Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Railamerica, Inc. 85 425K
2: EX-2.2 Merger Agreement 45 247K
3: EX-2.3 Stock Purchase Agreement 43 230K
4: EX-2.4 Letter Agreement 5 25K
5: EX-4.11 Warrant to Purchase/Stonegate 9 39K
6: EX-4.12 Warrant to Purchase/Railamerica 8 39K
7: EX-4.13 First Supplemental Indenture Dated 2/13/02 8 24K
8: EX-4.14 Second Supplemental Indenture Dated 1/24/02 8 25K
9: EX-10.79 Waiver and Amendment No. 3 to Credit Agreement 87 127K
10: EX-10.80 Change in Control Service Agreement 15 70K
11: EX-10.81 Service Agreement Dated 4/4/01 8 27K
12: EX-10.82 Amend. & Restated Employment Agreement (Marino) 13 62K
13: EX-10.83 Amend. & Restated Employment Agreement (Redfearn) 12 53K
14: EX-10.84 Executive Employment Agreement (Gary Spiegel) 12 53K
15: EX-21.1 Subsidiaries of the Company 2 14K
16: EX-23.1 Consent of Pricewaterhousecoopers 1 9K
17: EX-23.2 Consent of Langton Clarke Limitada 1 9K
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, 2001 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:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, $.001 Par Value New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
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. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 22, 2002 computed by reference to the average bid and
asked prices of registrant's common stock reported on the New York Stock
Exchange on such date was $334.6 million.
The number of shares outstanding of registrant's Common Stock, $.001 par value
per share, as of March 22, 2002 was 32,327,644.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's proxy statement for the 2002 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.
TABLE OF CONTENTS
[Download Table]
PAGE
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PART I
Item 1. Business 4
Item 2. Properties 15
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 20
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 20
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis 32
Item 7a. Market Risk 44
Item 8. Financial Statements 44
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 44
PART III
Item 10. Directors and Executive Officers of the Registrant 45
Item 11. Executive Compensation 45
Item 12. Security Ownership of Certain Beneficial Owners and Management 45
Item 13. Certain Relationships and Related Transactions 45
PART IV
Item 14. Exhibits and Reports on Form 8-K 45
Signatures 49
3
This Form 10-K contains certain "forward-looking" statements within the
meaning of The Private Securities Litigation Reform Act of 1995 and information
relating to RailAmerica, Inc. and its subsidiaries that are based on the beliefs
of our management and that involve known and unknown risks and uncertainties.
When used in this report, the terms "anticipate," "believe," "estimate,"
"expect" and "intend" and words or phrases of similar import, as they relate to
us or our subsidiaries or our management, are intended to identify
forward-looking statements. These statements reflect the current risks,
uncertainties and assumptions related to various 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 successfully integrate
acquired operations, the ability to successfully market and sell non-core
properties and assets, the ability to service debt, one-time events and other
factors described under the heading "Factors affecting our operating results,
business prospects and market price of stock" and elsewhere in this report and
in other filings made by us 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 in this report as anticipated,
believed, estimated or intended. We undertake no obligation to update, and we do
not have a policy of updating or revising, these forward-looking statements.
Except where the context otherwise requires, the terms "we," "us," or "our"
refer to the business of RailAmerica, Inc. and its consolidated subsidiaries.
PART I
ITEM 1. BUSINESS
GENERAL
We are 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. We own, lease or operate a diversified portfolio of 49
railroads with approximately 12,900 miles of track located in the United States,
Australia, Canada, Chile and Argentina. Through our diversified portfolio of
rail lines, we operate in numerous geographic regions with varying
concentrations of commodities hauled. We believe that individual economic and
seasonal cycles in each region may partially offset each other. All dollar
amounts in this report are in U.S. dollars unless otherwise indicated.
We were incorporated in Delaware on March 31, 1992 as a holding company
for two pre-existing railroad companies. Our principal executive office is
located at 5300 Broken Sound Blvd, N.W., Boca Raton, Florida 33487, and our
telephone number at that location is (561) 994-6015.
4
RECENT DEVELOPMENTS
Since January 1, 2001, we have completed the following significant transactions:
o In June 2001, we completed the private placement sale of 3.8 million
shares of our common stock, for $10.75 per share, resulting in net
proceeds of $38.2 million. The proceeds from this private placement
were used to pay down existing debt and for general corporate
purposes.
o In July 2001, we realized $8.4 million in net proceeds on the
sale/leaseback of certain locomotives.
o In December 2001, we completed the private placement sale of 4.3
million shares of our common stock, for $12.50 per share, resulting
in net proceeds of $51.5 million. The proceeds from this private
placement were used to acquire StatesRail and ParkSierra , as well
as for the reduction of debt and other general corporate purposes.
o During 2001, we sold several various non-core assets including
Dakota Rail for total proceeds of $9.8 million.
o In January 2002, we acquired all of the stock of StatesRail, which
owned and operated eight railroads (consisting of seven freight
railroads and a tourist railroad in Hawaii) with 1,647 miles of
track in eleven states. Total consideration for the acquisition was
$90 million, consisting of $67 million in cash, and $23 million in
our common stock.
o In January 2002, we also acquired all of the stock of ParkSierra,
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
$25 million in our common stock.
o In March 2002, we sold the Georgia Southwestern Railroad and certain
operating assets for total consideration of $7.1 million.
BUSINESS STRATEGY
CONTINUE TO GROW THROUGH SELECTIVE ACQUISITIONS. During 1999 and
2000, we acquired RailTex, RaiLink, TPW and Freight Australia for total
consideration of approximately $500 million. These four acquisitions, which have
been successfully integrated into our operations, added in excess of 9,000 miles
of track to our operations and in excess of $300 million in revenues. In January
2002, we acquired StatesRail and ParkSierra for total consideration of $138
million. These two acquisitions add another 2,400 miles to our operations and
are projected to contribute approximately $90 million in annual revenues.
In North America, we seek acquisition candidates that enable us to
form geographic clusters of short lines, thereby affording economies of scale as
well as marketing and operating synergies. We also seek properties where
operating efficiencies can be realized from professional management techniques
and asset rationalization, thereby enabling the target railroad to reduce
5
operating costs and improve service. The resultant competitive pricing and
better service, coupled with a focused marketing and sales effort, typically
yields customer loyalty and increased carloads.
Acquisition opportunities in North America generally come from two
sources. First, certain Class I railroads have stated an intent to sell certain
branch lines over the next several years. We believe, based on our strong
operating performance and relationships with the Class I railroads, we are a
logical choice to acquire certain of these properties. Second, as the short line
industry itself continues to consolidate, we believe we are in an excellent
position to acquire other short lines or groups of short lines because of our
industry reputation, demonstrated access to capital, breadth of geographic
coverage and ability to efficiently evaluate and negotiate prospective
transactions.
We also seek acquisition candidates in economically and politically
stable international markets as a result of an increasing number of governments
seeking to privatize their national rail systems.
INTEGRATE RECENT ACQUISITIONS INTO OUR OPERATIONS. A key element to
our strategy has been the implementation of a comprehensive integration plan
focusing on areas such as centralizing certain back office functions including
accounting, information technology and purchasing, re-engineering the acquired
companies' operating structure to conform to our cluster and regional structure
and rationalizing and upgrading the acquired companies' locomotive fleet to
reduce maintenance and fuel costs. After we acquired RailTex in February 2000,
we realized significant synergies and cost savings in personnel costs, fleet
rationalization and purchasing improvements. We believe that the recent
acquisitions and integration of StatesRail and ParkSierra will generate
significant cost savings and synergies.
GROW INTERNALLY THROUGH FOCUSED SALES, MARKETING EFFORTS AND
CUSTOMER SERVICE. We will continue to focus on increasing traffic in each of our
markets by aggressively marketing our customer service to new and existing
customers and bolstering our sales efforts. In many cases, we believe customer
service and sales and marketing at railroads that we have acquired have been
neglected by the previous owners. We purchased a number of our rail lines from
Class I railroads. Due to the size of the Class I railroads and their
concentration on long-haul traffic, we believe the Class I operators typically
have not effectively marketed to customers on these branch line operations.
MAINTAIN CLOSE RELATIONSHIPS WITH CLASS I RAILROADS. Since our North
American short line rail properties interchange with at least one Class I
railroad, we maintain close relationships with substantially all of the North
American Class I rail operators. We believe that these relationships will enable
us to pursue new business opportunities on existing rail line properties and
acquire additional short line freight rail lines from the Class I railroads.
FOCUS ON CORE OPERATIONS THROUGH STRATEGIC DIVESTITURES. We believe
that in order to capitalize on opportunities more profitable to our overall
portfolio, to minimize the amount of management time and effort on the smaller
properties in our portfolio, and to reduce debt, we may from time to time
continue to divest some of our railroad properties that provide inadequate
6
returns on invested capital. We believe a market for these divestitures exists
among smaller short line operating companies and selected strategic buyers.
NORTH AMERICAN RAILROAD OPERATIONS
We currently own, lease or operate 46 rail properties in North America.
All of our North American rail properties are short line railroads that provide
transportation services for both on-line customers, and Class I railroads which
interchange with our 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 our 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 makes our rail services
generally a more effective, lower-cost alternative to other modes of
transportation, including motor carriers.
UNITED STATES. We own, lease or operate 38 short line rail properties
in the United States with approximately 6,500 miles of track. Our properties are
geographically diversified and operate in 27 states. We have clusters of rail
properties in the Southeastern, Southwestern, Midwestern, Great Lakes, New
England and Pacific Coast regions of the United States. We believe that this
cluster strategy provides economies of scale and helps achieve operational
synergies.
CANADA. We own, lease or operate 8 short line rail properties in Canada
with approximately 1,800 miles of track. Our Canadian properties are
geographically diversified and operate in six provinces and/or territories.
SALES AND MARKETING. We focus on providing rail service to our
customers that is easily accessible, reliable and cost-effective. Following
commencement of operations, our 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. We believe
our ability to generate additional traffic is enhanced by our marketing efforts
which are aimed at identifying and responding quickly to the individual business
needs of customers along our rail lines. As part of our marketing efforts, we
often schedule more frequent rail service, help customers negotiate price and
service levels with interchange partners and assist customers in obtaining the
quantity and type of rail equipment required for their operations. We also
provide non-scheduled train service on short notice to accommodate customers'
special or emergency needs.
Our decentralized management structure is an important element of our
marketing strategy. We give significant discretion with respect to sales and
marketing activities to our North American regional marketing managers. Each
regional marketing manager works closely with personnel of our railroads and
with other members of senior management to develop marketing plans to increase
7
shipments from existing customers and to develop business from new customers. We
also work 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. We
consider all of our employees to be customer service representatives and
encourage 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 passes over the line from one connecting
rail carrier to another.
Interline and local traffic generated 84%, 86% and 89% of our total
freight revenue in 2001, 2000, and 1999, respectively. We believe that high
levels of interline and local traffic provide us with greater stability of
revenues because this traffic represents shipments to or from customers located
along our lines and cannot be easily diverted to other rail carriers, unlike
bridge traffic.
The following table summarizes freight revenue by type of traffic
carried by our North American railroads in 2001, 2000 and 1999 in dollars and as
a percent of total freight revenue.
NORTH AMERICA
FREIGHT REVENUE
(DOLLARS IN THOUSANDS)
[Enlarge/Download Table]
2001 2000 1999
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$ % $ % $ %
------------ ----------- ------------ ---------- ------------ ----------
Interline $165,821 76.5% $146,184 72.0% $31,905 86.5%
Local 16,044 7.4% 27,404 13.5% 945 2.6%
Bridge 34,901 16.1% 29,396 14.5% 4,019 10.9%
------------ ----------- ------------ ---------- ------------ ----------
$216,766 100.0% $202,984 100.0% $36,869 100.0%
============ =========== ============ ========== ============ ==========
CONNECTING CARRIERS. All of our short line properties interchange
traffic with Class I railroads. The following table summarizes our significant
connecting carriers in 2001, 2000 and 1999 by freight revenues and carloads as a
percentage of total interchanged (interline and bridge) traffic.
NORTH AMERICA
INTERCHANGED TRAFFIC
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2001 2000 1999
------------------------- ------------------------ -------------------------
Revenues Carloads Revenues Carloads Revenues Carloads
----------- ---------- ---------- ---------- ----------- ----------
Canadian National Railway 30.4% 26.1% 24.7% 24.7% 20.4% 21.6%
Union Pacific Railroad 22.2% 23.2% 24.0% 21.8% 3.5% 3.3%
CSXT Transportation 16.0% 12.9% 18.9% 15.0% 14.6% 10.0%
Canadian Pacific Railway 12.8% 16.6% 10.3% 16.6% 28.5% 24.4%
Burlington Northern 6.2% 5.9% 8.5% 7.3% 26.6% 34.2%
Santa Fe Railway
Norfolk Southern 5.6% 6.9% 7.2% 7.3% -- -
All other railroads 6.8% 8.4% 6.4% 7.3% 6.4% 6.5%
----------- ---------- ---------- ---------- ----------- ----------
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
=========== ========== ========== ========== =========== ==========
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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 our lines. Our
revenues from this traffic are generally collected through fees paid directly to
us by the connecting carriers rather than by customers on our 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 our railroads with their respective connecting
carriers and are generally subject to periodic adjustments.
CUSTOMERS. In 2001, we served approximately 1,600 customers in North
America. These customers shipped and/or received a wide variety of products.
Although most of our North American railroads have a well-diversified customer
base, several of the smaller rail lines have one or two dominant customers. In
2001, our 10 largest North American customers accounted for approximately 25% of
North American transportation revenue, as compared to 28% of North American
transportation revenue in 2000.
COMMODITIES. The following table sets forth by number and percentage
the carloads hauled by our North American railroads during the years ended
December 31, 2001, 2000 and 1999.
CARLOADS CARRIED BY COMMODITY GROUP
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2001 2000 1999
----------------------- ------------------------ -------------------------
COMMODITY GROUP Carloads % Carloads % Carloads %
--------------- ---------- ---------- ----------- --------- ------------ ---------
Agricultural & Farm Products 80,834 9.1% 76,593 9.0% 28,140 18.1%
Autos 45,923 5.2% 47,900 5.7% 3,415 2.1%
Chemicals 66,863 7.6% 66,827 8.0% 8,522 5.5%
Coal 95,433 10.8% 71,945 8.6% 5,504 3.6%
Food Products 40,578 4.6% 39,313 4.7% 9,736 6.3%
Intermodal 38,310 4.3% 30,134 3.6% 5,033 3.2%
Lumber & Forest Products 88,162 10.0% 90,102 10.7% 14,681 9.5%
Metals 52,130 5.9% 61,049 7.3% 10,956 7.1%
Minerals 19,423 2.2% 16,393 2.0% 901 0.6%
Metallic/Non-metallic Ores 45,658 5.2% 36,780 4.4% 3,165 2.0%
Paper Products 64,113 7.2% 59,124 7.0% 15,310 9.9%
Petroleum Products 28,552 3.2% 26,840 3.2% 5,678 3.7%
Railroad Equipment/Bridge Traffic 200,565 22.6% 192,323 22.9% 37,023 23.9%
Other 19,035 2.1% 24,128 2.9% 6,927 4.5%
---------- ---------- ----------- --------- ------------ ---------
Total 885,579 100.0% 839,451 100.0% 154,991 100.0%
========== ========== =========== ========= ============ =========
EMPLOYEES. Currently, we have approximately 1,800 full-time railroad
employees in North America. Approximately 770 of the employees are subject to
collective bargaining agreements.
9
SAFETY. We endeavor to conduct safe railroad operations for the benefit
and protection of employees, customers and the communities served by our
railroads. Our safety program, led by the Vice President of Safety and Operating
Practices, involves all of our 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, personal safety and all other
areas subject to governmental rules and regulations. Each U.S. employee involved
in train operations is subject to pre-employment and random drug testing whether
or not required by federal regulation. We believe that each of our North
American railroads complies in all material respects with federal, state,
provincial and local regulations. Additionally, each railroad is given
flexibility to develop more stringent safety rules based on local requirements
or practices. We also participate in governmental and industry sponsored safety
programs including Operation Lifesaver (the national grade crossing awareness
program) and the American Short Line and Regional Railroad Association Safety
Committee.
COMPETITION. Our 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 our
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, we cannot control the cost and quality of service.
Cost reductions achieved by major rail carriers over the past several years have
generally improved their ability to compete with alternate modes of
transportation.
In acquiring rail properties, we compete with other short line and
regional railroad operators, some of which have greater financial resources than
us. Competition for rail properties is based primarily upon price, operating
history and financing capability. We believe our established reputation as a
successful acquirer and operator of short line rail properties, combined with
our managerial resources, effectively positions us to take advantage of future
acquisition opportunities.
INTERNATIONAL RAILROAD OPERATIONS
AUSTRALIAN RAILROAD OPERATIONS
We own Freight Australia, a regional freight railroad operating in and
around the State of Victoria, Australia. Freight Australia was purchased from
the Government of the State of Victoria, Australia on April 30, 1999 for total
consideration of approximately $103 million. Freight Australia operates over
3,150 miles of track, which are leased from the State of Victoria under a 45
year prepaid lease.
CUSTOMERS. Freight Australia's customers span a variety of industries,
with particular emphasis on companies in the Australian agricultural industry
for whom we carry bulk grain and other agricultural products. One customer, AWB,
Limited, represented 28% of Freight Australia's transportation revenue for the
year ended Decemer 31, 2001, 25% for the year ended in 2000 and 19% for the
period of May 1, 1999 to December 31, 1999. Additionally, track access fees from
V/Line Passenger represented 13% of Freight Australia's transportation revenue
in 2001, 15% in 2000, and 18% in 1999.
COMMODITIES/SERVICES. The following table sets forth by dollar amount
(in thousands) and percentage Freight Australia's transportation revenue for the
years ended December 31, 2001 and 2000 and the eight months ended December 31,
1999.
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[Enlarge/Download Table]
2001 2000 1999
------------------------ ------------------------- -------------------------
US$ US$ US$
Amount % Amount % Amount %
---------- ---------- ------------ --------- ----------- ----------
Agricultural products $46,296 47% $45,440 46% $24,613 40%
Track access fees 15,367 16% 16,309 16% 12,430 21%
Intermodal containers 12,227 12% 13,540 14% 7,470 12%
Fast Track parcel service 8,235 8% 8,210 8% 6,744 11%
Bulk (i.e., cement, gypsum,
stone, logs) 8,079 8% 9,540 10% 6,213 10%
Interstate 8,428 9% 5,954 6% 3,484 6%
------- --------- ------- --------- ------- ---------
Total transportation revenue $98,632 100.0% $98,993 100.0% $60,954 100.0%
======= ========= ======= ========= ======= =========
EMPLOYEES. Freight Australia currently has approximately 700 employees.
Most of these employees are subject to collective bargaining agreements.
SAFETY. Freight Australia endeavors to conduct safe railroad operations
for the benefit and protection of employees, customers and communities we serve.
Operating personnel are trained and certified in train operations, hazardous
materials handling, personal safety 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 or
state regulation. We believe that Freight Australia complies in all material
respects with federal, state and local regulations. Freight Australia holds Rail
Safety Accreditation in accordance with Australian Standards Regulations 4292 in
Victoria, New South Wales, and South Australia. We also participate in several
governmental and industry sponsored safety programs.
COMPETITION. Freight Australia competes directly with other railroads
in the Open Access Australian railway network as well as with other modes of
transportation, principally motor carriers and, to a lesser extent, ship
operators. The extent of this competition is significant in all aspects.
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, we cannot control the cost and quality of service. Cost
reductions achieved by Freight Australia over the past several years have
generally improved its ability to compete with alternate modes of
transportation.
CHILEAN RAILROAD OPERATIONS
Ferronor owns and 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 mineral
salt mines and production facilities with several Chilean Pacific port cities.
Ferronor also serves Argentina and Bolivia through traffic interchanged with the
Belgrano Cargas Railroad and the Antofagasta (Chile)-Bolivia Railway. In
December 2001, Ferronor announced it will commence operating the Potrerillos
Railway, a customer-owned 57 mile freight railroad.
CUSTOMERS. Ferronor's customers are principally in the mining industry.
Two of the customers represented 45% and 38% of the Chilean transportation
revenue for 2001, 44% and 38% of the Chilean transportation revenue for 2000,
and 43% and 40% of the Chilean transportation revenue for 1999.
EMPLOYEES. Ferronor currently has approximately 180 full-time
employees. A majority of Ferronor's employees are subject to collective
bargaining agreements.
REGULATION
UNITED STATES. Our 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, or STB, and the
Federal Railroad Administration, or 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) some limited
regulation by agencies in the states in which we do business.
The STB, established by the ICC Termination Act of 1995, 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
11
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.
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. Requirements for the creation of new short
line railroads or the expansion of existing short line railroads were
substantially expedited and simplified under the exemption process. 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 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.
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 railroad, Freight Australia, is subject to
regulation in the State of Victoria by the Office of the Regulator-General. The
Office of the Regulator-General, known as 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,
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, known as 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. If there were any, ORG could set the terms and
conditions of access.
The Secretary to the Department of Infrastructure may take disciplinary
action against an accredited (licensed to provide certain services) railroad if
the railroad 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 railroad 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.
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, testing
12
equipment and seizing 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 twelve 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. Our 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 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, or 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 line railroads 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, or ICA, a federal statute which applies to every acquisition of 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 for 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 federal antitrust legislation of general application. The
Competition Act contains merger control provisions which apply to certain
13
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 121,000 miles of track in 2000. In addition to
large railroad operators, there were more than 550 short line and regional
railroads, which operated approximately 50,000 miles of track in 2000.
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 2000, the Class I railroads had operating revenues of at
least $261.9 million, Class II railroads had revenues of $21.0 million to $261.8
million, and Class III railroads had revenues of less than $21.0 million (these
thresholds are adjusted annually for inflation).
In compiling data on the U.S. railroad industry, the Association of
American Railroads uses the STB's revenue threshold for Class I railroads.
Regionals are railroads operating at least 350 miles of rail line and/or
revenues between $40 million and the Class I revenue threshold. Locals are
railroads falling below the Regional criteria, plus switching and terminal
railroads.
2000 INDUSTRY OVERVIEW
[Enlarge/Download Table]
Number of (in billions)
Type of Railroad Carriers Miles Operated 2000 Revenues % of Revenues
----------------- -------------- ------------------- ------------------- ------------------
Class I 8 120,597 $ 33.1 91.2%
Regional 35 20,978 1.7 4.7
Local 517 28,937 1.5 4.1
------ ------- ------ ------
Total 560 170,512 $ 36.3 100.0%
====== ======= ====== ======
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 our 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 the
divesting carriers' freight traffic because much of the business originating or
terminating on branch lines feeds into divesting carriers' core routes.
14
ITEM 2. PROPERTIES
NORTH AMERICAN RAILROAD PROPERTIES
The following table sets forth information with respect to the North American
railroad properties that we owned as of March 22, 2002:
[Enlarge/Download Table]
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
DATE OF TRACK PRINCIPAL
RAILROAD ACQUISITION MILES STRUCTURE LOCATION COMMODITIES
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Cape Breton & Central Nova Feb 2000 245 Owned Nova Scotia Limestone, lumber, Grain
Scotia Railway and scrap metals
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Carolina Piedmont Railroad Feb 2000 49 Owned South Carolina Chemicals, metal
products, clay and food
products
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Cascade and Columbia River Sept 1996 130 Owned; Washington Lumber & wood products,
Railroad Trackage rights minerals and agricultural
products
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Central Oregon & Pacific Feb 2000 449 Owned; Leased; Oregon, Lumber & wood products,
Railroad Trackage rights California paper and chemicals
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Central Railroad of Indiana Feb 2000 81 Owned Indiana, Ohio Chemicals, minerals, clay
and food products
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Central Railroad of Feb 2000 73 Leased; Indiana Farm and food products,
Indianapolis Trackage chemicals, railroad
rights equipment and metals
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Central Western July 1999 21 Owned Alberta Agricultural products
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Connecticut Southern Feb 2000 78 Owned; Connecticut Lumber & wood products,
Trackage paper products, chemicals
rights and transportation
equipment
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Dallas Consolidated Feb 2000 294 Leased Texas Farm & food products,
(Dallas, Garland & paper products, railroad
Northeastern Railroad and equipment, chemicals and
Texas Northeastern Railroad) autos
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
E&N Railway Jan. 1999 61 Owned British Lumber, paper products,
120 Leased Columbia minerals and chemicals
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Goderich-Exeter Railway Feb 2000 159 Owned; Ontario Auto parts, farm
Leased products, chemicals
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Huron and Eastern Railway March 1986 171 Owned; Michigan Agricultural products
May 1988 leased;
trackage rights
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Indiana & Ohio Railway Feb 2000 577 Owned; Michigan, Autos, railroad
Leased Ohio, Indiana equipment, agricultural
products, chemicals and
pulpboard
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Indiana Southern Railroad Feb 2000 176 Owned; Indiana Coal, farm products,
Trackage rights chemicals
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
15
[Enlarge/Download Table]
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
DATE OF TRACK PRINCIPAL
RAILROAD ACQUISITION MILES STRUCTURE LOCATION COMMODITIES
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Lakeland & Waterways July 1999 120 Owned Alberta Forest products,
agricultural products,
petroleum coke and bridge
traffic
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Mackenzie Northern July 1999 650 Owned Alberta, Fuel, forest products,
Northwest agricultural products and
Territory chemicals
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Michigan Consolidated Feb 2000 118 Owned Michigan Agricultural products,
(Mid-Michigan Railroad, auto parts and fertilizer
Grand Rapids Eastern
Railroad, and Michigan
Shore Railroad)
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Missouri & Northern Feb 2000 527 Owned; leased; Missouri, Railroad equipment, coal,
Arkansas Railroad trackage rights Arkansas, farm & food products,
Kansas minerals and roofing
material
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
New England Central Feb 2000 343 Owned; Vermont, New Lumber & wood products,
Railroad Leased Hampshire, paper products, plastic,
Massachusetts, coal, copper, bridge
Connecticut traffic
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Ottawa Valley Railway July 1999 389 Leased Ontario Bridge traffic, railroad
equipment, acid, copper
concentrates and chemicals
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Otter Tail Valley Railroad Oct. 1996 72 Owned Minnesota Coal, agricultural
products,
Fertilizer
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Saginaw Valley Railway Jan. 1991 57 Owned Michigan Agricultural products,
Apr. 1998 fertilizer and stone
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
San Diego & Imperial Feb 2000 124 Trackage rights California, Petroleum, paper
Valley Railroad Mexico products, non-metallic
ores, lumber
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
South Carolina Central Feb 2000 97 Owned South Carolina Chemicals, metals, coal,
Railroad paper products, waste
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Southern Ontario Railway July 1999 54 Leased Ontario Fuel, metals,
agricultural products
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Texas-New Mexico Railroad Feb 2000 107 Owned Texas, New Non-metallic ores, waste,
Mexico petroleum
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Toledo, Peoria and Western Sept 1999 298 Owned; Indiana, Intermodal, agricultural
Railroad Trackage Illinois, Iowa products, fertilizers,
rights chemicals
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Ventura County Railroad Aug. 1998 13 Leased California Automobiles, chemicals,
paper products
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Virginia Consolidated Feb 2000 211 Leased; Virginia, Coal, lumber, limestone,
(Chesapeake & Albermarle Owned North Carolina aggregates
Railroad, North Carolina
& Virginia Railroad, and
Virginia Southern
Railroad)
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
West Texas & Lubbock Nov. 1995 104 Owned Texas Fertilizer, chemicals,
Railroad cotton products, scrap
iron, steel
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
Total track miles 5,968
---------------------------- -------------- ---------- ----------------- ---------------- ---------------------------
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The following properties were acquired in January 2002 in connection with our
acquisitions of StatesRail and ParkSierra:
[Enlarge/Download Table]
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
DATE OF TRACK PRINCIPAL
RAILROAD ACQUISITION MILES STRUCTURE LOCATION COMMODITIES
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
Jan. 2002 141 Owned, Alabama, Forest and paper products,
Alabama and Gulf StatesRail trackage Florida chemicals, food products
Coast Railway rights
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
Arizona & California Jan. 2002 297 Owned, trackage Arizona, Cement, asphalt, forest
Railroad ParkSierra rights California products and steel
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
Arizona Eastern Railway Jan. 2002 135 Owned Arizona Copper cathode and related
StatesRail materials
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
California Northern Jan. 2002 255 Leased, California Oil/gas transmission pipe,
Railroad ParkSierra trackage rights minerals, beer, food
products, grains
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
Eastern Alabama Railway Jan. 2002 25 Owned Alabama Interchange
StatesRail
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
Kiamichi Railroad Jan. 2002 230 Owned, trackage Arkansas, Steel, coal, aggregates,
StatesRail rights Oklahoma, cement, food items, forest
Texas products, paper products
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
Kyle Railroad Jan. 2002 692 Owned Colorado, Agricultural products,
StatesRail Kansas, coal, asphalt, aggregates
Nebraska
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
Lahaina, Kaanapali & Jan. 2002 6 Owned Hawaii Passengers
Pacific Railroad StatesRail
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
Puget Sound and Pacific Jan. 2002 150 Owned, trackage Washington Forest products,
Railroad ParkSierra rights chemicals, grains,
fertilizers, metal products
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
San Joaquin Valley Railroad Jan. 2002 341 Owned, trackage California Consumer products, citrus
StatesRail rights and food products, paper
products, metals and
petro-chemical products
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
San Pedro & Southwestern Jan. 2002 78 Owned Arizona Copper, lime, nitrogen,
Railroad StatesRail fertilizer
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
Total track miles 2,350
---------------------------- -------------- ---------- ----------------- ---------------- ----------------------------
AUSTRALIAN RAILROAD PROPERTIES
On April 30, 1999, through our wholly owned subsidiary Freight
Australia, we prepaid a 45-year lease to operate 3,150 miles of track in the
State of Victoria, Australia. Freight Australia's principal commodity is
agricultural products for use in Southwestern Australia as well as export
markets.
17
CHILEAN RAILROAD PROPERTIES
In Chile, Ferronor owns and/or operates approximately 1,500 miles of
track, extending from La Calera in the south, to its northern terminus at
Iquique. It also operates several east-west branch lines that link a number of
iron, copper and mineral salt mines and production facilities with several
Chilean Pacific port cities. Ferronor also serves Argentina and Bolivia through
traffic interchanged with the Belgrano Cargas Railroad and the Antofagasta
(Chile)-Bolivia Railway. In December 2001, Ferronor announced it will commence
operating the Potrerillos Railway, a customer-owned 57 mile railroad.
NORTH AMERICAN ROLLING STOCK
The following tables summarize the current composition of our North
American railroad equipment fleet, which includes the equipment fleet of
ParkSierra and StatesRail, both acquired in January 2002.
[Download Table]
FREIGHT CARS
TYPE OWNED LEASED TOTAL
---- ----- ------------- -----
Covered hopper cars 147 2,298 2,445
Open top hopper cars 91 233 324
Box cars 103 2,425 2,528
Flat cars 216 805 1,021
Tank cars 6 0 6
Gondolas 3 459 462
Passenger car 17 0 17
Intermodal 0 7 7
---- ---- -----
583 6,227 6,810
=== ===== =====
LOCOMOTIVES
HORSEPOWER/UNIT OWNED LEASED TOTAL
--------------- ----- ------------ -----
Over 2000 112 232 344
1500 to 2000 74 56 130
Under 1500 9 15 24
----- ------ -----
195 303 498
==== ===== ====
INTERNATIONAL ROLLING STOCK
The following tables summarize the current composition of our
Australian and Chilean railroad equipment fleet.
[Download Table]
FREIGHT CARS
TYPE CHILE AUSTRALIA TOTAL
---- ----- -------------- -----
Covered hopper cars -- 1,110 1,110
Open top hopper cars 223 185 408
Box cars 140 205 345
Intermodal containers 500 694 1,194
Tank cars 30 311 341
Flat cars 136 139 275
Gondolas 79 -- 79
------ ------ ------
1,108 2,644 3,752
====== ====== ======
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[Download Table]
LOCOMOTIVES
HORSEPOWER/UNIT CHILE AUSTRALIA TOTAL
--------------- ----- ------------ -----
Over 2000 --- 58 58
1500 to 2000 --- 9 9
Under 1500 49 39 88
--- ------ ----
49 106 155
=== ====== ===
We own all of our international equipment fleet.
Based on current and forecasted traffic levels on our railroads,
management believes that our present equipment, combined with the availability
of other rail cars and/or locomotives for hire, is adequate to support our
operations. We believe that our insurance coverage with respect to our property
and equipment is adequate.
ADMINISTRATIVE OFFICES AND OTHER
We own a 59,500 square foot office building, located in Boca Raton,
Florida, where our executive offices are located. Of this space, approximately
12,600 square feet are leased to third parties. Our North American railroad
headquarters, located in San Antonio, Texas, leases approximately 24,000 square
feet of office space for approximately $547,000 annually. The lease expires
December 31, 2005.
Freight Australia's administrative office is in Melbourne, Australia.
Freight Australia leases approximately 20,000 square feet of space from the
Victorian Government for $181,600 annually. The lease expires May 31, 2004.
Ferronor's administrative office is in Coquimbo, Chile, where Ferronor
owns a three-story 21,600 square foot office building.
We also own a building totaling approximately 45,000 square feet in
Quebec, Canada and own a terminal in Ontario, Canada, which includes an office
building and 5 acres of land.
ITEM 3. LEGAL PROCEEDINGS
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 up to approximately $13.0 million to cover these claims.
The Company's insurer has reserved $9.8 million for these matters. A loss, if
any, in excess of our insurance policy coverage may adversely affect the
Company's cash flow and financial condition.
19
In the ordinary course of conducting our business, we become involved
in various legal actions and other claims some of which are currently pending.
Litigation is subject to many uncertainties and we may be unable to accurately
predict the outcome of individual litigated matters. Some of these matters
possibly may be decided unfavorably to us. 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 our 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 2001.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock began trading on the New York Stock Exchange (NYSE) on January
2, 2002 under the symbol "RRA". Prior to January 2, 2002, our common stock
traded on the Nasdaq National Market (Nasdaq) under the symbol "RAIL". Set forth
below is high and low price information for the common stock as reported on the
Nasdaq and NYSE for each period presented.
[Enlarge/Download Table]
2000 High Sales Price Price Low Sales Price
----------------------------------------- -------------------------- --- ---------------------
First Quarter $ 9.063 $ 5.750
Second Quarter 6.938 4.625
Third Quarter 7.875 5.750
Fourth Quarter 8.000 5.688
----------------------------------------- -------------------------- --- ---------------------
2001 High Sales Price Price Low Sales Price
----------------------------------------- -------------------------- --- ---------------------
First Quarter $ 10.250 $ 7.500
Second Quarter 13.750 9.563
Third Quarter 14.250 10.050
Fourth Quarter 15.250 9.750
----------------------------------------- -------------------------- --- ---------------------
2002 High Sales Price Price Low Sales Price
----------------------------------------- -------------------------- --- ---------------------
First Quarter (through March 22) $ 14.64 $ 9.23
----------------------------------------- -------------------------- --- ---------------------
20
As of March 22, 2002, there were 603 holders of record of the common
stock. We have never declared or paid a dividend on our common stock. Certain of
our financial agreements limit our ability to pay dividends.
RECENT SALES OF UNREGISTERED SECURITIES
In December 2001, we closed a private placement sale of approximately
4.3 million shares of our common stock for $12.50 per share, resulting in gross
proceeds of approximately $54 million. Stonegate Securities, Inc. acted as
placement agent to assist in offering the shares of common stock. The placement
agent received approximately $3 million in commissions and an 18-month warrant
to purchase 100,000 shares of our common stock for $13.75 per share. We believe
these transactions are exempt from registration pursuant to Section 4(2) of the
Securities Act and Regulation D promulgated thereunder.
ITEM 6. SELECTED FINANCIAL DATA
The results of our continuing operations for the years ended December
31, 2001, 2000 and 1999 include the results of certain railroads from the dates
they were acquired as follows: RailTex, effective February 1, 2000, Freight
Australia, effective April 30, 1999, RaiLink, effective August 1, 1999, TPW,
effective September 1, 1999, and Ferronor, effective February 1, 1997. The
income statement data for the years ended December 31, 2001, 2000 and 1999 and
the balance sheet data at December 31, 2001 and 2000 are derived from, and are
qualified by reference to, audited financial statements included elsewhere in
this report and should be read in conjunction with those financial statements
and the notes thereto. The income statement data set forth below for the periods
ended December 31, 1998 and 1997 and the balance sheet data as of December 31,
1999, 1998 and 1997 are derived from our audited financial statements not
included (in thousands, except operating and per share data).
21
[Enlarge/Download Table]
AS OF AND FOR THE
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- -------- -------- -------
INCOME STATEMENT DATA
Operating revenue $ 369,631 $ 357,936 $129,818 $ 39,136 $24,496
Operating income 74,740 70,034 25,279 5,781 3,365
Income from continuing operations 17,274 9,608 6,025 113 288
Basic earnings per common share from
continuing operations $ 0.79 $ 0.50 $ 0.45 $ 0.01 $ 0.02
Diluted earnings per common share from
continuing operations $ 0.72 $ 0.49 $ 0.43 $ 0.01 $ 0.02
Weighted average common shares - Basic
21,510 18,040 11,090 9,553 8,304
Weighted average common shares - Diluted
25,350 18,267 11,665 9,778 8,587
BALANCE SHEET DATA
Total assets $ 891,168 $ 839,703 $443,929 $130,964 $95,141
Long-term obligations, including
current maturities 301,687 358,856 162,827 66,327 47,603
Subordinated debt 144,988 141,411 122,449 -- 2,212
Redeemable convertible preferred stock
-- 6,613 8,830 -- --
Stockholders' equity 220,959 123,434 69,467 34,760 26,814
OPERATING DATA
Freight carloads 1,214,554 1,125,897 394,177 117,535 69,140
Track mileage 11,000 11,000 8,400 2,400 2,330
Number of full time employees 2,180 2,230 1,707 652 542
22
FACTORS AFFECTING OUR OPERATING RESULTS, BUSINESS PROSPECTS AND MARKET
PRICE OF STOCK
WE HAVE SUBSTANTIAL DEBT AND DEBT SERVICE REQUIREMENTS WHICH COULD HAVE ADVERSE
CONSEQUENCES ON OUR BUSINESS.
As of December 31, 2001, we had approximately $446.7 million of total
indebtedness outstanding and we borrowed an additional $50 million in January
2002 in connection with the ParkSierra and StatesRail acquisitions. Our interest
expense was $53.5 million and $56.0 million in 2001 and 2000, respectively. The
degree to which we are leveraged could have important consequences, including
the following:
o our ability to obtain additional financing in the future for working
capital, capital expenditures, potential acquisition opportunities,
general corporate purposes and other purposes may be limited or
financing may not be available on terms favorable to us or at all;
o a substantial portion of our cash flows from operations must be used
to pay our interest expense and repay our debt, which would reduce
the funds that would otherwise be available to us for our operations
and future business opportunities;
o we may be more vulnerable to economic downturns, may be limited in
our ability to withstand competitive pressures and may have reduced
flexibility in responding to changing business, regulatory and
economic conditions; and
o fluctuations in market interest rates will affect the cost of our
borrowings to the extent not covered by interest rate hedge
agreements because the interest under our credit facilities is
payable at variable rates.
DESPITE CURRENT INDEBTEDNESS LEVELS, WE MAY STILL BE ABLE TO INCUR SUBSTANTIALLY
MORE DEBT, WHICH WILL INTENSIFY THE RISKS DISCUSSED ABOVE.
While as of December 31, 2001, we had no borrowings under our revolving
credit facility, this facility allows us to borrow a total of $50.0 million. Our
indebtedness may increase if we make additional acquisitions, subject to the
limitations in the indenture governing our senior subordinated notes and our
senior credit facilities. If new debt is added to our current debt levels, the
related risks that we face could intensify.
WE MAY NOT BE ABLE TO GENERATE SUFFICIENT CASH FLOW TO MEET OUR DEBT SERVICE
REQUIREMENTS.
We cannot assure you that our future cash flows will be sufficient to
meet our debt obligations and commitments. Any insufficiency would have a
negative impact on our business. Our ability to generate cash flow from
operations sufficient to make scheduled payments on our debt as they become due
will depend on our future performance and our ability to implement our business
strategy successfully. Our performance will be affected by prevailing economic
conditions and financial, business, regulatory and other factors. Most of these
factors are beyond our control. Failure to pay our interest expense or make our
principal payments would result in a default. A default, if not waived, could
23
result in acceleration of our indebtedness, in which case the debt would become
immediately due and payable. If this occurs, we may be forced to reduce or delay
capital expenditures and implementation of our business strategy, sell assets,
obtain additional equity capital or refinance or restructure all or a portion of
our outstanding debt. In the event that we are unable to do so, we may be left
without sufficient liquidity and we may not be able to repay our debt and the
lenders will be able to foreclose on our assets. Even if new financing is
available, it may not be on terms that are acceptable to us.
OUR CREDIT FACILITIES AND INDENTURE CONTAIN COVENANTS THAT SIGNIFICANTLY
RESTRICT OUR OPERATIONS.
Our credit facilities and the indenture governing our senior
subordinated notes contain numerous covenants imposing significant financial and
operating restrictions on our business. These covenants place restrictions on
our ability to, among other things:
o incur more debt;
o pay dividends, redeem or repurchase our 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 our assets; and
o extend credit.
In addition, our credit facilities also contain a number of financial
covenants that require us to meet a number of financial ratios and tests. Our
ability to meet these and other provisions of our credit facilities and the
indenture can be affected by changes in economic or business conditions or other
events beyond our control. Our failure to comply with the obligations in our
credit facilities and indenture could result in an event of default under the
credit facilities or the indenture, which, if not cured or waived, could permit
acceleration of the indebtedness or our other indebtedness which could have a
material adverse effect on us.
OUR INABILITY TO SUCCESSFULLY INTEGRATE THE RAILROADS WE ACQUIRE COULD HAVE
ADVERSE CONSEQUENCES ON OUR BUSINESS.
We have experienced significant growth through acquisitions and intend
to continue to maintain an acquisition program. We have acquired 65 railroads
since we commenced operations in 1992. Acquisitions result in greater
24
administrative burdens and operating costs and, to the extent financed with
debt, additional interest costs. We cannot assure you that we will be able to
manage or integrate the acquired companies or businesses successfully. The
process of integrating our acquired businesses may be disruptive to our business
and may cause an interruption of, or a loss of momentum in, our business as a
result of the following factors, among others:
o loss of key employees or customers;
o possible inconsistencies in standards, controls, procedures and
policies among the combined companies and the need to implement
company-wide financial, accounting, information and other systems;
o failure to maintain the quality of services that the companies have
historically provided;
o the need to coordinate geographically diverse organizations; and
o the diversion of management's attention from our day-to-day business
as a result of the need to deal with any disruptions and
difficulties and the need to add management resources to do so.
If these disruptions and difficulties occur, they may cause us to fail
to realize the cost savings, revenue enhancements and other benefits that we
currently expect to result from that integration and may cause material adverse
short- and long-term effects on our operating results and financial condition.
WE EXPECT TO CONTINUE TO ACQUIRE OTHER BUSINESSES, WHICH MAY ADVERSELY AFFECT
OUR OPERATING RESULTS, FINANCIAL CONDITION AND EXISTING BUSINESS.
We plan to continue to acquire additional railroad properties. The
success of our acquisition program will depend on, among other things:
o the availability of suitable candidates;
o competition from other companies for the purchase of suitable
candidates;
o our ability to value those candidates accurately and negotiate
favorable terms for those acquisitions;
o the availability of funds to finance acquisitions;
o our ability to fund acquisitions in accordance with the restrictions
contained in our senior credit facilities and the indenture
governing our senior subordinated notes; and
25
o the availability of management resources to oversee the integration
and operation of the acquired businesses.
Financing for acquisitions may come from several sources, including
cash on hand and proceeds from the incurrence of indebtedness or the issuance of
additional common stock, preferred stock, convertible debt or other securities.
The issuance of any additional securities could, among other things:
o result in substantial dilution of the percentage ownership of our
stockholders at the time of issuance;
o result in the substantial dilution of our earnings per share;
o adversely affect the prevailing market price for our common stock;
and
o result in increased indebtedness, which could negatively affect our
liquidity and operating flexibility.
AN INCREASED NUMBER OF SHARES OF OUR COMMON STOCK IN THE MARKET MAY ADVERSELY
IMPACT THE MARKET PRICE OF OUR COMMON STOCK.
Sales of large amounts of our common stock in the public market could
adversely affect the prevailing market price of the common stock, even if our
business is doing well. These potential sales could also impair our ability to
raise additional capital through the sale of equity securities. Pursuant to the
ParkSierra acquisition, approximately 1.8 million shares of our common stock
were issued to ParkSierra shareholders. All of the shares of our common stock
issued in connection with the ParkSierra merger are either freely tradeable
without restriction or eligible for resale subject to the requirements of Rule
145 under the Securities Act of 1933. In addition, approximately 1.7 million
shares of our common stock were issued upon completion of the acquisition of
StatesRail. All of the shares of our common stock issued in connection with the
StatesRail merger are eligible for resale pursuant to a resale registration
statement. We now have approximately 32.3 million shares of our common stock
outstanding.
WE MAY NOT REALIZE THE ANTICIPATED COST SAVINGS AND OTHER BENEFITS FROM OUR
ACQUISITIONS.
Even if we are able to integrate the operations of acquired businesses
into our operations, we may not realize the full benefits of the cost savings,
revenue enhancements or other benefits that were projected. The potential cost
savings associated with an acquisition are based on analyses completed by our
employees and consultants. These analyses necessarily involve assumptions as to
future events, including general business and industry conditions, costs to
operate our business and competitive factors, many of which are beyond our
control and may not materialize. While we believe these analyses and their
underlying assumptions to be reasonable, they are estimates which are difficult
26
to predict and necessarily speculative in nature. If we achieve the expected
benefits, they may not be achieved within the anticipated time frame. Also, the
cost savings and other synergies from these acquisitions may be offset by costs
incurred in integrating the companies, increases in other expenses, operating
losses or problems in the business unrelated to these acquisitions.
WE FACE COMPETITION FROM OTHER TYPES OF TRANSPORTATION AND FROM OTHER RAIL
OPERATORS.
We compete directly with other modes of transportation, including motor
carriers and, to a lesser extent, ships and barges. Competition is based
primarily upon the rate charged and the transit time required, as well as the
quality and reliability of the service provided. While we must build or acquire
and maintain our rail system, trucks are able to use public roadways. Any future
improvements or expenditures materially increasing the quality of these
alternative modes of transportation in the locations in which we operate, or
legislation granting materially greater latitude for motor carriers with respect
to size, weight limitations, or other operating restrictions could have a
material adverse effect on our results of operations and financial condition.
In addition, we compete for domestic acquisition opportunities with
other short line operators and for foreign acquisitions with other U.S. and
foreign entities. Some of these competitors have significantly greater resources
than we do and also may possess greater local market knowledge.
WE ARE SUBJECT TO THE RISKS OF DOING BUSINESS IN FOREIGN COUNTRIES.
We have railroad operations in Australia, Chile, Argentina and Canada.
We may also consider acquisitions in other foreign countries. The risks of doing
business in foreign countries include:
o adverse changes in the economy of those countries;
o adverse effects of currency exchange controls;
o restrictions on the withdrawal of foreign investment and earnings;
o government policies against ownership of businesses by
non-nationals; and
o the potential instability of foreign governments.
Our operations in foreign countries are also subject to economic
uncertainties, including among others, risk of renegotiation or modification of
existing agreements or arrangements with governmental authorities, exportation
and transportation tariffs, foreign exchange restrictions and changes in
taxation structure.
BECAUSE SOME OF OUR SIGNIFICANT SUBSIDIARIES TRANSACT BUSINESS IN FOREIGN
CURRENCIES, FUTURE EXCHANGE RATE FLUCTUATIONS MAY ADVERSELY AFFECT OUR RESULTS
OF OPERATIONS.
Some of our significant subsidiaries transact business in foreign
currencies, including the Australian dollar, the Canadian dollar and the Chilean
peso. Changes in the relation of these and other currencies to the U.S. dollar
27
could affect our revenues, result in exchange losses and result in the writedown
of our investments in those foreign countries. While Freight Australia's
revenues increased in terms of Australian dollars, in U.S. dollars Freight
Australia's revenues decreased to $101.4 million for the year ended December 31,
2001 from $102.2 million for the year ended December 31, 2000. During this
period the Australian dollar declined approximately 11%. Furthermore, Freight
Australia's operating income was reduced for the year ended December 31, 2001 by
$2.7 million due to the decline in the Australian dollar exchange rate during
the year. The impact of future exchange rate fluctuations on our results of
operations and net worth cannot be accurately predicted. Historically, we have
not engaged in hedging transactions with respect to foreign currency exchange
rates. However, if circumstances change, we may seek to limit our exposure to
the risk of currency fluctuations by engaging in hedging or other transactions.
We cannot assure you that we will successfully manage our exposure to currency
fluctuations.
WE ARE SUBJECT TO SIGNIFICANT GOVERNMENTAL REGULATION OF OUR RAILROAD
OPERATIONS. THE FAILURE TO COMPLY WITH GOVERNMENTAL REGULATION COULD HAVE A
MATERIAL ADVERSE EFFECT ON US.
We are subject to governmental regulation by a significant number of
foreign, federal, state and local regulatory authorities with respect to our
railroad operations and a variety of health, safety, labor, environmental,
maintenance and other matters. Our failure to comply with applicable laws and
regulations could have a material adverse effect on us. Governments may change
the legislative framework within which we operate without providing us with any
recourse for any adverse effects that the change may have on our business. Also,
some of the regulations require us to obtain and maintain various licenses,
permits and other authorizations and we cannot assure you that we will continue
to be able to do so.
WE COULD INCUR SIGNIFICANT COSTS FOR VIOLATIONS OF APPLICABLE ENVIRONMENTAL LAWS
AND REGULATIONS.
Our railroad and real estate ownership are subject to extensive
foreign, federal, state and local environmental laws and regulations concerning,
among other things, storm water and waste water discharges, emissions to the
air, discharges to waters, and the handling, storage, transportation and
disposal of waste and other materials and cleanup of hazardous materials or
petroleum releases. Environmental liability can extend to previously owned or
operated properties, leased properties and properties owned by third parties, as
well as to properties currently owned and used by us. Environmental liabilities
may also arise from claims asserted by adjacent landowners or other third
parties in toxic tort litigation. We may be subject to allegations or findings
to the effect that we have violated, or are strictly liable under these laws or
regulations. We could incur significant costs as a result. We may be required to
incur significant expenses to investigate and remediate environmental
contamination. In addition, some transactions, including acquisitions, may
subject us to various requirements to investigate and remediate contamination at
other properties.
28
BECAUSE WE DEPEND ON CLASS I RAILROADS FOR OUR NORTH AMERICAN OPERATIONS, OUR
BUSINESS AND FINANCIAL RESULTS MAY BE ADVERSELY AFFECTED IF OUR RELATIONSHIPS
WITH CLASS I CARRIERS DETERIORATE.
The railroad industry in the United States and Canada is dominated by a
small number of Class I carriers that have substantial market control and
negotiating leverage. Almost all of the traffic on our North American railroads
is interchanged with Class I carriers. A decision by any of these Class I
carriers to discontinue transporting commodities or to use alternate modes of
transportation, such as motor carriers, could have a material adverse effect on
our business and results of operations. Our ability to provide rail service to
our customers in North America depends in large part upon our ability to
maintain cooperative relationships with Class I carriers with respect to, among
other matters, freight rates, car supply, reciprocal switching, interchange and
trackage rights. A deterioration in the operations of or service provided by
those interchange partners, or in our relationship with our interchange
partners, would adversely affect our business. In addition, much of the freight
transported by our North American railroads moves on railcars supplied by Class
I carriers. If the number of railcars supplied by Class I carriers is
insufficient, we might not be able to obtain replacement railcars on favorable
terms and shippers may seek alternate forms of transportation. A decision by one
of the six Class I carriers to merge with another Class I carrier could have a
material adverse effect on the relationships between us and the newly merged
Class I carrier or the other Class I carriers.
Portions of our North American rail properties are operated under
leases, operating agreements or trackage rights agreements with Class I
carriers. Failure of our railroads to comply with these leases and agreements in
all material respects could result in the loss of operating rights with respect
to those rail properties, which would adversely affect our results of operations
and financial condition. Class I carriers also have traditionally been
significant sources of business for us, as well as sources of potential
acquisition candidates as they continue to divest themselves of branch lines to
smaller rail operators. Because we depend on Class I carriers for our North
American operations, our business and financial results may be adversely
affected if our relationships with those carriers deteriorate.
SOME OF OUR EMPLOYEES BELONG TO LABOR UNIONS AND STRIKES OR WORK STOPPAGES COULD
ADVERSELY AFFECT OUR OPERATIONS.
We are a party to collective bargaining agreements with various labor
unions in the United States, Australia, Chile and Canada. Some of these
agreements expire within the next two years. Under those agreements we currently
employ approximately 475 full-time employees. Our inability to negotiate
acceptable contracts with these unions could result in, among other things,
strikes, work stoppages or other slowdowns by the affected workers. If the
unionized workers were to engage in a strike, work stoppage or other slowdown,
or other employees were to become unionized or the terms and conditions in
future labor agreements were renegotiated, we could experience a significant
disruption of our operations and higher ongoing labor costs.
29
LOSS OF KEY PERSONNEL COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
Our operations and prospects depend in large part on the performance of
our senior management team. We cannot be sure that we would be able to find
qualified replacements for any of these individuals if their services were no
longer available. The loss of the services of one or more members of our senior
management team, particularly Gary O. Marino, our chairman, president and chief
executive officer, could have a material adverse effect on our business,
financial condition and results of operations.
WE MAY FACE LIABILITY FOR CASUALTY LOSSES WHICH ARE NOT COVERED BY INSURANCE.
We have obtained insurance coverage for losses arising from personal
injury and for property damage in the event of derailments or other accidents or
occurrences. However, losses or other liabilities may arise that are not covered
by insurance. In addition, under catastrophic circumstances our liability could
exceed our insurance limits. Insurance is available from a limited number of
insurers and may not continue to be available or, if available, may not be
obtainable on terms acceptable to us.
RISING FUEL COSTS COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
Fuel costs constitute a significant portion of our railroad
transportation expenses. Fuel costs were approximately 8.1% of our historical
revenues for the year ended December 31, 2001, 8.7% for the year ended December
31, 2000 and 8.1% for the year ended December 31, 1999. Fuel prices and supplies
are influenced significantly by international political and economic
circumstances. If a fuel supply shortage were to arise from OPEC production
curtailments, a disruption of oil imports or otherwise, higher fuel prices and
any price increases would materially affect our operating results.
WE MAY BE ADVERSELY AFFECTED BY CHANGES IN GENERAL ECONOMIC CONDITIONS.
Our operations may be adversely affected by changes in the economic
conditions of the industries and geographic areas that produce and consume
freight that we transport. Many of the goods and commodities we carry experience
cyclical demand. Our results of operations can be expected to reflect this
cyclicality because of the significant fixed costs inherent in railroad
operations. Our revenues may be affected by prevailing economic conditions and,
if an economic slowdown or recession occurs in key markets, the volume of rail
shipments we carry is likely to be reduced. For example, the recent economic
slowdown has had an adverse effect on our revenues, particularly in the
automobile, lumber, and chemical markets. Significant reductions in the volume
of our rail shipments could have a material adverse effect on our business,
financial condition, and results of operations.
30
ADDITIONAL RISKS RELATING TO OUR AUSTRALIAN OPERATIONS
WE MAY INCUR SIGNIFICANT EXPENSES IN CONNECTION WITH AUSTRALIA'S OPEN ACCESS
REGIME.
In Australia, where a significant portion of our operations are
located, the applicable legislative framework enables third party rail operators
to gain access to the railway infrastructure on which we operate for access
fees. As part of this regime, we have executed and may be required to execute
access agreements governing access to the railway infrastructure. We may be
required to make significant expenditures and to incur significant expenses in
order to comply with the applicable regulatory framework and these access
agreements. Additionally, we may lose customers or be forced to reduce rates to
compete with third party rail operators.
WE MAY BE REQUIRED TO PAY PENALTY FEES UNDER SOME CIRCUMSTANCES TO A THIRD PARTY
RAIL OPERATOR THAT HAS ACCESS TO THE AUSTRALIAN RAILWAYS.
Our access agreement with V/Line Passenger in Australia contains
penalty provisions if trains using the railway infrastructure are delayed, early
or cancelled under a variety of circumstances resulting from our actions. The
formulas for calculation of the penalty are complex. The penalties apply unless
the penalty event is primarily due to acts of God, which include, but are not
limited to, events such as natural disasters, war, changes in applicable laws
and power shortages. We cannot assure you that we will not incur significant
penalties under the Australian access agreement.
OUR LONG-TERM LEASE OF THE RAILWAY INFRASTRUCTURE IN AUSTRALIA MAY BE TERMINATED
FOLLOWING SPECIFIED DEFAULTS.
The director of public transport for the State of Victoria, Australia
may terminate our long-term railway infrastructure lease in specified
circumstances, including: (1) if we fail to maintain all necessary
accreditations; (2) if we fail to maintain railway infrastructure; and (3) if we
fail to maintain insurance. The termination of the lease would have a material
adverse effect on our financial condition, results of operations and business.
TERMINATION OF OUR AGREEMENT WITH AWB, LIMITED WOULD ADVERSELY AFFECT OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our Australian subsidiary generates approximately 19% of its total
revenues under a five-year arrangement with AWB, Limited, the sole exporter of
Australian wheat. If we fail to perform our obligations under our agreement with
AWB, Limited, they may terminate the agreement by giving us one month's notice
in writing. Before giving us this one month's notice, AWB, Limited must give us
the opportunity to remedy the failure by giving us six weeks notice of our
failure to perform. In addition to terminating the agreement for our failure to
perform, AWB, Limited may terminate the agreement if we cease to exist in our
present form as a result of a reconstruction or merger and a conflict of
interest arises as a result. If our agreement is terminated, for any reason, our
financial condition and results of operations would be adversely affected.
31
FREIGHT AUSTRALIA'S BUSINESS MAY BE ADVERSELY AFFECTED BY NEGATIVE CONDITIONS IN
THE AGRICULTURAL INDUSTRY BECAUSE A SUBSTANTIAL PORTION OF OUR RAILROAD TRAFFIC
CONSISTS OF AGRICULTURAL COMMODITIES.
Factors that negatively affect the agricultural industry in the regions
in which Freight Australia operates could have a material adverse effect on our
results of operations and financial condition. These factors include weather
conditions, export and domestic demand and total world supply, and fluctuations
in agricultural prices. For the year ended December 31, 2000 approximately 45%
of Freight Australia's revenues and for the year ended December 31, 2001
approximately 43% of Freight Australia's revenues were derived from the
agricultural industry. As a result, Freight Australia will continue to be
affected by unfavorable conditions affecting the agricultural industry in
general and particularly in the areas served by Freight Australia.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
We are the world's largest short line and regional freight railroad
operator. We own 49 railroads operating approximately 12,900 route miles in the
United States, Canada, Australia, Chile and Argentina. In North America, we
operate in 27 states, five Canadian provinces and the Northwest Territories.
Our principal business consists of the operations of North American
short line freight railroads and international regional railroads. During 2001,
67% of our revenues were derived from railroad operations in North America while
33% of revenues were derived from our international railroad operations based in
Australia and Chile. During 2001, Australia and Chile generated 27% and 6%,
respectively, of our total revenues.
Our North American rail group operates 46 short line railroads,
including 11 railroads purchased in January 2002 (see discussion of the
ParkSierra and StatesRail acquisitions below). Each of these railroads operates
independently with their own customer base. While these railroads are spread out
geographically and carry diverse commodities, bridge traffic, coal and lumber
and forest products accounted for 23%, 11% and 10% of our carloads in North
America during 2001. As a percentage of revenues, however, which is impacted by
several factors including the length of the haul, these carloads generated 10%,
17% and 11% of our North American freight revenues. Bridge traffic, which
neither originates or terminates on our line, generally has a lower rate per
carload. For 2002, we expect bridge traffic to comprise a smaller percentage of
both our carloads and revenues as neither ParkSierra's nor StatesRail's
railroads generate significant bridge traffic. Conversely, petroleum products,
which generated less than 5% of carloads and revenues in 2001, are expected to
increase as nearly 20% of ParkSierra's and StatesRail's carloads are petroleum
products.
Freight Australia, our Australian regional railroad, has two primary
sources of revenues. The first is freight revenues, which comprises 82% of
Freight Australia's total revenues. Freight Australia hauls various commodities
over its line including agricultural products, cement, gypsum, stone and logs.
Agricultural products comprised 46% of Freight Australia's total revenues in
2001. The level of revenues from agricultural products is dependent on the grain
harvest in the State of Victoria. The grain harvest in 2001 was very strong and
the 2002 harvest is expected to be good as well. The second source of revenue is
32
access fees paid to us by other passenger or freight operators for the right to
operate over our railroad. These amounts accounted for 18% of Freight
Australia's revenues in 2001.
Ferronor, our 55% owned Chilean railroad, has two customers that
comprised approximately 83% of its revenues in 2001. Each of these customers
operate under take-or-pay arrangements.
In addition to our railroad operations, we have historically generated
gains through asset sales. Through our various North American railroads, we own
8,604 miles of track and 63,400 acres of land. We continually review our
portfolio of railroads and look to sell entire railroads, portions of railroads
or underutilized real estate where holding such assets does not meet our
internal criteria. During 2001, we generated gains of $6.4 million. These gains
are included in operating income in our consolidated statements of income.
In January 2002, we acquired all of the stock of StatesRail, which
owned and operated eight railroads (including seven freight railroads and a
tourist railroad in Hawaii) with 1,647 miles of track in eleven states. Total
consideration for the acquisition was $90 million, consisting of $67 million in
cash and $23 million in our common stock (1.7 million shares).
Also, in January 2002, we acquired all of the stock of ParkSierra,
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 $25 million in our common stock (1.8
million shares).
In February 2000, we acquired RailTex, which owned and operated twenty-
five railroads with over 4,100 miles of track. Total consideration for the
acquisition was $294 million, consisting of $128 million in cash, assumption of
$105.3 million in debt and 6.6 million shares of our common stock valued at
$60.9 million.
In December 2000, we sold our specialty truck trailer manufacturing
operations for $38.5 million. This segment is presented as a discontinued
operation for each period presented.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
The critical financial statement accounts that are subject to
significant estimation are reserves for litigation, casualty and environmental
matters and deferred income taxes. In accordance with SFAS No. 5, an accrual for
a loss contingency is established if information available prior to the issuance
of the financial statements indicates that it is probable that a liability has
been incurred or an asset has been impaired. These estimates have been developed
in consultation with outside counsel handling our defense in these matters and
are based upon an analysis of potential results, assuming a combination of
litigation and settlement strategies. Subsequent changes to those estimates are
reflected in our statement of operations in the period of the change.
Deferred taxes are recognized based on differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities. The Company regularly reviews its deferred tax assets for
recoverability and establishes a valuation allowance based on historical taxable
income, projected future taxable income, and the expected timing of the
reversals of existing temporary differences. If we are unable to generate
sufficient future taxable income, or if there is a material change in the actual
effective tax rates or time period within which the underlying temporary
differences become taxable or deductible, we could be required to establish an
additional valuation allowance against a portion of our deferred tax asset,
resulting in an increase in our effective tax rate and an adverse impact on
earnings.
In addition, Property, plant and equipment comprised 83% of our total
assets as of December 31, 2001. These assets are stated at cost, less
accumulated depreciation. Expenditures that increase asset values or extend
useful lives are capitalized. Repair and maintenance expenditures are charged to
operating expense when the work is performed. We periodically review the
carrying value of our long-lived assets for continued appropriateness. This
review is based upon our projections of anticipated future cash flows. While we
believe that our estimates of future cash flows are reasonable, different
assumptions regarding such cash flows could materially effect our evaluations.
For a complete description of our accounting policies, see Note 1 to
our consolidated financial statements.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and Notes beginning on Page F-1.
On a consolidated basis, we recorded net income for 2001 of $17.0
million, or $0.71 per diluted share, compared with net income for 2000 of $11.7
million, or $0.60 per diluted share. Operating income for 2001 was $74.7 million
compared with operating income for 2000 of $70.0 million. The increase in
operating income is primarily due to the inclusion of the RailTex properties for
twelve months in 2001 compared to eleven months in 2000, operating synergies
realized subsequent to the integration of the RailTex properties and "same
railroad" revenue growth of 4% partially offset by the sale of five railroads in
33
the third and fourth quarters of 2000, the devaluation of the Canadian and
Australian currencies in 2001 compared to 2000 and $4.8 million less in net
gains on asset sales in 2001 as compared to 2000.
NORTH AMERICAN RAILROAD OPERATIONS
Our historical results of operations for our North American railroads
include the operations of our acquired railroads from the dates of acquisition
as follows:
NAME OF RAILROAD DATE OF ACQUISITION
E&N Railway January 1999
RaiLink properties (6 railroads) August 1999
Toledo, Peoria and Western Railroad September 1999
RailTex properties (25 railroads) February 2000
We disposed of certain railroads as follows:
NAME OF RAILROAD DATE OF DISPOSITION
Minnesota Northern Railroad August 2000
St. Croix Valley Railroad August 2000
South Central Tennessee Railroad December 2000
Pittsburgh Industrial Railroad December 2000
Ontario L'Orignal Railway December 2000
Dakota Rail, Inc. December 2001
As a result, the results of operations for the years ended December 31,
2001, 2000 and 1999 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.
The following table sets forth the operating revenues and expenses (in
thousands) for our North American railroad operations for the periods indicated.
All results of operations discussed in this section are for our North American
railroads only, unless otherwise indicated.
YEARS ENDED DECEMBER 31,
-----------------------------------
2001 2000 1999
-------- -------- -------
Total operating revenue $245,426 $231,445 $ 44,924
-------- -------- --------
Operating expenses:
Maintenance of way 23,477 25,448 5,920
Maintenance of equipment 20,984 13,101 2,068
Transportation 69,932 70,958 12,232
Equipment rental 15,136 15,842 4,512
General and administrative 39,962 41,062 6,496
Depreciation and amortization 15,915 16,430 3,594
-------- -------- --------
Total operating expenses 185,406 182,841 34,822
-------- -------- --------
Operating income $ 60,020 $ 48,604 $ 10,102
======== ======== ========
34
REVENUE TABLE
The following table presents our North American carloads and operating revenue
by commodity for the years ended December 31, 2001, 2000 and 1999.
[Download Table]
CARLOADS
-------------------------------------------------
COMMODITY GROUP 2001 2000 1999
--------------- ---------------- --------------- ----------------
Agricultural & Farm Products 80,834 76,593 28,140
Autos 45,923 47,900 3,415
Chemicals 66,863 66,827 8,522
Coal 95,433 71,945 5,504
Food Products 40,578 39,313 9,736
Intermodal 38,310 30,134 5,033
Lumber & Forest Products 88,162 90,102 14,681
Metals 52,130 61,049 10,956
Minerals 19,423 16,393 901
Metallic/Non-metallic Ores 45,658 36,780 3,165
Paper Products 64,113 59,124 15,310
Petroleum Products 28,552 26,840 5,678
Railroad Equipment/Bridge Traffic 200,565 192,323 37,023
Other 19,035 24,128 6,927
---------------- --------------- ----------------
Total 885,579 839,451 154,991
================ =============== ================
COMPARISON OF NORTH AMERICAN RAILROAD OPERATING RESULTS FOR THE YEARS ENDED
DECEMBER 31, 2001 AND 2000
OPERATING REVENUES. Operating revenue increased by $14.0 million, or 6%,
to $245.4 million for the year ended December 31, 2001 from $231.4 million for
the year ended December 31, 2000 while carloads increased 5% to 885,579 in 2001
from 839,451 in 2000. The increases in revenues and carloads was primarily due
to the inclusion of the RailTex properties for twelve months in 2001 compared to
eleven months in 2000, partially offset by the sale of certain railroads in 2000
and the 4% decline in the Canadian dollar in 2001 compared to 2000. On a "same
railroad" basis, including the RailTex properties on a pro forma basis from
January 2000 and excluding the sold railroads, carloads and revenues both
increased 4% in 2001. Increased coal shipments were primarily responsible for
the increase. Transportation revenue per carload increased to $241 in 2001 from
$239 in 2000.
OPERATING EXPENSES. Total operating expenses increased by $2.6 million,
or 1%, to $185.4 million for the year ended December 31, 2001 from $182.8
million for the year ended December 31, 2000. The operating ratios, defined as
total operating expenses divided by total revenues, were 75.5% and 79.0% for the
years ended December 31, 2001 and 2000, respectively.
Maintenance of way expenses decreased $1.9 million, or 8%, to $23.5
million in 2001 from $25.4 million in 2000. This decrease is primarily due to
the reduction of an environmental liability in 2001 of $1.9 million due to
35
changes in environmental regulations. Excluding this change, maintenance of way
expenses were flat compared to 2000. Maintenance of equipment expense increased
$7.9 million, or 60%, to $21.0 million in 2001 from $13.1 million in 2000. This
increase is primarily due to our sale-leaseback transactions which we
consummated in December 2000 and June 2001. Additional rent from these two
transactions was approximately $4.0 million in 2001. In addition, in connection
with our locomotive fleet rationalization and upgrade program, we leased
additional locomotives in 2001 to replace existing older less powerful
locomotives. Transportation expenses decreased $1.1 million, or 1%, to $69.9
million in 2001 from $71.0 million in 2000. The decrease in transportation
expenses is primarily due to lower fuel costs in 2001 as our average price per
gallon was $1.00 in 2001 compared to $1.07 in 2000, resulting in a $1.5 million
savings. In addition, our fleet rationalization and upgrade program resulted in
more efficient locomotives and lower operating costs. Other changes in operating
costs were not significant.
COMPARISON OF NORTH AMERICAN RAILROAD OPERATING RESULTS FOR THE YEARS ENDED
DECEMBER 31, 2000 AND 1999
OPERATING REVENUES. Operating revenue increased by $186.5 million, or
415%, to $231.4 million for the year ended December 31, 2000 from $44.9 million
for the year ended December 31, 1999. North American carloads totaled 839,451
for the year ended December 31, 2000, an increase of 684,460 compared to 154,991
carloads in the prior year. These increases were primarily due to the
acquisitions of TPW, RaiLink and RailTex which on a combined basis contributed
$206.9 million in revenue and 782,614 carloads for the year ended December 31,
2000 compared to $18.1 million in revenue and 94,309 carloads for the year ended
December 31, 1999. Transportation revenue per carload was $239 in 2000 versus
$238 for 1999.
OPERATING EXPENSES. Total operating expenses increased by $148.0
million, or 425%, to $182.8 million for the year ended December 31, 2000 from
$34.8 million for the year ended December 31, 1999. The increase was due to the
acquisitions of TPW, RaiLink and RailTex, which on a combined basis contributed
$164.6 million in operating expenses for the year ended December 31, 2000
compared to $14.4 million for the year ended December 31, 1999. Additionally,
increased fuel costs impacted our operating expenses by approximately $4.4
million over 2000. Our operating ratios were 79.0% and 77.5% for the years ended
December 31, 2000 and 1999, respectively.
INTERNATIONAL RAILROAD OPERATIONS
FREIGHT AUSTRALIA
The results of operations for the years ended December 31, 2001, 2000
and 1999 include the operations of Freight Australia from its date of
acquisition, May 1, 1999. Therefore, the results of operations for the year
ended December 31, 2000 are not comparable to the prior year in certain material
respects and are not indicative of the results which would have occurred had the
acquisition been consummated January 1, 1999.
36
The following table sets forth the operating revenues and expenses (in
thousands) for Freight Australia's railroad operations for the years ended
December 31, 2001 and 2000 and the period from May 1, 1999 to December 31, 1999.
[Download Table]
2001 2000 1999
-------- -------- -------
Revenues: $101,430 $102,204 $63,358
-------- -------- -------
Operating expenses:
Transportation 66,575 70,118 42,742
General and administrative 5,914 6,253 5,169
Depreciation and amortization 6,932 5,438 3,429
-------- -------- -------
Total operating expenses 79,421 81,809 51,340
-------- -------- -------
Operating income $ 22,009 $ 20,395 $12,018
======== ======== =======
COMPARISON OF FREIGHT AUSTRALIA'S OPERATING RESULTS FOR THE YEARS ENDED DECEMBER
31, 2001 AND 2000
OPERATING REVENUES. Operating revenues decreased $0.8 million, or 1%, to
$101.4 million for the year ended December 31, 2001 from $102.2 million for the
year ended December 31, 2000. Freight Australia's carloads were 221,710 for the
year ended December 31, 2001, an increase of 18,174, or 9%, compared to 203,536
for the year ended December 31, 2000. Revenue per carload was $376 for 2001
versus $406 for 2000. The decrease in revenues and revenue per carload was
primarily due to an 11% decline in the Australian dollar in 2001 compared to
2000. The increase in the carloads in 2001 was due to the strong grain harvest
in Victoria. The decline in the value of the Australian dollar relative to the
U.S. dollar in 2001 compared to 2000 impacted Freight Australia's revenues by
$12.6 million.
OPERATING EXPENSES. Operating expenses decreased $2.4 million, or 3%, to
$79.4 million for the year ended December 31, 2001 from $81.8 million for the
year ended December 31, 2000. The decrease in operating expenses was primarily
due to the 11% decline in the Australian dollar, which reduced operating
expenses by $9.8 million. Depreciation and amortization increased in 2001 due to
the extensive capital work done on the locomotive fleet and track since we
purchased the railroad from the government in 1999. The operating ratio improved
to 78.3% in 2001 from 80.0% in 2000 due to the increased carloads and the
relatively fixed nature of many of the expenses.
COMPARISON OF FREIGHT AUSTRALIA'S OPERATING RESULTS FOR THE YEARS ENDED DECEMBER
31, 2000 AND 1999
OPERATING REVENUES. Operating revenues increased $38.8 million, or 61%,
to $102.2 million for the year ended December 31, 2000 from $63.4 million for
the year ended December 31, 1999. The increase in operating revenue was
primarily due to the 1999 period including only eight months of operations.
Freight Australia's carloads were 203,536 for the year ended December 31, 2000,
an increase of 71,051, or 35%, compared to 132,485 for the year ended December
31, 1999. Revenue per carload was $406 for 2000 versus $366 for 1999. The
37
increase in revenue per carload was primarily due to a change in commodity mix
from 1999 to 2000.
OPERATING EXPENSES. Operating expenses increased $30.5 million, or 59%,
to $81.8 million for the year ended December 31, 2000 from $51.3 million for the
period May 1, 1999 through December 31, 1999. The increase in operating expenses
was primarily due to the 1999 period including only eight months of operations.
Operating expenses, as a percentage of operating revenue, were 80.0% and 81.0%
for the years ended December 31, 2000 and 1999. Operating expenses were
negatively impacted in 2000 by rising fuel prices in the amount of $2.5 million.
Operating income was lower in 2000 as compared to 1999 by approximately
$2.0 million due to the decline in the Australian dollar exchange rate.
FERRONOR
The following table sets forth the operating revenues and expenses (in
thousands) for Ferronor's railroad operations for the years ended December 31,
2001, 2000 and 1999.
2001 2000 1999
------- ------- -------
Revenues: $22,085 $22,873 $19,115
------- ------- -------
Operating expenses:
Transportation 12,967 15,505 11,964
General and administrative 2,670 2,494 2,222
Depreciation and amortization 3,208 2,278 1,231
------- ------- -------
Total operating expenses 18,845 20,277 15,417
------- ------- -------
Operating income $ 3,240 $ 2,596 $ 3,698
======= ======= =======
COMPARISON OF FERRONOR'S OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2001
AND 2000
OPERATING REVENUES. Operating revenue decreased $0.8 million, or 3%, to
$22.1 million in 2001 from $22.9 million in 2000. Ferronor's carloads handled
totaled 107,265 for the year ended December 31, 2001, a decrease of 1,491, or
1%, compared to 108,756 for the year ended December 31, 2000. Revenue per
carload was $204 for 2001 versus $210 for 2000. The decrease in revenue per
carload was primarily due to a change in commodity mix from 2000 to 2001.
OPERATING EXPENSES. Operating expenses declined $2.5 million, or 16%, to
$13.0 million from $15.5 million in 2000. The expenses in 2000 were impacted by
start up costs for new contracts. Depreciation expense increased in 2001 by $1
million over 2000 due to capital expenditures made to support the new contracts.
38
The operating ratio, was 85.3% and 88.7% for the years ended December 31, 2001
and 2000, respectively, reflecting the higher start up costs in 2000.
COMPARISON OF FERRONOR'S OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2000
AND 1999
OPERATING REVENUES. Operating revenue increased $3.8 million, or 20%, to
$22.9 million for the year ended December 31, 2000 from $19.1 million for the
year ended December 31, 1999. Ferronor's carloads handled totaled 108,756 for
the year ended December 31, 2000, an increase of 14,921, or 16%, compared to
93,835 for the year ended December 31, 1999. The increase in both carloads and
revenue is related to the commencement of operations in the fourth quarter of
1999 on a new long-term contract.
OPERATING EXPENSES. Operating expenses increased $4.9 million, or 32%, to
$20.3 million for the year ended December 31, 2000 from $15.4 million for the
year ended December 31, 1999. The increase was due to start up costs related to
a new long-term contract which commenced in late 1999. Depreciation expense
increased in 2000 by $1 million over the prior year due to capital expenditures
relating to new contracts. The operating ratios were 89% and 81% for the years
ended December 31, 2000 and 1999, respectively.
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 $3.4 million, or 27%, to $15.8
million for the year ended December 31, 2001 from $12.4 million for the year
ended December 31, 2000. Corporate overhead increased $7.2 million, or 138%, to
$12.4 million for the year ended December 31, 2000 from $5.2 million for the
year ended December 31, 1999. The increases in each of the specified periods
were related to the additional costs incurred to manage the acquired railroads
and to establish a strong management team to handle our continued growth. For
the year ended December 31, 2000, we incurred $4.8 million of costs related to
our acquisition and integration of RailTex and our unsuccessful acquisition bid
for Westrail, an Australian railroad.
ASSET RATIONALIZATION PLAN. In 2000 and 2001, we embarked on an asset
rationalization plan, which included the sale of several non-core, non-strategic
assets and reduced our long-term debt. In December 2001, we sold Dakota Rail,
Inc. and certain other assets for $9.8 million. The proceeds from these
transactions were used to reduce the Company's long-term debt and for general
working capital purposes. The net gains in 2001 were $6.4 million compared to
$12.8 million in 2000. This decline is primarily due to the delay of certain
transactions which had been expected to close during the fourth quarter of 2001.
We expect these transactions will close during 2002.
SALE/LEASEBACK PROGRAM. In June 2001, we completed $8.4 million in
locomotive sale/leaseback transactions in North America. In December 2000, we
completed $22.2 million in locomotive sale/leaseback transactions in North
39
America. The proceeds from these transactions were used to reduce the Company's
long-term debt and for general working capital purposes.
INTEREST EXPENSE. Interest expense, including amortization of financing
costs, increased from $20.5 million in 1999 to $56.0 million in 2000 and
decreased to $53.5 million in 2001. The increase from 1999 to 2000 is primarily
attributable to the financing of our acquisitions of Freight Australia, TPW and
RaiLink in 1999 and RailTex in 2000. The decrease in interest expense from 2000
to 2001 is primarily due to reduction of our long-term debt and a decrease in
base interest rates. We have two interest rate swap agreements in place which
fix the LIBOR component of $212.5 million of our senior debt at 6.723%. As such,
as interest rates declined during 2001, we only benefited on our senior debt for
the portion of the principal balance in excess of $212.5 million. The total
expense associated with our interest rate swap was $5.6 million in 2001.
INCOME TAXES. Our effective tax rates in 2001 and 2000 were 22.5% and
23.5%, respectively. In 2001, we recorded a benefit of $3.1 million from a
reduction in the Canadian federal and provincial tax rates. The effective tax
rate in 2000 was impacted by the allocation of income taxes between continuing
operations, discontinued operations and extraordinary items. We believe our
effective tax rate for 2002 will be approximately 33%. This reflects the higher
statutory rates from the acquisitions of ParkSierra and StatesRail, offset by
the reduction in the Canadian tax rates.
EXTRAORDINARY LOSS. In connection with the reduction of our senior debt
in July and August 2001, we recorded an extraordinary charge of $0.2 million for
the year ended December 31, 2001. Pursuant to the refinancing of our debt in
February 2000, we recorded an extraordinary charge for the year ended December
31, 2000 for the loss on early extinguishment of debt of $2.9 million. In
connection with the issuance of subordinated debt in August 2000 we recorded an
extraordinary charge of $1.1 million for early extinguishment of debt.
DISCONTINUED OPERATIONS. In December 2000, we sold our specialty truck
trailer manufacturing operations for $38.5 million resulting in a gain of
approximately $11.5 million, net of income taxes. We recorded net earnings from
our discontinued operations of $8.3 million in 2000 compared to $3.9 million in
1999. In connection with the acquisition of RailTex, we refinanced our
investment in our trailer manufacturing operations resulting in additional
interest expense of $7.3 million in 2000.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. In 2000, we recorded a $2.3
million charge associated with a change in accounting principle. This charge
resulted from a beneficial conversion feature associated with warrants in
connection with the junior convertible subordinated debentures issued in 1999.
This was a result of a change during 2000 of the applicable accounting
literature.
40
LIQUIDITY AND CAPITAL RESOURCES - COMBINED OPERATIONS
The discussion of liquidity and capital resources that follows reflects
our consolidated results and includes all subsidiaries. The Company's principal
source of liquidity is cash generated from operations. In addition, the Company
funds any additional liquidity requirements through borrowings under its $50
million revolving credit facility.
OPERATING ACTIVITIES
Our cash provided by operating activities was approximately $55 million
for the year ended December 31, 2001. This amount consists primarily of $17
million in net income, $32 million in depreciation and amortization and $3
million of deferred income taxes.
INVESTING ACTIVITIES
Cash used in investing activities was $47 million for the year ended
December 31, 2001. This consists primarily of capital expenditures of $62
million, partially offset by proceeds from the sale of assets and proceeds from
the sale/leaseback transactions totaling $19 million. We expect capital
expenditures in 2002 to be approximately $68 million which includes amounts for
the recently acquired ParkSierra and StatesRail properties.
FINANCING ACTIVITIES
Cash provided by financing activities was $39 million for 2001. During
2001, we completed two private placements of common stock raising net proceeds
of approximately $90 million. In addition, we raised approximately $8 million of
new equity through the exercise of stock options and warrants. These amounts
were used for $54 million in debt repayments during the year. Under our existing
senior debt facilities, our principal repayments will be $17.0 million in 2002.
In January 2002, in connection with the acquisitions of ParkSierra and
StatesRail, we borrowed an additional $50 million under our senior credit
facility. The terms of the additional $50 million are consistent with our
existing Term B loans.
Our senior credit agreement provides (i) a $125 million Term A loan,
bearing interest at LIBOR plus 2.50 (4.44% at December 31, 2001), (ii) a $205
million Term B loan, bearing interest at December 31, 2001 at LIBOR plus 3.25%
(5.19% at December 31, 2001), and (iii) a $50 million revolving credit facility
which includes $30 million of U.S. dollar denominated loans bearing interest at
the same interest rate as the Term A loans, $10 million of Canadian dollar
denominated loans and $10 million of Australian dollar denominated loans with
an initial interest rate of LIBOR plus 3.00%. In January 2002, we borrowed an
additional $50 million, under a Term C loan, on terms consistent with the Term B
loan. The applicable interest rate of the Term A loans and the revolving loans
41
varies depending on our leverage ratio. All of the capital stock of all our U.S.
subsidiaries, 65% of the capital stock of our Canadian and Australian
subsidiaries and substantially all of the assets of our subsidiaries serve as
collateral for the senior credit facilities.
The Term A loan requires principal payments of 15% in 2002, 20% in 2003,
and 25% in both 2004 and 2005. The Term B and Term C loans requires principal
payments of 1% per year through 2005 and a balloon maturity at December 31,
2006. The revolving loan matures on December 31, 2005. As of December 31, 2001,
the outstanding balances of the Term A and Term B loans are $83.6 million,
$184.1 million, respectively. There was no outstanding balance on the revolving
loan at December 31, 2001.
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.
Our senior credit agreement and the indenture governing our senior
subordinated notes include numerous covenants imposing significant financial and
operating restrictions on our business. The covenants place restrictions on our
ability to, among other things: incur more debt; pay dividends, redeem or
repurchase our stock or make other distributions; make acquisitions or
investments; use assets as security in other transactions; enter into
transactions with affiliates; merge or consolidate with others; dispose of
assets or use asset sale proceeds; create liens on our assets; and extend
credit.
In addition, our senior credit agreement also contains financial
covenants that require us to meet a number of financial ratios and tests. Our
ability to meet these ratios and tests and to comply with other provisions of
our senior credit facilities can be affected by events beyond our control. Our
failure to comply with the obligations in our senior credit facilities could
result in an event of default, which, if not cured or waived, could permit
acceleration of our indebtedness under the credit agreement or other
indebtedness which would have a material adverse effect on us. As of December
31, 2001, we were in compliance with these financial covenants.
To partially mitigate the interest rate risk on the credit facilities we
entered into two interest rate swaps in May 2000. The interest rate swaps fixed
a LIBOR rate of 7.23% on $212.5 million of our senior term debt for a three-year
period. In May 2001, we modified the interest rate swap agreements, extending
the term for two years and reducing the fixed pay rate to 6.723%. Fluctuations
in the market interest rate will continue to affect the cost of our remaining
borrowings. Assuming current debt levels, the effect of a 1% increase in
interest rates on the remaining senior debt would have resulted in an increase
in interest expense of $1.2 million for the year ended December 31, 2001.
As of December 31, 2001, we had working capital of $30 million compared
to a working capital deficit of $7.6 million as of December 31, 2000. This
increase is primarily due to the private placement of common stock in December
2001, in which we raised $51 million.
42
Two primary uses of the cash provided by our operations are capital
expenditures and debt service. The following table represents the minimum future
payments on our existing long-term debt and lease obligations:
[Download Table]
2003 - 2005 - After
TOTAL 2002 2004 2006 2006
----- ---- ---- ---- ------
Long term debt $358,856 $20,558 $55,904 $85,198 $197,856
Capital lease
obligations $ 1,184 $ 832 $ 319 $ 33 $ 0
Operating lease
obligations $100,138 $18,039 $30,008 $26,916 $ 25,176
Our long-term business strategy includes the selective acquisition of
additional transportation-related businesses. Accordingly, we 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 those acquisitions or development, and
sufficient financing for those activities may not be available on terms
acceptable to us, if at all. As of March 15, 2002, we had $39 million of
availability under our revolving credit facilities, and $25 million of cash.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 141, "Business Combinations", and Statement No. 142, "Goodwill and
Other Intangible Assets". Statement No. 141 became effective for business
combinations initiated after June 30, 2001 and requires purchase method
accounting. Under Statement 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.
Statement No. 142 will be effective for fiscal years beginning after December
15, 2001. The Company believes the adoption of these pronouncements will not
have a material impact on its financial statements.
In addition, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations," and Statement No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." Statement No. 143, which is effective for fiscal
years beginning after June 15, 2002, addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. Statement No. 144, which is
effective for fiscal years beginning after December 15, 2001, 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.
43
The Company believes the adoption of these standards will not have a material
impact on its financial statements.
ITEM 7a. MARKET RISK
We currently use derivatives to hedge against increases in fuel prices
and interest rates. We formally document the relationship between the hedging
instrument and the hedged items, 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 cash flow hedges to
specific assets or liabilities on the balance sheet, commitments or forecasted
transactions. When we enter into a derivative contract, and at least quarterly,
we assess 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
endings. 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, a separate component of
Stockholders' Equity, and reclassified into earnings in the period during which
the hedge transaction affects earnings.
FOREIGN CURRENCY. Our foreign currency risk arises from owning and
operating railroads in Canada, Chile and Australia. As of December 31, 2001, we
had not entered into any currency hedging transactions to manage this risk. A
decrease in either the Canadian dollar or the Australian dollar would negatively
impact our reported revenues and earnings for the affected period. During 2001,
the Canadian dollar and Australian dollar declined 3% and 11%, respectively,
which led to a $15.3 million and $3.4 million reduction in reported revenues and
operating income, respectively, in 2001 compared to 2000. A majority of our
revenue and debt in Chile is indexed to the U.S. dollar and therefore, we are
not negatively impacted by a decline in the value of the Chilean peso.
INTEREST RATES. Our interest rate risk results from holding variable rate
debt obligations, as an increase in interest rates would result in lower
earnings and increased cash outflows.
The interest rate on our senior credit facility is payable at variable
rates indexed to LIBOR. To partially mitigate the interest rate risk on our
senior credit facilities, we entered into interest rate swaps in May 2000. The
interest rate swaps locked in a LIBOR rate of 7.23% on $212.5 million of debt
for a three-year period. In 2001, we extended the interest rate swaps for two
years and reduced the LIBOR rate to 6.723%. Fluctuations in the market interest
rate will affect the cost of our remaining borrowings. The effect of each 1%
increase in interest on the remaining borrowings would result in an increase in
interest expense of $1.0 million.
DIESEL FUEL. We are 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. Diesel fuel represented 8.1% of our total revenues in
2001. We currently have fuel swaps in place which fix the price of 27% of our
expected 2002 North American fuel consumption at $0.87 per gallon, including
transportation and taxes. The effect of each $0.01 increase in fuel prices would
result in an increase in fuel expense of $0.03 million per month.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of RailAmerica, the accompanying
notes thereto and the independent accountants' reports 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.
44
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors, executive officers and nominees is
incorporated by reference from our definitive proxy statement relating to our
2002 Annual Meeting of Stockholders to be filed with the Commission pursuant to
Regulation 14A on or before April 30, 2002.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated by
reference from our definitive proxy statement relating to our 2002 Annual
Meeting of Stockholders to be filed with the Commission pursuant to Regulation
14A on or before April 30, 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership is incorporated by reference
from our definitive proxy statement relating to our 2002 Annual Meeting of
Stockholders to be filed with the Commission pursuant to Regulation 14A on or
before April 30, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
is incorporated by reference from our definitive proxy statement relating to our
2002 Annual Meeting of Stockholders to be filed with the Commission pursuant to
Regulation 14A on or before April 30, 2002.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Amended and Restated Agreement and Plan of Merger, dated as of
November 26, 2001 by and among RailAmerica, Inc., ParkSierra
Acquisition Corp. and ParkSierra Corp(30)
2.2 Merger Agreement, dated as of October 12, 2001, among
RailAmerica, Inc., StatesRail Acquisition Corp. and
StatesRail, Inc.
2.3 Stock Purchase Agreement, dated October 12, 2001, among
RailAmerica, Inc., New StatesRail Holdings, Inc., StatesRail
L.L.C., West Texas and Lubbock Railroad Company, Inc. and the
Members of StatesRail L.L.C.
2.4 Letter Agreement, dated as of October 12, 2001 between the
parties to Exhibits 2.2 and 2.3 above.
3.1 Amended and Restated Certificate of Incorporation of
Registrant, as amended(2)
3.2 By-laws of Registrant(1)
45
3.3 Certificate Of Amendment to Amended and Restated Certificate
of Incorporation of the Registrant(31)
4.1 Form of Common Stock Purchase 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)
4.6 Fourth Amendment to the Rights Agreement, dated as of April
13, 2000, between the Company and American Stock Transfer and
Trust Company (21)
4.7 Waiver and Supplemental Agreement, dated as of April 13,
2000, among the Company and EGS Associates, L.P., EGS
Partners, L.L.C., BEV Partners, L.P., Jonas Partners, L.P.,
EGS Management, L.L.C., William Ehrman, Frederic Greenberg,
Jonas Gerstl and Juli Oliver (22)
4.8 Indenture, dated as of August 14, 2000, between RailAmerica
Transportation Corp., the Guarantors named therein and Wells
Fargo Bank Minnesota, N.A. (24)
4.9 Warrant Agreement, dated August 14, 2000, between RailAmerica,
Inc. and Wells Fargo Bank Minnesota, N.A. (26)
4.10 Warrant Registration Rights Agreement, dated August 14, 2000,
between RailAmerica, Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, Barclays Bank PLC and Scotia Capital
(USA) Inc. (27)
4.11 Form of Placement Agent Warrant, dated as of June 2001.
4.12 Form of Placement Agent Warrant, dated as of December 2001.
4.13 First Supplemental Indenture
4.14 Second Supplemental Indenture
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)+
10.59 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(7)+
10.65 Lease dated April 30, 1999 by and among the Director of Public
Transport and Freight Victoria Limited(12)
10.71 Credit Agreement, dated as of February 4, 2000, by and among
the Company and Palm Beach Rail Holding, 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(20)
10.76 Waiver and Amendment No. 1 to Credit Agreement.(31)
46
10.77 Waiver and Amendment No. 2 to Credit Agreement. (31)
10.79 Waiver and Amendment No. 3 to Credit Agreement.
10.80 Form of Change in Control Agreements between RailAmerica, Inc.
and certain executive officers
10.81 Service Agreement, dated April 4, 2001, between the Company
and Marinus van Onselen and first amendment thereto.
10.82 Amended and Restated Executive Employment Agreement, dated as
of January 1, 2002, between the Company and Gary O. Marino.
10.83 Amended and Restated Executive Employment Agreement, dated as
of January 1, 2002, between the Company and Donald D.
Redfearn.
10.84 Employment Agreement, dated as of January 1, 2002, between the
Company and Gary M. Spiegel.
21.1 Subsidiaries of Registrant
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Langton Clarke Limitada
(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.
(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 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 8, 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.
(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.
(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 18, 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.
(20) 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, 1999,
filed with the Securities and Exchange Commission on March 30, 2000.
(21) Incorporated by reference to Exhibit 4.1 filed as part of the
Company's Form 8-K, dated April 13, 2000.
(22) Incorporated by reference to Exhibit 4.2 filed as part of the
Company's Form 8-K, dated April 13, 2000.
47
(24) Incorporated by reference to the Exhibit 4.1 filed as part of the
Company's Registration Statement on Form S-4, Registration No.
333-45196.
(26) Incorporated by reference to the Exhibit 4.1 filed as part of the
Company's Registration Statement on Form S-3, Registration No.
333-45200.
(27) Incorporated by reference to the Exhibit 4.2 filed as part of the
Company's Registration Statement on Form S-3, Registration No.
333-45200.
(30) Incorporated by reference to the Annex A, filed as part of the
Company's Registration Statement on Form S-4, Registration No.
333-75290.
(31) Incorporated by reference to the same exhibit number filed as part of
the Company's Form 10-K for the year ended December 31, 2000, filed
with the Securities and Exchange Commission on April 2, 2001.
+ 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, 2001:
The Company filed a Current Report on Form 8-K, dated October 3, 2001,
with the Securities and Exchange Commission on October 11, 2001 in
connection with a presentation of The Company at an investor
conference.
48
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, Chairman, President and
Chief Executive Officer
By: /s/ BENNETT MARKS
-----------------------------------------------
Bennett Marks, Senior Vice President -- Chief
Financial Officer, Principal Financial and
Accounting Officer
Dated April 1, 2002
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.
[Enlarge/Download Table]
SIGNATURES TITLE DATE
---------- ----- ----
/s/ GARY O. MARINO Chairman, President, Chief Executive April 1, 2002
----------------------------- Officer and Director
Gary O. Marino
/s/ DONALD D. REDFEARN Chief Administrative Officer, Executive April 1, 2002
----------------------------- Vice President, Secretary and Director
Donald D. Redfearn
/s/ JOHN H. MARINO Assistant Secretary and Director April 1, 2002
-----------------------------
John H. Marino
/s/ DOUGLAS R. NICHOLS Director April 1, 2002
-----------------------------
Douglas R. Nichols
/s/ RICHARD RAMPELL Director April 1, 2002
-----------------------------
Richard Rampell
/s/ CHARLES SWINBURN Director April 1, 2002
-----------------------------
Charles Swinburn
/s/ JOHN M. SULLIVAN Director April 1, 2002
-----------------------------
John M. Sullivan
/s/ FERD. C. MEYER, JR. Director April 1, 2002
-----------------------------
Ferd C. Meyer, Jr.
/s/ WILLIAM G. PAGONIS Director April 1, 2002
-----------------------------
William G. Pagonis
49
RAILAMERICA, INC. AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS
The following consolidated financial statements of RailAmerica, Inc. and
Subsidiaries are referred to in Item 8:
PAGES
-----
Reports of Independent Certified Public Accountants ........... F-2 - F-3
Consolidated Balance Sheets - December 31, 2001 and 2000 ...... F-4
Consolidated Statements of Income - For the Years Ended
December 31, 2001, 2000 and 1999 ....................... F-5
Consolidated Statements of Stockholders' Equity - For the Years
Ended December 31, 2001, 2000 and 1999 ................. F-6
Consolidated Statements of Cash Flows - For the Years Ended
December 31, 2001, 2000 and 1999 ....................... F-7
Notes to Consolidated Financial Statements .................... F-8 - F-36
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
RailAmerica, Inc.:
In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of RailAmerica, Inc.
and its subsidiaries at December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States of America. 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 revenues of $19,115,000 for the year
ended December 31, 1999. 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. for the year ended December 31, 1999 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 of
America, 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 our
opinion.
As described in Note 15, the Company changed its method of accounting for
derivative instruments and hedging activities in 2001.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
West Palm Beach, Florida
March 18, 2002, except as to the last paragraph of Note 18,
which is as of March 28, 2002
F-2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Ferronor S.A.:
We have audited the statements of income and cash flows of Empresa de
Transporte Ferroviaro S.A. ("Ferronor") for the year ended December 31, 1999.
These financial statements (not included separately herein) are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We have conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respect, the results of operations and cash flows of Ferronor for
the year ended December 31, 1999 in conformity with generally accepted
accounting principles in the United States of America.
/s/ Arthur Andersen - Langton Clarke
---------------------------------------
ARTHUR ANDERSEN - LANGTON CLARKE
February 4, 2000
Santiago, Chile
F-3
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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DECEMBER 31, 2001 2000
--------------------------------------------------------------------------------------------------------------
(IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 59,761 $ 13,090
Restricted cash in escrow....................................... 2,418 4,539
Accounts and notes receivable, net of allowance of
$571 and $886, respectively................................. 54,278 62,864
Other current assets............................................ 14,204 19,551
---------- ----------
Total current assets........................................ 130,661 100,044
Property, plant and equipment, net..................................... 738,775 715,020
Other assets........................................................... 21,732 24,639
---------- ----------
Total assets................................................ $891,168 $839,703
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............................ $ 24,484 $ 20,558
Accounts payable................................................ 36,035 39,752
Accrued expenses................................................ 39,889 47,305
---------- ----------
Total current liabilities................................... 100,408 107,615
Long-term debt, less current maturities................................ 277,203 338,298
Subordinated debt...................................................... 144,988 141,411
Deferred income taxes.................................................. 96,822 87,288
Minority interest and other liabilities................................ 50,788 35,044
---------- ----------
670,209 709,656
--------- ---------
Commitments and contingencies
Redeemable convertible preferred stock, $0.01 par value, $25
liquidation value; 278,400 shares issued and outstanding
at December 31, 2000................................................... -- 6,613
-------------- -----------
Stockholders' equity:
Common stock, $0.001 par value, 60,000,000 shares authorized;
28,842,090 shares issued and outstanding at December 31, 2001
and 18,623,320 shares issued and outstanding at
December 31, 2000............................................... 29 19
Additional paid in capital............................................. 224,248 118,502
Retained earnings...................................................... 45,902 29,162
Accumulated other comprehensive (loss)................................. (49,220) (24,249)
---------- ----------
Total stockholders' equity.................................. 220,959 123,434
--------- ---------
Total liabilities, redeemable preferred stock
and stockholders' equity.................................... $891,168 $839,703
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
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FOR THE YEARS ENDED DECEMBER 31, 2001 2000 1999
-----------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
Operating revenue ............................................. $ 369,631 $ 357,936 $ 129,818
--------- --------- ---------
Operating expenses:
Transportation .............................................. 209,072 210,972 79,439
Selling, general and administrative ......................... 64,652 62,093 19,550
Net gain on sale and impairment of assets ................... (6,434) (11,184) (3,629)
Depreciation and amortization ............................... 27,601 26,021 9,179
--------- --------- ---------
Total operating expenses .................................. 294,891 287,902 104,539
--------- --------- ---------
Operating income .......................................... 74,740 70,034 25,279
Interest expense, including amortization costs of
$4,410, $4,854 and $4,203, respectively ..................... (53,480) (55,950) (20,490)
Minority interest and other income (expense) .................. 1,019 (1,526) 449
--------- --------- ---------
Income from continuing operations
before income taxes ......................................... 22,279 12,558 5,238
Provision (benefit) for income taxes .......................... 5,005 2,950 (787)
--------- --------- ---------
Income from continuing operations ........................... 17,274 9,608 6,025
Discontinued operations:
Gain on disposal of discontinued segment (net of income
taxes of $6,850) ........................................ -- 11,527 --
Income (loss) from operations of discontinued segment
(net of income taxes of ($1,650) and
$2,300, respectively) ................................... -- (3,226) 3,896
--------- --------- ---------
Income before extraordinary item and cumulative effect
of accounting change .................................... 17,274 17,909 9,921
Extraordinary loss from early extinguishment of debt
(net of income taxes of $142 and $2,200, respectively) . (236) (3,996) --
Cumulative effect of accounting change ...................... -- (2,252) --
--------- --------- ---------
Net income ............................................. $ 17,038 $ 11,661 $ 9,921
========= ========= =========
Net income available to common stockholders ................... $ 16,740 $ 10,991 $ 8,886
Basic earnings per common share:
Continuing operations ....................................... $ 0.79 $ 0.50 $ 0.45
Discontinued operations ..................................... -- 0.45 0.35
Extraordinary item .......................................... (0.01) (0.22) --
Cumulative effect of accounting change ...................... -- (0.12) --
--------- --------- ---------
Net income ................................................ $ 0.78 $ 0.61 $ 0.80
========= ========= =========
Diluted earnings per common share:
Continuing operations ....................................... $ 0.72 $ 0.49 $ 0.43
Discontinued operations ..................................... -- 0.45 0.34
Extraordinary item .......................................... (0.01) (0.22) --
Cumulative effect of accounting change ...................... -- (0.12) --
--------- --------- ---------
Net income ................................................ $ 0.71 $ 0.60 $ 0.77
========= ========= =========
Weighted average common shares outstanding:
Basic ....................................................... 21,510 18,040 11,090
Diluted ..................................................... 25,350 18,267 11,665
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
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STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
Number of Additional Other
FOR THE YEARS ENDED DECEMBER 31, Shares Par Paid-In Retained Comprehensive
2001, 2000 AND 1999 Issued Value Capital Earnings Income (Loss) Total
-----------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
Balance, January 1, 1999 .................. 10,207 $ 10 $ 24,995 $ 9,285 $ 471 $ 34,761
Net income ................................ -- -- -- 9,921 -- 9,921
Cumulative translation adjustments ........ -- -- -- -- 3,015 3,015
---------
Total comprehensive income ...... 12,936
---------
Issuance of common stock .................. 1,438 1 12,028 -- -- 12,029
Purchase of treasury stock ................ -- -- (1,224) -- -- (1,224)
Exercise of stock options ................. 141 -- 732 -- -- 732
Conversion of debt ........................ 564 1 3,332 -- -- 3,333
Conversion of preferred stock ............. 261 1 2,006 -- -- 2,007
Issuance of warrants ...................... -- -- 5,928 -- -- 5,928
Preferred stock dividends and accretion ... -- -- -- (1,035) -- (1,035)
-----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 ................ 12,611 13 47,797 18,171 3,486 69,467
Net income ................................ -- -- -- 11,661 -- 11,661
Cumulative translation adjustments ........ -- -- -- -- (27,735) (27,735)
---------
Total comprehensive loss ...... (16,074)
---------
Issuance of common stock .................. 6,652 7 60,917 -- -- 60,924
Exercise of stock options ................. 49 -- 269 -- -- 269
Conversion of redeemable securities ....... 339 -- 2,669 -- -- 2,669
Warrants issued ........................... -- -- 8,841 -- -- 8,841
Purchase of treasury stock ................ -- -- (1,992) -- -- (1,992)
Retirement of treasury stock .............. (1,028) (1) 1 -- -- --
Preferred stock dividends
and accretion ........................... -- -- -- (670) -- (670)
-----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 ................ 18,623 19 118,502 29,162 (24,249) 123,434
Net income ................................ -- -- -- 17,038 -- 17,038
Cumulative effect of adopting SFAS 133, net -- -- -- -- (4,388) (4,388)
Change in market value of derivative
instruments, net ........................ -- -- -- -- (5,008) (5,008)
Cumulative translation adjustments ........ -- -- -- -- (15,575) (15,575)
---------
Total comprehensive loss ...... (7,933)
---------
Issuance of common stock .................. 8,176 8 89,728 -- -- 89,736
Exercise of stock options ................. 1,334 1 8,342 -- -- 8,343
Tax benefit on exercise of options and
warrants................................. -- -- 2,633 -- -- 2,633
Conversion of redeemable securities ....... 882 1 7,030 -- -- 7,031
Purchase of treasury stock ................ (173) -- (1,987) -- -- (1,987)
Preferred stock dividends and accretion ... -- -- -- (298) -- (298)
-----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 ................ 28,842 $ 29 $ 224,248 $ 45,902 $ (49,220) $ 220,959
-----------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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FOR THE YEARS ENDED DECEMBER 31, 2001 2000 1999
-----------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 17,038 $ 11,661 $ 9,921
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ..................... 32,011 34,566 14,134
Write-off of deferred loan costs .................. 378 4,857 --
Interest paid in kind ............................. -- 5,806 --
Minority interest in income of subsidiary ......... 1,350 995 1,551
Equity interest in earnings of affiliate .......... -- (554) (230)
Gain on insurance settlement ...................... -- -- (4,069)
(Gain) loss on sale or disposal of properties ..... (6,434) (29,554) 118
Cumulative effect of accounting change ............ -- 2,252 --
Deferred income taxes ............................. 2,926 (2,797) 3,402
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
Accounts receivable ............................ 5,298 3,654 (2,246)
Other current assets ........................... 8,587 2,455 (4,102)
Accounts payable ............................... 1,172 2,239 3,244
Accrued expenses ............................... (12,485) 5,759 3,326
Other liabilities .............................. 1,620 4,071 (2,295)
Deposits and other ............................. 3,509 (977) (1,254)
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities ... 54,970 44,433 21,500
-----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ............. (61,675) (62,499) (51,391)
Proceeds from sale of properties and investments ...... 18,502 96,654 1,163
Acquisitions, net of cash acquired .................... -- (148,922) (8,453)
Cash held in discontinued operations .................. -- -- (656)
Change in restricted cash in escrow ................... 1,046 (4,539) --
Deferred acquisition costs and other .................. (4,577) (2,711) 639
-----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities ....... (46,704) (122,017) (58,698)
-----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt .............. 85,590 549,235 182,085
Principal payments on long-term debt .................. (142,088) (448,107) (150,183)
Sale of convertible preferred stock ................... -- -- 4,095
Sale of common stock .................................. 89,736 -- 11,868
Proceeds from exercise of stock options ............... 8,343 234 581
Preferred stock dividends paid ........................ (241) (289) (843)
Purchase of treasury stock ............................ (1,987) (1,992) (1,224)
Deferred financing costs paid ......................... -- (18,980) (2,755)
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities ... 39,353 80,101 43,624
-----------------------------------------------------------------------------------------------------------------------
Net increase in cash .................................. 47,619 2,517 6,426
Effect of exchange rates on cash ...................... (948) (1,025) 87
Cash, beginning of period ............................. 13,090 11,598 5,085
-----------------------------------------------------------------------------------------------------------------------
Cash, end of period ................................... $ 59,761 $ 13,090 $ 11,598
-----------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-7
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 subsidiaries (the "Company"). All
of RailAmerica's consolidated subsidiaries are wholly-owned except
Empresa De Transporte Ferroviario S.A. ("Ferronor"), a Chilean
railroad, in which the Company has a 55% equity interest. All
intercompany balances and transactions have been eliminated. Certain
prior period amounts have been reclassified to conform to the 2001
presentation.
The Company's principal operations consist of rail freight
transportation in North America, Chile, Argentina and Australia.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
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 insurance limits. As of December 31, 2001, the Company
had approximately $58.5 million of cash in excess of 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. The Company periodically reviews its assets for
impairment by comparing the projected undiscounted cash flows of those
assets to their recorded amounts. Impairment charges are based on the
excess of the recorded amounts over their estimated fair value, as
measured by the discounted cash flows.
F-8
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Depreciation has been computed using the straight-line method based on
estimated useful lives as follows:
Buildings and improvements 20-33 years
Railroad track 30-40 years
Railroad track improvements 3-10 years
Locomotives, transportation and other equipment 5-30 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.
REVENUE RECOGNITION
The Company recognizes transportation revenue after services are
provided.
FOREIGN CURRENCY TRANSLATION
The financial statements and transactions of the Company's foreign
operations are maintained in their local currency, which is their
functional currency, except for Chile, where the U.S. dollar is
used as the functional currency. Where local currencies are used,
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
U.S. dollars, are accumulated in the cumulative translation adjustment
account, which is a component of accumulated other comprehensive
income in stockholders' equity. 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations", and Statement No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 became effective for business combinations
initiated after June 30, 2001 and requires purchase method accounting.
Under SFAS No. 142, goodwill and identifiable intangible assets with
an indefinite life will no longer be
F-9
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
amortized; however, both goodwill and other intangible assets will need
to be tested at least annually for impairment. SFAS No. 142 will be
effective for fiscal years beginning after December 15, 2001. The
Company has no goodwill as of December 31, 2001 and believes the
adoption of these pronouncements will not have a material impact on its
financial statements.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," and SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 143, which is
effective for fiscal years beginning after June 15, 2002, addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. SFAS No. 144, which is effective for fiscal years
beginning after December 15, 2001, 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 Company
believes the adoption of these pronouncements will not have a material
impact on its financial statements.
2. EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted average
number of common shares outstanding during the year while income from
continuing operations is reduced by preferred stock dividends and
accretion.
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. Options and warrants totaling 1.2 million, 4.3 million and
1.8 million were excluded from the diluted earnings per share
calculation for the years ended December 31, 2001, 2000 and 1999,
respectively, as well as assumed conversion of $29.2 million (3.1
million shares) in 2000 and $26.5 million (2.7 million shares) in 1999
of convertible preferred stock and convertible debentures, as such
securities were anti-dilutive.
The following is a summary of the income from continuing operations
available for common stockholders and weighted average shares (in
thousands):
[Enlarge/Download Table]
Year Ended December 31,
--------------------------------------------
2001 2000 1999
-------- -------- --------
Income from continuing operations ............ $ 17,274 $ 9,608 $ 6,025
Preferred stock dividends and accretion ...... (298) (670) (1,035)
-------- -------- --------
Income from continuing operations available
to common stockholders (basic) ........... 16,976 8,938 4,990
Interest on convertible debt ................. 1,044 -- 42
Preferred stock dividends and accretion ...... 298 -- --
-------- -------- --------
Income from continuing operations available
to common stockholders (diluted) ......... $ 18,318 $ 8,938 $ 5,032
======== ======== ========
Weighted average shares outstanding (basic) .. 21,510 18,040 11,090
Assumed conversion:
Options and warrants ..................... 1,196 227 379
Convertible debentures and preferred stock 2,644 -- 196
-------- -------- --------
Weighted average shares outstanding (diluted) 25,350 18,267 11,665
======== ======== ========
F-10
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DISCONTINUED OPERATIONS
In February 2000, the Company finalized its plan to sell its trailer
manufacturing operations which consisted of Kalyn/Siebert, L.P.
("KSLP") and Kalyn/Siebert Canada ("KSC"). This business has been
accounted for as a discontinued operation and results of operations
have been excluded from continuing operations in the consolidated
statements of operations for all periods presented.
In December 2000, the Company sold KSLP for $32.5 million in cash,
including $3.5 million which was in escrow at December 31, 2000. A
gain of $21.0 million was recognized. In December 2000, the Company
sold substantially all of the assets and business of KSC for $6 million
in cash, including $2 million which was in escrow at December 31, 2000.
A loss of $2.6 million was recognized. As of December 31, 2001, $2.2
million remains in escrow under terms of the sale agreements.
Total revenue for the trailer manufacturing business was $34.7 million
and $44.3 million for the years ended December 31, 2000 and 1999,
respectively. Interest expense of $7.3 million was charged to the
manufacturing business in 2000, representing the interest expense for
the portion of the asset sale bridge note, which was repaid with the
proceeds from the sale of the trailer manufacturing business. (Loss)
income before income taxes for the trailer manufacturing business was
($4.9) million and $6.2 million for the years ended December 31, 2000
and 1999, respectively.
4. ACQUISITIONS
On February 4, 2000, the Company acquired RailTex, Inc. for $128
million in cash, assumption of $105.3 million in debt and 6.6 million
shares of the Company's common stock valued at $60.9 million. RailTex,
the operator of 25 railroads with over 4,100 miles of rail lines in
North America, became a wholly-owned subsidiary of the Company. As part
of the purchase price and in accordance with EITF 95-3, "Recognition of
Liabilities in Connection with a Purchase Business Combination", the
Company recorded liabilities of $11.2 million which related to
severance and change of control payments to former RailTex employees.
The acquisition was accounted for as a purchase and its results were
included since the date of acquisition. On a pro forma basis
(unaudited), as if the acquisition of RailTex had occurred on January
1, 2000, the Company's revenues, operating income and diluted earnings
per share would have been $372.0 million, $11.7 million and $0.57,
respectively. This does not purport to be indicative of what would have
occurred had the acquisition been made on January 1, 2000 or of results
which may occur in the future.
On September 3, 1999, the Company acquired The Toledo, Peoria and
Western Railroad Corporation ("TPW") for $17.4 million, including the
repayment of indebtedness.
On July 26, 1999, the Company acquired RaiLink Ltd. ("RaiLink") for
$49.8 million. RaiLink and its 26.3% owned affiliate, Quebec Railway
F-11
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. ACQUISITIONS, continued
Corporation, operated 11 regional railways with 2,500 miles of track in
Alberta, the Northwest Territories, Ontario, Quebec and New Brunswick.
During the fourth quarter of 2000, the Company sold its interest in the
Quebec Railway Corporation.
On April 30, 1999, the Company purchased the assets and liabilities
comprising the railroad freight business of V/Line Freight Corporation
("VLF"), now known as Freight Australia. Under the acquisition
agreement the Company acquired all of the locomotives, wagons, motor
vehicles, equipment, stock, spare parts inventory and accounts
receivable, certain business, brand and trade names and trademarks, and
the outstanding business contracts of VLF for a purchase price of $49.0
million. In connection with the acquisition, Freight Australia also
entered into other agreements, including a primary 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 Australia received a 45-year lease of the
non-electrified intrastate Victorian railway tracks and infrastructure.
Freight Australia prepaid in cash the net present value of the rental
payments for the infrastructure lease totaling approximately $54.0
million. Freight Australia commenced operations of the rail-based
freight business on May 1, 1999.
5. DISPOSITIONS
During 2001, the Company sold Dakota Rail, Inc. for $7.6 million,
resulting in a net gain of $3.9 million. In addition, the Company sold
other non-core assets resulting in a net gain of $2.5 million.
During 2000, the Company sold several railroads and other non-core
assets for total proceeds of $44.0 million, resulting in a net gain of
$11.2 million.
6. OTHER BALANCE SHEET DATA
Other current assets consist of the following as of December 31, 2001
and 2000 (in thousands):
2001 2000
-------- -------
Track supplies.......................... $7,702 $10,068
Prepaid expenses and other.............. 6,502 9,483
-------- -------
$14,204 $19,551
======== =======
At December 31, 2000, $1.15 million of notes receivable from related
parties are included in other current assets on the consolidated
balance sheet. All obligations were paid in full in 2001.
F-12
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. OTHER BALANCE SHEET DATA, continued
Other assets consist of the following as of December 31, 2001 and 2000
(in thousands):
2001 2000
------- -------
Deferred loan costs, net $13,797 $16,808
Deposits and other ..... 7,935 7,831
------- -------
$21,732 $24,639
======= =======
Deferred loan costs are being amortized utilizing the interest method over the
term of the respective term loans.
Accrued expenses consist of the following as of December 31, 2001 and
2000 (in thousands):
2001 2000
------- -------
Accrued interest expense ............. $ 8,382 $10,727
Accrued compensation and benefits..... 5,893 5,633
Other accrued liabilities ............ 25,614 30,945
------- -------
$39,889 $47,305
======= =======
Minority interest and other liabilities consist of the following as of
December 31, 2001 and 2000 (in thousands):
2001 2000
------- -------
Interest rate swaps .............. $15,155 $ --
Minority interest ................ 11,834 10,484
Accrued liabilities .............. 12,043 10,970
Long service leave ............... 6,009 6,565
Annual leave ..................... 3,742 3,677
Other ............................ 2,005 3,348
------- -------
$50,788 $35,044
======= =======
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following as of December
31, 2001 and 2000 (in thousands):
2001 2000
-------- --------
Land .......................... $133,643 $127,737
Buildings and improvements .... 15,963 14,665
Railroad track and improvements 504,491 460,108
Locomotives, transportation and
other equipment .............. 147,489 151,786
-------- --------
801,586 754,296
Less: accumulated depreciation 62,811 39,276
-------- --------
$738,775 $715,020
======== ========
F-13
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. PROPERTY, PLANT AND EQUIPMENT, continued
The Company completed $8.4 million and $22.2 million in locomotive
sale/leaseback transactions in 2001 and 2000, respectively.
In the fourth quarter of 1999, a $4.1 million gain was recognized on an
insurance settlement from an accident which destroyed certain
locomotives and railcars in Australia.
8. LONG-TERM DEBT AND LEASES
Long-term debt consists of the following as of December 31, 2001 and
2000 (in thousands):
[Download Table]
2001 2000
-------- --------
Senior credit facilities, see below .......................... $267,752 $319,714
Credit facility with Banco de Desarrollo, see below .......... 11,678 10,462
Credit facility with Banco Security, interest rate
rate of 7.12% - 8.74% ........................................ 7,325 7,499
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, collateralized
by corporate office building ................................. 5,833 5,927
Other long-term debt ......................................... 9,099 15,254
-------- --------
301,687 358,856
Less current maturities ...................................... 24,484 20,558
-------- --------
Long-term debt, less current maturities .................. $277,203 $338,298
======== ========
In February 2000, the Company entered into a credit agreement and two
bridge notes 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 (i) a $125 million Term A loan, bearing
interest at LIBOR plus 2.50% (4.44% at December 31, 2001), (ii) a $205
million Term B loan, initially bearing interest at LIBOR plus 3.25%
(5.19% at December 31, 2001), and (iii) a $50 million revolving credit
facility which includes $30 million of U.S. dollar denominated loans,
$10 million of Canadian dollar denominated loans and $10 million of
Australian dollar denominated loans with an interest rate of LIBOR plus
2.50%. All of the capital stock of the Company's U.S. subsidiaries, 65%
of the capital stock of the Canadian and Australian subsidiaries and
the majority of the assets of the Company's subsidiaries serve as
collateral for the senior credit facilities. As of December 31, 2000,
the two bridge notes had been repaid.
The Term A loan requires principal payments of 15% in 2002, 20% in
2003, and 25% in both 2004 and 2005. The Term B loan requires principal
payments of 1% per year through 2005 and a balloon maturity at December
31, 2006. The revolving loan matures on December 31,
F-14
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT AND LEASES, continued
2005. The outstanding balances as of December 31, 2001 of the Term A
and Term B loans are $83.6 million and $184.1 million, respectively.
There was no outstanding balance on the revolving loan as of December
31, 2001 as compared to $17.7 million outstanding as of December
31, 2000.
The Company's borrowings include covenants which impose financial and
operating restrictions on the Company's ability to, among other things:
incur more debt; pay dividends, redeem or repurchase its stock in
excess of $2 million per year or make other distributions; make
acquisitions or investments; use assets as security in other
transactions; enter into transactions with affiliates; merge or
consolidate with others; dispose of assets or use asset sale proceeds;
create liens on its assets; and extend credit. The facilities also
contain financial covenants that require the Company to meet a number
of financial ratios and tests. As of December 31, 2001, we were in
compliance with these financial covenants.
In connection with the February 2000 debt refinancing, the Company
recorded an extraordinary charge of $2.2 million for early
extinguishments of debt, net of income taxes.
In February 1999, Ferronor refinanced certain short-term debt 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 plus 1.75% (9.05% at December 31, 2001) 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% (5.71% at December 31, 2001) and is
payable in 120 equal monthly installments (including interest).
The aggregate annual maturities of long-term debt are as follows (in
thousands):
2002....................................... $ 24,484
2003....................................... 28,836
2004....................................... 29,658
2005....................................... 29,668
2006....................................... 179,757
Thereafter................................. 9,284
--------
$301,687
========
During the years ended December 31, 2001, 2000 and 1999 interest of
approximately $668, $1,257 and $1,386, respectively, was capitalized
for on-going capital improvement projects.
On May 4, 2000, the Company entered into two interest rate swap
agreements for a total notional amount of $212.5 million. The
agreements, which have a term of three years, require the Company to
pay a fixed interest rate of 7.23% while receiving a variable interest
rate equal to the 90 day LIBOR rate. In May 2001, the interest rate
swap agreements were extended for two years and the fixed pay rate was
reduced to 6.723%.
F-15
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT AND LEASES, continued
Leases
The Company has several equipment finance leases for equipment. Certain
of these leases are accounted for as capital leases and are presented
separately below.
Minimum annual lease commitments at December 31, 2001 are as follows
(in thousands):
CAPITAL OPERATING
LEASES LEASES
------- ---------
2002 ......................... $ 832 $ 18,039
2003 ......................... 253 15,469
2004 ......................... 66 14,539
2005 ......................... 18 13,890
2006 ......................... 15 13,026
Thereafter ................... -- 25,176
-------- --------
$ 1,184 $100,139
======== ========
Rental expense under operating leases was approximately $16.0 million,
$9.0 million and $3.4 million for the years ended December 31, 2001,
2000 and 1999, respectively.
9. SUBORDINATED DEBT
In August 2000, RailAmerica Transportation Corp. ("RTC"), a
wholly-owned subsidiary of the Company, 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 the Company's common stock in a private
offering, for gross proceeds of $122.2 million after deducting the
initial purchasers' discount. All of the Company's U.S. subsidiaries
are guarantors of the senior subordinated notes. The net proceeds
received from the issuance of the units were used to pay $115.0 million
of then-existing debt and approximately $1.8 million of term loans
under the Company's senior credit facilities, resulting in an
extraordinary charge of $1.8 million, net of taxes, associated with the
early extinguishment of debt.
Prior to August 15, 2003, the Company may redeem up to 35% of the
senior subordinated notes at a redemption price of 112.875% of their
principal amount with the proceeds from an equity offering. From August
16, 2003 through August 14, 2005, the Company may not redeem the senior
subordinated notes and subsequent to August 14, 2005, the Company may
redeem the senior subordinated notes for 106.438% of their principal
amount. The premium reduces annually on a sliding scale until they may
be redeemed at their principal amount commencing August 15, 2008.
In June 2000, the Company engaged an investment banking firm to assist
the Company's Board of Directors in evaluating the issuance of the
senior subordinated notes, for which it issued three-year warrants to
purchase 150,000 shares of the Company's common stock. Of these
warrants, 75,000 are at an exercise price of $5.50 and 75,000 are at an
exercise price of $6.50. These warrants were exercised during 2001.
In August 1999, the Company issued $22.5 million aggregate principal
amount of junior convertible subordinated debentures. Interest on the
debentures accrues at the rate of 6% per annum and is payable
semi-annually. The debentures are convertible, at the option of the
holder, into shares of RailAmerica at a conversion price of $10. The
debentures mature on July 31, 2004, are general unsecured obligations
and rank subordinate in right of payment to
F-16
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. SUBORDINATED DEBT, continued
all senior indebtedness. At RailAmerica's option, the debentures may
be redeemed at par plus accrued interest, in whole or in part, if the
closing price of RailAmerica's common stock is above $20 for 10
consecutive trading days. During 2001 and 2000, $0.39 million and
$0.35 million, respectively, of the junior convertible subordinated
debentures were converted into common stock.
The Company recognized a $2.3 million charge in the fourth quarter
of 2000 for the beneficial conversion feature included in the junior
convertible subordinated debentures. This charge is shown as the
cumulative effect of an accounting change.
10. REDEEMABLE PREFERRED STOCK
In January 1999, the Company completed a private offering of $11.6
million of Series A Convertible Redeemable Preferred Stock ("Preferred
Stock"). The Company sold 464,400 shares of Preferred Stock at a price
of $25 per share. The Preferred Stock paid annual dividends of 7.5%,
was convertible into shares of the Company's common stock at a price of
$8.25 per share and was non-voting. During 1999, 86,000 shares of the
Preferred Stock were converted and 100,000 shares were converted in
2000. Accretion of costs was $56,309, $119,681 and $192,510 for the
years ended December 31, 2001, 2000 and 1999 respectively.
A company owned by a director of the Company served as the exclusive
placement agent for this private placement. The Company paid a total of
$0.8 million in placement fees and cost reimbursements on this
transaction and issued two-year warrants to purchase 140,727 shares of
common stock at an exercise price of $8.25 per share. The warrants
expired unexercised on January 31, 2001.
In July 2001, all of the Company's outstanding convertible preferred
stock was converted into common stock and other convertible securities
were exercised, resulting in the issuance of 842,400 shares of
common stock and increasing stockholders' equity by $6.7 million.
11. COMMON STOCK TRANSACTIONS
In December 2001, the Company closed on the private placement sale of
4.3 million shares of its common stock for $12.50 per share, resulting
in net proceeds of $51.5 million. The proceeds from this private
placement were used to finance the StatesRail and ParkSierra
acquisitions, which are described in Note 18, as well as the reduction
of debt and other general corporate purposes. In connection with this
private placement, the Company issued 18-month warrants to purchase
100,000 shares of common stock at an exercise price of $13.75 per share
to the placement agents.
In June, 2001, the Company closed on the private placement sale of 3.8
million shares of its common stock for $10.75 per share, resulting in
net proceeds of $38.2 million. The proceeds from this private
placement were used to reduce debt and for general corporate purposes.
In connection with this private placement, the Company issued 18-month
warrants to purchase 200,000 shares of common stock at an exercise
price of $11.825 per share to the placement agents.
In August 1999, the Company issued warrants to purchase 676,363 shares
F-17
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMON STOCK TRANSACTIONS, continued
of common stock to the investors in the private offering of its junior
convertible subordinated debentures. The warrants are exercisable
through 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 through July 31, 2001 were issued to the placement agent in
connection with the private offering. These warrants were exercised
during 2001.
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 $8.81 per share and issued approximately
212,000 warrants to purchase an equivalent number of shares of common
stock at an exercise price of $10.13 per share within one year of the
transaction's closing date. A company owned by one of the Company's
directors 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 $10.13. All of the warrants issued for this transaction
expired unexercised on March 3, 2000.
12. INCOME TAX PROVISION
Income before income taxes for the years ended December 31, 2001, 2000
and 1999 consists of (in thousands):
[Download Table]
2001 2000 1999
------- -------- -------
Domestic .......................... $ 2,288 $ (8,723) $ 2,868
Foreign subsidiaries .............. 19,991 26,334 8,566
------- -------- -------
$22,279 $ 17,611 $11,434
======= ======== =======
The provision for income taxes for the years ended December 31, 2001,
2000 and 1999 consists of (in thousands):
[Download Table]
2001 2000 1999
------- ------- -------
Federal income taxes:
Current ......................... $ -- $ 334 $ 15
Deferred ........................ 801 2,494 1,234
------- ------- -------
801 2,828 1,249
------- ------- -------
State income taxes:
Current ......................... 437 700 149
Deferred ........................ 565 (1,548) (106)
------- ------- -------
1,002 (848) 43
------- ------- -------
Foreign income taxes
Current ......................... 1,500 2,435 857
Deferred ........................ 4,737 1,535 2,197
Change in tax law ............... (3,177) -- (2,835)
------- ------- -------
3,060 3,970 219
------- ------- -------
Total income tax provision ........ $ 4,863 $ 5,950 $ 1,511
======= ======= =======
F-18
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. INCOME TAX PROVISION, continued
The following summarizes the total income tax provisions for each of
the years ended December 31, 2001, 2000 and 1999 (in thousands):
[Download Table]
2001 2000 1999
------- ------- -------
Continuing operations ........... $ 5,005 $ 2,950 $ (787)
Discontinued operations ......... -- 5,200 2,298
Extraordinary item .............. (142) (2,200) --
------- ------- -------
Total income tax provision ...... $ 4,863 $ 5,950 $ 1,511
======= ======= =======
The differences between the U.S. federal statutory tax rate and the
Company's effective rate from continuing operations are as follows (in
thousands):
[Enlarge/Download Table]
2001 2000 1999
------- ------- -------
Income tax provision, at 35% ............................. $ 7,798 $ 4,406 $ 1,833
Net benefit due to difference between U.S. &
Foreign tax rates .................................... (629) (206) (561)
Net benefit due to tax law changes in Australia .......... -- -- (2,835)
Net benefit due to tax law changes in Canada ............. (3,177) -- --
Amortization of non-deductible warrants .................. -- (602) 602
Other, net ............................................... 383 (559) 344
Valuation allowance ...................................... 630 (89) (170)
------- ------- -------
Tax provision............................................ $ 5,005 $ 2,950 $ (787)
======= ======= =======
The Company files 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 foreign
subsidiaries file income tax returns in their respective jurisdictions.
The components of deferred income tax assets and liabilities as of
December 31, 2001 and 2000 are as follows (in thousands):
2001 2000
--------- ---------
Deferred tax assets:
--------------------
Net operating loss carryforward $ 26,178 $ 11,829
Alternative minimum tax credit . 783 1,125
Accrued expenses ............... 12,973 5,201
Other .......................... 24 1,128
--------- ---------
Total deferred tax assets .. 39,958 19,283
Less: valuation allowance ...... (3,357) (999)
--------- ---------
Total deferred tax assets, net. 36,601 18,284
Deferred tax liabilities:
-------------------------
Property, plant and equipment .. 132,806 107,188
Deferred revenue ............... 617 (2,478)
Other .......................... -- 862
--------- ---------
Net deferred tax liability . $ (96,822) $ (87,288)
========= =========
F-19
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. INCOME TAX PROVISION, continued
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 $3.4 million at December 31, 2001 and $1.0 million at
December 31, 2000, respectively.
The following is a summary of net operating loss carryforwards by
jurisdiction as of December 31, 2001 (in thousands):
AMOUNT EXPIRATION PERIOD
------ -----------------
U.S. - Federal $ 38,495 2003 - 2021
U.S. - State 120,098 2002 - 2021
Chile 1,825 None
Australia 18,099 None
Canada 6,023 2004 - 2008
---------
$184,540
=========
As part of certain acquisitions, the Company acquired net operating
loss carryforwards for federal and state income tax purposes. The
utilization of the acquired tax loss carryforwards may be limited
by the Internal Revenue Code Section 382. These tax loss carryforwards
expire in the years 2002 through 2010.
No provision was made in 2001 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.
13. STOCK OPTIONS
The Company has stock option plans under which employees and
non-employee directors may be granted options to purchase shares of the
Company's common stock at the fair market value at the date of grant.
Options generally vest in two or three years and expire in ten years
from the date of the grant.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". Accordingly, no compensation
costs have been recognized for the stock options issued during 2001,
2000 and 1999 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
these years 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):
F-20
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. STOCK OPTIONS, continued
[Download Table]
2001 2000 1999
---------- ---------- ----------
Net income - as reported ................. $ 17,038 $ 11,661 $ 9,921
Net income - pro forma ................... $ 12,689 $ 8,076 $ 8,972
Basic net income per share - as reported . $ 0.78 $ 0.61 $ 0.80
Basic net income per share - pro forma ... $ 0.58 $ 0.41 $ 0.72
Diluted net income per share - as reported $ 0.71 $ 0.60 $ 0.77
Diluted net income per share - pro forma . $ 0.54 $ 0.41 $ 0.68
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 2001, 2000 and 1999:
dividend yield 0.0%, 0.0% and 0.0%; expected volatility of 41%, 41% and
40%; risk-free interest rate of 4.6%, 6.5% and 5.8%; and expected lives
of 5, 5 and 10 years. The weighted average fair value of options
granted for 2001, 2000 and 1999 were $5.03, $4.75, and $5.86,
respectively.
Information regarding the above options for 2001, 2000 and 1999 is as
follows:
[Enlarge/Download Table]
WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE
OUTSTANDING EXERCISE SHARES EXERCISE
SHARES PRICE EXERCISABLE PRICE
------------- ----------- ------------- -----------
Outstanding at January 1, 1999............ 1,537,001 $5.40
Granted................................... 455,000 $8.97
Exercised................................. (141,168) $4.35
Forfeited................................. (10,833) $5.09
----------- ---------
Outstanding at December 31, 1999.......... 1,840,000 $6.34 1,255,999 $5.40
Granted................................... 1,882,558 $8.08
Exercised................................. (48,969) $4.78
Forfeited................................. (222,498) $7.64
---------- ---------
Outstanding at December 31, 2000.......... 3,451,091 $7.23 1,937,858 $6.50
Granted................................... 1,494,289 $11.72
Exercised................................. (936,223) $5.31
Forfeited................................. (62,855) $7.74
----------- ---------
Outstanding at December 31, 2001.......... 3,946,302 $9.37 2,557,233 $8.70
----------- =========
Authorized at December 31, 2001........... 4,841,169
===========
F-21
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. STOCK OPTIONS, continued
The following table summarizes information about stock options
outstanding at December 31, 2001:
[Enlarge/Download Table]
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
-------------------------------------------------------------------------------------------------
$3.50-$5.00 179,200 4.19 $4.53 179,200 $4.53
$5.01-$7.00 473,272 8.02 $6.36 328,792 $6.33
$7.01-$9.75 1,913,162 7.57 $8.69 1,599,015 $8.74
$9.76-$13.00 1,380,668 9.50 $11.97 450,226 $11.97
--------- ----------
3,946,302 2,557,233
========= =========
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 certain dates during the year.
For the years ended December 31, 2001, 2000 and 1999, 21,943, 11,749
and 16,500 shares of common stock, respectively, were sold to employees
under this plan.
14. NONCASH INVESTING AND FINANCING ACTIVITIES
Cash paid for interest from continuing operations during 2001, 2000 and
1999 was $54.6 million, $41.2 million and $16.3 million, respectively.
Cash paid(received) for income taxes during 2001, 2000 and 1999 was
$(1.1) million, $4.0 million and $1.3 million, respectively.
[Download Table]
2001 2000 1999
--------- --------- ---------
Common stock issued for businesses acquired ... $ -- $ 60,773 $ --
Warrants issued for business acquired ......... -- -- 3,031
Debt issued for business acquired ............. -- 105,376 173,493
Acquisition costs accrued ..................... -- -- 4,897
Details of acquisitions:
Working capital components, other than cash -- 6,109 (5,827)
Property and equipment .................... -- (390,468) (217,965)
Other assets .............................. -- (6,980) (4,834)
Deferred loan costs ....................... -- -- (6,959)
Goodwill .................................. -- -- (972)
Notes payable and loans payable ........... -- 3,148 35,466
Deferred income taxes payable ............. -- 73,120 11,217
--------- --------- ---------
Net cash used in acquisitions ................. $ -- $(148,922) $ (8,453)
========= ========= =========
F-22
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
On January 1, 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, and recorded a cummulative
transition charge of $4.4 million, net of tax, to Accumulated Other
Comprehensive Loss ("AOCL"). The standard requires that all
derivatives be recorded on the balance sheet at fair value and
establishes criteria for documentation and measurement of hedging
activities.
The Company currently uses derivatives to hedge against increases in
fuel prices and interest rates. 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 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 AOCL as a separate component of Stockholders' Equity and
reclassified into earnings in the period during which the hedge
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 8.1% of total revenues during 2001. Due to the
significance of fuel expenses to the operations of the Company and the
historical volatility of fuel prices, the Company periodically hedges
against fluctuations in the price of its fuel purchases. Each one-cent
increase in the price of fuel would result in $0.03 million of
additional fuel expense on a monthly basis.
The fuel hedging program includes the use of derivatives that are
accounted for as cash flow hedges. As of December 31, 2001, the
Company had entered into fuel swap agreements to hedge the equivalent
of approximately 27% of its projected 2002 North American fuel
consumption at an average price of approximately $0.87 cents per
gallon, including transportation and taxes. The fair value of the fuel
swaps were not material at December 31, 2001.
Interest on the Company's senior credit facility is payable at variable
rates indexed to LIBOR. To partially mitigate the volatility of LIBOR,
the Company entered into two interest rate swaps in May 2000. These
swaps are accounted for as cash flow hedges under SFAS No. 133 and
qualify for the short cut method of recognition. The interest rate
swaps locked in a LIBOR rate of 7.23% on $212.5 million of debt for a
three-year period. In 2001, we extended the interest rate swaps for two
years and reduced the LIBOR rate to 6.723%. Fluctuations in the market
interest rate will affect the cost of our remaining borrowings. The
effect of each 1% increase in interest on the remaining borrowings
would result in an increase in interest expense of $1.0 million. At
December 31,2001, AOCL included a $9.4 million charge, net of taxes,
relating to the interest rate swaps.
Management believes that the fair value of its senior long-term debt
approximates its carrying value based on the variable rate nature of
the financing, and for all other long-term debt based on current
borrowing rates available with similar terms and maturities. The fair
value of the senior subordinated notes is $133.9 million as of December
31, 2001, based on the quoted market price.
16. 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 RailLink,
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.
F-23
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. PENSION AND OTHER BENEFIT PROGRAMS, continued
The following chart summarizes the benefit obligations, assets, funded
status and rate assumptions associated with the defined benefit plan
for the years ended December 31, 2001 and December 31, 2000
(in thousands):
[Enlarge/Download Table]
JANUARY 1, 2001 TO JANUARY 1, 2000 TO
DECEMBER 31, 2001 DECEMBER 31, 2000
----------------- -----------------
EXCHANGE RATE BEGINNING OF YEAR ................. $ 0.67 $ 0.69
EXCHANGE RATE END OF YEAR ....................... $ 0.63 $ 0.67
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of period ....... $ 3,114 $ 2,853
Service cost .................................... 60 62
Interest cost ................................... 205 194
Plan participants' contributions ................ 89 91
Benefits paid ................................... 0 (3)
Foreign currency exchange rate changes .......... (186) (83)
------- -------
Benefit obligation at end of period ............. $ 3,282 $ 3,114
======= =======
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of period $ 3,201 $ 2,655
Actual return on plan assets .................... (54) 388
Employer contribution ........................... 101 106
Plan participants' contributions ................ 106 132
Benefits paid ................................... 0 (3)
Foreign currency exchange rate changes .......... (190) (77)
------- -------
Fair value of plan assets at end of period ...... $ 3,164 $ 3,201
======= =======
Funded status - prepaid (accrued) benefit cost .. $ (118) $ 87
======= =======
ASSUMPTIONS
Discount rate ................................... 7.00% 7.00%
Expected return on plan assets .................. 8.00% 8.00%
Rate of compensation increase ................... 4.50% 4.50%
COMPONENTS OF NET PERIODIC BENEFIT COST IN PERIOD
Service cost .................................... $ 60 $ 62
Interest cost ................................... 205 194
Expected return on plan assets .................. (241) (206)
Amortization of prior service cost .............. 15 16
------- -------
Net periodic pension cost ....................... $ 39 $ 66
======= =======
F-24
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. PENSION AND OTHER BENEFIT PROGRAMS, continued
Freight Australia's employees participate in the Victorian government's
super annuation funds. The contributions made by Freight Australia are
as follows for the year ended December 31, 2001, 2000 and the period
from May 1, 1999 to December 31, 1999 (in thousands):
2001 2000 1999
------ ------ ----
Victorian Superannuation Fund ...... $ 229 $ 140 $ 62
State Superannuation Fund .......... 783 972 647
Transport Fund ..................... 244 263 194
Freight Victoria Fund .............. 177 161 53
Superannuation Trust of Australia... 133 -- --
------ ------ ----
Total contributions ............ $1,566 $1,536 $956
====== ====== ====
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
year ended December 31, 2001, 2000 and for the period August 1, 1999 to
December 31, 1999 for the defined contribution members was $0.3
million, $0.2 million and $0.1 million, respectively.
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 five years of
service. Employer contributions during the years ended December 31,
2001, 2000 and 1999 were approximately $484,000, $286,000 and $81,000,
respectively.
17. 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
to approximately $13.0 million to cover these claims. The Company's
insurer has reserved $9.8 million for these matters. A loss, if any, in
excess of our insurance policy coverage may adversely affect the
Company's cash flow and financial condition.
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-25
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. COMMITMENTS AND CONTINGENCIES, continued
The Company has a $4.7 million contingent obligation, under certain
events of default or if line abandonment occurs, to the Canadian
National Railroad in connection with its properties. The contingent
obligation bears no interest and has no pre-defined terms of payment or
maturity.
The Company's operations are subject to extensive environmental
regulation. The Company records liabilities for remediation and
restoration costs related to past activities when the Company's
obligation is probable and the costs can be reasonably estimated. Costs
of ongoing compliance activities to current operations are expensed as
incurred. The Company's recorded liabilities for these issues represent
its best estimates (on an undiscounted basis) of remediation and
restoration costs that may be required to comply with present laws and
regulations. During the fourth quarter of 2001, the Company reduced its
environmental liability by $1.9 million due to a change in
environmental regulations. The remaining liabilities are not material.
Although these costs cannot be predicted with certainty, management
believes that the ultimate outcome of identified matters will not have
a material adverse effect on the Company's consolidated results of
operations or financial condition.
18. SUBSEQUENT EVENTS
In January 2002, the Company acquired StatesRail, a privately owned
group of railroads headquartered in Dallas, Texas, which owns and
operates 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 $23 million (1.7 million shares) in the
Company's common stock.
In January 2002, the Company acquired ParkSierra Corp. for
consideration of $48 million, consisting of $23 million in cash and $25
million (1.8 million shares) in the Company's common stock. ParkSierra,
headquartered in Napa, California, consists of the Arizona & California
Railroad, the California Northern Railroad and the Puget Sound &
Pacific Railroad. These railroads operate 703 miles of track in four
western U.S. states.
In January 2002, the Company borrowed an additional $50 million under a
Term C loan, which has terms consistent with the Term B loan (see Note
8).
On January 14, 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 will record a charge in
the first quarter of 2002 related to the write-off of direct costs
incurred in preparing, submitting and financing the bid. Such direct
costs, of which $2.4 million was billed and deferred as of December 31,
2001, are currently being negotiated for final settlement.
In March 2002, the Company sold the Georgia Southwestern Railroad and
certain operating assets for total consideration of $7.1 million.
19. SEGMENT INFORMATION
The Company's continuing operations have been classified into three
business segments: North American rail transportation, Australian rail
transportation, and Chilean rail transportation. The North American
rail transportation segment includes the operations of the Company's
railroad subsidiaries in the United States and Canada, as well as
corporate expenses.
Business and geographical segment information for the years ended
December 31, 2001, 2000 and 1999 is as follows (dollar amounts in
thousands):
F-26
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2001:
[Enlarge/Download Table]
NORTH AMERICA
-------------------------
CONSOLIDATED UNITED STATES CANADA CHILE AUSTRALIA
------------ ------------- ------ ----- ---------
Revenue ........................ $369,631 $ 184,216 $61,900 $22,085 $101,430
Depreciation and
amortization ................. $ 27,601 $ 13,938 $ 3,523 $ 3,208 $ 6,932
Income (loss) before
income taxes ................... $ 22,279 $ 6,172 $ 2,271 $ 1,161 $ 12,675
Interest expense ............... $ 53,480 $ 43,464 $ 6,565 $ 3,195 $ 256
Total assets ................... $891,168 $ 630,607 $87,952 $59,342 $113,267
Capital expenditures ........... $ 61,675 $ 29,148 $ 9,869 $ 2,444 $ 20,214
YEAR ENDED DECEMBER 31, 2000:
[Enlarge/Download Table]
NORTH AMERICA
-------------------------
CONSOLIDATED UNITED STATES CANADA CHILE AUSTRALIA
------------ ------------- ------ ----- ---------
Revenue ........................ $357,936 $ 169,354 $63,505 $22,873 $102,204
Depreciation and
amortization ................. $ 26,021 $ 14,052 $ 4,253 $ 2,278 $ 5,438
Income (loss) before
income taxes ................... $ 12,558 $ (19,194) $13,752 $ 954 $ 17,046
Interest expense ............... $ 55,950 $ 52,665 $ 431 $ 2,383 $ 471
Total assets ................... $839,703 $ 635,746 $83,724 $57,629 $ 62,604
Capital expenditures ........... $ 62,499 $ 24,566 $ 9,570 $10,018 $ 18,345
YEAR ENDED DECEMBER 31, 1999:
[Enlarge/Download Table]
NORTH AMERICA
-------------------------
CONSOLIDATED UNITED STATES CANADA CHILE AUSTRALIA
------------ ------------- ------ ----- ---------
Revenue ........................ $129,818 $ 27,166 $20,179 $19,115 $ 63,358
Depreciation and
amortization ................. $ 9,179 $ 2,428 $ 2,091 $ 1,231 $ 3,429
Income (loss) before
income taxes ................... $ 5,238 $ (2,979) $ 919 $ 1,473 $ 5,825
Interest expense ............... $ 20,490 $ 8,129 $ 3,203 $ 1,595 $ 7,563
Total assets ................... $428,932 $ 115,295 $99,038 $52,022 $162,577
Capital expenditures ........... $ 51,391 $ 14,604 $11,841 $13,389 $ 11,557
20. UNAUDITED QUARTERLY FINANCIAL DATA
Quarterly financial data for 2001 is as follows (in thousands, except
per share amounts):
[Download Table]
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Operating revenue ............... $91,955 $93,460 $93,173 $91,043
Operating income ................ $ 7,943 $19,578 $19,061 $18,158
Income(loss) from continuing
operations .................... $ 2,787 $ 4,153 $ 5,155 $ 5,179
Net income (loss) ............... $ 2,787 $ 4,153 $ 4,919 $ 5,179
Basic income (loss) from
continuing operations per share $ 0.15 $ 0.21 $ 0.22 $ 0.20
Diluted income (loss) from
continuing operations per share $ 0.14 $ 0.19 $ 0.20 $ 0.19
F-27
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarterly financial data for 2000 is as follows (in thousands, except
per share amounts):
[Download Table]
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Operating revenue ............... $ 80,807 $95,908 $90,896 $90,325
Operating income ................ $ 13,942 $24,961 $16,863 $14,268
Income (loss) from continuing
operations .................... $ (889) $ 7,588 $ 1,844 $ 1,065
Net income (loss) ............... $ (3,182) $ 7,553 $ 237 $ 7,053
Basic income (loss) from
continuing operations per share $ (0.06) $ 0.40 $ 0.09 $ 0.05
Diluted income (loss) from
continuing operations per share $ (0.06) $ 0.36 $ 0.09 $ 0.05
F-28
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. GUARANTOR FINANCIAL STATEMENT INFORMATION
In August 2000, RailAmerica Transportation Corp. ("Issuer"), a
wholly-owned subsidiary of RailAmerica, Inc. ("Parent"), sold units
including 12 7/8% senior subordinated notes, which are registered with
the Securities and Exchange Commission. The notes are guaranteed by the
Parents, the domestic subsidiaries of the Issuer and Palm Beach Rail
Holdings, Inc.
RAILAMERICA, INC.
CONSOLIDATING BALANCE SHEET
At December 31, 2001
(in thousands)
[Enlarge/Download Table]
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, REDEEMABLE PREFERRED
STOCK 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
Redeemable convertible preferred stock ..... -- -- -- -- -- --
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, redeemable
preferred stock and
stockholders' equity ............. $ 356,945 $ 245,099 $ 472,799 $ 252,850 $(436,526) $ 891,168
========= ========= ========= ========= ========= =========
F-29
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. GUARANTOR FINANCIAL STATEMENT INFORMATION, CONTINUED
RAILAMERICA, INC.
CONSOLIDATING STATEMENT OF INCOME
For the year ended December 31, 2001
(in thousands)
[Enlarge/Download Table]
NON
COMPANY GUARANTOR GUARANTOR
ISSUER (PARENT) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- ------------ ------------ ------------ -------------
Operating revenue ......................... $ -- $ 1,776 $ 182,047 $ 185,808 $ -- $ 369,631
--------- --------- --------- --------- -------- ---------
Operating expenses:
Transportation .......................... -- -- 94,379 114,693 -- 209,072
Selling, general and administrative ..... 185 15,077 32,184 17,206 -- 64,652
Gain on sale and impairment of
assets (net).......................... 26 -- (6,440) (20) -- (6,434)
Depreciation and amortization ........... 1,031 130 12,777 13,663 -- 27,601
--------- --------- --------- --------- -------- ---------
Total operating expenses .......... 1,242 15,207 132,900 145,542 -- 294,891
--------- --------- --------- --------- -------- ---------
Operating (loss) income ........... (1,242) (13,431) 49,147 40,266 -- 74,740
Interest expense .......................... (14,522) (1,581) (23,854) (13,523) -- (53,480)
Equity in earnings of subsidiaries ........ 25,253 12,614 -- -- (37,867) --
Minority interest and other income
(expense) ............................ -- 15,064 (7,490) (6,555) -- 1,019
--------- --------- --------- --------- -------- ---------
Income from continuing
operations before income taxes .. 9,489 12,666 17,803 20,188 (37,867) 22,279
Provision for income taxes ................ (3,099) (4,371) 5,114 7,361 -- 5,005
--------- --------- --------- --------- -------- ---------
Income before extraordinary item .... 12,588 17,037 12,689 12,827 (37,867) 17,274
Extraordinary loss from early
extinguishment of debt (net of tax) .... (238) -- -- -- -- (236)
--------- --------- --------- --------- -------- ---------
Net income ........................ $ 12,352 $ 17,037 $ 12,689 $ 12,827 $(37,867) $ 17,038
========= ========= ========= ========= ======== =========
F-30
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. GUARANTOR FINANCIAL STATEMENT INFORMATION, CONTINUED
RAILAMERICA, INC.
Consolidating Statement of Cash Flow
For the year ended December 31, 2001
(in thousands)
[Enlarge/Download Table]
Non
Company Guarantor Guarantor
Issuer (Parent) Subsidiaries Subsidiaries Eliminations Consolidated
--------- -------- ------------ ------------ ------------ -------------
Cash flows from operating activities:
Net income ..................................... $ 12,352 $ 17,037 $ 12,689 $ 12,827 $(37,867) $ 17,038
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .............. 4,584 891 13,853 12,682 -- 32,011
Write-off of deferred loan costs ........... 378 -- -- -- -- 378
Minority interest in income of subsidiary .. -- -- -- 1,350 -- 1,350
Equity in earnings of subsidiaries ......... (25,253) (12,614) -- -- 37,867 --
Gain on sale or disposal of properties ..... -- -- (6,428) (6) -- (6,434)
Deferred income taxes ...................... (3,244) (4,371) 3,904 6,637 -- 2,926
Changes in operating assets and liabilities,
net of acquisitions and dispositions:
Accounts receivable ...................... 11 1,038 3,450 799 -- 5,298
Other current assets ..................... 12 (515) 5,049 4,041 -- 8,587
Accounts payable ......................... (74) 1,294 4,356 (4,404) -- 1,172
Accrued expenses ......................... (2,249) 218 (11,397) 942 -- (12,485)
Other liabilities ........................ -- 2 1,194 424 -- 1,620
Deposits and other ....................... 92 338 2,625 454 -- 3,509
--------- -------- -------- -------- -------- ---------
Net cash provided by (used in) operating
activities ........................... (13,390) 3,318 29,297 35,745 -- 54,970
--------- -------- -------- -------- -------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment ...... (7) (421) (30,674) (30,573) -- (61,675)
Proceeds from sale of properties ............... -- -- 13,592 4,910 -- 18,502
Change in restricted cash in escrow ............ -- (245) 1,291 -- -- 1,046
Deferred acquisition costs and other ........... -- (2,319) 42 (2,300) -- (4,577)
--------- -------- -------- -------- -------- ---------
Net cash used in investing activities .. (7) (2,985) (15,749) (27,962) -- (46,703)
--------- -------- -------- -------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ....... 84,800 -- 649 141 -- 85,590
Principal payments on long-term debt ........... (136,762) -- (5,326) -- -- (142,088)
Disbursements/receipts on intercompany debt .... 65,360 (58,142) (11,357) 4,139 -- --
Sale of Common Stock ........................... -- 89,736 -- -- -- 89,736
Proceeds from exercise of stock options
and warrants ................................. -- 8,343 -- -- -- 8,343
Preferred stock dividends paid ................. -- (241) -- -- -- (241)
Purchase of treasury stock ..................... -- (1,987) -- -- -- (1,987)
Deferred financing costs paid .................. -- -- -- -- -- --
--------- -------- -------- -------- -------- ---------
Net cash provided by (used in)
financing activities ................. 13,398 37,709 (16,034) 4,280 -- 39,353
--------- -------- -------- -------- -------- ---------
Net (decrease) increase in cash .................. -- 38,042 (2,487) 12,063 -- 47,619
Effect of exchange rates on cash ................. -- -- -- (948) -- (948)
Cash, beginning of period ........................ -- 7 2,944 10,139 -- 13,090
--------- -------- -------- -------- -------- ---------
Cash, end of period .............................. $ -- $ 38,049 $ 457 $ 21,254 $ -- $ 59,761
========= ======== ======== ======== ======== =========
F-31
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. GUARANTOR FINANCIAL STATEMENT INFORMATION, CONTINUED
RAILAMERICA, INC.
Consolidating Balance Sheet
At December 31, 2000
(in thousands)
[Enlarge/Download Table]
Non
Company Guarantor Guarantor
Issuer (Parent) Subsidiaries Subsidiaries Eliminations Consolidated
--------- --------- ------------ ------------ ------------ ------------
ASSETS
Current Assets:
Cash $ -- $ 7 $ 2,943 $ 10,140 $ -- $ 13,090
Cash held in escrow -- -- 2,525 2,014 -- 4,539
Accounts and notes receivable 11 1,735 35,682 27,135 (1,699) 62,864
Other current assets 23 829 6,930 11,769 -- 19,551
--------- --------- --------- --------- --------- ---------
Total current assets 34 2,571 48,080 51,058 (1,699) 100,044
Property, plant and equipment, net 48 638 415,961 298,373 -- 715,020
Other assets 15,018 1,899 3,617 4,105 -- 24,639
Investment in and advances to affiliates 450,563 164,772 32,037 (161,811) (485,561) --
--------- --------- --------- --------- --------- ---------
Total assets $ 465,663 $ 169,880 $ 499,695 $ 191,725 $(487,260) $ 839,703
========= ========= ========= ========= ========= =========
LIABILITIES, REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 13,557 $ -- $ 1,427 $ 7,273 $ (1,699) $ 20,558
Accounts payable 74 537 13,748 25,393 -- 39,752
Accrued expenses 9,888 1,280 19,902 16,235 -- 47,305
--------- --------- --------- --------- --------- ---------
Total current liabilities 23,519 1,817 35,077 48,901 (1,699) 107,615
Long-term debt, less current maturities 423,818 -- (105,214) 19,694 -- 338,298
Subordinated debt -- 20,609 117,660 3,142 -- 141,411
Deferred income taxes (11,664) (6,842) 92,590 13,204 -- 87,288
Minority interest and other liabilities -- -- 11,500 18,129 5,415 35,044
Redeemable convertible preferred stock -- 6,613 -- -- -- 6,613
Stockholders' equity:
Common stock -- 19 972 27,772 (28,744) 19
Additional paid-in capital -- 118,502 310,880 47,314 (358,194) 118,502
Retained earnings 29,990 29,162 36,230 37,818 (104,038) 29,162
Accumulated other comprehensive income -- -- -- (24,249) -- (24,249)
--------- --------- --------- --------- --------- ---------
Total stockholders' equity 29,990 147,683 348,082 (88,655) (490,976) 123,434
--------- --------- --------- --------- --------- ---------
Total liabilities, redeemable preferred
stock and stockholders' equity $ 465,663 $ 169,880 $ 499,695 $ 191,725 $(487,260) $ 839,703
========= ========= ========= ========= ========= =========
F-32
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. GUARANTOR FINANCIAL STATEMENT INFORMATION, CONTINUED
RAILAMERICA, INC.
Consolidating Statement of Income
For the Year Ended December 31, 2000
(in thousands)
[Enlarge/Download Table]
Non
Company Guarantor Guarantor
Issuer (Parent) Subsidiaries Subsidiaries Eliminations Consolidated
--------- --------- ------------ ------------ ------------ ------------
Operating revenue $ -- $ 594 $ 169,353 $ 188,582 $ (593) $ 357,936
--------- --------- --------- --------- --------- ---------
Operating expenses:
Transportation -- -- 87,897 123,075 -- 210,972
Selling, general and administrative 530 11,730 34,090 16,336 (593) 62,093
Gain on sale and impairment of assets (net) (762) -- (10,753) 331 -- (11,184)
Depreciation and amortization 944 121 12,987 11,969 -- 26,021
--------- --------- --------- --------- --------- ---------
Total operating expenses 712 11,851 124,221 151,711 (593) 287,902
--------- --------- --------- --------- --------- ---------
Operating income (712) (11,257) 45,132 36,871 -- 70,034
Interest expense (48,428) (1,910) (2,247) (3,365) -- (55,950)
Interest in equity of subsidiaries 55,891 25,301 -- -- (81,192) --
Minority interest and other income (expense) -- 7 223 (1,756) -- (1,526)
--------- --------- --------- --------- --------- ---------
Income from continuing
operations before income taxes 6,751 12,141 43,108 31,750 (81,192) 12,558
Provision for income taxes (11,548) (3,093) 10,130 7,461 -- 2,950
--------- --------- --------- --------- --------- ---------
Income from continuing operations 18,299 15,234 32,978 24,289 (81,192) 9,608
Discontinued operations:
Gain on disposal of discontinued segment -- -- 13,527 (2,000) -- 11,527
Loss from operations of discontinued
segment -- -- (5,077) 1,851 -- (3,226)
--------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary item 18,299 15,234 41,428 24,140 (81,192) 17,909
Extraordinary loss from early extinguishment
of debt (net of tax) (1,299) (1,321) (1,376) -- -- (3,996)
Cumulative effect of accounting change -- (2,252) -- -- -- (2,252)
--------- --------- --------- --------- --------- ---------
Net income $ 17,000 $ 11,661 $ 40,052 $ 24,140 $ (81,192) $ 11,661
========= ========= ========= ========= ========= =========
F-33
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. GUARANTOR FINANCIAL STATEMENT INFORMATION, CONTINUED
RAILAMERICA, INC.
Consolidating Statement of Cash Flow
For the Year Ended December 31, 2000
(in thousands)
[Enlarge/Download Table]
Non
Company Guarantor Guarantor
Issuer (Parent) Subsidiaries Subsidiaries Eliminations Consolidated
--------- --------- ------------ ------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) $ 17,000 $ 11,661 $ 40,052 $ 24,140 $ (81,192) $ 11,661
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,594 1,236 15,751 12,985 -- 34,566
Write-off of deferred loan costs 1,615 1,353 735 1,154 -- 4,857
Interest paid in kind -- -- 5,806 -- -- 5,806
Minority interest in income of
subsidiary -- -- -- 995 -- 995
Equity interest in earnings of affiliate (55,891) (25,301) -- (554) 81,192 (554)
(Gain) loss on sale or disposal of
properties (762) -- (31,857) 3,065 -- (29,554)
Cumulative effect of accounting change -- 2,252 -- -- -- 2,252
Deferred income taxes (13,984) (4,431) 20,549 (4,931) -- (2,797)
Changes in operating assets and liabilities,
net of acquisitions and dispositions:
Accounts receivable (356) 745 (2,676) 5,941 -- 3,654
Other current assets (23) (388) (1,802) 4,668 -- 2,455
Accounts payable 74 (240) (2,977) 5,382 -- 2,239
Accrued expenses 9,889 295 (2,562) (1,863) -- 5,759
Other liabilities -- -- 4,671 (600) -- 4,071
Deposits and other 263 (1,552) (392) 704 -- (977)
--------- --------- --------- ---------- --------- ---------
Net cash provided by operating
activities (37,581) (14,370) 45,297 51,088 -- 44,433
--------- --------- --------- ---------- --------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (52) (26) (24,034) (38,387) -- (62,499)
Proceeds from sale of properties -- -- 80,976 15,678 -- 96,654
Acquisitions, net of cash acquired -- -- (148,922) -- -- (148,922)
Change in cash in escrow -- -- (2,507) (2,032) -- (4,539)
Deferred acquisition costs and other -- (2,711) -- -- -- (2,711)
--------- --------- --------- ---------- --------- ---------
Net cash used in investing activities (52) (2,737) (94,486) (24,742) -- (122,017)
--------- --------- --------- ---------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 539,150 986 6,040 3,059 -- 549,235
Principal payments on long-term debt (97,186) (11,699) (156,010) (183,212) -- (448,107)
Disbursements/receipts on intercompany debt (385,991) 29,805 201,256 154,930 -- --
Proceeds from exercise of stock options -- 234 -- -- -- 234
Preferred stock dividends paid -- (289) -- -- -- (289)
Purchase of treasury stock -- (1,992) -- -- -- (1,992)
Deferred financing costs paid (18,340) (23) (617) -- -- (18,980)
--------- --------- --------- ---------- --------- ---------
Net cash provided by financing
activities 37,633 17,022 50,669 (25,223) -- 80,101
--------- --------- --------- ---------- --------- ---------
Net (decrease) increase in cash -- (85) 1,480 1,123 -- 2,517
Effect of exchange rates on cash -- -- -- (1,025) -- (1,025)
Cash, beginning of period -- 92 1,464 10,042 -- 11,598
--------- --------- --------- ---------- --------- ---------
Cash, end of period $ -- $ 7 $ 2,943 $ 10,140 $ -- $ 13,090
========= ========= ========= ========== ========= =========
F-34
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. GUARANTOR FINANCIAL STATEMENT INFORMATION, CONTINUED
RAILAMERICA, INC.
Consolidating Statement of Income
For the Year Ended December 31, 1999
(in thousands)
[Enlarge/Download Table]
Non
Company Guarantor Guarantor
(Parent) Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
Operating revenue $ -- $ 27,166 $ 102,652 $ -- $ 129,818
--------- --------- --------- --------- ---------
Operating expenses:
Transportation -- 13,490 65,949 -- 79,439
Selling, general and administrative 4,825 4,374 10,351 -- 19,550
Net gain on sale of assets -- -- (3,629) -- (3,629)
Depreciation and amortization 108 2,320 6,751 -- 9,179
--------- --------- --------- --------- ---------
Total operating expenses 4,933 20,184 79,422 -- 104,539
--------- --------- --------- --------- ---------
Operating income (4,933) 6,982 23,231 -- 25,279
Interest expense (1,584) (3,221) (15,685) -- (20,490)
Interest in earnings of subsidiaries 13,934 -- -- (13,934) --
Minority interest and other income (expense) 45 (267) 671 -- 449
--------- --------- --------- --------- ---------
Income from continuing
operations before income taxes 7,462 3,494 8,217 (13,934) 5,238
Provision for income taxes (2,459) 1,328 345 -- (787)
--------- --------- --------- --------- ---------
Income from continuing operations 9,921 2,166 7,872 (13,934) 6,025
Discontinued operations:
Income from operations of discontinued
segments -- -- 3,896 -- 3,896
--------- --------- --------- --------- ---------
Net income $ 9,921 $ 2,166 $ 11,768 $ (13,934) $ 9,921
========= ========= ========= ========= =========
F-35
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. GUARANTOR FINANCIAL STATEMENT INFORMATION, CONTINUED
RAILAMERICA, INC.
Consolidating Statement of Cash Flows
For the Year Ended December 31, 1999
(In thousands)
[Enlarge/Download Table]
Non
Company Guarantor Guarantor
(Parent) Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) $ 9,921 $ 2,166 $ 11,768 $ (13,934) $ 9,921
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 855 2,494 10,785 -- 14,134
Minority interest in income of subsidiary -- -- 1,551 13,934 1,551
Equity interest in earnings of affiliate (13,934) -- (230) -- (230)
Gain on insurance settlement -- -- (4,069) -- (4,069)
Loss (gain) on sale or disposal of properties 56 407 (345) -- 118
Deferred income taxes 1,918 (9,181) 10,665 -- 3,402
Changes in operating assets and liabilities,
net of acquisitions and dispositions:
Accounts receivable 802 5,533 (8,581) -- (2,246)
Other current assets 175 1,003 (5,280) -- (4,102)
Accounts payable (359) (3,965) 7,568 -- 3,244
Accrued expenses (203) (1,963) 5,492 -- 3,326
Other liabilities -- -- (2,294) -- (2,294)
Deposits and other (245) 4 (1,014) -- (1,255)
--------- --------- --------- ---------- ---------
Net cash provided by operating activities (1,014) (3,502) 26,016 -- 21,500
--------- --------- --------- ---------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (457) (13,458) (37,476) -- (51,391)
Proceeds from sale of properties -- 166 998 -- 1,163
Acquisitions, net of cash acquired -- (257) (8,196) -- (8,453)
Cash held in discontinued operations -- -- (656) -- (656)
Deferred acquisition costs and other 639 -- -- -- 639
--------- --------- --------- ---------- ---------
Net cash used in investing activities 182 (13,549) (45,330) -- (58,698)
--------- --------- --------- ---------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 146,405 8,630 -- -- 182,085
Principal payments on long-term debt (126,473) (18,445) (5,265) -- (150,183)
Disbursements/receipts on intercompany debt (35,636) 32,287 30,399 -- --
Sale of convertible preferred stock 4,095 -- -- -- 4,095
Sale of common stock 11,868 -- -- -- 11,868
Proceeds from exercise of stock options 581 -- -- -- 581
Preferred stock dividends paid (843) -- -- -- (843)
Purchase of treasury stock (1,224) -- -- -- (1,224)
Deferred loan costs paid (2,603) (152) -- -- (2,755)
--------- --------- --------- ---------- ---------
Net cash provided by financing activities (3,830) 22,320 25,134 -- 43,624
--------- --------- --------- ---------- ---------
Effect of exchange rates on cash -- -- 87 -- 87
--------- --------- --------- ---------- ---------
Net increase (decrease) in cash (4,662) 5,269 5,907 -- 6,513
Cash, beginning of period 4,754 230 101 -- 5,085
--------- --------- --------- ---------- ---------
Cash, end of period $ 92 $ 5,499 $ 6,008 $ -- $ 11,598
========= ========= ========= ========== =========
F-36
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘10-K405’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| | 8/15/08 | | 65 |
| | 12/31/06 | | 42 | | 63 |
| | 12/31/05 | | 19 | | 42 | | | 10-K |
| | 8/14/05 | | 65 |
| | 8/5/04 | | 67 |
| | 7/31/04 | | 65 |
| | 5/31/04 | | 19 |
| | 8/16/03 | | 65 |
| | 8/15/03 | | 65 |
| | 6/15/02 | | 43 | | 59 |
| | 4/30/02 | | 45 | | | | | DEF 14A |
| Filed on: | | 4/1/02 | | 49 |
| | 3/28/02 | | 51 |
| | 3/22/02 | | 2 | | 21 |
| | 3/18/02 | | 51 |
| | 3/15/02 | | 43 |
| | 1/14/02 | | 75 | | | | | SC 13G |
| | 1/2/02 | | 20 | | | | | 8-K |
| | 1/1/02 | | 47 |
| For Period End: | | 12/31/01 | | 1 | | 80 | | | 4 |
| | 12/15/01 | | 43 | | 59 |
| | 11/26/01 | | 45 |
| | 10/12/01 | | 45 |
| | 10/11/01 | | 48 | | | | | 8-K |
| | 10/3/01 | | 48 | | | | | 8-K |
| | 7/31/01 | | 67 | | | | | 4 |
| | 6/30/01 | | 43 | | 58 | | | 10-Q, 4 |
| | 4/4/01 | | 47 |
| | 4/2/01 | | 48 | | | | | 10-K405 |
| | 1/31/01 | | 66 | | | | | 3 |
| | 1/1/01 | | 5 | | 73 |
| | 12/31/00 | | 9 | | 83 | | | 10-K405 |
| | 8/14/00 | | 46 | | | | | 10-Q, 3 |
| | 5/4/00 | | 64 |
| | 4/13/00 | | 46 | | 47 | | | 8-K |
| | 3/30/00 | | 47 | | | | | 10-K |
| | 3/3/00 | | 67 |
| | 2/4/00 | | 46 | | 60 | | | 3, 8-K, S-3/A |
| | 2/1/00 | | 21 |
| | 1/26/00 | | 47 | | | | | 8-A12G/A, 8-K |
| | 1/13/00 | | 46 | | 47 | | | 8-K |
| | 1/1/00 | | 60 | | 73 |
| | 12/31/99 | | 9 | | 85 | | | 10-K, 10-K/A |
| | 9/3/99 | | 60 | | | | | 8-K, 8-K/A |
| | 9/1/99 | | 21 |
| | 8/1/99 | | 21 | | 74 |
| | 7/26/99 | | 60 | | | | | 8-K, 8-K/A |
| | 5/18/99 | | 47 |
| | 5/1/99 | | 10 | | 74 |
| | 4/30/99 | | 10 | | 61 | | | 8-K, 8-K/A, DEF 14A |
| | 3/31/99 | | 47 | | | | | 10-K, 10-Q, 10-Q/A |
| | 1/1/99 | | 36 | | 70 |
| | 12/31/98 | | 21 | | 47 | | | 10-K |
| | 5/14/98 | | 47 | | | | | 10-Q |
| | 3/31/98 | | 47 | | | | | 10-K, 10-Q |
| | 1/8/98 | | 47 | | | | | 8-A12G, 8-K |
| | 1/6/98 | | 46 |
| | 12/31/97 | | 21 | | | | | 10-K |
| | 3/31/97 | | 47 | | | | | 10-Q, 10-Q/A, 10KSB, NT 10-Q |
| | 2/1/97 | | 21 |
| | 12/31/95 | | 47 |
| | 11/12/95 | | 47 |
| | 9/30/95 | | 47 |
| | 11/11/94 | | 46 |
| | 3/31/92 | | 4 |
| List all Filings |
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