<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, 2000 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.)
66 Field Point Road, 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 1,
2000:
Class Number of Shares Outstanding
----- ----------------------------
Class A Common Stock 3,492,328
Class B Common Stock 845,447
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] YES [_] NO
<PAGE>
INDEX
Part I - Financial Information
Item 1. Financial Statements: Page
------
Consolidated Statements of Income - For the
Three Month and Nine Month Periods Ended
September 30, 2000 and 1999 ..................... 3
Consolidated Balance Sheets - As of September 30,
2000 and December 31, 1999....................... 4
Consolidated Statements of Cash Flows - For the
Nine Month Periods Ended September 30,
2000 and 1999.................................... 5
Notes to Consolidated Financial Statements......... 6 - 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 12 - 33
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.......................................... 34
Part II - Other Information.................................. 34
Index to Exhibits............................................ 35 - 36
Signatures................................................... 37
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,
2000 1999 2000 1999
------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 50,095 $ 45,063 $ 157,860 $ 121,905
OPERATING EXPENSES:
Transportation 16,277 13,868 52,146 38,647
Maintenance of ways and structures 5,293 5,703 16,912 14,645
Maintenance of equipment 9,627 8,800 30,897 24,265
General and administrative 8,374 7,301 24,635 21,348
Depreciation and amortization 3,843 3,040 10,485 8,887
------------------------------------------------
Total operating expenses 43,414 38,712 135,075 107,792
------------------------------------------------
INCOME FROM OPERATIONS 6,681 6,351 22,785 14,113
Valuation adjustment of U.S. dollar
denominated foreign debt 27 -- (1,459) --
Other income, net 1,322 301 2,572 84
Interest expense (2,712) (2,285) (7,985) (5,609)
------------------------------------------------
Income before provision for income taxes 5,318 4,367 15,913 8,588
Provision (benefit) for income taxes 2,126 (2,324) 6,031 (517)
------------------------------------------------
NET INCOME $ 3,192 $ 6,691 $ 9,882 $ 9,105
================================================
Earnings per common
share - basic $ 0.74 $ 1.56 $ 2.28 $ 2.00
================================================
Weighted average number of shares of
common stock - basic 4,336 4,298 4,331 4,547
================================================
Earnings per common
share - diluted $ 0.72 $ 1.53 $ 2.24 $ 1.98
================================================
Weighted average number of shares of
common stock - diluted 4,445 4,367 4,404 4,604
================================================
</TABLE>
3
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
As of As of
Sep. 30, Dec. 31,
ASSETS 2000 1999
------------------------
<S> <C> <C>
CURRENTS ASSETS:
Cash and cash equivalents $ 9,002 $ 7,791
Accounts receivable, net 48,565 47,870
Materials and supplies 6,578 6,141
Prepaid expenses and other 6,417 7,689
Deferred income tax assets, net 2,630 3,087
------------------------
Total current assets 73,192 72,578
------------------------
PROPERTY AND EQUIPMENT, net 201,278 185,970
------------------------
SERVICE ASSURANCE AGREEMENT, net 11,503 12,065
------------------------
INVESTMENT IN UNCONSOLIDATED AFFILIATES 1,632 1,576
------------------------
OTHER ASSETS, net 23,644 29,751
------------------------
Total assets $ 311,249 $ 301,940
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 16,437 $ 15,146
Accounts payable 41,296 52,501
Accrued expenses 14,171 9,738
------------------------
Total current liabilities 71,904 77,385
------------------------
LONG-TERM DEBT, less current portion 92,168 93,230
------------------------
OTHER LIABILITIES 3,888 4,231
------------------------
DEFERRED INCOME TAX LIABILITIES, net 16,905 13,145
------------------------
DEFERRED ITEMS--grants from governmental agencies 34,821 27,427
------------------------
DEFERRED GAIN--sale/leaseback 3,693 4,109
------------------------
MINORITY INTEREST -- 584
------------------------
STOCKHOLDERS' EQUITY:
Class A common stock, $0.01 par value, one vote per share;
12,000,000 shares authorized; 4,489,728 and 4,453,368 issued and
outstanding on September 30, 2000 and December 31, 1999, respectively 45 45
Class B common stock, $0.01 par value, 10 votes per share;
1,500,000 shares authorized; 845,447 and 845,539 issued and outstanding
on September 30, 2000 and December 31, 1999, respectively 8 8
Additional paid-in capital 47,223 47,072
Retained earnings 56,906 47,023
Currency translation adjustment (5,309) (1,316)
Less treasury stock, at cost, 1,000,000 Class A shares (11,003) (11,003)
------------------------
Total stockholders' equity 87,870 81,829
------------------------
Total liabilities and stockholders' equity $ 311,249 $ 301,940
========================
</TABLE>
4
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,882 $ 9,105
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 10,485 8,887
Deferred income taxes 4,263 (2,033)
Gain on disposition of property and equipment (39) (186)
Minority interest expense 38 --
Valuation adjustment of U.S. dollar denominated foreign debt 1,459 --
Changes in assets and liabilities -
Accounts receivable (1,764) 241
Materials and supplies (687) (641)
Prepaid expenses and other 1,277 (996)
Accounts payable and accrued expenses (6,219) 4,342
Other assets and liabilities, net (1,035) 1,581
----------------------------
Net cash provided by operating activities 17,660 20,300
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (26,267) (21,765)
Cash received in purchase of Rail-One Inc. less
cash paid for common stock -- 57
Purchase of assets of Ferrocarriles Chiapas-Mayab -- (30,527)
Proceeds from disposition of property 275 298
----------------------------
Net cash used in investing activities (25,992) (51,937)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term borrowings, including capital leases (41,692) (61,546)
Proceeds from issuance of long-term debt 43,292 96,523
Debt issuance costs (10) (1,300)
Proceeds from governmental grants 8,260 5,947
Proceeds from employee stock purchases 149 60
Purchase of treasury stock -- (6,374)
----------------------------
Net cash provided by financing activities 9,999 33,310
----------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (456) 635
----------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,211 2,308
CASH AND CASH EQUIVALENTS, beginning of period 7,791 14,396
----------------------------
CASH AND CASH EQUIVALENTS, end of period $ 9,002 $ 16,704
============================
CASH PAID DURING PERIOD FOR:
Interest $ 7,255 $ 5,850
Income taxes $ 1,757 $ 7,121
</TABLE>
5
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:
The interim consolidated financial statements presented herein include the
accounts of Genesee & Wyoming Inc. and its subsidiaries. References to "GWI" or
the "Company" mean Genesee & Wyoming Inc. and, unless the context indicates
otherwise, its consolidated subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation. These interim
consolidated financial statements have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the unaudited financial statements for
the three-month and nine-month periods ended September 30, 2000 and 1999, 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, 1999 included in the Company's 1999 Form 10-K.
The results of operations for interim periods are not necessarily indicative
of results of operations for the full year.
2. EXPANSION OF OPERATIONS:
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
February, 2001, a $1.0 million escrow payment which will be returned to the
Company upon successful completion of the track improvements, an expected future
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.
Genesee Rail-One Inc.
On April 15, 1999, the Company closed on an agreement to acquire Rail-One Inc.
(Rail-One) which had 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, has begun paying 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 options
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. As of September 30, 2000, these options are not
exercisable. Effective with this agreement, the operating results of GRO have
been consolidated within the financial
6
<PAGE>
statements of the Company. During the second quarter of 2000, the Company
purchased the remaining 5% minority interest in GRO with an initial cash payment
of $240,000 and subsequent annual cash installments of $180,000 each due in 2001
and 2002. Prior to April 15, 1999, the Company accounted for its investment in
GRO under the equity method.
3. CREDIT FACILITIES:
On August 17, 1999, the Company amended and restated its credit facilities
agreement (the Agreement) to provide for an increase in borrowings from $65.0
million to $150.0 million. The Agreement provides for $88.0 million in revolving
credit facilities, including $15.0 million in Australian dollar equivalents to
be allocated to the Australian subsidiaries, and $62.0 million in term loan
facilities. The term loan facilities include 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 Agreement has a maturity date of August 17, 2004, provides for interest at
various rates, plus the applicable margins, as defined in the Agreement and is
secured by substantially all the assets of the Company and its subsidiaries. The
Agreement requires certain commitment fees, prepayments from the issuance of new
equity or debt and annual sale of assets, and 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.
Amounts outstanding under the Agreement which were borrowed by FCCM
represented U.S. dollar denominated foreign debt of the Company's Mexican
subsidiary. As the Mexican peso moved against the U.S. dollar, the revaluation
of this outstanding debt to its Mexican peso equivalent resulted in non-cash
gains and losses as reflected in the accompanying statements of income. On June
16, 2000, pursuant to a corporate and financial restructuring of the Company's
Mexican subsidiaries and a further amendment to the Agreement, the income
statement impact of the U.S. dollar denominated foreign debt revaluation was
significantly reduced.
4. CONTINGENCIES:
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 stock purchase agreement
entered into by a prior unrelated owner of the IMRR rail line. The provisions
allegedly 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 for alleged past rate overcharges. The Company
believes the suit is without merit and intends to vigorously defend against the
suit.
The parent company of ComEd has sold certain of ComEd's power facilities, one
of which is the Powerton plant served by IMRR under the provisions of a 1987
Service Assurance Agreement (the SAA), entered into by a prior unrelated owner
of the IMRR rail line. The SAA, which is not terminable except for failure to
perform, provides that IMRR has exclusive access to provide rail service to the
Powerton plant. On July 7, 2000, the Company filed an amended counterclaim
against ComEd in the Cook County action. The counterclaim seeks a declaration of
certain rights regarding the SAA and damages for ComEd's failure to assign the
SAA to the purchaser of the Powerton plant. The Company believes that its
counterclaim against ComEd is well-founded and is pursuing it vigorously.
Revenue for haulage to the Powerton Plant accounted for 6.6% of the consolidated
revenues of the Company and its subsidiaries
7
<PAGE>
in 1999. Failure to satisfactorily resolve this litigation could have a material
adverse effect on the Company.
5. COMPREHENSIVE INCOME:
Comprehensive income is the total of net income and all other non-owner
changes in equity. The following table sets forth the Company's comprehensive
income for the three months and nine months ended September 30, 2000 and 1999:
Statement of Comprehensive Income
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 3,192 $ 6,691 $ 9,882 $ 9,105
Other comprehensive income (loss)
- Foreign currency translation
adjustments (1,197) 190 (3,993) 934
---------------------------------------------------------------
Comprehensive income $ 1,995 $ 6,881 $ 5,889 $10,039
===============================================================
</TABLE>
6. BUSINESS SEGMENT INFORMATION:
The Company operates in three business segments in two geographic areas: North
American Railroad Operations, which includes operating short line and regional
railroads, and buying, selling, leasing and managing railroad transportation
equipment within the United States, Canada and Mexico; Australian Railroad
Operations, which includes operating a regional railroad and providing hook and
pull (haulage) services to other railroads within Australia; and Industrial
Switching, which includes providing freight car switching and related services
to industrial companies with extensive railroad facilities within their
complexes in the United States.
Corporate overhead expenses, including acquisition expense, are primarily
reported in North American Railroad Operations.
The accounting policies of the reportable segments are the same as those of
the consolidated company. The Company evaluates the performance of its operating
segments based on operating income. Intersegment sales and transfers are not
significant. Summarized financial information for each business segment for the
three-month and nine-month periods ended September 30, 2000 and 1999 is shown in
the following tables:
The remainder of this page is intentionally left blank.
8
<PAGE>
Business Segment
(amounts in thousands)
Three Months Ended September 30,
<TABLE>
<CAPTION>
North American Australian Industrial
Railroad Railroad Switching
2000 Operations Operations Operations Total
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 37,918 $ 9,490 $ 2,687 $ 50,095
Operating income 5,473 1,110 98 6,681
Other expense, net (930) (302) (131) (1,363)
Income (loss) before taxes 4,543 808 (33) 5,318
Identifiable assets 263,934 38,947 8,368 311,249
-------------------------------------------------------------------------------------------------------------
<CAPTION>
North American Australian Industrial
Railroad Railroad Switching
1999 Operations Operations Operations Total
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 31,708 $ 10,860 $ 2,495 $ 45,063
Operating income (loss) 4,759 1,663 (71) 6,351
Other expense, net (1,472) (384) (128) (1,984)
Income (loss) before taxes 3,287 1,279 (199) 4,367
Identifiable assets 250,435 40,219 8,378 299,032
-------------------------------------------------------------------------------------------------------------
<CAPTION>
Nine Months Ended September 30,
North American Australian Industrial
Railroad Railroad Switching
2000 Operations Operations Operations Total
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 119,909 $ 30,175 $ 7,776 $ 157,860
Operating income 19,160 3,377 248 22,785
Other expense, net (5,576) (955) (341) (6,872)
Income (loss) before taxes 13,584 2,422 (93) 15,913
Identifiable assets 263,934 39,456 8,368 311,249
-------------------------------------------------------------------------------------------------------------
<CAPTION>
North American Australian Industrial
Railroad Railroad Switching
1999 Operations Operations Operations Total
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 80,702 $ 32,440 $ 8,763 $ 121,905
Operating income (loss) 9,514 4,747 (148) 14,113
Other expense, net (4,014) (1,141) (370) (5,525)
Income (loss) before tax 5,500 3,606 (518) 8,588
Identifiable assets 250,435 40,219 8,378 299,032
-------------------------------------------------------------------------------------------------------------
</TABLE>
7. RECENTLY ISSUED ACCOUNTING STANDARDS:
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. The new standard requires that an entity
recognize all
9
<PAGE>
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value with changes in fair value reported in income.
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 the first quarter of 2001, which is when the Company expects to adopt
it. The Company is in the process of assessing the impact of this statement.
8. SUBSEQUENT EVENTS:
Agreement to acquire Westrail Freight
On October 30, 2000, the Company announced that its newly-formed joint
venture, Australian Railroad Group Pty. Ltd. (ARG), has signed an agreement with
the government of Western Australia to purchase Westrail Freight for
approximately $323 million including working capital and acquisition fees. The
completion of the transaction is subject to customary closing conditions and is
expected to close by the end of 2000. ARG is a joint venture owned 50% by GWI
and 50% by Wesfarmers Limited, a public corporation based in Perth, Western
Australia.
Westrail Freight is composed of the freight operations of the currently
state-owned railroad of Western Australia. The railroad operates over 3,280
miles of standard and narrow gauge track and carries approximately 31 million
tons of freight per year.
To effect the acquisition, GWI will contribute its wholly-owned Australian
operations, Australia Southern Railroad (ASR), to ARG along with GWI's interest
in the Asia Pacific Transport Consortium (APTC) - a consortium selected to
construct and operate the Alice Springs to Darwin railway line in the Northern
Territory of Australia. ASR generated $42.3 million of revenue, $8.1 million of
EBITDA, and $5.7 million of operating income during the twelve months ended June
30, 2000. Additionally, GWI will contribute $19 million of cash to ARG. GWI
expects that its cash contribution will be partially funded with proceeds from
the recently announced private placement of up to $25 million of Convertible
Preferred Stock with the 1818 Fund of Brown Brothers Harriman & Co.
It is expected that Wesfarmers Limited will contribute $62 million in cash to
ARG for its 50% ownership. ARG has also received binding commitment letters for
$249 million in acquisition debt and $65 million in construction and working
capital facilities from Bank of America and the Australia and New Zealand
Banking Group Limited (ANZ). A portion of these credit facilities will be used
to refinance approximately $7 million of debt currently outstanding at ASR.
GWI will account for its 50% ownership in ARG under the equity method of
accounting and will therefore be deconsolidating ASR from its consolidated
financial statements. GWI will recognize a one-time gain on its contribution of
ASR to ARG. Contingent on the closing, the Company will also recognize a
one-time expense to certain ASR employees from acceleration of vesting under the
Genesee & Wyoming Australia Pty. Ltd. Executive Share Option Plan which was
adopted on September 27, 2000. The liability will be settled in cash and no
shares will be issued.
Empresa Ferroviaria Oriental, S.A.
On November 6, 2000, the Company announced that it had completed its
investment in Empresa Ferroviaria Oriental, S.A. (the "Oriental"), a railroad
serving eastern Bolivia and connecting to railroads in Argentina and Brazil. For
the nine months ended September 30, 2000, Oriental reported revenue of $23.6
million, earnings before interest, taxes, depreciation and amortization of $12.3
million and net income of $6.2 million under local accounting standards.
The investment provides GWI with an indirect 22.55% equity interest in the
Oriental and was made through a 90% owned subsidiary, Genesee & Wyoming Bolivia
SRL ("GWB"), which is 10% owned by UniRail, LLC. GWI's portion of the Oriental
investment is composed of $6.66 million in cash, the assumption of non-recourse
debt of $10.8 million at an interest rate of 7.67%, and a non-interest bearing
contingent payment of $450,000 due in 3 years if Oriental achieves certain
financial results. GWB will also be entitled to its portion of Oriental's annual
cash dividend for the fiscal year ending December 31, 2000, which will be
distributed early in 2001. GWB will account for its investment in Oriental under
the equity method of accounting.
10
<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 1999
Form 10-K.
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 the
United States, Australia, Canada and Mexico. 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. On April 15, 1999, the
Company began consolidating the results of Genesee Rail-One Inc. (as described
below), and on September 1, 1999, the Company began operations of its
newly-formed subsidiary, Compania de Ferrocarriles Chiapas-Mayab, S.A. de C.V.
as described below. 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.
Westrail Freight
On October 30, 2000, the Company announced that its newly-formed joint
venture, Australian Railroad Group Pty. Ltd. (ARG), has signed an agreement with
the government of Western Australia to purchase Westrail Freight for
approximately $323 million including working capital and acquisition fees. The
completion of the transaction is subject to customary closing conditions and is
expected to close by the end of 2000. ARG is a joint venture owned 50% by GWI
and 50% by Wesfarmers Limited, a public corporation based in Perth, Western
Australia.
11
<PAGE>
Westrail Freight is composed of the freight operations of the currently
state-owned railroad of Western Australia. The railroad operates over 3,280
miles of standard and narrow gauge track and carries approximately 31 million
tons of freight per year.
To effect the acquisition, GWI will contribute its wholly-owned Australian
operations, Australia Southern Railroad (ASR), to ARG along with GWI's interest
in the Asia Pacific Transport Consortium (APTC) - a consortium selected to
construct and operate the Alice Springs to Darwin railway line in the Northern
Territory of Australia. ASR generated $42.3 million of revenue, $8.1 million of
EBITDA, and $5.7 million of operating income during the twelve months ended June
30, 2000. Additionally, GWI will contribute $19 million of cash to ARG. GWI
expects that its cash contribution will be partially funded with proceeds from
the recently announced private placement of up to $25 million of Convertible
Preferred Stock with the 1818 Fund of Brown Brothers Harriman & Co.
It is expected that Wesfarmers Limited will contribute $62 million in cash to
ARG for its 50% ownership. ARG has also received binding commitment letters for
$249 million in acquisition debt and $65 million in construction and working
capital facilities from Bank of America and the Australia and New Zealand
Banking Group Limited (ANZ). A portion of these credit facilities will be used
to refinance approximately $7 million of debt currently outstanding at ASR.
GWI will account for its 50% ownership in ARG under the equity method of
accounting and will therefore be deconsolidating ASR from its consolidated
financial statements. GWI will recognize a one-time gain on its contribution of
ASR to ARG. Contingent on the closing, the Company will also recognize a
one-time expense to certain ASR employees from acceleration of vesting under the
Genesee & Wyoming Australia Pty. Ltd. Executive Share Option Plan which was
adopted on September 27, 2000. The liability will be settled in cash and no
shares will be issued.
Empresa Ferroviaria Oriental, S.A.
On November 6, 2000, the Company announced that it had completed its
investment in Empresa Ferroviaria Oriental, S.A. (the "Oriental"), a railroad
serving eastern Bolivia and connecting to railroads in Argentina and Brazil. For
the nine months ended September 30, 2000, Oriental reported revenue of $23.6
million, earnings before interest, taxes, depreciation and amortization of $12.3
million and net income of $6.2 million under local accounting standards.
The investment provides GWI with an indirect 22.55% equity interest in the
Oriental and was made through a 90% owned subsidiary, Genesee & Wyoming Bolivia
SRL ("GWB"), which is 10% owned by UniRail, LLC. GWI's portion of the Oriental
investment is composed of $6.66 million in cash, the assumption of non-recourse
debt of $10.8 million at an interest rate of 7.67%, and a non-interest bearing
contingent payment of $450,000 due in 3 years if Oriental achieves certain
financial results. GWB will also be entitled to its portion of Oriental's annual
cash dividend for the fiscal year ending December 31, 2000, which will be
distributed early in 2001. GWB will account for its investment in Oriental under
the equity method of accounting.
Australia Favorable Income Tax Legislation
In the third quarter of 1999, the Australian government enacted an income tax
law that, for assets acquired from a tax-exempt entity, impacts the depreciable
basis of those assets. The impact of the new law on the Company's Australian
operation is that it will be able to deduct, for income tax purposes,
depreciation in excess of the financial reporting basis of certain fixed assets
acquired from the government in November 1997. However, management estimates
that it is more likely than not that the Company will be unable to fully realize
all of the potential income tax benefits and accordingly, has established a
partial valuation allowance against the
12
<PAGE>
deferred tax assets recorded pursuant to the tax law change. Accordingly, the
net income tax benefit recorded in the 1999 third quarter as a result of this
tax law change was $4.2 million. Management's assessment of the likelihood of
realizing the full benefit of this incremental tax depreciation included a
review of the Australian operation's forecasted results for the next several
years which indicated that, with the additional tax depreciation deductions and
other accelerated deductions for income tax purposes, this operation would not
likely realize all of this tax benefit.
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
February, 2001, a $1.0 million escrow payment which will be returned to the
Company upon successful completion of the track improvements, an expected future
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.
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, has begun paying 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 options
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. As of September 30, 2000, these options are not
exercisable. Effective with this agreement, the operating results of GRO have
been consolidated within the financial statements of the Company. During the
second quarter of 2000, the Company purchased the remaining 5% minority interest
in GRO with an initial cash payment of $240,000 and subsequent annual cash
installments of $180,000 each due in 2001 and 2002. Prior to April 15, 1999, the
Company accounted for its investment in GRO under the equity method.
The remainder of this page is intentionally left blank.
13
<PAGE>
Results of Operations
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
Consolidated Operating Revenues
Operating revenues were $50.1 million in the quarter ended September 30, 2000
compared to $45.1 million in the quarter ended September 30, 1999, a net
increase of $5.0 million or 11.2%. The net increase was attributable to a $6.2
million increase in North American railroad revenues and a $192,000 increase in
industrial switching revenues offset by a $1.4 million decrease in revenues from
Australian railroad operations.
The following three sections provide information on railroad revenues in North
America and Australia, and industrial switching revenues in the United States.
North American Railroad Operating Revenues
North American railroad operating revenues were $37.9 million in the quarter
ended September 30, 2000 compared to $31.7 million in the quarter ended
September 30, 1999, a net increase of $6.2 million or 19.6% which consisted of
$6.4 million attributable to a full quarter of railroad operations in Mexico
compared to one month of railroad operations in Mexico in the 1999 quarter,
offset by a decrease of $180,000 on existing railroad operations. Of the
increase in operating revenues in Mexico, $5.5 million was attributable to
freight revenues and $872,000 was attributable to non-freight revenues.
The following table compares North American freight revenues, carloads and
average freight revenues per carload for the quarters ended September 30, 2000
and 1999:
The remainder of this page is intentionally left blank.
14
<PAGE>
North American Freight Revenues and Carloads Comparison by Commodity Group
Quarters Ended September 30, 2000 and 1999
(dollars in thousands, except average per carload)
<TABLE>
<CAPTION>
Average
Freight
Revenues
Per
Freight Revenues Carloads Carload
---------------- -------- --------
Commodity Group % of % of % of % of
---------------
2000 Total 1999 Total 2000 Total 1999 Total 2000 1999
---- ----- ---- ----- ---- ----- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Coal, Coke & Ores $6,275 20.6% $6,826 26.9% 28,242 31.0% 24,221 30.4% $222 $282
Pulp & Paper 4,876 16.0% 4,229 16.6% 12,792 14.1% 11,297 14.2% 381 374
Minerals & Stone 4,796 15.7% 2,164 8.5% 11,607 12.8% 7,334 9.2% 413 295
Petroleum Products 4,396 14.4% 2,384 9.4% 7,081 7.8% 4,849 6.1% 621 492
Metals 2,563 8.4% 2,316 9.1% 9,284 10.2% 8,493 10.7% 276 273
Chemicals & Plastics 2,119 6.9% 2,150 8.5% 4,067 4.5% 4,144 5.2% 521 519
Lumber & Forest Products 1,775 5.8% 2,328 9.2% 5,800 6.4% 8,029 10.1% 306 290
Farm & Food Products 1,770 5.8% 1,192 4.7% 5,220 5.7% 4,255 5.3% 339 280
Autos & Auto Parts 765 2.5% 436 1.7% 1,435 1.6% 825 1.0% 533 528
Other 1,172 3.9% 1,394 5.4% 5,445 5.9% 6,223 7.8% 215 224
------------------------------------------------------------------------------------
Total $30,507 100.0% $25,419 100.0% 90,973 100.0% 79,670 100.0% 335 319
====================================================================================
</TABLE>
Coal, Coke and Ores decreased by $551,000 or 8.1% all of which was on existing
railroad operations. The decrease on existing railroad operations was primarily
attributable to freight rate reductions for a key customer's moves offset by
freight revenues from two new customers.
Minerals and Stone increased by $2.6 million or 121.6% due primarily to a full
quarter of railroad operations in Mexico compared to one month of railroad
operations in Mexico in the 1999 quarter.
Petroleum Products increased by $2.0 million or 84.4% of which $1.7 million
was attributable to a full quarter of railroad operations in Mexico compared to
one month of railroad operations in Mexico in the 1999 quarter, and $264,000 was
on existing railroad operations.
Freight revenues from all remaining commodities reflected a net increase of
$995,000 or 3.9% of which $1.2 million was attributable to a full quarter of
railroad operations in Mexico compared to one month of railroad operations in
Mexico in the 1999 quarter, offset by a $186,000 net decrease on existing
railroad operations.
Total North American carloads were 90,973 in the quarter ended September 30,
2000 compared to 79,670 in the quarter ended September 30, 1999, an increase of
11,303 or 14.2%. The increase of 11,303 consisted of 7,190 carloads attributable
to a full quarter of railroad operations in Mexico compared to one month of
railroad operations in Mexico in the 1999 quarter, and 4,113 carloads on
existing railroad operations of which 4,020 carloads were coal.
The overall average revenue per carload increased to $335 in the quarter ended
September 30, 2000, compared to $319 per carload in the quarter ended September
30, 1999, an increase of 5.0% due primarily to higher per carload revenues
attributable
15
<PAGE>
to Mexico netted against a decrease on existing railroad operations. The
decrease on existing operations is primarily attributable to lower per carload
revenues from coal as described above.
North American non-freight railroad revenues were $7.4 million in the quarter
ended September 30, 2000 compared to $6.3 million in the quarter September 30,
1999, an increase of $1.1 million or 17.8%. The increase is attributable to
$872,000 of non-freight revenues attributable to a full quarter of railroad
operations in Mexico compared to one month of railroad operations in Mexico in
the 1999 quarter, and $249,000 in non-freight revenues on existing railroad
operations. The following table compares North America non-freight revenues for
the quarters ended September 30, 2000 and 1999:
North American Railroad
Non-Freight Operating Revenue Comparison
Quarters Ended September 30, 2000 and 1999
(dollars in thousands)
<TABLE>
<CAPTION>
2000 1999
---- ----
$ % of $ % of
Non-Freight Non-Freight
Revenue Revenue
<S> <C> <C> <C> <C>
Railroad switching $2,708 36.5% $1,756 27.9%
Car hire and rental income 2,021 27.3% 1,852 29.4%
Car repair services 622 8.4% 549 8.7%
Other operating income 2,060 27.8% 2,133 34.0%
------ ----- ------ -----
Total non-freight revenues $7,411 100.0% $6,290 100.0%
====== ===== ====== =====
</TABLE>
Australian Operating Revenues
Australian operating revenues were $9.5 million in the quarter ended September
30, 2000, compared to $10.9 million in the quarter ended September 30, 1999, a
net decrease of $1.4 million or 12.6%. The net decrease was attributable to a
$1.7 million decline in freight revenues offset by a $327,000 increase in
non-freight revenues. The decrease in Australian operating revenues is primarily
due to the depreciation of the Australian dollar against the U.S. dollar in the
2000 period compared to the 1999 period. The weighted average currency exchange
rate in the quarter ended September 30, 2000 was $0.573 compared to $0.650 in
the quarter ended September 30, 1999, a decrease of $0.077 or 11.8%. In
Australian dollars, operating revenues decreased by less than 1.0%.
The following table outlines Australian freight revenues for the quarters
ended September 30, 2000 and 1999:
The remainder of this page is intentionally left blank.
16
<PAGE>
Australian Freight Revenues and Carloads Comparison by Commodity Group
Quarters Ended September 30, 2000 and 1999
(dollars in thousands, except average per carload)
<TABLE>
<CAPTION>
Average
Freight
Revenues
Per
Freight Revenues Carloads Carload
---------------- -------- -------
% of % of % of % of
Commodity Group 2000 Total 1999 Total 2000 Total 1999 Total 2000 1999
--------------- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hook and Pull
(Haulage) $3,763 46.2% $4,190 42.6% 13,404 22.7% 12,897 31.6% $281 $325
Grain 1,870 23.0% 3,714 37.8% 5,660 9.6% 12,549 30.7% 330 296
Iron Ores 1,000 12.3% - 0.0% 24,300 41.2% - 0.0% 41 -
Gypsum 651 8.0% 890 9.0% 11,859 20.1% 11,882 29.1% 55 75
Marble 458 5.6% 543 5.5% 2,159 3.7% 2,214 5.4% 212 245
Lime 372 4.6% 497 5.1% 1,100 1.9% 1,333 3.2% 338 373
Other 26 0.3% 2 0.0% 438 0.8% - 0.0% 60 -
-------------------------------------------------------------------------------
Total $8,140 100.0% $9,836 100.0% 58,920 100.0% 40,875 100.0% 138 241
===============================================================================
</TABLE>
The net decrease of $1.7 million in Australian freight revenues was primarily
attributable to decreases in freight revenue from the shipment of Grain of $1.8
million and Hook and Pull of $427,000, offset by an increase of $1.0 million in
freight revenue from the shipment of Iron Ores for a new customer. Grain
revenues for the 1999 quarter reflect the strong harvest experienced during the
1998/99 season. Freight revenues from all remaining commodities decreased
$425,000.
Australia carloads were 58,920 in the quarter ended September 30, 2000
compared to 40,875 in the quarter ended September 30, 1999, a net increase of
18,045 or 44.1%. The net increase of 18,045 was primarily the result of 24,300
carloads from the shipment of Iron Ores for a new customer offset by a decrease
in grain carloads of 6,889. The net remaining increase of 634 is comprised of a
507 carload increase in Hook and Pull and a net increase in the remaining
commodities of 127 carloads.
The overall average revenue per carload decreased to $138 in the quarter ended
September 30, 2000, compared to $241 per carload in the quarter ended September
30, 1999, a decrease of 42.7% due primarily to the increase in Iron Ore carloads
at a lower revenue per carload. Excluding Iron Ores, the average revenue per
carload in the quarter ended September 30, 2000 was $206, a decrease of 14.5%
due primarily to the depreciation of the Australian dollar against the U.S.
dollar.
Australian non-freight revenues were $1.4 million in the quarter ended
September 30, 2000, compared to $1.0 million in the quarter ended September 30,
1999, an increase of $327,000 or 32.0 %. The following table compares Australian
non-freight revenues for the quarters ended September 30, 2000 and 1999:
The remainder of this page is intentionally left blank.
17
<PAGE>
Australian Railroad
Non-Freight Operating Revenue Comparison
Quarters Ended September 30, 2000 and 1999
(dollars in thousands)
<TABLE>
<CAPTION>
2000 1999
---- ----
$ % of $ % of
Non-freight Non-freight
Revenue Revenue
<S> <C> <C> <C> <C>
Car hire and rental income $ 587 43.5% $ 632 61.8%
Other operating income 763 56.5% 391 38.2%
------ ----- ------ -----
Total non-freight revenues $1,350 100.0% $1,023 100.0%
====== ===== ====== =====
</TABLE>
Industrial Switching Revenues
Revenues from U.S. industrial switching activities were $2.7 million in the
quarter ended September 30, 2000 compared to $2.5 million in the quarter ended
September 30, 1999, an increase of $192,000 or 7.7% due primarily to several new
switching contracts.
Consolidated Operating Expenses
Operating expenses for all operations combined were $43.4 million in the
quarter ended September 30, 2000, compared to $38.7 million in the quarter ended
September 30, 1999, a net increase of $4.7 million or 12.1%. Expenses
attributable to North American railroad operations were $32.4 million in the
quarter ended September 30, 2000, compared to $26.9 million in the quarter ended
September 30, 1999, an increase of $5.5 million or 20.4% of which $4.0 million
were expenses attributable to a full quarter of railroad operations in Mexico
compared to one month of railroad operations in Mexico in the 1999 quarter, and
$1.5 million were expenses attributable to existing railroad operations.
Expenses attributable to operations in Australia were $8.4 million in the
quarter ended September 30, 2000, compared to $9.2 million in the quarter ended
September 30, 1999, a decrease of $817,000 or 8.9%. Expenses attributable to
U.S. industrial switching were $2.6 million in both quarters.
The following three sections provide information on railroad expenses in North
America and Australia, 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 quarters ended September 30, 2000 and 1999:
The remainder of this page is intentionally left blank.
18
<PAGE>
North American Railroad
Operating Expense Comparison
Quarters Ended September 30, 2000 and 1999
(dollars in thousands)
<TABLE>
<CAPTION>
2000 1999
---- ----
% of % of
Operating Operating
$ Revenue $ Revenue
<S> <C> <C> <C> <C>
Labor and benefits $12,605 33.2% $ 9,674 30.5%
Equipment rents 4,767 12.6% 3,685 11.6%
Purchased services 2,689 7.1% 2,258 7.1%
Depreciation and amortization 3,083 8.1% 2,316 7.3%
Diesel fuel 2,830 7.5% 1,553 4.9%
Casualties and insurance 1,547 4.1% 949 3.0%
Materials 2,547 6.7% 2,055 6.5%
Other expenses 2,377 6.3% 4,459 14.1%
------- ------- ------- -------
Total operating expenses $32,445 85.6% $26,949 85.0%
======= ======= ======= =======
</TABLE>
Labor and benefits expense was $12.6 million in the quarter ended September
30, 2000 compared to $9.7 million in the quarter ended September 30, 1999, an
increase of $2.9 million or 30.3% of which $1.5 million was attributable to a
full quarter of railroad operations in Mexico compared to one month of railroad
operations in Mexico in the 1999 quarter, and $1.4 million was attributable to
existing railroad operations.
Equipment rents were $4.8 million in the quarter ended September 30, 2000
compared to $3.7 million in the quarter ended September 30, 1999, an increase of
$1.1 million or 29.4% of which $905,000 was attributable to existing railroad
operations and $177,000 was attributable to a full quarter of railroad
operations in Mexico compared to one month of railroad operations in Mexico in
the 1999 quarter.
Diesel fuel expense was $2.8 million in the quarter ended September 30, 2000
compared to $1.5 million in the quarter ended September 30, 1999, an increase of
$1.3 million or 82.2% of which $697,000 was attributable to a full quarter of
railroad operations in Mexico compared to one month of railroad operations in
Mexico in the 1999 quarter, and $580,000 was attributable to an increase on
existing railroad operations. The increase on existing railroad operations is
primarily the result of significant fuel price increases experienced at all
operating locations.
All other expenses combined were $12.2 million in the quarter ended September
30, 2000 compared to $12.0 million in the quarter ended September 30, 1999, a
net increase of $206,000 or 1.7% which consisted of $1.7 million attributable to
a full quarter of railroad operations in Mexico compared to one month of
railroad operations in Mexico in the 1999 quarter, offset by a decrease of $1.5
million attributable to existing railroad operations.
19
<PAGE>
Australian Railroad Operating Expenses
Expenses attributable to operations in Australia were $8.4 million in the
quarter ended September 30, 2000, compared to $9.2 million in the quarter ended
September 30, 1999, a decrease of $817,000 or 8.9%. The decrease in Australian
operating expense is primarily due to the depreciation of the Australian dollar
against the U.S. dollar in the 2000 period compared to the 1999 period. The
weighted average currency exchange rate in the quarter ended September 30, 2000
was $0.573 compared to $0.650 in the quarter ended September 30, 1999, a
decrease of $0.077 or 11.8%. In Australian dollars, operating expense increased
by approximately 3.1%. The following table sets forth a comparison of the
Company's Australian railroad operating expenses in the quarters ended September
30, 2000 and 1999:
Australian Railroad Operations
Operating Expense Comparison
Quarters Ended September 30, 2000 and 1999
(dollars in thousands)
<TABLE>
<CAPTION>
2000 1999
---- ----
% of % of
Operating Operating
$ Revenue $ Revenue
<S> <C> <C> <C> <C>
Labor and benefits $ 1,307 13.8% $ 1,473 13.6%
Equipment rents 54 0.6% 139 1.3%
Purchased services 3,187 33.6% 3,003 27.7%
Depreciation and amortization 586 6.2% 554 5.1%
Diesel fuel 1,330 14.0% 2,021 18.6%
Casualties and insurance 302 3.2% 302 2.8%
Materials 451 4.7% 449 4.1%
Other expenses 1,163 12.2% 1,256 11.5%
------- ------- ------- -------
Total operating expenses $ 8,380 88.3% $ 9,197 84.7%
======= ======= ======= =======
</TABLE>
Diesel fuel was $1.3 million in the quarter ended September 30, 2000 compared
to $2.0 million in the quarter ended September 30, 1999, a decrease of $691,000
or 34.2%, due primarily to fuel tax decreases in Australia which became
effective on July 1, 2000.
All other expenses combined were $7.1 million in the quarter ended September
30, 2000 compared to $7.2 million in the quarter ended September 30, 1999, a
decrease of $126,000 or 1.8%.
U. S. Industrial Switching Operating Expenses
The following table sets forth a comparison of the Company's U.S. industrial
switching operating expenses in the quarters ended September 30, 2000 and 1999:
The remainder of this page is intentionally left blank.
20
<PAGE>
U.S. Industrial Switching
Operating Expense Comparison
Quarters Ended September 30, 2000 and 1999
(dollars in thousands)
<TABLE>
<CAPTION>
2000 1999
---- ----
% of % of
Operating Operating
$ Revenue $ Revenue
<S> <C> <C> <C> <C>
Labor and benefits $ 1,621 60.3% $ 1,898 76.1%
Equipment rents 79 2.9% 45 1.8%
Purchased services 87 3.2% 154 6.2%
Depreciation and amortization 174 6.5% 170 6.8%
Diesel fuel 117 4.4% 95 3.8%
Casualties and insurance 105 3.9% 98 3.9%
Materials 167 6.2% 139 5.6%
Other expenses 239 9.0% (33) -1.4%
------- ---- ------- -----
Total operating expenses $ 2,589 96.4% $ 2,566 102.8%
======= ==== ======= =====
</TABLE>
U.S. industrial switching operating expenses were $2.6 million in the quarters
ended September 30, 2000 and 1999, respectively.
Operating Ratios
The Company's combined operating ratio increased to 86.7% in the quarter ended
September 30, 2000 from 85.9% in the quarter ended September 30, 1999. The
operating ratio for North American railroad operations increased to 85.6% in the
quarter ended September 30, 2000 from 85.0% in the quarter ended September 30,
1999. The operating ratio for Australian railroad operations increased to 88.3%
in the quarter ended September 30, 2000 from 84.7% in the quarter ended
September 30, 1999. The operating ratio for U.S. industrial switching operations
decreased to 96.4% in the quarter ended September 30, 2000 from 102.8% in the
quarter ended September 30, 1999.
Other Income, Net
Other income, net in the three months ended September 30, 2000 was $1.3
million compared to $301,000 in the three months ended September 30, 1999, an
increase of $1.0 million. Other Income, net in the three months ended September
30, 2000 consists primarily of interest income of $610,000 and income from the
reversal of stale liabilities of $690,000. Other Income, net in the three months
ended September 30, 1999, consisted primarily of interest income of $174,000 and
gains on asset sales of $112,000. The increase in interest income in the three
months ended September 30, 2000 is primarily due to a full quarter of earnings
on FCCM's Special Track Project deposit versus only one month in the three
months ended September 30, 1999.
Interest Expense and Income Taxes
Interest expense in the quarter ended September 30, 2000 was $2.7 million
compared to $2.3 million in the quarter ended September 30, 1999, an increase of
$427,000 or 18.7% due primarily to financing of the FCCM acquisition for a full
quarter in 2000 compared to one and one-half months in the 1999 quarter. The
Company's effective
21
<PAGE>
income tax rate in the quarter ended September 30, 2000 was 40.0% which compared
to 43% in the 1999 quarter before the effect of the $4.2 million benefit
provision from the favorable tax law change in Australia.
Net Income and Earnings Per Share
The Company's net income in the quarter ended September 30, 2000 was $3.2
million compared to net income of $6.7 million (including $4.2 million of
Australia income tax benefit) in the quarter ended September 30, 1999, a
decrease of $3.5 million. The decrease in net income is the net result of an
increase in net income from operations in North America railroad operations of
$7.9 million and a decrease in the net loss of industrial switching operations
of $124,000, offset by a decrease in net income from operations in Australia of
$4.5 million (including the $4.2 million income tax benefit).
Basic and Diluted Earnings Per Share in the quarter ended September 30, 2000
were $0.74 and $0.72, respectively, on weighted average shares of 4.3 million
and 4.4 million, respectively, compared to earnings of $1.56 and $1.53,
respectively, on weighted average shares of 4.3 million and 4.4 million,
respectively, in the quarter ended September 30, 1999.
Nine months Ended September 30, 2000 Compared to Nine months Ended September
30, 1999
Consolidated Operating Revenues
Operating revenues were $157.9 million in the nine months ended September 30,
2000 compared to $121.9 million in the nine months ended September 30, 1999, a
net increase of $36.0 million or 29.5%. The net increase was attributable to a
$39.2 million increase in North American railroad revenues of which $22.6
million was attributable to a full nine months of railroad operations in Mexico
compared to one month of railroad operations in Mexico in the 1999 period, $8.8
million was from the acquisition of GRO, and $7.8 million was on existing North
American operations; offset by a $2.2 million decrease in revenues from
Australian railroad operations and a $987,000 decrease in 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 American Railroad Operating Revenues
North American railroad operating revenues were $119.9 million in the nine
months ended September 30, 2000 compared to $80.7 million in the nine months
ended September 30, 1999, an increase of $39.2 million or 48.9%. The increase
was attributable to a $32.7 million increase in freight revenues and a $6.5
million increase in non-freight revenues. The increase of $32.7 million in North
American freight revenues was due to $19.9 million in freight attributable to a
full nine months of railroad operations in Mexico compared to one month of
railroad operations in Mexico in the 1999 period, $7.1 million from the
acquisition of GRO, and 5.7 million was on existing North American operations.
The following table compares North American freight revenues, carloads and
average freight revenues per carload for the nine months ended September 30,
2000 and 1999:
22
<PAGE>
North American Freight Revenues and Carloads Comparison by Commodity Group
Nine months Ended September 30, 2000 and 1999
(dollars in thousands, except average per carload)
<TABLE>
<CAPTION>
Average
Freight
Revenues
Per
Freight Revenues Carloads Carload
---------------- -------- -------
Commodity Group % of % of % of % of
---------------
2000 Total 1999 Total 2000 Total 1999 Total 2000 1999
---- ----- ---- ----- ---- ----- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Coal, Coke & Ores $19,658 20.5% $16,414 26.0% 87,344 31.0% 60,641 30.1% $225 $271
Pulp & Paper 14,740 15.4% 10,223 16.2% 38,496 13.6% 27,398 13.6% 383 373
Petroleum Products 14,122 14.7% 6,277 9.9% 23,419 8.3% 13,525 6.7% 603 464
Minerals & Stone 13,598 14.2% 3,925 6.2% 31,523 11.2% 14,892 7.4% 431 264
Metals 7,836 8.2% 5,705 9.0% 28,365 10.1% 21,330 10.6% 276 267
Farm & Food Products 6,878 7.2% 3,351 5.3% 19,639 7.0% 11,977 5.9% 350 280
Chemicals & Plastics 6,753 7.0% 6,200 9.8% 13,024 4.6% 12,123 6.0% 519 511
Lumber & Forest Products 6,173 6.4% 6,218 9.8% 20,124 7.1% 20,949 10.4% 307 297
Autos & Auto Parts 2,374 2.5% 1,687 2.7% 4,369 1.5% 3,286 1.6% 543 513
Other 3,697 3.9% 3,132 5.1% 15,907 5.6% 15,613 7.7% 232 201
----------------------------------------------------------------------------------
Total $95,829 100.0% $63,132 100.0% 282,210 100.0% 201,734 100.0% 340 313
==================================================================================
</TABLE>
Revenues from hauling Coal increased by $3.2 million or 19.8% all of which was
from existing railroad operations except for $63,000 which was from the
acquisition of GRO. The increase on existing railroad operations was primarily
attributable to freight revenues for two new customers in the 2000 period, and a
return to normalized shipments at an existing key customer's facilities compared
to reduced shipments in the first nine months of 1999 due to scheduled inventory
reductions and planned maintenance projects at the key customer's facilities.
The average revenue per carload for coal decreased by 17.0% due to lower revenue
per carload for the new customers, and freight rate reductions on the normalized
shipments at the key customer's facilities.
Pulp and Paper freight revenues increased by $4.5 million or 44.2% of which
$2.2 million was from the acquisition of GRO, $2.0 million was on existing
railroad operations, and $282,000 was attributable to a full nine months of
railroad operations in Mexico compared to one month of railroad operations in
Mexico in the 1999 period. The increase on existing railroad operations
consisted primarily of increases in Canada (in the second and third quarters),
Oregon and New York-Pennsylvania resulting from a stronger paper market in 2000
than in 1999.
Petroleum Products freight revenues increased by $7.9 million or 125.0% of
which $7.2 million was attributable to a full nine months of railroad operations
in Mexico compared to one month of railroad operations in Mexico in the 1999
period, $621,000 was on existing railroad operations, and $63,000 was from the
acquisition of GRO.
Minerals and Stone freight revenues increased by $9.7 million or 246.4% of
which $8.5 million was attributable to a full nine months of railroad operations
in Mexico compared to one month of railroad operations in Mexico in the 1999
period, $832,000 was on existing railroad operations, and $391,000 was from the
acquisition of GRO.
Metals freight revenues increased by $2.1 million or 37.4% of which $1.2
million was from the acquisition of GRO, $780,000 was on existing railroad
operations, and
23
<PAGE>
$127,000 was attributable to a full nine months of railroad operations in Mexico
compared to one month of railroad operations in Mexico in the 1999 period.
Farm and Food Products freight revenues increased by $3.5 million or 105.3% of
which $2.0 million was attributable to a full nine months of railroad operations
in Mexico compared to one month of railroad operations in Mexico in the 1999
period, $1.5 million was from the acquisition of GRO, and $23,000 was on
existing railroad operations.
Freight revenues from all remaining commodities reflected a net increase of
$1.8 million or 10.2% of which $1.9 million was attributable to a full nine
months of railroad operations in Mexico compared to one month of railroad
operations in Mexico in the 1999 period and $1.6 million was from the
acquisition of GRO, offset by a $1.7 million decrease on existing railroad
operations.
Total North American carloads were 282,210 in the nine months ended September
30, 2000 compared to 201,734 in the nine months ended September 30, 1999, an
increase of 80,476 or 40.0%. The increase of 80,476 consisted of an increase of
39,229 carloads on existing railroad operations of which 26,471 carloads were
coal, 21,322 carloads were attributable to the acquisition of GRO, and 19,925
carloads were attributable to a full nine months of railroad operations in
Mexico compared to one month of railroad operations in Mexico in the 1999
period.
The overall average revenue per carload increased to $340 in the nine months
ended September 30, 2000, compared to $313 per carload in the nine months ended
September 30, 1999, an increase of 8.6% due primarily to higher per carload
revenues attributable to Mexico netted against a decrease on existing railroad
operations.
North American non-freight railroad revenues were $24.1 million in the nine
months ended September 30, 2000 compared to $17.6 million in the nine months
September 30, 1999, an increase of $6.5 million or 37.1%. The increase is the
result of $2.7 million of non-freight revenues attributable to a full nine
months of railroad operations in Mexico compared to one month of railroad
operations in Mexico in the 1999 period, an increase of $2.1 million in
non-freight revenues on existing railroad operations, and $1.7 million of
non-freight revenues attributable to the acquisition of GRO. The following table
compares North America non-freight revenues for the nine months ended September
30, 2000 and 1999:
North American Railroad
Non-Freight Operating Revenue Comparison
Nine months Ended September 30, 2000 and 1999
(dollars in thousands)
<TABLE>
<CAPTION>
2000 1999
---- ----
$ % of $ % of
Non-Freight Non-Freight
Revenue Revenue
<S> <C> <C> <C> <C>
Railroad switching $ 8,142 33.8% $ 4,988 28.4%
Car hire and rental income 6,132 25.5% 5,691 32.4%
Car repair services 2,339 9.7% 1,678 9.6%
Other operating income 7,467 31.0% 5,213 29.6%
------- ----- ------- -----
Total non-freight revenues $24,080 100.0% $17,570 100.0%
======= ===== ======= =====
</TABLE>
24
<PAGE>
Australian Operating Revenues
Australian operating revenues were $30.2 million in the nine months ended
September 30, 2000, compared to $32.4 million in the nine months ended September
30, 1999, a decrease of $2.2 million or 7.0%. The decrease was attributable to a
$2.4 million decline in freight revenues offset by a $126,000 increase in non-
freight revenues. The decrease in Australian operating revenues is primarily due
to the depreciation of the Australian dollar against the U.S. dollar in the 2000
period compared to the 1999 period. The weighted average currency exchange rate
in the nine months ended September 30, 2000 was $0.5985 compared to $0.6458 in
the nine months ended September 30, 1999, a decrease of $0.0473 or 7.3%. In
Australian dollars, operating revenues increased by approximately 0.1%.
The following table outlines Australian freight revenues for the nine months
ended September 30, 2000 and 1999:
Australian Freight Revenues and Carloads Comparison by Commodity Group
Nine months Ended September 30, 2000 and 1999
(dollars in thousands, except average per carload)
<TABLE>
<CAPTION>
Average
Freight
Revenues
Per
Freight Revenues Carloads Carload
---------------- -------- -------
Commodity Group % of % of % of % of
---------------
2000 Total 1999 Total 2000 Total 1999 Total 2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hook and Pull
(Haulage) $12,611 47.1% $13,446 46.1% 40,867 22.0% 39,908 33.1% $309 $337
Grain 6,339 23.7% 10,218 35.0% 23,965 12.9% 37,307 31.0% 265 274
Iron Ores 3,033 11.3% - 0.0% 77,053 41.5% - 0.0% 39 -
Gypsum 2,132 8.0% 2,199 7.5% 32,935 17.7% 29,531 24.5% 65 74
Marble 1,419 5.3% 1,502 5.2% 6,319 3.4% 6,151 5.1% 225 244
Lime 1,158 4.3% 1,120 3.8% 3,249 1.8% 3,201 2.7% 356 350
Coal - 0.0% 664 2.3% - 0.0% 4,317 3.6% - 154
Other 75 0.3% 9 0.1% 1,214 0.7% 12 0.0% 62 750
-------------------------------------------------------------------------------
Total $26,767 100.0% $29,158 100.0% 185,602 100.0% 120,427 100.0% 144 242
===============================================================================
</TABLE>
The net decrease of $2.4 million in Australian freight revenues was primarily
attributable to decreases in revenues from Grain of $3.9 million, Hook and Pull
of $835,000, and Coal of $664,000, and a decrease from all remaining commodities
of $46,000, offset by an increase of $3.0 million from the shipment of Iron Ores
for a new customer. Grain revenues for the nine months of 1999 reflect the
strong harvest experienced during the 1998/99 season. There were no freight
revenues from coal in the nine months ended September 30, 2000, due to the non-
renewal of a coal contract.
Australia carloads were 185,602 in the nine months ended September 30, 2000
compared to 120,427 in the nine months ended September 30, 1999, a net increase
of 65,175 or 54.1%. The net increase of 65,175 was primarily the result of
77,053 carloads from the shipment of Iron Ores for a new customer and an
increase in carloads from Gypsum of 3,404, offset by decreases in carloads from
Grain and Coal
25
<PAGE>
of 13,342 and 4,317, respectively. The net remaining increase from all other
commodities was 2,377 carloads.
The overall average revenue per carload decreased to $144 in the nine months
ended September 30, 2000, compared to $242 per carload in the nine months ended
September 30, 1999, a decrease of 40.5% due primarily to the increase in Iron
Ores carloads at a lower revenue per carload. Excluding Iron Ores, the average
revenue per carload in the nine months ended September 30, 2000 was $219, a
decrease of 9.5% due primarily to the depreciation of the Australian dollar
against the U.S. dollar.
Australian non-freight revenues were $3.4 million in the nine months ended
September 30, 2000, compared to $3.3 million in the nine months ended September
30, 1999, an increase of $126,000 or 3.8%. The following table compares
Australian non-freight revenues for the nine months ended September 30, 2000 and
1999:
Australian Railroad
Non-freight Operating Revenue Comparison
Nine months Ended September 30, 2000 and 1999
(dollars in thousands)
<TABLE>
<CAPTION>
2000 1999
---- ----
$ % of $ % of
Non-freight Non-freight
Revenue Revenue
<S> <C> <C> <C> <C>
Car hire and rental income $1,821 53.4% $2,048 62.4%
Other operating income 1,587 46.6% 1,234 37.6%
------ ----- ------ -----
Total non-freight revenues $3,408 100.0% $3,282 100.0%
====== ===== ====== =====
</TABLE>
Industrial Switching Revenues
Revenues from U.S. industrial switching activities were $7.8 million in the
nine months ended September 30, 2000 compared to $8.8 million in the nine months
ended September 30, 1999, a decrease of $1.0 million or 11.3% due primarily to
the Company's decision to exit an unprofitable switching contract in May, 1999.
Consolidated Operating Expenses
Operating expenses for all operations combined were $135.1 million in the nine
months ended September 30, 2000, compared to $107.8 million in the nine months
ended September 30, 1999, a net increase of $27.3 million or 25.3%. Expenses
attributable to North American railroad operations were $100.8 million in the
nine months ended September 30, 2000, compared to $71.2 million in the nine
months ended September 30, 1999, an increase of $29.6 million or 41.5% of which
$17.0 million were expenses attributable to a full nine months of railroad
operations in Mexico compared to one month of railroad operations in Mexico in
the 1999 period, $7.6 million were expenses attributable to the acquisition of
GRO, and $5.0 million were expenses attributable to existing railroad
operations. Expenses attributable to operations in Australia were $26.8 million
in the nine months ended September 30, 2000, compared to $27.7 million in the
nine months ended September 30, 1999, a decrease of $895,000 or 3.2%. Expenses
attributable to U.S. industrial switching were $7.5 million in the nine months
ended September 30, 2000, compared to $8.9 million in the nine months ended
September 30, 1999, a decrease of $1.4 million or 15.5%.
26
<PAGE>
The following three sections provide information on railroad expenses in North
America and Australia, 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 nine months ended September 30, 2000 and
1999:
North American Railroad
Operating Expense Comparison
Nine months Ended September 30, 2000 and 1999
(dollars in thousands)
<TABLE>
<CAPTION>
2000 1999
---- ----
% of % of
Operating Operating
$ Revenue $ Revenue
<S> <C> <C> <C> <C>
Labor and benefits $ 40,528 33.8% $ 26,815 33.2%
Equipment rents 14,641 12.2% 10,046 12.4%
Purchased services 8,356 7.0% 4,960 6.1%
Depreciation and amortization 8,216 6.9% 6,706 8.3%
Diesel fuel 9,056 7.6% 3,603 4.5%
Casualties and insurance 4,705 3.9% 2,734 3.4%
Materials 8,043 6.7% 5,136 6.4%
Other expenses 7,204 5.9% 11,189 13.9%
--------- -------- -------- -------
Total operating expenses $ 100,749 84.0% $ 71,189 88.2%
========= ======== ======== =======
</TABLE>
Labor and benefits expense was $40.5 million in the nine months ended
September 30, 2000 compared to $26.8 million in the nine months ended September
30, 1999, an increase of $13.7 million or 51.1% of which $7.0 million was
attributable to a full nine months of railroad operations in Mexico compared to
one month of railroad operations in Mexico in the 1999 period, $4.7 million was
attributable to existing railroad operations, and $2.0 million was attributable
to the acquisition of GRO. The increase on existing railroad operations relates
primarily to increased freight operations and the addition of senior
administrative and safety personnel.
Equipment rents were $14.6 million in the nine months ended September 30, 2000
compared to $10.0 million in the nine months ended September 30, 1999, an
increase of $4.6 million or 45.7% of which $2.4 million was attributable to
existing railroad operations, $1.7 million was attributable to the acquisition
of GRO, and $426,000 was attributable to a full nine months of railroad
operations in Mexico compared to one month of railroad operations in Mexico in
the 1999 period.
Purchased services were $8.4 million in the nine months ended September 30,
2000 compared to $5.0 million in the nine months ended September 30, 1999, an
increase of $3.4 million or 68.5% of which $2.0 million was attributable to a
full nine months of railroad operations in Mexico compared to one month of
railroad operations in Mexico in the 1999 period, $987,000 was attributable to
the acquisition of GRO, and $453,000 was attributable to existing railroad
operations.
Diesel fuel expense was $9.1 million in the nine months ended September 30,
2000 compared to $3.6 million in the nine months ended September 30, 1999, an
increase of $5.5 million or 151.3% of which $2.1 million was attributable to a
full nine months
27
<PAGE>
of railroad operations in Mexico compared to one month of railroad operations in
Mexico in the 1999 period, $2.3 million was attributable to an increase on
existing railroad operations, and $1.1 million was attributable to the
acquisition of GRO. The increase on existing railroad operations is primarily
the result of significant fuel price increases experienced at all operating
locations.
All other expenses combined were $28.2 million in the nine months ended
September 30, 2000 compared to $25.8 million in the nine months ended September
30, 1999, a net increase of $2.4 million or 9.3% of which $5.5 million was
attributable to a full nine months of railroad operations in Mexico compared to
one month of railroad operations in Mexico in the 1999 period and $1.7 million
was attributable to the acquisition of GRO, offset by a $4.8 million decrease on
existing railroad operations in the 2000 period.
Australian Railroad Operating Expenses
Expenses attributable to operations in Australia were $26.8 million in the
nine months ended September 30, 2000, compared to $27.7 million in the nine
months ended September 30, 1999, a decrease of $895,000 or 3.2%. The decrease in
Australian operating expense is primarily due to the depreciation of the
Australian dollar against the U.S. dollar in the 2000 period compared to the
1999 period. The weighted average currency exchange rate in the nine months
ended September 30, 2000 was $0.5985 compared to $0.6458 in the nine ended
September 30, 1999, a decrease of $0.0473 or 7.3%. In Australian dollars,
operating expense increased by approximately 4.4%. The following table sets
forth a comparison of the Company's Australian railroad operating expenses in
the nine months ended September 30, 2000 and 1999:
Australian Railroad Operations
Operating Expense Comparison
Nine months Ended September 30, 2000 and 1999
(dollars in thousands)
<TABLE>
<CAPTION>
2000 1999
---- ----
% of % of
Operating Operating
$ Revenue $ Revenue
<S> <C> <C> <C> <C>
Labor and benefits $ 4,126 13.7% $ 4,282 13.2%
Equipment rents 154 0.5% 236 0.7%
Purchased services 9,612 31.9% 8,927 27.5%
Depreciation and amortization 1,774 5.9% 1,583 4.9%
Diesel fuel 5,700 18.9% 5,980 18.4%
Casualties and insurance 1,107 3.7% 1,551 4.8%
Materials 1,139 3.7% 1,308 4.0%
Other expenses 3,186 10.5% 3,826 11.9%
--------- ------ --------- ------
Total operating expenses $ 26,798 88.8% $ 27,693 85.4%
========= ====== ========= ======
</TABLE>
Purchased services were $9.6 million in the nine months ended September 30,
2000 compared to $8.9 million in the nine months ended September 30, 1999, an
increase of $685,000 or 7.7%, due primarily to increased contract maintenance
costs associated with new Iron Ore movements.
28
<PAGE>
All other expenses combined were $17.2 million in the nine months ended
September 30, 2000 compared to $18.8 million in the nine months ended September
30, 1999, a decrease of $1.6 million or 8.4% due primarily to decreases in
casualties and insurance of $444,000, diesel fuel of $280,000 due to fuel tax
decreases, and a net decrease in all other expenses of $856,000.
U. S. Industrial Switching Operating Expenses
The following table sets forth a comparison of the Company's U.S. industrial
switching operating expenses in the nine months ended September 30, 2000 and
1999:
U.S. Industrial Switching
Operating Expense Comparison
Nine months Ended September 30, 2000 and 1999
(dollars in thousands)
<TABLE>
<CAPTION>
2000 1999
---- ----
% of % of
Operating Operating
$ Revenue $ Revenue
<S> <C> <C> <C> <C>
Labor and benefits $ 4,674 60.1% $ 6,341 72.4%
Equipment rents 170 2.2% 138 1.6%
Purchased services 235 3.0% 372 4.2%
Depreciation and amortization 493 6.3% 598 6.8%
Diesel fuel 399 5.1% 315 3.6%
Casualties and insurance 358 4.6% 757 8.6%
Materials 492 6.3% 573 6.5%
Other expenses 707 9.2% (183) -2.1%
--------- ------ --------- -------
Total operating expenses $ 7,528 96.8% $ 8,911 101.6%
========= ====== ========= =======
</TABLE>
Labor and benefits expense was $4.7 million in the nine months ended September
30, 2000 compared to $6.3 million in the nine months ended September 30, 1999, a
decrease of $1.6 million or 26.3%, due primarily to the Company's decision to
exit an unprofitable switching contract in May 1999.
All other expenses combined were $2.9 million in the nine months ended
September 30, 2000 compared to $2.6 million in the nine months ended September
30, 1999, an increase of $284,000 or 11.1%.
Operating Ratios
The Company's combined operating ratio decreased to 85.6% in the nine months
ended September 30, 2000 from 88.4% in the nine months ended September 30, 1999.
The operating ratio for North American railroad operations decreased to 84.0% in
the nine months ended September 30, 2000 from 88.2% in the nine months ended
September 30, 1999. The operating ratio for Australian railroad operations
increased to 88.8% in the nine months ended September 30, 2000 from 85.4% in the
nine months ended September 30, 1999. The operating ratio for U.S. industrial
switching operations decreased to 96.8% in the nine months ended September 30,
2000 from 101.6% in the nine months ended September 30, 1999.
29
<PAGE>
Valuation Adjustment of U.S. Dollar Denominated Foreign Debt
Amounts outstanding under the Company's credit facilities which were borrowed
by FCCM represented U.S. dollar denominated foreign debt of the Company's
Mexican subsidiary. As the Mexican peso moved against the U.S. dollar, the
revaluation of this outstanding debt to its Mexican peso equivalent resulted in
non-cash gains and losses which totaled a loss of $1.5 million in the nine
months ended September 30, 2000. On June 16, 2000, pursuant to a corporate and
financial restructuring of the Company's Mexican subsidiaries and a further
amendment to the credit facilities, the income statement impact of the U.S.
dollar denominated foreign debt revaluation was significantly reduced.
Other Income, Net
Other income, net in the nine months ended September 30, 2000 was $2.6 million
compared to $84,000 in the nine months ended September 30, 1999, an increase of
$2.5 million. Other income, net in the nine months ended September 30, 2000
consists primarily of interest income of $1.8 million and income from the
reversal of stale liabilities of $690,000. Other income, net in the nine months
ended September 30, 1999, consisted of interest income of $479,000 and gains on
asset sales of $198,000, offset by equity losses of unconsolidated affiliates,
primarily GRO, of $593,000. The increase in interest income in the nine months
ended September 30, 2000 is primarily due to a full nine months of earnings on
FCCM's Special Track Project deposit versus only one month in 1999.
Interest Expense and Income Taxes
Interest expense in the nine months ended September 30, 2000 was $8.0 million
compared to $5.6 million in the nine months ended September 30, 1999, an
increase of $2.4 million or 42.4% due primarily to financing of the GRO and FCCM
acquisitions. The Company's effective income tax rate in the nine months ended
September 30, 2000 was 37.9% which compared to 42.9% in the nine months ended
September 30, 1999 before the effect of the $4.2 million benefit provision from
the favorable Australia tax law change.
Net Income and Earnings Per Share
The Company's net income in the nine months ended September 30, 2000 was $9.9
million compared to net income of $9.1 million in the nine months ended
September 30, 1999, an increase of $777,000. The increase in net income is the
net result of an increase in net income from North America railroad operations
of $5.4 million and a decrease in the net loss from industrial switching
operations of $373,000, offset by a decrease in net income from operations in
Australia of $5.0 million (including the $4.2 million income tax benefit). The
net income from North America railroad operations of $5.4 million includes
approximately $985,000 of the after-tax effect of the non-cash loss from the
depreciation of the Mexican peso.
Basic and Diluted Earnings Per Share in the nine months ended September 30,
2000 were $2.28 and $2.24, respectively, on weighted average shares of 4.3
million and 4.4 million, respectively, compared to earnings of $2.00 and $1.98,
respectively, on weighted average shares of 4.5 million and 4.6 million,
respectively, in the nine months ended September 30, 1999. The change in
weighted average shares outstanding primarily reflects the impact of a 1.0
million share buy-back program which ended in May, 1999.
30
<PAGE>
Liquidity and Capital Resources
During the nine months ended September 30, 2000, the Company generated cash
from operations of $17.7 million, invested $26.3 million in capital assets
(including $8.3 million in state grant funds received for track rehabilitation
and construction), had a net increase in outstanding debt of $1.6 million, and
received $275,000 in proceeds from the disposition of property.
During the nine months ended September 30, 1999 the Company generated cash
from operations of $20.3 million, invested $21.8 million in capital assets
(including $5.9 million in state grant funds received for track rehabilitation
and construction), received cash of $57,000 in the purchase of Rail-One Inc.
less cash paid for common stock, invested $30.5 million for the purchase of
assets of the Chiapas-Mayab railway concession, equipment property and other
assets from the state-owned rail company Ferronales, had a net increase in
outstanding debt of $59.7 million of which $24.7 million was assumed in the
acquisition of GRO, and received $298,000 in proceeds from the disposition of
property.
Convertible Preferred Stock - On October 19, 2000, the Company signed an
agreement to receive up to $25 million from the 1818 Fund III, L.P. (the "Fund")
managed by Brown Brothers Harriman & Co., in exchange for the issuance to the
fund of the Company's Convertible Preferred Stock (the "Convertible Preferred").
The Company will initially receive a $10.0 million investment from the Fund and
will also have the option through January 15, 2001 to issue the Fund up to an
additional $15 million of Convertible Preferred, in $5 million increments, to
fund acquisition opportunities worldwide. If the Company does not exercise the
option in its entirety, the Fund will receive an option to invest an additional
$10.0 million provided that GWI completes acquisitions with an aggregate
purchase price greater than $25 million. The maximum total investment by the
Fund will be limited to $25 million. The sale of the Convertible Preferred will
be subject to customary closing conditions. When issued, the Convertible
Preferred will have a conversion price of $23.00 per share, a cash coupon of
4.0%, will be callable by GWI in four years, and will be mandatorily redeemable
in eight years. It is anticipated that the proceeds will be used to fund an
expected acquisition in Western Australia.
Credit Facilities - On August 17, 1999, the Company amended and restated its
credit facilities agreement (the Agreement) to provide for an increase in
borrowings from $65.0 million to $150.0 million. The Agreement provides for
$88.0 million in revolving credit facilities, including $15.0 million in
Australian dollar equivalents to be allocated to the Australian subsidiaries,
and $62.0 million in term loan facilities. The term loan facilities include 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 Agreement has a maturity date of August 17,
2004, provides for interest at various rates, plus the applicable margins, as
defined in the Agreement and is secured by substantially all the assets of the
Company and its subsidiaries. The Agreement requires certain commitment fees,
prepayments from the issuance of new equity or debt and annual sale of assets,
and 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.
Amounts outstanding under the Agreement which were borrowed by FCCM
represented U.S. dollar denominated foreign debt of the Company's Mexican
subsidiary. As the Mexican peso moved against the U.S. dollar, the revaluation
of this outstanding debt to its Mexican peso equivalent resulted in non-cash
gains and losses as reflected in the accompanying statements of income. On June
16, 2000, pursuant to a corporate
31
<PAGE>
and financial restructuring of the Company's Mexican subsidiaries and a further
amendment to the Agreement, the income statement impact of the U.S. dollar
denominated foreign debt revaluation was significantly reduced.
Stock Repurchase - On August 12, 1998, the Company's board of directors
authorized the Company to repurchase up to one million shares of the Company's
Class A common stock under SEC Rule 10b-18. In May, 1999, the Company completed
its purchase of the one million shares authorized by the board of directors at a
total cost of $11.0 million.
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. Approximately $26.3 million of
the budgeted capital expenditures of $38.7 million were completed as of
September 30, 2000, and $8.3 million of the expected $12.8 million of government
grants has been received.
At September 30, 2000, the Company had long-term debt (including current
portion) totaling $108.6 million, which comprised 55.3% of its total
capitalization. This compares to long-term debt, including current portion, of
$108.4 million at December 31, 1999, comprising 57.0% 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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to the impact of interest rate changes. The Company's
exposure to changes in interest rates applies to its borrowings under its credit
facilities which have variable interest 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 credit facilities agreement. The Company
is also exposed to the impact of foreign currency exchange rate risk at its
foreign subsidiaries. The Company does not believe that its market risks have
substantially increased since last year end.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NONE
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.
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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) First Amendment to Promissory Note dated as of March 19, 1999
between Buffalo & Pittsburgh Railroad, Inc. and CSX
Transportation, Inc. (Exhibit 4.1)4
(g) Third Amended and Restated Revolving Credit and Term Loan
Agreement dated as of August 17, 1999 among the Registrant,
certain subsidiaries, BankBoston, N.A. and the banks named
therein (Exhibit 4.1)5
(10) Material Contracts
*(10.1) Amendment No. 6 to Genesee & Wyoming Inc. 1996 Stock Option Plan
*(10.2) Genesee & Wyoming Australia Pty. Ltd. Executive Share Option Plan
*(11.1) Statement re computation of per share earnings
(15) Letter re unaudited interim financial information
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Not applicable.
(18) Letter re change in accounting principles
Not applicable.
(19) Report furnished to security holders
Not applicable.
(22) Published report regarding matters submitted to vote of security
holders
Not applicable.
(23) Consents of experts and counsel
Not applicable.
(24) Power of attorney
Not applicable.
*(27) Financial Data Schedule
(99) Additional Exhibits
Not applicable.
----------------------------
*Exhibit filed with this Report.
1 Exhibit previously filed as part of, and incorporated herein by
reference to, the Registrant's Registration Statement on Form S-1 (Registration
No. 333-3972). The exhibit number contained in parenthesis refers to the exhibit
number in such Registration Statement.
2 Exhibit previously filed as part of, and incorporated herein by
reference to, Amendment No. 1 to the Registrant's Registration Statement on Form
S-1 (Registration No. 333-3972). The exhibit number contained in parenthesis
refers to the exhibit number in such Amendment.
3 Exhibit previously filed as part of, and incorporated herein by
reference to, Amendment No. 2 to the Registrant's Registration Statement on Form
S-1 (Registration No. 333-3972). The exhibit number contained in parenthesis
refers to the exhibit number in such Amendment.
4 Exhibit previously filed as part of, and incorporated herein by
reference to, the Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1998. The exhibit number contained in parenthesis refers to the
exhibit number in such Report.
5 Exhibit previously filed as part of, and incorporated herein by
reference to, the Registrant's Report on Form 10-Q for the quarter ended
September 30, 1999. The exhibit number contained in parenthesis refers to the
exhibit number in such Report.
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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 13, 2000 By: /s/ Mortimer B. Fuller, III
---------------------------
Name: Mortimer B. Fuller, III
Title: Chairman of the Board and CEO
Date: November 13, 2000 By: /s/ Alan R. Harris
---------------------------
Name: Alan R. Harris
Title: Senior Vice President and
Chief Accounting Officer
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36
