<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, 1997 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 6, 1997:
Class Number of Shares Outstanding
- ----- ----------------------------
Class A Common Stock 4,401,184
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.
[X] YES [ ] 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,
1996 and 1997......................................... 3
Consolidated Balance Sheets - December 31, 1996
and June 30, 1997..................................... 4
Consolidated Statements of Cash Flows - For the
Six Months Ended June 30, 1996 and 1997............... 5
Notes to Consolidated Financial Statements............. 6 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations... 9 - 15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk..................................... 15
Part II - Other Information.............................. 16
Index to Exhibits........................................ 17 - 18
Signatures............................................... 19
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,
1996 1997 1996 1997
----------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES $19,009 $23,479 $35,618 $47,571
----------------------------------
OPERATING EXPENSES:
Transportation 4,178 6,752 8,658 13,984
Maintenance of ways and structures 2,336 2,462 4,522 5,019
Maintenance of equipment 3,527 3,888 6,522 7,894
General and administrative 3,226 4,504 6,035 9,247
Depreciation and amortization 1,569 1,702 2,894 3,221
----------------------------------
Total operating expenses 14,836 19,308 28,631 39,365
----------------------------------
INCOME FROM OPERATIONS 4,173 4,171 6,987 8,206
Interest expense (1,733) (647) (3,007) (1,221)
Other income 180 100 261 231
----------------------------------
Income before provision for income taxes 2,620 3,624 4,241 7,216
Provision for income tax 1,061 1,467 1,718 2,925
----------------------------------
NET INCOME $1,559 $2,157 $2,523 $4,291
==================================
EARNINGS PER COMMON SHARE AND
COMMON SHARE EQUIVALENT:
NET INCOME $0.63 $0.40 $1.03 $0.79
==================================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARE AND COMMON SHARE EQUIVALENTS OUTSTANDING 2,487 5,440 2,439 5,455
==================================
</TABLE>
3
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31 June 30,
1996 1997
ASSETS (Unaudited)
------------------------
<S> <C> <C>
CURRENTS ASSETS:
Cash and cash equivalents $14,121 $12,392
Accounts receivable, net 19,133 17,922
Materials and supplies 4,173 4,162
Prepaid expenses and other 1,771 1,526
Deferred income tax assets, net 1,632 1,736
------------------------
Total current assets 40,830 37,738
------------------------
PROPERTY AND EQUIPMENT, net 78,822 84,729
------------------------
SERVICE ASSURANCE AGREEMENT, net 14,312 13,937
------------------------
OTHER ASSETS, net 11,375 11,176
------------------------
Total assets $145,339 $147,580
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $271 $233
Accounts payable 33,583 26,961
Accrued expenses 6,122 5,010
------------------------
Total current liabilities 39,976 32,204
------------------------
LONG-TERM DEBT 18,460 22,119
------------------------
OTHER LIABILITIES 2,699 2,722
------------------------
DEFERRED INCOME TAX LIABILITIES, net 4,720 6,154
------------------------
DEFERRED ITEMS--grants from governmental agencies 12,899 13,712
------------------------
DEFERRED GAIN--sale/leaseback 4,902 4,668
------------------------
STOCKHOLDERS' EQUITY:
Class A common stock, $0.01 par value, one vote per share;
12,000,000 shares authorized; 4,399,463 and 4,400,363 issued and
outstanding on December 31, 1996 and June 30, 1997, respectively. 44 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 46,102 46,128
Warrants outstanding 471 471
Retained earnings 15,058 19,350
------------------------
Total stockholders' equity 61,683 66,001
------------------------
Total liabilities and stockholders' equity $145,339 $147,580
========================
</TABLE>
4
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1997
---------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,523 $4,291
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 2,894 3,221
Deferred income taxes 824 1,330
Gain on disposition of property and equipment (42) (12)
Changes in assets and liabilities, net of balances
assumed through acquisitions-
Receivables (4,241) 1,211
Materials and supplies (2,100) 11
Prepaid expenses and other 460 245
Accounts payable and accrued expenses 8,380 (7,734)
Other assets and liabilities, net (368) (215)
---------------------
Net cash provided by operating activities 8,330 2,348
---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,823) (3,858)
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 4,001 266
---------------------
Net cash used in investing activities (36,118) (3,592)
---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term borrowings, including capital leases (49,838) (7,565)
Proceeds from issuance of long-term debt 37,920 5,880
Debt issuance costs (1,671) --
Net (payments) proceeds on grants (192) 1,173
Dividends paid (32) --
Proceeds from issuance of stock - employee purchase plan -- 27
Proceeds from issuance of stock warrants 471 --
Net proceeds from initial public offering 44,780 --
---------------------
Net cash provided by (used in) financing activities 31,438 (485)
---------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,650 (1,729)
CASH AND CASH EQUIVALENTS, beginning of period 2,115 14,121
---------------------
CASH AND CASH EQUIVALENTS, end of period $5,765 $12,392
=====================
CASH PAID DURING PERIOD FOR:
Interest $2,898 $1,124
Incomes taxes 805 3,712
=====================
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 credits 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 --
Capital lease obligation -- $5,261
=====================
</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, 1996 and
1997, 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, 1996 included in the Company's
Annual Report and Form 10-K.
The results of operations for interim periods are not necessarily indicative
of results of operations for the full year.
2. CORPORATE DEVELOPMENTS:
The Company has formed a new entity, Genesee Rail-One Inc. ("GRO") to
acquire railroads in Canada. GRO is a joint venture with Rail-One Corporation,
a subsidiary of The Cygnus Group which is an integrated transportation
facilities, services and infrastructure provider in Canada. On July 29, 1997
GRO commenced operations of the Huron Central Railway Inc. ("HCRY"), a 180 mile
railroad located in Central Ontario. HCRY leases its rail line from the
Canadian Pacific Railway for a 20 year term and is responsible for operation and
maintenance of the leased line.
Based on its ownership portion, approximately 50% of the results of operations
of GRO will be consolidated with the results of operations of the Company. The
Financial Statements will be translated into U.S. dollars using the exchange
rate at each balance sheet date for assets and liabilities, and at a weighted
average exchange rate for each period for revenues, expenses, gains and losses.
Resulting translation adjustments will be recorded as a component of
shareholders' equity.
Also in July, one of the Company's railroads in Oregon extended its operation
with the purchase of the track structure of a 92 mile branchline from Burlington
Northern Santa Fe Corp. for $350,000. The underlying land is owned by the State
of Oregon.
In 1996, the Company acquired the Illinois & Midland Railroad, Inc., Pitts-
burg & Shawmut Railroad, Inc. and Rail Link, Inc. The reader is referred to the
Company's 1996 Annual Report and Form 10-K for further discussion of these
acquisitions.
Pro Forma for Acquisitions and Initial Public Common Stock Offering - Results
of the operations of Illinois & Midland Railroad, Inc., Pittsburg & Shawmut
Railroad, Inc. and Rail Link, Inc. are included within the consolidated
financial statements commencing February 9, 1996, April 29, 1996, and November
8, 1996, respectively. Unaudited pro forma results assuming all three
acquisitions and the sale by the Company of 2,897,200 shares of Class A
6
<PAGE>
Common Stock in the Common Stock Offering (see Note 3) had taken place as of
January 1, 1996 are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- -----------------------
6/30/96 6/30/97 6/30/96 6/30/97
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues....................... $22,176 $ 23,479 $ 44,180 $ 47,571
Net income..................... $ 1,597 $ 2,157 $ 3,198 $ 4,291
Number of common shares........ 5,353 5,440 5,353 5,455
Net income per share........... $ 0.30 $ 0.40 $ 0.60 $ 0.79
======= ======== ======== ========
</TABLE>
Such pro forma information is not necessarily indicative of the results of
future operations.
3. SUPPLEMENTAL EARNINGS PER SHARE:
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. 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.
4. LEASES:
On March 31, 1997 a subsidiary of the Company entered into a long-term capital
lease agreement with a leasing company for the acquisition of up to $13 million
of rolling stock. As of March 31, 1997 the subsidiary, at the subsidiary's
election, had acquired rolling stock valued at $5.3 million under this lease.
The Company guarantees the subsidiary's performance under the lease. The lease
requires minimum monthly rent payments equal to the monthly interest payable
with respect to the outstanding balance on the $13,000,000 note from the Lessor
to a bank until September 30, 1998. Interest on the note is at LIBOR plus
1.875%. After September 30, 1998, based on the present amount of equipment
subject to the lease, the monthly lease payment will be $128,730 until March 31,
2017. The subsidiary has the right to purchase all the equipment from the
lessor prior to September 30, 1998 at the balance outstanding under the note.
5. CONTINGENCIES:
On June 23, 1997 CSX Transportation, Inc. ("CSX") and Norfolk Southern Corp.
("NS"), submitted a plan to the Surface Transportation Board ("STB") to control
and divide the assets of Consolidated Rail Corporation ("Conrail"). The STB has
announced that it will take up to 350 calendar days to respond to this proposal.
Railroads in the Company's New York and Pennsylvania region interchange with one
or more of these railroads, and rely on them in some cases for providing
overhead traffic, defined as traffic neither originating
7
<PAGE>
nor terminating on any of the Company's subsidiaries. In their joint filing
with the STB, CSX and NS estimated that approximately $8.3 million in freight
revenue related to overhead traffic on one of the Company's subsidiaries may be
diverted as a result of the proposed transaction. The Company agrees with this
estimate and is considering its options for restructuring the operations of
the railroad to minimize the impact. Based on its initial studies the Company
believes that no impairment of assets will occur.
6. RECENTLY ISSUED ACCOUNTING STANDARDS:
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share, which simplifies the standards for computing earnings per
share. It replaces the presentation of primary EPS with a presentation of basic
EPS. Is also requires dual presentation of basic and diluted EPS on the face of
the income statement and a reconciliation between the two computations. The
SFAS No. 128 presentation is required for the year ended December 31, 1997, and
will be adopted by the Company at that time. Had the Company calculated EPS
using SFAS No. 128 for the three-month period ended June 30, 1997, basic EPS and
diluted EPS would have approximated $0.41 per share and $0.40 per share,
respectively; and for the three-month period ended June 30, 1996, basic EPS and
diluted EPS would have approximated $0.64 per share and $0.63 per share,
respectively. Had the Company calculated EPS using SFAS No. 128 for the six-
month period ended June 30, 1997, basic EPS and diluted EPS would have
approximated $0.82 per share and $0.79 per share, respectively; and for the six-
month period ended June 30, 1996, basic EPS and diluted EPS would have
approximated $1.05 per share and $1.03 per share, respectively.
The Financial Accounting Standards Board recently issued SFAS No. 130,
Reporting Comprehensive Income, which establishes standards for reporting and
display of comprehensive income. The objective of this standard is to report a
measure of changes in equity of an enterprise that result from transactions
other than with owners. Comprehensive income is the total of net income and all
other nonowner changes in equity. Adoption of this statement is required no
later than with fiscal year 1998.
The Financial Accounting Standards Board recently issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, which
establishes new guidelines for segment reporting. The objective of this
standard is to redefine the reporting requirements of segment information to an
approach that is based on the way the chief operating decision maker organizes
segments within a company for making operating decisions and assessing
performance. Adoption of this statement is required no later than with fiscal
year 1998, which is when the Company expects to adopt it.
The remainder of this page is intentionally left blank.
8
<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 1996
Annual Report and Form 10-K.
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,
through its industrial switching subsidiary, also provides railroad switching
and related services to North American industries with extensive railroad
facilities within their complexes. 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 industrial
switching and related rail services such as railcar leasing, repair and storage
to industries with extensive railroad facilities within their complexes, 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 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. In addition, 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, and Rail Link, Inc. in November 1996.
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, 1997 Compared to Three Months Ended June 30, 1996
Operating Revenues
Operating revenues were $23.5 million in the quarter ended June 30, 1997
compared to $19.0 million in the quarter ended June 30 1996, an increase of $4.5
million or 23.5%. The increase was attributable to a $612,000 increase in
freight revenues and a $3.9 million increase in non-freight revenues.
Freight revenues were $16.5 million in the second quarter of 1997 compared to
$15.9 million in the second quarter of 1996, an increase of $612,000 or 3.8% of
which $307,000 or 1.9% was due to operations on new acquisitions.
9
<PAGE>
The following table compares freight revenues, carloads and average freight
revenues per carload for the second quarters of 1996 and 1997:
Freight Revenues and Carloads Comparison by Commodity Group
Three Months Ended June 30, 1996 and 1997
<TABLE>
<CAPTION>
AVERAGE
FREIGHT
REVENUES
FREIGHT REVENUES CARLOADS PER CARLOAD
----------------------------------- ------------------------------ ----------------
(DOLLARS IN THOUSANDS EXCEPT REVENUES PER CARLOAD)
% OF % OF % OF % OF
COMMODITY GROUP 1996 TOTAL 1997 TOTAL 1996 TOTAL 1997 TOTAL 1996 1997
------- ------ ------- ------ ------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COAL, COKE & ORES $ 5,462 34.3% $ 4,748 28.7% 21,301 41.9% 19,341 35.8% $ 257 $ 245
PETROLEUM PRODUCTS 2,158 13.6 2,135 12.9 4,397 8.6 4,243 7.9 491 503
PULP & PAPER 1,627 10.2 2,032 12.3 4,378 8.6 5,374 9.9 372 378
CHEMICALS 1,174 7.4 1,534 9.3 2,140 4.2 2,891 5.4 549 530
LUMBER & FOREST
PRODUCTS 1,420 8.9 1,532 9.3 4,670 9.2 4,500 8.4 304 340
METALS 1,259 7.9 1,241 7.5 4,954 9.7 5,312 9.8 254 234
AUTOS & AUTO PARTS 1,051 6.6 967 5.9 1,971 3.9 1,799 3.3 533 538
FARM & FOOD PRODUCTS 791 5.0 962 5.8 2,434 4.8 3,097 5.7 325 311
MINERALS & STONE 649 4.1 820 5.0 2,099 4.2 3,103 5.7 309 264
OTHER 322 2.0 554 3.3 2,503 4.9 4,398 8.1 129 126
------- ----- ------- ----- ------ ----- ------ ----- ------- -------
TOTAL $15,913 100.0% $16,525 100.0% 50,847 100.0% 54,058 100.0% $ 313 $ 306
======= ===== ======= ===== ====== ===== ====== ===== ======= =======
</TABLE>
The increase in freight revenues was largely attributable to increases in Pulp
& Paper and Chemicals of $405,000 or 24.9% and $360,000 or 30.7%, respectively.
Combined freight revenues from all other commodities except coal resulted in a
net increase of $561,000 or 7.3% in the second quarter of 1997 compared to the
second quarter of 1996. However, all of these increases were partially offset
by a decline in the shipment of coal, which generated freight revenues of $4.7
million in the second quarter of 1997, compared to $5.5 million in the second
quarter of 1996, a decrease of $714,000 or 15.0%. The decrease is primarily due
to carloads to a major customer being lower in the 1997 quarter because of a
planned reconditioning of the customer's coal unloading facility, which was
completed in the second quarter.
Total carloads were 54,058 in the second quarter of 1997 compared to 50,847 in
the second quarter of 1996, an increase of 3,211 or 6.3%.
Non-freight revenues were $7.0 million in the second quarter of 1997 compared
to $3.1 million in the second quarter of 1996, an increase of $3.9 million or
124.6%. Revenues from switching activities were $3.9 million in the second
quarter of 1997 compared to $585,000 in the second quarter of 1996, an increase
of $3.3 million or 570.7%. These increases were primarily attributable to
switching revenues generated by new acquisitions, primarily Rail Link, Inc.
Revenues from car hire and car rentals were $1.3 million in the second quarter
of 1997 compared to $1.0 million in the second quarter of 1996, an increase of
$295,000 or 28.5% due primarily to operations on new acquisitions. Other non-
freight revenue was $1.7 million in the second quarter of 1997 compared to $1.5
million in the second quarter of 1996, an increase of $226,000 or 15.3%. This
increase was primarily due to increases in other revenues on existing
operations, mainly demurrage.
10
<PAGE>
Operating Expenses
Operating expenses were $19.3 million in the second quarter of 1997 compared
to $14.8 million in the second quarter of 1996, an increase of $4.5 million or
30.1%. Expenses associated with new acquisitions represented $3.7 million of
the increase.
The Company's operating ratio increased to 82.2% in the second quarter of 1997
from 78.0% in the second quarter of 1996. The increase is primarily
attributable to the labor-intensive nature of Rail Link, Inc.'s industrial
switching and other rail-related services operation and particularly to start-up
costs it has incurred in connection with new contracts; and to a change in the
traffic mix, principally related to temporarily decreased coal movements.
The following table sets forth a comparison of the Company's operating
expenses for the second quarters of 1996 and 1997:
Operating Expense Comparison
Three Months Ended June 30, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
------------------------ ------------------------
(in thousands)
% of % of
Operating Operating
Amount Revenues Amount Revenues
------- -------- ------- --------
<S> <C> <C> <C> <C>
Labor and benefits $ 6,098 32.1% $ 8,790 37.4%
Equipment rents 2,084 11.0 2,117 9.0
Purchased services 854 4.5 982 4.2
Depreciation and amortization 1,569 8.3 1,702 7.2
Diesel fuel 1,054 5.5 1,164 5.0
Casualties and insurance 860 4.5 1,102 4.7
Materials 728 3.8 1,144 4.9
Other 1,589 8.3 2,307 9.8
------- ---- ------- ----
Total $14,836 78.0% $19,308 82.2%
======= ==== ======= ====
</TABLE>
Labor and benefits expense was $8.8 million in the second quarter of 1997
compared to $6.1 million in the second quarter of 1996, an increase of $2.7
million or 44.1%, primarily due to the commencement of operations on new
acquisitions. Labor costs increased as a percentage of revenues to 37.4% in
the second quarter of 1997 from 32.1% in the second quarter of 1996. The
increase is largely attributable to the labor-intensive nature of Rail Link,
Inc.'s industrial switching and other rail-related services operation. All
categories of operating expenses increased in amount primarily because of the
effect of the three 1996 acquisitions.
Interest Expense and Income Taxes
Interest expense in the second quarter of 1997 was $647,000 compared to $1.7
million in the second quarter of 1996, a decrease of $1.1 million or 62.7%.
The decrease generally reflects the lower overall debt outstanding due to the
application of proceeds from the Company's June 24, 1996 initial public offering
to reduce debt. The Company's effective income tax rate was 40.5% in both the
second quarter of 1997 and 1996.
11
<PAGE>
Net Income
The Company's net income in the second quarter of 1997 was $2.2 million
compared to $1.6 million in the second quarter of 1996, an increase of $598,000
or 38.4%.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Operating Revenues
Operating revenues were $47.6 million in the first six months of 1997 compared
to $35.6 million in the first six months of 1996, an increase of $12.0 million
or 33.6%. The increase was attributable to a $5.1 million increase in freight
revenues and a $6.9 million increase in non-freight revenues.
Freight revenues were $33.9 million in the first six months of 1997 compared
to $28.9 million in the first six months of 1996, an increase of $5.1 million or
17.5%. The following table compares freight revenues, carloads and average
freight revenues per carload for the first six months of 1996 and 1997:
Freight Revenues and Carloads Comparison by Commodity Group
Six Months Ended June 30, 1996 and 1997
<TABLE>
<CAPTION>
AVERAGE
FREIGHT
REVENUES
FREIGHT REVENUES CARLOADS PER CARLOAD
----------------------------------- ------------------------------ ----------------
(DOLLARS IN THOUSANDS EXCEPT REVENUES PER CARLOAD)
% OF % OF % OF % OF
COMMODITY GROUP 1996 TOTAL 1997 TOTAL 1996 TOTAL 1997 TOTAL 1996 1997
------- ------ ------- ------ ------ ------ ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COAL, COKE & ORES $ 8,469 29.3% $11,413 33.6% 33,242 36.9% 45,100 40.7% $ 255 $ 253
PETROLEUM PRODUCTS 4,428 15.3 4,091 12.1 8,939 9.9 8,315 7.5 495 492
PULP & PAPER 3,420 11.8 3,799 11.2 9,150 10.1 9,986 9.0 374 380
CHEMICALS 2,141 7.4 3,057 9.0 3,981 4.4 5,726 5.2 538 534
LUMBER & FOREST
PRODUCTS 2,689 9.3 2,996 8.8 8,793 9.7 8,834 8.0 306 339
METALS 2,479 8.6 2,437 7.2 9,669 10.7 10,349 9.3 256 236
FARM & FOOD
PRODUCTS 1,578 5.5 1,907 5.6 4,716 5.2 6,517 5.9 335 293
AUTOS & AUTO PARTS 1,815 6.3 1,865 5.5 3,434 3.8 3,497 3.2 529 533
MINERALS & STONE 998 3.5 1,437 4.2 3,402 3.8 5,317 4.8 294 270
OTHER 850 3.0 918 2.8 4,866 5.5 7,270 6.4 175 126
------- ----- ------- ----- ------ ----- ------- ----- ------- -------
TOTAL $28,867 100.0% $33,920 100.0% 90,192 100.0% 110,911 100.0% $ 320 $ 306
======= ===== ======= ===== ====== ===== ======= ===== ======= =======
</TABLE>
The increase in freight revenues was largely attributable to the operations on
new acquisitions, which generated freight revenues of $11.7 million in the first
six months of 1997, $10.2 of which were revenues from the shipment of coal,
compared to $7.8 million in the first six months of 1996, $7.1 million of which
were revenues from the shipment of coal. Of the $3.9 million or 50.7% increase,
$3.1 million were revenues from the shipment of coal.
Total carloads were 110,911 in the first six months of 1997 compared to 90,192
in the first six months of 1996, an increase of 20,719 or 23.0%. The increase
was largely attributable to 44,570 carloads transported by the
12
<PAGE>
operations on new acquisitions, which consisted primarily of coal, compared to
30,137 for the same period in 1996, which was also primarily coal.
Non-freight revenues were $13.7 million in the first six months of 1997
compared to $6.8 million in the first six months of 1996, an increase of $6.9
million or 102.2%. Revenues from switching activities were $7.8 million in the
first six months of 1997 compared to $1.4 in the first six months of 1996, an
increase of $6.4 million or 472.4%. These increases were attributable to
switching revenues generated by new acquisitions, primarily Rail Link, Inc.
Revenues from car hire and car rentals were $2.5 million in the first six months
of 1997 compared to $2.7 million in the first six months of 1996, a decrease of
$217,000 or 8.2%. The 1996 period included a gain on the sale of railcars of
$593,000. Other car hire and car rentals revenue for 1997 increased by
approximately $376,000 due primarily to operations on new acquisitions. Other
non-freight revenue was $3.4 million in the first six months of 1997 compared to
$2.7 million in the first six months of 1996, an increase of $694,000 or 25.3%.
This increase was due to approximately $348,000 of other revenues generated by
operations on new acquisitions and to an increase of approximately $345,000 on
existing operations, primarily in demurrage and storage.
Operating Expenses
Operating expenses were $39.4 million in the first six months of 1997 compared
to $28.6 million in the first six months of 1996, an increase of $10.8 million
or 37.5%. Expenses associated with new acquisitions represented $9.1 million
of the increase.
The Company's operating ratio increased to 82.7% in the first six months of
1997 from 80.4% in the first six months of 1996. The increase is primarily
attributable to the labor-intensive nature of Rail Link, Inc.'s industrial
switching and other rail-related services operation.
The following table sets forth a comparison of the Company's operating
expenses for the first six months of 1996 and 1997:
Operating Expense Comparison
Six Months Ended June 31, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
------------------------ ------------------------
(in thousands)
% of % of
Operating Operating
Amount Revenues Amount Revenues
------- -------- ------- --------
<S> <C> <C> <C> <C>
Labor and benefits $11,534 32.4% $17,734 37.3%
Equipment rents 4,003 11.2 4,552 9.6
Purchased services 1,611 4.5 1,998 4.2
Depreciation and amortization 2,894 8.1 3,221 6.8
Diesel fuel 2,119 6.0 2,507 5.3
Casualties and insurance 2,017 5.7 2,633 5.5
Materials 1,433 4.0 2,113 4.4
Other 3,020 8.5 4,607 9.6
------- ---- ------- ----
Total $28,631 80.4% $39,365 82.7%
======= ==== ======= ====
</TABLE>
13
<PAGE>
Labor and benefits expense was $17.7 million in the first six months of 1997
compared to $11.5 million in the first six months of 1996, an increase of $6.2
million or 53.8%, primarily due to the operations of acquisitions. Labor costs
increased as a percentage of revenues to 37.3% in the first six months of 1997
from 32.4% in the first six months of 1996. The increase is largely
attributable to the labor-intensive nature of Rail Link, Inc.'s industrial
switching and other rail-related services operation. With the exception of
minor increases in Materials and Other, all other categories of operating
expenses decreased as percentages of operating revenues because of the effect of
the Rail Link acquisition. All categories of operating expenses increased in
amount primarily because of the effect of the three 1996 acquisitions.
Interest Expense and Income Taxes
Interest expense in the first six months of 1997 was $1.2 million compared to
$3.0 million in the first six months of 1996, a decrease of $1.8 million or
59.4%. The decrease generally reflects the lower overall debt outstanding due
to the application of proceeds from the Company's June 24, 1996 initial public
offering to reduce debt. The Company's effective income tax rate was 40.5% in
the first six months of 1997 and 1996.
Net Income
The Company's net income in the first six months of 1997 was $4.3 million
compared to $2.5 million in the first six months of 1996, an increase of $1.8
million or 70.1%.
Liquidity and Capital Resources
During the six months ended June 30, 1997 the Company generated cash from
operations of $2.3 million, had a net reduction in debt of $1.7 million, entered
into a $5.3 million long-term capital lease for rolling stock and recorded $1.2
million in net proceeds on governmental grants. A total of $9.1 million was
invested in capital assets of which $5.3 million represented rolling stock under
the long-term capital lease. The Company received $266,000 in proceeds from the
disposition of property.
During the first six months of 1996, the Company generated cash from
operations of $8.3 million, which includes the positive effect of a $5.5 million
increase in net trade payables associated with the commencement of operations of
Illinois & Midland. In addition, the Company received $4.0 million in proceeds
from the sale of equipment and invested $1.8 million in track and other fixed
assets (apart from its investment in the Illinois & Midland Railroad and
Pittsburg & Shawmut Railroad acquisitions).
The Company has budgeted $15.2 million in capital expenditures in 1997. As of
June 30, 1997, $9.1 million, which included rolling stock under capital lease of
$5.3 million, was completed.
At June 30, 1997 the Company had long-term debt (including current portion)
totaling $22.4 million, which comprised 25.3% of its total capitalization. This
compares to long-term debt, including current portion, of $18.7 million at
December 31, 1996, comprising 23.3% 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. The Company
believes that its cash flow from operations together with amounts available
under its credit facilities will enable the Company to meet its
14
<PAGE>
liquidity and capital expenditure requirements relating to ongoing operations
for at least the duration of its credit facilities.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
The remainder of this page is intentionally left blank.
15
<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 -
At the Annual Meeting of the Stockholders of the Company held on
May 20, 1997, there were 12,865,513 votes possible as of the record date of
March 31, 1997, by 4,399,953 shares of Class A Common Stock entitled to one
vote per share and 846,556 shares of Class B Common Stock entitled to ten votes
per share.
Stockholders of the Company approved the re-election of James M. Fuller
as a Director of the Company to serve until 2000. Votes were:
For 12,099,979
Against or withheld 119,705
Stockholders of the Company approved the re-election of John M.
Randolph as a Director of the Company to serve until 2000. Votes were:
For 12,122,979
Against or withheld 96,705
Stockholders of the Company approved a proposal to increase the total
number of shares of Class A Common Stock available for option grants
under the Genesee & Wyoming Inc. 1996 Stock Option Plan from 450,000
to 650,000. Votes were:
For 12,171,984
Against or withheld 40,000
Abstentions 1,902
Broker non-votes 5,798
Stockholders of the Company approved and ratified the selection Arthur
Andersen LLP as the Company's independent auditors for the year ending
December 31, 1997. Votes were:
For 12,218,605
Against or withheld 350
Abstentions 729
Broker non-votes -0-
ITEM 5. OTHER INFORMATION - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A). EXHIBITS - SEE INDEX TO EXHIBITS
(B) REPORTS ON FORM 8-K:
No Reports on Form 8-K were filed by the Registrant during the period
covered by this Report.
16
<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 October 7, 1991 of Buffalo & Pittsburgh
Railroad, Inc. in favor of CSX Transportation, Inc. (Exhibit 4.6)/1/
(f) 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/
(g) 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/
(h) 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/
(i) 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/
(j) 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/
17
<PAGE>
(k) 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
*(10.1) Amendment No. 1 to the Genesee & Wyoming Inc. 1996 Stock Option Plan
*(11.1) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(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.
18
<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 13, 1997 By: /s/ Mortimer B. Fuller, III
---------------------------
Name: Mortimer B. Fuller, III
Title: President and CEO
Date: August 13, 1997 By: /s/ Alan R. Harris
---------------------------
Name: Alan R. Harris
Title: Chief Accounting Officer
The remainder of this page is intentionally left blank.
19
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 1
TO THE
GENESEE & WYOMING INC.
1996 STOCK OPTION PLAN
EFFECTIVE JANUARY 31, 1997
(SUBJECT TO SUBSEQUENT RATIFICATION BY THE STOCKHOLDERS)
WHEREAS, Genesee & Wyoming Inc., a Delaware corporation (the "Company"),
has established the Genesee & Wyoming Inc. 1996 Stock Option Plan (the "Plan");
and
WHEREAS, deeming it appropriate and advisable so to do, and pursuant to
Section 19 of the Plan, the Board of Directors of the Company has authorized,
approved and adopted the amendment to the Plan set forth herein;
NOW, THEREFORE, the Plan is hereby amended, effective January 31, 1997, as
set forth below; provided, however, that if the stockholders of the Company fail
to approve and ratify this Amendment at the next Annual Meeting of Stockholders
of the Company, then this Amendment shall be null and void and on no effect:
1. The first sentence of Section "4. NUMBER OF SHARES." of the Plan
is hereby amended to provide in its entirety as follows (with the remainder of
said Section 4 being unchanged and unaffected by this Amendment and continuing
in full force and effect):
"Subject to the provisions of Section 5, the total number of
shares of the Company's Class A Common Stock, par value $.01
per share (the 'Class A Common Stock'), which may be issued
under Options granted pursuant to the Plan shall not exceed
650,000."
2. Except as amended hereby, the Plan shall remain in full force and
effect in accordance with its terms.
THIS AMENDMENT NO. 1 TO THE GENESEE & WYOMING INC. 1996 STOCK OPTION PLAN
WAS AUTHORIZED, APPROVED AND ADOPTED BY THE BOARD OF DIRECTORS OF THE COMPANY ON
JANUARY 31, 1997, AND APPROVED AND RATIFIED BY THE STOCKHOLDERS OF THE COMPANY
ON MAY 20, 1997.
/S/ JAMES B. GRAY, JR.
-----------------------------
JAMES B. GRAY, JR., SECRETARY
<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
--------------- ---------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE CALCULATION:
- --------------------------------------------------------
Net Income $1,559 $2,157 $2,523 $4,291
Weighted average number of common stock and common
stock equivalents outstanding:
Weighted average number of shares outstanding 2,444 5,247 2,396 5,246
Common stock equivalents applicable to warrants 42 42 42 42
Common stock equivalents issuable under stock option plans 1 151 1 167
--------------------------------------------
Common stock and common stock equivalents 2,487 5,440 2,439 5,455
============================================
Earnings per share $0.63 $0.40 $1.03 $0.79
============================================
FULLY DILUTED EARNINGS PER SHARE CALCULATION:
- --------------------------------------------------------
Net Income $1,559 $2,157 $2,523 $4,291
Weighted average number of common stock and common
stock equivalents outstanding:
Weighted average number of shares outstanding 2,444 5,247 2,396 5,246
Common stock equivalents applicable to warrants 42 42 42 42
Common stock equivalents issuable under stock option plans 2 151 1 167
--------------------------------------------
Common stock assuming full dilution 2,488 5,440 2,439 5,455
============================================
Earnings per share - fully diluted (1) $0.63 $0.40 $1.03 $0.79
============================================
</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 because it results in dilution of less than 3%.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND INCOME STATEMENT 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 12,392
<SECURITIES> 0
<RECEIVABLES> 17,922
<ALLOWANCES> 0
<INVENTORY> 4,162
<CURRENT-ASSETS> 37,738
<PP&E> 105,582
<DEPRECIATION> 20,853
<TOTAL-ASSETS> 147,580
<CURRENT-LIABILITIES> 32,204
<BONDS> 22,119
0
0
<COMMON> 52
<OTHER-SE> 65,949
<TOTAL-LIABILITY-AND-EQUITY> 147,580
<SALES> 47,571
<TOTAL-REVENUES> 47,571
<CGS> 39,365
<TOTAL-COSTS> 39,365
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 990
<INCOME-PRETAX> 7,216
<INCOME-TAX> 2,925
<INCOME-CONTINUING> 4,291
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,291
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.79
</TABLE>
