DALLAS AREA RAPID TRANSIT. Quarterly Disclosure Update for the three-month period ended March 31, 2005

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1 Quarterly Disclosure Update for the three-month period ended March 31, 2005 This Quarterly Disclosure Update supplements the information contained in our 2005 Annual Disclosure Statement dated March 22, 2005 (the 2005 Annual Disclosure Statement) and our Quarterly Disclosure Update dated April 26, The 2005 Annual Disclosure Statement and each Quarterly Disclosure Update have been filed as public records with the Central Repositories named in the 2005 Annual Disclosure Statement and are posted on the Internet at our website, You may also obtain a free copy of this Quarterly Disclosure Update by contacting us at the following address or telephone number: Chief Financial Officer, DART, 1401 Pacific Avenue, Dallas, Texas 75202, (214) GENERAL We are posting and filing this Quarterly Disclosure Update to supplement our 2005 Annual Disclosure Statement dated March 22, 2005, and Quarterly Disclosure Update dated April 26, We continue to reserve the right to suspend or stop the postings on the Internet and the quarterly updates at any time. However, we will always provide the annual and periodic information called for under any undertaking made in compliance with Rule 15c2-12 under the Securities Exchange Act of Whenever we use capitalized words in this Quarterly Disclosure Update, they refer to the defined terms that are found in or incorporated by reference in the 2005 Annual Disclosure Statement. See, 2005 Annual Disclosure Statement, Appendix B, SUMMARY OF CERTAIN TERMS OF MASTER DEBT RESOLUTION. In this Quarterly Disclosure Update, we, our, us, and DART refer to Dallas Area Rapid Transit, a subregional transportation authority under the Act. The information in this Quarterly Disclosure Update is as of the date stated below, except for the unaudited financial information included herein as Exhibit A which is for the six-month period ended March 31, YOU SHOULD CAREFULLY CONSIDER THE INVESTMENT CONSIDERATIONS IN THE 2005 ANNUAL DISCLOSURE STATEMENT. FORWARD-LOOKING STATEMENTS We make forward-looking statements in the 2005 Annual Disclosure Statement and in Quarterly Disclosure Updates by using forward-looking words such as may, will, should, intends, expects, believes, anticipates, estimates, or others. You are cautioned that forward-looking statements are subject to a variety of uncertainties that could cause actual results to differ from the projected results. Those risks and uncertainties include general economic and business conditions, conditions in the financial markets, our financial condition, our sales tax revenues, receipt of federal grants, and various other factors that are beyond our control. Because we cannot predict all factors that may affect future decisions, actions, events, or financial circumstances, what actually happens may be different from what we include in forward-looking statements. Dated: June 28, 2005 DAL506/71002 Dallas QDU doc

2 QUARTERLY DISCLOSURE UPDATE The 2005 Annual Disclosure Statement dated March 22, 2005, and Quarterly Disclosure Update dated April 26, 2005, are updated by the following supplemental information: Unaudited Financial Information Audited financial statements for our fiscal year ended September 30, 2004, are attached as Appendix A to the 2005 Annual Disclosure Statement. An unaudited statement of our principal accounts for the six-month period ended March 31, 2005, is attached to this Quarterly Disclosure Update as Exhibit A. Such quarterly financial statements should be read in conjunction with our annual financial statements. This information is taken from our internal books and records that are created, maintained, and administered by DART in accordance with generally accepted accounting principles. The use of reasonable estimates is a normal part of the preparation of financial statements. Sales tax revenues included in the unaudited quarterly financial statements were accrued using estimates. Actual sales tax receipts could, therefore, differ from those reported in the quarterly financial statements. We believe that the unaudited financial information for the six-month period ended March 31, 2005, fairly represents the financial position and operating results of DART and is complete as of, but no later than such date. However, you are cautioned that such financial information has not been audited or reviewed by any independent accountants. We do not warrant or guarantee that subsequent audited information for these accounts for this sixmonth period will not differ from the unaudited financial information presented herein and in Exhibit A. Management s Comment DART s unaudited financial statements for the six-month period ended March 31, 2005, and 2004, show sales tax revenues as $170.5 million and $162.8 million, respectively, which indicates an increase of 4.7 percent. The actual sales tax collections were $170.6 million and $166.9 million for the six-months ended March 31, 2005, and The March 2005 receipts are $0.6 million or 1.72 percent above March 2004 actual receipts and 0.28 percent below budget. Our operating results for the six-month period ended March 31, 2005, reflect a net operating loss of $23.7 million, compared to $20.2 million for the six-month period ended March 31, 2004, an increase of 17.3 percent. The overall result for the six-month period ended March 31, 2005 shows a net loss (a decrease in net assets) of $ 8.1 million compared to an increase of $6.3 million for the six-month period ended March 31, DART maintains various cash reserves including a Financial Reserve Account that is funded with sales tax collections, if any, that exceed budget during a given year. An affirmative vote of two-thirds of the Board is required to draw upon the Financial Reserve, and the funds may be used for any purpose approved by the Board. As of March 31, 2005, the balance in the Financial Reserve Account was $29.7 million. We are making a $76,000 monthly withdrawal from the Financial Reserve to offset an adjustment being made to our Sales Tax Receipts by the Comptroller s Office. In addition, we maintain a working cash balance in the Operating Fund equal to at least two months of expenses that are projected to be paid from sales tax collections. As of March 31, 2005, the Operating Fund balance was $286.1 million. The Obligations and our Financing Plans Outstanding Bond Obligations We do not plan to issue any Senior Lien Obligations in We plan to issue additional commercial paper Notes periodically during the year to finance our capital acquisitions. We do not anticipate having more than $359 million outstanding at year-end. As of March 31, 2005, DART had $259,245,000 in outstanding commercial paper Notes. While DART has no current plans to issue additional Bond Obligations during 2005, we reserve the right to do so.

3 Litigation No significant changes have occurred in the status of pending litigation involving DART since the date of the 2005 Annual Disclosure Statement. We continue to accrue and estimate losses on claims that are asserted in pending litigation and have included this accrual in accounts payable and accrued liabilities in the unaudited statement of our principal accounts attached hereto as Exhibit A. Other than cases filed in the ordinary course of business as an operating transit agency, no new litigation has been filed against DART since the date of the 2005 Annual Disclosure Statement. See, 2005 Annual Disclosure Statement, LITIGATION. RULE 15c2-12 DISCLOSURES Since March 22, 2005, the date of the most recent Annual Disclosure Statement, no material events have occurred that we are required to disclose under the provisions of Rule 15c2-12 under the Securities Exchange Act of This Quarterly Disclosure Update, in the form and content presented above and in its Exhibit, was approved by the Board of Directors of DART on June 28, ATTEST: /s/ Linda Koop Secretary, Board of Directors /s/ Huelon Harrison Chairman, Board of Directors /s/ Gary C. Thomas DART, President/Executive Director DAL506/71002 Dallas QDU doc -2-

4 Exhibit A Unaudited Statement of Principal Accounts for the six-month period ended March 31, 2005 DAL506/71002 Dallas QDU doc

5 STATEMENTS OF NET ASSETS March 31, 2005 and September 30, 2004 (Dollars in Thousands) ASSETS Unaudited 03/31/ /30/2004 CURRENT ASSETS Cash and cash equivalents $35,373 $30,934 Investments 289, ,590 Current portion of restricted assets 13,437 15,023 Investments held to pay capital lease/leaseback liabilities 52,346 33,069 Sales tax receivable 57,382 56,973 Transit revenue receivable, net 1,616 1,784 Due from federal and other governments 3,522 13,149 Materials and supplies inventory 22,082 21,616 Prepaid transit expense and other 3,507 2,504 TOTAL CURRENT ASSETS 479, ,642 NONCURRENT ASSETS Restricted assets 18,029 7,345 Investment in joint venture 10,889 11,159 Capital assets Land and rights-of-way 385, ,102 Depreciable capital assets, net of depreciation 1,703,626 1,682,611 Projects in progress 285, ,044 Long-term investments held to pay capital lease/leaseback liabilities 410, ,741 Net pension asset 3,384 3,294 Unamortized long-term debt issuance costs 3,959 4,076 TOTAL NONCURRENT ASSETS 2,820,445 2,843,372 TOTAL ASSETS 3,299,468 3,292,014 LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities 79,825 79,488 Commercial paper notes payable 259, ,245 Current portion of capital lease/leaseback liabilities 52,346 33,069 Current portion of amount due to State Comptroller Local Assistance Program payable 30,752 31,925 Retainage payable 20,119 20,464 Other liabilities 9,057 5,458 Payable from restricted assets: Interest Payable 8,961 8,502 Current portion of senior lien sales tax revenue bonds payable 10,470 6,815 TOTAL CURRENT LIABILITIES 471, ,879 NONCURRENT LIABILITIES Repayment due to State Comptroller Senior lien sales tax revenue bonds payable 475, ,686 Capital lease/leaseback liabilities 410, ,741 TOTAL NONCURRENT LIABILITIES 886, ,340 TOTAL LIABILITIES 1,357,736 1,342,219 NET ASSETS Invested in capital assets, net of related debt 1,608,760 1,635,547 Restricted for: Debt service 13,437 15,023 System expansion and acquisition 18,029 7,345 Unrestricted 301, ,880 TOTAL NET ASSETS $1,941,732 $1,949,795 DAL506/71002 Dallas QDU doc

6 STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS For the six months ended March 31, 2005 and 2004 (In Thousands) Unaudited OPERATING REVENUES Passenger revenues $18,088 $18,309 Advertising, rent, and other 4,525 4,856 TOTAL OPERATING REVENUES 22,613 23,165 OPERATING EXPENSES Labor 72,616 66,257 Benefits 31,246 28,868 Services 8,822 8,521 Materials and supplies 17,468 15,085 Purchased transportation 18,330 17,109 Depreciation 52,108 48,473 Utilities 4,395 4,018 Taxes, leases, and other 2,261 2,339 Casualty and liability 1,805 2,066 Transit system planning, development, and start-up costs (9,659) (8,865) TOTAL OPERATING EXPENSES 199, ,871 OPERATING LOSS (176,779) (160,706) NON-OPERATING REVENUES (EXPENSES) Sales tax revenue 170, ,837 Investment income 1,537 2,280 Interest income from investments held to pay capital lease/leaseback 12,916 12,916 Interest expense on capital lease/leaseback (12,916) (12,916) Local Assistance Program and street improvements (602) (8,329) Transit system planning, development, and start-up costs (9,659) (8,865) Interest and financing expenses (12,430) (11,757) Other non-operating revenues 3,768 4,371 TOTAL NON-OPERATING REVENUES (EXPENSES) 153, ,537 (LOSS) BEFORE CAPITAL CONTRIBUTIONS, GRANTS AND REIMBURSEMENTS (23,656) (20,169) CAPITAL CONTRIBUTIONS, GRANTS AND REIMBURSEMENTS Federal capital contributions 14,930 9,081 Less: transfer of federally funded assets to other governments (264) Net federal capital contributions 14,930 8,817 Federal grants and reimbursements ,219 State grants and reimbursements Total grants and reimbursements ,374 TOTAL CAPITAL CONTRIBUTIONS, GRANTS AND REIMBURSEMENTS 15,593 26,477 CHANGE IN NET ASSETS (8,063) 6,308 TOTAL NET ASSETS BEGINNING OF THE PERIOD 1,949,795 1,886,889 TOTAL NET ASSETS END OF THE PERIOD $1,941,732 $1,893,197 A-2

7 STATEMENTS OF CASH FLOWS For the six months ended March 31, 2005 and 2004 (Dollars in Thousands) Unaudited CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $22,781 $23,069 Payments to suppliers of goods and services (39,183) (47,869) Payments to purchased transportation service providers (18,371) (24,115) Payments to employees (72,335) (68,524) Benefit payments on behalf of employees (29,781) (26,992) Payments allocated to planning, development, and start-up costs 9,659 8,865 NET CASH USED BY OPERATING ACTIVITIES (127,230) (135,566) CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Sales tax proceeds 170, ,821 Other non-capital non-operating revenues (expenses) 4,425 5,358 Federal grants and reimbursements ,219 State grants and reimbursements Local Assistance Program and street improvements (1,775) (1,707) Planning, development, and rail start-up costs (9,659) (8,865) NET CASH PROVIDED BY NON-CAPITAL FINANCING ACTIVITIES 163, ,061 CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments 1,360 2,050 Proceeds from sales and maturity of investments 112, ,259 Purchase of investments (129,136) (240,143) (Increase) decrease in restricted assets (9,098) 3,006 NET CASH USED BY INVESTING ACTIVITIES (23,875) (60,828) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition and construction of capital assets (53,387) (73,877) Proceeds from capital lease/leaseback transactions 191 Proceeds from the issuance of commercial paper notes 40,000 65,600 Payment on commercial paper notes (12,025) Principal payment on sales tax revenue bonds (6,815) (1,945) Interest and financing expenses (11,907) (11,627) Federal capital contributions 23,121 47,943 State capital contributions 2,286 Net proceeds from sale of capital assets 816 NET CASH PROVIDED (USED) BY CAPITAL AND RELATED FINANCING ACTIVITIES (8,172) 16,546 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 4,439 (4,787) CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 30,934 68,351 CASH AND CASH EQUIVALENTS, END OF THE PERIOD $35,373 $63,564 A-3

8 STATEMENTS OF CASH FLOWS For the six months ended March 31, 2005 and 2004 (Dollars in Thousands) Unaudited RECONCILIATION OF OPERATING LOSS TO CASH USED BY OPERATING ACTIVITIES CASH FLOWS FROM OPERATING ACTIVITIES Net operating loss $(176,779) $(160,706) ADJUSTMENTS TO RECONCILE NET OPERATING LOSS TO NET CASH USED IN OPERATING ACTIVITIES Depreciation and amortization 52,108 48,473 Changes in assets and liabilities (Increase) decrease in transit receivable 168 (96) (Increase) decrease in materials and supplies inventory (466) (33) (Increase) in prepaid expenses and other current assets (739) (417) (Increase) decrease in pension assets (90) (17) Increase (decrease) in accounts payable and accrued liabilities (4,575) (20,995) Increase in other current liabilities 3,143 (1,775) NET CASH USED BY OPERATING ACTIVITIES $(127,230) $(135,566) NON-CASH OPERATING, INVESTING, AND FINANCING ACTIVITIES Interest income from investments held to pay capital lease/leaseback $12,916 $12,916 Interest expense on capital lease/leaseback (12,916) (12,916) Payment of capital lease/leaseback obligation by trustee (33,069) (46,864) NET NON-CASH OPERATING, INVESTING, AND FINANCING ACTIVITIES $(33,069) $(46,864) A-4