<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
/X/ Annual Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act
of 1934 For the Fiscal Year Ended December 31, 1999
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period from____to____
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.)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
- ------------------- -------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $0.01 par value
-------------------------------------
(Title of Class)
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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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of the Regulations S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this Form 10-K. []
Aggregate market value of Class A Common Stock and Class B Common Stock held by
non-affiliates based on closing price on March 16, 2000: $49,833,816
Shares of common stock outstanding as of the close of business on
March 16, 2000:
Class Number of Shares Outstanding
- ----- ----------------------------
Class A Common Stock 3,455,632
Class B Common Stock 845,447
Documents incorporated by reference and the Part of the Form 10-K into which
they are incorporated are listed hereunder.
PART OF FORM 10-K DOCUMENT INCORPORATED BY REFERENCE
Part III, Items 10, 11, 12 and 13 Registrant's proxy statement to be issued in
connection with the Annual Meeting of the
Stockholders of the Registrant to be held on
May 23, 2000.
The remainder of this page is intentionally left blank.
2
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes included elsewhere in this
Annual Report.
General
The Company is a holding company whose subsidiaries own and/or operate
short line and regional freight railroads and provide related rail services in
North America and Australia. The Company, through its U.S. industrial switching
subsidiary, also provides freight car switching and related services to United
States industrial companies 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 freight car switching and
related rail services such as railcar leasing, railcar repair and storage to
industrial companies with extensive railroad facilities within their complexes,
to shippers along its lines, and to the Class I railroads that connect with its
North American 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. Also, much of
the Company's growth to date has resulted from acquisitions. Most recently, the
Company completed one acquisition in November 1997 and two acquisitions in 1999.
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.
Compania de Ferrocarriles Chiapas-Mayab, S.A. de C.V.
In August 1999, the Company's wholly-owned subsidiary, Compania de
Ferrocarriles Chiapas-Mayab, S.A. de C.V. ("FCCM"), was awarded a 30-year
concession to operate certain railways owned by the state-owned Mexican rail
company Ferronales. FCCM also acquired equipment and other assets. The
aggregate purchase price, including acquisition costs, was approximately 297
million pesos, or approximately $31.5 million at then-current exchange rates.
The purchase included $12.3 million of rolling stock, a $9.7 million advance
payment on track improvements to be completed on the state-owned track property
by mid-2000, a $1.0 million escrow payment which will be returned to the Company
upon successful completion of the track improvements, an expected future
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utilization by the Company of $2.2 million of value-added taxes paid on the
transaction, and $1.0 million in goodwill. The remaining purchase price ($5.3
million) was allocated to the 30-year operating license. As the track
improvements are made, the related costs will be reclassified into the property
accounts as leasehold improvements and amortized over the improvements'
estimated useful life of 20 years. Pursuant to the acquisition, employee
termination payments of $1.0 million were made to former state employees and
approximately 55 employees whom the Company retained upon acquisition but
terminated as part of its plan to reduce operating costs after September 30,
1999. All payments were made during the fourth quarter of 1999 and are
considered a cost of the acquisition. Accordingly, the payments represent costs
in excess of fair market value and are being amortized over 20 years.
The Chiapas-Mayab concession is made up of two separate rail lines. The
Chiapas is approximately 450 kilometers (280 miles) long and runs between
Ixtepec in the Mexican state of Oaxaca, and Ciudad Hidalgo in the Mexican state
of Chiapas. Principal commodities hauled include cement, corn, petroleum
products and various agricultural products. The Mayab extends approximately
1,100 kilometers (680 miles) from Coatzacoalcos in the Mexican state of Vera
Cruz, to beyond Merida in the Mexican state of Yucatan. Principal commodities
hauled on the line include cement, silica sand and various agricultural
products. The two railroads are connected via trackage rights over Ferrosur (a
recently privatized rail concession) and a government-owned line. FCCM began
operations on September 1, 1999.
Genesee Rail-One Inc.
On April 15, 1999, the Company closed on an agreement to acquire Rail-One
Inc. ("Rail-One") which has a 47.5% ownership interest in Genesee Rail-One Inc.
("GRO"), thereby increasing the Company's ownership of GRO to 95%. GRO owns and
operates two short line railroads in Canada. Under the terms of the purchase
agreement, the Company converted outstanding notes receivable from Rail-One of
$4.6 million into capital, will pay approximately $844,000 in cash to the
sellers of Rail-One in installments over a four year period, and granted options
to the sellers of Rail-One to purchase up to 80,000 shares of the Company's
Class A Common Stock at an exercise price of $8.625 per share. Exercise of the
option is contingent on the Company's recovery of its capital investment in GRO
including debt assumed if the Company were to sell GRO, and upon certain GRO
income performance measures. The transaction is accounted for as a purchase and
resulted in $2.8 million of goodwill which is being amortized over 15 years.
The contingent purchase price will be recorded as a component of goodwill at the
value of the options issued, if and when such options are exercisable.
Effective with this agreement, the operating results of GRO have been
consolidated within the financial statements of the Company, with a 5% minority
interest due to another GRO shareholder. Prior to April 15, 1999, the Company
accounted for its investment in GRO under the equity method and recorded losses
of $618,000, $645,000 and $60,000 in 1999, 1998 and 1997, respectively, in other
income, net.
Genesee & Wyoming Australia Pty. Ltd.
On August 28, 1997, the Company's wholly-owned subsidiary, Genesee &
Wyoming Australia Pty. Ltd. ("GWIA"), was awarded the contract to purchase
certain selected assets of the railroad freight operation of SA Rail, a division
of Australian National Railway which was controlled by the Commonwealth
Government of Australia. SA Rail provided intrastate freight services in South
Australia, interstate haulage of contract freight, rolling
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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 of the assets and commenced operation of
railroad freight service under the name of Australia Southern Railroad Pty. Ltd.
The assets were acquired for approximately $33.1 million, including related
costs. The assets consist primarily of road and track structure, railroad
rolling stock and other equipment.
Latin American Rail LLC
On September 30, 1999, the Company closed on an agreement to acquire a
47.5% ownership interest in Latin American Rail LLC in Chile for approximately
$1.0 million in cash and 25,532 shares of the Company's stock valued at
approximately $281,000. Latin American Rail LLC owns 100% of Latin American Rail
Investors, S.A. which in turn owns 4.0% of CB Transportes S.A., a company that
has investments in several railroads in South America. The Company is accounting
for this investment under the equity method of accounting for investments.
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Consolidated Operating Revenues
Operating revenues were $175.6 million in the year ended December 31, 1999
compared to $147.5 million in the year ended December 31, 1998, a net increase
of $28.1 million or 19.1%. The net increase was attributable to a $33.0 million
increase in North American railroad revenues of which $19.9 million were
revenues from new railroad operations in Canada, $8.8 million were revenues from
new railroad operations in Mexico and $4.3 million were increases in revenues on
existing North America railroad operations, offset by a $3.6 million decrease in
revenues from Australian railroad operations due primarily to the non-renewal of
a coal contract and a $1.3 million decrease in industrial switching revenues due
primarily to the Company's decision to exit an unprofitable switching contract.
The following three sections provide information on railroad revenues for
North American and Australian railroad operations, and industrial switching
revenues in the United States.
North American Railroad Operating Revenues
Operating revenues were $121.1 million in the year ended December 31, 1999
of which $95.5 million were freight revenues and $25.6 million were non-freight
revenues compared to $88.1 million of which $66.1 million were freight revenues
and $22.0 million were non-freight revenues in the year ended December 31, 1998,
an increase in operating revenues of $33.0 million or 37.5%. The increase was
attributable to a $29.5 million increase in freight revenues and a $3.5 million
increase in non-freight revenues. The increase of $29.5 million in North
American freight revenues was due to $15.0 million in freight revenues
attributable to new railroad operations in Canada, $7.2 million in freight
revenues attributable to new railroad operations in Mexico, and an increase of
$7.3 million in freight revenues on existing railroad operations. The following
table compares North American freight revenues, carloads and average freight
revenues per carload for the years ended December 31, 1999 and 1998:
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North American Freight Revenues and Carloads Comparison by Commodity Group
Years Ended December 31, 1999 and 1998
(dollars in thousands, except average per carload)
<TABLE>
<CAPTION>
Average
Freight
Revenues
Per
Freight Revenues Carloads Carload
---------------- -------- -------
% of % of % of % of
Commodity Group 1999 Total 1998 Total 1999 Total 1998 Total 1999 1998
- --------------- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Coal, Coke & Ores $24,779 25.9% $19,245 29.1% 94,140 31.4% 75,881 34.8% $263 $254
Pulp & Paper 14,867 15.6% 8,295 12.6% 39,952 13.3% 21,318 9.7% 372 389
Petroleum Products 10,210 10.7% 7,135 10.8% 20,206 6.7% 15,992 7.3% 505 446
Lumber & Forest
Products 8,304 8.7% 6,098 9.2% 28,627 9.6% 20,802 9.5% 290 293
Chemicals-Plastics 8,169 8.6% 6,337 9.6% 16,039 5.4% 12,503 5.7% 509 507
Metals 8,156 8.5% 4,879 7.4% 30,614 10.2% 17,862 8.2% 266 273
Minerals & Stone 7,905 8.3% 3,790 5.8% 23,667 7.9% 13,679 6.3% 334 277
Farm & Food Products 5,831 6.1% 4,919 7.4% 19,898 6.6% 17,451 8.0% 293 282
Autos & Auto Parts 2,491 2.6% 1,945 2.9% 4,790 1.6% 3,895 1.8% 520 499
Other 4,825 5.0% 3,438 5.2% 22,024 7.3% 18,922 8.7% 219 182
--------- --------- ----------- --------- ---------- --------- ----------- ----------
Totals $95,537 100.0% $66,081 100.0% 299,957 100.0% 218,305 100.0% 319 303
========= ========= =========== ========= ========== ========= =========== ==========
</TABLE>
Coal increased by $5.5 million or 28.8% of which $5.4 million was on
existing railroad operations and $182,000 was new freight revenues attributable
to the acquisition of GRO. The increase on existing railroad operations in 1999
was primarily attributable to a return to normal shipments at a key customer's
facilities which compare to reduced shipments in the 1998 period due to
scheduled inventory reductions and planned maintenance projects at the key
customer's facilities.
Pulp and Paper increased by $6.6 million or 79.2% of which $553,000 was on
existing railroad operations, $5.9 million was new freight revenues attributable
to the acquisition of GRO, and $125,000 was freight revenues attributable to new
railroad operations in Mexico.
Petroleum Products increased by $3.1 million or 43.0% of which $95,000 was
on existing railroad operations, $131,000 was new freight revenues attributable
to the acquisition of GRO, and $2.8 million was freight revenues attributable to
new railroad operations in Mexico.
Lumber and Forest Products increased by $2.2 million or 36.2% of which
$956,000 was on existing railroad operations, $1.2 million was new freight
revenues attributable to the acquisition of GRO, and $35,000 was freight
revenues attributable to new railroad operations in Mexico.
Chemicals and Plastics increased by $1.8 million or 28.9% of which $258,000
was on existing railroad operations, $1.3 million was new freight revenues
attributable to the acquisition of GRO, and $233,000 was freight revenues
attributable to new railroad operations in Mexico.
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Metals increased by $3.3 million or 67.2% of which $177,000 was an increase
on existing railroad operations, $3.0 million was new freight revenues
attributable to the acquisition of GRO, and $80,000 was freight revenues
attributable to new railroad operations in Mexico.
Minerals and Stone increased by a net $4.1 million or 108.8% of which $1.6
million was new freight revenues attributable to the acquisition of GRO, $2.9
was freight revenues attributable to new railroad operations in Mexico and
$360,000 was a decrease on existing railroad operations.
Freight revenues from all remaining commodities reflected an increase of
$2.8 million or 27.6% of which $245,000 was an increase on existing railroad
operations, $1.7 million was new freight revenues attributable to the
acquisition of GRO, and $916,000 was new freight revenues attributable to new
railroad operations in Mexico.
Total North American carloads were 299,957 in the year ended December 31,
1999 compared to 218,305 in the year ended December 31, 1998, an increase of
81,652 or 37.4%. The increase of 81,652 consisted of an increase of 25,951
carloads on existing railroad operations of which 17,557 were coal, 46,478
carloads attributable to the acquisition of GRO, and 9,223 carloads attributable
to new railroad operations in Mexico.
The overall average revenue per carload increased to $319 in the year ended
December 31, 1999, compared to $303 per carload in the year ended December 31,
1998, an increase of 5.3% due primarily to higher per carload revenues
attributable to Canada and Mexico carloads offset by a slight decrease on
existing railroad operations carloads.
North American non-freight railroad revenues were $25.6 million in the year
ended December 31, 1999 compared to $22.0 million in the year ended December 31,
1998, an increase of $3.5 million or 16.1%. The increase is the net result of
$4.8 million of new non-freight revenues attributable to the acquisition of GRO,
$1.7 million of new non-freight revenues attributable to Mexico and a decrease
of $3.0 million of non-freight revenues on existing railroad operations due
primarily to a decrease in car hire and rental income.
Australian Railroad Operating Revenues
Operating revenues were $43.2 million in the year ended December 31, 1999,
compared to $46.7 million in the year ended December 31, 1998, a decrease of
$3.6 million or 7.7%. The decrease was the result of a decrease in freight
revenues from Australian railroad operations of $3.4 million or 8.0% primarily
due to the non-renewal of a coal contract and a decrease in non-freight revenues
of $226,000 or 4.8%.
Australian freight revenues were $38.6 million in the year ended December
31, 1999, compared to $42.0 million in the year ended December 31, 1998, a
decrease of $3.4 million or 8.0%. The following table outlines Australian
freight revenues for the years ended December 31, 1999 and 1998:
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Australian Freight Revenues by Commodity
Years Ended December 31, 1999 and 1998
(dollars in thousands, except average per carload)
<TABLE>
<CAPTION>
Average
Freight
Revenues
Per
Freight Revenues Carloads Carload
---------------- -------- -------
% of % of % of % of
Commodity Group 1999 Total 1998 Total 1999 Total 1998 Total 1999 1998
--------------- ---------- ---------- ---------- --------- ---------- --------- ---------- --------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hook and Pull
(Haulage) $17,533 45.4% $15,288 36.4% 52,407 31.3% 40,817 22.3% $335 $375
Grain 13,588 35.2% 13,040 31.0% 48,781 29.1% 45,896 25.1% 279 284
Gypsum 2,861 7.4% 2,788 6.6% 40,304 24.1% 36,611 20.0% 71 76
Marble 2,034 5.3% 1,949 4.6% 8,343 5.0% 8,294 4.5% 244 235
Lime 1,531 4.0% 1,052 2.5% 4,662 2.8% 2,500 1.4% 328 421
Coal 664 1.7% 7,514 17.9% 4,317 2.6% 47,286 25.9% 154 159
Iron Ore 350 0.9% - 0.0% 8,069 4.8% - 0.0% 43 -
Other 88 0.1% 368 1.0% 603 0.3% 1,382 0.8% 146 266
---------- ---------- ---------- --------- ---------- --------- ---------- ---------
Total $38,649 100.0% $41,999 100.0% 167,486 100.0% 182,786 100.0% 231 230
========== ========== ========== ========= ========== ========= ========== =========
</TABLE>
The net decrease of $3.4 million in Australian freight revenues was
primarily attributable to a decrease in freight revenues from Coal of $6.9
million offset by new freight revenues from the shipment of Iron Ores of
$350,000, increases in freight revenues from the shipment of Grain of $548,000,
Hook and Pull of $2.2 million and all other non-coal commodities of $357,000.
The decrease in freight revenues from Coal in the year ended December 31, 1999,
was due to the non-renewal of a Coal contract.
Australia carloads were 167,486 in the year ended December 31, 1999
compared to 182,786 in the year ended December 31, 1998, a decrease of 15,300 or
8.4%. The decrease was primarily the result of a decrease in Coal carloads of
42,969 offset by increases in Hook and Pull of 11,590, Iron Ores of 8,069,
Gypsum of 3,693, Grain of 2,885, and all other commodities of 1,432.
The overall average revenue per carload increased to $231 in the year ended
December 31, 1999, compared to $230 per carload in the year ended December 31,
1998.
Australian non-freight revenues were $4.5 million in the year ended
December 31, 1999, compared to $4.7 million in the year ended December 31, 1998,
a decrease of $226,000 or 4.8% due primarily to a decrease in other income.
U.S. Industrial Switching Revenues
Revenues from U.S. industrial switching activities were $11.3 million in
the year ended December 31, 1999 compared to $12.6 million in the year ended
December 31, 1998, a decrease of $1.3 million or 10.3% due primarily to the
Company's decision to exit an unprofitable switching contract.
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Consolidated Operating Expenses
Operating expenses for all operations combined were $153.2 million in the
year ended December 31, 1999, compared to $127.9 million in the year ended
December 31, 1998, a net increase of $25.3 million or 19.8%. Expenses
attributable to North American railroad operations were $105.2 million in the
year ended December 31, 1999, compared to $75.6 million in the year ended
December 31, 1998, an increase of $29.6 million or 39.2% of which $17.8 million
were expenses attributable to new railroad operations in Canada, $8.1 million
were expenses attributable to new railroad operations in Mexico and $3.7 were
expenses attributable to existing U.S. railroad operations. Expenses
attributable to operations in Australia were $36.6 million in the year ended
December 31, 1999, compared to $37.9 million in the year ended December 31,
1998, a decrease of $1.3 million or 3.5%. Expenses attributable to U.S.
industrial switching were $11.4 million in the year ended December 31, 1999,
compared to $14.4 million in the year ended December 31, 1998, a decrease of
$3.0 million or 20.9%.
Operating Ratios
The Company's combined operating ratio increased to 87.3% in the year ended
December 31, 1999 from 86.7% in the year ended December 31, 1998. The operating
ratio for North American railroad operations increased to 86.9% in the year
ended December 31, 1999 from 85.8% in the year ended December 31, 1998. The
operating ratio for Australian railroad operations increased to 84.8% in the
year ended December 31, 1999 from 81.1% in the year ended December 31, 1998.
The operating ratio for U.S. industrial switching operations decreased to 100.8%
in the year ended December 31, 1999 from 114.2% in the year ended December 31,
1998.
The following three sections provide information on railroad expenses for
North American and Australian railroad operations, and industrial switching
expenses in the United States.
North American Railroad Operating Expenses
The following table sets forth a comparison of the Company's North American
railroad operating expenses in the years ended December 31, 1999 and 1998:
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North American Railroad
Operating Expense Comparison
Years Ended December 31, 1999 and 1998
(dollars in thousands)
<TABLE>
<CAPTION>
1999 1998
---- ----
Percent of Percent of
Operating Operating
Dollars Revenue Dollars Revenue
------- ------- ------- -------
<S> <C> <C> <C> <C>
Labor and benefits $ 38,819 32.1% $ 30,822 35.0%
Equipment rents 13,768 11.4% 11,060 12.6%
Purchased services 7,996 6.6% 4,496 5.1%
Depreciation and amortization 9,649 8.0% 7,277 8.3%
Diesel fuel 6,357 5.2% 3,187 3.6%
Casualties and insurance 4,172 3.4% 2,937 3.3%
Materials 8,503 7.0% 3,485 4.0%
Other expenses 15,929 13.2% 12,285 13.9%
----------------- ---------------- ----------------- -----------------
Total operating expenses $ 105,193 86.9% $75,549 85.8%
================= ================ ================= =================
</TABLE>
Labor and benefits expense was $38.8 million in the year ended December 31,
1999 compared to $30.8 million in the year ended December 31, 1998, an increase
of $8.0 million or 25.9% of which $5.0 million was attributable to the
acquisition of GRO, $2.7 million was attributable to new railroad operations in
Mexico and $281,000 was attributable to an increase on existing railroad
operations.
Equipment rents were $13.8 million in the year ended December 31, 1999
compared to $11.1 million in the year ended December 31, 1998, a net increase of
$2.7 million or 24.5% of which $4.0 million was attributable to the acquisition
of GRO, $53,000 was attributable to new railroad operations in Mexico and $1.4
million was a decrease on existing railroad operations due primarily to a
reduction of rolling stock and associated.
Purchased services were $8.0 million in the year ended December 31, 1999
compared to $4.5 million in the year ended December 31, 1998, a net increase of
$3.5 million or 77.8% of which $2.8 million was attributable to the acquisition
of GRO, $865,000 was attributable to new railroad operations in Mexico and
$202,000 was a decrease on existing railroad operations resulting from increased
capital spending which reduced the need for certain purchased maintenance
services.
Depreciation and amortization expense was $9.6 million in the year ended
December 31, 1999 compared to $7.2 million in the year ended December 31, 1998,
an increase of $2.4 million or 32.6% of which $1.4 million was attributable to
the acquisition of GRO, $671,000 was attributable to new railroad operations in
Mexico and $280,000 was attributable to existing railroad operations as a result
of increased capital spending in 1998 and 1999.
Diesel fuel expense was $6.4 million in the year ended December 31, 1999
compared to $3.2 million in the year ended December 31, 1998, an increase of
$3.2 million or 99.5% of which $1.5 million was attributable to the acquisition
of GRO, $836,000 was attributable to new railroad operations in Mexico and
$831,000 was attributable to existing railroad operations due primarily to
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increased fuel oil prices in 1999 and secondarily to increased fuel consumption
resulting from an increase in carloads on existing operations.
Casualties and insurance expense was $4.2 million in the year ended
December 31, 1999 compared to $2.9 million in the year ended December 31, 1998,
an increase of $1.3 million or 42.0% of which $498,000 was attributable to the
acquisition of GRO, $223,000 was attributable to new railroad operations in
Mexico and $514,000 was attributable to existing railroad operations due
primarily to increases in derailment and insurance expense.
Materials expense was $8.5 million in the year ended December 31, 1999
compared to $3.5 million in the year ended December 31, 1998, an increase of
$5.0 million or 144.0% of which $984,000 was attributable to the acquisition of
GRO, $1.2 million was attributable to new railroad operations in Mexico and $2.8
million was attributable to existing railroad operations due primarily to
increased track and locomotive materials expense.
Other expenses were $15.9 million in the year ended December 31, 1999
compared to $12.3 million in the year ended December 31, 1998, an increase of
$3.6 million or 29.6% of which $1.5 million was attributable to the acquisition
of GRO, $1.5 million was attributable to new railroad operations in Mexico and
$629,000 was attributable to existing railroad operations primarily related to
acquisition expenses which were $1.9 million in 1999 ($1.2 million of which was
incurred in the first quarter of 1999) compared to $1.5 million in 1998, an
increase of $404,000 or 27.9%.
Australian Railroad Operating Expenses
The following table sets forth a comparison of the Company's Australian
railroad operating expenses in the years ended December 31, 1999 and 1998:
Australian Railroad
Operating Expense Comparison
Years Ended December 31, 1999 and 1998
(dollars in thousands)
<TABLE>
<CAPTION>
1999 1998
---- ----
Percent of Percent of
Operating Operating
Dollars Revenue Dollars Revenue
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Labor and benefits $ 5,443 12.6% $ 5,263 11.3%
Equipment rents 367 0.9% 593 1.3%
Purchased services 12,116 28.1% 13,538 29.0%
Depreciation and amortization 2,157 5.0% 1,842 3.9%
Diesel fuel 8,186 19.0% 8,895 19.0%
Casualties and insurance 1,635 3.8% 1,415 3.0%
Materials 1,861 4.3% 1,734 3.7%
Other expenses 4,833 11.1% 4,627 9.9%
------------------------------------------------------------------------------
Total operating expenses $36,598 84.8% $37,907 81.1%
==============================================================================
</TABLE>
Purchased services were $12.1 million in the year ended December 31, 1999
compared to $13.5 million in the year ended December 31, 1998, a decrease
11
<PAGE>
of $1.4 million or 10.5%. The decrease was primarily related to the non-renewal
of a coal haulage contract which resulted in no contracted maintenance charges
on the track used for the coal haulage, and the positive impact of capital work
on ASR-owned tracks which reduced contract labor expense for maintenance.
All other operating expenses were $24.5 million in the year ended December
31, 1999 compared to $24.4 million in the year ended December 31, 1998, a net
increase of $113,000.
U. S. Industrial Switching Operating Expenses
The following table sets forth a comparison of the Company's industrial
switching operating expenses in the years ended December 31, 1999 and 1998:
U.S. Industrial Switching
Operating Expense Comparison
Years Ended December 31, 1999 and 1998
(dollars in thousands)
<TABLE>
<CAPTION>
1999 1998
---- ----
Percent of Percent of
Operating Operating
Dollars Revenue Dollars Revenue
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Labor and benefits $ 7,945 70.1% $ 9,019 71.3%
Equipment rents 187 1.6% 217 1.7%
Purchased services 476 4.2% 291 2.3%
Depreciation and amortization 768 6.8% 798 6.3%
Diesel fuel 421 3.7% 466 3.7%
Casualties and insurance 971 8.6% 1,363 10.8%
Materials 743 6.6% 758 6.0%
Other expenses (84) -0.8% 1,533 12.1%
------------------------------------------------------------------------------
Total operating expenses $11,427 100.8% $14,445 114.2%
==============================================================================
</TABLE>
Labor and benefits expense was $7.9 million in the year ended December 31,
1999 compared to $9.0 million in the year ended December 31, 1998, a decrease of
$1.1 million or 11.9%, due primarily to the decision to exit unprofitable
switching contracts.
Other expense was a credit of $84,000 in the year ended December 31, 1999
compared to $1.5 million in the year ended December 31, 1998, a decrease of $1.6
million or 105.5%. The 1998 period was unusually high due to approximately
$550,000 of legal fees for still-pending litigation.
Interest Expense
Interest expense in the year ended December 31, 1999 was $8.5 million
compared to $7.1 million in the year ended December 31, 1998, an increase of
$1.4 million or 19.7% primarily related to the increase in debt used for
acquisitions.
12
<PAGE>
Other Income and Income Taxes
The Company's other income consists primarily of interest income, gains and
losses on assets sales, equity earnings and losses on unconsolidated affiliates,
minority interest expense, and foreign currency. Other income in the year ended
December 31, 1999 was $1.1 million compared to $6.6 million in the year ended
December 31, 1998, a decrease of $5.5 million or 84.0%. The 1998 other income
reflected $6.0 million of non-recurring insurance proceeds recorded in North
American railroad operations.
The Company's effective income tax rate in the years ended December 31,
1999 and 1998 was 14.5% and 40.3%, respectively. The 1999 rate was impacted by
a $4.2 million benefit recorded in the third quarter of 1999 as a result of a
favorable tax law change in Australia. Without this impact, 1999's effective
income tax rate was 42.5%. The Company may realize additional benefits from
this tax law change in future quarters.
Net Income and Earnings Per Share
The Company's net income in the year ended December 31, 1999 was $12.5
million (including a $4.2 million income tax benefit described above and an
extraordinary non-cash expense of $262,000 related to the early extinguishment
of debt described in Note 8. to Consolidated Financial Statements) compared to
net income of $11.4 million (including a $3.9 million after-tax effect of an
insurance settlement described in Note 2. to Consolidated Financial Statements)
in the year ended December 31, 1998, an increase of $1.1 million or 9.6%. The
increase in net income is the net result of an increase in net income from
Australian railroad operations of $3.6 million, a decrease in net income from
North American railroad operations of $3.7 million, and a decrease in the net
loss of industrial switching of $1.2 million.
Basic and Diluted Earnings Per Share in the year ended December 31, 1999
were $2.79 and $2.76 respectively, on weighted average shares of 4.5 million
compared to $2.20 and $2.19 respectively, on weighted average shares of 5.2
million in the year ended December 31, 1998. The change in weighted average
shares outstanding primarily reflects the impact of a 1.0 million share buy-back
program which started in August, 1998 and ended in April, 1999.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Consolidated Operating Revenues
Operating revenues were $147.4 million in 1998 compared to $103.6 million
in 1997, an increase of $43.8 million or 42.3%. The increase was attributable
to $39.3 million in revenues from the Australia operation, a $3.7 million
increase in North America railroad revenues, and a $823,000 increase in U.S.
industrial switching revenues.
The following three sections provide information on railroad revenues in
North America and Australia, and industrial switching revenues in the United
States.
North America Railroad Operating Revenues
Operating revenues were $88.1 million in the year ended December 31, 1998
compared to $84.4 million in the year ended December 31, 1997, an increase of
$3.7 million or 4.4%. The increase was attributable to a $5.3 million increase
13
<PAGE>
in non-freight revenues, which offset a $1.6 million decrease in freight
revenues.
The following table compares freight revenues, carloads and average freight
revenues per carload for 1998 and 1997:
North America Freight Revenues and Carloads Comparison by Commodity Group
Years Ended December 31, 1998 and 1997
(dollars in thousands,
except average per carload)
<TABLE>
<CAPTION>
Average
Freight
Revenue
Freight Revenues Carloads Per Carload
---------------- -------- -----------
% of % of % of % of
Commodity 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 $19,245 29.1% $21,452 31.7% 75,881 34.8% 82,269 37.4% $254 $261
Pulp & Paper 8,295 12.6% 7,920 11.7% 21,318 9.7% 20,760 9.4% 389 382
Petroleum Products 7,135 10.8% 8,349 12.3% 15,992 7.3% 17,456 7.9% 446 478
Chemicals &
Plastics 6,337 9.6% 5,761 8.5% 12,503 5.7% 10,496 4.8% 507 549
Lumber & Forest
Products 6,098 9.2% 6,093 9.0% 20,802 9.5% 18,171 8.3% 293 335
Farm & Food Products 4,919 7.4% 3,865 5.7% 17,451 8.0% 13,390 6.1% 282 289
Metals 4,879 7.4% 5,188 7.7% 17,862 8.2% 21,268 9.7% 273 244
Minerals & Stone 3,790 5.8% 3,346 4.9% 13,679 6.3% 12,657 5.8% 277 264
Autos & Auto Parts 1,945 2.9% 3,452 5.1% 3,895 1.8% 6,496 3.0% 499 531
Other 3,438 5.2% 2,287 3.4% 18,922 8.7% 16,743 7.6% 182 137
---------- --------- ----------- --------- ---------- --------- ----------- ----------
Total $66,081 100.0% $67,713 100.0% 218,305 100.0% 219,706 100.0% 303 308
========== ========= =========== ========= ========== ========= =========== ==========
</TABLE>
The decrease in freight revenues was attributable to the decline in freight
revenues from shipments of coal, autos and auto parts, petroleum products and
metals. Freight revenues from coal were $19.2 million in the year ended
December 31, 1998, compared to $21.4 million in the year ended December 31,
1997, a decrease of $2.2 million or 10.3% primarily 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 $1.9 million in the year
ended December 31, 1998, compared to $3.4 million in the year ended December 31,
1997, a decrease of $1.5 million or 43.7% primarily due to reduced shipments
resulting from loss of overhead freight from a contract change between CSXT and
Ford, and labor issues in the auto industry.
Freight revenues from petroleum products were $7.1 million in the year
ended December 31, 1998, compared to $8.3 million in the year ended December 31,
1997, a decrease of $1.2 million or 14.5% due to reduced shipments resulting
from scheduled maintenance at a key customer's facilities.
Freight revenues from metals were $4.9 million in the year ended December
31, 1998, compared to $5.2 million in the year ended December 31, 1997, a
decrease of $309,000 or 5.9%. The decrease in freight revenues from coal, autos
and auto parts, petroleum products and metals was partially offset by increases
in freight revenues from farm and food products of $1.1 million or
14
<PAGE>
27.3%, chemicals and plastics of $576,000 or 10.0%, minerals and stone of
$444,000 or 13.3% and pulp and paper of $375,000 or 4.7%. Freight revenues from
all remaining commodities reflected a net increase of $1.2 million.
Total carloads were 218,305 in the year ended December 31, 1998 compared to
219,706 in the year ended December 31, 1997, a decrease of 1,401 or 0.6%. Also,
the overall average revenue per carload declined to $303 in the year ended
December 31, 1998, compared to $308 per carload in the year ended December 31,
1997, a decrease of 1.6% due to changes in commodity mix and traffic patterns.
North America non-freight railroad revenues were $22.0 million in the year
ended December 31, 1998 compared to $16.7 million in the year ended December 31,
1997, an increase of $5.3 million or 32.0%. The increase was primarily due to
increases in car hire and rental income of $2.0 million, other income of $1.8
million and switching revenue of $1.5 million.
Australian Railroad Operating Revenues
Operating revenues were $46.7 million in the year ended December 31, 1998,
compared to $7.4 million in the year ended December 31, 1997, an increase of
$39.3 million or 528.8%. The increase consisted of $35.7 million in freight
revenues and $3.6 in non-freight revenues. The increase was primarily
attributable to a full year of operations in 1998 as compared to operations
which began on November 8, 1997.
The following table outlines Australian freight revenues for the periods
ended December 31, 1998 and 1997:
Australian Freight Revenues by Commodity
Year Ended December 31, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
Average
Freight
Revenue
Freight Revenues Carloads Per Carload
---------------- -------- -----------
% of % of % of % of
Commodity Group 1998 Total 1997 Total 1998 Total 1997 Total 1998 1997
- --------------- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hook and Pull
(Haulage) $15,288 36.4% $ 1,969 31.2% 40,817 22.3% 4,465 15.4% $375 $441
Grain 13,040 31.0% 2,377 37.7% 45,896 25.1% 10,201 35.3% 284 233
Coal 7,514 17.9% 817 12.9% 47,286 25.9% 6,719 23.2% 159 122
Gypsum 2,788 6.6% 463 7.3% 36,611 20.0% 5,494 19.0% 76 82
Marble 1,949 4.6% 268 4.2% 8,294 4.5% 1,060 3.7% 235 253
Lime 1,052 2.5% 203 3.2% 2,500 1.4% 225 0.7% 421 902
Other 368 1.0% 215 3.5% 1,382 0.8% 772 2.7% 266 278
---------- ---------- ---------- --------- ---------- --------- ---------- ---------
Total $41,999 100.0% $ 6,312 100.0% 182,786 100.0% 28,936 100.0% 230 218
========== ========== ========== ========= ========== ========= ========== =========
</TABLE>
Australia non-freight revenues were $4.7 million in the year ended December
31, 1998, compared to $1.1 million in the year ended December 31, 1997, an
increase of $3.6 million or 322.6%. The increase consisted of $2.4 million in
car hire and rental income and $1.2 million in other income. The
15
<PAGE>
increase was primarily attributable to a full year of operations in 1998 as
compared to operations which began on November 8, 1997.
U.S. Industrial Switching Revenues
Revenues from U.S. industrial switching activities were $12.6 million in
the year ended December 31, 1998 compared to $11.8 million in the year ended
December 31, 1997, an increase of $823,000 or 7.0%. The increase was primarily
attributable to a broadening of the customer base of Rail Link, Inc.
Consolidated Operating Expenses
Operating expenses for all operations combined were $127.9 million in 1998
compared to $87.2 million in 1997, an increase of $40.7 million or 46.7%.
Expense increases attributable to operations in Australia, which began in
November, 1997, represented $31.2 million or 76.6% of the change, expense
increases attributable to North America railroad operations represented $7.7
million or 19.0% of the change, and expense increases in U.S. industrial
switching represented $1.8 million or 4.4% of the change.
Operating Ratios
The Company's combined operating ratio increased to 86.7% in 1998 from
84.1% in 1997. The operating ratio for U.S. railroad operations increased to
85.8% in 1998 from 80.4% in 1997. The operating ratio for Australia railroad
operations decreased to 81.1% in 1998 from 90.5% in 1997. The operating ratio
for U.S. industrial switching operations increased to 114.2% in 1998 from 107.0%
in 1997.
The following three sections provide information on railroad expenses in
North America and Australia, and industrial switching expenses in the United
States.
North America Railroad Operating Expenses
The following table sets forth a comparison of the Company's North America
railroad operating expenses in 1998 and 1997:
The remainder of this page is intentionally left blank.
16
<PAGE>
North America Railroad
Operating Expense Comparison
Years Ended December 31, 1998 and 1997
(dollars in thousands)
<TABLE>
<CAPTION>
1998 1997
---- ----
Percent of Percent of
Operating Operating
Dollars Revenue Dollars Revenue
------- ------- ------- -------
<S> <C> <C> <C> <C>
Labor and benefits $30,822 35.0% $28,041 33.2%
Equipment rents 11,060 12.6% 8,755 10.4%
Purchased services 4,496 5.1% 3,872 4.6%
Depreciation and amortization 7,277 8.3% 6,092 7.2%
Diesel fuel 3,187 3.6% 4,239 5.0%
Casualties and insurance 2,937 3.3% 4,280 5.1%
Materials 3,485 4.0% 3,837 4.5%
Other 12,285 13.9% 8,707 10.4%
------ ---- ----- ----
Total $75,549 85.8% $67,823 80.4%
======= ==== ======= ====
</TABLE>
Labor and benefits expense was $30.8 million in 1998 compared to $28.0
million in 1997, an increase of $2.8 million or 9.9%, due primarily to general
increases in wages and benefits for all railroad operations and the addition of
several new senior management positions in general and administrative.
Equipment rents were $11.1 million in 1998 compared to $8.8 million in
1997, an increase of $2.3 million or 26.3%, due primarily to new operating
leases for railroad rolling stock utilized by the Company's leasing subsidiary.
Purchased services were $4.5 million in 1998 compared to $3.9 million in
1997, an increase of $624,000 or 16.1%, due primarily to increases in
maintenance of way contract work of approximately $277,000 and information
systems and general and administrative contract work of approximately $413,000,
offset by a net decrease in all other departments of $66,000.
Depreciation and amortization expense was $7.3 million in 1998 compared to
$6.1 million in 1997, an increase of $1.2 million or 19.5%, due primarily to
increased capital spending in 1998 and 1997.
Diesel fuel was $3.2 million in 1998 compared to $4.2 million in 1997, a
decrease of $1.0 million or 24.8%, due primarily to a decline in diesel fuel
prices.
Casualties and insurance expense, including claims brought under the
Federal Employers' Liability Act, was $2.9 million in 1998 compared to $4.3
million in 1997, a decrease of $1.4 million or 31.4%, due primarily to a
decrease in derailment expense of approximately $739,000 and a decrease in
claims expense of approximately $584,000.
Materials expense was $3.5 million in 1998 compared to $3.8 million in
1997, a decrease of $352,000 or 9.2%, due primarily to decreases in maintenance
of way and maintenance of equipment repairs.
17
<PAGE>
Other expense was $12.3 million in 1998 compared to $8.7 million in 1997, an
increase of $3.6 million or 41.1%, due primarily to increases in acquisition
expense of $1.1 million, trackage rights of $1.0 million, general and
administrative of $1.0 million, legal and accounting fees of $341,000 and other
expenses, net of $137,000.
Australian Railroad Operating Expenses
The following table sets forth a comparison of the Company's Australia
railroad operating expenses in 1998 and 1997:
Australian Railroad
Operating Expense Comparison
Years Ended December 31, 1998 and 1997
(dollars in thousands)
<TABLE>
<CAPTION>
1998 1997
---- ----
Percent of Percent of
Operating Operating
Dollars Revenue Dollars Revenue
------- ------- ------- -------
<S> <C> <C> <C> <C>
Labor and benefits $ 5,263 11.3% $ 899 12.1%
Equipment rents 593 1.3% 81 1.1%
Purchased services 13,538 29.0% 2,298 30.9%
Depreciation and amortization 1,842 3.9% 246 3.3%
Diesel fuel 8,895 19.0% 1,409 19.0%
Casualties and insurance 1,415 3.0% 347 4.7%
Materials 1,734 3.7% 134 1.8%
Other 4,627 9.9% 1,312 17.6%
------- ---- ------ ----
Total $37,907 81.1% $6,726 90.5%
======= ==== ====== ====
</TABLE>
All Australia railroad operating expense increases are primarily
attributable to a full year of operations in 1998 as compared to operations
which began on November 8, 1997.
U. S. Industrial Switching Operating Expenses
The following table sets forth a comparison of the Company's U.S. industrial
switching operating expenses in 1998 and 1997:
The remainder of this page is intentionally left blank.
18
<PAGE>
U.S. Industrial Switching
Operating Expense Comparison
Years Ended December 31, 1998 and 1997
(dollars in thousands)
<TABLE>
<CAPTION>
1998 1997
---- ----
Percent of Percent of
Operating Operating
Dollars Revenue Dollars Revenue
------- ------- ------- -------
<S> <C> <C> <C> <C>
Labor and benefits $ 9,019 71.3% $ 8,457 71.5%
Equipment rents 217 1.7% 102 1.0%
Purchased services 291 2.3% 241 2.0%
Depreciation and amortization 798 6.3% 661 5.6%
Diesel fuel 466 3.7% 499 4.2%
Casualties and insurance 1,363 10.8% 927 7.8%
Materials 758 6.0% 524 4.4%
Other 1,533 12.1% 1,240 10.5%
------- ----- ------- -----
Total $14,445 114.2% $12,651 107.0%
======= ===== ======= =====
</TABLE>
Labor and benefits expense was $9.0 million in 1998 compared to $8.5 million
in 1997, an increase of $562,000 or 6.6%, which was primarily attributable to a
broadening of the customer base of Rail Link, Inc.
Casualties and insurance expense was $1.4 million in 1998 compared to
$927,000 in 1997, an increase of $436,000 or 47.0%, which was primarily
attributable to an increase in derailment expense of $184,000 and an increase in
claims expense of $236,000
Other expense was $1.5 million in 1998 compared to $1.2 million in 1997, an
increase of $293,000 or 23.6%, which was primarily attributable to a broadening
of the customer base of Rail Link, Inc.
All other expense categories were $2.5 million in 1998 compared to $2.0
million in 1997, an increase of $503,000 or 24.8%, which was primarily
attributable to a broadening of the customer base of Rail Link, Inc.
Interest Expense
The Company's combined interest expense was $7.1 million in 1998 compared to
$3.4 million in 1997, an increase of $3.7 million or 111.1%. Interest expense
for North America railroad operations increased to $4.4 million in 1998 from
$2.8 million in 1997, an increase of $1.6 million or 56.9%. This increase is
primarily attributable to the partial financing of the acquisition in Australia
(for which the Company used its Credit Facility but did not allocate the
interest to Australia railroad operations), an investment in GRO which operates
two railroads in Canada, and a new capital lease for equipment. Interest
expense for Australia railroad operations increased to $2.3 million in 1998 from
$320,000 in 1997, an increase of $2.0 million or 615.3%. This increase was
primarily attributable to a full year of operations in 1998 as compared to
operations which began on November 8, 1997. Interest expense for U.S.
industrial switching operations increased to $376,000 in 1998 from $220,000 in
1997, an increase of $156,000 or 70.9%.
19
<PAGE>
Other Income and Income Taxes
The Company's other income in 1998 was $6.6 million compared to other income
in 1997 of $345,000, an increase of $6.3 million or 1,826.1%. The increase was
attributable to $6.0 million of insurance proceeds recorded in North America
railroad operations.
The Company's effective income tax rate was 40.3% and 40.5% in 1998 and
1997, respectively.
Net Income and Earnings Per Share
The Company's net income in 1998 was $11.4 million compared to net income in
1997 of $8.0 million, an increase of $3.4 million or 42.9%. The increase was
attributable to increases in net income from the Australia operation of $3.7
million and North America railroad operations of $548,000, which offset an
increase in the net loss in U.S. industrial switching operations of $792,000.
Basic and Diluted Earnings Per Share in the year ended December 31, 1998
were $2.20 and $2.19 respectively, on weighted average shares of 5.2 million
compared to $1.52 and $1.47 respectively, on weighted average shares of 5.4
million in the year ended December 31, 1997.
Liquidity and Capital Resources
During 1999, the Company generated cash from operations of $29.3 million,
generated cash from asset sales of $10.3 million, received $10.9 million in
state grant funds for track rehabilitation and construction, and had a net cash
increase in debt of $17.5 million. During the year, the Company invested $14.8
million in equipment and rolling stock and $21.0 million in track improvements
(including the $10.9 million in state grant funds described above) and
buildings. These expenditures were apart from the Company's investments in
Ferrocarriles Chiapas-Mayab in Mexico of $31.5 million and Latin American Rail,
LLC in Chile of $1.3 million. The Company also received $57,000 of cash in the
purchase of Rail-One Inc. in Canada less cash paid for its common stock. See
Note 3. to Consolidated Financial Statements. The Company repurchased 655,000
shares of its Class A Common Stock which are now held in the Company treasury at
a cost of $6.4 million.
During 1998, the Company generated cash from operations of $23.8 million,
generated cash from asset sales of $2.6 million, received $3.2 million in state
grant funds for track rehabilitation, and had a net cash reduction to debt of
$2.1 million. During the year the Company invested $10.0 million in equipment
and rolling stock and $6.9 million in track improvements (including the $3.2
million in state grant funds described above) and buildings. Additionally, the
Company acquired $6.4 million in rolling stock in a non-cash exchange for
similar assets. These expenditures were apart from the Company's additional
investment of $3.1 million in cash and $4.7 million in other assets in GRO which
operates two railroads in Canada. See Note 3. to Consolidated Financial
Statements. The Company also repurchased 345,000 shares of its Class A Common
Stock which are now held in the Company treasury at a cost of $4.6 million.
During 1997, the Company generated cash from operations of $6.3 million,
generated cash from asset sales of $581,000, received $2.9 million in state
grant funds for track rehabilitation, and had net new borrowings of $45.2
million. During the year the Company invested $16.3 million, including capital
20
<PAGE>
leases of $11.8 million, in equipment and rolling stock, and $9.4 million in
track improvements (including the $2.9 million in state grant funds described
above) and buildings. These expenditures were apart from the Company's
investment in the Australia acquisition and its investment in GRO which operates
two railroads in Canada (see Note 3. to Consolidated Financial Statements).
On August 17, 1999, the Company amended and restated its primary credit
facilities agreement to provide for an increase from $65.0 million to $150.0
million. The agreement provides for $88 million in revolving credit facilities
(with a sub limit of $15 million in Australian dollar equivalents to be
allocated to the Australian subsidiaries) and $62.0 million in term loan
facilities consisting of a U.S. Term Loan facility in the amount of $10.0
million, a Canadian Term Loan facility in the Canadian Dollar Equivalent of
$22.0 million, and a Mexican Term Loan facility of $30.0 million. The term
loans are due in quarterly installments and mature, along with the revolving
credit facilities, on August 17, 2004. The credit facilities accrue interest at
various rates depending on the country in which the funds are drawn, plus the
applicable margin, which varies from 1.75% to 2.5% depending upon the country in
which the funds are drawn and the Company's funded debt to EBITDA ratio, as
defined in the agreement. Interest is payable in arrears based on certain
elections of the Company, not to exceed three months outstanding. The Company
pays a commitment fee which varies between 0.375% and 0.500% per annum on all
unused portions of the revolving credit facility depending on the Company's
funded debt to EBITDA ratio. The credit facilities agreement requires mandatory
prepayments from the issuance of new equity or debt and annual sale of assets in
excess of varying minimum amounts depending on the country in which the sales
occur. The credit facilities are secured by essentially all the assets of the
Company and its subsidiaries. The credit facilities agreement requires the
maintenance of certain covenant ratios or amounts, including, but not limited
to, funded debt to EBITDA, minimum EBITDA for a period, cash flow coverage, and
Net Worth, all as defined in the agreement. The Company and its subsidiaries
were in compliance with the provisions of these covenants as of December 31,
1999. Borrowings under the Canadian portion of the amended agreement were used
to refinance certain GRO debt. In conjunction with that refinancing, the
Company recorded a non-cash after tax extraordinary charge of $262,000 related
to the unamortized deferred financing costs of the retired debt.
On December 7, 1999, the Company completed the sale of 483 freight cars to a
financial institution for a net sale price of $8,630,000. The proceeds were
used to reduce borrowings under the Company's revolving credit facilities.
Simultaneously, the Company entered into agreements with the financial
institution to lease these 483 freight cars and an additional 100 centerbeam
flat cars for a period of at least eight years including automatic renewals.
The sale/leaseback transaction resulted in a deferred gain of $612,000, which
will be amortized over the term of the lease as a non-cash offset to rent
expense. These leases also include an option to purchase all of the cars,
subject to certain conditions. If certain conditions related to the return of
the cars are met, the Company could be required to pay a fee.
At December 31, 1999 the Company had long-term debt, including current
portion, totaling $108.4 million, which comprised 57.0% of its total
capitalization. This compares to long-term debt, including current portion, of
$65.7 million at December 31, 1998, comprising 46.8% of total capitalization.
The increase primarily relates to borrowings to fund acquisitions in 1999.
21
<PAGE>
At December 31, 1999 approximately $36.9 million of the Company's debt was
U.S. denominated foreign debt related to the Company's Mexican acquisition (see
Note 3. to Consolidated Financial Statements) which is subject to debt valuation
adjustments resulting from currency exchange rate changes. The Company recorded
approximately $191,000 of non-cash expense related to valuation adjustments on
this debt in the Other Income, net section of its 1999 income statement.
The Company's railroads have entered into a number of rehabilitation or
construction grants with state and federal agencies. The grant funds are used
as a supplement to the Company's normal capital programs. In return for the
grants, the railroads pledge to maintain various levels of service and
maintenance on the rail lines that have been rehabilitated or constructed. The
Company believes that the levels of service and maintenance required under the
grants are not materially different from those that would be required without
the grant obligation. While the Company has benefited from these grant funds in
recent years including 1999 and 1998, there can be no assurance that the funds
will continue to be available.
The Company has budgeted approximately $38.7 million in capital expenditures
in 2000, primarily for track rehabilitation, of which $7.7 million is expected
to be used in Australia. Of the $38.7 million in capital expenditures, $12.8
million is expected to be funded by rehabilitation grants from state and federal
agencies to several of the Company's railroads.
In connection with the Company's purchase of selected assets in Australia
(see Note 3. to Consolidated Financial Statements), the Company has committed to
the Commonwealth of Australia to spend approximately $34.1 million (AU $52.3
million) to rehabilitate track structures and equipment by December 31, 2002.
The Commonwealth Government may require the payment of any shortfall between the
actual expenditures incurred and the contracted commitment from the date of
acquisition to December 31, 2002. This commitment may be renegotiated if there
is a significant change in operating conditions outside the control of the
Company. As of December 31, 1999, $18.1 million (AU $27.6 million) of this
commitment had been met.
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 the credit facilities will enable the Company to meet its liquidity and
capital expenditure requirements relating to ongoing operations for at least the
duration of the credit facilities.
Year 2000 Compliance
The Company encountered no significant problems in the transition to the
year 2000.
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<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.
By: /s/ Alan R. Harris
---------------------------
Alan R. Harris
Senior Vice President and
Chief Accounting Officer
Date: April 17, 2000
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