards for derivative instruments
and hedging activities. SFAS No. 133 requires all derivatives to be measured at
fair value and recognized at either assets or liabilities on the balance sheet.
Furthermore, the accounting for changes in the fair value of a derivative (i.e.
gains and losses) depends on the intended use of the derivative.
ITEM 7A. MARKET RISK
FOREIGN CURRENCY. The Company's foreign currency risk arises from
owning and operating railroads in Canada, Chile and Australia. At December 31,
1999, the Company had not entered into any transactions to manage this risk.
The financial position and results of operations of the Company's
Canadian, Chilean 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 year-end, while revenues and
expenses are translated at average exchange rates prevailing during the year.
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 December 31, 1999, the accumulated other comprehensive income
totaled $3.5 million, or 5% of total stockholders' equity.
It is anticipated that a portion of the debt service will be paid from
the operating cash flow of Freight Victoria. 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 owing
variable rate debt obligations, as an increase in interest rates would result in
lower earnings and increased cash outflows. At December 31, 1999, the Company
had not entered into any transactions to manage this risk.
The interest rate on the new credit facility is payable at variable
rates. Fluctuations in the market interest rate will affect the cost of the
Company's borrowings. The effect of a 1% increase in interest rates on the
Company's $330 million variable rate debt would result in an increase in
interest expense of $3.3 million for the year ended December 31, 2000.
DIESEL FUEL. The Company is exposed to risk as a result of fluctuations
in diesel fuel prices, as an increase in the price of diesel fuel would result
in lower earnings and increased cash outflows. At December 31, 1999, the Company
had not entered into any transactions to manage this risk although RailTex has
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. The cost of the cap was approximately $0.2
million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company, the accompanying
notes thereto and the independent auditor's report are included as part of this
Form 10-K and immediately follow the signature page of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors, executive officers and nominees of
the Company is hereby incorporated by reference from the Company's definitive
proxy statement relating to its 2000 Annual Meeting of Stockholders to be filed
with the Commission pursuant to Regulation 14A on or before April 29, 2000.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning the executive compensation of the Company is
hereby incorporated by reference from the Company's definitive proxy statement
relating to its 2000 Annual Meeting of Stockholders to be filed with the
Commission pursuant to Regulation 14A on or before April 29, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning the security ownership of the Company is hereby
incorporated by reference from the Company's definitive proxy statement relating
to its 2000 Annual Meeting of Stockholders to be filed with the Commission
pursuant to Regulation 14A on or before April 29, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
of the Company is hereby incorporated by reference from the Company's definitive
proxy statement relating to its 2000 Annual Meeting of Stockholders to be filed
with the Commission pursuant to Regulation 14A on or before April 29, 2000.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Amended and Restated Stock Purchase Agreement, dated as of
August 3, 1999 by and among RailAmerica, Inc., Florida Rail
Lines, Inc. Bank Austria AG, Grand Cayman Branch, CSX
Transportation, Inc., Delaware Otsego Corporation, The Brenner
Group and The Toledo, Peoria and Western Railroad
Corporation(8)
2.2 Agreement and Plan of merger, dated as of October 14, 1999,
among RailAmerica, Inc., Cotton Acquisition Corp. and RailTex,
Inc.(9)
3.1 Amended and Restated Articles of Incorporation of Registrant,
as amended(2)
3.2 By-laws of Registrant(1)
4.1 Form of Common Stock Rights Agreement, dated as of January 6,
1998, between the Registrant and American Stock Transfer &
Trust Company(6)
4.2 Certificate of Designation of Series A Convertible Redeemable
Preferred Stock(19)
4.3 Third Amendment to the Rights Agreement, dated as of
January 13, 2000, between the Company and American Stock
Transfer & Trust Company(10)
4.4 Warrant Agreement, dated as February 4, 2000, among the
Company and RailAmerica Funding, Inc.
4.5 Asset Bridge Warrant Agreement, dated as of February 4, 2000,
among the Company and RailAmerica Holdings Funding, Inc.
10.41 Employment Agreement between Gary O. Marino and RailAmerica,
Inc.(7)+
10.43 Stock Option Agreement, dated November 11, 1994, between
RailAmerica, Inc. and Gary O. Marino(7)+
10.45 RailAmerica, Inc. 1995 Non-Employee Director Stock Option
Plan(2)
10.46 RailAmerica, Inc. 1995 Employee Stock Purchase Plan(2)
10.47 RailAmerica, Inc. Corporate Senior Executive Bonus Plan(2)+
10.55 Confidential Private Placement Memorandum dated September 20,
1996.(3)
10.56 Stock Purchase Agreement, dated as of September 20, 1996, by
and among Otter Tail Valley Railroad Company, Inc. and Dakota
Rail, Inc.(4)
10.59 RailAmerica, Inc. Nonqualified Deferred Compensation Trust(5)+
10.60 Nonqualified Deferred Compensation Agreement between
RailAmerica, Inc. and Gary O. Marino(5)+
10.63 RailAmerica, Inc. 1998 Executive Incentive Compensation
Plan(6)+
10.64 Sale of Assets Agreement dated February 22, 1999 by and among
RailAmerica, Inc., Freight Victoria Limited and V/Line Freight
Corporation 10.2 Primary Infrastructure (11)
10.65 Lease dated April 30, 1999 by and among the Director of Public
Transport and Freight Victoria Limited(12)
10.66 Asset Purchase Agreement, dated December 17, 1998, by and
among Canadian Pacific Railway Company and E&N Railway Company
(1998) Ltd., a subsidiary of RailAmerica, Inc.(13)
10.67 Noncompete Agreement, dated December 1999, by and between
Ronald A. Rittenmeyer and the Company(14)
10.68 Purchase Agreement, dated as of November 4, 1998 by and among
RailTex Global Investments, L.L.C., RailTex International
Holdings, Inc. and GEEMF II Latin America, L.L.C.(15)
10.69 Memorandum of Understanding, dated as of October 29, 1999,
providing for the
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sale by RailTex Global Investments, LLC of its shares in
Ferrovia Centro Atlantica, S.A. (English and Portugese
language versions)(16)
10.70 Purchase Agreement, dated as of November 10, 1999, by and
bewteen RailTex International Holdings, Inc. and GEEMF II
Latin America, L.L.C.(17)
10.71 Credit Agreement, dated as of February 4, 2000, by and among
the Company and Palm Beach Rail Holdings, Inc., each as
guarantor, RailAmerica Transportation Corp., RaiLink, Ltd. And
Freight Victoria Limited, each as a borrower, various
financial institutions from time to time parties thereto, as
the lenders, DLJ Capital Funding, Inc., as the syndication
agent, the lead arranger and the sole book running manager,
The Bank of Nova Scotia, as the administrative agent for the
Lenders and ING (U.S.) Capital LLC and Fleet National Bank, as
the documentation agents for the lenders
10.72 Securities Purchase Agreement, dated as of February 4, 2000,
among RailAmerica Transportation Corp., and the Company, Palm
Beach Holdings, Inc., and all of the Restricted Subsidiaries
(as defined in the Credit Agreement) of the Company, each as a
guarantor, and RailAmerica Funding, Inc. as the purchaser.
10.73 Asset Bridge Securities Purchase Agreement, dated as of
February 4, 2000, among Palm Beach Rail Holdings, Inc., and
the Company, Kalyn/Siebert I, Inc., KS Boca, Inc. and
Kalyn/Siebert, L.P., each as a guarantor, and RailAmerica
Holdings Funding, Inc., as the purchaser
10.74 Equity Registration Rights Agreement, dated as of February 4,
2000, among the Company and RailAmerica Funding, Inc.
10.75 Debt Registration Rights Agreement, dated as of February 4,
2000, among the Company and RailAmerica Funding, Inc.
10.76 Asset Bridge Equity Registration Rights Agreement, dated as of
February 4, 2000, among the Company and RailAmerica Funding,
Inc.
99.1 Petition for Exemption, dated November 8, 1999, filed before
the Surface Transportation Board, finance Docket No. 33813, by
RailAmerica, Inc. and RailTex, Inc.(18)
21.1 Subsidiaries of Registrant
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Arthur Andersen Langton Clarke
27 Financial Data Schedule
- ----------
(1) Incorporated by reference to the same exhibit number filed as part of
the Registrant's Registration Statement on Form S-1, Registration No.
33-49026.
(2) Incorporated by reference to the same exhibit number filed as part of
the Company's Form 10-QSB for the quarter ended September 30, 1995,
filed with the Securities and Exchange Commission on November 12, 1995.
(3) Incorporated by reference to the exhibit A filed as part of the
Company's Form 8-K as of September 30, 1996, filed with the Securities
and Exchange Commission on October 17, 1996.
(4) Incorporated by reference to the exhibit 2.1 filed as part of the
Company's Form 8-K as of October 11, 1996, filed with the Securities
and Exchange Commission on October 25, 1996.
(5) Incorporated by reference to the same exhibit number filed as part of
the Company's Form 10-KSB for year ended December 31, 1995, filed with
the Securities and Exchange
50
51
Commission on March 31, 1997.
(6) Incorporated by reference to exhibit No. 4.1 filed as part of the
Registrant's Statement on Form 8-A, filed with the Securities and
Exchange Commission on January 6, 1998.
(7) Incorporated by reference to the same exhibit number filed as part of
the Company's Form 10-Q for the quarter ended March 31, 1998, filed
with the Securities and Exchange Commission on May 14, 1998.
(8) Incorporated by reference to exhibit 2.1 filed as part of the Company's
Form 8-K as of September 3, 1999, filed with the Securities and
Exchange Commission on September 20, 1999.
(9) Incorporated by reference to exhibit 2.1 filed as part of the Company's
Form 8-K as of October 14, 1999, filed with the Securities and Exchange
Commission on October 19, 1999.
(10) Incorporated by reference to exhibit 4.1 filed as part of the Company's
Form 8-K as of January 13, 2000, filed with the Securities and Exchange
Commission on January 26, 2000.
(11) Incorporated by reference to exhibit 10.1 filed as part of the
Company's Form 8-K as of April 30, 1999, filed with the Securities and
Exchange Commission on May 17, 1999.
(12) Incorporated by reference to exhibit 10.2 filed as part of the
Company's Form 8-K as of April 30, 1999, filed with the Securities and
Exchange Commission on May 17, 1999.
(13) Incorporated by reference to exhibit 10.64 filed as part of the
Company's Form 10-Q as of March 31, 1999, filed with the Securities and
Exchange Commission on May 17, 1999.
(14) Incorporated by reference to exhibit 10.1 filed as part of the
Company's Registration Statement on Form S-4, Registration No.
333-93611.
(15) Incorporated by reference to exhibit 10.56 filed as part of the Form
10-K filed for RailTex, Inc. for the year ended December 31, 1998,
filed with the Securities and Exchange Commission on March 30, 1999.
(16) Incorporated by reference to exhibit 10.60 filed as part of the Form
10-Q filed for RailTex, Inc. for the quarter ended September 30, 1999,
filed with the Securities and Exchange Commission on November 12, 1999.
(17) Incorporated by reference to exhibit 10.61 filed as part of the Form
10-Q filed for RailTex, Inc. for the quarter ended September 30, 1999,
filed with the Securities and Exchange Commission on November 12, 1999.
(18) Incorporated by reference to exhibit 99.1 filed as part of the
Company's Form 8-K as of November 8, 1999, filed with the Securities
and Exchange Commission on November 12, 1999.
(19) Incorporated by reference to the exhibit of the same number filed as
part of the Company's Form 10-K for the year ended December 31, 1998
filed with the Securities and Exchange Commission on March 31, 1999.
+ Executive Compensation Plan or Arrangement.
(b) Reports on Form 8-K.
The Company filed the following reports on Form 8-K during the quarter
ended December 31, 1999:
1. Current Report on Form 8-K, dated October 19, 1999, was filed
with the Securities and Exchange Commission on November 12,
1999 in connection with the Company's acquisition of the
common stock of RailTex, Inc.
2. Current Report on Form 8-K/A, dated September 3, 1999, was
filed with the Securities and Exchange Commission on November
12, 1999 in connection with the Company's acquisition of the
stock of The Toledo, Peoria and Western Railroad Corporation.
51
52
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange act
of 1934, the Company has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
RAILAMERICA, INC.
By: /s/ Gary O. Marino
---------------------------------------
Gary O. Marino, Chief Executive Officer
(Principal Financial officer)
By: /s/ Larry W. Bush
---------------------------------------
Larry W. Bush, Controller
(Principal Accounting Officer)
Dated March 27, 2000
In accordance with the Securities Exchange Act of 1934, this Report has
been signed below by the following persons on behalf of the Company in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Gary O. Marino Chairman, President, Chief Executive March 27, 2000
- ----------------------------- Officer and Director
Gary O. Marino
/s/ Donald D. Redfearn Chief Administrative Officer, Executive March 27, 2000
- ----------------------------- Vice President, Secretary and Director
Donald D. Redfearn
/s/ John H. Marino Assistant Secretary and Director March 27, 2000
- -----------------------------
John H. Marino
/s/ Douglas R. Nichols Director March 27, 2000
- -----------------------------
Douglas R. Nichols
/s/ Richard Rampell Director March 27, 2000
- -----------------------------
Richard Rampell
/s/ Charles Swinburn Director March 27, 2000
- -----------------------------
Charles Swinburn
/s/ John M. Sullivan Director March 27, 2000
- -----------------------------
John M. Sullivan
/s/ Ferd. C. Meyer, Jr. Director March 27, 2000
- -----------------------------
Ferd C. Meyer, Jr.
/s/ William G. Pagonis Director March 27, 2000
- -----------------------------
William G Pagonis
52
53
RAILAMERICA, INC. AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS
-------
The following consolidated financial statements of RailAmerica, Inc. and
Subsidiaries are referred to in Item 7:
PAGES
-----
Report of Independent Certified Public Accountants F-2
Report of Independent Certified Public Accountants F-3
Consolidated Balance Sheets - December 31, 1999 and 1998 F-4
Consolidated Statements of Income - For the Years Ended
December 31, 1999, 1998 and 1997 F-5
Consolidated Statement of Stockholders' Equity - For the Years
Ended December 31, 1999, 1998 and 1997 F-6
Consolidated Statements of Cash Flows - For the Years Ended
December 31, 1999, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-8 - F-35
54
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
RailAmerica, Inc.
In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of income, stockholders' equity and cash flows present fairly, in all material
respects, the financial position of RailAmerica, Inc. and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of Empresa De
Transporte Ferroviario S.A., a 55% owned subsidiary of the Company, which
statements reflect total assets of $87,555,000 and $74,306,000 as of December
31, 1999 and 1998, respectively, and total revenues of $19,115,000 and
$15,312,000 for the years ended December 31, 1999 and 1998. Those statements
were audited by other auditors whose report thereon has been furnished to us,
and our opinion expressed herein, insofar as it relates to the amounts included
for Empresa De Transporte Ferroviario S.A., is based solely on the report of the
other auditors. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Ft. Lauderdale, Florida
March 15, 2000
F-2
55
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Ferronor S.A.:
We have audited the balance sheets of Empresa de Transporte Ferroviario S.A
("Ferronor") as of December 31, 1999 and 1998, and the related statements of
income and cash flows for the years ended December 31, 1999 and 1998 and for the
ten-month period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards in Chile, which are substantially consistent with those followed in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and the significant
estimates made by the management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respect, the financial position of Ferronor as of December 31, 1999
and 1998 and the results of its operations and its cash flow for the years ended
December 31, 1999 and 1998 and for the ten-month period ended December 31, 1997
in conformity with generally accepted accounting principles in the United States
of America.
Charles A. Bunce ARTHUR ANDERSEN - LANGTON CLARKE
February 4, 2000 Santiago, Chile
F-3
56
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,1999 and 1998
1999 1998
-------------- ---------------
ASSETS
Current assets:
Cash $ 11,597,540 $ 5,085,402
Accounts and notes receivable 40,856,772 7,733,238
Inventories 9,928,789 3,647,885
Other current assets 3,500,166 1,480,637
Net assets of discontinued operation 14,995,915 13,882,586
-------------- ---------------
Total current assets 80,879,182 31,829,748
Property, plant and equipment, net 347,617,262 91,875,650
Notes receivable, less current portion 2,122,843 1,284,200
Investment in affiliates 4,666,776 1,938,942
Other assets 8,642,071 4,035,372
-------------- ---------------
Total assets $ 443,928,134 $ 130,963,912
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 17,811,326 $ 3,557,430
Accounts payable 23,731,732 7,004,497
Accrued expenses 15,379,461 2,775,962
-------------- ---------------
Total current liabilities 56,922,519 13,337,889
-------------- ---------------
Long-term debt, less current maturities 145,016,269 62,769,869
Subordinated debt 100,000,000 --
Convertible subordinated debt 22,448,642 --
Other liabilities 16,374,169 427,288
Deferred income taxes 15,382,013 4,848,869
Minority interest 9,488,693 7,937,992
Commitments and contingencies
Redeemable convertible preferred stock, $0.01 par value,
$25 liquidation value, 1,000,000 shares authorized;
378,400 and 300,600 outstanding, respectively 8,829,844 6,881,684
Stockholders' equity:
Common stock, $0.001 par value, 30,000,000 shares authorized;
12,610,725 issued and 11,894,136 outstanding at December 31, 1999;
10,207,477 issued and 9,631,188 outstanding at December 31, 1998 12,611 10,207
Additional paid-in capital 52,304,578 28,277,533
Retained earnings 18,170,824 9,285,122
Accumulated other comprehensive income 3,485,717 470,820
Treasury stock (716,589 and 576,289 shares, respectively, at cost) (4,507,745) (3,283,361)
-------------- ---------------
Total stockholders' equity 69,465,985 34,760,321
-------------- ---------------
Total liabilities and stockholders' equity $ 443,928,134 $ 130,963,912
============== ===============
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
57
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1999, 1998 and 1997
1999 1998 1997
--------------- ---------------- ----------------
Operating revenue:
Transportation - railroad $ 118,910,941 $ 30,303,562 $ 22,023,717
Other 6,461,383 2,700,421 2,472,188
Motor Carrier -- 4,252,329 --
---------------- ----------------- -----------------
Total operating revenue 125,372,324 37,256,312 24,495,905
---------------- ----------------- -----------------
Operating expenses:
Transportation - railroad 75,375,742 15,702,487 12,502,153
Selling, general and administrative 19,549,612 9,075,571 6,840,467
Depreciation and amortization 9,179,239 2,543,115 1,788,594
Motor Carrier -- 4,438,039 --
---------------- ----------------- -----------------
Total operating expenses 104,104,593 31,759,212 21,131,214
---------------- ----------------- -----------------
Operating income 21,267,731 5,497,100 3,364,691
Interest and other expense (20,490,358) (4,944,113) (3,641,164)
Other income 6,012,072 232,070 1,000,382
Minority interest in income of subsidiary (1,550,700) (1,671,750) (851,243)
---------------- ----------------- -----------------
Income from continuing
operations before income taxes 5,238,745 (886,693) (127,334)
Provision for income taxes (786,979) (1,000,000) (415,000)
---------------- ----------------- -----------------
Income from continuing operations 6,025,724 113,307 287,666
Discontinued operations:
Estimated loss on disposal of discontinued
segments (net of income tax benefit
of $277,000) -- -- (452,402)
Income from operations of discontinued
segments (less applicable income tax
provisions of $2,300,000, $2,500,000, and
$1,200,000) 3,895,512 4,287,842 2,103,935
---------------- ----------------- -----------------
Net income $ 9,921,236 $ 4,401,149 $ 1,939,199
================ ================= =================
Net income available to common stockholders $ 8,885,702 $ 4,401,149 $ 1,939,199
================ ================= =================
Basic earnings per common share
Continuing operations $ 0.45 $ 0.01 $ 0.02
Discontinued operations 0.35 0.45 0.21
---------------- ----------------- -----------------
Net income $ 0.80 $ 0.46 $ 0.23
================ ================= =================
Diluted earnings per common share
Continuing operations $ 0.43 $ 0.01 $ 0.02
Discontinued operations 0.34 0.44 0.20
---------------- ----------------- -----------------
Net income $ 0.77 $ 0.45 $ 0.22
================ ================= =================
Weighted average common shares
outstanding:
Basic 11,089,614 9,552,866 8,303,938
================ ================= =================
Diluted 11,664,871 9,777,866 8,586,938
================ ================= =================
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
58
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the year ended December 31, 1999, 1998 and 1997
Stockholders' Equity
----------------------------------------------------------------------------
Number of Additional Common
Shares Par Paid-in Stock Retained
Issued Value Capital Subscribed Earnings
---------------- -------- -------------- ------------ ------------
Balance, January 1, 1997 6,125,410 $ 6,125 $ 11,773,036 $ 2,340,000 $ 2,944,774
Net income -- -- -- -- 1,939,199
Issuance of common stock 1,720,627 1,721 7,163,206 (2,340,000) --
Treasury stock received for
sale of subsidiaries -- -- -- -- --
Stock incentive plan issuance -- -- -- -- --
Exercise of stock options 202,933 203 747,837 -- --
Exercise of warrants 1,080,594 1,081 3,666,653 -- --
Cumulative translation -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 9,129,564 $ 9,130 $ 23,350,732 $ -- $ 4,883,973
Net income -- -- -- -- 4,401,149
Other comprehensive income
Cumulative translation -- -- -- -- --
Total comprehensive income
Issuance of common stock 138,786 138 677,039 -- --
Purchase of treasury stock -- -- -- -- --
Exercise of stock options 237,950 238 870,637 -- --
Tax benefit exercise of options -- -- 178,000 -- --
Exercise of warrants 167,000 167 934,501 -- --
Conversion of debt 534,177 534 2,266,624 -- --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 10,207,477 10,207 28,277,533 -- 9,285,122
Net income -- -- -- -- 9,921,236
Other comprehensive income
Cumulative translation -- -- -- -- --
Total comprehensive income
Issuance of common stock 1,437,888 1,438 12,027,787 -- --
Purchase of treasury stock -- -- -- -- --
Exercise of stock options 141,168 141 580,669 -- --
Tax benefit exercise of options -- -- 152,000 -- --
Conversion of debt 563,520 564 3,332,268 -- --
Conversion of preferred stock 260,672 261 2,006,244 -- --
Issuance of warrants -- -- 5,928,077 -- --
Preferred stock dividends
and accretion -- -- -- -- (1,035,534)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 12,610,725 $ 12,611 $ 52,304,578 $ -- $ 18,170,824
============ ============ ============ ============ ============
Stockholders' Equity
----------------------------------------------------------------
Other
Comprehensive Treasury
Income Stock Total
---------------------- ------------------ ------------------
Balance, January 1, 1997 $ 67,441 $ (1,139,269) $ 15,992,107
Net income -- -- 1,939,199
Issuance of common stock -- -- 4,824,927
Treasury stock received for
sales of subsidiaries -- (479,629) (479,629)
Stock incentive plan issuance -- 173,516 173,516
Exercise of stock options -- -- 748,040
Exercise of warrants -- -- 3,667,734
Cumulative translation (52,068) -- (52,068)
------------ ---------- ------------
Balance, December 31, 1997 $ 15,373 $ (1,445,382) $ 26,813,826
Net income -- -- 4,401,149
Other comprehensive income
Cumulative translation 455,447 455,447
------------
Total comprehensive income 4,856,596
------------
Issuance of common stock -- -- 677,177
Purchase of treasury stock -- (1,837,979) (1,837,979)
Exercise of stock options -- -- 870,875
Tax benefit exercise of options -- -- 178,000
Exercise of warrants -- -- 934,668
Conversion of debt -- -- 2,267,158
------------ ---------- ------------
Balance, December 31, 1998 470,820 (3,283,361) 34,760,321
Net income -- -- 9,921,236
Other comprehensive income
Cumulative translation 3,014,897 -- 3,014,897
------------
Total comprehensive income 12,936,133
------------
Issuance of common stock -- -- 12,029,225
Purchase of treasury stock -- (1,224,384) (1,224,384)
Exercise of stock options -- -- 580,810
Tax benefit exercise of options -- -- 152,000
Conversion of debt -- -- 3,332,832
Conversion of preferred stock -- -- 2,006,505
Issuance of warrants -- -- 5,928,077
Preferred stock dividends
and accretion -- -- (1,035,534)
------------ ----------- ------------
Balance, December 31, 1999 $ 3,485,717 $(4,507,745) $ 69,465,985
============ =========== ============
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
59
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---------------- ---------------- ----------------
Cash flows from operating activities:
Net income $ 9,921,236 $ 4,401,149 $ 1,939,199
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 14,133,502 4,156,546 3,053,728
Minority interest in income of subsidiary 1,550,701 1,671,750 851,243
Equity interest in earnings of affiliate (230,109) -- --
Gain on insurance settlement (4,069,278) -- --
Loss (gain) on sale or disposal of properties 118,426 (76,791) (608,380)
Write-off of excess of costs over net assets -- -- 729,681
Write-off of deferred acquisition costs 38,855 176,179 76,292
Deferred income taxes 3,401,804 912,967 382,122
Employee stock grants -- -- 15,188
Foregiveness of debt -- (32,809) --
Changes in operating assets and liabilities,
net of acquisitions and dispositions:
Accounts receivable (2,246,205) (885,983) (3,037,697)
Inventories (2,270,833) (6,921,847) (1,294,501)
Other current assets (1,830,526) (1,157,666) 124,247
Accounts payable 3,243,680 2,410,602 (606,499)
Accrued expenses 3,326,059 720,498 714,409
Other liabilities (2,294,441) -- --
Deposits and other (1,292,753) 368,476 (47,264)
----------------- ----------------- -----------------
Net cash provided by operating activities 21,500,118 5,743,071 2,291,768
----------------- ----------------- -----------------
Cash flows from investing activities:
Purchase of property, plant and equipment (51,391,127) (28,128,546) (7,455,848)
Proceeds from sale of properties 165,610 1,806,127 331,654
Proceeds from sale of equity interest 998,441 -- --
Acquisitions, net of cash acquired (8,453,218) (1,757,033) (7,389,903)
Deposit on purchase agreement -- (1,962,067) --
Investment in Great Southern Railway -- -- (596,665)
Loan receivable from Great Southern Railway -- -- (1,193,330)
Cash held in discontinued (656,367) (674,468) (472)
Deferred acquisition costs and other 638,881 (612,956) (457,168)
----------------- ----------------- -----------------
Net cash used in investing activities (58,697,780) (31,328,943) (16,761,732)
----------------- ----------------- -----------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 182,085,208 56,006,737 31,453,500
Principal payments on long-term debt (150,182,917) (35,723,969) (25,449,364)
Sale of convertible preferred stock 4,095,000 7,515,000 --
Sale of common stock 11,868,058 1,032,168 8,163,962
Proceeds from exercise of stock options 580,810 870,875 748,041
Preferred stock dividends paid (843,024) -- --
Purchase of treasury stock (1,224,384) (1,837,979) --
Deferred financing costs paid (333,400) (603,549) (286,724)
Deferred loan costs paid (2,421,445) (333,071) (294,361)
----------------- ----------------- -----------------
Net cash provided by financing activities 43,623,906 26,926,212 14,335,054
----------------- ----------------- -----------------
Effect of exchange rates on cash 85,894 -- --
----------------- ----------------- -----------------
Net increase (decrease) in cash 6,512,138 1,340,340 (134,910)
Cash, beginning of period 5,085,402 3,745,062 3,879,972
----------------- ----------------- -----------------
Cash, end of period $ 11,597,540 $ 5,085,402 $ 3,745,062
================= ================= =================
The accompanying notes are an integral part of the
consolidated financial statements.
F-7
60
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of RailAmerica, Inc. and all of its majority-owned subsidiaries (the
"Company"). All significant inter-company balances and transactions
have been eliminated. Certain prior period amounts have been
reclassified to conform to the 1999 presentation. The Company announced
a plan to sell its trailer manufacturing operation during 1999 and it
is included as a discontinued operation for all periods reported in
these consolidated financial statements.
All of RailAmerica's consolidated subsidiaries are wholly owned except
Empresa de Transporte Ferrovario, S.A. ("Ferronor") in which the
Company has a 55% equity interest. In accordance with the Shareholders'
Agreement between RailAmerica and Andres Pirrazzoli y Cia, Ltda
("APCO"), RailAmerica controls the appointment of a majority of the
Board of Directors of Ferronor, including the Chairman. APCO maintains
certain minority rights under the shareholders Agreement, such as the
right to request the General Manager's removal under certain
circumstances. The Company considered these minority rights in
determining whether to consolidate Ferronor and has concluded that
consolidation is appropriate based upon the Company's ownership
position, and its level of control of the Board of Directors and senior
management.
In July 1999, the Company acquired a 26.3% equity interest in Quebec
Railway Corporation ("QRC") as part of its RaiLink acquisition. The
Company accounts for the investment using the equity method of
accounting.
The Company's principal operations include rail transportation in North
America, Chile and Australia. The Company hauls varied products for its
customers corresponding to their local operating areas, primarily paper
and forest products and agricultural commodities in North America,
agricultural commodities in Australia and iron ore and nitrates in
Chile.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates.
Inventories
Inventories, which are recorded at cost, consist of replacement or
repair parts for equipment and track that are charged to property,
plant and equipment when utilized.
F-8
61
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with a
maturity of three months or less at the date of purchase to be cash
equivalents.
Concentration of Credit Risk
The Company maintains its cash in demand deposit accounts which at
times may exceed FDIC insurance limits. As of December 31, 1999, the
Company had approximately $3.4 million of cash in excess of FDIC
insurance limits.
Property, Plant and Equipment
Property, plant and equipment are recorded at historical cost. Costs
assigned to property purchased as part of an acquisition are based on
the fair value of such assets on the date of acquisition. Improvements
are capitalized, and expenditures for maintenance and repairs are
charged to operations as incurred. Gains or losses on sales and
retirements of properties are included in the determination of the
results of operations.
Depreciation has been computed using the straight-line method based on
estimated useful lives as follows:
Buildings and improvements 20-33 years
Railroad track and improvements 3-40 years
Locomotives, transportation and other equipment 5-20 years
Office equipment 5-10 years
Income Taxes
The Company utilizes the liability method of accounting for deferred
income taxes. This method requires recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined based
on the difference between the financial and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred tax assets are also
established for the future tax benefits of loss and credit carryovers.
The liability method of accounting for deferred income taxes requires a
valuation allowance against deferred tax assets if, based on the weight
of available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized.
F-9
62
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Revenue Recognition
Transportation - The Company recognizes transportation revenue after
services are provided. For the years ended December 31, 1999, 1998 and
1997, approximately 27%, 62% and 59%, respectively, of the Company's
North American railroad transportation revenue was derived from
interchanging with BNSF and for the years ended December 31, 1999, 1998
and 1997, and approximately 14%, 30% and 32%, respectively, from
interchanging with CSX. For the year ended December 31, 1999,
approximately 19% and 25% of the Company's North American
transportation revenue was derived from interchanging with Canadian
National Railroad and Canadian Pacific Railroad, respectively. The
Company had two customers in Chile who each represented more than 10%
of the Chilean transportation revenue and two costumers in Australia
which represented 21% and 19%, respectively, of the Australian
transportation revenue.
Commercial Trailer Sales - The Company's discontinued trailer
manufacturing operations recognize revenue from the commercial sale of
trailers when title and risk of ownership are transferred to the
customer, which generally is upon shipment or customer pick-up. In
certain instances prior to shipment or customer pick-up, the Company
receives full payment for a trailer. At that time, the Company issues a
certificate of title or statement of origin to the customer and revenue
is recognized. In these cases, the customer has made a fixed, written
commitment to purchase, the trailer has been completed and is available
for pick-up or delivery, and the customer has requested the Company to
hold the trailer until the customer determines the most economical
means of taking possession. In such cases, the Company has no further
obligation except to segregate the trailer and hold it for a short
period of time, as is customary in the industry, generally less than
one month, until pick-up or delivery. Trailers are built to customer
specifications and no right of return or exchange privileges are
granted.
Governmental Trailer Sales - The Company's discontinued trailer
manufacturing operations recognize revenue from the sale of trailers to
governmental agencies when title and risks of ownership are
transferred, which is upon completion, inspection and acceptance of
trailers by the governmental agency. At that time, the governmental
agency has made a fixed written commitment to purchase in the form of a
contract, the trailer has been completed and is available for pick-up
or delivery, and the governmental agency has requested the Company to
hold the trailer until the governmental agency determines the
appropriate means of taking possession. The Company has no further
obligation except to segregate the trailer and hold it for a short
period of time, as is customary in the industry, generally less than
one month, until pick-up or delivery. The trailers are built to the
government's specifications pursuant to a written contract and are
inspected and accepted for delivery by the governmental agency. The
contract terms provide for prepayments by the government of up to 90%
of the trailer's cost. These prepayments are recorded as advances
against the inventory. Sales to governmental agencies represented 23%,
35% and 37% of the Company's manufacturing revenue for the years ended
December 31, 1999, 1998 and 1997, respectively.
F-10
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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Foreign Currency Translation
The financial statements and transactions of the Company's foreign
operations are maintained in their functional currency. Assets and
liabilities are translated at current exchange rates in effect at the
balance sheet date. Translation adjustments, which result from the
process of translating the financial statements into United States
dollars, are accumulated in the cumulative translation adjustment
account, which is a component of accumulated other comprehensive
income. Revenues and expenses are translated at the average exchange
rate for each period. Gains and losses from foreign currency
transactions are included in net income. The aggregate gain on foreign
currency translation for 1999 was $0.7 million. As a result of a
decline in the value of the Australian dollar against the U.S. dollar,
the Company recorded a transaction loss of approximately $2.6 million
during the first quarter of fiscal year 2000.
During 1999, Ferronor changed its functional currency from the Chilean
Peso to the U.S. dollar, as the U.S. dollar has become more
representative of the primary economic environment in which Ferronor
operates. Factors influencing this change include the Ferronor's cash
flows, sales price, sales market and financing indicator
considerations. This change has been accounted for prospectively.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for
derivative instruments and hedging activities. SFAS No. 133 requires
all derivatives to be measured at fair value and recognized at either
assets or liabilities on the balance sheet. Furthermore, the accounting
for changes in the fair value of a derivative (i.e. gains and losses)
depends on the intended use of the derivative.
F-11
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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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2. EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted average
number of common shares outstanding during the year. For the year ended
December 31, 1999, income from continuing operations is reduced by
preferred stock dividends and accretion for the basic earnings per
share computation.
Diluted earnings per share is calculated using the sum of the weighted
average number of common shares outstanding plus potentially dilutive
common shares arising out of stock options and warrants. Options and
warrants totaling 1.8 million were excluded from the diluted earnings
per share calculation as the exercise prices of these options and
warrants were greater than the average market price of the Common
Stock. Assumed conversion of $26.5 million of convertible debt and the
convertible preferred stock are anti-dilutive and are not included in
the calculation.
The following is a summary of the net income available for common
stockholders and weighted average shares for the diluted calculation
(in thousands):
1999 1998 1997
-------- -------- -------
Income from continuing operations $ 6,026 $ 113 $ 288
Preferred stock dividends and accretion (1,036) -- --
Interest on convertible debt 42 -- --
-------- -------- --------
Income available to common stockholders $ 5,032 $ 113 $ 288
======== ======== ========
Weighted average shares outstanding 11,090 9,553 8,304
Assumed conversion of options and warrants 379 225 283
Assumed conversion of convertible debt 196 -- --
-------- -------- --------
Weighted average shares outstanding 11,665 9,778 8,587
======== ======== ========
3. DISCONTINUED OPERATIONS:
In November 1999, the Company adopted a plan to sell its trailer
manufacturing operations. This business has been accounted for as a
discontinued operation and the results of operations have been excluded
from continuing operations in the consolidated statements of operations
for all periods presented.
Total revenue for the trailer manufacturing segment was $44.3 million,
$39.9 million and $22.9 million for the years ended December 31, 1999,
1998 and 1997, respectively. Income before income taxes for the trailer
manufacturing segment was $6.2 million, $6.9 million and $3.7 million
for the years ended December 31, 1999, 1998 and 1997, respectively.
Total assets in this division as of December 31, 1999 and 1998 were
$28.8 million and $28.1 million respectively. Total liabilities in this
division as of December 31, 1999 and 1998 were $13.9 million and $14.3
million, respectively.
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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
3. DISCONTINUED OPERATIONS, continued
In March 1997, the Company adopted a formal plan to discontinue its
motor carrier division. The motor carrier division consists of Steel
City Carriers and RailAmerica Intermodal Services, both wholly-owned
subsidiaries of the Company. During the fourth quarter of 1997, the
Company re-evaluated the carrying amount of Steel City Carriers' assets
and recorded an impairment charge of approximately $730,000. This
amount was determined based on what the Company believes it will
recover through the final disposition of the remaining assets.
Operating results of the discontinued operations, as shown below,
include the operations of the Motor Carrier segment for the three
months ended March 31, 1998 and the year ended December 31, 1997. The
motor carrier operations have been included in continuing operations
for the nine months ended December 31, 1998, since the disposition of
the segment was not completed by April 1998.
Effective December 1, 1998, the Company ceased all motor carrier
operations and leased substantially all of the operating assets of
Steel City Carriers, Ltd. to Laidlaw Carriers, Inc., an operating
subsidiary of Ontario, Canada-based Contrans Corporation. The leases
are for a period of 18 to 24 months. In addition, the Company has
entered into an agreement to sell its Ontario real estate that was
previously used in its motor carrier operations.
Total revenue for the motor carrier segment was $1.8 million and $7.1
million for the three months ended March 31, 1998 and year ended
December 31, 1997, respectively. Loss before income taxes for the motor
carrier segment was $0.1 million and $1.1 million for the three months
ended March 31, 1998 and year ended December 31, 1997, respectively.
4. ACQUISITIONS:
On September 3, 1999, the Company, through its wholly-owned subsidiary,
Florida Rail Lines, Inc., completed the acquisition of all the
outstanding common stock of The Toledo, Peoria and Western Railroad
Corporation ("TPW") from CSX Transportation, Delaware Ostego
Corporation, and other shareholders for an aggregate purchase price of
$18 million (including the repayment of indebtedness), subject to
certain adjustments. The Company funded the acquisition through its
revolving line of credit. TPW is headquartered in East Peoria, Illinois
and provides rail freight services to customers in the midwest United
States and operates over rail lines running from Fort Madison, Iowa
across North Central Illinois to Logansport, Indiana. TPW has certain
unsettled litigation and contingencies outstanding whose ultimate
outcome will impact the purchase price allocation.
F-13
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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
4. ACQUISITIONS, continued
On July 26, 1999, the Company acquired approximately 98% of the
outstanding shares of RaiLink Ltd ("RaiLink"). Through the Company's
wholly-owned Canadian subsidiary, RL Acquisition Corp., the Company
commenced an all cash-bid in May 1999 for all of the common shares of
RaiLink at a price of CDN$8.75 per share pursuant to a Pre-Acquisition
Agreement dated May 17, 1999 between the Company and RaiLink. RaiLink
had approximately 8.36 million common shares outstanding on a fully
diluted basis, giving the transaction an equity value of approximately
CDN$73.2 million (approximately USD$49.8 million). As more than 90% of
the outstanding shares were acquired under the offer, the Company
acquired the remainder of the shares pursuant to the compulsory
acquisition provisions of applicable Canadian law. A portion of the
accrued liabilities assumed represented severance costs which the
Company has accrued in accordance with EITF No. 95-3, "Recognition of
Liabilities in Connection with a Purchase Business Combination."
RaiLink is a regional railway company based in Edmonton, Alberta and
provides freight transportation services to the national railways of
Canada and to a wide variety of shippers. RaiLink and its 26.3% owned
affiliate, Quebec Railway Corporation, currently operate 11 regional
railways covering approximately 2,500 miles of track in Alberta, the
Northwest Territories, Ontario, Quebec and New Brunswick. A portion of
the funding for the transaction was provided by a consortium of banks
with National Bank of Canada, as agent, through the Company's revolving
line of credit. The balance of the funding came from a private offering
of the Company's junior convertible subordinated debt.
On April 30, 1999, the Company, through its wholly owned Australian
subsidiary, Freight Victoria Limited ("Freight Victoria"), completed
the acquisition of the assets and liabilities comprising the railroad
freight business of V/Line Freight Corporation ("VLF"), a corporation
established by the Government of the State of Victoria, Australia. VLF
was established in March 1997 as part of Victoria's public
transportation privatization process and assumed many of the activities
formerly carried out by the V/Line Freight business unit of the Public
Transportation Corporation of the Government of Victoria.
Under the Sale of Assets Agreement (the "Agreement") dated February 22,
1999 by and between the Company, Freight Victoria and VLF, Freight
Victoria acquired all of the locomotives, wagons, motor vehicles,
equipment, stock, spare parts inventory and accounts receivable,
certain business, brand and trade names and trade marks, and the
outstanding business contracts of VLF for a purchase price of AUD$73.4
million in cash (approximately U.S.$49.0 million). The purchase price
has been allocated to assets acquired. In connection with the
acquisition, Freight Victoria also entered into other agreements,
including a primary infrastructure lease (the "Infrastructure Lease")
with the Director of Public Transport of Australia and various
facilities leases, access agreements, maintenance and service
agreements and other miscellaneous agreements. Pursuant to the
Infrastructure Lease, Freight Victoria received a 45-year lease of the
non-electrified intrastate Victorian railway tracks and infrastructure.
F-14
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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
4. ACQUISITIONS, continued
Pursuant to certain other agreements, Freight Victoria is responsible
for, among other things, track and rolling stock maintenance, train
control, access to the railway infrastructure by other rail operators
and safety and signaling. Under a letter issued by Freight Victoria in
connection with its bid for the VLF business, Freight Victoria prepaid
in cash the net present value of the rental payments for the
Infrastructure Lease totaling AUD$80.8 million (approximately U.S.$54.0
million). Freight Victoria commenced operations of the rail-based
freight business on May 1, 1999.
In August 1998, the Company, through its newly formed, wholly-owned
subsidiary, VCRR, entered into a long term lease/purchase agreement to
operate a 13-mile rail line serving the Port of Hueneme and the Oxnard
Harbor District in Oxnard, California, located approximately 50 miles
north of Los Angeles. VCRR's operations commenced September 1, 1998 and
are included in the results of domestic rail operations as of that
date.
In January 1998, the Company acquired, through its wholly-owned
subsidiary Kalyn, all of the outstanding stock of Canadian truck
trailer manufacturer Fabrex, Inc. and its affiliate, Services Remorques
Plus, Inc. (collectively "Fabrex") for approximately $1.5 million in
cash and 70,000 shares of RailAmerica common stock, $.001 par value
("Common Stock"), and assumption of approximately $1.0 million of
long-term debt. Fabrex's operations have been combined into KSC, a
wholly-owned subsidiary of Kalyn. Fabrex, a manufacturer of specialty
bulk-hauling truck trailers used in the solid waste, agricultural and
construction industries, was founded in 1985 and is located in Trois
Rivieres, Quebec.
On February 19, 1997, the Company acquired, through its wholly-owned
subsidiary, RailAmerica de Chile, S.A., a majority interest in
Ferronor, a 1,400 mile railroad serving northern Chile. The Company was
joined in the purchase of Ferronor by Andres Pirrazzoli y Cia, Ltda
("APCO"). The purchase price paid by RailAmerica/APCO for substantially
all of the stock of Ferronor, was approximately $12.3 million and was
funded 55% by RailAmerica and 45% by APCO.
All of the above acquisitions were accounted for as purchases and their
results have been included since the date of acquisition. The following
unaudited pro forma summary presents the consolidated results of
operations as if the above referenced acquisitions had occurred at the
beginning of 1999 and 1998 and do not purport to be indicative of what
would have occurred had the acquisitions been made as of those dates or
of results which may occur in the future. (In thousands except net
income per share)
1999 1998
-------- -------
Operating revenue $ 187,607 $ 167,778
Income from continuing operations $ 5,262 $ 46
Earnings per share - continuing operations
Basic $ 0.37 $ (0.09)
Diluted $ 0.36 $ (0.09)
F-15
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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
4. ACQUISITIONS, continued
The significant adjustments related to the above years represent the
inclusion of revenue on new agreements, elimination of certain
operating costs, elimination of costs related to the acquisitions,
inclusion of depreciation differences on the revaluation of property,
plant and equipment, additional interest expense based on an increase
in long-term obligations, amortization of intangible assets and the
related income tax effects.
5. GREAT SOUTHERN RAILWAY LIMITED
On October 31, 1997, the Company acquired a minority interest, of
approximately 11.4%, in the Great Southern Railway Limited ("GSR"). GSR
completed the acquisition of the assets and business comprising the
passenger rail service of the Australian National Railway Commission.
The Company has invested $0.6 million in equity of GSR, $1.2 million in
uncollateralized subordinated notes (the "Notes"). The Company sold
both its interest in the equity of GSR and the Notes to the majority
shareholder of GSR in October 1999. The Company received $0.9 million
in cash and a note for $1.3 million due March 15, 2000. A gain of $0.3
million is included in the 1999 consolidated statement of income. The
remaining note is included in current assets in the consolidated
balance sheet as of December 31, 1999 and was paid in March 2000.
6. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following as of December
31, 1999 and 1998 (in thousands):
1999 1998
-------------- --------------
Land $ 34,345 $ 19,301
Buildings and improvements 8,683 5,275
Railroad track and improvements 186,670 44,700
Locomotives, transportation and other equipment 135,309 31,104
------------- ------------
365,007 100,380
Less accumulated depreciation 17,390 8,504
------------- ------------
$ 347,617 $ 91,876
============= ============
Depreciation expense was approximately $9.2 million, $3.0 million and
$1.8 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
F-16
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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
6. PROPERTY, PLANT AND EQUIPMENT, continued
In January 1999, the Company through a newly formed subsidiary E&N
Railway Company Ltd. ("ENR") acquired certain assets of the Esquimalt
and Nanaimo Railway ("E&N") from the Canadian Pacific Railway ("CPR").
The transaction included the purchase of a 68-mile section of rail line
between Port Alberni, British Columbia and Nanaimo, British Columbia
and the lease of a 113-mile section of rail line from
Victoria-to-Nanaimo and from Parksville-to-Courtenay on British
Columbia's Vancouver Island. The purchase of the assets of the E&N
Railway accounted for approximately $10.8 million of fixed asset
additions for year ended December 31, 1999.
7. INVESTMENT IN AFFILIATE:
As of December 31, 1999, the Company`s recorded investment in QRC was
$4.7 million and the Company's underlying equity in net assets of QRC
was $4.5 million. The difference is treated as goodwill and is being
amortized over a 20 year period. The Company recorded $0.2 million in
income, net of amortization, from this investment in the consolidated
statement of operations for 1999.
8. OTHER ASSETS:
Other assets consist of the following as of December 31, 1999 and 1998
(in thousands):
1999 1998
------------ ------------
Deferred loan costs, net $ 6,657 $ 608
Deposits and other 1,985 3,427
----------- ----------
$ 8,642 $ 4,035
=========== ==========
Deferred loan costs are being amortized utilizing the interest method
over the term of the respective term loans.
9. RELATED PARTY TRANSACTIONS:
First London Securities Corporation ("First London"), of which Douglas
Nichols, a director of the Company, is President and principal
shareholder, served as the exclusive placement agent for the Company's
private placement which had a final close in January 1999. A portion of
the private placement was received by the Company and closed in
December 1998 (see Note 13 Redeemable Preferred stock). First London
received a total of $0.8 million in placement fees and cost
reimbursements during December 1998 and the first quarter of 1999 on
this transaction and two-year warrants to purchase 140,727 shares of
Common Stock at an exercise price of $8.25 per share.
F-17
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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
9. RELATED PARTY TRANSACTIONS, continued
During 1997, the Company sold all the outstanding stock of its
wholly-owned subsidiary Gettysburg Scenic Rail Tours, Inc. ("GSRT"),
certain railroad equipment and substantially all the assets of
Gettysburg Railway ("GBR") to a company owned by its Vice Chairman. The
sale price for GSRT and the railroad equipment was $0.5 million, which
consisted of cash of $0.1 million and 62,602 shares of the Company's
common stock valued at $0.4 million. A gain of approximately $0.2
million was recognized on the transaction and is included in other
income (expense) in the consolidated income statement for 1997. The
sale price for substantially all of the assets of GBR was $1.45
million, which consisted of cash of $0.3 million, an $0.8 million
promissory note due June 30, 1998 and a $0.35 million mortgage note, at
an interest rate of 8.5% with a maturity of June 30, 2003. The
promissory note and mortgage note are collateralized by the land,
buildings and track assets of Gettysburg Railway. A gain of
approximately $0.2 million was recognized on the transaction and is
included in other operating income in the consolidated income
statement. The $800,000 promissory notes maturity date was extended
until June 2000.
As of December 31, 1999, $1.15 million of notes receivable from related
parties is included in notes receivable, less current portions on the
consolidated balance sheet.
10. LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1999 and 1998
(in thousands):
1999 1998
---------- ----------
Revolving line of credit. See below $ 121,005 $ 44,207
Various equipment notes, with interest imputed at rates from 8.12% to
11.63%, due in fixed monthly installments of $114 (including
interest) with varying maturities through November 2004. Certain
equipment serves as collateral. 3,381 4,457
Burlington Northern Santa Fe ("BNSF") rail facilities installment
purchase obligation, annual payments of $250, including interest
at 10%, maturing in October 2116. If car loads at OTVR fall below
7,250 in a year, BNSF will credit payments on this debt
at a rate of $250 per car. 2,139 2,139
F-18
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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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10. LONG-TERM DEBT, continued
Credit facilities with various financial institutions,
ranging in monthly interest rates from
0.77% to 1.495%, maturing from 30 to 90 days 4,180 1,481
Credit facilities with Banco de Desarrollo, see below 10,261 7,782
Credit facility with Banco Security, interest rate of
0.0928% monthly 5,102 --
Note payable to Compania Minera del Pacifico, bearing interest at LIBOR
plus 2.5% due in monthly installments (including interest)maturing
in 2003. Certain Ferronor assets serve
as collateral. 1,765 2,822
Mortgage note payable, bearing interest at 7.85%, due in fixed
monthly installments of $46 (including interest), with
a final payment of $4,827 in January 2010. Corporate
office building serves as collateral 6,000 --
Debenture payable, interest at 6.5%, maturing December 31, 2000
Certain rail line serves as collateral 4,085 --
Capital lease obligations 1,042 1,459
Other long-term debt 3,867 1,980
---------- ----------
162,827 66,327
Less current maturities 17,811 3,557
---------- ----------
Long-term debt, less current maturities $ 145,016 $ 62,770
========= ==========
Ferronor refinanced certain short-term debt as of January 28, 1999 with
Banco de Desarrollo. The refinancing consists of two credit lines. The
first credit line is a $5.0 million facility which bears interest at
the interbank cost (7.08% at December 31, 1999) plus 1.75% with
interest to be paid over 120 equal monthly installments and principal
to be paid over 96 equal installments beginning two years from the
funding. The second credit line is a $7.7 million facility which bears
interest at LIBOR plus 2.75% and is payable in 120 equal monthly
installments (including interest).
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,
initially bearing interest at LIBOR plus 3.00%, (2) a $205 million Term
B loan, initially 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 $10.0 million of Australian dollar denominated loans with an
initial interest rate of LIBOR plus 3.00%, or a Canadian equivalent.
The loans are provided by a syndicate of banks with Donaldson, Lufkin &
Jenrette as syndication agent and The Bank of Nova Scotia as
administrative agent. All of the stock of all the Company's U.S.
subsidiaries serve as collateral for the credit facilities.
F-19
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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
10. LONG-TERM DEBT, continued
The Term A loans requires principal payments of 5% in 2000, 10% in
2001, 15% in 2002, 20% in 2003, 25% in both 2004 an 2005. The Term B
loan requires principal payments of 1% per year through 2005 and a
balloon maturity at December 31, 2006. The revolving loans mature on
December 31, 2005.
The Company's new credit facilities include covenants which impose
financial and operating restrictions on RailAmerica's ability to, among
other things:
o incur more debt;
o pay dividends, redeem or repurchase its stock or make other
distributions;
o make acquisitions or investments;
o use assets as security in other transactions;
o enter into transactions with affiliates;
o merge or consolidate with others;
o dispose of assets or use asset sale proceeds;
o create liens on its assets; and
o extend credit.
The new credit facilities also contain financial covenants that will
require the Company to meet a number of financial ratios and tests.
In February 2000, the Company, through its wholly-owned subsidiary
RailAmerica Transportation, Inc., issued $95 million of subordinated
bridge notes, under a securities purchase agreement with DLJ Bridge
Finance, Inc. These notes mature on February 4, 2001 and have an
initial interest rate of 13% per annum, which rate increases every
three months based on the highest specified rates. The Company, through
its wholly-owned subsidiary Palm Beach 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
every three months based on the highest of specified rates. The asset
sale bridge notes are collateralized by the assets of Kalyn/Siebert,
L.P. and its subsidiaries, which are discontinued operations held for
sale.
In connection with the issuance of the subordinated bridge notes, the
purchasers of such notes are entitled to receive warrants to purchase
common stock at an exercise price of $7.75 per share commencing in May
2001 to the extent the subordinated bridge notes are then outstanding.
In connection with the issuance of the asset sale bridge notes, the
purchasers of such notes are entitled to receive warrants to purchase
common stock at an exercise price of $7.75 per share commencing in
August 2000 to the extent the asset sale bridge notes are then
outstanding. The maximum number of shares issuable upon exercise of all
these warrants would be 1,604,330, subject to specified anti-dilution
adjustments.
In connection with the February 2000 debt refinancing, including the
refinancing of RailTex's debt, the Company will record an extraordinary
charge in the first quarter of 2000.
The aggregate annual maturities of long-term debt are as follows net of
discount amortization taking into effect the above refinancing (in
thousands):
2000 $ 17,811
2001 18,827
2002 23,938
2003 29,324
2004 35,309
Thereafter 37,618
--------
$162,827
========
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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
10. LONG-TERM DEBT, continued
During the years ended December 31, 1999, 1998 and 1997 interest of
approximately $1,386, $465 and $69, respectively, was capitalized.
Capital Leases
The Company entered into equipment finance leases for certain tractors,
trailers and other equipment expiring at various times through 2003.
These leases are accounted for as capital leases. The financing of the
purchase of the tractors, trailers and equipment under these capital
leases was capitalized using the interest rate appropriate at the
inception of the respective leases.
Minimum annual lease commitments at December 31, 1999 are as follows
(in thousands):
CAPITAL OPERATING
LEASES LEASES
------ ------
2000 $ 427 $ 2,977
2001 451 2,631
2002 218 2,242
2003 75 1,870
2004 -- 1,033
Thereafter -- 1,163
------ -------
Total 1,171 $ 11,916
========
Less amount representing interest 129
-----
Present value of future minimum
lease payments 1,042
Less current portion 355
-----
Noncurrent portion $ 687
=====
Rental expense under operating leases was approximately $3.4 million,
$2.7 million and $0.9 million for the years ended December 31, 1999,
1998 and 1997, respectively.
11. SUBORDINATED DEBT:
To facilitate the acquisition of VLF, Freight Victoria obtained a $100
million bridge loan from Barclays Bank PLC under a senior secured loan
facility. Upon the execution of the facility, the Company issued to
Barclays Bank PLC warrants to acquire 750,000 shares of the Company's
Common Stock at an exercise price of $9.75 per share. On November 30,
1999, in accordance with the terms of the bridge loan the Company
issued additional warrants to acquire 50,000 shares of the Company's
Common Stock to Barclays Bank PLC at an exercise price of $7.7875 per
share and increased the interest rate by 200 basis points. The bridge
loan was refinanced in February 2000 in conjunction with the
acquisition of RailTex (see note 10).
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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
12. CONVERTIBLE SUBORDINATED DEBT:
In August 1999, the Company issued $22.5 million aggregate principal
amount of its junior convertible subordinated debentures. Interest on
the debentures accrues at the rate of 6% per annum and is payable
semi-annually, commencing January 31, 2000. The debentures are
convertible, at the option of the holder, into shares of RailAmerica at
a conversion price of $10, subjected to adjustment in selected
circumstances. The debentures mature on July 31, 2004, are general
unsecured obligations and rank subordinate in right of payment to all
senior indebtedness. At RailAmerica's option, the debentures may be
redeemed at par, plus accrued but unpaid interest thereon to the date
of redemption, in whole or in part, if the closing price of
RailAmerica's common stock is above 200% of the conversion price for 10
consecutive trading days.
In addition to the bridge loan the Company issued AUD$3 million
(approximately U.S.$2.0 million) in convertible debt to a certain
vendor of Freight Victoria ("Vendor Debt"). The Vendor Debt is
convertible into the Company's common stock at the current market price
or convertible into Freight Victoria stock at the option of the
Company. The Company also issued $2.64 million of convertible debt in
lieu of cash payments for fees owed to its investment banker in the
transaction. The convertible debt bears interest at 6%, is convertible
into the Company's common stock at $9.83 per share and was converted in
July 1999 into 272,415 shares of common stock.
13. REDEEMABLE PREFERRED STOCK:
In January 1999, the Company completed a private offering of $11.6
million of its Series A Convertible Redeemable Preferred Stock
("Preferred Stock"). The Company sold 464,400 shares of its Preferred
Stock at a price of $25 per share. The Preferred Stock pays annual
dividends of 7.5%, is convertible into shares of the Company's common
stock at a price of $8.25 per share and is non-voting. The Preferred
Stock is mandatorily redeemable 5 years from its issuance. The December
31, 1998 balance sheet includes 300,600 shares which were issued during
1998. The remainder of the shares were issued in January 1999. The
carrying value of the Preferred Stock is the par value less issuance
costs. The issuance costs will be amortized on a straight-line basis
over the life of the Preferred Stock. 86,000 shares of the Preferred
Stock were converted in the fourth quarter of 1999 and 88,000 shares
were converted in the first quarter of 2000.
14. COMMON STOCK TRANSACTIONS:
On August 24, 1998, the Company's Board of Directors authorized a share
repurchase program to buy back up to 1,000,000 shares of its Common
Stock (limited to $2 million per year pursuant to the new credit
facilities). Purchases will be made from time to time in the open
market and will continue until all of such shares are purchased or
until the Company determines to terminate the repurchase program. As of
December 31, 1999, the Company had purchased 445,400 shares with a
total cost of $3.1 million. The Company purchased 172,500 shares with a
total cost of $1.1 million in the first quarter of 2000.
F-22
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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
14. COMMON STOCK TRANSACTIONS, continued
In March 1999, the Company completed a private placement of
approximately $12.5 million of restricted common stock. Pursuant to the
offering, the Company sold approximately 1.4 million shares of its
common stock at a price of $8.8125 per share and issued approximately
212,000 warrants to purchase an equivalent number of shares of common
stock at an exercise price of $10.125 per share within one year of the
transaction's closing date. First London Securities Corporation, of
which Douglas Nichols, a director of the Company, is President and
principal shareholder, acted as placement agent and received
approximately $0.4 million in fees and cost reimbursement and one-year
warrants to purchase 141,504 shares of the Company's common stock at an
exercise price of $10.125. All of the warrants issued for this
transaction expired on March 3, 2000.
In August 1999, the Company issued warrants to purchase an aggregate of
676,363 shares of common stock to the investors in the private offering
of $22.5 million principal amount of its junior convertible
subordinated debentures described in Note 7. The warrants are
exercisable during the five-year period ending August 5, 2004 at an
exercise price of $10.50 per share, subject to adjustment under
selected circumstances. Warrants to purchase 200,000 shares of common
stock at an exercise price of $10.50 per share during the two-year
period ending July 31, 2001 were issued in connection with the private
offering to the placement agent.
15. OTHER REVENUE:
Other revenue as of December 31, 1999, 1998 and 1997 consisted of the
following (in thousands):
[CAPTION]
1999 1998 1997
---------------- ---------------- ----------------
Gain on sale of properties and
easements $ 266 $ 695 $ 1,251
Rental income 2,850 1,484 857
Maintenance revenue 1,703 -- --
Other 1,642 521 364
------------- ------------- -------------
$ 6,461 $ 2,700 $ 2,472
============= ============= =============
16. INCOME TAX PROVISION:
Income before income taxes for the years ended December 31, 1999, 1998
and 1997 consists of (in thousands):
1999 1998 1997
---- ---- ----
Domestic $ (2,978) $ (2,327) $ (1,140)
Foreign Subsidiaries 8,217 1,440 1,013
--------- --------- ----------
$ 5,239 $ (887) $ (127)
========= ========= ==========
F-23
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RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
16. INCOME TAX PROVISION, continued
The provision for income taxes for the years ended December 31, 1999,
1998 and 1997 consists of (in thousands):
1999 1998 1997
---- ---- ----
Federal income taxes:
Current $ 15 $ 232 $ --
Deferred 1,234 1,039 708
------- ------- -------
1,249 1,271 708
------- ------- -------
State income taxes:
Current 149 281 161
Deferred (106) (55) (26)
------- ------- -------
43 226 135
------- ------- -------
Foreign income taxes:
Current 857 33 --
Deferred 2,197 -- (306)
Change in tax law (2,835) -- --
------- ------- -------
Total income tax provision $ 1,511 $ 1,530 $ 537
======= ======= =======
The following summarizes the total income tax provisions for each of
the years ended December 31, 1999, 1998 and 1997 (in thousands):
Continuing operations ($ 787) $ 1,570 $ 963
Discontinued operations 2,298 (40) (426)
------- ------- -------
Total income tax provision $ 1,511 $ 1,530 $ 537
======= ======= =======
The differences between the U.S. federal statutory tax rate and the
Company's effective rate from continuing operations are as follows (in
thousands):
1999 1998 1997
--------- ---------- ---------
Income tax provision, at 35% $ 1,833 $ 2,113 $ 1,259
Statutory federal Surtax exemption (52) (60) (36)
State income tax, net of federal benefit (48) 147 90
Benefit due to difference between U.S. &
Chilean tax rates (295) (316) (192)
Benefit due to utilization of Chilean net
operating loss carryforwards -- (306) (152)
Benefit due to reduction in Canadian tax
rate for manufacturing companies -- (42) --
Benefit due to difference between U.S. &
Australian tax rates (266) -- --
Net Benefit due to tax law changes in Australia (2,835) -- --
Amortization of warrants not deductible 602 -- --
Non-deductible expenses, net 320 45 33
Other, net 124 107 60
Valuation allowance (170) (118) (99)
------- ------- -------
$ (787) $ 1,570 $ 963
======= ======= =======
F-24
77
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
16. INCOME TAX PROVISION, continued
The Company joins in the filing of a consolidated U.S. income tax
return with its domestic subsidiaries. For state income tax purposes,
the Company and each of its domestic subsidiaries generally file on a
separate return basis in the states in which they do business. The
Company's Canadian subsidiaries file Canadian and provincial income tax
returns. The Company's Chilean and Australian subsidiaries file income
tax returns in their respective jurisdictions.
The components of deferred income tax assets and liabilities as of
December 31, 1999 and 1998 are as follows (in thousands):
1999 1998
---- ----
Deferred tax assets:
Net operating loss carry forwards $ 7,667 $ 2,798
Alternative minimum tax credit 790 766
Accrued Expense (net of deferred expense) 4,478 --
Other 108 205
-------- --------
Total deferred assets 13,043 3,769
Less: valuation allowance (321) (491)
-------- --------
Total deferred assets, net 12,722 3,278
Deferred tax liabilities:
Property, plant and equipment 29,162 11,339
Minority Investments 836 --
Installment Sales 180 181
Capital Lease Obligation 859 --
Deferred Revenue 495 --
-------- --------
Net deferred tax liability $(18,810) $ (8,242)
======== ========
The liability method of accounting for deferred income taxes requires a
valuation allowance against deferred tax assets if, based on the weight
of available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized. It is management's belief
that it is more likely than not that a portion of the deferred tax
assets will not be realized. The Company has established a valuation
allowance of $0.3 million at December 31, 1999 and $0.5 million at
December 31, 1998, respectively. The valuation allowance at December
31, 1999 is comprised of $0.2 million, which relates to prior and
current year state net operating losses, and $0.1 million which relates
to prior and current year Chilean net operating losses of Ferronor.
F-25
78
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
16. INCOME TAX PROVISION, continued
The following is a summary of net operating loss carryforwards by
jurisdiction as of December 31, 1999 (in thousands):
AMOUNT EXPIRATION PERIOD
------ -----------------
U.S. - Federal $ 5,536 2003 - 2019
U.S. - State 16,064 2000 - 2019
Chile 1,069 None
Australia 10,938 None
Canada 2,741 2004 - 2006
---------
$ 36,348
=========
As part of certain acquisitions, the Company acquired net operating
loss carry forwards for federal and state income tax purposes. The
utilization of the acquired tax loss carry forwards is further limited
by the Internal Revenue Code Section 382 to approximately $0.1 million
each year. These tax loss carry forwards expire in the years 2001
through 2010.
No provision was made in 1999 for U.S. income taxes on undistributed
earnings of the Chilean, Canadian or Australian subsidiaries as it is
the intention of management to utilize those earnings in their
respective operations for an indefinite period of time.
The provision includes a one-time income tax benefit of $3.4 million
due to legislation passed in Australia during the third quarter of
1999, which permits the Company's Australian subsidiary to deduct, for
income tax purposes, a larger amount of depreciation than is reported
for financial statement purposes. Additionally, during December 1999,
Australian tax regulations were passed which will ultimately reduce the
statutory tax rate in Australia from 36% to 30%. A one-time income tax
provision of $0.6 million was recorded to revalue the Company's
Australian net deferred tax assets due to this rate reduction.
17. OTHER INCOME:
Included in other income for 1999 was a fourth quarter gain on
insurance settlement of $4.1 million from an accident which destroyed
certain locomotives and railcars in Australia. In addition, other
income for 1999 includes $0.7 million in exchange gains from Australia
and Chile and $0.3 million in gain on the sale of the Company's
minority interest in GSR.
18. STOCK OPTIONS:
In July 1992, the Company implemented a stock option plan (the "1992
Plan") for certain officers, consultants, employees and outside
directors of the Company. The aggregate number of shares which may be
issued pursuant to the 1992 Plan is 250,000 shares which are
exercisable at date of grant and have a ten year life.
F-26
79
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
18. STOCK OPTIONS, continued
Effective January 1, 1995, the Company implemented two new stock option
plans: the 1995 Stock Incentive Plan and the 1995 Non-Employee Director
Stock Option Plan. Each plan calls for 250,000 shares to be reserved
for future issuance. Options granted under the Stock Incentive Plan are
exercisable at the date of grant. Options granted under the
Non-Employee Director Stock Option Plan are 1/3 exercisable at the date
of grant, 1/3 exercisable at the first anniversary of the grant date
and 1/3 exercisable at the second anniversary of the grant date. All
the options granted under the Stock Incentive Plan and Non-Employee
Director Stock Option Plan have a ten year life from the date of grant.
In June 1997, the Company's stockholders approved a 750,000 increase in
the number of shares of common stock reserved for issuance pursuant to
the Company's 1995 Stock Incentive Plan, bringing total shares reserved
under this plan to 1,000,000.
Under an employment agreement dated November 1994, Mr. Marino was
granted ten-year non-qualified options to purchase an aggregate of
350,000 shares of the Company's common stock at exercise prices ranging
from $3.10 to $4.15. Options to purchase 175,000 shares were
immediately exercisable and options to purchase 87,500 shares became
exercisable on each of March 1, 1996 and 1997.
Effective January 1, 1998, Mr. Marino entered into a new employment
agreement with the Company under which he was granted ten-year
non-qualified options to purchase 300,000 shares of common stock of the
Company at exercise prices varying from $7.25 to $9.50. All of the
options are immediately exercisable.
During June 1998, the Company implemented the 1998 Omnibus Executive
Incentive Compensation Plan ("1998 Plan"). The 1998 Plan supersedes the
1992 Plan and the 1995 Stock Incentive Plan. The 1998 Plan provides for
grants of stock options, stock appreciation rights, restricted stock,
deferred stock, other stock-related awards and performance or annual
incentive awards. The aggregate number of shares to be issued pursuant
to the 1998 Plan are 930,000 shares. Options for 76,000 shares of
common stock of the Company, at an exercise price of $6.125, were
issued pursuant to the 1998 Plan as of July 1, 1998. Options for
126,000 shares of common stock of the Company, at an exercise price of
$8.75, were issued pursuant to the 1998 Plan as of April 1999. These
options vest ratably over a three year period on each anniversary date
and mature ten years after the grant date. Options for 725,000 shares
of common stock of the Company, at an exercise price of $9.00, were
issued pursuant to the 1998 Plan as of January 1, 2000. These options
are subject to shareholder approval at the Company's 1999 Annual
Shareholders Meeting.
F-27
80
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
18. STOCK OPTIONS, continued
In July 1998, the Company issued, options to purchase an aggregate of
150,000 shares of common stock to certain employees at exercise prices
equal to $6.125 per share. The options vest ratably over a three year
period on each anniversary date and mature June 30, 2008. During 1999,
the Company issued options to purchase an aggregate of 25,000 shares of
common stock of the Company at an exercise price of $7.8125, options to
purchase 153,500 shares of common stock of the Company at an exercise
price of $8.75 and options to purchase 125,500 shares of common stock
of the Company at an exercise price of $9.75. All of these options vest
ratably over a three year period from the date of grant and mature in
ten years from the date of grant.
The Company has adopted the disclosure-only provisions of Statements of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". Accordingly, no compensation costs have been recognized
for the stock options issued during 1999, 1998 and 1997 as all stock
options were granted with an exercise price at least equal to the
market price on the date of grant. Had compensation cost for the
Company's stock options issued been determined based on the fair value
at the grant date for awards in 1999, 1998 and 1997 consistent with the
provisions of SFAS No. 123, the Company's net income and net income per
share would have been reduced to the pro forma amounts indicated below
(in thousands except per share information):
1999 1998 1997
-------------- -------------- --------------
Net income - as reported $ 9,921 $ 4,401 $ 1,939
============= ============== ==============
Net income - pro forma $ 8,972 $ 3,562 $ 1,152
============= ============== ==============
Basic net income per share - as reported $ 0.80 $ 0.46 $ 0.23
====== ====== ======
Basic net income (loss) per share -
pro forma $ 0.72 $ 0.37 $ 0.14
====== ====== ======
These calculations only take into account the options issued since
January 1, 1995. The fair value of each option grant is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1999, 1998
and 1997: dividend yield 0.0%; expected volatility of 45%-55%;
risk-free interest rate of 5.50% -7.8%; and expected lives of 10 years.
The weighted average fair value of options granted for 1999, 1998 and
1997 were $5.86, $3.97, and $3.08, respectively.
Information regarding the above options for 1999, 1998 and 1997 is as
follows:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- ---------
Outstanding at January 1, 1997 1,124,000 $3.74
Granted 363,500 $5.00
Exercised (202,933) $3.69
Forfeited (33,667) $4.21
---------
F-28
81
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
18. STOCK OPTIONS, continued
Outstanding at December 31, 1997 1,250,900 $4.10
Granted 551,000 $7.35
Exercised (237,950) $3.66
Forfeited (78,450) $3.58
---------
Outstanding at December 31, 1998 1,485,500 $5.40
Granted 455,000 $8.97
Exercised (89,667) $4.35
Forfeited (10,833) $5.09
---------
Outstanding at December 31, 1999 1,840,000 $6.34
=========
The following table summarizes information about stock options
outstanding at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- ---------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OF OPTIONS LIFE PRICE OF OPTIONS PRICE
--------------------------------------------------------------------------------------------------
$3.40-$5.00 836,750 5.92 $4.24 836,750 $4.24
$5.01-$7.00 248,250 8.50 $6.13 80,916 $6.13
$7.01-$9.50 755,000 8.80 $8.74 308,333 $8.36
--------- ---------
1,840,000 1,225,999
========= =========
In January 1995, the Company established an Employee Stock Purchase
Plan open to all full-time employees. Each employee may have payroll
deductions as a percentage of their compensation, not to exceed $25,000
per year. The purchase price equals 85% of the fair market value of a
share of the Company's Common Stock on January 1 or December 31, of any
given year, whichever is lower. For the years ended December 31, 1999,
1998 and 1997, 16,500, 18,289 and 23,433 shares of common stock,
respectively, were sold to employees under this plan.
19. NONCASH INVESTING AND FINANCING ACTIVITIES:
In April 1999, the Company issued 750,000 warrants, valued at $3.0
million to purchase shares of its Common Stock as part of the Freight
Victoria acquisition financing. The Company issued an additional 50,000
warrants, valued at $0.2 million to purchase the Company's Common Stock
in November 1999 as part of the financing. The Company also issued a
$2.6 million convertible note in connection with the Freight Victoria
financing. This note was converted into the Company's stock in July
1999.
In August 1999, the Company issued 876,363 warrants, valued at $2.7
million, to purchase the Company's Common Stock pursuant to a private
offering of its junior convertible subordinated debentures.
F-29
82
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
19. NONCASH INVESTING AND FINANCING ACTIVITIES, continued
During 1999, $0.7 million of convertible notes were converted into the
Company's Common Stock. In addition, $2.0 million of the redeemable
convertible preferred stock was converted into the Company's Common
Stock during 1999.
The Company issued 20,000 shares of common stock to the Company's Chief
Executive Officer for a $95,000 note receivable during 1997. The
Company issued 30,000 shares of common stock to the Company's Chief
Executive Officer for a $97,500 note receivable during 1998.
1999 1998 1997
-------- -------- --------
Acquisition of businesses:
Common stock issued for businesses acquired $ -- $ 453 $ --
Warrants issued for business acquired 3,031 -- --
Debt issued for business acquired 173,493 -- --
Acquisition costs accrued 238 31 90
Details of acquisitions:
Working capital components, other than cash (7,294) (801) 2,867
Property and equipment (209,624) (2,482) (16,071)
Other assets (4,234) (962) (31)
Deferred loan costs (6,959) -- --
Goodwill -- (355) --
Notes payable and loans payable 35,466 1,921 340
Deferred income taxes payable 7,430 440 --
Minority interest -- -- 5,415
--------- --------- ---------
Net cash used in acquisitions $ (8,453) $ (1,757) $ (7,390)
========= ========= =========
Cash paid for interest during 1999, 1998 and 1997 was $16.3 million,
$5.7 million and $3.9 million, respectively. Cash paid for income taxes
during 1999, 1998 and 1997 was $1.3 million, $0.2 million and $0.2
million, respectively.
F-30
83
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
20. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Management believes that the fair value of its long-term debt
approximates its carrying value for the revolving line of credit based
on the variable nature of the financing and for all other long-term
debt based on current borrowing rates available with similar terms and
maturities.
21. PENSION AND OTHER BENEFIT PROGRAMS
The Company maintains a pension plan for a majority of its Canadian
railroad employees, with both defined benefit and defined contribution
components.
DEFINED BENEFIT - The defined benefit component applies to
approximately 60 employees who transferred employment directly from
Canadian Pacific Railway Company ("CPR") to a subsidiary of RaiLink,
Ltd. The defined benefit portion of the plan is a mirror plan of CPR's
defined benefit plan. The employees that transferred and joined the
mirror plan were entitled to transfer or buy back prior years of
service. As part of the arrangement, CPR transferred to the Company the
appropriate value of each employee's pension entitlement.
The following chart summarizes the benefit obligations, assets, funded
status and rate assumptions associated with the defined benefit plan
(in thousands).
Change in benefit obligation
Benefit obligation at August 1, 1999 $ 2,710
Service cost 26
Interest cost 79
Plan participants' contributions 38
-------
Benefit obligation at December 31, 1999 2,853
-------
Change in plan assets
Fair value of plan assets at August 1, 1999 2,445
Actuarial return on plan assets 132
Employer contributions 37
Plan participants' contributions 41
-------
Fair value of plan assets at December 31, 1999 2,655
-------
Funded status (198)
Unrecognized net actuarial loss --
Unrecognized prior service costs --
-------
Accrued benefit cost $ (198)
=======
Rate Assumptions
Discount rate 7.00%
Expected return on plan assets 8.00%
Rate of compensation increase 4.50%
F-31
84
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
21. PENSION AND OTHER BENEFIT PROGRAMS, continued
Components of net periodic benefit cost for August 1, 1999 to
December 31, 1999
Service cost $ 25
Interest cost 79
Expected return on plan assets (82)
Net obligation at date of adoption 17
-----
Net periodic pension cost $ 39
=====
Freight Victoria's employees participate in the Victorian governments
superannuation funds. The contributions made by Freight Victoria for
the period May 1, 1999 to December 31, 1999 are as follows (in
thousands):
Victorian Superannuation Fund $ 62
State Superannuation Fund 647
Transport Fund 194
Freight Victoria Fund 53
----
Total contributions $956
====
Victorian Superannuation Fund (VICSUPER SCHEME)
1. Contributions are made in accordance with the Superannuation
Guarantee (Administration) Act of 1992.
State Superannuation Fund
1. Contributions are made in accordance with the actuarial
calculations as advised by the State Superannuation Fund.
Defined contribution - The defined contribution component applies to a
majority of the Company's Canadian railroad employees that are not
covered by the defined benefit component. The Company contributes 3% of
a participating employee's salary to the plan. Pension expense for the
period August 1, 1999 to December 31, 1999 for the defined contribution
members was $0.1 million.
Profit Sharing Plan
The Company maintains a contributory profit sharing plan as defined
under Section 401(k) of the U.S. Internal Revenue Code. The Company
made contributions to this plan at a rate of 50% of the employees
contribution up to a maximum annual contribution of $1,500 per eligible
employee. An employee becomes 100% vested with respect to the employer
contributions after completing six years of service. Employer
contributions during the years ended December 31, 1999, 1998 and 1997
were approximately $81,000, $66,000 and $40,000, respectively.
22. OTHER LIABILITIES
Other liabilities principally are accrued employee benefits in
Australia and consist of the following at December 31, 1999 and 1998
(in thousands):
1999 1998
-------- -------
Long service leave $ 7,663 $ --
Annual leave 6,087 --
Other leave types 2,182 --
Deferred revenue 442 427
------- -------
$16,373 $ 427
======= =======
23. COMMITMENTS AND CONTINGENCIES:
In the ordinary course of conducting its business, the Company becomes
involved in various legal actions and other claims which are pending or
could be asserted against the Company. Litigation is subject to many
uncertainties, the outcome of individual litigated matters is not
predictable with assurance, and it is reasonably possible that some of
these matters may be decided unfavorably to the Company. It is the
opinion of management that the ultimate liability, if any, with respect
to these matters will not have a material adverse effect on the
Company's financial position, results of operations or cash flows.
F-32
85
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
23. COMMITMENTS AND CONTINGENCIES, continued
The Company has a $4.9 million obligation, under certain events of
default or line abandonment occurs, to the Canadian National Railroad
in connection with its Coronado and Bonnyville property. The obligation
bears no interest and has no pre-defined terms of payment or maturity.
24. 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 Company's railroad subsidiaries in
Chile and Australia. During 1999, the Company's trailer manufacturing
segment was classified as a discontinued operation and is reported that
way for all period presented.
Business segment information for the year ended December 31, 1999, 1998
and 1997 (dollar amounts in thousands):
NORTH AMERICAN INTERNATIONAL
CONSOLIDATED RAILROADS RAILROADS OTHER
------------ ------------- -------------- -----
YEAR ENDED DECEMBER 31, 1999:
Revenue $ 125,372 $ 40,937 $ 82,473 $ 1,962
Depreciation and amortization $ 9,179 $ 3,594 $ 4,660 $ 925
Income (loss) before income taxes $ 5,239 $ 4,275 $ 6,897* $ (5,933)
Interest expense $ 16,287 $ 5,709 $ 9,157 $ 1,421
Total assets $ 428,932 $ 174,343 $ 214,599 $ 39,990
Capital expenditures $ 50,702 $ 22,461 $ 24,946 $ 3,295
YEAR ENDED DECEMBER 31, 1998:
NORTH AMERICAN INTERNATIONAL
CONSOLIDATED RAILROADS RAILROADS OTHER
------------ ------------- -------------- -----
Revenue $ 37,256 $ 16,191 $ 15,924 $ 5,141
Depreciation and amortization $ 2,543 $ 1,570 $ 706 $ 267
Income (loss) before income taxes $ (887) $ 2,072 $ 1,754 $ (4,713)
Interest expense $ 4,479 $ 2,822 $ 789 $ 868
Total assets $ 117,081 $ 53,692 $ 39,780 $ 23,609
Capital expenditures $ 24,767 $ 6,343 $ 12,807 $ 5,617
YEAR ENDED DECEMBER 31, 1997:
NORTH AMERICAN INTERNATIONAL
CONSOLIDATED RAILROADS RAILROADS OTHER
------------ ------------- -------------- -----
Revenue $ 24,496 $ 16,014 $ 8,062 $ 420
Depreciation and amortization $ 1,789 $ 1,337 $ 267 $ 185
Income (loss) before income taxes $ (127) $ 2,071 $ 1,013 $ (3,211)
Interest expense $ 3,275 $ 2,739 $ 341 $ 195
Total assets $ 83,585 $ 53,134 $ 23,115 $ 7,336
Capital expenditures $ 6,756 $ 3,963 $ 2,290 $ 503
F-33
86
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
24. SEGMENT INFORMATION, continued
Geographical segment information for the years ended December 31, 1999,
1998 and 1997 (dollar amounts in thousands):
CONSOLIDATED UNITED STATES CANADA CHILE AUSTRALIA
------------ ------------- ------ ----- ---------
YEAR ENDED DECEMBER 31, 1999:
Revenue $ 125,372 $ 22,720 $ 20,179 $ 19,115 $ 63,358
Depreciation and
amortization $ 9,179 $ 2,428 $ 2,091 $ 1,231 $ 3,429
Income(loss) before
income taxes $ 5,239 $ (2,978) $ 919 $ 1,473 $ 5,825*
Interest expense $ 16,287 $ 3,926 $ 3,203 $ 1,595 $ 7,563
Total assets $ 428,932 $ 115,295 $ 99,038 $ 52,022 $ 162,577
Capital expenditures $ 50,702 $ 13,915 $ 11,841 $ 13,389 $ 11,557
YEAR ENDED DECEMBER 31, 1998:
CONSOLIDATED UNITED STATES CANADA CHILE AUSTRALIA
------------ ------------- ------ ----- ---------
Revenue $ 37,256 $ 17,080 $ 4,252 $ 15,924 $ --
Depreciation and
amortization $ 2,543 $ 1,837 $ -- $ 706 $ --
Income (loss) before
income taxes $ (887) $ (2,327) $ (142) $ 1,580 $ 2
Interest expense $ 4,479 $ 3,104 $ 109 $ 1,266 $ --
Total assets $ 117,081 $ 74,628 $ 2,672 $ 37,786 $ 1,995
Capital expenditures $ 24,767 $ 11,747 $ 213 $ 12,807 $ --
YEAR ENDED DECEMBER 31, 1997:
CONSOLIDATED UNITED STATES CHILE AUSTRALIA
------------ ------------- ----- ---------
Revenue $ 24,496 $ 16,434 $ 8,062 $ --
Depreciation and
amortization $ 1,789 $ 1,521 $ 268 $ --
Income (loss) before
income taxes $ (127) $ (1,140) $ 1,013 $ --
Interest expense $ 3,275 $ 2,933 $ 342 $
Total assets $ 83,585 $ 60,470 $ 21,261 $ 1,854
Capital expenditures $ 6,756 $ 4,466 $ 2,290 $ --
* - Amount includes $4.1 million casualty gain.
Identifiable assets consist of $425 million from continuing operations
and $15 million from discontinued operations (not included in above
amounts).
F-34
87
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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25. SUBSEQUENT EVENTS:
On February 4, 2000, the Company acquired RailTex, Inc. for
approximately $128 million in cash and approximately 6.6 million shares
of the Company's common stock valued at $60.8 million. Railtex, which
operates 25 railroads over 4,100 mile of rail lines in North America,
became a wholly-owned subsidiary of the Company. RailTex shareholders
received $13.50 in cash and two-thirds of a share of RailAmerica common
stock in exchange for each share of RailTex stock. In connection with
the acquisition, the Company entered into a credit agreement providing
$330 million of senior term loans and $50 million of senior revolving
loans. In addition, a wholly-owned subsidiary of the Company issued $95
million of subordinated bridge notes and $55 million of asset sale
bridge notes.
26. UNAUDITED QUARTERLY FINANCIAL DATA:
Quarterly financial data for 1999 is as follows (in thousands except
per share amounts)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Operating revenue $ 10,225 $ 28,088 $ 38,901 $ 48,157
Operating income $ 1,628 $ 4,373 $ 6,600 $ 8,667
Income from continuing
operations $ 54 $ 1,334 $ 2,278 $ 2,375
Net income $ 1,203 $ 2,748 $ 3,287 $ 2,683
Basic income (loss) from
continuing operations per share $ (0.02) $ 0.10 $ 0.18 $ 0.18
Diluted income (loss) from continuing
operations per share $ (0.02) $ 0.09 $ 0.16 $ 0.16
Quarterly financial data for 1998 is as follows (in thousands except
per share amounts)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Operating revenue $ 5,853 $ 9,117 $ 10,848 $ 11,439
Operating income $ 612 $ 1,216 $ 1,581 $ 2,089
Income (loss) from
continuing operations $ (172) $ 170 $ 193 $ (77)
Net income $ 603 $ 1,332 $ 1,361 $ 910
Basic income (loss) from
continuing operations per share $ (0.02) $ 0.02 $ 0.02 $ (0.01)
Diluted income (loss) from
continuing operations per share $ (0.02) $ 0.02 $ 0.02 $ (0.01)
The above amounts differ from what was included in the Form 10-Q's
filed throughout the period due to the trailer manufacturing segment
being included in discontinued operations for all periods reported in
these consolidated financial statements.
F-35