-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SzBGmVAIGrO1SLBS2/upNZA8BlIDe7aoBzh9rlgYp4vqW6rCS2bJA0vlhChtrwpz OxZv/gg0FPwM73PFbXqZqQ== 0000950130-97-005037.txt : 19971117 0000950130-97-005037.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950130-97-005037 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENESEE & WYOMING INC CENTRAL INDEX KEY: 0001012620 STANDARD INDUSTRIAL CLASSIFICATION: RAILROADS, LINE-HAUL OPERATING [4011] IRS NUMBER: 060984624 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20847 FILM NUMBER: 97718771 BUSINESS ADDRESS: STREET 1: 71 LEWIS ST CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2036293722 MAIL ADDRESS: STREET 1: 71 LEWIS STREET STREET 2: 71 LEWIS STREET CITY: GREENWICH STATE: CT ZIP: 06830 10-Q 1 FORM 10-Q 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, 1997 Commission File No. 0-20847 ------------------ ------- GENESEE & WYOMING INC. (Exact name of registrant as specified in its charter) Delaware 06-0984624 - ------------------------ ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 71 Lewis Street, Greenwich, Connecticut 06830 - --------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (203) 629-3722 - ---------------- (Telephone No.) Shares of common stock outstanding as of the close of business on November 11, 1997: Class Number of Shares Outstanding - ----- ----------------------------- Class A Common Stock 4,404,024 Class B Common Stock 846,556 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [_] NO INDEX Part I - Financial Information Item 1. Financial Statements: Page ------- Consolidated Statements of Income - For the Three Months and Nine Months Ended September 30, 1996 and 1997................................. 3 Consolidated Balance Sheets - December 31, 1996 and September 30, 1997 Consolidated Statements of Cash Flows - For the Nine Months Ended September 30, 1996 and 1997..... 4 Notes to Consolidated Financial Statements.......... 6 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 10 - 17 Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................... 17 Part II - Other Information..................................... 18 Index to Exhibits............................................... 19 - 20 Signatures...................................................... 21 2 GENESEE & WYOMING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) (Unaudited)
Three Months Nine Months Ended September 30, Ended September 30, 1996 1997 1996 1997 -------------------------------------------------- OPERATING REVENUES $ 19,022 $ 23,670 $ 54,640 $ 71,241 -------------------------------------------------- OPERATING EXPENSES: Transportation 4,354 7,114 13,012 21,098 Maintenance of ways and structures 2,392 2,586 6,914 7,605 Maintenance of equipment 3,621 3,854 10,143 11,748 General and administrative 3,461 4,451 9,496 13,698 Depreciation and amortization 1,585 1,764 4,479 4,985 -------------------------------------------------- Total operating expenses 15,413 19,769 44,044 59,134 -------------------------------------------------- INCOME FROM OPERATIONS 3,609 3,901 10,596 12,107 Interest expense (796) (629) (3,803) (1,850) Other income 150 273 411 503 -------------------------------------------------- Income before provision for income taxes 2,963 3,545 7,204 10,760 Provision for income tax 1,200 1,418 2,918 4,342 -------------------------------------------------- NET INCOME $ 1,763 $ 2,127 $ 4,286 $ 6,418 -------------------------------------------------- EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENT: NET INCOME $ 0.33 $ 0.39 $ 1.25 $ 1.18 ================================================== WEIGHTED AVERAGE NUMBER OF COMMON SHARE AND COMMON SHARE EQUIVALENTS OUTSTANDING 5,399 5,443 3,432 5,454 ===================================================
3 GENESEE & WYOMING INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
December 31, September 30, 1996 1997 ASSETS (Unaudited) --------------------------- CURRENTS ASSETS: Cash and cash equivalents $ 14,121 $ 11,911 Accounts receivable, net 19,133 16,900 Materials and supplies 4,173 4,424 Prepaid expenses and other 1,771 7,356 Deferred income tax assets, net 1,632 1,748 --------------------------- Total current assets 40,830 42,339 PROPERTY AND EQUIPMENT, net 78,822 87,945 --------------------------- SERVICE ASSURANCE AGREEMENT, net 14,312 13,750 --------------------------- OTHER ASSETS, net 11,375 11,421 --------------------------- Total assets $145,339 $155,455 =========================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 271 $ 308 Accounts payable 33,583 22,293 Accrued expenses 6,122 5,164 --------------------------- Total current liabilities 39,976 27,765 --------------------------- LONG-TERM DEBT 18,460 30,341 --------------------------- OTHER LIABILITIES 2,699 2,872 --------------------------- DEFERRED INCOME TAX LIABILITIES, net 4,720 6,922 --------------------------- DEFERRED ITEMS--grants from governmental agencies 12,899 14,824 --------------------------- DEFERRED GAIN--sale/leaseback 4,902 4,551 --------------------------- STOCKHOLDERS' EQUITY: Class A common stock, $0.01 par value, one vote per share; 12,000,000 shares authorized; 4,399,463 and 4,403,143 issued and outstanding on December 31, 1996 and September 30, 1997, respectively 44 44 Class B common stock, $0.01 par value, 10 votes per share; 1,500,000 shares authorized; 846,556 issued and outstanding 8 8 Additional paid-in capital 46,102 46,179 Warrants outstanding 471 471 Retained earnings 15,058 21,478 --------------------------- Total stockholders' equity 61,683 68,180 --------------------------- Total liabilities and stockholders' equity $145,339 $155,455 ===========================
4 GENESEE & WYOMING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Nine Months Ended September 30, 1996 1997 ---------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $4,286 $6,418 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 4,479 4,985 Deferred income taxes 1,858 2,086 Gain on disposition of property and equipment (44) (12) Changes in assets and liabilities, net of balances assumed through acquisitions- Receivables (4,900) 2,233 Materials and supplies (2,093) (251) Prepaid expenses and other (29) (5,585) Accounts payable and accrued expenses 5,030 (12,248) Other assets and liabilities, net 759 (532) ----------------------------- Net cash provided by (used in) operating activities 9,346 (2,906) ----------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (3,692) (7,444) Purchase of assets of Chicago & Illinois Midland Railway Company (26,330) --- Purchase of assets of Pittsburg & Shawmut Railroad Company, Mountain Laurel Railroad Company and Red Bank Railroad Company (11,966) --- Proceeds from disposition of property 4,436 293 ----------------------------- Net cash used in investing activities (37,552) (7,151) ----------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term borrowings, including capital leases (53,736) (9,577) Proceeds from issuance of long-term debt 41,945 14,880 Debt issuance costs (1,561) --- Net (payments) proceeds on grants (163) 2,465 Dividends paid (32) ---- Proceeds from issuance of common stock --- 79 Proceeds from issuance of stock warrants 471 --- Net proceeds from initial public offering 44,780 --- ----------------------------- Net cash provided by financing activities 31,704 7,847 ----------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,498 (2,210) CASH AND CASH EQUIVALENTS, beginning of period 2,115 14,121 ----------------------------- CASH AND CASH EQUIVALENTS, end of period $5,613 $11,911 ============================= CASH PAID DURING PERIOD FOR: Interest $3,763 $1,733 Incomes taxes 1,396 4,508 ============================= SUPPLEMENTAL NON-CASH INVESTING ACTIVITIES: Assumption of liabilities in connection with purchase of assets of Chicago & Illinois Midland Railway Company $1,394 --- Assumption of deferred credits from governmental agencies in connection with purchase of assets of Pittsburg & Shawmut Railroad Company, Mountain Laurel Railroad Company and Red Bank Railroad Company 3,194 --- Capital lease obligation --- $6,546 =============================
5 GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION: The interim consolidated financial statements presented herein include the accounts of Genesee & Wyoming Inc. and its subsidiaries. References to "GWI" or the "Company" mean Genesee & Wyoming Inc. and, unless the context indicates otherwise, its consolidated subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. These interim consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). In the opinion of management, the unaudited financial statements for the three-month and nine-month periods ended September 30, 1996 and 1997, are presented on a basis consistent with audited financial statements and contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation. The interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1996 included in the Company's Form 10-K. The results of operations for interim periods are not necessarily indicative of results of operations for the full year. 2. CORPORATE DEVELOPMENTS: Australia - On August 28, 1997 the Company announced that its wholly owned subsidiary, Genesee & Wyoming Australia Pty Ltd ("GWIA"), had been awarded the contract to purchase certain railroad assets of SA Rail, a division of Australian National Railway, through the Commonwealth of Australia Office of Asset Sales. SA Rail provides intrastate freight services in South Australia, interstate haulage of contract freight, rolling stock rental and maintenance, and interstate track maintenance. GWIA bid as part of a consortium including EDI Clyde Engineering and Transfield Pty Ltd. EDI Clyde is a major Australian provider of railway rolling stock and holds the Australian license for GM/EMD locomotives. Transfield is a major Australian engineering, construction and infrastructure maintenance provider. On November 8, 1997 GWIA closed on the purchase and commenced operation of freight service under the name of Australia Southern Railroad Pty. Ltd. Mexico - On October 21, 1997 the Company announced that it has a memorandum of understanding to operate, service and provide technical support on the Coahuila- Durango short line railroad in Mexico for Grupo Acerero del Norte and Industrias Penoles, the successful bidders for the line. The memorandum of understanding is subject to the parties' negotiation and execution of a definitive agreement and the satisfaction of various closing conditions. If finalized, the railroad would operate over approximately 782 miles of track, primarily in the northern Mexican states of Coahuila and Durango. In 1996, the Company acquired the Illinois & Midland Railroad, Inc., Pittsburg & Shawmut Railroad, Inc. and Rail Link, Inc. The reader is referred to the Company's 1996 Form 10-K for further discussion of these acquisitions. Pro Forma for Acquisitions and Initial Public Common Stock Offering - Results of the operations of Illinois & Midland Railroad, Inc., Pittsburg & Shawmut Railroad, Inc. and Rail Link, Inc. are included within the consolidated financial statements commencing February 9, 1996, April 29, 1996, and November 8, 1996, respectively. Unaudited pro forma results assuming all three acquisitions and the sale by the Company of 2,897,200 shares of Class A 6 Common Stock in the Common Stock Offering (see Note 3) had taken place as of January 1, 1996 are as follows (in thousands, except per share amounts):
Three Months Ended Nine Months Ended --------------------- --------------------- 9/30/96 9/30/97 9/30/96 9/30/97 --------- ---------- ---------- ---------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues....................... $22,066 $ 23,670 $ 66,254 $ 71,241 Net income..................... $ 1,757 $ 2,127 $ 4,319 $ 6,418 Number of common shares........ 5,246 5,443 5,245 5,454 Net income per share........... $ 0.33 $ 0.39 $ 0.82 $ 1.18 ======== ======== ======== ========
Such pro forma information is not necessarily indicative of the results of future operations. 3. SUPPLEMENTAL EARNINGS PER SHARE: On June 28, 1996 the Company closed an underwritten initial public offering ("IPO") of 3,045,200 shares of Class A Common Stock (the "Common Stock Offering"), of which 2,897,200 shares were offered by the Company and 148,000 shares were offered by a selling stockholder. Had the IPO occurred on January 1, 1996, earnings per share and weighted average shares outstanding for the nine-month period ending September 30, 1996 would have been as follows: Net income per share...................................$0.99 Weighted average shares and equivalent shares outstanding (in thousands)............................5,526 The supplemental earnings per share information is not necessarily indicative of the results of future operations. 4. JOINT VENTURE: The Company has formed a joint venture, Genesee Rail-One Corp. ("GRO") to acquire railroads in Canada. GRO is a joint venture with Rail-One Corporation, a subsidiary of The Cygnus Group which is an integrated transportation facilities, services and infrastructure provider in Canada. GRO commenced operations on November 11, 1997 of the Quebec Gatineau Railway Inc. ("QGRY"), a 354 mile railroad linking Quebec City, Montreal and Hull in Southeastern Quebec. QGRY purchased the assets for this railroad from St. Lawrence & Hudson Railway Company Limited which is a subsidiary of Canadian Pacific Railway Company. QGRY will serve approximately 70 customers and anticipates handling approximately 35,000 carloads annually. On July 29, 1997 GRO commenced operations of the Huron Central Railway Inc. ("HCRY"), a 180 mile railroad located in Central Ontario. HCRY leases its rail line from the Canadian Pacific Railway for a 20 year term and is responsible for operation and maintenance of the leased line. Based on GWI's ownership portion of 47.5%, the Company is reporting the results of operations of GRO under the equity method of accounting for investments. The results of operations of GRO are translated into US. dollars at a weighted average exchange rate for each period. 7 5. LEASES: On March 31, 1997 a subsidiary of the Company entered into a long-term capital lease agreement with a leasing company for the acquisition of up to $13 million of rolling stock. As of September 30, 1997 the subsidiary, at the subsidiary's election, had acquired rolling stock valued at $6.6 million under this lease. The Company guarantees the subsidiary's performance under the lease. The lease requires minimum monthly rent payments equal to the monthly interest payable with respect to the outstanding balance on the $13,000,000 note from the Lessor to a bank until September 30, 1998. Interest on the note is at LIBOR plus 1.875%. After September 30, 1998, based on the present amount of equipment subject to the lease, the monthly lease payment will be $128,730 until March 31, 2017. The subsidiary has the right to purchase all the equipment from the lessor prior to September 30, 1998 at the balance outstanding under the note. 6. CONTINGENCIES: On June 23, 1997 CSX Transportation, Inc. ("CSX") and Norfolk Southern Corp. ("NS"), submitted a plan to the Surface Transportation Board ("STB") to control and divide the assets of Consolidated Rail Corporation ("Conrail"). The STB has announced that it will take up to 395 calendar days to respond to this proposal. Railroads in the Company's New York and Pennsylvania region interchange with one or more of these railroads, and rely on them in some cases for providing overhead traffic, defined as traffic neither originating nor terminating on any of the Company's subsidiaries. In their joint filing with the STB, CSX and NS estimated that approximately $8.3 million in freight revenue related to overhead traffic on one of the Company's subsidiaries may be diverted as a result of the proposed transaction. The Company agrees with this estimate and is considering its options for restructuring the operations of the railroad to minimize the impact. On October 21, 1997 the Company and several of its subsidiaries entered into a confidential Rate and Route Agreement with CSX that the Company believes will facilitate the operations restructuring process. Based on its initial studies the Company believes that no impairment of assets will occur. 7. RECENTLY ISSUED ACCOUNTING STANDARDS: In March 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings Per Share, which simplifies the standards for computing earnings per share. It replaces the presentation of primary EPS with a presentation of basic EPS. Is also requires dual presentation of basic and diluted EPS on the face of the income statement and a reconciliation between the two computations. The SFAS No. 128 presentation is required for the year ended December 31, 1997, and will be adopted by the Company at that time. Had the Company calculated EPS using SFAS No. 128 for the three-month period ended September 30, 1997, basic EPS and diluted EPS would have approximated $0.41 per share and $0.39 per share, respectively; and for the three-month period ended September 30, 1996, basic EPS and diluted EPS would have approximated $0.34 per share and $0.32 per share, respectively. Had the Company calculated EPS using SFAS No. 128 for the nine- month period ended September 30, 1997, basic EPS and diluted EPS would have approximated $1.22 per share and $1.17 per share, respectively; and for the nine-month period ended September 30, 1996, basic EPS and diluted EPS would have approximated $1.28 per share and $1.24 per share, respectively. The Financial Accounting Standards Board recently issued SFAS No. 130, Reporting Comprehensive Income, which establishes standards for reporting and display of comprehensive income. The objective of this standard is to report a measure of changes in equity of an enterprise that result from transactions other than with owners. Comprehensive income is the total of net income and 8 all other nonowner changes in equity. Adoption of this statement is required no later than with fiscal year 1998. The Financial Accounting Standards Board recently issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which establishes new guidelines for segment reporting. The objective of this standard is to redefine the reporting requirements of segment information to an approach that is based on the way the chief operating decision maker organizes segments within a company for making operating decisions and assessing performance. Adoption of this statement is required no later than with fiscal year 1998, which is when the Company expects to adopt it. The remainder of this page is intentionally left blank. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Company's consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, and with the consolidated financial statements, related notes and other financial information included in the Company's 1996 Form 10-K. General The Company is a holding company whose subsidiaries own and operate short line and regional freight railroads and provide related rail services. The Company, through its industrial switching subsidiary, also provides railroad switching and related services to North American industries with extensive railroad facilities within their complexes. The Company generates revenues primarily from the movement of freight over track owned or operated by its railroads. The Company also generates non-freight revenues primarily by providing industrial switching and related rail services such as railcar leasing, repair and storage to industries with extensive railroad facilities within their complexes, to shippers along its lines, and to the Class I railroads that connect with its lines. The Company's operating expenses include wages and benefits, equipment rents (including car hire), purchased services, depreciation and amortization, diesel fuel, casualties and insurance, materials and other expenses. Car hire is a charge paid by a railroad to the owners of railcars used by that railroad in moving freight. Other expenses generally include property and other non-income taxes, professional services, communication and data processing costs and general overhead expense. When comparing the Company's results of operations from one reporting period to another, the following factors should be taken into consideration. The Company has historically experienced fluctuations in revenues and expenses such as one-time freight moves, customer plant expansions and shut-downs, railcar sales, accidents and derailments. In periods when these events occur, results of operations are not easily comparable to other periods. In addition, much of the Company's growth to date has resulted from acquisitions. The Company completed the acquisitions of the Illinois & Midland and Pittsburg & Shawmut railroads during the first four months of 1996, and Rail Link, Inc. in November 1996. Because of variations in the structure, timing and size of these acquisitions and differences in economics among the Company's railroads resulting from differences in the rates and other material terms established through negotiation, the Company's results of operations in any reporting period may not be directly comparable to its results of operations in other reporting periods. Results of Operations Three Months Ended September 30, 1997 Compared to Three Months Ended September 30, 1996 Operating Revenues Operating revenues were $23.7 million in the quarter ended September 30, 1997 compared to $19.0 million in the quarter ended September 30 1996, an increase of $4.7 million or 24.4%. The increase was attributable to a $863,000 increase in freight revenues and a $3.8 million increase in non-freight revenues. 10 Freight revenues were $16.5 million in the third quarter of 1997 compared to $15.6 million in the third quarter of 1996, an increase of $863,000 or 5.5% of which $328,000 or 2.1% was due to operations on new acquisitions. The following table compares freight revenues, carloads and average freight revenues per carload for the third quarters of 1996 and 1997: Freight Revenues and Carloads Comparison by Commodity Group Three Months Ended September 30, 1996 and 1997
AVERAGE FREIGHT REVENUES FREIGHT REVENUES CARLOADS PER CARLOAD ----------------------------------- --------------------------------- ----------------- (DOLLARS IN THOUSANDS EXCEPT REVENUES PER CARLOAD) % OF % OF % OF % OF COMMODITY GROUP 1996 TOTAL 1997 TOTAL 1996 TOTAL 1997 1996 1997 1997 ------- ------- ------- ------- ------- ------- ------ ------- ------- -------- COAL, COKE & ORES $ 4,758 30.3% $ 4,543 27.5% 20,009 38.9% 16,929 32.2% $ 238 $ 268 PETROLEUM PRODUCTS 2,079 13.3% 2,350 14.2% 4,256 8.3% 5,053 9.6% 488 465 PULP & PAPER 1,774 11.3% 2,042 12.4% 4,835 9.4% 5,365 10.2% 367 381 LUMBER & FOREST PRODUCTS 1,354 8.6% 1,550 9.4% 4,350 8.4% 4,702 9.0% 311 330 CHEMICALS 1,170 7.5% 1,399 8.5% 2,300 4.5% 2,464 4.7% 509 568 METALS 1,322 8.4% 1,231 7.4% 5,013 9.7% 4,972 9.5% 264 248 FARM & FOOD PRODUCTS 1,045 6.7% 1,001 6.1% 3,482 6.8% 3,552 6.8% 300 282 MINERALS & STONE 831 5.4% 965 5.8% 2,970 5.7% 3,780 7.2% 280 255 AUTOS & AUTO PARTS 873 5.6% 742 4.5% 1,662 3.2% 1,409 2.7% 525 527 OTHER 454 2.9% 700 4.2% 2,652 5.1% 4,293 8.1% 171 163 ------- ----- ------- ----- ------ ----- ------ ----- ------- ------- TOTAL $15,660 100.0% $16,523 100.0% 51,529 100.0% 52,519 100.0% $ 304 $ 315 ======= ===== ======= ===== ====== ===== ====== ===== ======= =======
The increase in freight revenues was largely attributable to increases in Petroleum Products of $271,000 or 13.1%, Pulp & Paper of $268,000 or 15.1%, Lumber & Forest Products of $196,000 or 14.5% and Chemicals of $229,000 or 19.5%. Combined freight revenues from all other commodities except coal resulted in a net increase of $114,000 or 2.5% in the third quarter of 1997 compared to the third quarter of 1996. However, all of these increases were partially offset by a decline in the shipment of coal, which generated freight revenues of $4.5 million in the third quarter of 1997, compared to $4.8 million in the third quarter of 1996, a decrease of $215,000 or 4.5%. The decrease is primarily due to reduced carloads to a major customer in the 1997 quarter because of a planned reduction of the customer's coal inventory. Total carloads were 52,519 in the third quarter of 1997 compared to 51,529 in the third quarter of 1996, an increase of 990 or 1.9%. Non-freight revenues were $7.2 million in the third quarter of 1997 compared to $3.4 million in the third quarter of 1996, an increase of $3.8 million or 111.8%. Revenues from switching activities were $4.2 million in the third quarter of 1997 compared to $606,000 in the third quarter of 1996, an increase of $3.6 million or 590.9%. These increases were primarily attributable to switching revenues generated by new acquisitions, primarily Rail Link, Inc. Revenues from car hire and car rentals were $1.4 million in the third quarter of 1997 compared to $1.2 million in the third quarter of 1996, an increase of $227,000 or 19.0% due primarily from existing operations. 11 Operating Expenses Operating expenses were $19.8 million in the third quarter of 1997 compared to $15.4 million in the third quarter of 1996, an increase of $4.4 million or 28.3%. Expenses associated with new acquisitions represented $4.1 million of the increase. The Company's operating ratio increased to 83.5% in the third quarter of 1997 from 81.0% in the third quarter of 1996. The increase is primarily attributable to the labor-intensive nature of Rail Link, Inc.'s industrial switching and other rail-related services operation and particularly to start-up costs it has incurred in connection with new contracts; and to a change in the traffic mix, principally related to temporarily decreased coal movements. The following table sets forth a comparison of the Company's operating expenses for the third quarters of 1996 and 1997: Operating Expense Comparison Three Months Ended September 30, 1996 and 1997
1996 1997 ---------------------------- ------------------------ (in thousands) % of % of Operating Operating Amount Revenues Amount Revenues ------------ --------- -------- --------- Labor and benefits $ 6,288 33.1% $ 9,272 39.2% Equipment rents 2,191 11.5% 2,159 9.1% Purchased services 821 4.3% 1,020 4.3% Depreciation and amortization 1,585 8.3% 1,764 7.5% Diesel fuel 986 5.2% 1,019 4.3% Casualties and insurance 1,173 6.2% 1,049 4.4% Materials 752 3.9% 1,202 5.1% Other 1,617 8.5% 2,284 9.6% ------- ----- ------- ----- Total $15,413 81.0% $19,769 83.5% ======= ===== ======= ======
Labor and benefits expense was $9.3 million in the third quarter of 1997 compared to $6.3 million in the third quarter of 1996, an increase of $3.0 million or 47.5%, primarily due to the commencement of operations on a new acquisition. Labor costs increased as a percentage of revenues to 39.2% in the third quarter of 1997 from 33.1% in the third quarter of 1996. The increase is largely attributable to the labor-intensive nature of Rail Link, Inc.'s industrial switching and other rail-related services operation. Purchased services expense was $1.0 million in the third quarter of 1997 compared to $821,000 in the third quarter of 1996, an increase of $199,000 or 24.2%, primarily due to track repair contracted services. Materials expense was $1.2 million in the third quarter of 1997 compared to $752,000 in the third quarter of 1996, an increase of $450,000 or 59.8%, primarily due to locomotive and maintenance of way repair projects. Other expense was $2.3 million in the third quarter of 1997 compared to $1.6 million in the third quarter of 1996, an increase of $667,000 or 41.2%, primarily due to general and administrative costs related to a new acquisition. 12 Interest Expense and Income Taxes Interest expense in the third quarter of 1997 was $629,000 compared to $796,000 in the third quarter of 1996, a decrease of $167,000 or 21.0%. The decrease generally reflects the lower overall debt outstanding during the 1997 period. The Company's effective income tax rate was 40.0% and 40.5% in the third quarters of 1997 and 1996, respectively. Net Income The Company's net income in the third quarter of 1997 was $2.1 million compared to $1.8 million in the third quarter of 1996, an increase of $364,000 or 20.6%. Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30, 1996 Operating Revenues Operating revenues were $71.2 million in the first nine months of 1997 compared to $54.6 million in the first nine months of 1996, an increase of $16.6 million or 30.4%. The increase was attributable to a $5.9 million increase in freight revenues and a $10.7 million increase in non-freight revenues. Freight revenues were $50.4 million in the first nine months of 1997 compared to $44.5 million in the first nine months of 1996, an increase of $5.9 million or 13.3%. The following table compares freight revenues, carloads and average freight revenues per carload for the first nine months of 1996 and 1997: Freight Revenues and Carloads Comparison by Commodity Group Nine Months Ended September 30, 1996 and 1997
AVERAGE FREIGHT REVENUES FREIGHT REVENUES CARLOADS PER CARLOAD ------------------------------------------- -------------------------- ------------------ (DOLLARS IN THOUSANDS EXCEPT REVENUES PER CARLOAD) % OF % OF % OF % OF COMMODITY GROUP 1996 TOTAL 1997 TOTAL 1996 TOTAL 1997 TOTAL 1996 1997 ------- ------- ------- ------- ------- ------- -------- ------- ------- -------- COAL, COKE & ORES $13,227 29.8% $15,956 31.6% 53,251 37.5% 62,029 38.0% $ 248 $ 257 PETROLEUM PRODUCTS 6,507 14.6% 6,441 12.8% 13,195 9.3% 13,368 8.2% 493 482 PULP & PAPER 5,194 11.7% 5,842 11.6% 13,985 9.9% 15,351 9.4% 371 381 LUMBER & FOREST PRODUCTS 4,043 9.1% 4,545 9.0% 13,143 9.3% 13,536 8.3% 308 336 CHEMICALS 3,311 7.4% 4,456 8.8% 6,281 4.4% 8,190 5.0% 527 544 METALS 3,801 8.5% 3,668 7.3% 14,682 10.4% 15,321 9.4% 259 239 FARM & FOOD PRODUCTS 2,622 5.9% 2,908 5.8% 8,198 5.8% 10,069 6.2% 320 289 AUTOS & AUTO PARTS 2,688 6.0% 2,607 5.2% 5,096 3.6% 4,906 3.0% 527 531 MINERALS & STONE 1,830 4.1% 2,402 4.7% 6,372 4.5% 9,097 5.5% 287 264 OTHER 1,304 2.9% 1,618 3.2% 7,518 5.3% 11,563 7.0% 173 140 ------- ----- ------- ----- ------- ----- ------- ----- ------- ------- TOTAL $44,527 100.0% $50,443 100.0% 141,721 100.0% 163,430 100.0% $ 314 $ 309 ======= ===== ======= ===== ======= ===== ======= ===== ======= =======
13 The increase in freight revenues was largely attributable to the operations on new acquisitions, which generated freight revenues of $16.7 million in the first nine months of 1997, $14.1 of which were revenues from the shipment of coal, compared to $12.2 million in the first nine months of 1996, $10.9 million of which were revenues from the shipment of coal. Of the $4.5 million or 36.9% increase, $3.2 million or 26.2% were revenues from the shipment of coal. Total carloads were 163,430 in the first nine months of 1997 compared to 141,721 in the first nine months of 1996, an increase of 21,709 or 15.3%. The increase was largely attributable to 63,890 carloads transported by the operations on new acquisitions, which consisted primarily of coal, compared to 47,770 for the same period in 1996, which was also primarily coal. Non-freight revenues were $20.8 million in the first nine months of 1997 compared to $10.1 million in the first nine months of 1996, an increase of $10.7 million or 105.7%. Revenues from switching activities were $12.0 million in the first nine months of 1997 compared to $2.0 in the first nine months of 1996, an increase of $10.0 million or 509.2%. These increases were attributable to switching revenues generated by new acquisitions, primarily Rail Link, Inc. Revenues from car hire and car rentals were $3.9 million for both the first nine months of 1997 and 1996. However, the 1996 period included a gain on the sale of railcars of $593,000. Other car hire and car rentals revenue for 1997 increased by approximately $603,000 due to $380,000 from operations on new acquisitions and a $223,000 increase in revenues on existing operations. Other non-freight revenue was $4.9 million in the first nine months of 1997 compared to $4.2 million in the first nine months of 1996, an increase of $669,000 or 15.6%. This increase was due to approximately $295,000 of other revenues generated by operations on new acquisitions and to an increase of approximately $374,000 on existing operations, primarily in demurrage and storage. Operating Expenses Operating expenses were $59.1 million in the first nine months of 1997 compared to $44.0 million in the first nine months of 1996, an increase of $15.1 million or 34.3%. Expenses associated with new acquisitions represented $14.4 million of the increase. The Company's operating ratio increased to 83.0% in the first nine months of 1997 from 80.6% in the first nine months of 1996. The increase is primarily attributable to the labor-intensive nature of Rail Link, Inc.'s industrial switching and other rail-related services operation. The remainder of this page is intentionally left blank. 14 The following table sets forth a comparison of the Company's operating expenses for the first nine months of 1996 and 1997: Operating Expense Comparison Nine Months Ended September 30, 1996 and 1997
1996 1997 ------------------------ -------------------------- (in thousands) % of % of Operating Operating Amount Revenues Amount Revenues ------------ --------- -------- --------- Labor and benefits $17,822 32.6% $27,005 37.9% Equipment rents 6,194 11.3% 6,711 9.4% Purchased services 2,432 4.5% 3,018 4.2% Depreciation and amortization 4,479 8.2% 4,985 7.0% Diesel fuel 3,105 5.7% 3,525 4.9% Casualties and insurance 3,191 5.8% 3,682 5.2% Materials 2,185 4.0% 3,315 4.7% Other 4,636 8.5% 6,893 9.7% ------- ----- ------- ------ Total $44,044 80.6% $59,134 83.0% ======= ====== ======== ======
Labor and benefits expense was $27.0 million in the first nine months of 1997 compared to $17.8 million in the first nine months of 1996, an increase of $9.2 million or 51.5%, primarily due to the operations of acquisitions. Labor costs increased as a percentage of revenues to 37.9% in the first nine months of 1997 from 32.6% in the first nine months of 1996. The increase is largely attributable to the labor-intensive nature of Rail Link, Inc.'s industrial switching and other rail-related services operation. With the exception of minor increases in Materials and Other, all other categories of operating expenses decreased as percentages of operating revenues because of the effect of the Rail Link acquisition. All categories of operating expenses increased in amount primarily because of the effect of the three 1996 acquisitions. Interest Expense and Income Taxes Interest expense in the first nine months of 1997 was $1.9 million compared to $3.8 million in the first nine months of 1996, a decrease of $1.9 million or 51.4%. The decrease generally reflects the lower overall debt outstanding due to the application of proceeds from the Company's June 24, 1996 initial public offering to reduce debt. The Company's effective income tax rate was 40.4% and 40.5% in the first nine months of 1997 and 1996, respectively. Net Income The Company's net income in the first nine months of 1997 was $6.4 million compared to $4.3 million in the first nine months of 1996, an increase of $2.1 million or 49.7%. 15 Liquidity and Capital Resources During the nine months ended September 30, 1997 the Company used cash in operations of $2.9 million, had a net increase in debt of $5.3 million, entered into a $6.6 million long-term capital lease for rolling stock and recorded $2.5 million in net proceeds on governmental grants. A total of $14.0 million was invested in capital assets of which $6.6 million represented rolling stock under the long-term capital lease. The Company received $293,000 in proceeds from the disposition of property. During the first nine months of 1996, the Company generated cash from operations of $9.3 million. Of this amount, $695,000 was generated by an excess of trade accounts payable over trade accounts receivable as recorded by Illinois & Midland and Pittsburg & Shawmut. The Company received $4.4 million in proceeds from the sale of equipment. The Company has budgeted $15.2 million in capital expenditures in 1997. As of September 30, 1997, $14.0 million, which included rolling stock under capital lease of $5.3 million, was completed. At September 30, 1997 the Company had long-term debt (including current portion) totaling $30.6 million, which comprised 31.0% of its total capitalization. This compares to long-term debt, including current portion, of $18.7 million at December 31, 1996, comprising 23.3% of total capitalization. The Company has historically relied primarily on cash generated from operations to fund working capital and capital expenditures relating to ongoing operations, while relying on borrowed funds to finance acquisitions and equipment needs (primarily rolling stock) related to acquisitions. The Company believes that its cash flow from operations together with amounts available under its credit facilities will enable the Company to meet its liquidity and capital expenditure requirements relating to ongoing operations for at least the duration of its credit facilities. New Accounting Standards For a discussion of the possible effect of certain new accounting standards issued by the Financial Accounting Standards Board, see Note 7 to the financial statements contained in Item 1. of this report. Corporate Developments and Contingencies Australia - On August 28, 1997 the Company announced that its wholly owned subsidiary, Genesee & Wyoming Australia Pty Ltd ("GWIA"), had been awarded the contract to purchase certain railroad assets of SA Rail, a division of Australian National Railway, through the Commonwealth of Australia Office of Asset Sales. SA Rail provides intrastate freight services in South Australia, interstate haulage of contract freight, rolling stock rental and maintenance, and interstate track maintenance. GWIA bid as part of a consortium including EDI Clyde Engineering and Transfield Pty Ltd. EDI Clyde is a major Australian provider of railway rolling stock and holds the Australian license for GM/EMD locomotives. Transfield is a major Australian engineering, construction and infrastructure maintenance provider. On November 8, 1997 GWIA closed on the purchase and commenced operation of freight service under the name of Australia Southern Railroad Pty. Ltd. Mexico - On October 21, 1997 the Company announced that it has a memorandum of understanding to operate, service and provide technical support on the Coahuila- Durango short line railroad in Mexico for Grupo Acerero del Norte and Industrias Penoles, the successful bidders for the line. The memorandum of 16 understanding is subject to the parties' negotiation and execution of a definitive agreement and the satisfaction of various closing conditions. If finalized, the railroad would operate over approximately 782 miles of track, primarily in the northern Mexican states of Coahuila and Durango. Joint Venture - The Company has formed a joint venture, Genesee Rail-One Corp. ("GRO") to acquire railroads in Canada. GRO is a joint venture with Rail- One Corporation, a subsidiary of The Cygnus Group which is an integrated transportation facilities, services and infrastructure provider in Canada. GRO commenced operations on November 11, 1997 of the Quebec Gatineau Railway Inc. ("QGRY"), a 354 mile railroad linking Quebec City, Montreal and Hull in Southeastern Quebec. QGRY purchased the assets for this railroad from St. Lawrence & Hudson Railway Company Limited which is a subsidiary of Canadian Pacific Railway Company. QGRY will serve approximately 70 customers and anticipates handling approximately 35,000 carloads annually. On July 29, 1997 GRO commenced operations of the Huron Central Railway Inc. ("HCRY"), a 180 mile railroad located in Central Ontario. HCRY leases its rail line from the Canadian Pacific Railway for a 20 year term and is responsible for operation and maintenance of the leased line. Based on GWI's ownership portion of 47.5%, the Company is reporting the results of operations of GRO under the equity method of accounting for investments. The results of operations of GRO are translated into US. dollars at a weighted average exchange rate for each period. Conrail Contingency - On June 23, 1997 CSX Transportation, Inc. ("CSX") and Norfolk Southern Corp. ("NS"), submitted a plan to the Surface Transportation Board ("STB") to control and divide the assets of Consolidated Rail Corporation ("Conrail"). The STB has announced that it will take up to 395 calendar days to respond to this proposal. Railroads in the Company's New York and Pennsylvania region interchange with one or more of these railroads, and rely on them in some cases for providing overhead traffic, defined as traffic neither originating nor terminating on any of the Company's subsidiaries. In their joint filing with the STB, CSX and NS estimated that approximately $8.3 million in freight revenue related to overhead traffic on one of the Company's subsidiaries may be diverted as a result of the proposed transaction. The Company agrees with this estimate and is considering its options for restructuring the operations of the railroad to minimize the impact. On October 21, 1997 the Company and several of its subsidiaries entered into a confidential Rate and Route Agreement with CSX that the Company believes will facilitate the operations restructuring process. Based on its initial studies the Company believes that no impairment of assets will occur. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable. The remainder of this page is intentionally left blank. 17 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - NONE ITEM 2. CHANGES IN SECURITIES - NONE ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE ITEM 5. OTHER INFORMATION - NONE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A). EXHIBITS - SEE INDEX TO EXHIBITS (B) REPORTS ON FORM 8-K: No Reports on Form 8-K were filed by the Registrant during the period covered by this Report. The remainder of this page is intentionally left blank. 18 INDEX TO EXHIBITS (2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION Not applicable. (3) (i) ARTICLES OF INCORPORATION The Form of Restated Certificate of Incorporation referenced under (4)(a) hereof is incorporated herein by reference. (ii) By-Laws The By-laws referenced under (4)(b) hereof are incorporated herein by reference. (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES (a) Form of Restated Certificate of Incorporation (Exhibit 3.2)/2/ (b) By-laws (Exhibit 3.3)/1/ (c) Specimen stock certificate representing shares of Class A Common Stock (Exhibit 4.1)/3/ (d) Form of Class B Stockholders' Agreement dated as of May 20, 1996 among the Registrant, its executive officers and its Class B stockholders (Exhibit 4.2)/2/ (e) Promissory Note dated October 7, 1991 of Buffalo & Pittsburgh Railroad, Inc. in favor of CSX Transportation, Inc. (Exhibit 4.6)/1/ (f) Amended and Restated Revolving Credit and Term Loan Agreement dated as of February 8, 1996 among the Registrant and certain of its Subsidiaries, the First National Bank of Boston, as agent, and the Banks party thereto (Exhibit 4.10))/1/ (g) Revolving Credit Note dated as of February 8, 1996 of the Registrant and certain of its subsidiaries in favor of The First National Bank of Boston (Exhibit 4.11)/1/ (h) Amended and Restated Security Agreement dated as of February 8, 1996 among the Registrant, certain of its Subsidiaries and The First National Bank of Boston (Exhibit 4.13)/1/ (i) Amended and Restated Stock Pledge Agreement dated as of February 8, 1996 between the Registrant and the First National Bank of Boston (Exhibit 4.14)/1/ (j) Amended and Restated Collateral Assignment of Partnership Interests dated as of February 8, 1996 of the Registrant and GWI Dayton, Inc. in favor of The First National Bank of Boston (Exhibit 4.15)/1/ 19 (k) Amendment No. 1 to Amended and Restated Revolving Credit and Term Loan Agreement dated as of April 26, 1996 among the Registrant and certain of its Subsidiaries. The First National Bank of Boston, as agent, and the Banks party thereto (Exhibit 4.16)\2\ (10) MATERIAL CONTRACTS Not applicable. *(11.1) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (15) LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION Not applicable. (18) LETTER RE CHANGE IN ACCOUNTING PRINCIPLES Not applicable. (19) REPORT FURNISHED TO SECURITY HOLDERS Not applicable. (22) PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO VOTE OF SECURITY HOLDERS Not applicable. (23) CONSENTS OF EXPERTS AND COUNSEL Not applicable. (24) POWER OF ATTORNEY Not applicable. *(27) FINANCIAL DATA SCHEDULE (99) ADDITIONAL EXHIBITS ____________________________ *Exhibit filed with this Report. /1/Exhibit previously filed as part of, and incorporated herein by reference to, the Registrant's Registration Statement on Form S-1 (Registration No. 333-3972). The exhibit number contained in parenthesis refers to the exhibit number in such Registration Statement. /2/Exhibit previously filed as part of, and incorporated herein by reference to, Amendment No. 1 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-3972). The exhibit number contained in parenthesis refers to the exhibit number in such Amendment. /3/Exhibit previously filed as part of, and incorporated herein by reference to, Amendment No. 2 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-3972). The exhibit number contained in parenthesis refers to the exhibit number in such Amendment. 20 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 14, 1997 By: /s/ Mortimer B. Fuller, III --------------------------- Name: Mortimer B. Fuller, III Title: Chairman and CEO Date: November 14, 1997 By: /s/ Alan R. Harris --------------------------- Name: Alan R. Harris Title: Senior Vice President and Chief Accounting Officer The remainder of this page is intentionally left blank. 21 EX-11.1 2 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1 GENESEE & WYOMING INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE (in thousands, except per share amounts) (Unaudited)
Three Months Nine Months Ended September 30 Ended September 30 ------------------ ------------------ 1996 1997 1996 1997 PRIMARY EARNINGS PER SHARE CALCULATION: - ----------------------------------------------------------- Net Income $1,763 $2,127 $4,286 $6,418 Weighted average number of common stock and common stock equivalents outstanding: Weighted average number of shares outstanding 5,246 5,250 3,353 5,250 Common stock equivalents applicable to warrants 42 42 42 42 Common stock equivalents issuable under stock option plans 111 152 37 162 --------------------------------------------- Common stock and common stock equivalents 5,399 5,444 3,432 5,454 ============================================= Earnings per share $0.33 $0.39 $1.25 $1.18 ============================================= FULLY DILUTED EARNINGS PER SHARE CALCULATION: - ----------------------------------------------------------- Net Income $1,763 $2,127 $4,286 $6,418 Weighted average number of common stock and common stock equivalents outstanding: Weighted average number of shares outstanding 5,246 5,250 3,353 5,250 Common stock equivalents applicable to warrants 42 42 42 42 Common stock equivalents issuable under stock option plans 144 161 50 176 --------------------------------------------- Common stock assuming full dilution 5,432 5,453 3,445 5,468 ============================================= Earnings per share - fully diluted (1) $0.32 $0.39 $1.24 $1.17 =============================================
(1) This calculation is submitted in accordance with the regulations of the Securities and Exchange Commission although not required by APB Opinion No. 15 because it results in dilution of less than 3%. EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1997 JUN-01-1997 SEP-30-1997 11,911 0 16,900 0 4,424 42,339 110,440 22,495 155,455 27,765 30,341 0 0 52 68,128 155,455 71,241 71,241 59,134 59,134 0 0 1,850 10,760 4,342 6,418 0 0 0 6,418 1.18 1.17
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