-----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, DrwCq3B101qOnVLVOJfS4iCsvvh8mckyeiydhCupATywnBi1qYM2GLt24FYBxkLE J5mfJ6ZFsJYDtsJuvrllVA== 0000950130-00-002142.txt : 20000418 0000950130-00-002142.hdr.sgml : 20000418 ACCESSION NUMBER: 0000950130-00-002142 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000417 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-K/A SEC ACT: SEC FILE NUMBER: 000-20847 FILM NUMBER: 603454 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-K/A 1 AMENDMENT TO FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A /X/ Annual Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1999 or / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from____to____ Commission File No. 0-20847 -------------------- GENESEE & WYOMING INC. (Exact name of registrant as specified in its charter) Delaware 06-0984624 - ------------------------------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 71 Lewis Street, Greenwich, Connecticut 06830 - --------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (203) 629-3722 - -------------- (Telephone No.) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on which Registered - ------------------- ------------------- None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, $0.01 par value ------------------------------------- (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] YES [ ] NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of the Regulations S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment to this Form 10-K. [] Aggregate market value of Class A Common Stock and Class B Common Stock held by non-affiliates based on closing price on March 16, 2000: $49,833,816 Shares of common stock outstanding as of the close of business on March 16, 2000: Class Number of Shares Outstanding - ----- ---------------------------- Class A Common Stock 3,455,632 Class B Common Stock 845,447 Documents incorporated by reference and the Part of the Form 10-K into which they are incorporated are listed hereunder. PART OF FORM 10-K DOCUMENT INCORPORATED BY REFERENCE Part III, Items 10, 11, 12 and 13 Registrant's proxy statement to be issued in connection with the Annual Meeting of the Stockholders of the Registrant to be held on May 23, 2000. The remainder of this page is intentionally left blank. 2 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this Annual Report. General The Company is a holding company whose subsidiaries own and/or operate short line and regional freight railroads and provide related rail services in North America and Australia. The Company, through its U.S. industrial switching subsidiary, also provides freight car switching and related services to United States industrial companies with extensive railroad facilities within their complexes. The Company generates revenues primarily from the movement of freight over track owned or operated by its railroads. The Company also generates non-freight revenues primarily by providing freight car switching and related rail services such as railcar leasing, railcar repair and storage to industrial companies with extensive railroad facilities within their complexes, to shippers along its lines, and to the Class I railroads that connect with its North American lines. The Company's operating expenses include wages and benefits, equipment rents (including car hire), purchased services, depreciation and amortization, diesel fuel, casualties and insurance, materials and other expenses. Car hire is a charge paid by a railroad to the owners of railcars used by that railroad in moving freight. Other expenses generally include property and other non- income taxes, professional services, communication and data processing costs, and general overhead expense. When comparing the Company's results of operations from one reporting period to another, the following factors should be taken into consideration. The Company has historically experienced fluctuations in revenues and expenses such as one-time freight moves, customer plant expansions and shut-downs, railcar sales, accidents and derailments. In periods when these events occur, results of operations are not easily comparable to other periods. Also, much of the Company's growth to date has resulted from acquisitions. Most recently, the Company completed one acquisition in November 1997 and two acquisitions in 1999. Because of variations in the structure, timing and size of these acquisitions and differences in economics among the Company's railroads resulting from differences in the rates and other material terms established through negotiation, the Company's results of operations in any reporting period may not be directly comparable to its results of operations in other reporting periods. Compania de Ferrocarriles Chiapas-Mayab, S.A. de C.V. In August 1999, the Company's wholly-owned subsidiary, Compania de Ferrocarriles Chiapas-Mayab, S.A. de C.V. ("FCCM"), was awarded a 30-year concession to operate certain railways owned by the state-owned Mexican rail company Ferronales. FCCM also acquired equipment and other assets. The aggregate purchase price, including acquisition costs, was approximately 297 million pesos, or approximately $31.5 million at then-current exchange rates. The purchase included $12.3 million of rolling stock, a $9.7 million advance payment on track improvements to be completed on the state-owned track property by mid-2000, a $1.0 million escrow payment which will be returned to the Company upon successful completion of the track improvements, an expected future 3 utilization by the Company of $2.2 million of value-added taxes paid on the transaction, and $1.0 million in goodwill. The remaining purchase price ($5.3 million) was allocated to the 30-year operating license. As the track improvements are made, the related costs will be reclassified into the property accounts as leasehold improvements and amortized over the improvements' estimated useful life of 20 years. Pursuant to the acquisition, employee termination payments of $1.0 million were made to former state employees and approximately 55 employees whom the Company retained upon acquisition but terminated as part of its plan to reduce operating costs after September 30, 1999. All payments were made during the fourth quarter of 1999 and are considered a cost of the acquisition. Accordingly, the payments represent costs in excess of fair market value and are being amortized over 20 years. The Chiapas-Mayab concession is made up of two separate rail lines. The Chiapas is approximately 450 kilometers (280 miles) long and runs between Ixtepec in the Mexican state of Oaxaca, and Ciudad Hidalgo in the Mexican state of Chiapas. Principal commodities hauled include cement, corn, petroleum products and various agricultural products. The Mayab extends approximately 1,100 kilometers (680 miles) from Coatzacoalcos in the Mexican state of Vera Cruz, to beyond Merida in the Mexican state of Yucatan. Principal commodities hauled on the line include cement, silica sand and various agricultural products. The two railroads are connected via trackage rights over Ferrosur (a recently privatized rail concession) and a government-owned line. FCCM began operations on September 1, 1999. Genesee Rail-One Inc. On April 15, 1999, the Company closed on an agreement to acquire Rail-One Inc. ("Rail-One") which has a 47.5% ownership interest in Genesee Rail-One Inc. ("GRO"), thereby increasing the Company's ownership of GRO to 95%. GRO owns and operates two short line railroads in Canada. Under the terms of the purchase agreement, the Company converted outstanding notes receivable from Rail-One of $4.6 million into capital, will pay approximately $844,000 in cash to the sellers of Rail-One in installments over a four year period, and granted options to the sellers of Rail-One to purchase up to 80,000 shares of the Company's Class A Common Stock at an exercise price of $8.625 per share. Exercise of the option is contingent on the Company's recovery of its capital investment in GRO including debt assumed if the Company were to sell GRO, and upon certain GRO income performance measures. The transaction is accounted for as a purchase and resulted in $2.8 million of goodwill which is being amortized over 15 years. The contingent purchase price will be recorded as a component of goodwill at the value of the options issued, if and when such options are exercisable. Effective with this agreement, the operating results of GRO have been consolidated within the financial statements of the Company, with a 5% minority interest due to another GRO shareholder. Prior to April 15, 1999, the Company accounted for its investment in GRO under the equity method and recorded losses of $618,000, $645,000 and $60,000 in 1999, 1998 and 1997, respectively, in other income, net. Genesee & Wyoming Australia Pty. Ltd. On August 28, 1997, the Company's wholly-owned subsidiary, Genesee & Wyoming Australia Pty. Ltd. ("GWIA"), was awarded the contract to purchase certain selected assets of the railroad freight operation of SA Rail, a division of Australian National Railway which was controlled by the Commonwealth Government of Australia. SA Rail provided intrastate freight services in South Australia, interstate haulage of contract freight, rolling 4 stock rental and maintenance, and interstate track maintenance. GWIA bid as part of a consortium including EDI Clyde Engineering and Transfield Pty. Ltd. EDI Clyde is a major Australian provider of railway rolling stock and holds the Australian license for GM/EMD locomotives. Transfield is a major Australian engineering, construction and infrastructure maintenance provider. On November 8, 1997 GWIA closed on the purchase of the assets and commenced operation of railroad freight service under the name of Australia Southern Railroad Pty. Ltd. The assets were acquired for approximately $33.1 million, including related costs. The assets consist primarily of road and track structure, railroad rolling stock and other equipment. Latin American Rail LLC On September 30, 1999, the Company closed on an agreement to acquire a 47.5% ownership interest in Latin American Rail LLC in Chile for approximately $1.0 million in cash and 25,532 shares of the Company's stock valued at approximately $281,000. Latin American Rail LLC owns 100% of Latin American Rail Investors, S.A. which in turn owns 4.0% of CB Transportes S.A., a company that has investments in several railroads in South America. The Company is accounting for this investment under the equity method of accounting for investments. Results of Operations Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Consolidated Operating Revenues Operating revenues were $175.6 million in the year ended December 31, 1999 compared to $147.5 million in the year ended December 31, 1998, a net increase of $28.1 million or 19.1%. The net increase was attributable to a $33.0 million increase in North American railroad revenues of which $19.9 million were revenues from new railroad operations in Canada, $8.8 million were revenues from new railroad operations in Mexico and $4.3 million were increases in revenues on existing North America railroad operations, offset by a $3.6 million decrease in revenues from Australian railroad operations due primarily to the non-renewal of a coal contract and a $1.3 million decrease in industrial switching revenues due primarily to the Company's decision to exit an unprofitable switching contract. The following three sections provide information on railroad revenues for North American and Australian railroad operations, and industrial switching revenues in the United States. North American Railroad Operating Revenues Operating revenues were $121.1 million in the year ended December 31, 1999 of which $95.5 million were freight revenues and $25.6 million were non-freight revenues compared to $88.1 million of which $66.1 million were freight revenues and $22.0 million were non-freight revenues in the year ended December 31, 1998, an increase in operating revenues of $33.0 million or 37.5%. The increase was attributable to a $29.5 million increase in freight revenues and a $3.5 million increase in non-freight revenues. The increase of $29.5 million in North American freight revenues was due to $15.0 million in freight revenues attributable to new railroad operations in Canada, $7.2 million in freight revenues attributable to new railroad operations in Mexico, and an increase of $7.3 million in freight revenues on existing railroad operations. The following table compares North American freight revenues, carloads and average freight revenues per carload for the years ended December 31, 1999 and 1998: The remainder of this page is intentionally left blank. 5 North American Freight Revenues and Carloads Comparison by Commodity Group Years Ended December 31, 1999 and 1998 (dollars in thousands, except average per carload)
Average Freight Revenues Per Freight Revenues Carloads Carload ---------------- -------- ------- % of % of % of % of Commodity Group 1999 Total 1998 Total 1999 Total 1998 Total 1999 1998 - --------------- ---- ----- ---- ----- ---- ----- ---- ----- ---- ---- Coal, Coke & Ores $24,779 25.9% $19,245 29.1% 94,140 31.4% 75,881 34.8% $263 $254 Pulp & Paper 14,867 15.6% 8,295 12.6% 39,952 13.3% 21,318 9.7% 372 389 Petroleum Products 10,210 10.7% 7,135 10.8% 20,206 6.7% 15,992 7.3% 505 446 Lumber & Forest Products 8,304 8.7% 6,098 9.2% 28,627 9.6% 20,802 9.5% 290 293 Chemicals-Plastics 8,169 8.6% 6,337 9.6% 16,039 5.4% 12,503 5.7% 509 507 Metals 8,156 8.5% 4,879 7.4% 30,614 10.2% 17,862 8.2% 266 273 Minerals & Stone 7,905 8.3% 3,790 5.8% 23,667 7.9% 13,679 6.3% 334 277 Farm & Food Products 5,831 6.1% 4,919 7.4% 19,898 6.6% 17,451 8.0% 293 282 Autos & Auto Parts 2,491 2.6% 1,945 2.9% 4,790 1.6% 3,895 1.8% 520 499 Other 4,825 5.0% 3,438 5.2% 22,024 7.3% 18,922 8.7% 219 182 --------- --------- ----------- --------- ---------- --------- ----------- ---------- Totals $95,537 100.0% $66,081 100.0% 299,957 100.0% 218,305 100.0% 319 303 ========= ========= =========== ========= ========== ========= =========== ==========
Coal increased by $5.5 million or 28.8% of which $5.4 million was on existing railroad operations and $182,000 was new freight revenues attributable to the acquisition of GRO. The increase on existing railroad operations in 1999 was primarily attributable to a return to normal shipments at a key customer's facilities which compare to reduced shipments in the 1998 period due to scheduled inventory reductions and planned maintenance projects at the key customer's facilities. Pulp and Paper increased by $6.6 million or 79.2% of which $553,000 was on existing railroad operations, $5.9 million was new freight revenues attributable to the acquisition of GRO, and $125,000 was freight revenues attributable to new railroad operations in Mexico. Petroleum Products increased by $3.1 million or 43.0% of which $95,000 was on existing railroad operations, $131,000 was new freight revenues attributable to the acquisition of GRO, and $2.8 million was freight revenues attributable to new railroad operations in Mexico. Lumber and Forest Products increased by $2.2 million or 36.2% of which $956,000 was on existing railroad operations, $1.2 million was new freight revenues attributable to the acquisition of GRO, and $35,000 was freight revenues attributable to new railroad operations in Mexico. Chemicals and Plastics increased by $1.8 million or 28.9% of which $258,000 was on existing railroad operations, $1.3 million was new freight revenues attributable to the acquisition of GRO, and $233,000 was freight revenues attributable to new railroad operations in Mexico. 6 Metals increased by $3.3 million or 67.2% of which $177,000 was an increase on existing railroad operations, $3.0 million was new freight revenues attributable to the acquisition of GRO, and $80,000 was freight revenues attributable to new railroad operations in Mexico. Minerals and Stone increased by a net $4.1 million or 108.8% of which $1.6 million was new freight revenues attributable to the acquisition of GRO, $2.9 was freight revenues attributable to new railroad operations in Mexico and $360,000 was a decrease on existing railroad operations. Freight revenues from all remaining commodities reflected an increase of $2.8 million or 27.6% of which $245,000 was an increase on existing railroad operations, $1.7 million was new freight revenues attributable to the acquisition of GRO, and $916,000 was new freight revenues attributable to new railroad operations in Mexico. Total North American carloads were 299,957 in the year ended December 31, 1999 compared to 218,305 in the year ended December 31, 1998, an increase of 81,652 or 37.4%. The increase of 81,652 consisted of an increase of 25,951 carloads on existing railroad operations of which 17,557 were coal, 46,478 carloads attributable to the acquisition of GRO, and 9,223 carloads attributable to new railroad operations in Mexico. The overall average revenue per carload increased to $319 in the year ended December 31, 1999, compared to $303 per carload in the year ended December 31, 1998, an increase of 5.3% due primarily to higher per carload revenues attributable to Canada and Mexico carloads offset by a slight decrease on existing railroad operations carloads. North American non-freight railroad revenues were $25.6 million in the year ended December 31, 1999 compared to $22.0 million in the year ended December 31, 1998, an increase of $3.5 million or 16.1%. The increase is the net result of $4.8 million of new non-freight revenues attributable to the acquisition of GRO, $1.7 million of new non-freight revenues attributable to Mexico and a decrease of $3.0 million of non-freight revenues on existing railroad operations due primarily to a decrease in car hire and rental income. Australian Railroad Operating Revenues Operating revenues were $43.2 million in the year ended December 31, 1999, compared to $46.7 million in the year ended December 31, 1998, a decrease of $3.6 million or 7.7%. The decrease was the result of a decrease in freight revenues from Australian railroad operations of $3.4 million or 8.0% primarily due to the non-renewal of a coal contract and a decrease in non-freight revenues of $226,000 or 4.8%. Australian freight revenues were $38.6 million in the year ended December 31, 1999, compared to $42.0 million in the year ended December 31, 1998, a decrease of $3.4 million or 8.0%. The following table outlines Australian freight revenues for the years ended December 31, 1999 and 1998: The remainder of this page is intentionally left blank. 7 Australian Freight Revenues by Commodity Years Ended December 31, 1999 and 1998 (dollars in thousands, except average per carload)
Average Freight Revenues Per Freight Revenues Carloads Carload ---------------- -------- ------- % of % of % of % of Commodity Group 1999 Total 1998 Total 1999 Total 1998 Total 1999 1998 --------------- ---------- ---------- ---------- --------- ---------- --------- ---------- --------- ------- ------ Hook and Pull (Haulage) $17,533 45.4% $15,288 36.4% 52,407 31.3% 40,817 22.3% $335 $375 Grain 13,588 35.2% 13,040 31.0% 48,781 29.1% 45,896 25.1% 279 284 Gypsum 2,861 7.4% 2,788 6.6% 40,304 24.1% 36,611 20.0% 71 76 Marble 2,034 5.3% 1,949 4.6% 8,343 5.0% 8,294 4.5% 244 235 Lime 1,531 4.0% 1,052 2.5% 4,662 2.8% 2,500 1.4% 328 421 Coal 664 1.7% 7,514 17.9% 4,317 2.6% 47,286 25.9% 154 159 Iron Ore 350 0.9% - 0.0% 8,069 4.8% - 0.0% 43 - Other 88 0.1% 368 1.0% 603 0.3% 1,382 0.8% 146 266 ---------- ---------- ---------- --------- ---------- --------- ---------- --------- Total $38,649 100.0% $41,999 100.0% 167,486 100.0% 182,786 100.0% 231 230 ========== ========== ========== ========= ========== ========= ========== =========
The net decrease of $3.4 million in Australian freight revenues was primarily attributable to a decrease in freight revenues from Coal of $6.9 million offset by new freight revenues from the shipment of Iron Ores of $350,000, increases in freight revenues from the shipment of Grain of $548,000, Hook and Pull of $2.2 million and all other non-coal commodities of $357,000. The decrease in freight revenues from Coal in the year ended December 31, 1999, was due to the non-renewal of a Coal contract. Australia carloads were 167,486 in the year ended December 31, 1999 compared to 182,786 in the year ended December 31, 1998, a decrease of 15,300 or 8.4%. The decrease was primarily the result of a decrease in Coal carloads of 42,969 offset by increases in Hook and Pull of 11,590, Iron Ores of 8,069, Gypsum of 3,693, Grain of 2,885, and all other commodities of 1,432. The overall average revenue per carload increased to $231 in the year ended December 31, 1999, compared to $230 per carload in the year ended December 31, 1998. Australian non-freight revenues were $4.5 million in the year ended December 31, 1999, compared to $4.7 million in the year ended December 31, 1998, a decrease of $226,000 or 4.8% due primarily to a decrease in other income. U.S. Industrial Switching Revenues Revenues from U.S. industrial switching activities were $11.3 million in the year ended December 31, 1999 compared to $12.6 million in the year ended December 31, 1998, a decrease of $1.3 million or 10.3% due primarily to the Company's decision to exit an unprofitable switching contract. 8 Consolidated Operating Expenses Operating expenses for all operations combined were $153.2 million in the year ended December 31, 1999, compared to $127.9 million in the year ended December 31, 1998, a net increase of $25.3 million or 19.8%. Expenses attributable to North American railroad operations were $105.2 million in the year ended December 31, 1999, compared to $75.6 million in the year ended December 31, 1998, an increase of $29.6 million or 39.2% of which $17.8 million were expenses attributable to new railroad operations in Canada, $8.1 million were expenses attributable to new railroad operations in Mexico and $3.7 were expenses attributable to existing U.S. railroad operations. Expenses attributable to operations in Australia were $36.6 million in the year ended December 31, 1999, compared to $37.9 million in the year ended December 31, 1998, a decrease of $1.3 million or 3.5%. Expenses attributable to U.S. industrial switching were $11.4 million in the year ended December 31, 1999, compared to $14.4 million in the year ended December 31, 1998, a decrease of $3.0 million or 20.9%. Operating Ratios The Company's combined operating ratio increased to 87.3% in the year ended December 31, 1999 from 86.7% in the year ended December 31, 1998. The operating ratio for North American railroad operations increased to 86.9% in the year ended December 31, 1999 from 85.8% in the year ended December 31, 1998. The operating ratio for Australian railroad operations increased to 84.8% in the year ended December 31, 1999 from 81.1% in the year ended December 31, 1998. The operating ratio for U.S. industrial switching operations decreased to 100.8% in the year ended December 31, 1999 from 114.2% in the year ended December 31, 1998. The following three sections provide information on railroad expenses for North American and Australian railroad operations, and industrial switching expenses in the United States. North American Railroad Operating Expenses The following table sets forth a comparison of the Company's North American railroad operating expenses in the years ended December 31, 1999 and 1998: The remainder of this page is intentionally left blank. 9 North American Railroad Operating Expense Comparison Years Ended December 31, 1999 and 1998 (dollars in thousands)
1999 1998 ---- ---- Percent of Percent of Operating Operating Dollars Revenue Dollars Revenue ------- ------- ------- ------- Labor and benefits $ 38,819 32.1% $ 30,822 35.0% Equipment rents 13,768 11.4% 11,060 12.6% Purchased services 7,996 6.6% 4,496 5.1% Depreciation and amortization 9,649 8.0% 7,277 8.3% Diesel fuel 6,357 5.2% 3,187 3.6% Casualties and insurance 4,172 3.4% 2,937 3.3% Materials 8,503 7.0% 3,485 4.0% Other expenses 15,929 13.2% 12,285 13.9% ----------------- ---------------- ----------------- ----------------- Total operating expenses $ 105,193 86.9% $75,549 85.8% ================= ================ ================= =================
Labor and benefits expense was $38.8 million in the year ended December 31, 1999 compared to $30.8 million in the year ended December 31, 1998, an increase of $8.0 million or 25.9% of which $5.0 million was attributable to the acquisition of GRO, $2.7 million was attributable to new railroad operations in Mexico and $281,000 was attributable to an increase on existing railroad operations. Equipment rents were $13.8 million in the year ended December 31, 1999 compared to $11.1 million in the year ended December 31, 1998, a net increase of $2.7 million or 24.5% of which $4.0 million was attributable to the acquisition of GRO, $53,000 was attributable to new railroad operations in Mexico and $1.4 million was a decrease on existing railroad operations due primarily to a reduction of rolling stock and associated. Purchased services were $8.0 million in the year ended December 31, 1999 compared to $4.5 million in the year ended December 31, 1998, a net increase of $3.5 million or 77.8% of which $2.8 million was attributable to the acquisition of GRO, $865,000 was attributable to new railroad operations in Mexico and $202,000 was a decrease on existing railroad operations resulting from increased capital spending which reduced the need for certain purchased maintenance services. Depreciation and amortization expense was $9.6 million in the year ended December 31, 1999 compared to $7.2 million in the year ended December 31, 1998, an increase of $2.4 million or 32.6% of which $1.4 million was attributable to the acquisition of GRO, $671,000 was attributable to new railroad operations in Mexico and $280,000 was attributable to existing railroad operations as a result of increased capital spending in 1998 and 1999. Diesel fuel expense was $6.4 million in the year ended December 31, 1999 compared to $3.2 million in the year ended December 31, 1998, an increase of $3.2 million or 99.5% of which $1.5 million was attributable to the acquisition of GRO, $836,000 was attributable to new railroad operations in Mexico and $831,000 was attributable to existing railroad operations due primarily to 10 increased fuel oil prices in 1999 and secondarily to increased fuel consumption resulting from an increase in carloads on existing operations. Casualties and insurance expense was $4.2 million in the year ended December 31, 1999 compared to $2.9 million in the year ended December 31, 1998, an increase of $1.3 million or 42.0% of which $498,000 was attributable to the acquisition of GRO, $223,000 was attributable to new railroad operations in Mexico and $514,000 was attributable to existing railroad operations due primarily to increases in derailment and insurance expense. Materials expense was $8.5 million in the year ended December 31, 1999 compared to $3.5 million in the year ended December 31, 1998, an increase of $5.0 million or 144.0% of which $984,000 was attributable to the acquisition of GRO, $1.2 million was attributable to new railroad operations in Mexico and $2.8 million was attributable to existing railroad operations due primarily to increased track and locomotive materials expense. Other expenses were $15.9 million in the year ended December 31, 1999 compared to $12.3 million in the year ended December 31, 1998, an increase of $3.6 million or 29.6% of which $1.5 million was attributable to the acquisition of GRO, $1.5 million was attributable to new railroad operations in Mexico and $629,000 was attributable to existing railroad operations primarily related to acquisition expenses which were $1.9 million in 1999 ($1.2 million of which was incurred in the first quarter of 1999) compared to $1.5 million in 1998, an increase of $404,000 or 27.9%. Australian Railroad Operating Expenses The following table sets forth a comparison of the Company's Australian railroad operating expenses in the years ended December 31, 1999 and 1998: Australian Railroad Operating Expense Comparison Years Ended December 31, 1999 and 1998 (dollars in thousands)
1999 1998 ---- ---- Percent of Percent of Operating Operating Dollars Revenue Dollars Revenue ------------------------------------------------------------------------------ Labor and benefits $ 5,443 12.6% $ 5,263 11.3% Equipment rents 367 0.9% 593 1.3% Purchased services 12,116 28.1% 13,538 29.0% Depreciation and amortization 2,157 5.0% 1,842 3.9% Diesel fuel 8,186 19.0% 8,895 19.0% Casualties and insurance 1,635 3.8% 1,415 3.0% Materials 1,861 4.3% 1,734 3.7% Other expenses 4,833 11.1% 4,627 9.9% ------------------------------------------------------------------------------ Total operating expenses $36,598 84.8% $37,907 81.1% ==============================================================================
Purchased services were $12.1 million in the year ended December 31, 1999 compared to $13.5 million in the year ended December 31, 1998, a decrease 11 of $1.4 million or 10.5%. The decrease was primarily related to the non-renewal of a coal haulage contract which resulted in no contracted maintenance charges on the track used for the coal haulage, and the positive impact of capital work on ASR-owned tracks which reduced contract labor expense for maintenance. All other operating expenses were $24.5 million in the year ended December 31, 1999 compared to $24.4 million in the year ended December 31, 1998, a net increase of $113,000. U. S. Industrial Switching Operating Expenses The following table sets forth a comparison of the Company's industrial switching operating expenses in the years ended December 31, 1999 and 1998: U.S. Industrial Switching Operating Expense Comparison Years Ended December 31, 1999 and 1998 (dollars in thousands)
1999 1998 ---- ---- Percent of Percent of Operating Operating Dollars Revenue Dollars Revenue ------------------------------------------------------------------------------ Labor and benefits $ 7,945 70.1% $ 9,019 71.3% Equipment rents 187 1.6% 217 1.7% Purchased services 476 4.2% 291 2.3% Depreciation and amortization 768 6.8% 798 6.3% Diesel fuel 421 3.7% 466 3.7% Casualties and insurance 971 8.6% 1,363 10.8% Materials 743 6.6% 758 6.0% Other expenses (84) -0.8% 1,533 12.1% ------------------------------------------------------------------------------ Total operating expenses $11,427 100.8% $14,445 114.2% ==============================================================================
Labor and benefits expense was $7.9 million in the year ended December 31, 1999 compared to $9.0 million in the year ended December 31, 1998, a decrease of $1.1 million or 11.9%, due primarily to the decision to exit unprofitable switching contracts. Other expense was a credit of $84,000 in the year ended December 31, 1999 compared to $1.5 million in the year ended December 31, 1998, a decrease of $1.6 million or 105.5%. The 1998 period was unusually high due to approximately $550,000 of legal fees for still-pending litigation. Interest Expense Interest expense in the year ended December 31, 1999 was $8.5 million compared to $7.1 million in the year ended December 31, 1998, an increase of $1.4 million or 19.7% primarily related to the increase in debt used for acquisitions. 12 Other Income and Income Taxes The Company's other income consists primarily of interest income, gains and losses on assets sales, equity earnings and losses on unconsolidated affiliates, minority interest expense, and foreign currency. Other income in the year ended December 31, 1999 was $1.1 million compared to $6.6 million in the year ended December 31, 1998, a decrease of $5.5 million or 84.0%. The 1998 other income reflected $6.0 million of non-recurring insurance proceeds recorded in North American railroad operations. The Company's effective income tax rate in the years ended December 31, 1999 and 1998 was 14.5% and 40.3%, respectively. The 1999 rate was impacted by a $4.2 million benefit recorded in the third quarter of 1999 as a result of a favorable tax law change in Australia. Without this impact, 1999's effective income tax rate was 42.5%. The Company may realize additional benefits from this tax law change in future quarters. Net Income and Earnings Per Share The Company's net income in the year ended December 31, 1999 was $12.5 million (including a $4.2 million income tax benefit described above and an extraordinary non-cash expense of $262,000 related to the early extinguishment of debt described in Note 8. to Consolidated Financial Statements) compared to net income of $11.4 million (including a $3.9 million after-tax effect of an insurance settlement described in Note 2. to Consolidated Financial Statements) in the year ended December 31, 1998, an increase of $1.1 million or 9.6%. The increase in net income is the net result of an increase in net income from Australian railroad operations of $3.6 million, a decrease in net income from North American railroad operations of $3.7 million, and a decrease in the net loss of industrial switching of $1.2 million. Basic and Diluted Earnings Per Share in the year ended December 31, 1999 were $2.79 and $2.76 respectively, on weighted average shares of 4.5 million compared to $2.20 and $2.19 respectively, on weighted average shares of 5.2 million in the year ended December 31, 1998. The change in weighted average shares outstanding primarily reflects the impact of a 1.0 million share buy-back program which started in August, 1998 and ended in April, 1999. Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Consolidated Operating Revenues Operating revenues were $147.4 million in 1998 compared to $103.6 million in 1997, an increase of $43.8 million or 42.3%. The increase was attributable to $39.3 million in revenues from the Australia operation, a $3.7 million increase in North America railroad revenues, and a $823,000 increase in U.S. industrial switching revenues. The following three sections provide information on railroad revenues in North America and Australia, and industrial switching revenues in the United States. North America Railroad Operating Revenues Operating revenues were $88.1 million in the year ended December 31, 1998 compared to $84.4 million in the year ended December 31, 1997, an increase of $3.7 million or 4.4%. The increase was attributable to a $5.3 million increase 13 in non-freight revenues, which offset a $1.6 million decrease in freight revenues. The following table compares freight revenues, carloads and average freight revenues per carload for 1998 and 1997: North America Freight Revenues and Carloads Comparison by Commodity Group Years Ended December 31, 1998 and 1997 (dollars in thousands, except average per carload)
Average Freight Revenue Freight Revenues Carloads Per Carload ---------------- -------- ----------- % of % of % of % of Commodity Group 1998 Total 1997 Total 1998 Total 1997 Total 1998 1997 - --------------- ---- ----- ---- ----- ---- ----- ---- ----- ---- ---- Coal, Coke & Ores $19,245 29.1% $21,452 31.7% 75,881 34.8% 82,269 37.4% $254 $261 Pulp & Paper 8,295 12.6% 7,920 11.7% 21,318 9.7% 20,760 9.4% 389 382 Petroleum Products 7,135 10.8% 8,349 12.3% 15,992 7.3% 17,456 7.9% 446 478 Chemicals & Plastics 6,337 9.6% 5,761 8.5% 12,503 5.7% 10,496 4.8% 507 549 Lumber & Forest Products 6,098 9.2% 6,093 9.0% 20,802 9.5% 18,171 8.3% 293 335 Farm & Food Products 4,919 7.4% 3,865 5.7% 17,451 8.0% 13,390 6.1% 282 289 Metals 4,879 7.4% 5,188 7.7% 17,862 8.2% 21,268 9.7% 273 244 Minerals & Stone 3,790 5.8% 3,346 4.9% 13,679 6.3% 12,657 5.8% 277 264 Autos & Auto Parts 1,945 2.9% 3,452 5.1% 3,895 1.8% 6,496 3.0% 499 531 Other 3,438 5.2% 2,287 3.4% 18,922 8.7% 16,743 7.6% 182 137 ---------- --------- ----------- --------- ---------- --------- ----------- ---------- Total $66,081 100.0% $67,713 100.0% 218,305 100.0% 219,706 100.0% 303 308 ========== ========= =========== ========= ========== ========= =========== ==========
The decrease in freight revenues was attributable to the decline in freight revenues from shipments of coal, autos and auto parts, petroleum products and metals. Freight revenues from coal were $19.2 million in the year ended December 31, 1998, compared to $21.4 million in the year ended December 31, 1997, a decrease of $2.2 million or 10.3% primarily due to reduced shipments of coal resulting from scheduled maintenance and inventory adjustments at a key customer's facilities. Freight revenues from autos and auto parts were $1.9 million in the year ended December 31, 1998, compared to $3.4 million in the year ended December 31, 1997, a decrease of $1.5 million or 43.7% primarily due to reduced shipments resulting from loss of overhead freight from a contract change between CSXT and Ford, and labor issues in the auto industry. Freight revenues from petroleum products were $7.1 million in the year ended December 31, 1998, compared to $8.3 million in the year ended December 31, 1997, a decrease of $1.2 million or 14.5% due to reduced shipments resulting from scheduled maintenance at a key customer's facilities. Freight revenues from metals were $4.9 million in the year ended December 31, 1998, compared to $5.2 million in the year ended December 31, 1997, a decrease of $309,000 or 5.9%. The decrease in freight revenues from coal, autos and auto parts, petroleum products and metals was partially offset by increases in freight revenues from farm and food products of $1.1 million or 14 27.3%, chemicals and plastics of $576,000 or 10.0%, minerals and stone of $444,000 or 13.3% and pulp and paper of $375,000 or 4.7%. Freight revenues from all remaining commodities reflected a net increase of $1.2 million. Total carloads were 218,305 in the year ended December 31, 1998 compared to 219,706 in the year ended December 31, 1997, a decrease of 1,401 or 0.6%. Also, the overall average revenue per carload declined to $303 in the year ended December 31, 1998, compared to $308 per carload in the year ended December 31, 1997, a decrease of 1.6% due to changes in commodity mix and traffic patterns. North America non-freight railroad revenues were $22.0 million in the year ended December 31, 1998 compared to $16.7 million in the year ended December 31, 1997, an increase of $5.3 million or 32.0%. The increase was primarily due to increases in car hire and rental income of $2.0 million, other income of $1.8 million and switching revenue of $1.5 million. Australian Railroad Operating Revenues Operating revenues were $46.7 million in the year ended December 31, 1998, compared to $7.4 million in the year ended December 31, 1997, an increase of $39.3 million or 528.8%. The increase consisted of $35.7 million in freight revenues and $3.6 in non-freight revenues. The increase was primarily attributable to a full year of operations in 1998 as compared to operations which began on November 8, 1997. The following table outlines Australian freight revenues for the periods ended December 31, 1998 and 1997: Australian Freight Revenues by Commodity Year Ended December 31, 1998 and 1997 (in thousands)
Average Freight Revenue Freight Revenues Carloads Per Carload ---------------- -------- ----------- % of % of % of % of Commodity Group 1998 Total 1997 Total 1998 Total 1997 Total 1998 1997 - --------------- ---- ----- ---- ----- ---- ----- ---- ----- ---- ---- Hook and Pull (Haulage) $15,288 36.4% $ 1,969 31.2% 40,817 22.3% 4,465 15.4% $375 $441 Grain 13,040 31.0% 2,377 37.7% 45,896 25.1% 10,201 35.3% 284 233 Coal 7,514 17.9% 817 12.9% 47,286 25.9% 6,719 23.2% 159 122 Gypsum 2,788 6.6% 463 7.3% 36,611 20.0% 5,494 19.0% 76 82 Marble 1,949 4.6% 268 4.2% 8,294 4.5% 1,060 3.7% 235 253 Lime 1,052 2.5% 203 3.2% 2,500 1.4% 225 0.7% 421 902 Other 368 1.0% 215 3.5% 1,382 0.8% 772 2.7% 266 278 ---------- ---------- ---------- --------- ---------- --------- ---------- --------- Total $41,999 100.0% $ 6,312 100.0% 182,786 100.0% 28,936 100.0% 230 218 ========== ========== ========== ========= ========== ========= ========== =========
Australia non-freight revenues were $4.7 million in the year ended December 31, 1998, compared to $1.1 million in the year ended December 31, 1997, an increase of $3.6 million or 322.6%. The increase consisted of $2.4 million in car hire and rental income and $1.2 million in other income. The 15 increase was primarily attributable to a full year of operations in 1998 as compared to operations which began on November 8, 1997. U.S. Industrial Switching Revenues Revenues from U.S. industrial switching activities were $12.6 million in the year ended December 31, 1998 compared to $11.8 million in the year ended December 31, 1997, an increase of $823,000 or 7.0%. The increase was primarily attributable to a broadening of the customer base of Rail Link, Inc. Consolidated Operating Expenses Operating expenses for all operations combined were $127.9 million in 1998 compared to $87.2 million in 1997, an increase of $40.7 million or 46.7%. Expense increases attributable to operations in Australia, which began in November, 1997, represented $31.2 million or 76.6% of the change, expense increases attributable to North America railroad operations represented $7.7 million or 19.0% of the change, and expense increases in U.S. industrial switching represented $1.8 million or 4.4% of the change. Operating Ratios The Company's combined operating ratio increased to 86.7% in 1998 from 84.1% in 1997. The operating ratio for U.S. railroad operations increased to 85.8% in 1998 from 80.4% in 1997. The operating ratio for Australia railroad operations decreased to 81.1% in 1998 from 90.5% in 1997. The operating ratio for U.S. industrial switching operations increased to 114.2% in 1998 from 107.0% in 1997. The following three sections provide information on railroad expenses in North America and Australia, and industrial switching expenses in the United States. North America Railroad Operating Expenses The following table sets forth a comparison of the Company's North America railroad operating expenses in 1998 and 1997: The remainder of this page is intentionally left blank. 16 North America Railroad Operating Expense Comparison Years Ended December 31, 1998 and 1997 (dollars in thousands)
1998 1997 ---- ---- Percent of Percent of Operating Operating Dollars Revenue Dollars Revenue ------- ------- ------- ------- Labor and benefits $30,822 35.0% $28,041 33.2% Equipment rents 11,060 12.6% 8,755 10.4% Purchased services 4,496 5.1% 3,872 4.6% Depreciation and amortization 7,277 8.3% 6,092 7.2% Diesel fuel 3,187 3.6% 4,239 5.0% Casualties and insurance 2,937 3.3% 4,280 5.1% Materials 3,485 4.0% 3,837 4.5% Other 12,285 13.9% 8,707 10.4% ------ ---- ----- ---- Total $75,549 85.8% $67,823 80.4% ======= ==== ======= ====
Labor and benefits expense was $30.8 million in 1998 compared to $28.0 million in 1997, an increase of $2.8 million or 9.9%, due primarily to general increases in wages and benefits for all railroad operations and the addition of several new senior management positions in general and administrative. Equipment rents were $11.1 million in 1998 compared to $8.8 million in 1997, an increase of $2.3 million or 26.3%, due primarily to new operating leases for railroad rolling stock utilized by the Company's leasing subsidiary. Purchased services were $4.5 million in 1998 compared to $3.9 million in 1997, an increase of $624,000 or 16.1%, due primarily to increases in maintenance of way contract work of approximately $277,000 and information systems and general and administrative contract work of approximately $413,000, offset by a net decrease in all other departments of $66,000. Depreciation and amortization expense was $7.3 million in 1998 compared to $6.1 million in 1997, an increase of $1.2 million or 19.5%, due primarily to increased capital spending in 1998 and 1997. Diesel fuel was $3.2 million in 1998 compared to $4.2 million in 1997, a decrease of $1.0 million or 24.8%, due primarily to a decline in diesel fuel prices. Casualties and insurance expense, including claims brought under the Federal Employers' Liability Act, was $2.9 million in 1998 compared to $4.3 million in 1997, a decrease of $1.4 million or 31.4%, due primarily to a decrease in derailment expense of approximately $739,000 and a decrease in claims expense of approximately $584,000. Materials expense was $3.5 million in 1998 compared to $3.8 million in 1997, a decrease of $352,000 or 9.2%, due primarily to decreases in maintenance of way and maintenance of equipment repairs. 17 Other expense was $12.3 million in 1998 compared to $8.7 million in 1997, an increase of $3.6 million or 41.1%, due primarily to increases in acquisition expense of $1.1 million, trackage rights of $1.0 million, general and administrative of $1.0 million, legal and accounting fees of $341,000 and other expenses, net of $137,000. Australian Railroad Operating Expenses The following table sets forth a comparison of the Company's Australia railroad operating expenses in 1998 and 1997: Australian Railroad Operating Expense Comparison Years Ended December 31, 1998 and 1997 (dollars in thousands)
1998 1997 ---- ---- Percent of Percent of Operating Operating Dollars Revenue Dollars Revenue ------- ------- ------- ------- Labor and benefits $ 5,263 11.3% $ 899 12.1% Equipment rents 593 1.3% 81 1.1% Purchased services 13,538 29.0% 2,298 30.9% Depreciation and amortization 1,842 3.9% 246 3.3% Diesel fuel 8,895 19.0% 1,409 19.0% Casualties and insurance 1,415 3.0% 347 4.7% Materials 1,734 3.7% 134 1.8% Other 4,627 9.9% 1,312 17.6% ------- ---- ------ ---- Total $37,907 81.1% $6,726 90.5% ======= ==== ====== ====
All Australia railroad operating expense increases are primarily attributable to a full year of operations in 1998 as compared to operations which began on November 8, 1997. U. S. Industrial Switching Operating Expenses The following table sets forth a comparison of the Company's U.S. industrial switching operating expenses in 1998 and 1997: The remainder of this page is intentionally left blank. 18 U.S. Industrial Switching Operating Expense Comparison Years Ended December 31, 1998 and 1997 (dollars in thousands)
1998 1997 ---- ---- Percent of Percent of Operating Operating Dollars Revenue Dollars Revenue ------- ------- ------- ------- Labor and benefits $ 9,019 71.3% $ 8,457 71.5% Equipment rents 217 1.7% 102 1.0% Purchased services 291 2.3% 241 2.0% Depreciation and amortization 798 6.3% 661 5.6% Diesel fuel 466 3.7% 499 4.2% Casualties and insurance 1,363 10.8% 927 7.8% Materials 758 6.0% 524 4.4% Other 1,533 12.1% 1,240 10.5% ------- ----- ------- ----- Total $14,445 114.2% $12,651 107.0% ======= ===== ======= =====
Labor and benefits expense was $9.0 million in 1998 compared to $8.5 million in 1997, an increase of $562,000 or 6.6%, which was primarily attributable to a broadening of the customer base of Rail Link, Inc. Casualties and insurance expense was $1.4 million in 1998 compared to $927,000 in 1997, an increase of $436,000 or 47.0%, which was primarily attributable to an increase in derailment expense of $184,000 and an increase in claims expense of $236,000 Other expense was $1.5 million in 1998 compared to $1.2 million in 1997, an increase of $293,000 or 23.6%, which was primarily attributable to a broadening of the customer base of Rail Link, Inc. All other expense categories were $2.5 million in 1998 compared to $2.0 million in 1997, an increase of $503,000 or 24.8%, which was primarily attributable to a broadening of the customer base of Rail Link, Inc. Interest Expense The Company's combined interest expense was $7.1 million in 1998 compared to $3.4 million in 1997, an increase of $3.7 million or 111.1%. Interest expense for North America railroad operations increased to $4.4 million in 1998 from $2.8 million in 1997, an increase of $1.6 million or 56.9%. This increase is primarily attributable to the partial financing of the acquisition in Australia (for which the Company used its Credit Facility but did not allocate the interest to Australia railroad operations), an investment in GRO which operates two railroads in Canada, and a new capital lease for equipment. Interest expense for Australia railroad operations increased to $2.3 million in 1998 from $320,000 in 1997, an increase of $2.0 million or 615.3%. This increase was primarily attributable to a full year of operations in 1998 as compared to operations which began on November 8, 1997. Interest expense for U.S. industrial switching operations increased to $376,000 in 1998 from $220,000 in 1997, an increase of $156,000 or 70.9%. 19 Other Income and Income Taxes The Company's other income in 1998 was $6.6 million compared to other income in 1997 of $345,000, an increase of $6.3 million or 1,826.1%. The increase was attributable to $6.0 million of insurance proceeds recorded in North America railroad operations. The Company's effective income tax rate was 40.3% and 40.5% in 1998 and 1997, respectively. Net Income and Earnings Per Share The Company's net income in 1998 was $11.4 million compared to net income in 1997 of $8.0 million, an increase of $3.4 million or 42.9%. The increase was attributable to increases in net income from the Australia operation of $3.7 million and North America railroad operations of $548,000, which offset an increase in the net loss in U.S. industrial switching operations of $792,000. Basic and Diluted Earnings Per Share in the year ended December 31, 1998 were $2.20 and $2.19 respectively, on weighted average shares of 5.2 million compared to $1.52 and $1.47 respectively, on weighted average shares of 5.4 million in the year ended December 31, 1997. Liquidity and Capital Resources During 1999, the Company generated cash from operations of $29.3 million, generated cash from asset sales of $10.3 million, received $10.9 million in state grant funds for track rehabilitation and construction, and had a net cash increase in debt of $17.5 million. During the year, the Company invested $14.8 million in equipment and rolling stock and $21.0 million in track improvements (including the $10.9 million in state grant funds described above) and buildings. These expenditures were apart from the Company's investments in Ferrocarriles Chiapas-Mayab in Mexico of $31.5 million and Latin American Rail, LLC in Chile of $1.3 million. The Company also received $57,000 of cash in the purchase of Rail-One Inc. in Canada less cash paid for its common stock. See Note 3. to Consolidated Financial Statements. The Company repurchased 655,000 shares of its Class A Common Stock which are now held in the Company treasury at a cost of $6.4 million. During 1998, the Company generated cash from operations of $23.8 million, generated cash from asset sales of $2.6 million, received $3.2 million in state grant funds for track rehabilitation, and had a net cash reduction to debt of $2.1 million. During the year the Company invested $10.0 million in equipment and rolling stock and $6.9 million in track improvements (including the $3.2 million in state grant funds described above) and buildings. Additionally, the Company acquired $6.4 million in rolling stock in a non-cash exchange for similar assets. These expenditures were apart from the Company's additional investment of $3.1 million in cash and $4.7 million in other assets in GRO which operates two railroads in Canada. See Note 3. to Consolidated Financial Statements. The Company also repurchased 345,000 shares of its Class A Common Stock which are now held in the Company treasury at a cost of $4.6 million. During 1997, the Company generated cash from operations of $6.3 million, generated cash from asset sales of $581,000, received $2.9 million in state grant funds for track rehabilitation, and had net new borrowings of $45.2 million. During the year the Company invested $16.3 million, including capital 20 leases of $11.8 million, in equipment and rolling stock, and $9.4 million in track improvements (including the $2.9 million in state grant funds described above) and buildings. These expenditures were apart from the Company's investment in the Australia acquisition and its investment in GRO which operates two railroads in Canada (see Note 3. to Consolidated Financial Statements). On August 17, 1999, the Company amended and restated its primary credit facilities agreement to provide for an increase from $65.0 million to $150.0 million. The agreement provides for $88 million in revolving credit facilities (with a sub limit of $15 million in Australian dollar equivalents to be allocated to the Australian subsidiaries) and $62.0 million in term loan facilities consisting of a U.S. Term Loan facility in the amount of $10.0 million, a Canadian Term Loan facility in the Canadian Dollar Equivalent of $22.0 million, and a Mexican Term Loan facility of $30.0 million. The term loans are due in quarterly installments and mature, along with the revolving credit facilities, on August 17, 2004. The credit facilities accrue interest at various rates depending on the country in which the funds are drawn, plus the applicable margin, which varies from 1.75% to 2.5% depending upon the country in which the funds are drawn and the Company's funded debt to EBITDA ratio, as defined in the agreement. Interest is payable in arrears based on certain elections of the Company, not to exceed three months outstanding. The Company pays a commitment fee which varies between 0.375% and 0.500% per annum on all unused portions of the revolving credit facility depending on the Company's funded debt to EBITDA ratio. The credit facilities agreement requires mandatory prepayments from the issuance of new equity or debt and annual sale of assets in excess of varying minimum amounts depending on the country in which the sales occur. The credit facilities are secured by essentially all the assets of the Company and its subsidiaries. The credit facilities agreement requires the maintenance of certain covenant ratios or amounts, including, but not limited to, funded debt to EBITDA, minimum EBITDA for a period, cash flow coverage, and Net Worth, all as defined in the agreement. The Company and its subsidiaries were in compliance with the provisions of these covenants as of December 31, 1999. Borrowings under the Canadian portion of the amended agreement were used to refinance certain GRO debt. In conjunction with that refinancing, the Company recorded a non-cash after tax extraordinary charge of $262,000 related to the unamortized deferred financing costs of the retired debt. On December 7, 1999, the Company completed the sale of 483 freight cars to a financial institution for a net sale price of $8,630,000. The proceeds were used to reduce borrowings under the Company's revolving credit facilities. Simultaneously, the Company entered into agreements with the financial institution to lease these 483 freight cars and an additional 100 centerbeam flat cars for a period of at least eight years including automatic renewals. The sale/leaseback transaction resulted in a deferred gain of $612,000, which will be amortized over the term of the lease as a non-cash offset to rent expense. These leases also include an option to purchase all of the cars, subject to certain conditions. If certain conditions related to the return of the cars are met, the Company could be required to pay a fee. At December 31, 1999 the Company had long-term debt, including current portion, totaling $108.4 million, which comprised 57.0% of its total capitalization. This compares to long-term debt, including current portion, of $65.7 million at December 31, 1998, comprising 46.8% of total capitalization. The increase primarily relates to borrowings to fund acquisitions in 1999. 21 At December 31, 1999 approximately $36.9 million of the Company's debt was U.S. denominated foreign debt related to the Company's Mexican acquisition (see Note 3. to Consolidated Financial Statements) which is subject to debt valuation adjustments resulting from currency exchange rate changes. The Company recorded approximately $191,000 of non-cash expense related to valuation adjustments on this debt in the Other Income, net section of its 1999 income statement. The Company's railroads have entered into a number of rehabilitation or construction grants with state and federal agencies. The grant funds are used as a supplement to the Company's normal capital programs. In return for the grants, the railroads pledge to maintain various levels of service and maintenance on the rail lines that have been rehabilitated or constructed. The Company believes that the levels of service and maintenance required under the grants are not materially different from those that would be required without the grant obligation. While the Company has benefited from these grant funds in recent years including 1999 and 1998, there can be no assurance that the funds will continue to be available. The Company has budgeted approximately $38.7 million in capital expenditures in 2000, primarily for track rehabilitation, of which $7.7 million is expected to be used in Australia. Of the $38.7 million in capital expenditures, $12.8 million is expected to be funded by rehabilitation grants from state and federal agencies to several of the Company's railroads. In connection with the Company's purchase of selected assets in Australia (see Note 3. to Consolidated Financial Statements), the Company has committed to the Commonwealth of Australia to spend approximately $34.1 million (AU $52.3 million) to rehabilitate track structures and equipment by December 31, 2002. The Commonwealth Government may require the payment of any shortfall between the actual expenditures incurred and the contracted commitment from the date of acquisition to December 31, 2002. This commitment may be renegotiated if there is a significant change in operating conditions outside the control of the Company. As of December 31, 1999, $18.1 million (AU $27.6 million) of this commitment had been met. The Company has historically relied primarily on cash generated from operations to fund working capital and capital expenditures relating to ongoing operations, while relying on borrowed funds to finance acquisitions and equipment needs (primarily rolling stock) related to acquisitions. The Company believes that its cash flow from operations together with amounts available under the credit facilities will enable the Company to meet its liquidity and capital expenditure requirements relating to ongoing operations for at least the duration of the credit facilities. Year 2000 Compliance The Company encountered no significant problems in the transition to the year 2000. The remainder of this page is intentionally left blank. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GENESEE & WYOMING INC. By: /s/ Alan R. Harris --------------------------- Alan R. Harris Senior Vice President and Chief Accounting Officer Date: April 17, 2000 23 -----END PRIVACY-ENHANCED MESSAGE-----