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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
COMMISSION FILE NO. 0-20618
---------------
RAILAMERICA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 65-0328006
- ----------------------------- ----------------------
(State or Other Jurisdiction (IRS Employer
of Incorporation) Identification Number)
5300 Broken Sound Blvd, N.W., Boca Raton, Florida 33487
(Address of principal executive offices) (Zip code)
(561) 994-6015
(Issuer's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Common Stock, par value $.001 - 32,120,720 shares as of August 12, 2002
RAILAMERICA, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED JUNE 30, 2002
Page
----
Part I. Financial Information............................................................................... 3
Item 1. Financial Statements................................................................... 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................. 19
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................. 27
Part II. Other Information................................................................................... 28
Item 4. Submissions of Matters to a Vote of Security Holders................................... 28
Item 6. Exhibits and Reports on Form 8-K....................................................... 28
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2002 and December 31, 2001
(in thousands, except share data)
(unaudited)
June 30, December 31,
2002 2001
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 35,729 $ 59,761
Restricted cash in escrow .......................................... 1,378 2,418
Accounts and notes receivable ...................................... 67,550 54,278
Other current assets ............................................... 14,340 14,204
----------- -----------
Total current assets .......................................... 118,997 130,661
Property, plant and equipment, net .................................... 941,697 738,775
Other assets .......................................................... 30,618 21,732
----------- -----------
Total assets .................................................. $ 1,091,312 $ 891,168
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ............................... $ 11,943 $ 24,484
Accounts payable ................................................... 42,541 36,035
Accrued expenses ................................................... 38,036 39,889
----------- -----------
Total current liabilities ..................................... 92,520 100,408
Long-term debt, less current maturities ............................... 399,570 277,203
Subordinated debt ..................................................... 144,142 144,988
Deferred income taxes ................................................. 132,698 96,822
Minority interest and other liabilities ............................... 35,620 50,788
----------- -----------
Total liabilities ............................................. 804,550 670,209
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value, 60,000,000 shares authorized;
32,160,720 shares and 28,842,090 shares issued and outstanding at
June 30, 2002 and December 31, 2001, respectively ............... 32 29
Additional paid-in capital ......................................... 263,810 224,248
Retained earnings .................................................. 40,320 45,902
Accumulated other comprehensive loss ............................... (17,400) (49,220)
----------- -----------
Total stockholders' equity .................................... 286,762 220,959
----------- -----------
Total liabilities and stockholders' equity .................... $ 1,091,312 $ 891,168
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
3
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the three and six months ended June 30, 2002 and 2001
(in thousands, except earnings per share)
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Operating revenue ............................................ $ 115,342 $ 93,460 $ 226,494 $ 185,415
--------- --------- --------- ---------
Operating expenses:
Transportation ............................................ 63,824 52,983 127,245 105,361
Selling, general and administrative ....................... 22,120 15,283 45,137 30,854
Net gain on sale of assets ................................ (702) (1,120) (5,349) (1,787)
Depreciation and amortization ............................. 8,473 6,736 17,164 13,465
--------- --------- --------- ---------
Total operating expenses ............................. 93,715 73,882 184,197 147,893
--------- --------- --------- ---------
Operating income ..................................... 21,627 19,578 42,297 37,522
Interest expense ............................................. (12,136) (13,946) (25,000) (28,394)
Financing costs and other income (expense) ................... (19,740) 444 (19,808) 549
--------- --------- --------- ---------
Income (loss) from continuing operations before income
taxes .............................................. (10,249) 6,076 (2,511) 9,677
Provision for (benefit of) income taxes ...................... (3,152) 1,923 (753) 2,736
--------- --------- --------- ---------
Income (loss) from continuing operations ............... (7,097) 4,153 (1,758) 6,941
Gain on sale of discontinued operations, net of income taxes . 853 -- 657 --
--------- --------- --------- ---------
Income (loss) before extraordinary items ............... (6,244) 4,153 (1,101) 6,941
Loss on early extinguishment of debt, net of income taxes .... (4,481) -- (4,481) --
--------- --------- --------- ---------
Net income (loss) .................................... $ (10,725) 4,153 $ (5,582) $ 6,941
========= ========= ========= =========
Net income (loss) available to common stockholders ........... $ (10,725) $ 4,038 $ (5,582) $ 6,668
========= ========= ========= =========
Basic earnings (loss) per common share:
Continuing operations ..................................... $ (0.22) $ 0.21 $ (0.05) $ 0.35
Discontinued operations ................................... 0.03 -- 0.02 --
Extraordinary items ....................................... (0.14) -- (0.14) --
--------- --------- --------- ---------
Net income (loss) .................................... $ (0.33) $ 0.21 $ (0.17) $ 0.35
========= ========= ========= =========
Diluted earnings (loss) per common share:
Continuing operations ..................................... $ (0.22) $ 0.19 $ (0.05) $ 0.33
Discontinued operations ................................... 0.03 -- 0.02 --
Extraordinary items ....................................... (0.14) -- (0.14) --
--------- --------- --------- ---------
Net income (loss) .................................... $ (0.33) $ 0.19 $ (0.17) $ 0.33
========= ========= ========= =========
Weighted average common shares outstanding:
Basic ..................................................... 32,158 19,080 32,081 18,861
========= ========= ========= =========
Diluted ................................................... 32,158 23,437 32,081 22,862
========= ========= ========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
4
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2002 and 2001
(in thousands)
(unaudited)
2002 2001
--------- ---------
Cash flows from operating activities:
Net income (loss) ............................................................... $ (5,582) $ 6,941
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................ 19,503 15,308
Acquisition costs ............................................................ 2,386 --
Financing costs .............................................................. 25,611 --
Gain on sale or disposal of assets ........................................... (6,573) (1,787)
Other ........................................................................ (2,639) 2,184
Changes in operating assets and liabilities, net of acquisitions and
dispositions:
Accounts receivable .......................................................... 1,068 (922)
Other current assets ......................................................... 3,362 914
Accounts payable ............................................................. (9,346) (3,432)
Accrued expenses ............................................................. (6,331) (2,740)
Other assets and liabilities ................................................. (19,970) (1,204)
--------- ---------
Net cash provided by operating activities .................................. 1,489 15,262
--------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment ....................................... (30,423) (22,218)
Proceeds from sale of assets .................................................... 6,775 9,341
Acquisitions, net of cash acquired .............................................. (88,724) --
Change in restricted cash in escrow ............................................. -- 1,313
Deferred acquisition costs and other ............................................ (5,220) (276)
--------- ---------
Net cash used in investing activities ...................................... (117,592) (11,840)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ........................................ 457,870 52,598
Principal payments on long-term debt ............................................ (350,233) (77,333)
Proceeds from sale of common stock .............................................. -- 38,219
Proceeds from exercise of stock options and warrants ............................ 370 2,492
Purchase of treasury stock ...................................................... (1,997) (345)
Preferred stock dividends ....................................................... -- (218)
Financing costs ................................................................. (15,383) --
--------- ---------
Net cash provided by financing activities .................................. 90,627 15,413
--------- ---------
Net increase (decrease) in cash .................................................... (25,476) 18,835
Effect of exchange rates on cash ................................................... 1,444 (2,053)
Cash, beginning of period .......................................................... 59,761 13,090
--------- ---------
Cash, end of period ................................................................ $ 35,729 $ 29,872
========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
5
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by
RailAmerica, Inc. (the "Company") in accordance with accounting principles
generally accepted in the United States of America and pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted
pursuant to such rules and regulations.
In the opinion of management, the consolidated financial statements contain
all adjustments of a recurring nature and disclosures necessary to present
fairly the financial position of the Company as of June 30, 2002 and
December 31, 2001, the results of operations for the three and six months
ended June 30, 2002 and 2001, and the cash flows for the six months ended
June 30, 2002 and 2001. Operating results for the three and six months ended
June 30, 2002 are not necessarily indicative of the results to be expected
for the full year. Certain prior period amounts have been reclassified to
conform to the current period presentation.
The accounting principles which materially affect the financial position,
results of operations and cash flows of the Company are set forth in Notes
to the Consolidated Financial Statements which are included in the Company's
2001 annual report on Form 10-K.
2. NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" and SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
Under SFAS No. 142, goodwill and identifiable intangible assets with an
indefinite life will no longer be amortized; however, both goodwill and
other intangible assets will need to be tested at least annually for
impairment. SFAS No. 144 addresses financial accounting and reporting for
the impairment of long-lived assets, excluding goodwill and intangible
assets, to be held and used or disposed of. The adoption of these
pronouncements did not have a material impact on the Company's consolidated
financial statements.
During the three months ended June 30, 2002, the Company sold the Texas New
Mexico Railroad. In accordance with SFAS No. 144, it has been presented as a
discontinued operation in 2002 (see Note 5).
In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". SFAS No. 145, which is
effective for fiscal years beginning after May 15, 2002, requires that debt
extinguishments used as part of a company's risk management strategy should
not be classified as an extraordinary item. It also requires sale-leaseback
accounting for certain lease modifications that have economic effects that
are similar to sale-leaseback transactions. Management is evaluating the
impact this standard may have on the Company's consolidated financial
statements.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS 146, which is effective
for exit or disposal activities initiated after December 31, 2002, requires
that a liability for a cost associated with an exit or disposal activity is
recognized at fair value when the liability is incurred rather than when
management commits to an exit or disposal plan. Management is evaluating the
impact this standard may have on the Company's consolidated financial
statements.
3. EARNINGS PER SHARE
For the three and six months ended June 30, 2002 and 2001, basic earnings
per share is calculated using the weighted average number of common shares
outstanding during the period. Income from continuing operations for the
three and six months ended June 30, 2001 is reduced by preferred stock
dividends and accretion for the basic earnings per share computation.
For the three and six months ended June 30, 2002, diluted earnings per share
is calculated using the same number of shares as the basic earnings per
share calculation because potentially dilutive common shares arising out of
stock options, warrants and
6
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. EARNINGS PER SHARE, continued
convertible debt are anti-dilutive due to the net loss. Had the Company
reported net income, approximately 0.6 million and 0.8 million additional
shares would have been included in the diluted earnings per share
calculation for options and warrants for the three and six months ended June
30, 2002, respectively, and, depending on the amount of earnings, 2.2
million shares would have been included in the diluted earnings per share
calculation for the convertible debt. An additional 4.1 million and 1.7
million options and warrants would have been excluded from the calculation
because their strike prices were in excess of the average stock price during
the three and six months ended June 30, 2002, respectively.
For the three and six months ended June 30, 2001, diluted earnings per share
is calculated using the sum of the weighted average number of common shares
outstanding plus potentially dilutive common shares arising out of stock
options, warrants and convertible securities. A total of 1.4 million and 2.3
million options and warrants were excluded from the diluted earnings per
share calculation for the three and six months ended June 30, 2001,
respectively, as their impact was anti-dilutive.
The following is a summary of the income from continuing operations
available for common stockholders and weighted average shares (in
thousands):
Three Months Three Months Six Months Six Months
Ended June 30, Ended June 30, Ended June 30, Ended June 30,
2002 2001 2002 2001
-------------- -------------- -------------- --------------
Income (loss) from continuing operations ............ $ (7,097) $ 4,153 $ (1,758) $ 6,941
Preferred stock dividends and accretion ............. -- (115) -- (273)
-------- -------- -------- --------
Income (loss) from continuing operations available to
common stockholders (basic) ......................... (7,097) 4,038 (1,758) 6,668
Preferred stock dividends and accretion ............. -- 115 -- 273
Interest on convertible debt ........................ -- 255 -- 535
-------- -------- -------- --------
Income (loss) from continuing operations available to
common stockholders (diluted) ....................... $ (7,097) $ 4,408 $ (1,758) $ 7,476
======== ======== ======== ========
Weighted average shares outstanding (basic) ......... 32,158 19,080 32,081 18,861
Options and warrants ................................ -- 1,348 -- 970
Convertible debentures .............................. -- 3,009 -- 3,031
-------- -------- -------- --------
Weighted average shares outstanding (diluted) ....... 32,158 23,437 32,081 22,862
======== ======== ======== ========
7
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. ACQUISITIONS
On January 4, 2002, the Company acquired StatesRail ("StatesRail"), a
privately owned group of railroads headquartered in Dallas, Texas, which
owned and operated eight railroads (including seven freight railroads and a
tourist railroad in Hawaii) with 1,647 miles of track in 11 states. Total
consideration for the acquisition was $90 million, consisting of $67 million
in cash and 1.7 million shares of the Company's common stock valued at $23
million.
On January 8, 2002, the Company acquired ParkSierra Corp. ("ParkSierra"), a
privately owned group of railroads headquartered in Napa, California, which
owned and operated three freight railroads with 703 miles of track in four
western states. Total consideration for the acquisition was $48 million,
consisting of $23 million in cash and 1.8 million shares of the Company's
common stock valued at $25 million.
The cash components of the StatesRail and ParkSierra acquisitions were
financed through available cash and the issuance of $50 million of long-term
debt (see Note 6).
The results of operations of StatesRail and ParkSierra have been included in
the Company's consolidated financial statements since the dates of their
respective acquisitions.
The following unaudited pro forma summary presents the consolidated results
of operations for the Company as if the acquisitions of StatesRail and
ParkSierra had occurred at the beginning of 2001 and does not purport to be
indicative of what would have occurred had the acquisition been made as of
that date or results which may occur in the future (in thousands, except per
share data).
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
2001 2001
------------- ------------
Operating revenue......................................... $ 114,984 $ 225,827
Income from continuing operations......................... $ 5,145 $ 8,857
Net income................................................ $ 5,145 $ 8,857
Income from continuing operations per share - diluted..... $ 0.17 $ 0.31
Net income per share - diluted............................ $ 0.17 $ 0.31
In January 2002, the Company submitted a bid for the acquisition of National
Rail and FreightCorp, two government-owned railroads in Australia.
Subsequently, the Company was notified that another entity was awarded the
bid. Accordingly, the Company recorded a charge in selling, general and
administrative expense during the three months ended March 31, 2002 of $2.4
million for the direct costs incurred in preparing, submitting and financing
the bid. These costs represent amounts already paid and estimates of
remaining costs. Any changes in these estimates will be reflected in the
period of change.
8
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. DISPOSITIONS
In May 2002, the Company sold the Texas New Mexico Railroad and certain
operating assets for total consideration of $2.25 million consisting of cash
of $0.55 million, a short term note of $0.85 million and a long term note of
$0.85 million. The short-term note bears interest at 10% and is due on
November 15, 2002 and the long-term note bears interest at 7% and is due on
May 24, 2007. The net gain on the transaction of $0.9 million is included in
discontinued operations. The results of operations for the Texas New Mexico
Railroad were not material.
In March 2002, the Company sold the Georgia Southwestern Railroad and
certain operating assets for total consideration of $7.1 million, including
a long-term note for $0.8 million, resulting in a gain of $4.5 million. The
note receivable bears interest at 5% and is due February 28, 2007.
In December 2000, the Company sold its trailer manufacturing operation which
was previously classified as a discontinued operation. For the six months
ended June 30, 2002, an after-tax charge of $0.2 million to discontinued
operations was recorded in conjunction with the settlement of certain
amounts with the buyer of the business.
6. DEBT
In May 2002, the Company refinanced its senior credit facility, including
$50 million borrowed in connection with the January 2002 acquisitions of
ParkSierra and StatesRail. The new senior debt facility includes a $375
million Term B loan facility consisting of $265 million of U.S. Term Loans,
$50 million of Canadian Term Loans and $60 million of Australia Term Loans
with a 1% annual principal amortization for seven years and the balance due
in 2009 and a $100 million revolver with an $82.5 million sub-limit in the
United States, $10 million in Canada and $7.5 million in Australia. The
revolver is due in 2008. The interest rate on the Term B debt and the
revolver is LIBOR + 2.50% (4.63% at June 30, 2002). There were no
outstanding balances under the revolver at June 30, 2002. The senior credit
facility is collateralized by substantially all of the assets of the
Company, excluding its investment in Ferronor.
The senior credit facility and the indenture governing our senior
subordinated notes include numerous covenants imposing significant financial
and operating restrictions on the Company. The covenants limit the Company's
ability to, among other things: incur more debt or prepay existing debt,
redeem or repurchase the Company's common stock, pay dividends or make other
distributions, make acquisitions or investments, use assets as security in
other transactions, enter into transactions with affiliates, merge or
consolidate with others, dispose of assets or use asset sale proceeds,
create liens on the Company's assets, make certain payments or capital
expenditures and extend credit. In addition, the senior credit facility also
contains financial covenants that require the Company to meet a number of
financial ratios and tests. The Company was in compliance with each of these
as of June 30, 2002.
In connection with the refinancing, the Company terminated its existing
interest rate swaps. Because these hedging instruments were designated as
hedges of the cash flows under the previous senior debt facility, SFAS No.
133 requires the entire balance in other accumulated comprehensive loss to
be charged to earnings. Accordingly, a charge of $17.1 million was recorded
in other income (expense) during the three months ended June 30, 2002. The
new senior credit facility requires the Company to hedge a portion of its
variable interest rate debt (see Note 7). In addition, the Company recorded
an extraordinary charge of $4.5 million, net of taxes, to write off the
unamortized deferred loan costs relating to the prior senior credit
facility, as of the date of refinancing.
9
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. HEDGING ACTIVITIES
The Company currently uses derivatives to hedge against increases in fuel
prices and interest. The Company formally documents the relationship between
the hedging instrument and the hedged item, as well as the risk management
objective and strategy for the use of the hedging instrument. This
documentation includes linking the derivatives that are designated as fair
value or cash flow hedges to specific assets or liabilities on the balance
sheet, commitments or forecasted transactions. The Company assesses at the
time a derivative contract is entered into, and at least quarterly, whether
the derivative item is effective in offsetting the changes in fair value or
cash flows. Any change in fair value resulting from ineffectiveness, as
defined by SFAS No. 133, is recognized in current period earnings. For
derivative instruments that are designated and qualify as cash flow hedges,
the effective portion of the gain or loss on the derivative instrument is
recorded in accumulated other comprehensive loss as a separate component of
Stockholders' Equity and reclassified into earnings in the period during
which the hedged transaction affects earnings.
The Company monitors its hedging positions and credit ratings of its
counterparties and does not anticipate losses due to counterparty
nonperformance.
Fuel costs represented 9% of total revenues during the six months ended June
30, 2002. Due to the significance of fuel expenses to the operations of the
Company and the historical volatility of fuel prices, the Company maintains
a program to hedge against fluctuations in the price of its diesel fuel
purchases. Each one-cent change in the price of fuel would result in a $0.4
million change in fuel expense on an annual basis.
The fuel-hedging program includes the use of derivatives that are accounted
for as cash flow hedges. As of June 30, 2002, the Company had entered into
fuel swap agreements to hedge the equivalent of 180,000 gallons (8% of
estimated North American monthly consumption) at an average price of 63
cents per gallon, excluding transportation and taxes. The fair value of the
fuel swaps were not material at June 30, 2002.
As noted in Note 6, the Company terminated its interest rate swaps and
reclassified $17.1 million from accumulated other comprehensive loss against
earnings during the three months ended June 30, 2002, in connection with the
refinancing of the senior credit facility.
In June 2002, the Company, as required under its new senior credit facility,
entered into two step-up collars for a total notional amount of $75 million
with an effective date of November 24, 2002 and expiring on November 23,
2004. Under the terms of these collars, the LIBOR component of the Company's
interest rates can fluctuate within specified ranges. From November 24, 2002
through April 23, 2003, the floor and cap are 2% and 4.5%, from April 23,
2003 through November 23, 2003, the floor and cap are 2.5% and 4.75%, from
November 24, 2003 through April 23, 2004, the floor and cap are 3.5% and
5.5% and from April 24, 2004 through November 23, 2004, the floor and cap
are 4% and 5.75%. The collars qualify as cash flow hedges under SFAS No.
133. The fair value of these collars were not material at June 30, 2002.
8. COMMON STOCK REPURCHASES
The Company occasionally repurchases its common stock under its share
repurchase program. Such repurchases are limited to $5 million per year
pursuant to its borrowing arrangements. For the six months ended June 30,
2002, the Company purchased 185,000 shares at a total cost of $2 million.
In July 2002, the Board of Directors authorized a two year 2 million share
repurchase program, subject to restrictions under the Company's borrowing
arrangements.
9. COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) consists of foreign currency translation
adjustments and unrealized gains and losses on derivative instruments
designated as hedges. The following table reconciles net income to
comprehensive income (loss) for the three and six months ended June 30, 2002
and 2001 (in thousands).
10
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. COMPREHENSIVE INCOME (LOSS), CONTINUED
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2002 2001 2002 2001
--------------------- --------- ----------
Net income (loss)............................................................. $ (10,725) $ 4,153 $ (5,582) $ 6,941
Other comprehensive income (loss):
Cumulative effect of accounting change, net of taxes....................... -- -- -- (4,388)
Unrealized gain (loss) on derivatives designated as hedges, net of taxes (2,501) 373 (1,327) (1,587)
Realized (gain) loss on derivatives designated as hedges, net of taxes 10,916 -- 10,916 --
Change in accumulated translation adjustments.............................. 11,982 14,522 22,231 (9,361)
---------- -------- --------- ----------
Total comprehensive income (loss)....................................... $ (9,672) $ 19,048 $ 26,238 $ (8,395)
========== ======== ========= ==========
In 2001, the Company recorded a charge of $4.4 million to comprehensive
income for the cumulative effect of the adoption of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
10. COMMITMENTS AND CONTINGENCIES
In 2000, certain parties filed property damage claims totaling approximately
$32.5 million against RaiLink Ltd. and RaiLink Canada Ltd., wholly-owned
subsidiaries of RailAmerica, and others in connection with fires that
allegedly occurred in 1998. The Company intends to vigorously defend these
claims, and has insurance coverage of approximately $13.0 million to cover
these claims. 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.
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.
11. SEGMENT INFORMATION
The Company's continuing operations have been classified into two business
segments: North American rail transportation and International rail
transportation. The North American rail transportation segment includes the
operations of the Company's railroad subsidiaries in the United States and
Canada, and the International rail transportation segment includes the
operations of the Company's railroad subsidiaries in Chile and Australia.
Business segment information for the three months ended June 30, 2002 and
2001 follows (in thousands):
THREE MONTHS ENDED JUNE 30, 2002:
North American International Corporate and
Consolidated Railroads Railroads Other
------------ -------------- ------------- -------------
Revenue.......................... $ 115,342 $ 82,780 $ 32,482 $ 80
Depreciation and amortization.... $ 8,473 $ 5,214 $ 3,142 $ 117
Operating income (loss).......... $ 21,627 $ 21,070 $ 5,923 $ (5,366)
Total assets..................... $ 1,091,312 $ 797,130 $ 253,966 $ 40,216
THREE MONTHS ENDED JUNE 30, 2001:
North American International Corporate and
Consolidated Railroads Railroads Other
------------ -------------- ------------- -------------
Revenue.......................... $ 93,460 $ 61,471 $ 31,861 $ 128
Depreciation and amortization.... $ 6,736 $ 3,983 $ 2,371 $ 382
Operating income (loss).......... $ 19,578 $ 14,657 $ 7,863 $ (2,942)
Total assets..................... $ 855,655 $ 574,179 $ 123,117 $ 158,359
11
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SIX MONTHS ENDED JUNE 30, 2002:
North American International Corporate and
Consolidated Railroads Railroads Other
------------ -------------- ------------- -------------
Revenue.......................... $ 226,494 $ 164,731 $ 61,606 $ 157
Depreciation and amortization.... $ 17,164 $ 10,728 $ 6,116 $ 320
Operating income (loss).......... $ 42,297 $ 38,276 $ 12,163 $ (8,142)
SIX MONTHS ENDED JUNE 30, 2001:
North American International Corporate and
Consolidated Railroads Railroads Other
------------ -------------- ------------- -------------
Revenue.......................... $ 185,415 $ 123,288 $ 61,858 $ 269
Depreciation and amortization.... $ 13,465 $ 8,114 $ 4,587 $ 764
Operating income (loss).......... $ 37,522 $ 28,776 $ 14,911 $ (6,165)
12
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12. GUARANTOR FINANCIAL STATEMENT INFORMATION
In August 2000, RailAmerica Transportation Corp. ("Issuer"), a wholly-owned
subsidiary of RailAmerica, Inc. ("Parent"), sold units including 12 7/8%
senior subordinated notes, which were subsequently exchanged for notes
registered with the Securities and Exchange Commission. The notes are
guaranteed by the Parent, the domestic subsidiaries of the Issuer and Palm
Beach Rail Holdings, Inc. All amounts in the following tables are in
thousands.
RAILAMERICA, INC.
CONSOLIDATING BALANCE SHEET
June 30, 2002
Non
Company Guarantor Guarantor
Issuer (Parent) Subsidiaries Subsidiaries Eliminations Consolidated
----------- ----------- ------------ ------------- ------------ -----------
ASSETS
Current assets:
Cash .................................... $ -- $ 12,341 $ 1,118 $ 22,270 $ -- $ 35,729
Cash held in escrow ..................... -- 245 1,002 131 -- 1,378
Accounts and notes receivable ........... -- 1,335 39,107 27,108 -- 67,550
Other current assets .................... 156 (1,462) 8,430 7,216 -- 14,340
----------- ----------- ----------- ----------- ----------- -----------
Total current assets ............. 156 12,459 49,657 56,725 -- 118,997
----------- ----------- ----------- ----------- ----------- -----------
Property, plant and equipment, net ...... 45 1,301 609,063 331,288 -- 941,697
Other assets ............................ 17,667 2,888 4,156 13,016 (7,109) 30,618
Investment in and advances to affiliate . 294,526 250,217 93,632 161,911 (800,286) --
----------- ----------- ----------- ----------- ----------- -----------
Total assets ..................... $ 312,394 $ 266,865 $ 756,508 $ 562,940 $ (807,395) $ 1,091,312
=========== =========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt .... $ 2,650 $ -- $ 823 $ 8,470 $ -- $ 11,943
Accounts payable ........................ (1,992) 1,122 30,995 12,416 -- 42,541
Accrued expenses ........................ 8,645 970 17,282 11,139 -- 38,036
----------- ----------- ----------- ----------- ----------- -----------
Total current liabilities ........ 9,303 2,092 49,100 32,025 -- 92,520
----------- ----------- ----------- ----------- ----------- -----------
Long-term debt, less current maturities ... 262,350 -- 9,401 127,819 -- 399,570
Subordinated debt ......................... 119,583 20,893 -- 3,666 -- 144,142
Deferred income taxes ..................... (15,720) (10,741) 127,801 31,358 -- 132,698
Minority interest and other liabilities ... 51 265 12,493 22,811 -- 35,620
Stockholders' equity
Common stock ............................ -- 32 3,253 184,833 (188,086) 32
Additional paid-in capital .............. 758 263,810 433,193 114,089 (548,040) 263,810
Retained earnings ....................... (64,074) (9,485) 128,813 56,335 (71,269) 40,320
Accumulated other comprehensive income .. 143 (1) (7,546) (9,996) -- (17,400)
----------- ----------- ----------- ----------- ----------- -----------
Total stockholders' equity ....... (63,173) 254,356 557,713 345,261 (807,395) 286,762
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders'
equity .............................. $ 312,394 $ 266,865 $ 756,508 $ 562,940 $ (807,395) $ 1,091,312
=========== =========== =========== =========== =========== ===========
13
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12. GUARANTOR FINANCIAL STATEMENT INFORMATION, continued
RAILAMERICA, INC.
CONSOLIDATING STATEMENT OF INCOME
For the six months ended June 30, 2002
Non
Company Guarantor Guarantor
Issuer (Parent) Subsidiaries Subsidiaries Eliminations Consolidated
------ -------- ------------------------- -------------------------
Operating revenue ...................... $ -- $ (977) $ 135,531 $ 90,824 $ 1,116 $ 226,494
--------- --------- --------- --------- --------- ---------
Operating expenses:
Transportation ...................... -- -- 70,197 57,048 -- 127,245
Selling, general and administrative . 30 12,792 25,493 5,706 1,116 45,137
Gain on sale and impairment of assets
(net)............................... -- -- (5,304) (45) -- (5,349)
Depreciation and amortization ....... 89 81 8,953 8,041 -- 17,164
--------- --------- --------- --------- --------- ---------
Total operating expenses ......... 119 12,873 99,339 70,750 1,116 184,197
--------- --------- --------- --------- --------- ---------
Operating (loss) income .......... (119) (13,850) 36,192 20,074 -- 42,297
Interest expense ....................... (9,896) (907) (9,158) (5,039) -- (25,000)
Equity in earnings of subsidiaries ..... 25,507 803 -- -- (26,310) --
Minority interest and other income
(expense)............................. (19,090) 4,436 (2,122) (3,032) -- (19,808)
--------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations before income taxes (3,598) (9,518) 24,912 12,003 (26,310) (2,511)
Provision for income taxes ............. (8,882) (3,936) 8,607 3,458 -- (753)
--------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations ...................... 5,284 (5,582) 16,305 8,545 (26,310) (1,758)
Gain on sale of discontinued
operations (net of tax) ........... -- -- (657) -- -- (657)
--------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary
item ............................ 5,284 (5,582) 16,962 8,545 (26,310) (1,101)
Loss on early extinguishment of
debt (net of tax) .................. (4,481) -- -- -- -- (4,481)
--------- --------- --------- --------- --------- ---------
Net income (loss) ................ $ 803 $ (5,582) $ 16,962 $ 8,545 $ (26,310) $ (5,582)
========= ========= ========= ========= ========= =========
14
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12. GUARANTOR FINANCIAL STATEMENT INFORMATION, continued
RAILAMERICA, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2002
Non
Company Guarantor Guarantor
Issuer (Parent) Subsidiaries Subsidiaries Eliminations Consolidated
------ -------- ------------ ------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) ........................ $ 803 $ (5,582) $ 16,962 $ 8,545 $ (26,310) $ (5,582)
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization ......... 1,962 458 8,984 8,099 -- 19,503
Acquisition costs ..................... -- 2,386 -- -- -- 2,386
Financing costs ....................... 25,611 -- -- -- -- 25,611
Equity in earnings of subsidiaries .... (25,507) (803) -- -- 26,310 --
Gain on sale or disposal of properties -- -- (6,526) (47) -- (6,573)
Other ................................. (10,980) (3,732) 9,114 2,959 -- (2,639)
Changes in operating assets and
liabilities, net of acquisitions
and dispositions:
Accounts receivable ............... -- (1,324) 3,521 (1,129) -- 1,068
Other current assets .............. (134) 1,773 1,560 163 -- 3,362
Accounts payable .................. -- (708) (2,715) (5,923) -- (9,346)
Accrued expenses .................. (267) (646) (1,943) (3,475) -- (6,331)
Other assets and liabilities ...... (17,057) 10 (3,362) 439 -- (19,970)
--------- --------- --------- --------- --------- ---------
Net cash (used in) provided by
operating activities ............. (25,569) (8,168) 25,595 9,631 -- 1,489
--------- --------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment -- (454) (16,585) (13,384) -- (30,423)
Proceeds from sale of properties ......... -- 963 5,657 155 -- 6,775
Acquisitions, net of cash acquired ....... -- -- (88,724) -- -- (88,724)
Change in restricted cash in escrow ...... -- -- -- -- -- --
Deferred acquisition costs and other ..... -- (2,543) -- (2,677) -- (5,220)
--------- --------- --------- --------- --------- ---------
Net cash used in investing activities -- (2,034) (99,652) (15,906) -- (117,592)
--------- --------- --------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt . 343,500 -- 556 113,814 -- 457,870
Principal payments on long-term debt ..... (346,254) -- (356) (3,623) -- (350,233)
Disbursements/receipts on intercompany
debt .................................. 43,706 (13,879) 74,930 (104,757) -- --
Proceeds from sale of common stock ....... -- -- -- -- -- --
Proceeds from exercise of stock options
and warrants ............................ -- 370 -- -- -- 370
Purchase of treasury stock ............... -- (1,997) -- -- -- (1,997)
Preferred stock dividends ................ -- -- -- -- -- --
Financing costs .......................... (15,383) -- -- -- -- (15,383)
--------- --------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities ............ 25,569 (15,506) 75,130 5,434 -- 90,627
--------- --------- --------- --------- --------- ---------
Net (decrease) increase in cash ............. -- (25,708) 1,073 (841) -- (25,476)
Effect of exchange rates on cash ............ -- -- -- 1,444 -- 1,444
Cash, beginning of period ................... -- 38,049 45 21,667 -- 59,761
--------- --------- --------- --------- --------- ---------
Cash, end of period ......................... $ -- $ 12,341 $ 1,118 $ 22,270 $ -- $ 35,729
========= ========= ========= ========= ========= =========
15
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12. GUARANTOR FINANCIAL STATEMENT INFORMATION, continued
RAILAMERICA, INC.
CONSOLIDATING BALANCE SHEET
December 31, 2001
Non
Company Guarantor Guarantor
Issuer (Parent) Subsidiaries Subsidiaries Eliminations Consolidated
------ -------- ------------ ------------ ------------ ------------
ASSETS
Current Assets:
Cash ............................. $ -- $ 38,049 $ 457 $ 21,254 $ -- $ 59,761
Cash held in escrow .............. -- 245 2,000 173 -- 2,418
Accounts and notes receivable .... -- 911 29,353 24,014 -- 54,278
Other current assets ............. 11 1,344 5,801 7,048 -- 14,204
--------- --------- --------- --------- --------- ---------
Total current assets ....... 11 40,550 37,611 52,489 -- 130,661
--------- --------- --------- --------- --------- ---------
Property, plant and equipment, net . 48 929 434,137 303,662 -- 738,775
Other assets ....................... 12,884 3,518 (5,180) 10,510 -- 21,732
Investment in and advances to
affiliates ....................... 344,002 200,103 6,231 (113,810) (436,526) --
--------- --------- --------- --------- --------- ---------
Total assets ............... $ 356,945 $ 245,099 $ 472,799 $ 252,850 $(436,526) $ 891,168
========= ========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term
debt ........................... $ 16,635 $ -- $ 2,695 $ 6,853 $ (1,699) $ 24,484
Accounts payable ................. -- 1,831 15,667 18,536 -- 36,035
Accrued expenses ................. 7,638 1,356 18,635 12,260 -- 39,889
--------- --------- --------- --------- --------- ---------
Total current liabilities .. 24,273 3,187 36,997 37,649 (1,699) 100,408
--------- --------- --------- --------- --------- ---------
Long-term debt, less current
maturities ....................... 251,117 -- 8,842 17,244 -- 277,203
Subordinated debt .................. 118,942 20,679 -- 5,367 -- 144,988
Deferred income taxes .............. (28,978) (12,607) 108,991 29,417 -- 96,822
Minority interest and other
liabilities ...................... 15,155 2 20,317 20,729 (5,415) 50,788
Stockholders' equity:
Common stock ..................... -- 29 5,565 62,035 (67,600) 29
Additional paid-in capital ....... -- 224,248 278,322 45,623 (323,945) 224,248
Retained earnings ................ (14,118) 9,561 37,499 50,826 (37,867) 45,902
Accumulated other
comprehensive income ............ (9,446) -- (23,734) (16,040) -- (49,220)
--------- --------- --------- --------- --------- ---------
Total stockholders' equity . (23,564) 233,839 297,652 142,444 (429,412) 220,959
--------- --------- --------- --------- --------- ---------
Total liabilities and
stockholders' equity ..... $ 356,945 $ 245,099 $ 472,799 $ 252,850 $(436,526) $ 891,168
========= ========= ========= ========= ========= =========
16
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12. GUARANTOR FINANCIAL STATEMENT INFORMATION, continued
RAILAMERICA, INC.
CONSOLIDATING STATEMENT OF INCOME
For the six months ended June 30, 2001
Non
Company Guarantor Guarantor
Issuer (Parent) Subsidiaries Subsidiaries Eliminations Consolidated
------ -------- ------------ ------------ ------------ ------------
Operating revenue ............... $ -- $ 252 $ 90,107 $ 95,057 $ -- $ 185,415
--------- --------- --------- --------- --------- ---------
Operating expenses:
Transportation ............... -- -- 46,998 58,363 -- 105,361
Selling, general and
administrative ............. 83 7,292 15,962 7,518 -- 30,854
Gain on sale and impairment of
assets (net) ............... 26 -- (1,845) 32 -- (1,787)
Depreciation and amortization 514 60 6,485 6,406 -- 13,465
--------- --------- --------- --------- --------- ---------
Total operating expenses .. 622 7,352 67,600 72,319 -- 147,893
--------- --------- --------- --------- --------- ---------
Operating (loss) income ... (622) (7,101) 22,507 22,738 -- 37,522
Interest expense ................ (3,323) (1,036) (17,154) (6,880) -- (28,394)
Non-railroad operations ......... -- -- -- (198) -- (198)
Equity in earnings of
subsidiaries .................... 13,062 10,410 -- -- (23,472) --
Minority interest and other
income (expense) ................ -- 2,448 457 (2,158) -- 747
--------- --------- --------- --------- --------- ---------
Income from continuing
operations before income
taxes ................... 9,117 4,721 5,810 13,502 (23,472) 9,677
Provision for income taxes ...... (1,492) (2,218) 2,320 4,127 -- 2,736
--------- --------- --------- --------- --------- ---------
Net income ................ $ 10,609 $ 6,940 $ 3,489 $ 9,375 $ (23,472) $ 6,941
========= ========= ========= ========= ========= =========
17
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12. GUARANTOR FINANCIAL STATEMENT INFORMATION, continued
RAILAMERICA, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2001
Non
Company Guarantor Guarantor
Issuer (Parent) Subsidiaries Subsidiaries Eliminations Consolidated
------ -------- ------------ ------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) ................ $ 10,609 $ 6,940 $ 3,489 $ 9,375 $(23,472) $ 6,941
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization . 2,306 444 6,547 6,011 -- 15,308
Equity in earnings of
subsidiaries ................. (13,062) (10,410) -- -- 23,472 --
Gain on sale or disposal of
properties ................... -- -- (1,787) -- -- (1,787)
Other ......................... (2,326) 2,477 3,313 (1,280) -- 2,184
Changes in operating assets
and liabilities, net of
acquisitions and dispositions:
Accounts receivable ......... 11 (152) 6,213 (6,994) -- (922)
Other current assets ........ (59) (5,674) 3,243 3,404 -- 914
Accounts payable ............ (74) 180 (1,382) (2,156) -- (3,432)
Accrued expenses ............ 1,334 (95) (4,150) 171 -- (2,740)
Other assets and liabilities -- 127 (1,018) (314) -- (1,204)
-------- -------- -------- -------- -------- --------
Net cash (used in) provided
by operating activities .... (1,261) (6,163) 14,469 8,217 -- 15,262
-------- -------- -------- -------- -------- --------
Cash flows from investing activities:
Purchase of property, plant
and equipment ................... -- (91) (12,265) (9,862) -- (22,218)
Proceeds from sale of properties . -- -- 9,341 -- -- 9,341
Change in cash in escrow ......... -- (245) 449 1,108 -- 1,313
Deferred acquisition costs and
other ........................... -- (276) -- -- -- (276)
-------- -------- -------- -------- -------- --------
Net cash used in investing
activities ................. -- (612) (2,475) (8,754) -- (11,840)
-------- -------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of
long-term debt .................. 52,300 -- 298 -- -- 52,598
Principal payments on
long-term debt .................. (76,779) -- (435) (119) -- (77,333)
Disbursements/receipts on
intercompany debt ............... 25,740 (33,383) 3,611 4,032 -- --
Proceeds from sale of common
stock .......................... -- 38,219 -- -- -- 38,219
Proceeds from exercise of
stock options and warrants ...... -- 2,492 -- -- -- 2,492
Purchase of treasury stock........ (345) (345)
Preferred stock dividends ........ -- (218) -- -- -- (218)
-------- -------- -------- -------- -------- --------
Net cash provided by
(used in) financing
activities ................. 1,261 6,765 3,474 3,912 -- 15,413
-------- -------- -------- -------- -------- --------
Net decrease in cash ................ -- (10) 15,469 3,376 -- 18,835
Effect of exchange rates on cash .... -- -- -- (2,053) -- (2,053)
Cash, beginning of period ........... -- 7 2,942 10,141 -- 13,090
-------- -------- -------- -------- -------- --------
Cash, end of period ................. $ -- $ (3) $ 18,411 $ 11,463 $ -- $ 29,872
======== ======== ======== ======== ======== ========
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is the world's largest short line and regional freight railroad
operator. It owns 49 railroads operating approximately 12,900 route-miles in the
United States, Canada, Australia, Chile and Argentina. In North America, the
Company operates 46 railroads in 27 states and six Canadian provinces.
In January 2002, the Company acquired StatesRail, a privately owned group of
railroads headquartered in Dallas, Texas, which owned and operated eight
railroads (including seven freight railroads and a tourist railroad in Hawaii)
with 1,647 miles of track in 11 states. Total consideration for the acquisition
was $90 million, consisting of $67 million in cash and 1.7 million shares of the
Company's common stock valued at $23 million. The cash portion of the purchase
price was financed through available cash and a portion of the $50 million term
loan under the Company's prior senior credit facility.
In January 2002, the Company also acquired ParkSierra Corp. ("ParkSierra"),
a privately owned group of railroads headquartered in Napa, California, which
owned and operated three freight railroads with 703 miles of track in four
western states. Total consideration for the acquisition was $48 million,
consisting of $23 million in cash and 1.8 million shares of the Company's common
stock valued at $25 million. The cash portion of the purchase price was financed
through available cash and a portion of the $50 million term loan under the
Company's prior senior credit facility.
For the three months ended June 30, 2002, the Company's operating revenues
increased $21.9 million, or 23% to $115.3 million from $93.5 million in the
three months ended June 30, 2001. The acquisitions of ParkSierra and StatesRail
contributed $23.0 million of operating revenues in 2002. On a "same railroad"
basis, revenues in 2002 were comparable to 2001. Operating income increased to
$21.6 million in 2002 from $19.6 million in 2001 primarily due to the
acquisitions of ParkSierra and StatesRail. During the three months ended June
30, 2002, the Company recorded a charge to other income (expense) of $19.1
million for the write-off of its interest rate swaps and other refinancing
related costs as well as a charge of $4.5 million, after tax, as an
extraordinary item for the write-off of the unamortized deferred loan costs from
the terminated credit facility which was originally entered into in 2000. In May
2002, the Company sold the Texas New Mexico Railroad and recorded a gain of $0.9
million, after-tax, as a gain from discontinued operations, as required by SFAS
No. 144.
Set forth below is a discussion of the historical results of operations for
the Company's North American and international railroad operations as well as a
discussion of corporate overhead.
NORTH AMERICAN RAILROAD OPERATIONS
The Company's historical results of North American railroad operations
include the operations of its acquired railroads from the dates of acquisition
as follows:
Name of Railroad Date of Acquisition
---------------- -------------------
StatesRail (8 railroads)......... January 2002
ParkSierra (3 railroads)......... January 2002
The Company disposed of certain railroads during 2001 and 2002 as follows:
Dakota Rail....................... December 2001
Georgia Southwestern Railroad..... March 2002
Texas New Mexico Railroad......... May 2002
As a result, the results of operations for the three and six months ended
June 30, 2002 and 2001 are not comparable in various material respects and are
not indicative of the results which would have occurred had the acquisitions or
dispositions been completed at the beginning of the periods presented.
19
COMPARISON OF NORTH AMERICAN RAILROAD OPERATING RESULTS FOR THE THREE MONTHS
ENDED JUNE 30, 2002 AND 2001.
The following table sets forth the operating revenues and expenses (in
thousands) for the Company's North American railroad operations for the three
months ended June 30, 2002 and 2001.
For the three months
ended June 30,
---------------------
2002 2001
--------- ---------
Operating revenue............................ $ 82,780 $ 61,471
--------- ---------
Operating expenses:..........................
Maintenance of way........................ 8,321 6,653
Maintenance of equipment.................. 7,354 5,067
Transportation............................ 21,796 17,673
Equipment rental.......................... 4,821 3,874
Selling, general and administrative....... 14,204 9,564
Depreciation and amortization............. 5,214 3,983
--------- ---------
Total operating expenses.................. 61,710 46,814
--------- ---------
Operating income.......................... $ 21,070 $ 14,657
========= =========
OPERATING REVENUE. Operating revenue increased by $21.3 million, or 35%, to
$82.8 million in 2002 from $61.5 million in 2001. Total carloads increased 26%
to 274,896 in 2002 from 219,026 in 2001. Excluding the acquisitions of
ParkSierra and StatesRail and the dispositions of the Texas New Mexico Railroad
and the Georgia Southwestern Railroad, operating revenues were comparable while
carloads declined 1%. The average rate per carload increased in 2002 to $264
from $249 in 2001. The increase in the average rate per carload is due to the
acquisitions of ParkSierra and StatesRail which, on average, have a higher rate
per carload as well as a change in mix of commodities on the existing
RailAmerica railroads. Bridge traffic, which declined 3,629 carloads in 2002,
has lower rates per carload, thus improving the overall rate per carload.
OPERATING EXPENSES. Operating expenses increased by $14.9 million, or 32%,
to $61.7 million in 2002 from $46.8 million in 2001. StatesRail and ParkSierra's
direct operating expenses were $16.1 million in 2002. The operating ratio was
74.6% in 2002 compared to 76.2% in 2001. The improvement in the operating ratio
is primarily due to lower fuel, casualty and rental costs in 2002, partially
offset by higher general and administrative costs.
MAINTENANCE OF WAY. Maintenance of way expense increased $1.7 million, or
25%, to $8.3 million in 2002 from $6.7 million in 2001. Excluding ParkSierra and
StatesRail, maintenance of way expense decreased $0.8 million primarily due to
lower casualty expense in 2002.
MAINTENANCE OF EQUIPMENT. Maintenance of equipment expense increased $2.3
million, or 45%, to $7.4 million in 2002 from $5.1 million in 2001. Excluding
ParkSierra and StatesRail, the decrease was $0.1 million.
TRANSPORTATION. Transportation expense increased $4.1 million, or 23%, to
$21.8 million in 2002 from $17.7 million in 2001. Excluding ParkSierra and
StatesRail, transportation expense decreased $0.8 million. The decrease in
transportation expense is due primarily to lower fuel prices in 2002. Fuel costs
were 83 cents per gallon in 2002 compared to $1.06 per gallon in 2001.
EQUIPMENT RENTAL. Equipment rental increased $0.9 million, or 24%, to $4.8
million in 2002 from $3.9 million in 2001. Excluding ParkSierra and StatesRail,
the expense decreased $0.6 million.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expense increased $4.6 million, or 49%, to $14.2 million in 2002 from $9.6
million in 2001. Excluding ParkSierra and StatesRail, selling, general and
administrative expense increased $0.8 million.
20
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $1.2 million, or 31%, to $5.2 million in 2002 from $4.0 million in
2001. Excluding ParkSierra and StatesRail, depreciation and amortization
increased $0.3 million.
COMPARISON OF NORTH AMERICAN RAILROAD OPERATING RESULTS FOR THE SIX MONTHS ENDED
JUNE 30, 2002 AND 2001.
The following table sets forth the operating revenues and expenses (in
thousands) for the Company's North American railroad operations for the six
months ended June 30, 2002 and 2001.
For the six months
ended June 30,
---------------------
2002 2001
--------- ---------
Operating revenue.............................. $ 164,731 $ 123,288
--------- ---------
Operating expenses:
Maintenance of way.......................... 17,848 13,042
Maintenance of equipment.................... 15,477 9,930
Transportation.............................. 44,238 36,259
Equipment rental............................ 9,797 7,792
Selling, general and administrative......... 28,367 19,375
Depreciation and amortization............... 10,728 8,114
--------- ---------
Total operating expenses.................... 126,455 94,512
--------- ---------
Operating income............................ $ 38,276 $ 28,776
========= =========
OPERATING REVENUE. Operating revenue increased by $41.4 million, or 34%, to
$164.7 million in 2002 from $123.3 million in 2001. Total carloads increased 23%
to 549,915 in 2002 from 447,136 in 2001. Excluding the acquisitions of
ParkSierra and StatesRail and the dispositions of the Texas New Mexico Railroad
and the Georgia Southwestern Railroad, operating revenues were down 1% while
carloads declined 3%. The average rate per carload in 2002 was $262 compared to
$244 in 2001. The average rate per carload increased as ParkSierra and
StatesRail's average rate per carload was higher than RailAmerica's historical
rate per carload and a change in commodity mix in 2002. Bridge traffic, which
has a lower rate per carload, declined 10,774 carloads in 2002, thus improving
the overall rate per carload.
OPERATING EXPENSES. Operating expenses increased by $31.9 million, or 34%,
to $126.5 million in 2002 from $94.5 million in 2001. StatesRail and
ParkSierra's operating expenses were $33.1 million in 2002. The operating ratio
was 76.8% in 2002, comparable to 76.7% in 2001.
MAINTENANCE OF WAY. Maintenance of way expense increased $4.8 million, or
37%, to $17.8 million in 2002 from $13.0 million in 2001. Excluding ParkSierra
and StatesRail, maintenance of way expense decreased $0.2 million primarily due
to lower casualty expense in 2002.
MAINTENANCE OF EQUIPMENT. Maintenance of equipment expense increased $5.5
million, or 56%, to $15.5 million in 2002 from $9.9 million in 2001. Excluding
ParkSierra and StatesRail, the increase was $0.7 million primarily due to the
Company's fleet rationalization and upgrade program.
TRANSPORTATION. Transportation expense increased $8.0 million, or 22%, to
$44.2 million in 2002 from $36.3 million in 2001. Excluding ParkSierra and
StatesRail, transportation expense decreased $2.1 million. The decrease in
transportation expense is due primarily to lower fuel prices in 2002. Fuel costs
were 81 cents per gallon in 2002 compared to $1.06 per gallon in 2001.
EQUIPMENT RENTAL. Equipment rental increased $2.0 million, or 26%, to $9.8
million in 2002 from $7.8 million in 2001. Excluding ParkSierra and StatesRail,
the expense decreased $1.0 million.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expense increased $9.0 million, or 46%, to $28.4 million in 2002 from $19.4
million in 2001. Excluding ParkSierra and StatesRail, selling, general and
administrative expense increased $1.1 million.
21
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $2.6 million, or 32%, to $10.7 million in 2002 from $8.1 million in
2001. Excluding ParkSierra and StatesRail, depreciation and amortization
increased $0.4 million.
INTERNATIONAL RAILROAD OPERATIONS
COMPARISON OF INTERNATIONAL RAILROAD OPERATING RESULTS FOR THE THREE MONTHS
ENDED JUNE 30, 2002 AND 2001.
The following table sets forth the operating revenues and expenses (in
thousands) for the Company's international railroad operations for the three
months ended June 30, 2002 and 2001.
For the three months
ended June 30,
---------------------
2002 2001
--------- ---------
Operating revenues............................ $ 32,482 $ 31,861
--------- ----------
Operating expenses:
Transportation............................. 21,531 19,715
Selling, general and administrative........ 1,886 1,912
Depreciation and amortization.............. 3,142 2,371
--------- ---------
Total operating expenses ............... 26,559 23,998
--------- ---------
Operating income.................... $ 5,923 $ 7,863
========= =========
OPERATING REVENUE. Operating revenues increased $0.6 million, or 2%, to
$32.5 million in 2002 from $31.9 million in 2001. Freight Australia's revenues
were $26.9 million in 2002 compared to $26.4 million in 2001, while Ferronor's
revenues were $5.6 million in 2002 compared to $5.5 million during the same
periods. Freight Australia benefited from an increase in the Australian Dollar
against the U.S. Dollar to 55 cents in 2002 from 51 cents in 2001, impacting
revenues by $1.8 million in 2002. This was partially offset by a reduction in
grain traffic compared to 2001. Due to the lack of rain in the grain growing
regions served by Freight Australia, lower grain traffic may continue over the
remainder of 2002.
OPERATING EXPENSES. Operating expenses increased $2.6 million, or 11%, to
$26.6 million in 2002 from $24.0 million in 2001. Freight Australia's operating
expenses increased $2.9 million, or 15%, to $22.1 million in 2002 from $19.2
million in 2001. The increase in the Australian Dollar against the U.S. Dollar,
as noted above, increased total operating expenses by $1.5 million. The
remaining increase at Freight Australia was due to higher maintenance and
depreciation expenses associated with track upgrades and rolling stock
refurbishment to support increased traffic. In addition, fuel costs were
slightly higher at Freight Australia in 2002 as compared to 2001. Ferronor's
operating expenses decreased $0.3 million to $4.5 million in 2002 from $4.8
million in 2001. The reduction in operating expenses at Ferronor is due to
personnel reductions and lower fuel costs. The operating ratio for the
international operations was 81.8% in 2002 compared to 75.3% in 2001.
22
COMPARISON OF INTERNATIONAL RAILROAD OPERATING RESULTS FOR THE SIX MONTHS ENDED
JUNE 30, 2002 AND 2001.
The following table sets forth the operating revenues and expenses (in
thousands) for the Company's international railroad operations for the six
months ended June 30, 2002 and 2001.
For the six months
ended June 30,
---------------------
2002 2001
--------- ---------
Operating revenues............................. $ 61,606 $ 61,858
--------- ----------
Operating expenses:
Transportation.............................. 39,882 38,339
Selling, general and administrative......... 3,445 4,021
Depreciation and amortization............... 6,116 4,587
--------- ---------
Total operating expenses................. 49,443 46,947
--------- ---------
Operating income..................... $ 12,163 $ 14,911
========= =========
OPERATING REVENUE. Operating revenues were $61.6 million in 2002 comparable
to $61.9 million in 2001. Freight Australia's revenues were $50.7 million in
2002 compared to $50.3 million in 2001, while Ferronor's revenues were $10.9
million in 2002 compared to $11.5 million during 2001. Freight Australia
benefited from an increase in the Australian Dollar against the U.S. Dollar to
54 cents in 2002 from 52 cents in 2001, impacting revenues by $1.1 million in
2002. This was partially offset by lower grain traffic compared to 2001. Due to
the lack of rain in the grain growing regions served by Freight Australia, lower
grain traffic may continue over the remainder of 2002. The decline in revenues
at Ferronor was due to a change in commodity mix in 2002.
OPERATING EXPENSES. Operating expenses increased $2.5 million to $49.4
million in 2002 compared to $46.9 million in 2001. Freight Australia's operating
expenses increased $3.8 million to $40.8 million in 2002 from $37.0 million in
2001. The increase in the Australian Dollar against the U.S. Dollar, as noted
above, impacted total operating expenses by $1.0 million. The remaining increase
at Freight Australia was due to higher maintenance and depreciation expenses
associated with track upgrades and rolling stock refurbishment to support
increased traffic. These increases were partially offset by slightly lower fuel
costs in 2002 compared to 2001 at Freight Australia. Ferronor's operating
expenses decreased $1.2 million to $8.7 million in 2002 from $9.9 million in
2001. The reduction in operating expenses at Ferronor is due to personnel
reductions and lower fuel costs. The operating ratio for the international
operations was 80.3% in 2002 compared to 75.9% in 2001.
CORPORATE OVERHEAD AND OTHER
CORPORATE OVERHEAD. Corporate overhead services performed for our
subsidiaries include executive management, overall strategic planning,
accounting, finance, legal, cash management, payroll and tax. Corporate
overhead, which is included in selling, general and administrative expenses in
the consolidated statements of income, increased $5.6 million to $13.2 million
during the six months ended June 30, 2002 from $7.6 million in the six months
ended June 30, 2001. Approximately $2.4 million of the increase is due to the
write-off of the estimated failed bid costs in connection with the proposed
acquisition of National Rail and FreightCorp, two government-owned railroads in
Australia. In addition, the Company recorded a $0.7 million charge in 2002
relating to the consolidation of the accounting and human resource functions
from San Antonio to Boca Raton.
ASSET SALES. Gains on sales of assets were $5.3 million in 2002 compared to
$1.8 million in 2001. The gain in 2002 relates primarily to the sale of the
Georgia Southwestern Railroad in March 2002 resulting in a gain of $4.5 million.
INTEREST EXPENSE. Interest expense, including amortization of deferred
financing costs, decreased to $25.0 million in 2002 from $28.4 million in 2001.
The decrease in interest expense from 2001 to 2002 is primarily due to a
decrease in interest rates and the refinancing of our senior debt in May 2002
which resulted in a lower interest rate to the Company.
FINANCING COSTS. In connection with the refinancing in May 2002, the Company
incurred a charge of $19.1 million in connection with the termination of its two
existing interest rate swaps which fixed the LIBOR component of its debt at
6.72% and the write off of other refinancing related costs incurred in
connection with its refinancing.
DISCONTINUED OPERATIONS. In May 2002, the Company sold the Texas New Mexico
Railroad for $2.3 million resulting in a net gain of $1.3 million ($0.9 million,
after tax). The gain has been included in Discontinued Operations.
23
EXTRAORDINARY CHARGE. In connection with the refinancing of the senior debt
in May 2002, the Company wrote off the unamortized balance of the deferred loan
costs relating to its old senior credit facility. The total charge of $6.6
million ($4.5 million, after tax) was included as an extraordinary charge.
LIQUIDITY AND CAPITAL RESOURCES - COMBINED OPERATIONS
The discussion of liquidity and capital resources that follows reflects the
consolidated results of the Company and its subsidiaries.
The Company's cash provided by operating activities was $1.5 million for
the six months ended June 30, 2002. This amount includes a net loss of $5.6
million, $6.6 million of asset sale gains and $31.3 million of changes in
working capital accounts offset by $19.5 million in depreciation and
amortization, $25.6 million of refinancing related charges and $2.4 million of
bid costs. Excluding the payments for the termination of the interest rate
swaps, which are classified as an operating activity pursuant to SFAS No. 104,
cash flows from operations would have been $18.5 million.
Cash used in investing activities was $117.6 million for the six months
ended June 30, 2002. The primary use of cash was for the purchase of ParkSierra
and StatesRail totaling $88.7 million. In addition, capital expenditures during
the quarter were $30.4 million. These amounts were partially offset with
proceeds from asset sales of $6.8 million.
Cash provided by financing activities was $90.6 million for the six months
ended June 30, 2002. This included $50 million of borrowings to finance the
acquisitions of ParkSierra and StatesRail and an additional $50 million of
borrowings in connection with the refinancing of the senior credit facility in
May. These amounts were partially offset by the payoff of the interest rate
swaps and new financing costs totaling $15.4 million.
As of June 30, 2002, the Company had working capital of $26.5 million,
including cash on hand of $35.7 million, and $100 million of availability under
its revolving credit facility. The Company's cash flows from operations and
borrowing under its credit agreements historically have been sufficient to meet
its ongoing operating requirements, capital expenditures for property, plant and
equipment, and to satisfy the Company's debt service requirements.
In May 2002, the Company refinanced its senior credit facility. The new
senior credit facility entails 1% annual principal amortization and provides (1)
a $265 million U.S. Term Loan, (2) a $50 million Canadian Term Loan, (3) a $60
million Australian Term Loan and (4) a $100 million revolving credit facility
which includes $82.5 million of U.S. dollar denominated loans, $10 million of
Canadian dollar denominated loans and $7.5 million of Australian dollar
denominated loans. The U.S. Term Loan, the Canadian Term Loan and the Australian
Term Loan mature on May 23, 2009 and the revolver loans mature on May 23, 2008.
At the Company's option, the new senior credit facilities will bear interest at
either (1) the alternative base rate (defined as the greater of (i) UBS AG's
prime rate and (ii) the Federal Funds Effective Rate plus 0.005%) if such loan
is a Term Loan or U.S. Revolving Loan or the Canadian Prime Rate (defined as the
greater of (i) UBS AG's Canadian prime rate and (ii) the average rate for 30 day
Canadian Dollar bankers' acceptances plus 1.0% per annum) if such loan is a
Canadian revolving loan plus 1.00% for the revolving credit facilities and 1.50%
for the Term Loan facility, or (2) the reserve-adjusted LIBO rate (or, in the
case of Australian revolving loans, the BBSY Rate) plus 2.00% for the revolving
credit facility and 2.50% for the term loan facilities; PROVIDED, that the
additional amounts added to the alternative base rate and the LIBO rate for the
revolving credit facilities and the term loan facilities discussed above will be
subject to adjustment based on changes in the Company's leverage ratio effective
two fiscal quarters after the closing of the new senior credit facilities. The
default rate under the new senior credit facility is 2.0% above the otherwise
applicable rate. The loans are collateralized by substantially all of the
Company's assets other than those of Ferronor and any subsidiary that is
designated by the Company as an Unrestricted Subsidiary pursuant to the terms of
the credit agreement governing the credit facility. The loans are guaranteed by
all the Company's subsidiaries other than the Unrestricted Subsidiaries. The
loans are provided by a syndicate of banks with Morgan Stanley Senior Funding,
Inc., as syndication agent, UBS AG, Stamford Branch, as administrative agent and
The Bank of Nova Scotia, as collateral agent.
In connection with the refinancing of the senior credit facility in May, the
Company terminated its interest rate swap agreements resulting in a cash payment
of $17.1 million. Additionally, the Company, as required under its new senior
credit facility, entered into two step-up collars for a total notional amount of
$75 million with an effective date of November 24, 2002 and expiring on November
23, 2004. Under the terms of those collars, the LIBOR component of the Company's
interest rates can fluctuate within specified ranges. From November 24, 2002
through April 23, 2003, the floor and cap are 2% and 4.5%, from April 23, 2003
through November 23, 2003, the floor and cap are 2.5% and 4.75%, from November
24, 2003 through April 23, 2004, the floor and cap are 3.5% and 5.5% and from
April 24, 2004 through November 23, 2004, the floor and cap are 4% and 5.75%.
The collars qualify as cash flow hedges under SFAS No. 133. The fair value of
these collars were not material at June 30, 2002.
In August 2000, RailAmerica Transportation Corp., our wholly-owned
subsidiary, sold units consisting of $130.0 million of 12-7/8% senior
subordinated notes due 2010 and warrants to purchase 1,411,414 shares of our
common stock. Our U.S. subsidiaries are guarantors of the senior subordinated
notes.
24
The senior credit facility and the indenture governing our senior
subordinated notes include numerous covenants imposing significant financial and
operating restrictions on the Company. The covenants limit the Company's ability
to, among other things: incur more debt or prepay existing debt, redeem or
repurchase the Company's common stock, pay dividends or make other
distributions, make acquisitions or investments, use assets as security in other
transactions, enter into transactions with affiliates, merge or consolidate with
others, dispose of assets or use asset sale proceeds, create liens on the
Company's assets, make certain payments or capital expenditures and extend
credit. In addition, the senior credit facility also contains financial
covenants that 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 senior credit facility can be affected by events
beyond its control. The Company's failure to comply with the obligations in the
new senior credit facility could result in an event of default under the new
senior credit facility, 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. The Company was in compliance with each of these as of
June 30, 2002.
The Company's long-term business strategy includes the selective acquisition
or disposition of 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 whether sufficient financing for such activities will be
available on terms acceptable to the Company, if at all.
NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" and SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Under
SFAS No. 142, goodwill and identifiable intangible assets with an indefinite
life will no longer be amortized; however, both goodwill and other intangible
assets will need to be tested at least annually for impairment. SFAS No. 144
addresses financial accounting and reporting for the impairment of long-lived
assets, excluding goodwill and intangible assets, to be held and used or
disposed of. The adoption of these pronouncements did not have a material impact
on the Company's financial statements.
During the three months ended June 30, 2002, the Company sold the Texas New
Mexico Railroad. In accordance with SFAS No. 144, it has been presented as a
discontinued operation in 2002.
In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". SFAS No. 145, which is effective
for fiscal years beginning after May 15, 2002, requires that debt
extinguishments used as part of a company's risk management strategy should not
be classified as an extraordinary item. It also requires sale-leaseback
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. Management is evaluating the impact this
standard may have on the Company's financial statements.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS 146, which is effective for
exit or disposal activities initiated after December 31, 2002, requires that a
liability for a cost associated with an exit or disposal activity is recognized
at fair value when the liability is incurred rather than when management commits
to an exit or disposal plan. Management is evaluating the impact this standard
may have on the Company's financial statements.
INFLATION
Inflation in recent years has not had a significant impact on the Company's
operations. The Company believes that inflation will not adversely affect the
Company in the future unless it increases substantially and the Company is
unable to pass through such increases in its freight rates.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
The foregoing Management's Discussion and Analysis contains various
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which represent the Company's expectations or beliefs concerning
future events, including: statements regarding further growth in
transportation-related assets; the acquisition or disposition of railroads,
assets and other companies; the increased usage of the Company's existing rail
lines; the growth of gross revenues; and the sufficiency of the Company's cash
flows for the Company's future
25
liquidity and capital resource needs. The Company cautions that these statements
are further qualified by important factors that could cause actual results to
differ materially from those in the forward-looking statements, including,
without limitation, the following: decline in demand for transportation
services; the effect of economic conditions generally and particularly in the
markets served by the Company; the Company's dependence upon the agricultural
industry as a significant user of the Company's rail services; the Company's
dependence upon the availability of financing for acquisitions of railroads and
other companies; an adverse change in currency exchange rates, interest rates or
fuel costs; a decline in the market acceptability of railroad services; an
organization or unionization of a material segment of the Company's employee
base; the effect of competitive pricing; failure to acquire additional
businesses; costs of seeking to acquire businesses; the inability to integrate
acquired businesses; failure to achieve expected synergies; failure to service
debt; failure to successfully market and sell non-core properties and assets;
and the regulation of the Company by federal, state, local and foreign
regulatory authorities. Results actually achieved thus may differ materially
from expected results included in these statements.
26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATES. The Company's interest rate risk results from holding
variable rate debt obligations. An increase in interest rates would result in
lower earnings and increased cash outflows.
To partially mitigate the interest rate risk, in June 2002, the Company
entered into two step-up collars for a total notional amount of $75 million with
an effective date of November 24, 2002 and expiring on November 23, 2004. Under
the terms of these collars, the LIBOR component of the Company's interest rates
can fluctuate within specified ranges. From November 24, 2002 through April 23,
2003, the floor and cap are 2% and 4.5%, from April 23, 2003 through November
23, 2003, the floor and cap are 2.5% and 4.75%, from November 24, 2003 through
April 23, 2004, the floor and cap are 3.5% and 5.5% and from April 24, 2004
through November 23, 2004, the floor and cap are 4% and 5.75%. The collars
qualify as cash flow hedges under SFAS No. 133. The fair value of these collars
were not material at June 30, 2002.
DIESEL FUEL. Diesel fuel represents a significant variable expense to the
Company's operations. Therefore, the Company is exposed to fluctuations in
diesel fuel prices, as an increase in the price of diesel fuel would result in
lower earnings and increased cash outflows. To mitigate this exposure, the
Company maintains a program to hedge against fluctuations in the price of its
diesel fuel purchases. Excluding the impact of the hedging program, each
one-cent change in the price of fuel would result in approximately a $0.4
million change in fuel expense on an annual basis.
The fuel-hedging program includes the use of derivatives that qualify and
are accounted for as cash flow hedges. The Company has entered into swap
contracts for 8% of its North American fuel consumption for the second half of
2002 at an average price of approximately $0.63 per gallon. The price does not
include taxes, transportation costs, certain other fuel handling costs and any
differences, which may occur from time to time between the prices of commodities
hedged and the purchase price of diesel fuel.
27
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 2002 annual meeting on June 20, 2002 at which
Donald D. Redfearn, Charles Swinburn and Ferd C. Meyer, Jr. were re-elected as
Directors of the Company. No other proposals were presented at the 2002 annual
meeting. At the meeting the votes were cast as follows:
In Favor Against Abstain Broker Non-Votes
-------- ------- ------- ----------------
Re-election of Donald D. Redfearn 20,893,689 -- 3,383,839 --
Re-election of Charles Swinburn 23,400,876 -- 876,652 --
Re-election of Ferd C. Meyer, Jr. 23,400,868 -- 876,660 --
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.85 Credit Agreement, dated as of May 23, 2002 among RailAmerica, Inc.,
Palm Beach Rail Holding, Inc., RailAmerica Transportation Corp., as
a borrower, RailAmerica Canada Corp., as the Canadian Term Borrower,
Railink Ltd., as the Canadian Revolver Borrower, RailAmerica
Australia Finance Pty., Ltd., as the Australian Term Borrower,
Freight Victoria Limited and RailAmerica Australia Pty., Ltd., as
the Australian Revolver Borrowers, various financial institutions
from time to time parties hereto, as the lenders, UBS Warburg LLC
and Morgan Stanley Senior Funding, Inc., as Joint Lead Arrangers and
Bookrunners, Morgan Stanley Senior Funding, Inc., as Syndication
Agent for the lenders, UBS AG, Stamford Branch, as the
Administrative Agent for the lenders, The Bank of Nova Scotia, as
Collateral Agent for the lenders, and The Bank of Nova Scotia and
Credit Lyonnais New York Branch, as the Document Agents for the
lenders.
99.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the three months ended June 30, 2002.
Items 1,2,3 and 5 are not applicable and have been omitted.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RAILAMERICA, INC.
Date: August 13, 2002 By: /s/ Bennett Marks
-----------------------------------------
Bennett Marks, Senior Vice President -
Chief Financial Officer, Principal
Financial and Accounting Officer
29