-----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, N9HlSGAmKLMDurJ23a6wMDhX+ZqXDKs4JguU7waqVFcoCWBnAAlR1pBOM6kiTLIB lx0YgtDFz++PKnjwaSAQkA== /in/edgar/work/0000950130-00-006012/0000950130-00-006012.txt : 20001114 0000950130-00-006012.hdr.sgml : 20001114 ACCESSION NUMBER: 0000950130-00-006012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENESEE & WYOMING INC CENTRAL INDEX KEY: 0001012620 STANDARD INDUSTRIAL CLASSIFICATION: [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: 762175 BUSINESS ADDRESS: STREET 1: 66 FIELD POINT ROAD CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2036293722 MAIL ADDRESS: STREET 1: 66 FIELD POINT ROAD CITY: GREENWICH STATE: CT ZIP: 06830 10-Q 1 0001.txt FOR PERIOD ENDING 09/30/2000 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarter ended September 30, 2000 Commission File No. 0-20847 GENESEE & WYOMING INC. (Exact name of registrant as specified in its charter) Delaware 06-0984624 - ----------------------- -------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 66 Field Point Road, Greenwich, Connecticut 06830 - ------------------------------------------- --------- (Address of principal executive offices) (Zip Code) (203) 629-3722 - -------------- (Telephone No.) Shares of common stock outstanding as of the close of business on November 1, 2000: Class Number of Shares Outstanding - ----- ---------------------------- Class A Common Stock 3,492,328 Class B Common Stock 845,447 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] YES [_] NO INDEX Part I - Financial Information Item 1. Financial Statements: Page ------ Consolidated Statements of Income - For the Three Month and Nine Month Periods Ended September 30, 2000 and 1999 ..................... 3 Consolidated Balance Sheets - As of September 30, 2000 and December 31, 1999....................... 4 Consolidated Statements of Cash Flows - For the Nine Month Periods Ended September 30, 2000 and 1999.................................... 5 Notes to Consolidated Financial Statements......... 6 - 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 12 - 33 Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................................... 34 Part II - Other Information.................................. 34 Index to Exhibits............................................ 35 - 36 Signatures................................................... 37 2 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, 2000 1999 2000 1999 ------------------------------------------------ OPERATING REVENUES $ 50,095 $ 45,063 $ 157,860 $ 121,905 OPERATING EXPENSES: Transportation 16,277 13,868 52,146 38,647 Maintenance of ways and structures 5,293 5,703 16,912 14,645 Maintenance of equipment 9,627 8,800 30,897 24,265 General and administrative 8,374 7,301 24,635 21,348 Depreciation and amortization 3,843 3,040 10,485 8,887 ------------------------------------------------ Total operating expenses 43,414 38,712 135,075 107,792 ------------------------------------------------ INCOME FROM OPERATIONS 6,681 6,351 22,785 14,113 Valuation adjustment of U.S. dollar denominated foreign debt 27 -- (1,459) -- Other income, net 1,322 301 2,572 84 Interest expense (2,712) (2,285) (7,985) (5,609) ------------------------------------------------ Income before provision for income taxes 5,318 4,367 15,913 8,588 Provision (benefit) for income taxes 2,126 (2,324) 6,031 (517) ------------------------------------------------ NET INCOME $ 3,192 $ 6,691 $ 9,882 $ 9,105 ================================================ Earnings per common share - basic $ 0.74 $ 1.56 $ 2.28 $ 2.00 ================================================ Weighted average number of shares of common stock - basic 4,336 4,298 4,331 4,547 ================================================ Earnings per common share - diluted $ 0.72 $ 1.53 $ 2.24 $ 1.98 ================================================ Weighted average number of shares of common stock - diluted 4,445 4,367 4,404 4,604 ================================================
3 GENESEE & WYOMING INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) (Unaudited)
As of As of Sep. 30, Dec. 31, ASSETS 2000 1999 ------------------------ CURRENTS ASSETS: Cash and cash equivalents $ 9,002 $ 7,791 Accounts receivable, net 48,565 47,870 Materials and supplies 6,578 6,141 Prepaid expenses and other 6,417 7,689 Deferred income tax assets, net 2,630 3,087 ------------------------ Total current assets 73,192 72,578 ------------------------ PROPERTY AND EQUIPMENT, net 201,278 185,970 ------------------------ SERVICE ASSURANCE AGREEMENT, net 11,503 12,065 ------------------------ INVESTMENT IN UNCONSOLIDATED AFFILIATES 1,632 1,576 ------------------------ OTHER ASSETS, net 23,644 29,751 ------------------------ Total assets $ 311,249 $ 301,940 ======================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 16,437 $ 15,146 Accounts payable 41,296 52,501 Accrued expenses 14,171 9,738 ------------------------ Total current liabilities 71,904 77,385 ------------------------ LONG-TERM DEBT, less current portion 92,168 93,230 ------------------------ OTHER LIABILITIES 3,888 4,231 ------------------------ DEFERRED INCOME TAX LIABILITIES, net 16,905 13,145 ------------------------ DEFERRED ITEMS--grants from governmental agencies 34,821 27,427 ------------------------ DEFERRED GAIN--sale/leaseback 3,693 4,109 ------------------------ MINORITY INTEREST -- 584 ------------------------ STOCKHOLDERS' EQUITY: Class A common stock, $0.01 par value, one vote per share; 12,000,000 shares authorized; 4,489,728 and 4,453,368 issued and outstanding on September 30, 2000 and December 31, 1999, respectively 45 45 Class B common stock, $0.01 par value, 10 votes per share; 1,500,000 shares authorized; 845,447 and 845,539 issued and outstanding on September 30, 2000 and December 31, 1999, respectively 8 8 Additional paid-in capital 47,223 47,072 Retained earnings 56,906 47,023 Currency translation adjustment (5,309) (1,316) Less treasury stock, at cost, 1,000,000 Class A shares (11,003) (11,003) ------------------------ Total stockholders' equity 87,870 81,829 ------------------------ Total liabilities and stockholders' equity $ 311,249 $ 301,940 ========================
4 GENESEE & WYOMING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
Nine Months Ended September 30, 2000 1999 ---------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 9,882 $ 9,105 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 10,485 8,887 Deferred income taxes 4,263 (2,033) Gain on disposition of property and equipment (39) (186) Minority interest expense 38 -- Valuation adjustment of U.S. dollar denominated foreign debt 1,459 -- Changes in assets and liabilities - Accounts receivable (1,764) 241 Materials and supplies (687) (641) Prepaid expenses and other 1,277 (996) Accounts payable and accrued expenses (6,219) 4,342 Other assets and liabilities, net (1,035) 1,581 ---------------------------- Net cash provided by operating activities 17,660 20,300 ---------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (26,267) (21,765) Cash received in purchase of Rail-One Inc. less cash paid for common stock -- 57 Purchase of assets of Ferrocarriles Chiapas-Mayab -- (30,527) Proceeds from disposition of property 275 298 ---------------------------- Net cash used in investing activities (25,992) (51,937) ---------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term borrowings, including capital leases (41,692) (61,546) Proceeds from issuance of long-term debt 43,292 96,523 Debt issuance costs (10) (1,300) Proceeds from governmental grants 8,260 5,947 Proceeds from employee stock purchases 149 60 Purchase of treasury stock -- (6,374) ---------------------------- Net cash provided by financing activities 9,999 33,310 ---------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (456) 635 ---------------------------- INCREASE IN CASH AND CASH EQUIVALENTS 1,211 2,308 CASH AND CASH EQUIVALENTS, beginning of period 7,791 14,396 ---------------------------- CASH AND CASH EQUIVALENTS, end of period $ 9,002 $ 16,704 ============================ CASH PAID DURING PERIOD FOR: Interest $ 7,255 $ 5,850 Income taxes $ 1,757 $ 7,121
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. In the opinion of management, the unaudited financial statements for the three-month and nine-month periods ended September 30, 2000 and 1999, are presented on a basis consistent with audited financial statements and contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation. The interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1999 included in the Company's 1999 Form 10-K. The results of operations for interim periods are not necessarily indicative of results of operations for the full year. 2. EXPANSION OF OPERATIONS: Compania de Ferrocarriles Chiapas-Mayab, S.A. de C.V. In August 1999, the Company's wholly-owned subsidiary, Compania de Ferrocarriles Chiapas-Mayab, S.A. de C.V. (FCCM), was awarded a 30-year concession to operate certain railways owned by the state-owned Mexican rail company Ferronales. FCCM also acquired equipment and other assets. The aggregate purchase price, including acquisition costs, was approximately 297 million pesos, or approximately $31.5 million at then-current exchange rates. The purchase included $12.3 million of rolling stock, a $9.7 million advance payment on track improvements to be completed on the state-owned track property by February, 2001, a $1.0 million escrow payment which will be returned to the Company upon successful completion of the track improvements, an expected future utilization by the Company of $2.2 million of value-added taxes paid on the transaction, and $1.0 million in goodwill. The remaining purchase price ($5.3 million) was allocated to the 30-year operating license. Genesee Rail-One Inc. On April 15, 1999, the Company closed on an agreement to acquire Rail-One Inc. (Rail-One) which had a 47.5% ownership interest in Genesee Rail-One Inc. (GRO), thereby increasing the Company's ownership of GRO to 95%. GRO owns and operates two short line railroads in Canada. Under the terms of the purchase agreement, the Company converted outstanding notes receivable from Rail-One of $4.6 million into capital, has begun paying approximately $844,000 in cash to the sellers of Rail-One in installments over a four year period, and granted options to the sellers of Rail-One to purchase up to 80,000 shares of the Company's Class A Common Stock at an exercise price of $8.625 per share. Exercise of the options is contingent on the Company's recovery of its capital investment in GRO including debt assumed if the Company were to sell GRO, and upon certain GRO income performance measures. As of September 30, 2000, these options are not exercisable. Effective with this agreement, the operating results of GRO have been consolidated within the financial 6 statements of the Company. During the second quarter of 2000, the Company purchased the remaining 5% minority interest in GRO with an initial cash payment of $240,000 and subsequent annual cash installments of $180,000 each due in 2001 and 2002. Prior to April 15, 1999, the Company accounted for its investment in GRO under the equity method. 3. CREDIT FACILITIES: On August 17, 1999, the Company amended and restated its credit facilities agreement (the Agreement) to provide for an increase in borrowings from $65.0 million to $150.0 million. The Agreement provides for $88.0 million in revolving credit facilities, including $15.0 million in Australian dollar equivalents to be allocated to the Australian subsidiaries, and $62.0 million in term loan facilities. The term loan facilities include a U.S. Term Loan facility in the amount of $10.0 million, a Canadian Term Loan facility in the Canadian Dollar Equivalent of $22.0 million, and a Mexican Term Loan facility of $30.0 million. The Agreement has a maturity date of August 17, 2004, provides for interest at various rates, plus the applicable margins, as defined in the Agreement and is secured by substantially all the assets of the Company and its subsidiaries. The Agreement requires certain commitment fees, prepayments from the issuance of new equity or debt and annual sale of assets, and covenant ratios or amounts, including, but not limited to, funded debt to EBITDA, minimum EBITDA for a period, cash flow coverage, and Net Worth, all as defined in the Agreement. Amounts outstanding under the Agreement which were borrowed by FCCM represented U.S. dollar denominated foreign debt of the Company's Mexican subsidiary. As the Mexican peso moved against the U.S. dollar, the revaluation of this outstanding debt to its Mexican peso equivalent resulted in non-cash gains and losses as reflected in the accompanying statements of income. On June 16, 2000, pursuant to a corporate and financial restructuring of the Company's Mexican subsidiaries and a further amendment to the Agreement, the income statement impact of the U.S. dollar denominated foreign debt revaluation was significantly reduced. 4. CONTINGENCIES: On August 6, 1998, a lawsuit was commenced against the Company and its subsidiary, Illinois & Midland Railroad, Inc. (IMRR), by Commonwealth Edison Company (ComEd) in the Circuit Court of Cook County, Illinois. The suit alleges that IMRR is in breach of certain provisions of a stock purchase agreement entered into by a prior unrelated owner of the IMRR rail line. The provisions allegedly pertain to limitations on rates received by IMRR and the unrelated predecessor for freight hauled for ComEd's Powerton plant. The suit seeks unspecified compensatory damages for alleged past rate overcharges. The Company believes the suit is without merit and intends to vigorously defend against the suit. The parent company of ComEd has sold certain of ComEd's power facilities, one of which is the Powerton plant served by IMRR under the provisions of a 1987 Service Assurance Agreement (the SAA), entered into by a prior unrelated owner of the IMRR rail line. The SAA, which is not terminable except for failure to perform, provides that IMRR has exclusive access to provide rail service to the Powerton plant. On July 7, 2000, the Company filed an amended counterclaim against ComEd in the Cook County action. The counterclaim seeks a declaration of certain rights regarding the SAA and damages for ComEd's failure to assign the SAA to the purchaser of the Powerton plant. The Company believes that its counterclaim against ComEd is well-founded and is pursuing it vigorously. Revenue for haulage to the Powerton Plant accounted for 6.6% of the consolidated revenues of the Company and its subsidiaries 7 in 1999. Failure to satisfactorily resolve this litigation could have a material adverse effect on the Company. 5. COMPREHENSIVE INCOME: Comprehensive income is the total of net income and all other non-owner changes in equity. The following table sets forth the Company's comprehensive income for the three months and nine months ended September 30, 2000 and 1999: Statement of Comprehensive Income (in thousands)
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ---- ---- ---- ---- Net income $ 3,192 $ 6,691 $ 9,882 $ 9,105 Other comprehensive income (loss) - Foreign currency translation adjustments (1,197) 190 (3,993) 934 --------------------------------------------------------------- Comprehensive income $ 1,995 $ 6,881 $ 5,889 $10,039 ===============================================================
6. BUSINESS SEGMENT INFORMATION: The Company operates in three business segments in two geographic areas: North American Railroad Operations, which includes operating short line and regional railroads, and buying, selling, leasing and managing railroad transportation equipment within the United States, Canada and Mexico; Australian Railroad Operations, which includes operating a regional railroad and providing hook and pull (haulage) services to other railroads within Australia; and Industrial Switching, which includes providing freight car switching and related services to industrial companies with extensive railroad facilities within their complexes in the United States. Corporate overhead expenses, including acquisition expense, are primarily reported in North American Railroad Operations. The accounting policies of the reportable segments are the same as those of the consolidated company. The Company evaluates the performance of its operating segments based on operating income. Intersegment sales and transfers are not significant. Summarized financial information for each business segment for the three-month and nine-month periods ended September 30, 2000 and 1999 is shown in the following tables: The remainder of this page is intentionally left blank. 8 Business Segment (amounts in thousands) Three Months Ended September 30,
North American Australian Industrial Railroad Railroad Switching 2000 Operations Operations Operations Total - ------------------------------------------------------------------------------------------------------------- Revenues $ 37,918 $ 9,490 $ 2,687 $ 50,095 Operating income 5,473 1,110 98 6,681 Other expense, net (930) (302) (131) (1,363) Income (loss) before taxes 4,543 808 (33) 5,318 Identifiable assets 263,934 38,947 8,368 311,249 - ------------------------------------------------------------------------------------------------------------- North American Australian Industrial Railroad Railroad Switching 1999 Operations Operations Operations Total - ------------------------------------------------------------------------------------------------------------- Revenues $ 31,708 $ 10,860 $ 2,495 $ 45,063 Operating income (loss) 4,759 1,663 (71) 6,351 Other expense, net (1,472) (384) (128) (1,984) Income (loss) before taxes 3,287 1,279 (199) 4,367 Identifiable assets 250,435 40,219 8,378 299,032 - ------------------------------------------------------------------------------------------------------------- Nine Months Ended September 30, North American Australian Industrial Railroad Railroad Switching 2000 Operations Operations Operations Total - ------------------------------------------------------------------------------------------------------------- Revenues $ 119,909 $ 30,175 $ 7,776 $ 157,860 Operating income 19,160 3,377 248 22,785 Other expense, net (5,576) (955) (341) (6,872) Income (loss) before taxes 13,584 2,422 (93) 15,913 Identifiable assets 263,934 39,456 8,368 311,249 - ------------------------------------------------------------------------------------------------------------- North American Australian Industrial Railroad Railroad Switching 1999 Operations Operations Operations Total - ------------------------------------------------------------------------------------------------------------- Revenues $ 80,702 $ 32,440 $ 8,763 $ 121,905 Operating income (loss) 9,514 4,747 (148) 14,113 Other expense, net (4,014) (1,141) (370) (5,525) Income (loss) before tax 5,500 3,606 (518) 8,588 Identifiable assets 250,435 40,219 8,378 299,032 - -------------------------------------------------------------------------------------------------------------
7. RECENTLY ISSUED ACCOUNTING STANDARDS: The Financial Accounting Standards Board recently issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and hedging activities. The new standard requires that an entity recognize all 9 derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value with changes in fair value reported in income. This statement will require the Company to provide separate disclosure of derivative instruments either on the face of the balance sheet or within the footnotes to the financial statements. Adoption of this statement is required no later than the first quarter of 2001, which is when the Company expects to adopt it. The Company is in the process of assessing the impact of this statement. 8. SUBSEQUENT EVENTS: Agreement to acquire Westrail Freight On October 30, 2000, the Company announced that its newly-formed joint venture, Australian Railroad Group Pty. Ltd. (ARG), has signed an agreement with the government of Western Australia to purchase Westrail Freight for approximately $323 million including working capital and acquisition fees. The completion of the transaction is subject to customary closing conditions and is expected to close by the end of 2000. ARG is a joint venture owned 50% by GWI and 50% by Wesfarmers Limited, a public corporation based in Perth, Western Australia. Westrail Freight is composed of the freight operations of the currently state-owned railroad of Western Australia. The railroad operates over 3,280 miles of standard and narrow gauge track and carries approximately 31 million tons of freight per year. To effect the acquisition, GWI will contribute its wholly-owned Australian operations, Australia Southern Railroad (ASR), to ARG along with GWI's interest in the Asia Pacific Transport Consortium (APTC) - a consortium selected to construct and operate the Alice Springs to Darwin railway line in the Northern Territory of Australia. ASR generated $42.3 million of revenue, $8.1 million of EBITDA, and $5.7 million of operating income during the twelve months ended June 30, 2000. Additionally, GWI will contribute $19 million of cash to ARG. GWI expects that its cash contribution will be partially funded with proceeds from the recently announced private placement of up to $25 million of Convertible Preferred Stock with the 1818 Fund of Brown Brothers Harriman & Co. It is expected that Wesfarmers Limited will contribute $62 million in cash to ARG for its 50% ownership. ARG has also received binding commitment letters for $249 million in acquisition debt and $65 million in construction and working capital facilities from Bank of America and the Australia and New Zealand Banking Group Limited (ANZ). A portion of these credit facilities will be used to refinance approximately $7 million of debt currently outstanding at ASR. GWI will account for its 50% ownership in ARG under the equity method of accounting and will therefore be deconsolidating ASR from its consolidated financial statements. GWI will recognize a one-time gain on its contribution of ASR to ARG. Contingent on the closing, the Company will also recognize a one-time expense to certain ASR employees from acceleration of vesting under the Genesee & Wyoming Australia Pty. Ltd. Executive Share Option Plan which was adopted on September 27, 2000. The liability will be settled in cash and no shares will be issued. Empresa Ferroviaria Oriental, S.A. On November 6, 2000, the Company announced that it had completed its investment in Empresa Ferroviaria Oriental, S.A. (the "Oriental"), a railroad serving eastern Bolivia and connecting to railroads in Argentina and Brazil. For the nine months ended September 30, 2000, Oriental reported revenue of $23.6 million, earnings before interest, taxes, depreciation and amortization of $12.3 million and net income of $6.2 million under local accounting standards. The investment provides GWI with an indirect 22.55% equity interest in the Oriental and was made through a 90% owned subsidiary, Genesee & Wyoming Bolivia SRL ("GWB"), which is 10% owned by UniRail, LLC. GWI's portion of the Oriental investment is composed of $6.66 million in cash, the assumption of non-recourse debt of $10.8 million at an interest rate of 7.67%, and a non-interest bearing contingent payment of $450,000 due in 3 years if Oriental achieves certain financial results. GWB will also be entitled to its portion of Oriental's annual cash dividend for the fiscal year ending December 31, 2000, which will be distributed early in 2001. GWB will account for its investment in Oriental under the equity method of accounting. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Company's consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, and with the consolidated financial statements, related notes and other financial information included in the Company's 1999 Form 10-K. General The Company is a holding company whose subsidiaries own and/or operate short line and regional freight railroads and provide related rail services in the United States, Australia, Canada and Mexico. The Company, through its U.S. industrial switching subsidiary, also provides freight car switching and related services to United States industrial companies with extensive railroad facilities within their complexes. The Company generates revenues primarily from the movement of freight over track owned or operated by its railroads. The Company also generates non-freight revenues primarily by providing freight car switching and related rail services such as railcar leasing, railcar repair and storage to industrial companies with extensive railroad facilities within their complexes, to shippers along its lines, and to the Class I railroads that connect with its North American lines. The Company's operating expenses include wages and benefits, equipment rents (including car hire), purchased services, depreciation and amortization, diesel fuel, casualties and insurance, materials and other expenses. Car hire is a charge paid by a railroad to the owners of railcars used by that railroad in moving freight. Other expenses generally include property and other non-income taxes, professional services, communication and data processing costs and general overhead expense. When comparing the Company's results of operations from one reporting period to another, the following factors should be taken into consideration. The Company has historically experienced fluctuations in revenues and expenses such as one-time freight moves, customer plant expansions and shut-downs, railcar sales, accidents and derailments. In periods when these events occur, results of operations are not easily comparable to other periods. Also, much of the Company's growth to date has resulted from acquisitions. On April 15, 1999, the Company began consolidating the results of Genesee Rail-One Inc. (as described below), and on September 1, 1999, the Company began operations of its newly-formed subsidiary, Compania de Ferrocarriles Chiapas-Mayab, S.A. de C.V. as described below. Because of variations in the structure, timing and size of these acquisitions and differences in economics among the Company's railroads resulting from differences in the rates and other material terms established through negotiation, the Company's results of operations in any reporting period may not be directly comparable to its results of operations in other reporting periods. Westrail Freight On October 30, 2000, the Company announced that its newly-formed joint venture, Australian Railroad Group Pty. Ltd. (ARG), has signed an agreement with the government of Western Australia to purchase Westrail Freight for approximately $323 million including working capital and acquisition fees. The completion of the transaction is subject to customary closing conditions and is expected to close by the end of 2000. ARG is a joint venture owned 50% by GWI and 50% by Wesfarmers Limited, a public corporation based in Perth, Western Australia. 11 Westrail Freight is composed of the freight operations of the currently state-owned railroad of Western Australia. The railroad operates over 3,280 miles of standard and narrow gauge track and carries approximately 31 million tons of freight per year. To effect the acquisition, GWI will contribute its wholly-owned Australian operations, Australia Southern Railroad (ASR), to ARG along with GWI's interest in the Asia Pacific Transport Consortium (APTC) - a consortium selected to construct and operate the Alice Springs to Darwin railway line in the Northern Territory of Australia. ASR generated $42.3 million of revenue, $8.1 million of EBITDA, and $5.7 million of operating income during the twelve months ended June 30, 2000. Additionally, GWI will contribute $19 million of cash to ARG. GWI expects that its cash contribution will be partially funded with proceeds from the recently announced private placement of up to $25 million of Convertible Preferred Stock with the 1818 Fund of Brown Brothers Harriman & Co. It is expected that Wesfarmers Limited will contribute $62 million in cash to ARG for its 50% ownership. ARG has also received binding commitment letters for $249 million in acquisition debt and $65 million in construction and working capital facilities from Bank of America and the Australia and New Zealand Banking Group Limited (ANZ). A portion of these credit facilities will be used to refinance approximately $7 million of debt currently outstanding at ASR. GWI will account for its 50% ownership in ARG under the equity method of accounting and will therefore be deconsolidating ASR from its consolidated financial statements. GWI will recognize a one-time gain on its contribution of ASR to ARG. Contingent on the closing, the Company will also recognize a one-time expense to certain ASR employees from acceleration of vesting under the Genesee & Wyoming Australia Pty. Ltd. Executive Share Option Plan which was adopted on September 27, 2000. The liability will be settled in cash and no shares will be issued. Empresa Ferroviaria Oriental, S.A. On November 6, 2000, the Company announced that it had completed its investment in Empresa Ferroviaria Oriental, S.A. (the "Oriental"), a railroad serving eastern Bolivia and connecting to railroads in Argentina and Brazil. For the nine months ended September 30, 2000, Oriental reported revenue of $23.6 million, earnings before interest, taxes, depreciation and amortization of $12.3 million and net income of $6.2 million under local accounting standards. The investment provides GWI with an indirect 22.55% equity interest in the Oriental and was made through a 90% owned subsidiary, Genesee & Wyoming Bolivia SRL ("GWB"), which is 10% owned by UniRail, LLC. GWI's portion of the Oriental investment is composed of $6.66 million in cash, the assumption of non-recourse debt of $10.8 million at an interest rate of 7.67%, and a non-interest bearing contingent payment of $450,000 due in 3 years if Oriental achieves certain financial results. GWB will also be entitled to its portion of Oriental's annual cash dividend for the fiscal year ending December 31, 2000, which will be distributed early in 2001. GWB will account for its investment in Oriental under the equity method of accounting. Australia Favorable Income Tax Legislation In the third quarter of 1999, the Australian government enacted an income tax law that, for assets acquired from a tax-exempt entity, impacts the depreciable basis of those assets. The impact of the new law on the Company's Australian operation is that it will be able to deduct, for income tax purposes, depreciation in excess of the financial reporting basis of certain fixed assets acquired from the government in November 1997. However, management estimates that it is more likely than not that the Company will be unable to fully realize all of the potential income tax benefits and accordingly, has established a partial valuation allowance against the 12 deferred tax assets recorded pursuant to the tax law change. Accordingly, the net income tax benefit recorded in the 1999 third quarter as a result of this tax law change was $4.2 million. Management's assessment of the likelihood of realizing the full benefit of this incremental tax depreciation included a review of the Australian operation's forecasted results for the next several years which indicated that, with the additional tax depreciation deductions and other accelerated deductions for income tax purposes, this operation would not likely realize all of this tax benefit. Compania de Ferrocarriles Chiapas-Mayab, S.A. de C.V. In August 1999, the Company's wholly-owned subsidiary, Compania de Ferrocarriles Chiapas-Mayab, S.A. de C.V. (FCCM), was awarded a 30-year concession to operate certain railways owned by the state-owned Mexican rail company Ferronales. FCCM also acquired equipment and other assets. The aggregate purchase price, including acquisition costs, was approximately 297 million pesos, or approximately $31.5 million at then-current exchange rates. The purchase included $12.3 million of rolling stock, a $9.7 million advance payment on track improvements to be completed on the state-owned track property by February, 2001, a $1.0 million escrow payment which will be returned to the Company upon successful completion of the track improvements, an expected future utilization by the Company of $2.2 million of value-added taxes paid on the transaction, and $1.0 million in goodwill. The remaining purchase price ($5.3 million) was allocated to the 30-year operating license. Genesee Rail-One Inc. On April 15, 1999, the Company closed on an agreement to acquire Rail-One Inc. (Rail-One) which has a 47.5% ownership interest in Genesee Rail-One Inc. (GRO), thereby increasing the Company's ownership of GRO to 95%. GRO owns and operates two short line railroads in Canada. Under the terms of the purchase agreement, the Company converted outstanding notes receivable from Rail-One of $4.6 million into capital, has begun paying approximately $844,000 in cash to the sellers of Rail-One in installments over a four year period, and granted options to the sellers of Rail-One to purchase up to 80,000 shares of the Company's Class A Common Stock at an exercise price of $8.625 per share. Exercise of the options is contingent on the Company's recovery of its capital investment in GRO including debt assumed if the Company were to sell GRO, and upon certain GRO income performance measures. As of September 30, 2000, these options are not exercisable. Effective with this agreement, the operating results of GRO have been consolidated within the financial statements of the Company. During the second quarter of 2000, the Company purchased the remaining 5% minority interest in GRO with an initial cash payment of $240,000 and subsequent annual cash installments of $180,000 each due in 2001 and 2002. Prior to April 15, 1999, the Company accounted for its investment in GRO under the equity method. The remainder of this page is intentionally left blank. 13 Results of Operations Three Months Ended September 30, 2000 Compared to Three Months Ended September 30, 1999 Consolidated Operating Revenues Operating revenues were $50.1 million in the quarter ended September 30, 2000 compared to $45.1 million in the quarter ended September 30, 1999, a net increase of $5.0 million or 11.2%. The net increase was attributable to a $6.2 million increase in North American railroad revenues and a $192,000 increase in industrial switching revenues offset by a $1.4 million decrease in revenues from Australian railroad operations. The following three sections provide information on railroad revenues in North America and Australia, and industrial switching revenues in the United States. North American Railroad Operating Revenues North American railroad operating revenues were $37.9 million in the quarter ended September 30, 2000 compared to $31.7 million in the quarter ended September 30, 1999, a net increase of $6.2 million or 19.6% which consisted of $6.4 million attributable to a full quarter of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 quarter, offset by a decrease of $180,000 on existing railroad operations. Of the increase in operating revenues in Mexico, $5.5 million was attributable to freight revenues and $872,000 was attributable to non-freight revenues. The following table compares North American freight revenues, carloads and average freight revenues per carload for the quarters ended September 30, 2000 and 1999: The remainder of this page is intentionally left blank. 14 North American Freight Revenues and Carloads Comparison by Commodity Group Quarters Ended September 30, 2000 and 1999 (dollars in thousands, except average per carload)
Average Freight Revenues Per Freight Revenues Carloads Carload ---------------- -------- -------- Commodity Group % of % of % of % of - --------------- 2000 Total 1999 Total 2000 Total 1999 Total 2000 1999 ---- ----- ---- ----- ---- ----- ---- ----- ---- ---- Coal, Coke & Ores $6,275 20.6% $6,826 26.9% 28,242 31.0% 24,221 30.4% $222 $282 Pulp & Paper 4,876 16.0% 4,229 16.6% 12,792 14.1% 11,297 14.2% 381 374 Minerals & Stone 4,796 15.7% 2,164 8.5% 11,607 12.8% 7,334 9.2% 413 295 Petroleum Products 4,396 14.4% 2,384 9.4% 7,081 7.8% 4,849 6.1% 621 492 Metals 2,563 8.4% 2,316 9.1% 9,284 10.2% 8,493 10.7% 276 273 Chemicals & Plastics 2,119 6.9% 2,150 8.5% 4,067 4.5% 4,144 5.2% 521 519 Lumber & Forest Products 1,775 5.8% 2,328 9.2% 5,800 6.4% 8,029 10.1% 306 290 Farm & Food Products 1,770 5.8% 1,192 4.7% 5,220 5.7% 4,255 5.3% 339 280 Autos & Auto Parts 765 2.5% 436 1.7% 1,435 1.6% 825 1.0% 533 528 Other 1,172 3.9% 1,394 5.4% 5,445 5.9% 6,223 7.8% 215 224 ------------------------------------------------------------------------------------ Total $30,507 100.0% $25,419 100.0% 90,973 100.0% 79,670 100.0% 335 319 ====================================================================================
Coal, Coke and Ores decreased by $551,000 or 8.1% all of which was on existing railroad operations. The decrease on existing railroad operations was primarily attributable to freight rate reductions for a key customer's moves offset by freight revenues from two new customers. Minerals and Stone increased by $2.6 million or 121.6% due primarily to a full quarter of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 quarter. Petroleum Products increased by $2.0 million or 84.4% of which $1.7 million was attributable to a full quarter of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 quarter, and $264,000 was on existing railroad operations. Freight revenues from all remaining commodities reflected a net increase of $995,000 or 3.9% of which $1.2 million was attributable to a full quarter of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 quarter, offset by a $186,000 net decrease on existing railroad operations. Total North American carloads were 90,973 in the quarter ended September 30, 2000 compared to 79,670 in the quarter ended September 30, 1999, an increase of 11,303 or 14.2%. The increase of 11,303 consisted of 7,190 carloads attributable to a full quarter of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 quarter, and 4,113 carloads on existing railroad operations of which 4,020 carloads were coal. The overall average revenue per carload increased to $335 in the quarter ended September 30, 2000, compared to $319 per carload in the quarter ended September 30, 1999, an increase of 5.0% due primarily to higher per carload revenues attributable 15 to Mexico netted against a decrease on existing railroad operations. The decrease on existing operations is primarily attributable to lower per carload revenues from coal as described above. North American non-freight railroad revenues were $7.4 million in the quarter ended September 30, 2000 compared to $6.3 million in the quarter September 30, 1999, an increase of $1.1 million or 17.8%. The increase is attributable to $872,000 of non-freight revenues attributable to a full quarter of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 quarter, and $249,000 in non-freight revenues on existing railroad operations. The following table compares North America non-freight revenues for the quarters ended September 30, 2000 and 1999: North American Railroad Non-Freight Operating Revenue Comparison Quarters Ended September 30, 2000 and 1999 (dollars in thousands)
2000 1999 ---- ---- $ % of $ % of Non-Freight Non-Freight Revenue Revenue Railroad switching $2,708 36.5% $1,756 27.9% Car hire and rental income 2,021 27.3% 1,852 29.4% Car repair services 622 8.4% 549 8.7% Other operating income 2,060 27.8% 2,133 34.0% ------ ----- ------ ----- Total non-freight revenues $7,411 100.0% $6,290 100.0% ====== ===== ====== =====
Australian Operating Revenues Australian operating revenues were $9.5 million in the quarter ended September 30, 2000, compared to $10.9 million in the quarter ended September 30, 1999, a net decrease of $1.4 million or 12.6%. The net decrease was attributable to a $1.7 million decline in freight revenues offset by a $327,000 increase in non-freight revenues. The decrease in Australian operating revenues is primarily due to the depreciation of the Australian dollar against the U.S. dollar in the 2000 period compared to the 1999 period. The weighted average currency exchange rate in the quarter ended September 30, 2000 was $0.573 compared to $0.650 in the quarter ended September 30, 1999, a decrease of $0.077 or 11.8%. In Australian dollars, operating revenues decreased by less than 1.0%. The following table outlines Australian freight revenues for the quarters ended September 30, 2000 and 1999: The remainder of this page is intentionally left blank. 16 Australian Freight Revenues and Carloads Comparison by Commodity Group Quarters Ended September 30, 2000 and 1999 (dollars in thousands, except average per carload)
Average Freight Revenues Per Freight Revenues Carloads Carload ---------------- -------- ------- % of % of % of % of Commodity Group 2000 Total 1999 Total 2000 Total 1999 Total 2000 1999 --------------- ----------------------------------------------------------------------------------------------- Hook and Pull (Haulage) $3,763 46.2% $4,190 42.6% 13,404 22.7% 12,897 31.6% $281 $325 Grain 1,870 23.0% 3,714 37.8% 5,660 9.6% 12,549 30.7% 330 296 Iron Ores 1,000 12.3% - 0.0% 24,300 41.2% - 0.0% 41 - Gypsum 651 8.0% 890 9.0% 11,859 20.1% 11,882 29.1% 55 75 Marble 458 5.6% 543 5.5% 2,159 3.7% 2,214 5.4% 212 245 Lime 372 4.6% 497 5.1% 1,100 1.9% 1,333 3.2% 338 373 Other 26 0.3% 2 0.0% 438 0.8% - 0.0% 60 - ------------------------------------------------------------------------------- Total $8,140 100.0% $9,836 100.0% 58,920 100.0% 40,875 100.0% 138 241 ===============================================================================
The net decrease of $1.7 million in Australian freight revenues was primarily attributable to decreases in freight revenue from the shipment of Grain of $1.8 million and Hook and Pull of $427,000, offset by an increase of $1.0 million in freight revenue from the shipment of Iron Ores for a new customer. Grain revenues for the 1999 quarter reflect the strong harvest experienced during the 1998/99 season. Freight revenues from all remaining commodities decreased $425,000. Australia carloads were 58,920 in the quarter ended September 30, 2000 compared to 40,875 in the quarter ended September 30, 1999, a net increase of 18,045 or 44.1%. The net increase of 18,045 was primarily the result of 24,300 carloads from the shipment of Iron Ores for a new customer offset by a decrease in grain carloads of 6,889. The net remaining increase of 634 is comprised of a 507 carload increase in Hook and Pull and a net increase in the remaining commodities of 127 carloads. The overall average revenue per carload decreased to $138 in the quarter ended September 30, 2000, compared to $241 per carload in the quarter ended September 30, 1999, a decrease of 42.7% due primarily to the increase in Iron Ore carloads at a lower revenue per carload. Excluding Iron Ores, the average revenue per carload in the quarter ended September 30, 2000 was $206, a decrease of 14.5% due primarily to the depreciation of the Australian dollar against the U.S. dollar. Australian non-freight revenues were $1.4 million in the quarter ended September 30, 2000, compared to $1.0 million in the quarter ended September 30, 1999, an increase of $327,000 or 32.0 %. The following table compares Australian non-freight revenues for the quarters ended September 30, 2000 and 1999: The remainder of this page is intentionally left blank. 17 Australian Railroad Non-Freight Operating Revenue Comparison Quarters Ended September 30, 2000 and 1999 (dollars in thousands)
2000 1999 ---- ---- $ % of $ % of Non-freight Non-freight Revenue Revenue Car hire and rental income $ 587 43.5% $ 632 61.8% Other operating income 763 56.5% 391 38.2% ------ ----- ------ ----- Total non-freight revenues $1,350 100.0% $1,023 100.0% ====== ===== ====== =====
Industrial Switching Revenues Revenues from U.S. industrial switching activities were $2.7 million in the quarter ended September 30, 2000 compared to $2.5 million in the quarter ended September 30, 1999, an increase of $192,000 or 7.7% due primarily to several new switching contracts. Consolidated Operating Expenses Operating expenses for all operations combined were $43.4 million in the quarter ended September 30, 2000, compared to $38.7 million in the quarter ended September 30, 1999, a net increase of $4.7 million or 12.1%. Expenses attributable to North American railroad operations were $32.4 million in the quarter ended September 30, 2000, compared to $26.9 million in the quarter ended September 30, 1999, an increase of $5.5 million or 20.4% of which $4.0 million were expenses attributable to a full quarter of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 quarter, and $1.5 million were expenses attributable to existing railroad operations. Expenses attributable to operations in Australia were $8.4 million in the quarter ended September 30, 2000, compared to $9.2 million in the quarter ended September 30, 1999, a decrease of $817,000 or 8.9%. Expenses attributable to U.S. industrial switching were $2.6 million in both quarters. The following three sections provide information on railroad expenses in North America and Australia, and industrial switching expenses in the United States. North American Railroad Operating Expenses The following table sets forth a comparison of the Company's North American railroad operating expenses in the quarters ended September 30, 2000 and 1999: The remainder of this page is intentionally left blank. 18 North American Railroad Operating Expense Comparison Quarters Ended September 30, 2000 and 1999 (dollars in thousands)
2000 1999 ---- ---- % of % of Operating Operating $ Revenue $ Revenue Labor and benefits $12,605 33.2% $ 9,674 30.5% Equipment rents 4,767 12.6% 3,685 11.6% Purchased services 2,689 7.1% 2,258 7.1% Depreciation and amortization 3,083 8.1% 2,316 7.3% Diesel fuel 2,830 7.5% 1,553 4.9% Casualties and insurance 1,547 4.1% 949 3.0% Materials 2,547 6.7% 2,055 6.5% Other expenses 2,377 6.3% 4,459 14.1% ------- ------- ------- ------- Total operating expenses $32,445 85.6% $26,949 85.0% ======= ======= ======= =======
Labor and benefits expense was $12.6 million in the quarter ended September 30, 2000 compared to $9.7 million in the quarter ended September 30, 1999, an increase of $2.9 million or 30.3% of which $1.5 million was attributable to a full quarter of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 quarter, and $1.4 million was attributable to existing railroad operations. Equipment rents were $4.8 million in the quarter ended September 30, 2000 compared to $3.7 million in the quarter ended September 30, 1999, an increase of $1.1 million or 29.4% of which $905,000 was attributable to existing railroad operations and $177,000 was attributable to a full quarter of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 quarter. Diesel fuel expense was $2.8 million in the quarter ended September 30, 2000 compared to $1.5 million in the quarter ended September 30, 1999, an increase of $1.3 million or 82.2% of which $697,000 was attributable to a full quarter of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 quarter, and $580,000 was attributable to an increase on existing railroad operations. The increase on existing railroad operations is primarily the result of significant fuel price increases experienced at all operating locations. All other expenses combined were $12.2 million in the quarter ended September 30, 2000 compared to $12.0 million in the quarter ended September 30, 1999, a net increase of $206,000 or 1.7% which consisted of $1.7 million attributable to a full quarter of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 quarter, offset by a decrease of $1.5 million attributable to existing railroad operations. 19 Australian Railroad Operating Expenses Expenses attributable to operations in Australia were $8.4 million in the quarter ended September 30, 2000, compared to $9.2 million in the quarter ended September 30, 1999, a decrease of $817,000 or 8.9%. The decrease in Australian operating expense is primarily due to the depreciation of the Australian dollar against the U.S. dollar in the 2000 period compared to the 1999 period. The weighted average currency exchange rate in the quarter ended September 30, 2000 was $0.573 compared to $0.650 in the quarter ended September 30, 1999, a decrease of $0.077 or 11.8%. In Australian dollars, operating expense increased by approximately 3.1%. The following table sets forth a comparison of the Company's Australian railroad operating expenses in the quarters ended September 30, 2000 and 1999: Australian Railroad Operations Operating Expense Comparison Quarters Ended September 30, 2000 and 1999 (dollars in thousands)
2000 1999 ---- ---- % of % of Operating Operating $ Revenue $ Revenue Labor and benefits $ 1,307 13.8% $ 1,473 13.6% Equipment rents 54 0.6% 139 1.3% Purchased services 3,187 33.6% 3,003 27.7% Depreciation and amortization 586 6.2% 554 5.1% Diesel fuel 1,330 14.0% 2,021 18.6% Casualties and insurance 302 3.2% 302 2.8% Materials 451 4.7% 449 4.1% Other expenses 1,163 12.2% 1,256 11.5% ------- ------- ------- ------- Total operating expenses $ 8,380 88.3% $ 9,197 84.7% ======= ======= ======= =======
Diesel fuel was $1.3 million in the quarter ended September 30, 2000 compared to $2.0 million in the quarter ended September 30, 1999, a decrease of $691,000 or 34.2%, due primarily to fuel tax decreases in Australia which became effective on July 1, 2000. All other expenses combined were $7.1 million in the quarter ended September 30, 2000 compared to $7.2 million in the quarter ended September 30, 1999, a decrease of $126,000 or 1.8%. U. S. Industrial Switching Operating Expenses The following table sets forth a comparison of the Company's U.S. industrial switching operating expenses in the quarters ended September 30, 2000 and 1999: The remainder of this page is intentionally left blank. 20 U.S. Industrial Switching Operating Expense Comparison Quarters Ended September 30, 2000 and 1999 (dollars in thousands)
2000 1999 ---- ---- % of % of Operating Operating $ Revenue $ Revenue Labor and benefits $ 1,621 60.3% $ 1,898 76.1% Equipment rents 79 2.9% 45 1.8% Purchased services 87 3.2% 154 6.2% Depreciation and amortization 174 6.5% 170 6.8% Diesel fuel 117 4.4% 95 3.8% Casualties and insurance 105 3.9% 98 3.9% Materials 167 6.2% 139 5.6% Other expenses 239 9.0% (33) -1.4% ------- ---- ------- ----- Total operating expenses $ 2,589 96.4% $ 2,566 102.8% ======= ==== ======= =====
U.S. industrial switching operating expenses were $2.6 million in the quarters ended September 30, 2000 and 1999, respectively. Operating Ratios The Company's combined operating ratio increased to 86.7% in the quarter ended September 30, 2000 from 85.9% in the quarter ended September 30, 1999. The operating ratio for North American railroad operations increased to 85.6% in the quarter ended September 30, 2000 from 85.0% in the quarter ended September 30, 1999. The operating ratio for Australian railroad operations increased to 88.3% in the quarter ended September 30, 2000 from 84.7% in the quarter ended September 30, 1999. The operating ratio for U.S. industrial switching operations decreased to 96.4% in the quarter ended September 30, 2000 from 102.8% in the quarter ended September 30, 1999. Other Income, Net Other income, net in the three months ended September 30, 2000 was $1.3 million compared to $301,000 in the three months ended September 30, 1999, an increase of $1.0 million. Other Income, net in the three months ended September 30, 2000 consists primarily of interest income of $610,000 and income from the reversal of stale liabilities of $690,000. Other Income, net in the three months ended September 30, 1999, consisted primarily of interest income of $174,000 and gains on asset sales of $112,000. The increase in interest income in the three months ended September 30, 2000 is primarily due to a full quarter of earnings on FCCM's Special Track Project deposit versus only one month in the three months ended September 30, 1999. Interest Expense and Income Taxes Interest expense in the quarter ended September 30, 2000 was $2.7 million compared to $2.3 million in the quarter ended September 30, 1999, an increase of $427,000 or 18.7% due primarily to financing of the FCCM acquisition for a full quarter in 2000 compared to one and one-half months in the 1999 quarter. The Company's effective 21 income tax rate in the quarter ended September 30, 2000 was 40.0% which compared to 43% in the 1999 quarter before the effect of the $4.2 million benefit provision from the favorable tax law change in Australia. Net Income and Earnings Per Share The Company's net income in the quarter ended September 30, 2000 was $3.2 million compared to net income of $6.7 million (including $4.2 million of Australia income tax benefit) in the quarter ended September 30, 1999, a decrease of $3.5 million. The decrease in net income is the net result of an increase in net income from operations in North America railroad operations of $7.9 million and a decrease in the net loss of industrial switching operations of $124,000, offset by a decrease in net income from operations in Australia of $4.5 million (including the $4.2 million income tax benefit). Basic and Diluted Earnings Per Share in the quarter ended September 30, 2000 were $0.74 and $0.72, respectively, on weighted average shares of 4.3 million and 4.4 million, respectively, compared to earnings of $1.56 and $1.53, respectively, on weighted average shares of 4.3 million and 4.4 million, respectively, in the quarter ended September 30, 1999. Nine months Ended September 30, 2000 Compared to Nine months Ended September 30, 1999 Consolidated Operating Revenues Operating revenues were $157.9 million in the nine months ended September 30, 2000 compared to $121.9 million in the nine months ended September 30, 1999, a net increase of $36.0 million or 29.5%. The net increase was attributable to a $39.2 million increase in North American railroad revenues of which $22.6 million was attributable to a full nine months of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 period, $8.8 million was from the acquisition of GRO, and $7.8 million was on existing North American operations; offset by a $2.2 million decrease in revenues from Australian railroad operations and a $987,000 decrease in industrial switching revenues. The following three sections provide information on railroad revenues in North America and Australia, and industrial switching revenues in the United States. North American Railroad Operating Revenues North American railroad operating revenues were $119.9 million in the nine months ended September 30, 2000 compared to $80.7 million in the nine months ended September 30, 1999, an increase of $39.2 million or 48.9%. The increase was attributable to a $32.7 million increase in freight revenues and a $6.5 million increase in non-freight revenues. The increase of $32.7 million in North American freight revenues was due to $19.9 million in freight attributable to a full nine months of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 period, $7.1 million from the acquisition of GRO, and 5.7 million was on existing North American operations. The following table compares North American freight revenues, carloads and average freight revenues per carload for the nine months ended September 30, 2000 and 1999: 22 North American Freight Revenues and Carloads Comparison by Commodity Group Nine months Ended September 30, 2000 and 1999 (dollars in thousands, except average per carload)
Average Freight Revenues Per Freight Revenues Carloads Carload ---------------- -------- ------- Commodity Group % of % of % of % of - --------------- 2000 Total 1999 Total 2000 Total 1999 Total 2000 1999 ---- ----- ---- ----- ---- ----- ---- ----- ---- ---- Coal, Coke & Ores $19,658 20.5% $16,414 26.0% 87,344 31.0% 60,641 30.1% $225 $271 Pulp & Paper 14,740 15.4% 10,223 16.2% 38,496 13.6% 27,398 13.6% 383 373 Petroleum Products 14,122 14.7% 6,277 9.9% 23,419 8.3% 13,525 6.7% 603 464 Minerals & Stone 13,598 14.2% 3,925 6.2% 31,523 11.2% 14,892 7.4% 431 264 Metals 7,836 8.2% 5,705 9.0% 28,365 10.1% 21,330 10.6% 276 267 Farm & Food Products 6,878 7.2% 3,351 5.3% 19,639 7.0% 11,977 5.9% 350 280 Chemicals & Plastics 6,753 7.0% 6,200 9.8% 13,024 4.6% 12,123 6.0% 519 511 Lumber & Forest Products 6,173 6.4% 6,218 9.8% 20,124 7.1% 20,949 10.4% 307 297 Autos & Auto Parts 2,374 2.5% 1,687 2.7% 4,369 1.5% 3,286 1.6% 543 513 Other 3,697 3.9% 3,132 5.1% 15,907 5.6% 15,613 7.7% 232 201 ---------------------------------------------------------------------------------- Total $95,829 100.0% $63,132 100.0% 282,210 100.0% 201,734 100.0% 340 313 ==================================================================================
Revenues from hauling Coal increased by $3.2 million or 19.8% all of which was from existing railroad operations except for $63,000 which was from the acquisition of GRO. The increase on existing railroad operations was primarily attributable to freight revenues for two new customers in the 2000 period, and a return to normalized shipments at an existing key customer's facilities compared to reduced shipments in the first nine months of 1999 due to scheduled inventory reductions and planned maintenance projects at the key customer's facilities. The average revenue per carload for coal decreased by 17.0% due to lower revenue per carload for the new customers, and freight rate reductions on the normalized shipments at the key customer's facilities. Pulp and Paper freight revenues increased by $4.5 million or 44.2% of which $2.2 million was from the acquisition of GRO, $2.0 million was on existing railroad operations, and $282,000 was attributable to a full nine months of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 period. The increase on existing railroad operations consisted primarily of increases in Canada (in the second and third quarters), Oregon and New York-Pennsylvania resulting from a stronger paper market in 2000 than in 1999. Petroleum Products freight revenues increased by $7.9 million or 125.0% of which $7.2 million was attributable to a full nine months of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 period, $621,000 was on existing railroad operations, and $63,000 was from the acquisition of GRO. Minerals and Stone freight revenues increased by $9.7 million or 246.4% of which $8.5 million was attributable to a full nine months of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 period, $832,000 was on existing railroad operations, and $391,000 was from the acquisition of GRO. Metals freight revenues increased by $2.1 million or 37.4% of which $1.2 million was from the acquisition of GRO, $780,000 was on existing railroad operations, and 23 $127,000 was attributable to a full nine months of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 period. Farm and Food Products freight revenues increased by $3.5 million or 105.3% of which $2.0 million was attributable to a full nine months of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 period, $1.5 million was from the acquisition of GRO, and $23,000 was on existing railroad operations. Freight revenues from all remaining commodities reflected a net increase of $1.8 million or 10.2% of which $1.9 million was attributable to a full nine months of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 period and $1.6 million was from the acquisition of GRO, offset by a $1.7 million decrease on existing railroad operations. Total North American carloads were 282,210 in the nine months ended September 30, 2000 compared to 201,734 in the nine months ended September 30, 1999, an increase of 80,476 or 40.0%. The increase of 80,476 consisted of an increase of 39,229 carloads on existing railroad operations of which 26,471 carloads were coal, 21,322 carloads were attributable to the acquisition of GRO, and 19,925 carloads were attributable to a full nine months of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 period. The overall average revenue per carload increased to $340 in the nine months ended September 30, 2000, compared to $313 per carload in the nine months ended September 30, 1999, an increase of 8.6% due primarily to higher per carload revenues attributable to Mexico netted against a decrease on existing railroad operations. North American non-freight railroad revenues were $24.1 million in the nine months ended September 30, 2000 compared to $17.6 million in the nine months September 30, 1999, an increase of $6.5 million or 37.1%. The increase is the result of $2.7 million of non-freight revenues attributable to a full nine months of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 period, an increase of $2.1 million in non-freight revenues on existing railroad operations, and $1.7 million of non-freight revenues attributable to the acquisition of GRO. The following table compares North America non-freight revenues for the nine months ended September 30, 2000 and 1999: North American Railroad Non-Freight Operating Revenue Comparison Nine months Ended September 30, 2000 and 1999 (dollars in thousands)
2000 1999 ---- ---- $ % of $ % of Non-Freight Non-Freight Revenue Revenue Railroad switching $ 8,142 33.8% $ 4,988 28.4% Car hire and rental income 6,132 25.5% 5,691 32.4% Car repair services 2,339 9.7% 1,678 9.6% Other operating income 7,467 31.0% 5,213 29.6% ------- ----- ------- ----- Total non-freight revenues $24,080 100.0% $17,570 100.0% ======= ===== ======= =====
24 Australian Operating Revenues Australian operating revenues were $30.2 million in the nine months ended September 30, 2000, compared to $32.4 million in the nine months ended September 30, 1999, a decrease of $2.2 million or 7.0%. The decrease was attributable to a $2.4 million decline in freight revenues offset by a $126,000 increase in non- freight revenues. The decrease in Australian operating revenues is primarily due to the depreciation of the Australian dollar against the U.S. dollar in the 2000 period compared to the 1999 period. The weighted average currency exchange rate in the nine months ended September 30, 2000 was $0.5985 compared to $0.6458 in the nine months ended September 30, 1999, a decrease of $0.0473 or 7.3%. In Australian dollars, operating revenues increased by approximately 0.1%. The following table outlines Australian freight revenues for the nine months ended September 30, 2000 and 1999: Australian Freight Revenues and Carloads Comparison by Commodity Group Nine months Ended September 30, 2000 and 1999 (dollars in thousands, except average per carload)
Average Freight Revenues Per Freight Revenues Carloads Carload ---------------- -------- ------- Commodity Group % of % of % of % of --------------- 2000 Total 1999 Total 2000 Total 1999 Total 2000 1999 ------------------------------------------------------------------------------------------------- Hook and Pull (Haulage) $12,611 47.1% $13,446 46.1% 40,867 22.0% 39,908 33.1% $309 $337 Grain 6,339 23.7% 10,218 35.0% 23,965 12.9% 37,307 31.0% 265 274 Iron Ores 3,033 11.3% - 0.0% 77,053 41.5% - 0.0% 39 - Gypsum 2,132 8.0% 2,199 7.5% 32,935 17.7% 29,531 24.5% 65 74 Marble 1,419 5.3% 1,502 5.2% 6,319 3.4% 6,151 5.1% 225 244 Lime 1,158 4.3% 1,120 3.8% 3,249 1.8% 3,201 2.7% 356 350 Coal - 0.0% 664 2.3% - 0.0% 4,317 3.6% - 154 Other 75 0.3% 9 0.1% 1,214 0.7% 12 0.0% 62 750 ------------------------------------------------------------------------------- Total $26,767 100.0% $29,158 100.0% 185,602 100.0% 120,427 100.0% 144 242 ===============================================================================
The net decrease of $2.4 million in Australian freight revenues was primarily attributable to decreases in revenues from Grain of $3.9 million, Hook and Pull of $835,000, and Coal of $664,000, and a decrease from all remaining commodities of $46,000, offset by an increase of $3.0 million from the shipment of Iron Ores for a new customer. Grain revenues for the nine months of 1999 reflect the strong harvest experienced during the 1998/99 season. There were no freight revenues from coal in the nine months ended September 30, 2000, due to the non- renewal of a coal contract. Australia carloads were 185,602 in the nine months ended September 30, 2000 compared to 120,427 in the nine months ended September 30, 1999, a net increase of 65,175 or 54.1%. The net increase of 65,175 was primarily the result of 77,053 carloads from the shipment of Iron Ores for a new customer and an increase in carloads from Gypsum of 3,404, offset by decreases in carloads from Grain and Coal 25 of 13,342 and 4,317, respectively. The net remaining increase from all other commodities was 2,377 carloads. The overall average revenue per carload decreased to $144 in the nine months ended September 30, 2000, compared to $242 per carload in the nine months ended September 30, 1999, a decrease of 40.5% due primarily to the increase in Iron Ores carloads at a lower revenue per carload. Excluding Iron Ores, the average revenue per carload in the nine months ended September 30, 2000 was $219, a decrease of 9.5% due primarily to the depreciation of the Australian dollar against the U.S. dollar. Australian non-freight revenues were $3.4 million in the nine months ended September 30, 2000, compared to $3.3 million in the nine months ended September 30, 1999, an increase of $126,000 or 3.8%. The following table compares Australian non-freight revenues for the nine months ended September 30, 2000 and 1999: Australian Railroad Non-freight Operating Revenue Comparison Nine months Ended September 30, 2000 and 1999 (dollars in thousands)
2000 1999 ---- ---- $ % of $ % of Non-freight Non-freight Revenue Revenue Car hire and rental income $1,821 53.4% $2,048 62.4% Other operating income 1,587 46.6% 1,234 37.6% ------ ----- ------ ----- Total non-freight revenues $3,408 100.0% $3,282 100.0% ====== ===== ====== =====
Industrial Switching Revenues Revenues from U.S. industrial switching activities were $7.8 million in the nine months ended September 30, 2000 compared to $8.8 million in the nine months ended September 30, 1999, a decrease of $1.0 million or 11.3% due primarily to the Company's decision to exit an unprofitable switching contract in May, 1999. Consolidated Operating Expenses Operating expenses for all operations combined were $135.1 million in the nine months ended September 30, 2000, compared to $107.8 million in the nine months ended September 30, 1999, a net increase of $27.3 million or 25.3%. Expenses attributable to North American railroad operations were $100.8 million in the nine months ended September 30, 2000, compared to $71.2 million in the nine months ended September 30, 1999, an increase of $29.6 million or 41.5% of which $17.0 million were expenses attributable to a full nine months of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 period, $7.6 million were expenses attributable to the acquisition of GRO, and $5.0 million were expenses attributable to existing railroad operations. Expenses attributable to operations in Australia were $26.8 million in the nine months ended September 30, 2000, compared to $27.7 million in the nine months ended September 30, 1999, a decrease of $895,000 or 3.2%. Expenses attributable to U.S. industrial switching were $7.5 million in the nine months ended September 30, 2000, compared to $8.9 million in the nine months ended September 30, 1999, a decrease of $1.4 million or 15.5%. 26 The following three sections provide information on railroad expenses in North America and Australia, and industrial switching expenses in the United States. North American Railroad Operating Expenses The following table sets forth a comparison of the Company's North American railroad operating expenses in the nine months ended September 30, 2000 and 1999: North American Railroad Operating Expense Comparison Nine months Ended September 30, 2000 and 1999 (dollars in thousands)
2000 1999 ---- ---- % of % of Operating Operating $ Revenue $ Revenue Labor and benefits $ 40,528 33.8% $ 26,815 33.2% Equipment rents 14,641 12.2% 10,046 12.4% Purchased services 8,356 7.0% 4,960 6.1% Depreciation and amortization 8,216 6.9% 6,706 8.3% Diesel fuel 9,056 7.6% 3,603 4.5% Casualties and insurance 4,705 3.9% 2,734 3.4% Materials 8,043 6.7% 5,136 6.4% Other expenses 7,204 5.9% 11,189 13.9% --------- -------- -------- ------- Total operating expenses $ 100,749 84.0% $ 71,189 88.2% ========= ======== ======== =======
Labor and benefits expense was $40.5 million in the nine months ended September 30, 2000 compared to $26.8 million in the nine months ended September 30, 1999, an increase of $13.7 million or 51.1% of which $7.0 million was attributable to a full nine months of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 period, $4.7 million was attributable to existing railroad operations, and $2.0 million was attributable to the acquisition of GRO. The increase on existing railroad operations relates primarily to increased freight operations and the addition of senior administrative and safety personnel. Equipment rents were $14.6 million in the nine months ended September 30, 2000 compared to $10.0 million in the nine months ended September 30, 1999, an increase of $4.6 million or 45.7% of which $2.4 million was attributable to existing railroad operations, $1.7 million was attributable to the acquisition of GRO, and $426,000 was attributable to a full nine months of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 period. Purchased services were $8.4 million in the nine months ended September 30, 2000 compared to $5.0 million in the nine months ended September 30, 1999, an increase of $3.4 million or 68.5% of which $2.0 million was attributable to a full nine months of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 period, $987,000 was attributable to the acquisition of GRO, and $453,000 was attributable to existing railroad operations. Diesel fuel expense was $9.1 million in the nine months ended September 30, 2000 compared to $3.6 million in the nine months ended September 30, 1999, an increase of $5.5 million or 151.3% of which $2.1 million was attributable to a full nine months 27 of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 period, $2.3 million was attributable to an increase on existing railroad operations, and $1.1 million was attributable to the acquisition of GRO. The increase on existing railroad operations is primarily the result of significant fuel price increases experienced at all operating locations. All other expenses combined were $28.2 million in the nine months ended September 30, 2000 compared to $25.8 million in the nine months ended September 30, 1999, a net increase of $2.4 million or 9.3% of which $5.5 million was attributable to a full nine months of railroad operations in Mexico compared to one month of railroad operations in Mexico in the 1999 period and $1.7 million was attributable to the acquisition of GRO, offset by a $4.8 million decrease on existing railroad operations in the 2000 period. Australian Railroad Operating Expenses Expenses attributable to operations in Australia were $26.8 million in the nine months ended September 30, 2000, compared to $27.7 million in the nine months ended September 30, 1999, a decrease of $895,000 or 3.2%. The decrease in Australian operating expense is primarily due to the depreciation of the Australian dollar against the U.S. dollar in the 2000 period compared to the 1999 period. The weighted average currency exchange rate in the nine months ended September 30, 2000 was $0.5985 compared to $0.6458 in the nine ended September 30, 1999, a decrease of $0.0473 or 7.3%. In Australian dollars, operating expense increased by approximately 4.4%. The following table sets forth a comparison of the Company's Australian railroad operating expenses in the nine months ended September 30, 2000 and 1999: Australian Railroad Operations Operating Expense Comparison Nine months Ended September 30, 2000 and 1999 (dollars in thousands)
2000 1999 ---- ---- % of % of Operating Operating $ Revenue $ Revenue Labor and benefits $ 4,126 13.7% $ 4,282 13.2% Equipment rents 154 0.5% 236 0.7% Purchased services 9,612 31.9% 8,927 27.5% Depreciation and amortization 1,774 5.9% 1,583 4.9% Diesel fuel 5,700 18.9% 5,980 18.4% Casualties and insurance 1,107 3.7% 1,551 4.8% Materials 1,139 3.7% 1,308 4.0% Other expenses 3,186 10.5% 3,826 11.9% --------- ------ --------- ------ Total operating expenses $ 26,798 88.8% $ 27,693 85.4% ========= ====== ========= ======
Purchased services were $9.6 million in the nine months ended September 30, 2000 compared to $8.9 million in the nine months ended September 30, 1999, an increase of $685,000 or 7.7%, due primarily to increased contract maintenance costs associated with new Iron Ore movements. 28 All other expenses combined were $17.2 million in the nine months ended September 30, 2000 compared to $18.8 million in the nine months ended September 30, 1999, a decrease of $1.6 million or 8.4% due primarily to decreases in casualties and insurance of $444,000, diesel fuel of $280,000 due to fuel tax decreases, and a net decrease in all other expenses of $856,000. U. S. Industrial Switching Operating Expenses The following table sets forth a comparison of the Company's U.S. industrial switching operating expenses in the nine months ended September 30, 2000 and 1999: U.S. Industrial Switching Operating Expense Comparison Nine months Ended September 30, 2000 and 1999 (dollars in thousands)
2000 1999 ---- ---- % of % of Operating Operating $ Revenue $ Revenue Labor and benefits $ 4,674 60.1% $ 6,341 72.4% Equipment rents 170 2.2% 138 1.6% Purchased services 235 3.0% 372 4.2% Depreciation and amortization 493 6.3% 598 6.8% Diesel fuel 399 5.1% 315 3.6% Casualties and insurance 358 4.6% 757 8.6% Materials 492 6.3% 573 6.5% Other expenses 707 9.2% (183) -2.1% --------- ------ --------- ------- Total operating expenses $ 7,528 96.8% $ 8,911 101.6% ========= ====== ========= =======
Labor and benefits expense was $4.7 million in the nine months ended September 30, 2000 compared to $6.3 million in the nine months ended September 30, 1999, a decrease of $1.6 million or 26.3%, due primarily to the Company's decision to exit an unprofitable switching contract in May 1999. All other expenses combined were $2.9 million in the nine months ended September 30, 2000 compared to $2.6 million in the nine months ended September 30, 1999, an increase of $284,000 or 11.1%. Operating Ratios The Company's combined operating ratio decreased to 85.6% in the nine months ended September 30, 2000 from 88.4% in the nine months ended September 30, 1999. The operating ratio for North American railroad operations decreased to 84.0% in the nine months ended September 30, 2000 from 88.2% in the nine months ended September 30, 1999. The operating ratio for Australian railroad operations increased to 88.8% in the nine months ended September 30, 2000 from 85.4% in the nine months ended September 30, 1999. The operating ratio for U.S. industrial switching operations decreased to 96.8% in the nine months ended September 30, 2000 from 101.6% in the nine months ended September 30, 1999. 29 Valuation Adjustment of U.S. Dollar Denominated Foreign Debt Amounts outstanding under the Company's credit facilities which were borrowed by FCCM represented U.S. dollar denominated foreign debt of the Company's Mexican subsidiary. As the Mexican peso moved against the U.S. dollar, the revaluation of this outstanding debt to its Mexican peso equivalent resulted in non-cash gains and losses which totaled a loss of $1.5 million in the nine months ended September 30, 2000. On June 16, 2000, pursuant to a corporate and financial restructuring of the Company's Mexican subsidiaries and a further amendment to the credit facilities, the income statement impact of the U.S. dollar denominated foreign debt revaluation was significantly reduced. Other Income, Net Other income, net in the nine months ended September 30, 2000 was $2.6 million compared to $84,000 in the nine months ended September 30, 1999, an increase of $2.5 million. Other income, net in the nine months ended September 30, 2000 consists primarily of interest income of $1.8 million and income from the reversal of stale liabilities of $690,000. Other income, net in the nine months ended September 30, 1999, consisted of interest income of $479,000 and gains on asset sales of $198,000, offset by equity losses of unconsolidated affiliates, primarily GRO, of $593,000. The increase in interest income in the nine months ended September 30, 2000 is primarily due to a full nine months of earnings on FCCM's Special Track Project deposit versus only one month in 1999. Interest Expense and Income Taxes Interest expense in the nine months ended September 30, 2000 was $8.0 million compared to $5.6 million in the nine months ended September 30, 1999, an increase of $2.4 million or 42.4% due primarily to financing of the GRO and FCCM acquisitions. The Company's effective income tax rate in the nine months ended September 30, 2000 was 37.9% which compared to 42.9% in the nine months ended September 30, 1999 before the effect of the $4.2 million benefit provision from the favorable Australia tax law change. Net Income and Earnings Per Share The Company's net income in the nine months ended September 30, 2000 was $9.9 million compared to net income of $9.1 million in the nine months ended September 30, 1999, an increase of $777,000. The increase in net income is the net result of an increase in net income from North America railroad operations of $5.4 million and a decrease in the net loss from industrial switching operations of $373,000, offset by a decrease in net income from operations in Australia of $5.0 million (including the $4.2 million income tax benefit). The net income from North America railroad operations of $5.4 million includes approximately $985,000 of the after-tax effect of the non-cash loss from the depreciation of the Mexican peso. Basic and Diluted Earnings Per Share in the nine months ended September 30, 2000 were $2.28 and $2.24, respectively, on weighted average shares of 4.3 million and 4.4 million, respectively, compared to earnings of $2.00 and $1.98, respectively, on weighted average shares of 4.5 million and 4.6 million, respectively, in the nine months ended September 30, 1999. The change in weighted average shares outstanding primarily reflects the impact of a 1.0 million share buy-back program which ended in May, 1999. 30 Liquidity and Capital Resources During the nine months ended September 30, 2000, the Company generated cash from operations of $17.7 million, invested $26.3 million in capital assets (including $8.3 million in state grant funds received for track rehabilitation and construction), had a net increase in outstanding debt of $1.6 million, and received $275,000 in proceeds from the disposition of property. During the nine months ended September 30, 1999 the Company generated cash from operations of $20.3 million, invested $21.8 million in capital assets (including $5.9 million in state grant funds received for track rehabilitation and construction), received cash of $57,000 in the purchase of Rail-One Inc. less cash paid for common stock, invested $30.5 million for the purchase of assets of the Chiapas-Mayab railway concession, equipment property and other assets from the state-owned rail company Ferronales, had a net increase in outstanding debt of $59.7 million of which $24.7 million was assumed in the acquisition of GRO, and received $298,000 in proceeds from the disposition of property. Convertible Preferred Stock - On October 19, 2000, the Company signed an agreement to receive up to $25 million from the 1818 Fund III, L.P. (the "Fund") managed by Brown Brothers Harriman & Co., in exchange for the issuance to the fund of the Company's Convertible Preferred Stock (the "Convertible Preferred"). The Company will initially receive a $10.0 million investment from the Fund and will also have the option through January 15, 2001 to issue the Fund up to an additional $15 million of Convertible Preferred, in $5 million increments, to fund acquisition opportunities worldwide. If the Company does not exercise the option in its entirety, the Fund will receive an option to invest an additional $10.0 million provided that GWI completes acquisitions with an aggregate purchase price greater than $25 million. The maximum total investment by the Fund will be limited to $25 million. The sale of the Convertible Preferred will be subject to customary closing conditions. When issued, the Convertible Preferred will have a conversion price of $23.00 per share, a cash coupon of 4.0%, will be callable by GWI in four years, and will be mandatorily redeemable in eight years. It is anticipated that the proceeds will be used to fund an expected acquisition in Western Australia. Credit Facilities - On August 17, 1999, the Company amended and restated its credit facilities agreement (the Agreement) to provide for an increase in borrowings from $65.0 million to $150.0 million. The Agreement provides for $88.0 million in revolving credit facilities, including $15.0 million in Australian dollar equivalents to be allocated to the Australian subsidiaries, and $62.0 million in term loan facilities. The term loan facilities include a U.S. Term Loan facility in the amount of $10.0 million, a Canadian Term Loan facility in the Canadian Dollar Equivalent of $22.0 million, and a Mexican Term Loan facility of $30.0 million. The Agreement has a maturity date of August 17, 2004, provides for interest at various rates, plus the applicable margins, as defined in the Agreement and is secured by substantially all the assets of the Company and its subsidiaries. The Agreement requires certain commitment fees, prepayments from the issuance of new equity or debt and annual sale of assets, and covenant ratios or amounts, including, but not limited to, funded debt to EBITDA, minimum EBITDA for a period, cash flow coverage, and Net Worth, all as defined in the Agreement. Amounts outstanding under the Agreement which were borrowed by FCCM represented U.S. dollar denominated foreign debt of the Company's Mexican subsidiary. As the Mexican peso moved against the U.S. dollar, the revaluation of this outstanding debt to its Mexican peso equivalent resulted in non-cash gains and losses as reflected in the accompanying statements of income. On June 16, 2000, pursuant to a corporate 31 and financial restructuring of the Company's Mexican subsidiaries and a further amendment to the Agreement, the income statement impact of the U.S. dollar denominated foreign debt revaluation was significantly reduced. Stock Repurchase - On August 12, 1998, the Company's board of directors authorized the Company to repurchase up to one million shares of the Company's Class A common stock under SEC Rule 10b-18. In May, 1999, the Company completed its purchase of the one million shares authorized by the board of directors at a total cost of $11.0 million. The Company has budgeted approximately $38.7 million in capital expenditures in 2000, primarily for track rehabilitation, of which $7.7 million is expected to be used in Australia. Of the $38.7 million in capital expenditures, $12.8 million is expected to be funded by rehabilitation grants from state and federal agencies to several of the Company's railroads. Approximately $26.3 million of the budgeted capital expenditures of $38.7 million were completed as of September 30, 2000, and $8.3 million of the expected $12.8 million of government grants has been received. At September 30, 2000, the Company had long-term debt (including current portion) totaling $108.6 million, which comprised 55.3% of its total capitalization. This compares to long-term debt, including current portion, of $108.4 million at December 31, 1999, comprising 57.0% of total capitalization. The Company has historically relied primarily on cash generated from operations to fund working capital and capital expenditures relating to ongoing operations, while relying on borrowed funds to finance acquisitions and equipment needs (primarily rolling stock) related to acquisitions. The Company believes that its cash flow from operations together with amounts available under its credit facilities will enable the Company to meet its liquidity and capital expenditure requirements relating to ongoing operations for at least the duration of its credit facilities. Forward-Looking Statements This Report and the documents incorporated herein by reference may contain forward-looking statements based on current expectations, estimates and projections about the Company's industry, management's beliefs, and assumptions made by management. Words such as "anticipates," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are no guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to forecast. Therefore, actual results may differ materially from those expressed or forecast in any such forward-looking statements. Such risks and uncertainties include, in addition to those set forth in this Item 2, those noted in the documents incorporated by reference. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. The remainder of this page is intentionally left blank. 32 Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Company is exposed to the impact of interest rate changes. The Company's exposure to changes in interest rates applies to its borrowings under its credit facilities which have variable interest rates depending on the country in which the funds are drawn, plus the applicable margin, which varies from 1.75% to 2.5% depending upon the country in which the funds are drawn and the Company's funded debt to EBITDA ratio, as defined in the credit facilities agreement. The Company is also exposed to the impact of foreign currency exchange rate risk at its foreign subsidiaries. The Company does not believe that its market risks have substantially increased since last year end. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - NONE ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - NONE ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE ITEM 5. OTHER INFORMATION - NONE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A). EXHIBITS - SEE INDEX TO EXHIBITS (B) REPORTS ON FORM 8-K: No Reports on Form 8-K were filed by the Registrant during the period covered by this Report. The remainder of this page is intentionally left blank. 33 INDEX TO EXHIBITS (2) Plan of acquisition, reorganization, arrangement, liquidation or succession Not applicable. (3) (i) Articles of Incorporation The Form of Restated Certificate of Incorporation referenced under (4)(a) hereof is incorporated herein by reference. (ii) By-laws The By-laws referenced under (4)(b) hereof are incorporated herein by reference. (4) Instruments defining the rights of security holders, including indentures (a) Form of Restated Certificate of Incorporation (Exhibit 3.2)2 (b) By-laws (Exhibit 3.3)1 (c) Specimen stock certificate representing shares of Class A Common Stock (Exhibit 4.1)3 (d) Form of Class B Stockholders' Agreement dated as of May 20, 1996, among the Registrant, its executive officers and its Class B stockholders (Exhibit 4.2)2 (e) Promissory Note dated October 7, 1991 of Buffalo & Pittsburgh Railroad, Inc. in favor of CSX Transportation, Inc. (Exhibit 4.6)1 (f) First Amendment to Promissory Note dated as of March 19, 1999 between Buffalo & Pittsburgh Railroad, Inc. and CSX Transportation, Inc. (Exhibit 4.1)4 (g) Third Amended and Restated Revolving Credit and Term Loan Agreement dated as of August 17, 1999 among the Registrant, certain subsidiaries, BankBoston, N.A. and the banks named therein (Exhibit 4.1)5 (10) Material Contracts *(10.1) Amendment No. 6 to Genesee & Wyoming Inc. 1996 Stock Option Plan *(10.2) Genesee & Wyoming Australia Pty. Ltd. Executive Share Option Plan *(11.1) Statement re computation of per share earnings (15) Letter re unaudited interim financial information 34 Not applicable. (18) Letter re change in accounting principles Not applicable. (19) Report furnished to security holders Not applicable. (22) Published report regarding matters submitted to vote of security holders Not applicable. (23) Consents of experts and counsel Not applicable. (24) Power of attorney Not applicable. *(27) Financial Data Schedule (99) Additional Exhibits Not applicable. - ---------------------------- *Exhibit filed with this Report. 1 Exhibit previously filed as part of, and incorporated herein by reference to, the Registrant's Registration Statement on Form S-1 (Registration No. 333-3972). The exhibit number contained in parenthesis refers to the exhibit number in such Registration Statement. 2 Exhibit previously filed as part of, and incorporated herein by reference to, Amendment No. 1 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-3972). The exhibit number contained in parenthesis refers to the exhibit number in such Amendment. 3 Exhibit previously filed as part of, and incorporated herein by reference to, Amendment No. 2 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-3972). The exhibit number contained in parenthesis refers to the exhibit number in such Amendment. 4 Exhibit previously filed as part of, and incorporated herein by reference to, the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1998. The exhibit number contained in parenthesis refers to the exhibit number in such Report. 5 Exhibit previously filed as part of, and incorporated herein by reference to, the Registrant's Report on Form 10-Q for the quarter ended September 30, 1999. The exhibit number contained in parenthesis refers to the exhibit number in such Report. 35 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GENESEE & WYOMING INC. Date: November 13, 2000 By: /s/ Mortimer B. Fuller, III --------------------------- Name: Mortimer B. Fuller, III Title: Chairman of the Board and CEO Date: November 13, 2000 By: /s/ Alan R. Harris --------------------------- Name: Alan R. Harris Title: Senior Vice President and Chief Accounting Officer The remainder of this page is intentionally left blank. 36 EX-10.1 2 0002.txt AMENDMENT NO. 6 TO GENESEE 1996 STOCK OPTION PLAN Exhibit 10.1 AMENDMENT NO. 6 to the GENESEE & WYOMING INC. 1996 STOCK OPTION PLAN Effective May 23, 2000 WHEREAS, Genesee & Wyoming Inc., a Delaware corporation (the "Company"), has established the Genesee & Wyoming Inc. 1996 Stock Option Plan, as heretofore amended (the "Plan"); and WHEREAS, deeming it appropriate and advisable so to do, and pursuant to Section 19 of the Plan, the Board of Directors of the Company has authorized, approved and adopted the further amendments to the Plan set forth herein; NOW, THEREFORE, the Plan is hereby amended, effective May 23, 2000, as set forth below: 1. A new Section "26. Cancellation and Rescission of Awards." of the Plan is hereby added to the Plan, to provide in its entirety as follows: "26. Cancellation and Rescission of Awards. "(a) The Stock Option Committee shall have the authority, in its discretion and without limitation, to include in such agreements evidencing Options as it determines appropriate a provision that permits the Company to (i) cancel all unexercised Options granted to an Option grantee who enters into Competition (as hereinafter defined), and (ii) rescind the exercise of any Options exercised by an Option grantee (or his permitted transferee) within six months before the date that such Option grantee enters into Competition, if (x) the Option grantee voluntarily terminates his or her employment with the Company, or (y) the Company terminates the Option grantee's employment because the Option grantee has cooperated with a competitor of the Company contrary to the best interests of the Company. "(b) As used herein, the term `Competition' means the Option grantee's participation, whether as employee, consultant, investor or otherwise, directly or indirectly in any business which is or becomes competitive with the business of the Company or any of its affiliates. For the purpose of determining whether an Option grantee has engaged in Competition, or has cooperated with a competitor of the Company contrary to the best interests of the Company, the judgment of the chief executive officer of the Company shall prevail. For an Option grantee whose employment with the Company has terminated, the judgment of the chief executive officer shall be based on that person's position and responsibilities while employed by the Company, his or her post- employment responsibilities and position with the other business, the extent of past, current and potential competition or conflict between the Company and the other business, the effect on the Company's customers, suppliers and competitors, and such other considerations as are deemed relevant by the chief executive officer given the applicable facts and circumstances. "(c) In the event that the chief executive officer so determines that an Option grantee has engaged in Competition, or has cooperated with a competitor of the Company contrary to the best interests of the Company, the Company shall have the discretion to cancel all unexercised Options granted to the Option grantee and to rescind all Options exercised within six months before the date that the Option grantee entered into Competition (or so cooperated with a competitor). In the case of cancellation of an unexercised Option, the cancellation shall be effective upon the giving of written notification of cancellation to the Option grantee, which notice shall be given within the period during which such Option would, by its terms, otherwise be exercisable. In the case of rescission, the Company shall notify the Option grantee in writing of any such rescission within six months after the date of termination of employment with the Company. Within ten days after receiving such notice from the Company, the Option grantee (or his permitted transferee) shall pay to the Company the amount of any gain realized or payment received as a result of the rescinded exercise. Such payment shall be made either in cash or by returning to the Company the number of shares of Class A Common Stock that the Option grantee (or his permitted transferee) received in connection with the rescinded exercise. "(d) The written agreement evidencing the Options to be subject to the provisions of this Section 26 shall also include a covenant that during the term of the Option grantee's employment with the Company and for six months following termination of such employment, the Option grantee shall not engage in Competition. Such provision shall also state that the Company will be entitled to bring an action at law or equity to enforce the terms of such covenant. "(e) Notwithstanding any other provision hereof to the contrary, a retired Option grantee will not be deemed to be engaged in Competition if he or she purchases as an investment or otherwise, stock or other securities of a competitor business so long as such business is listed upon a recognized securities exchange or traded over-the-counter, and such investment does not represent a greater than five percent equity interest in the business." 2. Except as amended hereby, the Plan shall remain in full force and effect in accordance with its terms. This Amendment No. 6 to the Genesee & Wyoming Inc. 1996 Stock Option Plan was authorized, approved and adopted by the Board of Directors of the Company on May 23, 2000. /s/ Thomas P. Loftus ---------------------------------------- Thomas P. Loftus, Assistant Secretary 2 EX-10.2 3 0003.txt GENESEE & WYOMING AUSTRALIA PTY. LTD. EXECUTIVE SHARE OPTION PLAN Exhibit 10.2 GENESEE & WYOMING AUSTRALIA PTY LTD ACN 080 579 308 EXECUTIVE SHARE OPTION PLAN RULES 1. DEFINITIONS AND INTERPRETATION 1.1 Definitions In these Rules, unless the contrary intention appears: Application Form means the form referred to in Rule 5.4(b). ASX means Australian Stock Exchange Limited. Board means the Board of Directors of the Company as constituted from time to time. Business Day has the meaning given to that term in the Listing Rules. Company means Genesee & Wyoming Australia Pty Limited ACN 080 579 308. Control has the meaning given to it under the Corporations Law. Director means director of the Company from time to time. Eligible Person means the Executives, the Company's senior executives and the senior executives of Related Bodies Corporate of the Company from time to time. Equivalent Value of an Executive Option on a given date means: (a) the Market Value of the Shares that would be issued if the Executive Option were exercised on that date; LESS (b) the Exercise Price of that Executive Option. Executive means each of Chuck Chabot, Anthony Mogytych, Paul Zaleck, Colin Turner, Ian Jamieson and Thomas Lanni. Executive Option means an option granted under this Plan. Exercise Period means the period during which an Executive Option can be exercised pursuant to Rule 8. Exercise Price means the consideration per Share, determined in accordance with Rule 9, payable by a Holder to the Company for the issue of Shares the subject of the relevant Executive Option. 2. Expiry Date means in respect of an Executive Option the expiry date specified in the Offer Notice in respect of that Option. Holder means the registered holder of an Executive Option. Independent Expert means an independent accountant selected by the Board; Listed means having been admitted to the official list of the ASX and at the relevant time still being so admitted even though, for the avoidance of doubt, the quotation of the Company's securities may be suspended or subject to a trading halt. Listing Rules means the official listing rules of the ASX and any other rules of the ASX which are applicable while the Company is Listed, except to the extent of any express written waiver by the ASX. Market Value means: (a) before the Company is Listed, EBITDA of the Company multiplied by 5.5 less debt all debt (for the avoidance of doubt, debt includes bank debt and any other liabilities in the nature of long term financing, but does not include current liabilities incurred in the ordinary course of business); (b) where the Company is Listed, the weighted average of the sale price of Shares quoted on the stock exchange of the ASX in the 5 Business Days prior to the date on which the Market Value is to be calculated (excluding the day of calculation); (c) during a Trade Sale, the average price per share on a net present value basis at a discount rate nominated by the Company that the purchaser or subscriber is paying for the Company's shares Marketable Parcel has the meaning given by the Listing Rules. Offer Notice means an offer to grant Executive Options made under Rule 5.4; Option Certificate means the certificate issued by the Company to the relevant Holder in respect of an Executive Option. Plan means the "Genesee & Wyoming Australia Pty Ltd Executive Share Option Plan" constituted by these Rules. Related Body Corporate has the meaning given to it under the Corporations Law. Rules means these rules as amended from time to time. Share means a fully paid ordinary share in the capital of the Company. For the purposes of this Plan, as at the commencement date of the total number of shares issued by the Company is 16,524,000. Supervening Event means: 3. (a) the sale of the main operating assets of the Company; or (b) a change in Control of the Company; or (c) a restructure of the affairs of the Company or its Related Bodies Corporate that will affect the value of the Shares in the Company; or (d) any fact, matter or circumstance which in the reasonable opinion of the Board makes it undesirable for Executive Options to become exercisable, but does not include a Trade Sale. Trade Sale means a sale or issue of 25% or more of the issued capital of the Company to a single or related purchasers or subscribers; 1.2 Interpretation In these Rules, unless the context otherwise requires: (a) where an expression is defined, another part of speech or grammatical form of that expression has a corresponding meaning; (b) a reference to any legislation provision, regulation, rule or by-law (including the Listing Rules) includes any statutory modification or re-enactment of, or legislative provision substituted for, and any subordinate legislation issued under, that legislation or legislative provision; (c) the singular includes the plural and vice versa; (d) a reference to an individual or person includes a corporation, partnership, joint venture, association, authority, trust, entity, state or government and vice versa; (e) a reference to any gender includes all genders; and (f) including and similar expressions are not and must not be treated as words of limitation. 1.3 Compliance with the Corporations Law and the Listing Rules (a) Notwithstanding anything express or implied in these Rules, each and every provision of these Rules is subject to the Corporations Law and, if the Company is Listed, the Listing Rules. (b) If there is any inconsistency between any provision of these Rules and the Corporations Law or, if the Company is Listed, the Listing Rules, the Corporations Law or the Listing Rules (as the case may be) will prevail to the extent of the inconsistency. 4. 1.4 Listing Rules A reference in these Rules to the Listing Rules or the ASX has effect only for so long as the Company is Listed and must otherwise be disregarded. 2. ESTABLISHMENT OF PLAN 2.1 The Board hereby establishes the Plan in accordance with the Rules. 2.2 The Plan hereby constituted is called the "Genesee & Wyoming Australia Pty Ltd Executive Share Option Plan". 3. OBJECTIVES The objectives of the Plan are: (a) to enable exceptional Eligible Persons to acquire an interest in the Company; (b) create a sense of ownership in the Company and its success; (c) to assist in the attraction and retention of high quality Eligible Persons; (d) to allow such persons interests to be aligned with the interests of the Company's other shareholders; (e) to avoid taking any action which could harm the commercial interests the Company within 12 months of ceasing employment with the Company. 4. ADMINISTRATION OF PLAN The Board is to administer the Plan and the Board has power: (a) to determine procedures from time to time to administer the Plan consistent with these Rules; (b) to resolve conclusively all questions of fact or interpretation arising in connection with the Plan; and (c) to delegate to any one or more persons (including a committee) for such period and on such conditions as the Board may determine the exercise of any of the Board's powers or discretions arising under the Plan. 5. ENTITLEMENT 5.1 The Board may at any time and from time to time determine which of the Eligible Persons are eligible to participate in the Plan. 5.2 The Directors may from time to time determine in their absolute discretion the number of Executive Options which may be granted to each Eligible Person (if any). 5. 5.3 In making the determinations under Rules 5.1 and 5.2, the Directors may have regard to the following factors: (a) the length of service of the Eligible Person with the Company or any Related Body Corporate; (b) the record of employment of the Eligible Person with the Company or any Related Body Corporate; (c) the potential contribution of the Eligible Person to the growth of the Company or any Related Body Corporate; (d) any other matters which tend to indicate the merit of the Eligible Person; and (e) where the Eligible Person was offered the right to participate in the Plan before he or she commenced full time employment with the Company or any Related Body Corporate, the fact that such an offer was made and the terms of that offer. 5.4 Following a determination under Rule 5.2 to grant Executive Options, the Company must give each Eligible Person to be granted Executive Options: (a) an offer in writing to apply to take up those Executive Options setting out: (i) the number of Executive Options; (ii) the Exercise Price (in Australian dollars), or where the Exercise Price is determinable at some future time by reference to a formula, the acquisition price (in Australian dollars) were that formula applied as at the date of the offer; and (iii) the Expiry Date of the Executive Options; and (iv) any additional terms and conditions for the exercise of the Executive Options (such as any performance criteria) not set out in these Rules; (b) an application form; and (c) a copy of the Rules. 5.5 The making of the offer by the Company will not constitute any legally binding commitment to the grant of the Executive Options referred to except upon the actual grant of the Executive Options. 5.6 An Eligible Person who desires to apply for Executive Options must sign and return to the Company the Application Form to that effect. 5.7 An Eligible Person may apply for less than the number of Executive Options offered to him or her. 6. 5.8 If required by the Corporations Law or the Listing Rules, the Company must provide to ASIC a copy of the offer or invitation document (which need not contain details of the offer or invitation particular to the offeree such as the identity or entitlement of the offeree) and of each accompanying document no later than 7 days after the provision of that material to the offeree. 5.9 The Eligible Person will obtain Executive Options on the date of the grant of the Executive Options by the Company at the times specified in the Application Form. An Eligible Person who ceases for any reason whatsoever to be employed by the Company or a Related Body Corporate of the Company will not have any right to the grant of Executive Options that have not yet been granted to him or her. 6. GRANT OF EXECUTIVE OPTIONS 6.1 Subject to these Rules, the grant of Executive Options will take place at such times and upon such terms and conditions as the Directors may determine. 6.2 Unless otherwise determined by the Directors at the time of grant, an Executive Option will be granted free of charge on the following terms and conditions: (a) (Number of Shares) Each Executive Option entitles the Holder to subscribe for one Share at the Exercise Price. (b) (Exercise Period) Subject to Rule 8, an Executive Option may be exercised during such period as determined by the Board from time to time either generally or in respect of the Eligible Person concerned, up to and including 5.00 pm South Australian time on the Expiry Date. (c) (Method of Exercise) An Executive Option may be exercised by notice in writing to the Company accompanied by payment of the Exercise Price and the Option Certificate to which the Executive Option relates, delivered to the registered office of the Company during the Exercise Period. (d) (Notice of Exercise) The notice referred to in Rule 6.2(c) must specify the number of Executive Options exercised. (e) (Board to allot Shares) Within 10 Business Days after receipt of the notice referred to in Rule 6.2(c) and the payment of the Exercise Price, the Directors will: (i) allot to the Holder the number of Shares fully paid up which corresponds to the number of Executive Options properly exercised by the Holder; (ii) cancel the Option Certificate relating to those Executive Options; and (iii) if applicable, issue a new Option Certificate in relation to any unexercised Executive Options. 7. (f) (No participating rights) Unless otherwise provided in these Rules, there are no participating rights or entitlements inherent in the Executive Options. (g) (New Issues) Subject to the Listing Rules, if the Company is Listed Holders will be entitled to participate in new issues of capital offered to shareholders of the Company on the prior exercise of their Executive Options. The Company will ensure that for the purposes of determining entitlements to any such issue, the record date in respect of that issue will be at least ten Business Days after the issue is announced. This will give Holders the opportunity to exercise their Executive Options should they so wish prior to the date for determining entitlements to participate in any such issue. (h) (Pro rata issue) Subject to the Listing Rules, if during the life of an Executive Option, there is a pro rata issue (except a bonus issue) to the holders of Shares, the Exercise Price may be reduced according to the following formula: O' = O - E[P-(S+D)] ---------- N + 1 O' = the new exercise price of the Executive Option. O = the exercise price of the Executive Option which would apply but for this formula. E = the number of Shares into which one Executive Option is exercisable. Note: E is one unless the number has changed pursuant to Rule 6.2(i) because of a bonus issue. P = the Market Value of a Share. S = the subscription price for a Share under the pro rata issue. D = the dividend due but not yet paid on the existing Shares (except those to be issued under the pro rata issue). N = the number of Shares with rights or entitlements that must be held to receive a right to one new security under the pro rata issue. (i) (Bonus issue) Subject to the Listing Rules, if there is a bonus issue to the holders of Shares, the number of Shares over which the Executive Option is exercisable may be increased by the number of Shares which the Holder of the Executive Option would have received if the Executive Option had been exercised before the record date for the bonus issue. (j) (Reorganisation of Executive Options) Subject to the Listing Rules, if any reorganisation of the issued capital of the Company takes place 8. prior to the Expiry Date, the number of Executive Options to which each Holder is entitled and the exercise price will be reorganised as follows: (A) in a consolidation of capital, the number of Executive Options will be consolidated in the same ratio as the Shares and the Exercise Price will be amended in inverse proportion to that ratio; (B) in a sub-division of capital, the number of Executive Options will be sub-divided in the same ratio as the Shares and the Exercise Price will be amended in inverse proportion to that ratio; (C) in a return of capital, the number of Executive Options must remain the same and the Exercise Price of each Executive Options must be reduced by the same amount as the amount returned in relation to each Share; (D) in a reduction of capital by a cancellation of paid up capital that is lost or not represented by available assets where no securities are cancelled, the number of Executive Options and the Exercise Price must remain unaltered; (E) in a pro rata cancellation of Shares, the number of Executive Options must be reduced in the same ratio as the ordinary capital and the Exercise Price of each Executive Option will be amended in inverse proportion to that ratio; (F) in any other case, the number of Executive Options or the Exercise Price will be reorganised so that the holder of the Executive Option will not receive a benefit that holders of Shares do not receive. This Rule does not prevent a rounding up of the number of Shares to be received on exercise if the rounding up is approved at the shareholders' meeting which at the reorganisation is approved; and in all other respects the terms of the exercise of Executive Options will remain unchanged. (k) (Ranking) All Shares issued upon exercise of the Executive Options will rank equally in all respects with the Company's then existing fully paid Shares. If the Company has been admitted to the official list of the ASX, the Company will apply for official quotation by ASX of all Shares issued upon exercise of the Executive Options. (l) (Non-transferability) The Executive Options are not transferable and if the Company is admitted to the official list of ASX no application will be made to the ASX for official quotation of the Executive Options. 7. SUPERVENING EVENTS 7.1 Notwithstanding anything in these Rules, if, prior to the Company becoming Listed, during the life of an Executive Option the Board resolves that there has been, or is likely to be, a Supervening Event the Company will give notice of 9. the Supervening Event to each Holder (Termination Notice). For the avoidance of doubt, the Board is not obliged to determine that an event which might satisfy the circumstances under the definition of Supervening Event constitutes a Supervening Event and may specifically determine that a particular event will not be treated as a Supervening Event. 7.2 The Termination Notice must specify the nature of the Supervening Event and the Board's reasons for resolving that the fact matter or circumstance amounts to a Supervening Event that triggers the operation of this Rule. The Termination Notice must specify the alternative method of compensating Holders of Executive Options as determined by the Board under Rule 7.4. 7.3 Upon receipt of a Termination Notice all unexercised Executive Options will immediately lapse and this Plan will be terminated. 7.4 Upon resolving that there has been, or is likely to be, a Supervening Event, the Board must also determine the most appropriate method of compensating Holders of Executive Options that lapse under this Rule 7 from the following options. The Board may resolve to: (a) pay each Holder an amount equal to the Equivalent Value of the Executive Options on the date of the Termination Notice; or (b) procure that shares are issued in a Related Body Corporate of the Company such that: (i) the Market Value of the shares to be issued is equal to the Market Value of the Shares that would have been issued had the Executive Options been exercised; and (ii) the amount payable by the Holder in relation to the shares is equal to the Exercise Price of the Executive Options; and (iii) notwithstanding the foregoing the shares shall be credited as fully paid; or (c) Procure that common stock in the capital of Genesee & Wyoming Inc. be issued to the Holder such that: (i) the Market Value of the common stock to be issued is equal to the Market Value of the Shares that would have been issued had the Executive Options been exercised; and (ii) the amount payable by Holder in relation to the common stock is equal to the Exercise Price of the Executive Options; and (iii) notwithstanding the foregoing the common stock shall be credited as fully paid. 8. EXERCISE OF EXECUTIVE OPTIONS Unless Executive Options have lapsed under Rule 7 all Executive Options shall be exercisable in accordance with this Rule 8 as follows: 10. (a) (Not Listed and No Trade Sale - Options are exercisable and Compulsory Buy Back) If, prior to the Expiry Date with respect to an Executive Option, the Company does not become Listed and a Trade Sale does not occur then an Executive Option is exercisable on the Expiry Date for a period of one week from the Expiry Date. If the Executive Option is not exercised during that period it will automatically lapse. If the Executive Option is exercised during that period the Company will, if possible under the Corporations Law, buy back the Shares issued to the Holder on exercise not earlier than 6 months after the date the Shares are issued for an amount equal to the value of the Shares as determined by an Independent Expert. (b) (Listed prior to Expiry) If prior to the Expiry Date of an Executive Option the Company becomes Listed the Executive Option will be exercisable during the period: (i) commencing on the date the Company is admitted to the official list of the ASX; and (ii) ending on the Expiry Date. Notwithstanding the provisions of sub-clause (b) and subject to ASX Listing Rules, if within [12] months of exercising an Executive Option an Executive ceases employment with the Company and commences working for a business determined by the Board to be a competitor of the Company he shall be deemed to have appointed the [company secretary] as his agent and attorney for the purpose of selling his Shares with authority to execute on his behalf a share transfer and to take all such steps as necessary to effect the share transfer. Such Shares shall be transferred during the ordinary course of trading on ASX and the proceeds, less any costs, shall be paid to the Executive. The Company shall be entitled to retain any share certificates issued following the exercise of Executive Options for a period of [12] months following the date of exercise. (c) (Trade Sale Prior to Expiry) If, prior to the Expiry Date of an Executive Option and prior to the Company becoming Listed, the board forms the view that a Trade Sale is likely to occur, the Company must give notice to the Holder of the Executive Option of the Trade Sale and the date on which the Trade Sale is likely to occur, being no less than 10 Business Days from the date of the notice. The Executive Option will be exercisable in the period: (i) commencing on the date the notice is received; and (ii) ending on the date specified in the notice being no less than 5 Business Days before the date of the Trade Sale. The Company must procure that the purchaser of the shares in the capital of the Company also purchases the Shares issued upon exercise of Executive Options under this clause 8(c) at the Market Value for a Trade Sale. 11. (d) (Change of Control while Listed) If, during the life of an Executive Option and provided the Company is admitted to the official list of ASX, a takeover offer is made for the Shares and the Board becomes aware that more than 25% of the issued Shares have or will become vested in the offeror and its associates, the Company will give notice of the takeover offer to each Holder. Each Holder may then exercise any unexercised Executive Options within 5 Business Days of the notice. All unexercised Executive Options will expire 6 Business Days after the date the notice is received by the Holder. 9. EXERCISE PRICE OF EXECUTIVE OPTIONS The Exercise Price of an Executive Option will be the amount determined by the Board and specified in an Offer Notice given under clause 5.4 for that Executive Option being: (a) the Market Value of a Share as at the date on which the Executive Options are granted under clause 5; or (b) such lower or higher amount as the board determines. 10. MAXIMUM AND MINIMUM NUMBER OF EXECUTIVE OPTIONS 10.1 If the Company is Listed, Executive Options may not be granted under the Plan if: (a) immediately following a grant, the number of Shares the subject of the grant of Executive Options when aggregated with: (i) the number of Shares which would be issued if each outstanding Executive Option were to be exercised; and (ii) the number of Shares issued during the previous five years under the Plan or any other employee share plan extended only to employees of the Company (including Directors) and its Related Bodies Corporate, (disregarding any offer or option acquired or share issued following the making or an offer, which is exempt from the disclosure requirements in Chapter 6D of the Corporations Law) exceeds five percent of the total number of issued shares in that class in the Company as at the time of grant of those Executive Options; or (b) if that grant would cause the Company to be in breach of the Listing Rules (including Listing Rules 7.1 or 7.16). 10.2 The number of Executive Options exercised by Holder must be at least equal to a Marketable Parcel of the Shares the subject of the Executive Options. 12. 11. MAXIMUM NUMBER OF EXECUTIVE OPTIONS TO AN ELIGIBLE PERSON Executive Options may not be granted under the Plan if, immediately following the grant, the number of Shares the subject of the grant of Executive Options when aggregated with: (a) a number of Shares which would be issued if each outstanding Executive Option to acquire Shares under the Plan were to be exercised; and (b) the number of Shares previously acquired under the Plan or otherwise; would result in an Eligible Person's legal or beneficial interest in the total capital of the Company exceeding five per cent. 12. CEASING TO BE EMPLOYED 12.1 If a Holder ceases to be employed by the Company or a Related Body Corporate of the Company: (a) due to death, disability or retirement (from the age of 55), the Executive Options of that Holder will lapse and the Holder (or his or her estate) will be entitled to a cash payment equal to the Equivalent Value of the Executive Options held by the Holder; and (b) in all other cases, the Executive Options of that Holder will immediately lapse. 12.2 A person is deemed to cease employment with the Company or a Related Body Corporate of the Company due to disability if that person is, in the opinion of the Board, substantially absent from work due to illness for a period in excess of 3 consecutive months. 13. OPTION CERTIFICATE The Company must, within 10 Business Days of the date of grant of the Executive Options deliver to the grantee an Option Certificate for the relevant number of Executive Options marked "Non-transferable. Not granted Official Quotation". 14. REQUESTS FOR INFORMATION The Company must, within a reasonable period after the receipt of a request, during any period in which the offer of Executive Options remains open to an Eligible Person, provide to that Eligible Person in writing the following information: (a) the current market price of the Shares; and (b) where the Exercise Price is determinable at some future time by reference to a formula, the Australian dollar equivalent of the acquisition price were that formula applied as at that date. 13. 15. AMENDMENTS TO THE RULES These Rules may be amended from time to time by resolution of the Board, subject to, for as long as the Company is admitted to the official list of the ASX, obtaining any necessary approval of shareholders required by the Listing Rules. 16. CORPORATIONS LAW 16.1 This Rule 16 does not apply for so long as the Executive Options offered under this Plan are offered under a Disclosure Document in accordance with Chapter 6D of the Corporations Law or the Company has been granted relief from the disclosure requirements of the Corporations Law. 16.2 This Plan is subject to the provisions of the Corporations Law. Without limiting the generality of the foregoing, no Executive Option may be offered and no Share may be issued upon the exercise of an Executive Option unless that offer is exempt from the disclosure requirement of the Corporations Law or the Company determines in its absolute discretion to comply with those requirements. 17. RIGHTS OF EMPLOYEES The Plan will not form any part of any contract of employment between the Company or an Related Body Corporate and any Eligible Person and will not confer directly or indirectly on any Eligible Person any legal or equitable right whatsoever (other than rights as the holder of Executive Options or Shares issued under the Plan) against the Company or any Related Body Corporate. 18. TERMINATION OF THE PLAN The Board may at any time by resolution terminate the Plan without prejudice to any Executive Options previously granted. 19. GOVERNING LAW This agreement is governed by the law in force in South Australia and the parties submit to the non-exclusive jurisdiction of the courts of South Australia and all courts competent to hear appeals from the courts of South Australia in respect of all proceedings arising in connection with this agreement. These Rules were adopted by the Directors of the Company under a resolution of the Directors on September 27 , 2000. /s/ Ian James D. Jamieson - ------------------------- Secretary EX-11.1 4 0004.txt STATEMENT RE 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)
Three Months Ended Nine months Ended September 30, 2000 September 30, 2000 ------------------ ------------------ BASIC EARNINGS PER SHARE CALCULATION: Net Income $3,192 $9,882 Weighted average number of shares of common stock 4,336 4,331 Earnings per share - basic $ 0.74 $ 2.28 DILUTED EARNINGS PER SHARE CALCULATION: Net Income $3,192 $9,882 Weighted average number of shares of common stock and common stock equivalents outstanding: Weighted average number of shares of common stock 4,336 4,331 Common stock equivalents issuable under stock option plans 109 73 Weighted average number of shares of common stock and common stock equivalents - diluted 4,445 4,404 Earnings per share - diluted $ 0.72 $ 2.24
EX-27 5 0005.txt FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 9,002 0 48,565 0 6,578 73,192 253,189 51,911 311,249 71,904 92,168 0 0 53 87,817 311,249 157,860 157,860 135,075 135,075 1,113 0 7,985 15,913 6,031 9,882 0 0 0 9,882 2.28 2.24
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