RailAmerica, Inc. Reports Third Quarter 2012 Results

JACKSONVILLE, Fla., Nov. 5, 2012 /PRNewswire/ --

Third Quarter Highlights

  • Revenue increased 11% versus third quarter 2011.
  • Operating income down 31%; (up 25% excluding 45G benefit, asset sales, impairments and strategic alternatives expense[1]).
  • Net income of $0.12 per share.
  • Adjusted net income per share[1] of $0.40.

On October 1, 2012, RailAmerica, Inc. (RailAmerica) was acquired by Genesee & Wyoming Inc. (GWI) (NYSE: GWR) and deregistered its common stock and delisted from the New York Stock Exchange. Immediately following the closing of the acquisition, control of RailAmerica was placed into a voting trust with R. Lawrence McCaffrey appointed as trustee. The trust will remain in effect until the U.S. Surface Transportation Board (STB) issues its decision on GWI's application to control RailAmerica and its railroads, which decision could be as early as the fourth quarter of 2012 or as late as the first quarter of 2013.

For the pendency of the trust, GWI will account for its ownership of RailAmerica under the equity method of accounting. RailAmerica financial results for the third quarter of 2012 are for periods prior to GWI's ownership of RailAmerica and will not be included in GWI's financial results for such periods. This press release and a presentation containing supplemental information for the third quarter and year to date results will be posted on RailAmerica's website www.railamerica.com.

RailAmerica today reported financial results for the quarter ended September 30, 2012. Third quarter 2012 revenue increased 11% to $155.4 million from $139.7 million in the third quarter of 2011. Freight revenue increased 8% to $113.0 million with carloads up 4% and average revenue per car up 4%. Non-freight revenue increased 21% to $42.4 million.

The Company reported third quarter 2012 net income of $5.9 million, or $0.12 per diluted share. This compares to net income of $9.1 million, or $0.17 per diluted share in the third quarter of 2011. Noteworthy items impacting the third quarters of 2012 and 2011 include:

  • Acquisition / Transaction costs: In the third quarter of 2012 the Company incurred $17.0 million of transaction related expenses. $16.6 million was due to the Company's previously announced exploration of strategic alternatives, which resulted in the sale of RailAmerica to Genesee & Wyoming Inc. The remainder of the expenses were due to acquisition and industrial development related activity.
  • Restricted stock amortization: Third quarter 2012 restricted stock amortization (included in labor and benefits) included $2.4 million related to retirement eligibility vesting for certain participants. The vesting was associated with grants made during the third quarter of 2012 under terms of the agreement to sell the Company. Otherwise these expenses would have been incurred in the first quarter of 2013.
  • Amortization of swap termination costs: Non-cash charges of $1.3 million and $2.7 million were recorded in interest expense during the third quarters of 2012 and 2011, respectively, due to the June 2009 termination of an interest rate swap agreement.
  • 45G tax credits: A $3.9 million income statement benefit was recorded in the third quarter of 2011, but no benefit was recognized in the third quarter of 2012 since the credit is currently not in effect for 2012.
  • Asset impairment: Third quarter of 2011 includes a $1.9 million non-cash impairment charge resulting from an evaluation of our locomotive fleet.
  • Credit facility replacement: Third quarter of 2011 includes a $0.7 million non-cash charge related to the replacement of our asset backed loan facility with a new revolving credit facility.


Summary of Noteworthy Items Impacting Third Quarter 2011 and 2012











For the Three Months Ended September 30,



($ in thousands except EPS)

2011


2012




Pre Tax

EPS


Pre Tax

EPS











Strategic alternatives

$0

$0.00


($16,587)

($0.26)



Acquisition / Transaction costs

(203)

(0.00)


(393)

(0.00)



Restricted stock amortization increase

-

-


(2,366)

(0.03)



Amortization of swap termination costs

(2,747)

(0.03)


(1,283)

(0.02)



45G credits

3,879

0.05


-

-



Impairment of assets

(1,949)

(0.02)


-

-



Loss on extinguishment of credit agreement

(719)

(0.01)


-

-



Gain / (loss) on sale of assets

(8)

(0.00)


1,337

0.02











Note: Effective tax rate of 39% for 2011 and 37% for all 2012 items other than strategic alternatives, which are tax effected at 21%.



The Company reported operating income of $21.7 million in the third quarter of 2012 compared to $31.5 million in the third quarter of 2011. In addition to the items mentioned above impacting operating income, third quarter 2012 expenses were up primarily due to the inclusion of operating expenses from acquisitions (Marquette Railroad, Wellsboro & Corning Railroad and TransRail North America (TNA)). Also, incentive compensation increased $4.5 million. Operating income excluding the impact of 45G credits, asset sales, impairments and strategic alternatives expense is shown below.



For the Three Months Ended


September 30,


2011


2012

($ in thousands)








Operating revenue

$139,665


$155,418

Operating expense

108,177


133,670

Operating income, reported

31,488


21,748





Less: Benefit from 45G credits

(3,879)


-

Operating income excluding 45G Benefit1

27,609


21,748





Net (gain) loss on sale of assets

8


(1,337)

Impairment of assets

1,949


-

Strategic alternatives expense

-


16,587

Operating income excluding 45G Benefit, Asset Sales, Impairments and Strategic Alternatives expense1

29,566


36,998





1See schedule at the end of press release for a reconciliation of non-GAAP financial measure




A more detailed discussion of financial results for the third quarter of 2012 compared to the third quarter of 2011 follows.

Operating Revenue

Operating revenue increased by $15.8 million, or 11%, to $155.4 million in the three months ended September 30, 2012 from $139.7 million in the three months ended September 30, 2011. The net increase in operating revenue was due to higher non-freight revenue, rate increases, change in commodity mix, and increased carloads.

Total carloads during the three months ended September 30, 2012 increased 4% to 214,357 from 206,975 in the three months ended September 30, 2011. The increase in the average revenue per carload to $527 in the three months ended September 30, 2012, from $506 in the comparable period in 2011 was primarily due to rate increases, commodity mix, and fuel surcharge.

Freight revenue was $113.0 million in the three months ended September 30, 2012 compared to $104.7 million in the three months ended September 30, 2011, an increase of $8.3 million or 8%. This increase was primarily due to the net effect of the following:

  • Industrial products (includes chemicals, pulp, paper & allied products, metallic ores and metals, waste and scrap materials, other, petroleum, and motor vehicles) revenue increased $5.9 million, or 11%, primarily due to motor vehicle carload growth of 84%, which was driven by increased production at multiple automobile manufacturing plants we serve in Indiana, Michigan, California and Washington, chemicals and other which were driven by rates and commodity mix. The increase in the motor vehicles category was partially offset by an 11% decrease in metallic ores and metals carloads and an 8% decrease in pulp, paper and allied products traffic;
  • Agricultural Products (includes agricultural products and food or kindred products) revenue increased $0.5 million, or 2%, primarily due to agricultural products carload increases of 4% as a result of increased shipments in export traffic destined for Asia. This increase in agricultural products was partially offset by a 9% decrease in carloads for food and kindred products driven by soft demand for dried grain products;
  • Construction Products (includes non-metallic minerals and products and forest products) revenue increased $2.0 million, or 11%, primarily due to increased forest products carloads of 12% which was driven by an increase in lumber traffic in the Northeast and Northwest; and
  • Coal revenue decreased $0.1 million, or 1%, although coal volumes increased by 6%. The volume increase was primarily due to several lower rated Class I detour trains routed over one of our lines due to maintenance on the Class I mainline.

Operating Expenses

Operating expenses increased to $133.7 million in the three months ended September 30, 2012 from $108.2 million in the three months ended September 30, 2011. The operating ratio was 86.0% in 2012 compared to 77.5% in 2011. The increase in the operating ratio was primarily due to professional service fees related to the sale of the Company and the absence of track maintenance credits in the third quarter of 2012.

The net increase in operating expenses was due to the following:

  • Labor and benefits expense increased $6.2 million, or 15%, primarily due to higher profit sharing ($4.5 million), restricted stock amortization ($1.9 million) and increased wages as a result of acquisitions ($1.2 million), partially offset by lower health insurance costs ($0.7 million);
  • Equipment rents expense increased $0.3 million, or 3%, primarily due to higher railcar lease expense ($0.5 million) and acquisitions ($0.5 million), partially offset by lower locomotive lease expense ($0.3 million) and car hire ($0.3 million);
  • Purchased services expense increased $18.0 million, or 164%, primarily due to professional services in connection with our sale of the Company ($16.6 million), increased transport services related to the acquisition of TNA ($1.0 million) and write off of project costs ($0.3 million);
  • Diesel fuel expense approximated prior year expense;
  • Casualties and insurance expense decreased $0.4 million, or 9%, primarily due to a decrease in derailment costs ($1.1 million), partially offset by increased reserves related to crossing accidents ($0.5 million);
  • Materials expense increased $1.4 million, or 17%, primarily due to an increase in car repair material purchases resulting from increased car repair activities;
  • Joint facilities expense decreased $0.3 million, or 13% due to a reduction in maintenance charges;
  • Other expenses increased $0.5 million, or less than 5%, primarily due to an increase in railroad lease expense ($0.4 million) and other fees associated with the sale of the Company ($0.2 million), partially offset by lower taxes ($0.2 million);
  • The execution of the track maintenance agreement in 2011 resulted in a shipper paying for $4.0 million of maintenance expenditures, partially offset by $0.1 million of related consulting fees;
  • Asset sales resulted in a net gain of $1.3 million in the three months ended September 30, 2012, related to the sale of land;
  • Impairment of assets was $1.9 million in the three months ended September 30, 2011, related to a tentative sale agreement for various locomotives and further evaluation of the market value of the remaining units identified for potential fleet reductions; and
  • Depreciation and amortization expense decreased $0.7 million, or 6%, including $1.7 million in lower depreciation expense resulting from a road and track asset life study completed during the first quarter of 2012, offset by increased depreciation and amortization associated with acquisitions.

Other Income (Expense) Items

Interest Expense. Interest expense, including amortization of deferred financing costs, decreased $9.0 million to $8.8 million for the three months ended September 30, 2012, from $17.8 million in the three months ended September 30, 2011. This decrease is primarily due to the redemption of $74.0 million of our 9.25% senior notes each in January and June 2012 and $444 million in March 2012 which were replaced with lower cost debt. Interest expense includes $1.9 million and $4.0 million of amortization costs for the three months ended September 30, 2012 and 2011, respectively.

Swap termination cost amortization decreased to $1.3 million during the three months ended September 30, 2012 from $2.7 million during the three months ended September 30, 2011.

Other (Loss) Income. Other loss decreased $0.7 million during the three months ended September 30, 2012 as a result of the write-off of deferred loan costs of $0.6 million during the three months ended September 30, 2011. These costs were partially offset by management fee income that is recorded in connection with transactions where employees receive restricted stock awards from related parties. As part of the restricted stock transactions, the Company recorded an offsetting expense in labor and benefits.

Income Taxes. The effective tax rate for the three months ended September 30, 2012 and 2011 from continuing operations was a provision of 57.8% and 32.7%, respectively. The effective tax rate is affected by recurring items such as tax rates in foreign jurisdictions and the relative amount of income earned in jurisdictions. It is also affected by discrete items that may occur in any given quarter, but are not consistent from quarter to quarter. The effective tax rate for the three months ended September 30, 2012 was adversely impacted by non-deductible professional fees related to the sale of the Company ($2.9 million), partially offset by the reduction of tax reserves due to the lapse of the statute of limitations ($0.5 million). The effective tax rate for the three months ended September 30, 2011 was favorably impacted by the reduction of tax reserves due to the lapse of the statute of limitations ($0.3 million).

The Company will post a presentation containing supplemental information for the third quarter and year to date results on RailAmerica's website (www.railamerica.com).

RailAmerica, Inc. owns and operates short-line and regional freight railroads in North America, operating a portfolio of 45 individual railroads with approximately 7,500 miles of track in 28 U.S. states and three Canadian provinces.

Cautionary Note Regarding Forward-Looking Statements

Certain items in this press release and other information we provide from time to time may constitute forward-looking statements including, but not necessarily limited to, statements relating to future events and financial performance. Words such as "anticipates," "expects," "intends," "plans," "projects," "believes," "appears," "may," "will," "would," "could," "should," "seeks," "estimates" and variations on these words and similar expressions are intended to identify such forward-looking statements. These statements are based on management's current expectations and beliefs and are subject to a number of factors that could lead to actual results materially different from those described in the forward-looking statements. RailAmerica, Inc. can give no assurance that its expectations will be attained. Accordingly, you should not place undue reliance on any forward-looking statements contained in this press release. Factors that could have a material adverse effect on our operations and future prospects or that could cause actual results to differ materially from RailAmerica, Inc.'s expectations include, but are not limited to, prolonged capital markets disruption and volatility, general economic conditions and business conditions, our relationships with Class I railroads and other connecting carriers, our ability to obtain railcars and locomotives from other providers on which we are currently dependent, legislative and regulatory developments including rulings by the Surface Transportation Board or the Railroad Retirement Board, strikes or work stoppages by our employees, our transportation of hazardous materials by rail, rising fuel costs, goodwill assessment risks, acquisition risks, competitive pressures within the industry, risks related to the geographic markets in which we operate and other risks related to our business detailed in RailAmerica's previous filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q. In addition, new risks and uncertainties emerge from time to time, and it is not possible for RailAmerica, Inc. to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this press release. RailAmerica, Inc. expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

[1] See schedule at end of press release for a reconciliation of non-GAAP financial measure.


RAILAMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)






For the Three Months Ended


For the Nine Months Ended


September 30,


September 30,


2011


2012


2011


2012


(In thousands, except per share data)









Operating revenue

$ 139,665


$ 155,418


$ 403,817


$ 454,956

Operating expenses:








Labor and benefits

41,379


47,536


124,855


136,316

Equipment rents

9,046


9,320


26,601


27,655

Purchased services

10,996


28,984


31,429


55,504

Diesel fuel

13,142


13,170


41,887


39,805

Casualties and insurance

4,006


3,627


11,095


11,812

Materials

7,879


9,238


18,892


25,393

Joint facilities

2,459


2,132


7,214


7,478

Other expenses

9,271


9,736


29,876


31,425

Track maintenance expense reimbursement

(3,879)


-


(13,162)


-

Net loss (gain) on sale of assets

8


(1,337)


151


(1,495)

Impairment of assets

1,949


-


5,169


-

Depreciation and amortization

11,921


11,264


35,421


33,264

Total operating expenses

108,177


133,670


319,428


367,157

Operating income

31,488


21,748


84,389


87,799

Interest expense (including amortization costs of $3,973, $1,948, $13,215 and $6,727, respectively)

(17,792)


(8,764)


(54,526)


(32,442)

Other (loss) income

(231)


426


804


(86,992)

Income (loss) before income taxes

13,465


13,410


30,667


(31,635)

Provision for (benefit from) income taxes

4,407


7,752


8,824


(8,271)

Net income (loss)

9,058


5,658


21,843


(23,364)

Less: Net loss attributable to noncontrolling interest

-


(287)


-


(489)

Net income (loss) attributable to the Company

$ 9,058


$ 5,945


$ 21,843


$ (22,875)









Basic earnings per common share:








Net income (loss) attributable to the Company

$ 0.17


$ 0.12


$ 0.41


$ (0.45)









Diluted earnings per common share:








Net income (loss) attributable to the Company

$ 0.17


$ 0.12


$ 0.41


$ (0.45)









Weighted Average common shares outstanding:








Basic

52,083


50,395


53,006


50,440

Diluted

52,083


50,603


53,006


50,440



RAILAMERICA, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS

(Unaudited)






December 31,


September 30,


2011


2012


(In thousands, except share data)

ASSETS

Current assets:




Cash and cash equivalents

$ 90,999


$ 85,807

Restricted cash



300

Accounts and notes receivable, net of allowance of $7,291 and $8,874 respectively

96,813


106,225

Current deferred tax assets

9,886


8,347

Other current assets

17,967


26,112

Total current assets

215,665


226,791

Property, plant and equipment, net

1,021,545


1,069,543

Intangible assets

134,851


172,981

Goodwill

211,841


235,042

Other assets

13,478


11,855

Total assets

$ 1,597,380


$ 1,716,212





LIABILITIES AND EQUITY

Current liabilities:




Current maturities of long-term debt

$ 71,991


$ 82,435

Accounts payable

78,844


92,483

Accrued expenses

28,616


52,966

Total current liabilities

179,451


227,884

Long-term debt, less current maturities

1,827


584,118

Senior secured notes

501,876


-

Deferred income taxes

213,421


203,717

Other liabilities

20,680


21,432

Total liabilities

917,255


1,037,151

Commitments and contingencies




Stockholders' equity:




Common stock, $0.01 par value, 400,000,000 shares authorized; 50,605,440 shares issued and outstanding at December 31, 2011; and 50,394,421 shares issued and outstanding at September 30, 2012

506


504

Additional paid in capital and other

591,341


599,174

Retained earnings

84,272


61,282

Accumulated other comprehensive income

4,006


10,915

Total stockholders' equity

680,125


671,875

Noncontrolling interest

-


7,186

Total equity

680,125


679,061

Total liabilities and equity

$ 1,597,380


$ 1,716,212









RAILAMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



For the Nine Months Ended


September 30,


2011


2012


(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:




Net income (loss)

$ 21,843


$ (23,364)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:




Depreciation and amortization, including amortization of debt issuance costs classified in interest expense

39,012


35,752

Amortization of swap termination costs

9,625


4,237

Net (gain) loss on sale or disposal of properties

151


(1,495)

Impairment of assets

5,169


-

Loss on extinguishment of debt

-


88,107

Deferred financing costs expensed

719


-

Equity compensation costs

7,381


11,946

Deferred income taxes and other

4,453


(10,257)

Changes in operating assets and liabilities, net of acquisitions:




Accounts receivable

(33,167)


(5,594)

Other current assets

(7,209)


(7,919)

Accounts payable

17,048


(1,368)

Accrued expenses

7,967


23,833

Other assets and liabilities

(1,253)


(125)

Net cash provided by operating activities

71,739


113,753





CASH FLOWS FROM INVESTING ACTIVITIES:




Purchase of property, plant and equipment

(93,518)


(72,147)

NECR government grant reimbursements

31,329


7,129

Proceeds from sale of assets

7,598


6,511

Acquisitions, net of cash acquired

(12,716)


(53,107)

Change in restricted cash

-


(300)

Other

(65)


16

Net cash used in investing activities

(67,372)


(111,898)





CASH FLOWS FROM FINANCING ACTIVITIES:




Principal payments on long-term debt

(263)


(3,051)

Proceeds from issuance of long-term debt

-


582,075

Repurchase of senior secured notes

-


(649,720)

Repayment of revolving credit facility

-


(60,000)

Proceeds from revolving credit facility

-


135,000

Repurchase of common stock

(57,664)


(520)

Financing costs paid

(2,891)


(11,196)

Net cash used in financing activities

(60,818)


(7,412)





Effect of exchange rates on cash

(743)


365





Net decrease in cash

(57,194)


(5,192)

Cash, beginning of period

152,968


90,999

Cash, end of period

$ 95,774


$ 85,807



RAILAMERICA, INC. AND SUBSIDIARIES

SELECTED FINANCIAL INFORMATION

(Dollars in thousands)

(Unaudited)




Three Months Ended September 30,


2011


2012

Operating revenue

$ 139,665


100.0%


$ 155,418


100.0%

Operating expenses:








Labor and benefits

41,379


29.7%


47,536


30.6%

Equipment rents

9,046


6.5%


9,320


6.0%

Purchased services

10,996


7.9%


28,984


18.7%

Diesel fuel

13,142


9.4%


13,170


8.5%

Casualties and insurance

4,006


2.9%


3,627


2.3%

Materials

7,879


5.6%


9,238


5.9%

Joint facilities

2,459


1.8%


2,132


1.4%

Other expenses

9,271


6.6%


9,736


6.3%

Track maintenance expense reimbursement

(3,879)


(2.8%)


-


0.0%

Net loss (gain) on sale of assets

8


0.0%


(1,337)


(0.9%)

Impairment of assets

1,949


1.4%


-


0.0%

Depreciation and amortization

11,921


8.5%


11,264


7.2%

Total operating expenses

108,177


77.5%


133,670


86.0%

Operating income

$ 31,488


22.5%


$ 21,748


14.0%




Nine Months Ended September 30,


2011


2012

Operating revenue

$ 403,817


100.0%


$ 454,956


100.0%

Operating expenses:








Labor and benefits

124,855


30.9%


136,316


30.0%

Equipment rents

26,601


6.6%


27,655


6.1%

Purchased services

31,429


7.8%


55,504


12.2%

Diesel fuel

41,887


10.4%


39,805


8.7%

Casualties and insurance

11,095


2.7%


11,812


2.6%

Materials

18,892


4.7%


25,393


5.6%

Joint facilities

7,214


1.8%


7,478


1.6%

Other expenses

29,876


7.4%


31,425


6.9%

Track maintenance expense reimbursement

(13,162)


(3.3%)


-


0.0%

Net loss (gain) on sale of assets

151


0.0%


(1,495)


(0.3%)

Impairment of assets

5,169


1.3%


-


0.0%

Depreciation and amortization

35,421


8.8%


33,264


7.3%

Total operating expenses

319,428


79.1%


367,157


80.7%

Operating income

$ 84,389


20.9%


$ 87,799


19.3%



RAILAMERICA, INC. AND SUBSIDIARIES

Railroad Freight Revenue, Carloads and Average Freight Revenue

Per Carload

Comparison by Commodity Group (Unaudited)






Three Months Ended


Three Months Ended


September 30, 2011


September 30, 2012






Average Freight






Average Freight


Freight




Revenue per


Freight




Revenue per


Revenue


Carloads


Carload


Revenue


Carloads


Carload


(Dollars in thousands, except average freight revenue per carload)

Chemicals

$ 16,220


24,037


$ 675


$ 18,149


24,858


$ 730

Agricultural Products

15,911


29,044


548


16,419


30,179


544

Metallic Ores and Metals

10,744


17,828


603


10,819


15,778


686

Non-Metallic Minerals and Products

10,144


21,508


472


10,734


21,718


494

Pulp, Paper and Allied Products

11,043


18,639


592


10,143


17,207


589

Forest Products

7,937


12,647


628


9,356


14,112


663

Coal

8,738


35,335


247


8,646


37,495


231

Food or Kindred Products

7,479


14,032


533


7,520


12,826


586

Waste and Scrap Materials

6,435


14,965


430


6,728


14,130


476

Petroleum

3,746


8,274


453


5,267


10,059


524

Other

4,547


7,906


575


5,872


10,916


538

Motor Vehicles

1,715


2,760


621


3,395


5,079


668

Total

$ 104,659


206,975


$ 506


$ 113,048


214,357


$ 527


























Nine Months Ended


Nine Months Ended


September 30, 2011


September 30, 2012






Average Freight






Average Freight


Freight




Revenue per


Freight




Revenue per


Revenue


Carloads


Carload


Revenue


Carloads