| RAILAMERICA INC /DE ITEM 1A RISK FACTORS We have substantial debt and debt service requirements which could have adverse consequences on our business |
| As of December 31, 2005, we had indebtedness of dlra433dtta9 million and, as a result, we incur significant interest expense |
| The degree to which we are leveraged could have important consequences, including the following: — our ability to obtain additional financing in the future for capital expenditures, potential acquisitions, and other purposes may be limited or financing may not be available on terms favorable to us or at all; — a substantial portion of our cash flow from operations must be used to pay our interest expense and repay our debt, which reduces the funds that would otherwise be available to us for our operations and future business opportunities; and — fluctuations in market interest rates will affect the cost of our borrowings to the extent not covered by interest rate hedge agreements because our credit facilities bear interest at variable rates and only a portion of our borrowings are covered by hedge agreements |
| A default could result in acceleration of our indebtedness and permit our senior lenders to foreclose on our assets |
| Our competitors may operate on a less leveraged basis and may have significantly greater operating and financing flexibility than we do |
| As of December 31, 2005, we had dlra5dtta0 million of outstanding borrowings under our revolving credit facility |
| This facility allows us to borrow a total of dlra100 million for any purpose and we may borrow up to an additional dlra25 million of term debt in connection with acquisitions if we meet specified conditions |
| If new debt is added to our current debt levels, the related risks that we face would intensify |
| As of March 10, 2006, we had dlra1dtta5 million outstanding under the revolving credit facility |
| The credit agreement governing our senior credit facilities contains covenants that significantly restrict our operations |
| Our credit facilities contain numerous covenants imposing restrictions on our ability to, among other things: — incur more debt; — redeem or repurchase our common stock; — pay dividends or make other distributions; — make acquisitions or investments; — use assets as security in other transactions; — enter into transactions with affiliates; 10 _________________________________________________________________ [62]Table of Contents — merge or consolidate with others; — dispose of assets or use asset sale proceeds; — create liens on our assets; — make certain payments or capital expenditures; — extend credit; and — withstand a future downturn in our business |
| Our credit facilities also contain financial covenants that require us to meet a number of financial ratios and tests |
| Our failure to comply with the obligations in our credit facilities could result in events of default under the credit facilities, which, if not cured or waived, could permit acceleration of our indebtedness, allowing our senior lenders to foreclose on our assets |
| Rising fuel costs could materially adversely affect our business |
| Fuel costs were approximately 11prca of our revenue for the year ended December 31, 2005, 9prca for the year ended December 31, 2004 and 7prca for the year ended December 31, 2003 |
| Fuel prices and supplies are influenced significantly by international, political and economic circumstances |
| If fuel supply shortages or unusual price volatility were to arise for any reason, the resulting higher fuel prices would significantly increase our operating costs |
| During 2005, we offset a portion of higher fuel costs through our fuel surcharge program |
| However, to the extent that we are unable to maintain and expand the existing fuel surcharge program, increases in fuel prices could have an adverse effect on our operating results, financial condition or liquidity |
| As part of our railroad operations, we frequently transport hazardous materials |
| We are required to transport hazardous materials to the extent of our common carrier obligation |
| An accidental release of hazardous materials could result in significant loss of life and extensive property damage |
| The associated costs could have an adverse effect on our operating results, financial condition or liquidity |
| The availability of qualified personnel and an aging workforce may adversely affect our operations |
| Changes in demographics, training requirements and the availability of qualified personnel, particularly train crew members, could negatively affect our service levels |
| Our efforts to attract and retain qualified personnel may be hindered due to increased demand in the job market |
| Unpredictable increases in demand for rail services may exacerbate these risks and may have an adverse effect on our operating results, financial condition or liquidity |
| Some of our employees belong to labor unions and strikes or work stoppages could adversely affect our operations |
| Our union employees work under collective bargaining agreements with various labor organizations |
| 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 our union-represented employees were to engage in a strike, work stoppage or other slowdown, or other employees were to become unionized or their terms and conditions in future labor agreements were renegotiated, we could experience significant disruption of our operations higher ongoing labor costs |
| Our inability to integrate acquired businesses successfully could have adverse consequences for our business |
| Our acquisition program could be materially affected by the availability of suitable candidates and competition from other companies for the purchase of available candidates |
| We have acquired many railroads since we commenced operations in 1992 and intend to continue our acquisition program |
| The success of our acquisition program will depend on, among other things the availability of suitable candidates and competition from other companies for the purchase of available candidates |
| 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 result in dilution to our stockholders |
| Acquisitions result in greater administrative burdens and operating costs and, to the extent financed with debt, additional interest costs |
| 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 |
| If these disruptions and difficulties occur, they may cause us to fail to realize the cost savings, revenue enhancements and other benefits that we expected to result from an acquisition and may cause material adverse short and long-term effects on our operating results and financial condition |
| 11 _________________________________________________________________ [63]Table of Contents Because we depend on Class I railroads for our operations, our business and financial results may be adversely affected if our relationships with Class I carriers deteriorates |
| 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 |
| 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, trackage rights and fuel surcharges |
| In addition, loss of customers or service interruptions or delays by our Class I interchange partners relating to customers who ship over our track, may decrease our revenue |
| Class I carriers are also sources of potential acquisition candidates as they continue to divest branch lines |
| Failure to maintain good relationships may adversely affect our ability to negotiate acquisitions of branch lines |
| We are subject to the risks of doing business in foreign countries |
| We currently have railroad operations in Canada |
| The risks of doing business in foreign countries include: — adverse changes in the economy of those countries; — exchange rate fluctuations; — government policies against ownership of businesses by non-nationals; and — 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 |
| We are subject to significant governmental and environmental regulation of our railroad operations |
| The failure to comply with environmental and other governmental regulations could have a material adverse effect on us |
| Our railroad and real estate ownership is subject to extensive foreign, federal, state and local environmental laws and regulations |
| We could incur significant costs as a result of any allegations or findings to the effect that we have violated or are strictly liable under these laws or regulations |
| We may be required to incur significant expenses to investigate and remediate environmental contamination |
| We are also 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 |
| A downturn in the economy could negatively affect demand for our services |
| Several of the commodities we transport come from industries with cyclical business operations |
| As a result, prolonged negative changes in domestic and global economic conditions affecting the producers and consumers of the commodities carried by us may decrease our revenue |
| Severe weather and natural disasters could disrupt normal business operations, which could result in increased costs and liabilities and decreases in revenues |
| Severe weather conditions and other natural phenomena, including earthquakes, hurricanes, fires and floods, may cause significant business interruptions and result in increased costs, increased liabilities and decreased revenue |
| We may face liability for casualty losses which are not covered by insurance |
| We have obtained insurance coverage for losses sustained by our railroads arising from personal injury and for property damage in the event of derailments or other incidents |
| Personal injury claims made by our railroad employees are subject to the Federal Employers’ Liability Act (“FELA”), rather than state workers’ compensation laws |
| Currently, we are responsible for the first dlra750cmam000 of expenditures per each incident under our general liability insurance policy and dlra1 million of expenditures per each incident under our property insurance policy |
| In addition, in each policy period, under our general liability insurance policy we are responsible for the first dlra1 million of expenditures, in the aggregate, on any incidents in excess of dlra750cmam000 |
| Severe accidents or personal injuries could cause our liability to exceed our insurance limits which might have a material adverse effect on our business and financial condition |
| Our annual insurance limits are dlra100 million and dlra15 million on liability and property, respectively |
| In addition, adverse events directly and indirectly applicable to us, including such things as derailments, accidents, discharge of toxic waste, or other like occurrences in the industry, can be expected to result in increases in our insurance premiums and/or 12 _________________________________________________________________ [64]Table of Contents our self insured retentions and could result in limitations to the coverage under our existing policies |
| We are currently involved in discussions with our insurers on the renewal of, and adjustments to our insurance coverage, which would revise some terms of coverage for future occurrences |
| Future acts of terrorism or war, as well as the threat of war, may cause significant disruptions in our business operations |
| Terrorist attacks, such as those that occurred on September 11, 2001, as well as the more recent attacks on the transportation systems in Madrid and London, any government response to those types of attacks and war or risk of war may adversely affect our results of operations, financial condition or liquidity |
| Our rail lines and facilities could be direct targets or indirect casualties of an act or acts of terror, which could cause significant business interruption and result in increased costs and liabilities and decreased revenues, which could have an adverse effect on our operating results and financial condition |
| Such effects could be magnified where releases of hazardous materials are involved |
| Any act of terror, retaliatory strike, sustained military campaign or war or risk of war may have an adverse effect on our operating results and financial condition by causing or resulting in unpredictable operating or financial conditions, including disruptions of rail lines, volatility or sustained increase of fuel prices, fuel shortages, general economic decline and instability or weakness of financial markets which could restrict our ability to raise capital |
| In addition, insurance premiums charged for some or all of our coverage could increase dramatically or certain coverage may not be available to us in the future |