<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the quarter ended June 30, 1996 Commission File No. 0-20847
GENESEE & WYOMING INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0984624
(State or other jurisdiction of (I.R.S.
Employer incorporation or organization) Identification No.)
71 Lewis Street, Greenwich, Connecticut 06830
(Address of principal executive offices) (Zip Code)
(203) 629-3722
(Telephone No.)
Shares of common stock outstanding as of the close of business on August 8,
1996:
Class Number of Shares Outstanding
- ----- ----------------------------
Class A Common Stock 4,399,137
Class B Common Stock 846,556
Indicate by check mark 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
<PAGE>
INDEX
Part I - Financial Information
Item 1. Financial Statements: Page
------
Consolidated Statements of Income - For the
Three Months and Six Months Ended June 30,
1995 and 1996................................. 3
Consolidated Balance Sheets - December 31,
1995 and June 30, 1996........................ 4
Consolidated Statements of Cash Flows - For the
Six Months Ended June 30, 1995 and 1996....... 5
Notes to Consolidated Financial Statements...... 6 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 10 - 16
Part II - Other Information...................................... 17
Index to Exhibits................................................ 18 - 20
Signatures....................................................... 21
(2)
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
----------------------- ----------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 13,243 $ 19,009 $ 26,633 $ 35,618
-----------------------------------------------------
OPERATING EXPENSES:
Transportation 3,848 4,178 7,511 8,658
Maintenance of ways and structures 1,501 2,336 3,145 4,522
Maintenance of equipment 3,086 3,527 6,284 6,522
General and administrative 2,407 3,226 4,841 6,035
Depreciation and Amortization 974 1,569 1,900 2,894
-----------------------------------------------------
Total operating expenses 11,816 14,836 23,681 28,631
-----------------------------------------------------
Income from operations 1,427 4,173 2,952 6,987
INTEREST EXPENSE (812) (1,733) (1,578) (3,007)
OTHER INCOME 82 180 187 261
-----------------------------------------------------
Income before provision for income taxes and
extraordinary item 697 2,620 1,561 4,241
PROVISION FOR INCOME TAXES 293 1,061 655 1,718
-----------------------------------------------------
Income before extraordinary item 404 1,559 906 2,523
EXTRAORDINARY ITEM FROM EARLY EXTINGUISHMENT
OF DEBT, net of related income tax benefit of $357,000 (494) -- (494) --
-----------------------------------------------------
NET INCOME ($ 90) $ 1,559 $ 412 $ 2,523
=====================================================
EARNINGS PER COMMON SHARE:
Income before extraordinary item $ 0.17 $ 0.64 $ 0.39 $ 1.05
Extraordinary item (0.21) -- (0.21) --
-----------------------------------------------------
Net Income ($ 0.04) $ 0.64 $ 0.18 $ 1.05
=====================================================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,348 2,444 2,348 2,396
</TABLE>
(3)
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1995 1996
---- ----
(Unaudited)
<S> <C> <C>
CURRENTS ASSETS:
Cash and cash equivalents $ 2,115 $ 5,765
Accounts receivable, net 9,441 13,963
Materials and supplies 1,512 4,412
Prepaid expenses and other 1,455 995
Deferred income tax assets, net 1,278 1,339
-------------------
Total current assets 15,801 26,474
-------------------
PROPERTY AND EQUIPMENT, net 61,574 82,555
-------------------
SERVICE ASSURANCE AGREEMENT, net -- 14,681
-------------------
OTHER ASSETS, net 1,054 3,966
-------------------
Total assets $ 78,429 $127,676
========---========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,239 $ 4,825
Accounts payable 8,408 16,767
Accrued expenses 3,404 4,152
-------------------
Total current liabilities 13,051 25,744
-------------------
LONG-TERM DEBT 38,702 23,879
-------------------
OTHER LIABILITIES 2,043 2,081
-------------------
DEFERRED INCOME TAX LIABILITIES, net 4,139 5,024
-------------------
DEFERRED ITEMS--grants from governmental agencies 9,946 12,658
-------------------
STOCKHOLDERS' EQUITY:
Class A common stock, $0.01 par value, one vote per share; 12,000,000 shares
authorized; 1,501,937 and 4,399,137 issued and
outstanding on December 31, 1995 and June 30, 1996, respectively 15 44
Class B common stock, $0.01 par value, 10 votes per share;
1,500,000 shares authorized; 846,556 issued and outstanding 8 8
Additional paid-in capital 1,340 46,090
Warrants outstanding -- 471
Retained earnings 9,185 11,677
-------------------
Total stockholders' equity 10,548 58,290
-------------------
Total liabilities and stockholders' equity $ 78,429 $127,676
===================
</TABLE>
(4)
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30
-------------
1995 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 412 $ 2,523
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 1,900 2,894
Deferred income taxes 186 824
Gain on disposition of property (22) (42)
Changes in assets and liabilities-
Receivables 1,752 (4,241)
Materials and supplies (25) (2,100)
Prepaid expenses and other (517) 460
Accounts payables and accrued expenses (3,154) 8,380
Other assets and liabilities, net 544 (368)
--------------------
Net cash provided by operating activities 1,076 8,330
--------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (8,234) (1,823)
Purchase of assets of Chicago & Illinois Midland Railway Company -- (26,330)
Purchase of assets of Pittsburg & Shawmut Railroad Company,
Mountain Laurel Railroad Company and Red Bank Railroad Company -- (11,966)
Proceeds from disposition of property 4 4,001
--------------------
Net cash used in investing activities (8,230) (36,118)
--------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term borrowings, including capital leases (16,434) (49,838)
Proceeds from issuance of long-term debt 21,000 37,920
Debt issuance costs (641) (1,671)
Net proceeds (payments) on grants 430 (192)
Dividends paid (127) (32)
Proceeds from issuance of stock warrants -- 471
Net proceeds from initial public offering -- 44,780
--------------------
Net cash provided by financing activities 4,228 31,438
--------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,926) 3,650
CASH AND CASH EQUIVALENTS, beginning of period 5,884 2,115
--------------------
CASH AND CASH EQUIVALENTS, end of period $ 2,958 $ 5,765
====================
CASH PAID DURING PERIOD FOR:
Interest $ 1,457 $ 2,898
Incomes taxes 829 805
====================
SUPPLEMENTAL NON-CASH INVESTING ACTIVITIES:
Assumption of liabilities in connection with purchase of
assets of Chicago & Illinois Midland Railway Company -- $ 1,394
Assumption of deferred grants from governmental agencies in
connection with purchase of assets of Pittsburg & Shawmut
Railroad Company, Mountain Laurel Railroad Company and
Red Bank Railroad Company -- $ 3,194
====================
</TABLE>
(5)
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:
The interim consolidated financial statements presented herein include the
accounts of Genesee & Wyoming Inc. and its subsidiaries. References to "GWI" or
the "Company" mean Genesee & Wyoming Inc. and, unless the context indicates
otherwise, its consolidated subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation. These interim
consolidated financial statements have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). In the opinion of management, the unaudited financial
statements for the three-month and six-month periods ended June 30, 1995 and
1996, are presented on a basis consistent with audited financial statements and
contain all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation. The interim consolidated financial statements
should be read in conjunction with the audited financial statements and notes
thereto for the year ended December 31, 1995 included in the Company's
registration statement on Form S-1 (Registration Number 333-03972).
The results of operations for interim periods are not necessarily indicative
of results of operations for the full year.
2. ACQUISITIONS:
Illinois & Midland Railroad, Inc. - On February 8, 1996, a newly-formed
subsidiary, Illinois & Midland Railroad, Inc. ("Illinois & Midland"), purchased
certain assets, primarily road and track structure, of Chicago & Illinois
Midland Railway Company for approximately $27.7 million, including related costs
and the assumption of certain liabilities. The purchase price was allocated to
purchased inventory ($750,000), assumed note receivable ($1,220,000), property
($10,773,000), and the service assurance agreement ($14,981,000). The allocation
of the purchase price is based on preliminary estimates and may be revised at a
later date.
Pittsburg & Shawmut Railroad, Inc. - On April 29, 1996, a newly formed
subsidiary, Pittsburg & Shawmut Railroad, Inc. ("Pittsburg & Shawmut"),
purchased certain assets, primarily road and track structure, of Pittsburg &
Shawmut Railroad Company, Mountain Laurel Railroad Company, and Red Bank
Railroad Company for approximately $15.2 million, including related costs and
the assumption of a grant from the Commonwealth of Pennsylvania. The purchase
price was allocated to purchased inventory ($50,000), property ($14,846,000),
and other assets ($264,000). In addition, the purchase and sale agreement
provides for additional contingency payments of up to $2.5 million. A portion of
these payments are required (up to a maximum of $500,000) if certain coal
shipments during any calendar year from 1997-1999, as defined, exceed 290,000
tons. The remaining contingency payments (up to a maximum of $2.0 million) are
calculated as 25% of the gross revenues attributable to certain coal shipments
that exceed 564,793 tons during any calendar year from 2000-2009, as defined.
Upon resolution of the amount of the contingency payments, there will be an
additional element of cost related to the transaction, which will be recorded as
excess cost over the fair market value of tangible net assets acquired and
amortized over the same period as the related track structure, which is 20
years. The acquisition was accounted for as a purchase. The
(6)
<PAGE>
allocation of the purchase price is based on preliminary estimates and may be
revised at a later date. On June 28, 1996, a portion of the railcars acquired in
the purchase were sold for $2.4 million, the purchase price allocation was
adjusted, and no gain or loss was recognized.
Pro Forma for Acquisitions - Results for the operations of Illinois & Midland
Railroad, Inc. and Pittsburg & Shawmut Railroad, Inc. are included within the
consolidated financial statements commencing February 9, 1996, and April 29,
1996, respectively. Unaudited pro forma results assuming both acquisitions had
been made as of January 1, 1995, are as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ -------------------
6/30/95 6/30/96 6/30/95 6/30/96
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues ............... $18,211 $19,512 $36,879 $38,961
Net income ............. 290 1,567 1,814 2,669
Net income per share ... $ 0.12 $ 0.63 $ 0.76 $ 1.09
======= ======= ======= =======
</TABLE>
Such pro forma information is not necessarily indicative of the results of
future operations. Income per share information has been adjusted for the stock
split as though it took place on January 1, 1995.
3. CREDIT FACILITIES:
On June 2, 1995, the Company refinanced approximately $14.3 million of
previously existing notes and purchased approximately $6 million of rolling
stock previously under an operating lease by entering into a credit facilities
agreement. In conjunction with this refinancing transaction, an extraordinary
charge for prepayment penalties and other financing costs on the early
extinguishment of debt for approximately $851,000 ($494,000 net of income taxes)
was incurred. These amounts have been recorded in the accompanying consolidated
income statement as an extraordinary item, net of income taxes.
On February 8, 1996, the Company amended and restated the credit facilities
agreement. The amended and restated credit facilities provide for a $40 million
term loan and a $34 million revolving credit facility. The term loan requires
varying quarterly principal payments beginning September 30, 1996, with the
remaining balance payable in February, 2001. The revolving credit facility
provides for a mandatory commitment reduction of $2.0 million on December 31,
1997, with the remaining balance payable in February, 2001. The Company may
voluntarily reduce the commitment on the revolving credit facility at any time
without penalty, provided that no reinstatement of the commitment amounts may
occur. In conjunction with the amendment and restatement, the Company paid debt
financing fees of $1.7 million, primarily to a financial institution. These
costs have been capitalized in the accompanying balance sheets as of June 30,
1996 as an other asset and are being amortized over the period covered by the
related credit facilities agreement using the straight-line method, which is not
materially different from the amortization computed using the effective-interest
method.
(7)
<PAGE>
Both the term loan and the revolving credit facility accrue interest at prime
or the Eurodollar rate, at the option of the Company, plus the applicable
margin, which varies from 0% to 3% depending upon the Company's funded debt to
EBITDA ratio, as defined in the agreement. Interest is payable in arrears based
on certain elections of the Company, never to exceed three months outstanding.
The Company pays a 1/2% per annum commitment fee on all unused portions of the
credit facilities. Both the term loan and the revolving credit facility require
mandatory prepayments when certain events occur. These events include, among
other things, the generation of excess cash flow, the disposition of certain
levels of assets not subject to prior liens and the sale of Company stock, all
as defined in the agreement. These credit facilities are secured by
substantially all the assets of the Company and the stock of certain
subsidiaries. These facilities require the maintenance of certain covenants,
including, but not limited to, funded debt to EBITDA, funded debt to net worth,
cash flow coverage, EBIT to interest and minimum net worth, all as defined in
the agreement. The Company is also limited in its ability to incur additional
indebtedness, create liens on its assets, make certain capital expenditures and
pay dividends greater than $32,000 in any one quarter.
4. STOCKHOLDERS' EQUITY:
Warrants - Detachable warrants were issued to a financial institution to
purchase 41,847 shares of Class A Common Stock at an exercise price of $0.0005
per share. These warrants are exercisable at any time through March 1, 2006.
Management has valued the warrants at approximately $471,000, the amount of
which was recorded as a debt discount in the three-month period ending March 31,
1996. The discount is being amortized over the period covered by the related
credit facilities agreement using the straight-line method, which is not
materially different from the amortization computed using the effective-interest
method.
Initial Public Offering and Related Stock Transactions - On June 28, 1996 the
Company closed an underwritten initial public offering ("IPO") of 3,045,200
shares of Class A Common Stock (the "Common Stock Offering"), of which 2,897,200
shares were offered by the Company and 148,000 shares were offered by a selling
stockholder. The gross proceeds to the Company of the Common Stock Offering of
$49,252,000, net of underwriters' commission of $3,448,000, were used to pay
down borrowings on the credit facilities. Other costs of the IPO of $1,025,000
were paid by the Company.
In connection with the Common Stock Offering, the Company, effective June 10,
1996, changed the par value of its Class A and Class B Common Stock from $10 per
share to $.01 per share and increased the shares authorized to 12 million and
1.5 million shares, respectively. The rights and privileges of Class B Common
Stock changed to substantially the same as Class A Common Stock, except it will
carry 10 votes per share, be convertible into Class A Common Stock and have
transfer restrictions. The Class A Common Stock also has a 10% dividend
preference over Class B Common Stock, as and if dividends are declared by the
Board of Directors. Also, the Company executed an 18.5 to 1 stock split and
reclassified the Company's outstanding Class A Common Stock into Class A and
Class B Common Stock, depending on the election of the shareholder.
(8)
<PAGE>
The Company established an incentive and nonqualified stock option plan for
key employees and a nonqualified stock option plan for nonemployee directors
that will allow employees and directors to purchase up to an aggregate of
500,000 shares of Class A Common Stock. Options totalling 382,500 shares were
granted in connection with the IPO at the offering price of $17.00. The options
are exercisable in twenty-five percent increments annually in June, 1997 to
June, 2000. In addition, the Company established an employee stock purchase plan
and reserved 450,000 shares under the plan. The plan allows employees to
purchase stock at market value.
All references in the consolidated financial statements of the Company to the
number of shares authorized and outstanding of Class A and Class B Common Stock
have been retroactively adjusted to reflect the reclassification of the capital
stock and the stock split.
5. SUPPLEMENTAL EARNINGS PER SHARE:
Had the IPO occurred on January 1, 1996, earnings per share and weighted
average shares outstanding for the six-month period ending June 30, 1996 would
have been as follows:
Net income per share...................................$0.69
Weighted average shares and equivalent shares
outstanding (in thousands)...........................5,353
The supplemental earnings per share information is not necessarily indicative
of the results of future operations.
The remainder of this page is intentionally left blank.
(9)
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere in this
Quarterly Report on Form 10-Q, and with the consolidated financial statements,
related notes and other financial information included in the Company's
registration statement on Form S-1 (Registration Number 333-03972).
General
The Company is a holding company whose subsidiaries own and operate short line
and regional freight railroads and provide related rail services. The Company
generates revenues primarily from the movement of freight over track owned or
operated by its railroads. The Company also generates non-freight revenues
primarily by providing related rail services such as railcar leasing, railcar
repair, switching and storage to shippers along its lines and to the Class I
railroads that connect with its lines.
The Company's operating expenses include wages and benefits, equipment rents
(including car hire), purchased services, depreciation and amortization, diesel
fuel, casualties and insurance, materials and other expenses. Car hire is a
charge paid by a railroad to the owners of railcars used by that railroad in
moving freight. Other expenses generally include property and other non-income
taxes, professional services, communication and data processing costs and
general overhead expense.
When comparing the Company's results of operations from one reporting period
to another, the following factors should be taken into consideration. The
Company has historically experienced fluctuations in revenues and expenses due
to unpredictable events such as one-time freight moves, customer plant
expansions and shut-downs, railcar sales, accidents and derailments. In periods
when these events occur, results of operations are not easily comparable to
other periods. Also, much of the Company's growth to date has resulted from
acquisitions. The Company completed the acquisitions of the Illinois & Midland
and Pittsburg & Shawmut Railroads during the first four months of 1996 (See
Notes to Consolidated Financial Statements). Because of variations in the
structure, timing and size of these acquisitions and differences in economics
among the Company's railroads resulting from differences in the rates and other
material terms established through negotiation, the Company's results of
operations in any reporting period may not be directly comparable to its results
of operations in other reporting periods.
Results of Operations
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Operating Revenues
Operating revenues were $19.0 million in the quarter ended June 30, 1996
compared to $13.2 million in the quarter ended June, 1995, an increase of $5.8
million or 43.5%. The increase was primarily attributable to a $5.4 million
increase in freight revenues.
(10)
<PAGE>
The following table compares freight revenues, carloads and average freight
revenues per carload for the second quarters of 1995 and 1996:
Freight Revenues and Carloads Comparison by Commodity Group
Three Months Ended June 30, 1995 and 1996
<TABLE>
<CAPTION>
Average
Freight
Revenues
Freight Revenues Carloads Per Carload
------------------------------- ----------------------------- -----------
% of % of % of % of
Commodity Group 1995 total 1996 total 1995 total 1996 total 1995 1996
- -------------------------- ------- ------- ------- ------- ------ ------- ------ ------- ----- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Coal, Coke & Ores......... $522 5.0% $5,462 34.3% 2,817 9.8% 21,301 41.9% $185 $257
Petroleum Products........ 1,966 18.7 2,158 13.6 4,144 14.4 4,397 8.6 475 491
Pulp & Paper.............. 1,686 16.0 1,627 10.2 4,667 16.3 4,378 8.6 361 372
Lumber & Forest Products.. 1,038 9.9 1,420 8.9 3,210 11.2 4,670 9.2 323 304
Metals.................... 1,172 11.1 1,259 7.9 4,206 14.7 4,954 9.7 279 254
Chemicals & Plastics...... 771 7.3 1,174 7.4 1,533 5.4 2,140 4.2 503 549
Autos & Auto Parts........ 1,055 10.0 1,051 6.6 1,923 6.7 1,971 3.9 549 533
Farm & Food Products...... 620 5.9 791 5.0 1,794 6.3 2,434 4.8 346 325
Minerals & Stone.......... 296 2.8 553 3.5 993 3.5 1,608 3.2 298 344
Salt...................... 590 5.6 96 0.6 2,211 7.7 491 1.0 267 196
Other..................... 809 7.7 322 2.0 1,135 4.0 2,503 4.9 713 129
------- ------- ------- ------- ------ ------- ------ ------- ----- -----
Total..................... $10,525 100.0% $15,913 100.0% 28,633 100.0% 50,847 100.0% $368 $313
======= ======= ======= ======= ====== ======= ====== ======= ===== =====
</TABLE>
Freight revenues were $15.9 million in the second quarter of 1996 compared to
$10.5 million in the second quarter of 1995, an increase of $5.4 million or
51.2%. The increase in freight revenues was largely attributable to the
operations on Illinois & Midland, which generated freight revenues of $4.5
million during the quarter, $4.1 million of which were revenues from the
shipment of coal. Pittsburg & Shawmut, which commenced operations on April 29,
1996, generated $717,000 of freight revenues in the second quarter, most of
which was also from the shipment of coal. In addition, a new Oregon line, which
began operations in 1995, generated $599,000 in revenues in the second quarter
of 1996, primarily from shipments of grain and lumber. These increases were
offset by a $500,000 decrease in freight revenues from the shipment of salt due
to the closing in September, 1995, of a salt mine serviced by one of the
Company's railroads.
Total carloads were 50,847 in the second quarter of 1996 compared to 28,633 in
the second quarter of 1995, an increase of 22,214 or 77.6%. The increase was
largely attributable to 17,432 carloads, primarily coal, transported by Illinois
& Midland and 2,985 carloads, primarily coal, transported by Pittsburg &
Shawmut. In addition, a new Oregon line transported 2,704 carloads which were
primarily grain and lumber. Shipments of salt decreased by 1,720 carloads due
to the mine closing referred to above.
Non-freight revenues were $3.1 million in the second quarter of 1996 compared
to $2.7 million in the second quarter of 1995, an increase of $378,000 or 13.9%.
The increase primarily reflects the effect of the addition of facility
management and lumber storage revenue from Illinois & Midland.
Operating Expenses
Operating expenses were $14.8 million in the second quarter of 1996 compared
to $11.8 million in the second quarter of 1995, an increase of $3.0 million or
25.6%. Expenses associated with the start-up of Illinois & Midland and Pittsburg
& Shawmut represented $2.9 million of the increase.
(11)
<PAGE>
The Company's operating ratio improved to 78.0% in the second quarter of 1996
from 89.2% in the second quarter of 1995.
The following table sets forth a comparison of the Company's operating
expenses for the second quarters of 1995 and 1996:
Operating Expense Comparison
Three Months Ended June 30, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
----------------- -----------------
% of % of
Operating Operating
$ Revenues $ Revenues
------- --------- ------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
Labor and benefits............. $4,505 34.0% $6,098 32.1%
Equipment rents................ 1,849 14.0 2,084 11.0
Purchased services............. 523 3.9 854 4.5
Depreciation and amortization.. 974 7.4 1,569 8.3
Diesel fuel.................... 728 5.5 1,054 5.5
Casualties and insurance....... 1,291 9.7 860 4.5
Materials...................... 699 5.3 728 3.8
Other.......................... 1,247 9.4 1,589 8.3
------- --------- ------- ---------
Total.......................... $11,816 89.2% $14,836 78.0%
======= ========= ======= =========
</TABLE>
Labor and benefits expense was $6.1 million in the second quarter of 1996
compared to $4.5 million in the second quarter of 1995, an increase of $1.6
million or 35.4%, primarily due to the commencement of operations by Illinois &
Midland and Pittsburg & Shawmut. Labor costs decreased as a percentage of
revenues, however, to 32.1% in the second quarter of 1996 from 34.0% in the
second quarter of 1995. The decrease reflects the efficiency of
Illinois & Midland's unit coal train operations.
Depreciation and amortization expense was $1.6 million in the second quarter
of 1996 compared to $974,000 in the second quarter of 1995, an increase of
$595,000 or 61.1%. The increase primarily reflects depreciation and amortization
related to Illinois & Midland and Pittsburg & Shawmut.
Casualties and insurance expense was $860,000 in the second quarter of 1996
compared to $1.3 million in the second quarter of 1995, a decrease of $431,000
or 33.4%. The majority of this decrease reflects decreased derailment expenses.
Interest Expense and Income Taxes
Interest expense in the second quarter of 1996 was $1.7 million compared
to $812,000 in the second quarter of 1995, an increase of $921,000 or 113.4%.
The increase largely reflects the higher overall debt outstanding due to the
financing of the Illinois & Midland and Pittsburg & Shawmut acquisitions. The
Company's effective income tax rate was 40.5% in the second quarter of 1996
compared to 42.0% in the second quarter of 1995.
(12)
<PAGE>
Net Income
The Company's net income in the second quarter of 1996 was $1,559,000 compared
to a loss of $90,000 in the second quarter of 1995. The difference of $1,649,000
is largely attributable to new acquisitions and, in 1995, the write-off of
prepayment penalties and financing fees totalling $494,000 after netting out
$357,000 of related income taxes.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Operating Revenues
Operating revenues were $35.6 million for the six months ended June 30, 1996
compared to $26.6 million for the six months ended June 30, 1995, an increase of
$9.0 million or 33.7%. The increase was attributable to a $7.8 million increase
in freight revenues.
The following table compares freight revenues, carloads and average freight
revenues per carload for the six months ended June 30, 1995 and 1996:
Freight Revenues and Carloads Comparison by Commodity Group
Six Months Ended June 30 1995 and 1996
<TABLE>
<CAPTION>
Average
Freight
Revenues
Freight Revenues Carloads Per Carload
------------------------------- ------------------------------- -----------
% of % of % of % of
Commodity Group 1995 total 1996 total 1995 total 1996 total 1995 1996
- -------------------------- ------- ------- ------- ------- ------- ------- ------- ------- ----- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Coal, Coke & Ores......... $1,216 5.8% $8,469 29.3% 6,141 10.3% 33,242 36.9% $198 $255
Petroleum Products........ 4,077 19.3 4,428 15.3 8,539 14.3 8,939 9.9 478 495
Pulp & Paper.............. 3,430 16.3 3,420 11.8 9,471 15.9 9,150 10.1 362 374
Lumber & Forest Products.. 2,103 10.0 2,689 9.3 6,348 10.7 8,793 9.8 331 306
Metals.................... 2,239 10.6 2,479 8.6 8,319 14.0 9,669 10.7 269 256
Chemicals & Plastics...... 1,634 7.7 2,141 7.4 3,330 5.6 3,981 4.4 491 538
Autos & Auto Parts........ 1,638 7.8 1,815 6.3 3,008 5.0 3,434 3.8 545 529
Farm & Food Products...... 1,214 5.8 1,578 5.5 3,509 5.9 4,716 5.2 346 335
Minerals & Stone.......... 704 3.3 830 2.9 2,039 3.4 2,523 2.8 345 329
Salt...................... 1,715 8.1 168 .6 6,271 10.5 879 1.0 274 191
Other..................... 1,126 5.3 850 3.0 2,625 4.4 4,866 5.4 429 175
------- ------- ------- ------- ------- ------- ------- ------- ----- -----
Total..................... $21,096 100.0% $28,867 100.0% 59,600 100.0% 90,192 100.0% $354 $316
======= ======= ======= ======= ======= ======= ======= ======= ===== =====
</TABLE>
Freight revenues were $28.9 million in the first six months of 1996 compared
to $21.1 million in the first six months of 1995, an increase of 36.8%. The
increase in freight revenues was largely attributable to the commencement of
operations on Illinois & Midland, which generated freight revenues of $7.0
million for the period from February 9 to June 30, 1996. Of this amount, $6.5
million was from the shipment of coal. Pittsburg & Shawmut generated $717,000 of
freight revenues for the period from April 29 to June 30, 1996, most of which
was also from the shipment of coal. In addition, a new line in Oregon generated
freight revenues of $1.2 million, primarily from grain and lumber, for the six
months ended June 30, 1996. Revenue from the shipment of salt decreased by $1.5
million due to the mine closing referred to above.
Total carloads were 90,192 for the six months ended June 30, 1996 compared to
59,600 for the six months ended June, 1995, an increase of 30,592 or 51.3%.
(13)
<PAGE>
The increase was largely attributable to 27,152 carloads, primarily coal,
transported by Illinois & Midland and 2,985 carloads, primarily coal,
transported by Pittsburg & Shawmut. In addition, a new line in Oregon
transported 5,386 carloads which were primarily grain and lumber. Shipments of
salt decreased by 5,392 carloads.
Non-freight revenues were $6.7 million for the six months ended June 30, 1996
compared to $5.5 million for the six months ended June 30, 1995, an increase of
$1.2 million or 21.9%. The increase primarily reflects the effect of the
addition of facility management and lumber storage revenue from Illinois &
Midland. There was also a gain of $593,000 in the 1996 period on the sale of
railcars, for which there was no similar transaction in the 1995 period.
Operating Expenses
Operating expenses were $28.6 million for the six months ended June 30, 1996
compared to $23.7 million for the six months ended June 30, 1995, an increase of
$4.9 million or 20.9%. Expenses associated with the start-up of Illinois &
Midland and Pittsburg & Shawmut represented $4.3 million of the increase. The
Company's operating ratio improved to 80.4% for the six months ended June 30,
1996, from 88.9% for the six months ended June 30, 1995.
The following table sets forth a comparison of the Company's operating
expenses for the six months ended June 30, 1995 and 1996:
Operating Expense Comparison
Six Months Ended June 30, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
----------------- -----------------
% of % of
Operating Operating
$ Revenues $ Revenues
------- --------- ------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
Labor and benefits............. $9,293 34.9% $11,534 32.4%
Equipment rents................ 3,849 14.5 4,003 11.2
Purchased services............. 1,134 4.3 1,611 4.5
Depreciation and amortization.. 1,900 7.1 2,894 8.1
Diesel fuel.................... 1,620 6.1 2,119 6.0
Casualties and insurance....... 1,983 7.4 2,017 5.7
Materials...................... 1,521 5.7 1,433 4.0
Other.......................... 2,381 8.9 3,020 8.5
------- --------- ------- ---------
Total.......................... $23,681 88.9% $28,631 80.4%
======= ========= ======= =========
</TABLE>
Labor and benefits expense was $11.5 million for the six months ended June 30,
1996 compared to $9.3 million for the six months ended June 30, 1995, an
increase of $2.2 million or 24.1%, primarily due to the commencement of
operations on Illinois & Midland and Pittsburg & Shawmut. Labor costs decreased
as a percentage of revenues, however, to 32.4% in the second half of 1996 from
34.9% in the same period of 1995. The decrease reflects the efficiency of the
unit coal train operations on Illinois & Midland.
(14)
<PAGE>
Equipment rents, which includes car hire expense, was $4 million for the six
months ended June 30, 1996, compared to $3.8 million for the six months ended
June 30, 1995, an increase of $154,000 or 4.0%, but this expense decreased by
3.3% as a percentage of operating revenues. The change primarily reflects a
reduction in the amount of equipment under operating leases. In 1995 the Company
purchased railcars and locomotives, which it had previously used under operating
leases.
Depreciation and amortization expense was $2.9 million for the six months
ended June 30, 1996 compared to $1.9 million for the six months ended June 30,
1995, an increase of $1 million or 52.3%. The increase primarily reflects
depreciation and amortization related to Illinois & Midland and Pittsburg &
Shawmut. Increased depreciation on railcars purchased in 1995 (see paragraph
above) was $165,000.
Interest Expense and Income Taxes
Interest expense for the six months ended June 30, 1996 was $3.0 million
compared to $1.6 million for the six months ended June 30, 1995, an increase of
$1.4 million or 90.6%. The increase largely reflects the higher overall debt
outstanding due to the financing of Illinois & Midland and Pittsburg & Shawmut.
The interest from the financing of the operation of the two acquisitions was
offset in part by lower interest rates from the June 2, 1995, refinancing. The
Company's effective income tax rate was 40.5% for the six months ended June 30,
1996 compared to 42.0% for the six months ended June 30, 1995.
Net Income
The Company's net income for the six months ended June 30, 1996 was 2,523,000
compared to $412,000 for the six months ended June 30, 1995. The difference of
$2,111,000 is largely attributable to new acquisitions and, in 1995, the write-
off of prepayment penalties and financing fees totalling $494,000 after netting
out $357,000 of related income taxes.
Liquidity and Capital Resources
During the six months ended June 30, 1996 the Company generated cash from
operations of $8.3 million, which included the positive effect of $5.5 million
of excess trade accounts payable over trade accounts receivable associated with
the commencement of operations by Illinois & Midland. The Company received $4.0
million in proceeds from the sale of equipment.
During the first six months of 1995 the Company generated cash from operations
of $1.1 million and had net new borrowings of $4.6 million. A total of $8.2
million was invested in capital assets.
The Company has budgeted $7.3 million in capital expenditures in 1996, $1.8 of
which was completed as of June 30, 1996.
(15)
<PAGE>
On June 28, 1996 the Company closed an underwritten initial public offering of
3,045,200 shares of class A common stock, of which 2,897,200 shares were offered
by the Company and 148,000 shares were offered by a selling stockholder. The
gross proceeds to the Company of the Common Stock Offering of $49,252,000, net
of underwriters' commission of $3,448,000, were used to pay down borrowings on
the credit facilities. Other costs of the IPO of $1,025,000 were paid by the
Company.
At June 30, 1996 the Company had long-term debt (including current portion)
totaling $28.7 million, which comprised 33.0% of its total capitalization. Of
the $28.7 million, $13.5 represents borrowings under the term portion of the
credit facilities. The $34.0 million revolving portion of the credit facilities
remains available. This compares to long-term debt, including current portion,
of $39.9 million at December 31, 1995, comprising 79.1% of total capitalization.
The Company has historically relied primarily on cash generated from
operations to fund working capital and capital expenditures relating to ongoing
operations, while relying on borrowed funds to finance acquisitions and
equipment needs (primarily rolling stock) related to acquisitions. Additionally,
in June, 1996, the Company raised $44.8 million, after netting out related
costs, in an IPO. The Company believes that its cash flow from operations,
together with the $34.0 million available under its credit facilities, will
enable the Company to meet its liquidity and capital expenditure requirements
relating to ongoing operations for at least the next four years.
The remainder of this page is intentionally left blank.
(16)
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NONE
ITEM 2. CHANGES IN SECURITIES - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -
NONE
ITEM 5. OTHER INFORMATION - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A). EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------------------------
11.1 Statement re computation of per share earnings.
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K:
No Reports on Form 8-K were filed by the Registrant during the period
covered by this Report.
The remainder of this page is intentionally left blank.
(17)
<PAGE>
INDEX TO EXHIBITS
(2) Plan of acquisition, reorganization, arrangement, liquidation or succession
Not applicable.
(3) (i) Articles of Incorporation
The Form of Restated Certificate of Incorporation referenced under (4)(a)
hereof is incorporated herein by reference.
(ii) By-laws
The By-laws referenced under (4)(b) hereof are incorporated herein by
reference.
(4) Instruments defining the rights of security holders, including indentures
(a) Form of Restated Certificate of Incorporation (Exhibit 3.2)(2)
(b) By-laws (Exhibit 3.3)(1)
(c) Specimen stock certificate representing shares of Class A Common Stock
(Exhibit 4.1)(3)
(d) Form of Class B Stockholders' Agreement dated as of May 20, 1996,
among the Registrant, its executive officers and its Class B
stockholders (Exhibit 4.2)(2)
(e) Promissory Note dated December 28, 1989 of GWI Leasing Corporation in
favor of Deutsche Credit Corporation (Exhibit 4.3)(1)
(f) Railcar Finance Notes dated July 8, 1991 and November 27, 1991 of GWI
Leasing Corporation in favor of Deutsche Credit Corporation (Exhibit
4.4)(1)
(g) Railcar Finance Notes, dated November 27, 1991 and December 31, 1991
of GWI Leasing Corporation in favor of Deutsche Credit Corporation
(Exhibit 4.5)(1)
(h) Promissory Note dated October 7, 1991 of Buffalo & Pittsburgh
Railroad, Inc. in favor of CSX Transportation, Inc. (Exhibit 4.6)(1)
(i) Amended and Restated Loan and Security Agreement dated December 28,
1989 between GWI Leasing Corporation and Deutsche Credit Corporation,
and Amendment No. 1 dated December 28, 1989 (Exhibit 4.7)(1)
(18)
<PAGE>
(j) Loan and Security Agreement dated December 27, 1990 between GWI
Leasing Corporation and Deutsche Credit Corporation, and Amendments
dated June 28, 1991 and November 22, 1991 (Exhibit 4.8)(1)
(k) Guaranty dated December 27, 1990 of the Registrant in favor of
Deutsche Credit Corporation (Exhibit 4.9)(1)
(l) Amended and Restated Revolving Credit and Term Loan Agreement dated as
of February 8, 1996 among the Registrant and certain of its
Subsidiaries, The First National Bank of Boston, as agent, and the
Banks party thereto (Exhibit 4.10)(1)
(m) Revolving Credit Note dated as of February 8, 1996 of the Registrant
and certain of its subsidiaries in favor of The First National Bank of
Boston (Exhibit 4.11)(1)
(n) Term Note dated as of February 8, 1996 of the Registrant and certain
of its Subsidiaries in favor of The First National Bank of Boston
(Exhibit 4.12)(1)
(o) Amended and Restated Security Agreement dated as of February 8, 1996
among the Registrant, certain of its Subsidiaries and The First
National Bank of Boston (Exhibit 4.13)(1)
(p) Amended and Restated Stock Pledge Agreement dated as of February 8,
1996 between the Registrant and The First National Bank of Boston
(Exhibit 4.14)(1)
(q) Amended and Restated Collateral Assignment of Partnership Interests
dated as of February 8, 1996 of the Registrant and GWI Dayton, Inc. in
favor of The First National Bank of Boston (Exhibit 4.15)(1)
(r) Amendment No. 1 to Amended and Restated Revolving Credit and Term Loan
Agreement dated as of April 26, 1996 among the Registrant and certain
of its Subsidiaries, The First National Bank of Boston, as agent, and
the Banks party thereto (Exhibit 4.16)(2)
(10) Material Contracts
(a) The exhibits referenced under (4)(d) and (4)(r) hereof are hereby
incorporated by reference.
(b) Asset Purchase Agreement dated April 19, 1996 among Pittsburg &
Shawmut Railroad, Inc., Genesee & Wyoming Inc., The Pittsburg &
Shawmut Railroad Company, Red Bank Railroad Company, Mountain Laurel
Railroad Company and Arthur T. Walker Estate Corporation, and
Amendment No. 1 to Asset Purchase Agreement dated April 19, 1996
(Exhibit 10.70)(4)
(c) Amendment No. 1 to Warrant Purchase Agreement dated as of May 31, 1996
between Genesee & Wyoming Inc. and FSC Corp.(2)
*(11.1) Statement re computation of per share earnings
(19)
<PAGE>
(15) Letter re unaudited interim financial information
Not applicable.
(18) Letter re change in accounting principles
Not applicable.
(19) Report furnished to security holders
Not applicable.
(22) Published report regarding matters submitted to vote of security holders
Not applicable.
(23) Consents of experts and counsel
Not applicable.
(24) Power of attorney
Not applicable.
*(27) Financial Data Schedule
(99) Additional Exhibits
- ----------------------------
*Exhibit filed with this Report.
(1) Exhibit previously filed as part of, and incorporated herein by
reference to, the Registrant's Registration Statement on Form S-1 (Registration
No. 333-3972). The exhibit number contained in parenthesis refers to the exhibit
number in such Registration Statement.
(2) Exhibit previously filed as part of, and incorporated herein by
reference to, Amendment No. 1 to the Registrant's Registration Statement on Form
S-1 (Registration No. 333-3972). The exhibit number contained in parenthesis
refers to the exhibit number in such Amendment.
(3) Exhibit previously filed as part of, and incorporated herein by
reference to, Amendment No. 2 to the Registrant's Registration Statement on Form
S-1 (Registration No. 333-3972). The exhibit number contained in parenthesis
refers to the exhibit number in such Amendment.
(4) Exhibit previously filed as part of, and incorporated herein by
reference to, Amendment No. 5 to the Registrant's Registration Statement on Form
S-1 (Registration No. 333-3972). The exhibit number contained in parenthesis
refers to the exhibit number in such Amendment.
(20)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
GENESEE & WYOMING INC.
Date: August 12, 1996 By: /s/ Mortimer B. Fuller, III
---------------------------
Name: Mortimer B. Fuller, III
Title: President and CEO
Date: August 12, 1996 By: /s/ Alan R. Harris
---------------------------
Name: Alan R. Harris
Title: Chief Accounting Officer
The remainder of this page is intentionally left blank.
(21)
<PAGE>
EXHIBIT 11.1
GENESEE & WYOMING INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE CALCULATION:
Net Income ($ 90) $ 1,559 $ 412 $ 2,523
Weighted average number of shares of common stock outstanding: 2,348 2,444 2,348 2,396
======================================
Earnings per share - basic ($ 0.04) $ 0.64 $ 0.18 $ 1.05
======================================
FULLY DILUTED EARNINGS PER SHARE CALCULATION:
Net Income ($ 90) $ 1,559 $ 412 $ 2,523
Weighted average number of common stock and common stock equivalents
outstanding:
Weighted average number of shares outstanding 2,348 2,444 2,348 2,396
Common stock equivalents applicable to warrants 42 42 42 42
Common stock equivalents issuable under stock option plans -- 2 -- 1
--------------------------------------
Common stock assuming full dilution 2,390 2,488 2,390 2,439
======================================
Earnings per share - fully diluted (1) ($ 0.04) $ 0.63 $ 0.17 $ 1.03
======================================
</TABLE>
(1) This calculation is submitted in accordance with the regulations of the
Securities and Exchange Commission although not required by APB Opinion No.
15 becasue it results in dilution of less than 3%.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996, AND CONSOLIDATED STATEMENT OF
INCOME FOR THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,765
<SECURITIES> 0
<RECEIVABLES> 13,963
<ALLOWANCES> 0
<INVENTORY> 4,412
<CURRENT-ASSETS> 26,474
<PP&E> 103,005
<DEPRECIATION> 20,450
<TOTAL-ASSETS> 127,676
<CURRENT-LIABILITIES> 25,744
<BONDS> 23,879
0
0
<COMMON> 52
<OTHER-SE> 58,238
<TOTAL-LIABILITY-AND-EQUITY> 127,676
<SALES> 0
<TOTAL-REVENUES> 35,618
<CGS> 0
<TOTAL-COSTS> 28,631
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,007
<INCOME-PRETAX> 4,241
<INCOME-TAX> 1,718
<INCOME-CONTINUING> 2,523
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,523
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.03
</TABLE>
