<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 September 30, 1998 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
November 9, 1998:
Class Number of Shares Outstanding
- ----- ----------------------------
Class A Common Stock 4,104,531
Class B Common Stock 845,539
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
<TABLE>
<CAPTION>
Item 1. Financial Statements: Page
--------
<S> <C>
Consolidated Statements of Income - For the
Three and Nine Month Periods Ended September
30, 1998 and 1997..................................... 3
Consolidated Balance Sheets September 30, 1998
and December 31, 1997................................. 4
Consolidated Statements of Cash Flows - For the
Nine Month Periods Ended September 30, 1998
and 1997.............................................. 5
Notes to Consolidated Financial Statements.............. 6 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 10 - 21
Item 3. Quantitative and Qualitative Disclosures About
Market Risk........................................... 21
Part II - Other Information....................................... 22
Index to Exhibits................................................. 23 - 24
Signatures........................................................ 25
</TABLE>
-2-
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION> Three Months Nine Months
Ended September 30 Ended September 30
1998 1997 1998 1997
------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES $34,707 $23,670 $109,514 $71,741
OPERATING EXPENSES:
Transportation 11,402 7,114 35,174 21,095
Maintenance of ways and structures 4,151 2,586 12,834 7,605
Maintenance of equipment 6,390 3,854 21,262 11,748
General and administrative 6,066 4,451 19,102 13,698
Depreciation and amortization 2,560 1,764 7,357 4,985
-------------------------------------------------
Total operating expenses 30,569 19,769 95,729 59,134
-------------------------------------------------
INCOME FROM OPERATIONS 4,138 3,901 13,785 12,107
Interest expense (1,763) (629) (4,968) (1,850)
Other income 101 273 669 503
-------------------------------------------------
Income before provision for income taxes 2,476 3,545 9,486 10,760
Provision for income tax 1,073 1,418 3,955 4,342
-------------------------------------------------
NET INCOME $ 1,403 $ 2,127 $ 5,531 $ 6,418
=================================================
Earnings per common share - basic $ 0.27 $ 0.41 $ 1.05 $ 1.22
=================================================
Weighted average number of shares of
common stock - basic 5,213 5,250 5,267 5,250
=================================================
Earnings per common share - diluted $ 0.27 $ 0.39 $ 1.04 $ 1.17
=================================================
Weighted average number of shares of
common stock - diluted 5,213 5,452 5,338 5,468
=================================================
</TABLE>
-3-
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1996 1997
(unaudited)
-------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,816 $ 11,434
Accounts receivable, net 20,293 20,895
Note receivable - related party 4,215 4,499
Materials and supplies 3,612 5,039
Prepaid expenses and other 5,348 3,145
Deferred income tax assets, net 2,316 2,523
------------------------------------------
Total current assets 50,600 56,535
------------------------------------------
PROPERTY AND EQUIPMENT, net 121,506 124,985
------------------------------------------
SERVICE ASSURANCE AGREEMENT, net 13,001 13,563
------------------------------------------
OTHER ASSETS, net 15,312 15,449
------------------------------------------
Total assets $ 200,419 $ 210,532
==========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 292 $ 1,157
Accounts payable 23,481 30,025
Accrued expenses 8,289 6,796
------------------------------------------
Total current liabilities 32,062 37,978
------------------------------------------
LONG-TERM DEBT 67,849 72,987
------------------------------------------
OTHER LIABILITIES 2,875 3,257
------------------------------------------
DEFERRED INCOME TAX LIABILITIES, net 10,494 9,470
------------------------------------------
DEFERRED ITEMS_grants from governmental agencies 14,714 15,053
------------------------------------------
DEFERRED GAIN--sale/leaseback: 4,083 4,434
------------------------------------------
STOCKHOLDERS' EQUITY:
Class A common stock, $0.01 par value, one vote per share;
12,000,000 shares authorized; 4,449,531 and 4,404,262 issued and
outstanding on September 30, 1998 and December 31, 1997, respectively. 45 44
Class B common stock, $0.01 par value, 10 votes per share:
1,500,000 shares authorized; 845,539 and 846,556 issued and
outstanding on September 30, 1998 and December 31, 1997, respectively. 9 9
Additional paid-in capital 46,719 46,205
Warrants outstanding -- 471
Retained earnings 28,564 23,056
Foreign currency translation adjustment (2,365) (2,441)
Less treasury stock, at cost, 345,000 Class A Shares (4,629) --
------------------------------------------
Total stockholders' equity 68,342 69,343
------------------------------------------
Total liabilities and stockholders' equity $ 200,419 $ 210,532
==========================================
</TABLE>
-4-
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,531 $ 6,418
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 7,357 4,985
Deferred income taxes 2,957 2,086
Gain on disposition of property and equipment (82) (12)
Changes in assets and liabilities, net of balances
assumed through acquisitions -
Receivables 296 2,233
Materials and supplies 927 (251)
Prepaid expenses and other 32 (5,585)
Accounts payable and accrued expenses (6,701) (12,248)
Other assets and liabilities, net 758 (532)
----------------------------
Net cash provided by (used in) operating activities 11,075 (2,906)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (13,431) (7,444)
Proceeds from disposition of property 2,012 293
----------------------------
Net cash used in investing activities (11,419) (7,151)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term borrowings, including capital leases (13,354) (9,577)
Proceeds from issuance of long-term debt 13,800 14,880
Net proceeds on grants 155 2,465
Proceeds from issuance of common stock 44 79
Purchase of treasury stock (4,629) --
----------------------------
Net cash (used in) provided by financing activities (3,984) 7,847
----------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (290) --
----------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENT (4,618) (2,210)
CASH AND CASH EQUIVALENTS, beginning of period 11,434 14,121
----------------------------
CASH AND CASH EQUIVALENTS, end of period $ 6,816 $ 11,911
============================
CASH PAID DURING PERIOD FOR:
Interest $ 5,016 $ 1,733
Income taxes 1,542 4,500
============================
SUPPLEMETNAL NON-CASH INVESTING ACTIVITES:
Capital lease obligation $ (5,200) $ 6,546
============================
-5-
</TABLE>
<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 nine-month periods ended September 30, 1998
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, 1997 included in the Company's
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:
Chile and Bolivia On October 8, 1998 the Company announced that it has a
memorandum of understanding in place with CB Transportes e Infrastructura S.A.,
a Chilean Corporation. The memorandum of understanding contemplates the
purchase by a subsidiary of GWI of approximately 30 percent of the stock of CB
Transportes S.A., a company which owns operating railroad interests in Chile and
Bolivia, for combined cash and shares of GWI common stock totaling approximately
$15.0 million. This investment is conditional on due diligence and
documentation.
Australia - On August 28, 1997 the Company announced that its wholly owned
subsidiary, Genesee & Wyoming Australia Pty Ltd ("GWIA"), had been awarded the
contract to purchase certain railroad assets of SA Rail, a division of
Australian National Railway, through the Commonwealth of Australia Office of
Asset Sales. SA Rail provided intrastate freight services in the State of South
Australia, interstate haulage of contract freight, rolling stock rental and
maintenance, and interstate track maintenance. GWIA bid as part of a consortium
including EDI Clyde Engineering and Transfield Pty Ltd. EDI Clyde is a major
Australian provider of railway rolling stock and holds the Australian license
for GM/EMD locomotives. Transfield is a major Australian engineering,
construction and infrastructure maintenance provider. On November 8, 1997 GWIA
closed on the purchase and commenced operation of freight service under the name
of Australia Southern Railroad Pty. Ltd.
3. JOINT VENTURE:
The Company participates in a joint venture, Genesee Rail-One Inc. ("GRO") to
acquire and operate railroads in Canada. GRO is a joint venture of the Company
and Rail-One Inc., a subsidiary of The Cygnus Group which is an integrated
transportation facilities, services and infrastructure provider in Canada.
On October 9, 1998 GRO announced that it had reached an agreement in principle
to acquire and opearate 364 miles of track in northwestern Alberta from Canadian
National (CN). The
-6-
<PAGE>
wholly owned subsidiary of GRO will be operated as an Alberta railway
company to be known as Grande Prairie Grande Cache Railway. This acquisition
is conditional on due diligence and documentation.
GRO commenced operations on November 11, 1997 of Quebec Gatineau Railway Inc.
("QGRY"), a 354-mile railroad linking Quebec City, Montreal and Hull in
southeastern Quebec. QGRY purchased the majority of assets and also leased a
smaller portion of assets for this railroad from the Canadian Pacific Railway
Company.
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 Canadian Pacific Railway for a 20 year term and is responsible for
operation and maintenance of the leased line.
Based on GWI's ownership position of 47.5%, the Company is reporting the
results of operations of GRO under the equity method of accounting for
investments. The results of operations of GRO are translated into U.S. dollars
at a weighted average exchange rate for each period and are included in other
income, net. The Company's 47.5 percent share of the after-tax results of GRO
was a loss of $185,000 and income of $140,000 for the three month periods ended
September 30, 1998 and 1997, respectively, and a loss of $172,000 and income of
$140,000 for the nine month periods ended September 30, 1998 and 1997,
respectively.
GRO was formed through the Company's initial capital investment of
approximately $4.9 million and an investment by Rail-One Inc., of approximately
$4.9 million. The Rail-One Inc. investment was partially funded by the Company
through a $4.6 million promissory note denominated in Canadian currency. The
note bears interest at 7.5 percent per annum, earns a commitment fee equal to 4
percent of the principal amount of the note, and is secured by Rail-One's 47.5
percent ownership in GRO. The note was due on November 10, 1998 and Rail-One is
negotiating with the Company for an extension of the note.
On September 30, 1998 the Company's investment in GRO was valued at
approximately $4.6 million, a reduction of $291,000 due to GRO operating losses.
The Company's note receivable from Rail-One was valued at $4.2 million, a
reduction of $398,000 due to currency exchange losses. Additionally, the
Company has approximately $3.2 million of affiliate receivables arising from
rolling stock leases and trade activities due from GRO or its subsidiaries.
The Company has agreed to provide a $2.2 million letter of credit to GRO's
primary lender in exchange for relief on certain financial covenants. The
Company and Rail-One are in negotiations to finalize the consideration to the
Company for providing the letter of credit.
-7-
<PAGE>
Management believes that the Company's investments in GRO are adequately
collateralized by the common stock held by Rail-One Inc., and that no impairment
of assets has occurred.
4. LEASES:
In March 1997, a subsidiary of the Company entered into master capital lease
agreement with a leasing company. The captial lease provided for the inclusion
of up to $13.0 million in railroad rolling stock, of which $11.6 million was
under commitment as of August, 1998. In September 1998, the Company completed an
exchange of like-kind assets with the leasing company reducing its commitment
under the master lease agreement by aproximately $5.2 million. The reduction of
the commitment was a non-cash transaction which is not included in amounts in
the statement of cash flows. The Company incurred a $267,000 loss as a result of
this like-kind exchange which was included as a reduction to operating revenue
in the Company's leasing subsidiary. As of September 30, 1998, the Company's
subsidiary had $6.4 million of equipment under this capital lease. Lease
payments until September 30, 1998, were interest only at LIBOR plue 1.5%. After
that date, the equipment currently under lease requires monthly payments of
$64,000 until March 2017. The Company's subsidiary has the right to purchase the
equipment at any time during the lease for fair market value.
In June 1998, a subsidiary of the Company entered into a sale leaseback
agreement with a bank for railroad rolling stock valued at $5.7 million. The
agreement will be accounted for as an operating lease and will require monthly
payments of $45,662 through July 2008.
5. CONTINGENCIES:
IMRR - On August 6, 1998, a lawsuit was commenced against the Company and its
subsidiary, Illinois & Midland Railroad, Inc. ("IMRR"), by Commonwealth Edison
Company ("ComEd") in the Circuit Court of Cook County, Illinois. The suit
alleges that IMRR is in breach of certain provisions of a 1987 agreement entered
into by a prior unrelated owner of the IMRR rail line. The provisions pertain
to limitations on rates received by IMRR and the unrelated predecessor for
freight hauled for ComEd's Powerton plant. The suit seeks unspecified
compensatory damages in excess of $100,000. ComEd is IMRR's largest customer
and in 1997 accounted for 15% of the consolidated revenues of the Company and
its subsidiaries. The Company believes the suit is without merit. IMRR intends
to vigorously defend against the suit.
Conrail Merger - On July 23, 1998, the Surface Transportation Board ("STB")
issued its written order approving the petition of CSX Transportation, Inc.
("CSX") and Norfolk Southern Corp. ("NS") to control and divide the assets of
Consolidated Rail Corporation ("Conrail"). Railroads in the Company's New York
and Pennsylvania region interchange with, or participate in overhead traffic
with, one or both of these railroads. Overhead traffic is defined as traffic
that neither originates nor terminates on the Company's northeastern rail
network. 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
transactions. The Company agrees with this estimate and is implementing
operational changes aimed at minimizing this impact. On October 21, 1997 the
Company and several of its subsidiaries entered into a confidential Rate and
Route Agreement with CSX that the Company believes will facilitate the
operations restructuring process. The STB's written order contains one or more
conditions which also may minimize this impact. The division of Conrail's assets
is expected to occur in the first or second quarters of 1999. While the Company
believes that agreements reached with CSX and NS in regard to the Conrail
breakup will ultimately benefit the Company, the transition will be uncertain
until new operating patterns are established. Based on its initial studies the
Company believes that no impairment of its assets will occur.
-8-
<PAGE>
Stock Repurchase - On August 12, 1998, the Company's board of directors
authorized management to repurchase up to one million shares of the Company's
Class A common stock under SEC rule 10b-18. At September 30, 1998, the Company
had purchased 345,000 shares at a total cost of $4,629,000. The repurchase
program remains open and additional purchases, if any, are at the discretion of
management.
6. COMPREHENSIVE INCOME:
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. The following table sets forth the Company's comprehensive
income for the three months and nine months ended September 30, 1998 and 1997:
Statement of Comprehensive Income
Three and Nine Month Periods Ended September 30,
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $1,403 $2,127 $5,531 $6,418
Other comprehensive loss, net of tax Foreign currency
translation adjustments (684) -0- (924) -0-
-------------------------------------------------------------------
Comprehensive income $ 719 $2,127 $4,607 $6,418
===================================================================
</TABLE>
7. RECENTLY ISSUED ACCOUNTING STANDARDS:
The Financial Accounting Standards Board recently issued SFAS No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits, which
standardizes the disclosure requirements for pensions and other retirement
benefits to the extent practicable. It requires additional information changes
in the benefit obligation and fair values of plan assets. These changes will
facilitate financial analysis, and eliminate certain disclosures that are no
longer required. The statement suggests combined formats for presentation of
pension and other postretirement benefit disclosures. The Company believes the
statement will only slightly change the format by which it discloses information
related to pension and other postretirement benefits in the current year 10K and
annual report. Adoption of this statement is required no later than with fiscal
year 1998, which is when the Company expects to adopt it.
The Financial Accounting Standards Board recently issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement will
require the Company to provide separate disclosure of derivative instruments
either on the face of the balance sheet or within the footnotes to the financial
statements. Adoption of this statement is required no later than with the third
quarter of 1999, which is when the Company expects to adopt it.
-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 1997
Form 10-K.
General
The Company is a holding company whose subsidiaries own and operate short line
and regional freight railroads in the United States and, beginning in November,
1997, Australia, and through its industrial switching subsidiary, provides
railroad switching and related services to industries with extensive railroad
facilities within their complexes. The Company's United States and Australia
railroad subsidiaries generate revenues primarily from the movement of freight
over track owned or operated by its railroads. These subsidiaries also generate
non-freight revenues primarily by providing related rail services such as
railcar leasing, railcar repair and storage to shippers along its lines and to
the railroads that connect with its lines. The Company's industrial switching
subsidiary generates non-freight revenues primarily by providing switching and
other rail related services to industries with extensive railroad facilities
within their complexes.
The Company participates in a joint venture, Genesee Rail-One Inc. ("GRO") to
acquire and operate railroads in Canada. The Company's initial capital
investment in GRO was approximately $4,913,000. Based on GWI's ownership
position of 47.5%, the Company is reporting the results of operations of GRO
under the equity method of accounting for investments. The results of operations
of GRO are translated into U.S. dollars at a weighted average exchange rate for
each period and are included in other income, net. The Company's 47.5 percent
share of the after-tax results of GRO were a loss of $185,000 and income of
$140,000 for the three month periods ended September 30, 1998 and 1997,
respectively, and a loss of $172,000 and income of $140,000 for the nine month
periods ended September 30, 1998 and 1997, respectively.
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 shutdowns, 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 various types of acquisitions.
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.
-10-
<PAGE>
Year 2000 Compliance
In late 1997, the Company began a comprehensive initiative to address and
resolve potential exposure associated with the functioning of its information
systems and non-information technology systems that include embedded technology
with respect to dates in the Year 2000 and beyond.
This initiative led to the development of the GWI Year 2000 Project Handbook.
The Handbook was developed to report industry Year 2000 methods and standards,
and document "best practices" for each of the Company's subsidiaries. Its
purpose is to promote consistent implementation of the Year 2000 Project and
encourage cost-effective practices and efficient use of resources.
The Year 2000 Project Handbook contains information useful to managers, system
analysts, and other technical staff members, including consultants and business
partners. It is meant to be used as a reference throughout the Year 2000
design, modification, testing, and implementation phases. The Handbook
addresses most of the obstacles the Company may face and their potential
solutions, including project management issues, contracting and staffing,
interface and data exchange standards, and test and development methodologies.
Three major categories of systems addressed by the Company's Year 2000
Initiative are railroad operations/management systems, business systems and non-
information technology systems.
All of the Company's railroad operations and management processes are
supported through licensed third party development and contracted operations.
These systems are third party certified Year 2000 compliant. With respect to
electronic commerce transmissions, the Company is currently capable of
supporting certain Year 2000 compliant EDI (4010) transactions. Remaining Year
2000 compliant EDI transactions will be implemented according to industry-wide
schedules. Full EDI compliance is expected during the second quarter of 1999.
Because the potential exists that not all of the Company's trading partners will
achieve Year 2000 compliance, the Company's operational systems will accommodate
non-Year 2000 electronic commerce transmissions as well as Year 2000 ready
transmissions.
All of the Company's financial, purchasing, inventory, asset management,
payroll and human resource systems supporting business operations are third
party systems. The third party vendors have certified all packages to be Year
2000 compliant.
With respect to non-information technology systems (e.g. fire and security,
HVAC, etc.) that may impact operations and/or business processes, the Company
has conducted initial assessments of its rail yard and office facilities and
found no major Year 2000 problems or obstacles.
As part of its Year 2000 initiative, the Company is in communication with its
interline carriers, significant suppliers, large customers and financial
institutions to assess their Year 2000 readiness and expects to conduct
interface tests with its external trading partners in 1999 upon completion of
internal testing of remediated applications.
To date, the Company has expended less than $50,000 on its Year 2000
initiative and remaining costs are expected to be minimal. Overall, the
Company's Year 2000 initiative is proceeding on schedule with completion of all
areas expected by mid-1999.
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<PAGE>
Failure to achieve Year-2000 compliance by the Company, other railroads, its
suppliers, and its customers could negatively affect the Company's ability to
conduct business for an extended period. Management believes that the Company
will be successful in its Year 2000 conversion; however, there can be no
assurance that other companies on which the Company's systems and operations
rely will be converted on a timely basis, and such failure could have a material
effect on the Company's financial position, results of operations, or liquidity.
The remainder of this page is intentionally left blank.
-12-
<PAGE>
Results of Operations
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
Consolidated Operating Revenues
Operating revenues were $34.7 million in the quarter ended September 30, 1998
compared to $23.7 million in the quarter ended September 30, 1997, an increase
of $11.0 million or 46.6%. The increase was attributable to $10.3 million in
revenues from the Australia operation, an $84,000 increase in United States
railroad revenues, and a $628,000 increase in industrial switching revenues.
The following three sections provide information on railroad revenues in the
United States and Australia, and industrial switching revenues in the United
States.
United States Operating Revenues Other Than Industrial Switching
Operating revenues were $19.9 million in the quarter ended September 30, 1998
compared to $19.8 million in the quarter ended September 30, 1997, an increase
of $84,000 or 0.4%. The increase was attributable to a $1.3 million increase in
non-freight revenues, which offset a $1.2 million decrease in freight revenues.
The following table compares United States freight revenues, carloads and
average freight revenues per carload for the three months ended September 30,
1998 and 1997:
United States Freight Revenues and Carloads Comparison by Commodity Group
Three Months Ended September 30, 1998 and 1997
(dollars in thousands, except average per carload)
<TABLE>
<CAPTION>
Average
Freight
Revenues
Per
Freight Revenues Carloads Carload
---------------- -------- -------
Commodity Group % of % of % of % of
- --------------- 1998 Total 1997 Total 1998 Total 1997 Total 1998 1997
------- ------- ------- ------- ------ ------- ------ ------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Coal, Coke &
Ores $ 3,653 23.8% $ 4,543 27.5% 15,217 30.4% 16,929 32.2% $ 240 $ 268
Pulp & Paper 1,927 12.6% 2,042 12.4% 4,927 9.9% 5,365 10.2% 391 381
Petroleum
Products 1,806 11.8% 2,350 14.2% 3,818 7.6% 5,053 9.6% 473 465
Chemicals -
Plastics 1,709 11.1% 1,399 8.5% 3,425 6.8% 2,464 4.7% 499 568
Lumber and
Forest Products 1,675 10.9% 1,550 9.4% 5,735 11.5% 4,702 9.0% 292 330
Farm & Food
Products 1,165 7.6% 1,001 6.1% 4,211 8.4% 3,552 6.8% 277 282
Metals 1,021 6.7% 1,231 7.4% 3,539 7.1% 4,972 9.5% 288 248
Other 1,009 6.6% 700 4.2% 4,741 9.5% 4,293 8.1% 213 163
Minerals & Stone 991 6.5% 965 5.8% 3,668 7.3% 3,780 7.2% 270 255
Autos & Auto
Parts 361 2.4% 742 4.5% 730 1.5% 1,409 2.7% 495 527
-------------------------------------------------------------------------------------------------------
Total $15,317 100.0% $16,523 100.0% 50,011 100.0% 52,519 100.0% 306 315
====================================================================================================
</TABLE>
The decrease of $1.2 million in United States freight revenues was primarily
attributable to the decline in freight revenues from the shipment of Coal,
Petroleum Products and Autos and Auto Parts. Freight revenues from Coal were
$3.7 million in
-13-
<PAGE>
the quarter ended September 30, 1998, compared to $4.5 million in the quarter
ended September 30, 1997, a decrease of $890,000 or 19.6% due to reduced
shipments resulting from scheduled inventory reductions and maintenance projects
at a key customer's facilities. Freight revenues from Petroleum Products were
$1.8 million in the quarter ended September 30, 1998, compared to $2.4 million
in the quarter ended September 30, 1997, a decrease of $544,000 or 23.1% due to
reduced shipments resulting from scheduled maintenance projects at a key
customer's facilities. Freight revenues from Autos and Auto Parts were $361,000
in the quarter ended September 30, 1998, compared to $742,000 in the quarter
ended September 30, 1997, a decrease of $381,000 or 51.3% due to reduced
shipments resulting from loss of a freight contract. The decrease in freight
revenues from Coal, Petroleum Products and Autos was partially offset by
increases in freight revenues from Chemicals of $310,000 or 22.2% and Lumber and
Forest Products of $125,000 or 8.1%. Freight revenues from all remaining
commodities reflected a net increase of $174,000.
Total United States carloads were 50,011 in the quarter ended September 30,
1998 compared to 52,519 in the quarter ended September 30, 1997, a decrease of
2,508 or 4.8%. Also, the overall average revenue per carload declined to $306 in
the quarter ended September 30, 1998, compared to $315 per carload in the
quarter ended September 30, 1997, a decrease of 2.9% due to changes in commodity
mix and traffic patterns.
United States non-freight railroad revenues were $4.6 million in the quarter
ended September 30, 1998 compared to $3.3 million in the quarter ended September
30, 1997, an increase of $1.3 million or 38.9%. The increase was primarily due
to increases in car hire and rental income of $447,000, management fee income of
$304,000 and demurrage of $230,000.
Australia Operating Revenues (US Dollars)
Operating revenues were $10.3 million in the quarter ended September 30, 1998
and consisted of $9.4 million in freight revenues and a $963,000 in non-freight
revenues.
The following table outlines Australian freight revenues for the quarter ended
September 30, 1998:
Australian Freight Revenue by Commodity
Three Months Ended September 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Commodity Group Revenue
- --------------- ----------
<S> <C>
Hook and Pull (Haulage) $3,478
Grain 2,730
Coal 1,846
Gypsum 552
Marble 457
Lime 265
Other 34
----------
Total $9,362
==========
</TABLE>
Australia non-freight revenues were $963,000 in the quarter ended September
30, 1998 and consisted of $607,000 in revenues from car hire and car rentals and
$356,000 in other non-freight revenue.
-14-
<PAGE>
Industrial Switching Revenues
Revenues from industrial switching activities were $4.5 million in the quarter
ended September 30, 1998 compared to $3.8 million in the quarter ended September
30, 1997, an increase of $628,000 million or 16.4%. The increase was primarily
attributable to a broadening of the customer base of Rail Link, Inc.
Consolidated Operating Expenses
Operating expenses were $30.6 million in the quarter ended September 30, 1998
compared to $19.8 million in the quarter ended September 30, 1997, an increase
of $10.8 million or 54.6%. Expenses attributable to operations in Australia
represented $8.1 million or 75.5% of the change, with increases in United States
operating expenses making up the remaining $2.7 million or 24.5% of the change.
The Company's operating ratio increased to 88.1% in the quarter ended
September 30, 1998 from 83.5% in the quarter ended September 30, 1997. The
increase is primarily attributable to increases in labor and benefits, equipment
rents and other expenses in the United States railroad and industrial switching
operations.
The following table sets forth a comparison of the Company's operating
expenses for the second quarters of 1998 and 1997:
Operating Expense Comparison
Three Months Ended September 30, 1998 and 1997
(dollars in thousands)
<TABLE>
<CAPTION>
1998 1997
--------------------------------------- -------------------------------------
% of Operating % of Operating
Amount Revenues Amount Revenues
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Labor and benefits $11,470 33.0% $ 9,272 39.2%
Equipment rents 3,099 8.9% 2,159 9.1%
Purchased services 3,765 10.8% 1,020 4.3%
Depreciation and
amortization 2,560 7.4% 1,764 7.5%
Diesel fuel 2,738 7.9% 1,019 4.3%
Casualties and insurance 1,462 4.2% 1,049 4.4%
Materials 1,359 3.9% 1,202 5.1%
Other 4,116 12.0% 2,284 9.6%
-----------------------------------------------------------------------------------
Total $30,569 88.1% $19,769 83.5%
===================================================================================
</TABLE>
Labor and benefits expense was $11.5 million in the quarter ended September
30, 1998 compared to $9.3 million in the quarter ended September 30, 1997, an
increase of $2.2 million or 23.7%, of which $1.2 million or 55.3% is due to the
commencement of operations in Australia and $982,000 or 44.7% is due to
increases in United States railroad and switching operations. The increase of
$982,000 in United States railroad and switching operations is primarily
attributable to increases in industrial switching labor of $371,000 related to
expansion of operations, several new corporate management positions totaling
approximately $100,000, and cost of
-15-
<PAGE>
living wage increases for employees which accounts for the remainder of the
increase. However, labor costs decreased as a percentage of revenues to 33.0% in
the quarter ended September 30, 1998 from 39.2% in the quarter ended September
30, 1997. The decrease is largely attributable to the purchased services nature
of the Australia operation in which contractors perform maintenance of track and
maintenance of equipment services traditionally performed by labor, thus
resulting in a much lower labor-to-revenue ratio. Similarly, purchased services
expense was $3.8 million in the quarter ended September 30, 1998 compared to
$1.0 million in the quarter ended September 30, 1997, an increase of $2.8
million or 269.1%, due primarily to the commencement of operations in Australia.
Diesel fuel expense was $2.7 million in the quarter ended September 30, 1998
compared to $1.0 million in the quarter ended September 30, 1997, an increase of
$1.7 million or 168.7%. The increase was due to $1.9 million in diesel fuel
expense in connection with the commencement of operations in Australia, which
was partially offset by a decrease of $215,000 in diesel fuel expense in
connection with United States operations. The price of diesel fuel is more
expensive in Australia than in the United States on a per unit basis. Other
expense was $4.1 million in the quarter ended September 30, 1998 compared to
$2.3 million in the quarter ended September 30, 1997, an increase of $1.8
million or 80.3%, of which $1.2 million is due to the commencement of operations
in Australia, and $676,000 is due to increases in United States operations
primarily attributable to general and administrative expense increases related
to acquisition endeavors and legal costs, and increases in trackage rights
expense.
Interest Expense and Income Taxes
Interest expense in the quarter ended September 30, 1998 was $1.8 million
compared to $629,000 in the quarter ended September 30, 1997, an increase of
$1.1 million or 180.3%. The increase reflects the growth of overall debt
outstanding during the 1998 period compared to the 1997 period due to the
financing of the acquisition of assets in Australia; the investment in Genesee
Rail-One in Canada; and the acquisition of railroad rolling stock by several
domestic subsidiaries. The Company's effective income tax rate was 43.3% in the
quarter ended September 30, 1998 compared to 40.0% in the quarter ended
September 30, 1997.
Net Income
The Company's net income in the quarter ended September 30, 1998 was $1.4
million compared to $2.1 million in the quarter ended September 30, 1997, a
decrease of $724,000 or 34.0%. The decrease in net income is the net result of
decreases in net income from United States railroad operations and industrial
switching operations of $1.5 million and $242,000, respectively, offset by net
income due to the commencement of operations in Australia of $1.0 million.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
Consolidated Operating Revenues
Operating revenues were $109.5 million in the first nine months of 1998
compared to $71.2 million in the first nine months of 1997, an increase of $38.3
million or 53.7%. The increase was attributable to $34.7 million in revenues
from the Australia operation, a $1.6 million increase in United States railroad
revenues and a $2.0 million increase in industrial switching revenues.
-16-
<PAGE>
The following three sections provide information on railroad revenues in the
United States and Australia, and industrial switching revenues in the United
States.
United States Operating Revenues Other Than Industrial Switching
Operating revenues were $62.0 million in the first nine months of 1998
compared to $60.4 million in the first nine months of 1997, an increase of $1.6
million or 2.6%. The increase was attributable to a $3.3 million increase in
non-freight revenues, which was partially offset by a $1.7 million decrease in
freight revenues.
The following table compares United States freight revenues, carloads and
average freight revenues per carload for the nine months ended September 30,
1998 and 1997:
United States Freight Revenues and Carloads Comparison by Commodity Group
Nine Months Ended September 30, 1998 and 1997
(dollars in thousands, except average per carload)
<TABLE>
<CAPTION>
Average
Freight
Revenues
Per
Freight Revenues Carloads Carload
---------------- -------- -------
Commodity % of % of % of % of
Group 1998 Total 1997 Total 1998 Total 1997 Total 1998 1997
------- ------- ------- ------- ------ ------- ------ ------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Coal, Coke &
Ores $13,698 28.1% $15,956 31.6% 54,506 33.5% 62,029 38.0% $ 251 $ 257
Pulp & Paper 6,345 13.0% 5,84 11.6% 16,294 10.0% 15,351 9.4% 389 381
Petroleum
Products 5,562 11.4% 6,441 12.8% 12,537 7.7% 13,368 8.2% 444 482
Chemicals and
Plastics 4,786 9.8% 4,456 8.8% 9,327 5.7% 8,190 5.0% 513 544
Lumber and
Forest
Products 4,647 9.5% 4,545 9.0% 15,752 9.7% 13,536 8.3% 295 336
Metals 3,929 8.1% 3,668 7.3% 14,290 8.8% 15,321 9.4% 275 239
Farm & Food
Products 3,164 6.5% 2,908 5.8% 11,442 7.0% 10,069 6.2% 277 289
Minerals &
Stone 2,716 5.6% 2,402 4.7% 9,757 6.0% 9,097 5.5% 278 264
Other 2,473 5.1% 1,618 3.2% 16,170 9.9% 11,563 7.0% 153 140
Auto & Auto
Parts 1,427 2.9% 2,607 5.2% 2,839 1.7% 4,906 3.0% 503 531
---------------------------------------------------------------------------------------
Total $48,747 100.0% $50,443 100.0% 162,914 100.0% 163,43 100.0% 299 309
===========================================================================================================
</TABLE>
The decrease in United States freight revenues was largely attributable to the
decline in freight revenues from shipments of Coal, Autos and Auto Parts and
Petroleum Products. Freight revenues from Coal were $13.7 million in the nine
months ended September 30, 1998, compared to $16.0 million in the nine months
ended September 30, 1997, a decrease of $2.3 million or 14.2% due to reduced
shipments of coal resulting from scheduled maintenance and inventory adjustments
at a key customer's facilities. Freight revenues from Autos and Auto Parts were
$1.4 million in the nine months ended September 30, 1998, compared to $2.6
million in the nine months ended September 30, 1997, a decrease of $1.2 million
or 45.3% due to reduced shipments resulting from loss of a freight contract and
labor issues in the auto industry. Freight revenues from Petroleum Products
were $5.6 million in the nine months ended September 30, 1998, compared to $6.4
million in the nine months ended September 30, 1997, a decrease of $879,000 or
13.6% due to reduced shipments of Petroleum Products resulting from scheduled
maintenance at a key customer's
-17-
<PAGE>
facilities. The decrease in freight revenues from Coal, Autos and Auto Parts and
Petroleum Products was partially offset by increases in freight revenues from
Pulp & Paper of $503,000 or 8.6%, Chemicals and Plastics of $330,000 or 7.4%,
Minerals & Stone of $314,000 or 13.1% and Metals of $261,000 or 7.1%. Freight
revenues from all remaining commodities reflected a net increase of $1.2
million.
Total United States carloads were 162,914 in the nine months ended September
30, 1998 compared to 163,430 in the nine months ended September 30, 1997, a
decrease of 516 or 0.3%. Also, the overall average revenue per carload declined
to $299 in the nine months ended September 30, 1998, compared to $309 per
carload in the nine months ended September 30, 1997, a decrease of 3.2% due to
changes in commodity mix and traffic patterns.
United States non-freight railroad revenues were $13.2 million in the nine
months ended September 30, 1998 compared to $9.9 million in the nine months
ended September 30, 1997, an increase of $3.3 million or 33.2%.%. The increase
was primarily due to increases in car hire and rental income of $2.1 million,
demurrage of $$416,000 and management fee income of $370,000.
Australia Operating Revenues (US Dollars)
Operating revenues were $34.7 million in the nine months ended September 30,
1998 and consisted of $31.0 million in freight revenues and a $3.7 million in
non-freight revenues.
The following table outlines Australian freight revenues for the nine months
ended September 30, 1998:
Australian Freight Revenue by Commodity
Nine Months Ended September 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Commodity Group Revenue
- --------------- ------------
<S> <C>
Hook and Pull (Haulage) $11,355
Grain 9,202
Coal 5,702
Gypsum 2,093
Marble 1,467
Lime 789
Other 392
-----------
Total $31,000
===========
</TABLE>
Australia non-freight revenues were $3.7 million in the nine months ended
September 30, 1998 and consisted of $2.5 million in revenues from car hire and
car rentals and $1.2 million in other non-freight revenue.
-18-
<PAGE>
Industrial Switching Revenues
Revenues from industrial switching activities were $12.8 million in the nine
months ended September 30, 1997 compared to $10.8 million in the nine months
ended September 30, 1997, an increase of $2.0 million or 17.8%. The increase
was primarily attributable to a broadening of the customer base of Rail Link,
Inc.
Consolidated Operating Expenses
Operating expenses were $95.7 million in the nine months ended September 30,
1998 compared to $59.1 million in the nine months ended September 30, 1997, an
increase of $36.6 million or 61.9%. Expenses attributable to operations in
Australia represented $28.8 million or 78.6% of the change, with increases in
domestic operating expenses accounting for the remaining $7.8 million or 21.4%
of the change.
The Company's operating ratio increased to 87.4% in the nine months ended
September 30, 1998 from 83.0% in nine months ended September 30, 1997. The
increase is primarily attributable to changes in the traffic mix, principally
related to the level of coal movements in the United States, and to increases in
labor and benefits and other expenses in the United States railroad and
industrial switching operations.
The following table sets forth a comparison of the Company's operating
expenses for the nine months ended September 30, 1998 and 1997:
Operating Expense Comparison
Nine Months Ended September 30, 1998 and 1997
(dollars in thousands)
<TABLE>
<CAPTION>
1998 1997
------------------------------- --------------------------------
% of % of
Operating Operating
Amount Revenues Amount Revenues
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Labor and benefits $33,991 31.0% $27,005 37.9%
Equipment rents 9,038 8.3% 6,711 9.4%
Purchased services 13,950 12.7% 3,018 4.2%
Depreciation and amortization 7,357 6.7% 4,985 7.0%
Diesel fuel 9,456 8.6% 3,525 4.9%
Casualties and
insurance 4,160 3.8% 3,682 5.2%
Materials 4,449 4.1% 3,315 4.7%
Other 13,328 12.2% 6,893 9.7%
------- ---- ------- ----
Total $95,729 87.4% $59,134 83.0%
=======================================================================
</TABLE>
Labor and benefits expense was $34.0 million in the nine months ended
September 30, 1998 compared to $27.0 million in the nine months ended September
30, 1997, an increase of $7.0 million or 25.9%, of which $3.8 million or 54.3%
was due to the commencement of operations in Australia and $3.2 million or 45.7%
was due to increases in United States railroad and switching operations. The
increase of $3.2 million in United States railroad and switching operations is
primarily attributable to increases in industrial switching labor of $1.3
million related to expansion of operations, several new corporate management
positions totaling approximately
-19-
<PAGE>
$289,000, and cost of living wage increases for employees which accounts for the
remainder of the increase. However, labor costs decreased as a percentage of
revenues to 31.0% in the nine months ended September 30, 1998 from 37.9% in the
nine months ended September 30, 1997. The decrease is largely attributable to
the purchased services nature of the Australia operation in which contractors
perform maintenance of track and maintenance of equipment services traditionally
performed by labor, thus resulting in a much lower labor-to-revenue ratio.
Similarly, purchased services expense was $14.0 million in the nine months ended
September 30, 1998 compared to $3.0 million in the nine months ended September
30, 1997, an increase of $10.9 million or 362.2%, due primarily to the
commencement of operations in Australia.
Diesel fuel expense was $9.5 million in the nine months ended September 30,
1998 compared to $3.5 million in the nine months ended September 30, 1997, an
increase of $5.9 million or 168.3%. This increase was due to $6.7 million in
diesel fuel expense in connection with the commencement of operations in
Australia, which was partially offset by a decrease of $773,000 in diesel fuel
expense in connection with United States operations. The price of diesel fuel is
more expensive in Australia than in the United States on a per unit basis. Other
expense was $13.3 million in the nine months ended September 30, 1998 compared
to $6.9 million in the nine months ended September 30, 1997, an increase of $6.4
million or 93.4%, of which $3.9 million or 60.4% is due to the commencement of
operations in Australia and $2.5 million or 39.6% is due to increases in United
States operations primarily attributable to general and administrative increases
related to acquisition endeavors and legal costs, and trackage rights expense
increases.
Interest Expense and Income Taxes
Interest expense in the nine months ended September 30, 1998 was $5.0 million
compared to $1.9 million in the nine months ended September 30, 1997, an
increase of $3.1 million or 168.5%. The increase reflects the growth of overall
debt outstanding during the 1998 period compared to the 1997 period due to the
financing of the acquisition of assets in Australia; the investment in Genesee
Rail-One in Canada; and the acquisition of railroad rolling stock by several
domestic subsidiaries. The Company's effective income tax rate was 41.7% in the
nine months ended September 30, 1998 compared to 40.4% in the nine months ended
September 30, 1997.
Net Income
The Company's net income in the nine months ended September 30, 1998 was $5.5
million compared to $6.4 million in the nine months ended September 30, 1997, a
decrease of $887,000 or 13.8%. The decrease in net income is the net result of
decreases in net income from United States railroad operations and industrial
switching operations of $3.0 million and $492,000, respectively, offset by net
income due to the commencement of operations in Australia of $2.6 million.
Liquidity and Capital Resources
On August 12, 1998, the Company announced that it would repurchase up to one
million shares of its Class A Common Stock in accordance with Exchange Act Rule
10b-18. During August and September, the Company repurchased 345,000 shares of
Class A stock at a cost of $4.6 million which will be held in the Company
treasury and may be used for customary corporate purposes.
During the nine months ended September 30, 1998 the Company generated cash
from operations of $11.1 million, invested $13.4 million in capital assets, had
a net
-20-
<PAGE>
reduction in debt of $4.5 million and received $2.0 million in proceeds from the
disposition of property.
During the nine months ended September 30, 1997 the Company used cash in
operations of $2.9 million, had a net increase in debt of $5.3 million, entered
into a $6.6 million long-term capital lease for rolling stock and recorded $2.5
million in net proceeds on governmental grants. A total of $14.0 million was
invested in capital assets of which $6.6 million represented rolling stock under
the long-term capital lease. The Company received $293,000 in proceeds from the
disposition of property.
The Company, through its initial budget and budget addendums for special
projects, has appropriated approximately $15.0 million in capital expenditures
in 1998, primarily for track rehabilitation. Of this amount, $1.5 million was
used to complete an obligation to replace rail under the terms of a lease of one
of the Company's railroads in the United States, and $2.5 million was used in
Australia. Approximately $13.4 million of the budgeted capital expenditures of
$15.0 million were completed as of September 30, 1998.
At September 30, 1998 the Company had long-term debt (including current
portion) totaling $68.1 million, which comprised 49.9% of its total
capitalization. This compares to long-term debt, including current portion, of
$74.1 million at December 31, 1997, comprising 52.0% 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 liquidity and
capital expenditure requirements relating to ongoing operations for at least the
duration of its credit facilities.
Forward-Looking Statements
This Report and the documents incorporated herein by reference may contain
forward-looking statements based on current expectations, estimates and
projections about the Company's industry, management's beliefs and assumptions
made by management. Words such as "anticipates," "intends," "plans,"
"believes," "seeks," "estimates," variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are no guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to forecast. Therefore,
actual results may differ materially from those expressed or forecast in any
such forward-looking statements. Such risks and uncertainties include, in
addition to those set forth in this Item 2, those noted in the documents
incorporated by reference. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
-21-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 6, 1998, a lawsuit was commenced against the Company and
its subsidiary, Illinois & Midland Railroad, Inc. ("IMRR"), by
Commonwealth Edison Company ("ComEd") in the Circuit Court of Cook
County, Illinois. The suit alleges that IMRR is in breach of certain
provisions of a 1987 agreement entered into by a prior unrelated
owner of the IMRR rail line. The provisions pertain to limitations on
rates received by IMRR and the unrelated predecessor for freight
hauled for ComEd's Powerton plant. The suit seeks unspecified
compensatory damages in excess of $100,000. ComEd is IMRR's largest
customer and in 1997 accounted for 15% of the consolidated revenues
of the Company and its subsidiaries. The Company believes the suit is
without merit. IMRR intends to vigorously defend against the suit.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - 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 - 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.
The remainder of this page is intentionally left blank.
-22-
<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) Second Amendment and Restated Revolving Credit Agreement dated as
of October 31, 1997 among the Registrant, its subsidiaries,
BankBoston, N.A. and the banks named therein (Exhibit 4.1)4
(10) Material Contracts
Not applicable.
*(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.
-23-
<PAGE>
(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
Not applicable.
____________________________
*Exhibit filed with this Report.
1Exhibit 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.
2Exhibit 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.
3Exhibit 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.
4Exhibit previously filed as part of, and incorporated herein by
reference to, the Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1997. The exhibit number contained in parenthesis refers to the
exhibit number in such Report.
The remainder of this page is intentionally left blank.
-24-
<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: November 16, 1998 By: /s/ Mortimer B. Fuller, III
---------------------------
Name: Mortimer B. Fuller, III
Title: Chairman of the Board and
CEO
Date: November 16, 1998 By: /s/ Alan R. Harris
---------------------------
Name: Alan R. Harris
Title: Senior Vice President and
Chief Accounting Officer
The remainder of this page is intentionally left blank.
-25-
<PAGE>
Exhibit 11.1
GENESEE & WYOMING INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
BASIC EARNINGS PER SHARE CALCULATION:
Net Income $1,403 5,531
Weighted average number of shares
of common stock 5,213 5,267
Earnings per share - basic $0.27 $1.05
DILUTED EARNINGS PER SHARE CALCULATION:
Net Income $1,403 $ 5,531
Weighted average number of shares of common stock
and common stock equivalents outstanding:
Weighted average number of shares
of common stock 5,213 5,267
Common stock equivalents issuable under stock
option plans -0- 71
Weighted average number of shares of common stock
and common stock equivalents - diluted 5,213 5,338
Earnings per share - diluted $ 0.27 $1.04
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET, INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,816
<SECURITIES> 0
<RECEIVABLES> 32,508
<ALLOWANCES> 0
<INVENTORY> 3,612
<CURRENT-ASSETS> 50,600
<PP&E> 150,109
<DEPRECIATION> 28,603
<TOTAL-ASSETS> 200,419
<CURRENT-LIABILITIES> 32,062
<BONDS> 67,849
0
0
<COMMON> 53
<OTHER-SE> 68,289
<TOTAL-LIABILITY-AND-EQUITY> 200,419
<SALES> 109,514
<TOTAL-REVENUES> 109,514
<CGS> 95,729
<TOTAL-COSTS> 95,729
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,299
<INCOME-PRETAX> 9,486
<INCOME-TAX> 3,955
<INCOME-CONTINUING> 5,531
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,531
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.04
</TABLE>
