-----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, O8LcPpB2w6iG3Gq6xiMhj/FMCDDevavzjVb9ray1fS764Jbh3ZGEtlfkfl2eCkwB 9jmXSHmRV3W3NRn3aHMVDg== 0000950130-98-005588.txt : 19981120 0000950130-98-005588.hdr.sgml : 19981120 ACCESSION NUMBER: 0000950130-98-005588 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENESEE & WYOMING INC CENTRAL INDEX KEY: 0001012620 STANDARD INDUSTRIAL CLASSIFICATION: RAILROADS, LINE-HAUL OPERATING [4011] IRS NUMBER: 060984624 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20847 FILM NUMBER: 98755383 BUSINESS ADDRESS: STREET 1: 71 LEWIS ST CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2036293722 MAIL ADDRESS: STREET 1: 71 LEWIS STREET STREET 2: 71 LEWIS STREET CITY: GREENWICH STATE: CT ZIP: 06830 10-Q 1 FORM 10-Q FOR THE QUARTER ENDED 9/30/98 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, 1998 Commission File No. 0-20847 GENESEE & WYOMING INC. (Exact name of registrant as specified in its charter) Delaware 06-0984624 - ----------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 71 Lewis Street, Greenwich, Connecticut 06830 - --------------------------------------- -------------- (Address of principal executive offices) (Zip Code) (203) 629-3722 - -------------- (Telephone No.) Shares of common stock outstanding as of the close of business on November 9, 1998: Class Number of Shares Outstanding - ----- ---------------------------- Class A Common Stock 4,104,531 Class B Common Stock 845,539 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 and Nine Month Periods Ended September 30, 1998 and 1997..................................... 3 Consolidated Balance Sheets September 30, 1998 and December 31, 1997................................. 4 Consolidated Statements of Cash Flows - For the Nine Month Periods Ended September 30, 1998 and 1997.............................................. 5 Notes to Consolidated Financial Statements.............. 6 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 10 - 21 Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................... 21 Part II - Other Information....................................... 22 Index to Exhibits................................................. 23 - 24 Signatures........................................................ 25
-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 1998 1997 1998 1997 ------------------------------------------------ OPERATING REVENUES $34,707 $23,670 $109,514 $71,741 OPERATING EXPENSES: Transportation 11,402 7,114 35,174 21,095 Maintenance of ways and structures 4,151 2,586 12,834 7,605 Maintenance of equipment 6,390 3,854 21,262 11,748 General and administrative 6,066 4,451 19,102 13,698 Depreciation and amortization 2,560 1,764 7,357 4,985 ------------------------------------------------- Total operating expenses 30,569 19,769 95,729 59,134 ------------------------------------------------- INCOME FROM OPERATIONS 4,138 3,901 13,785 12,107 Interest expense (1,763) (629) (4,968) (1,850) Other income 101 273 669 503 ------------------------------------------------- Income before provision for income taxes 2,476 3,545 9,486 10,760 Provision for income tax 1,073 1,418 3,955 4,342 ------------------------------------------------- NET INCOME $ 1,403 $ 2,127 $ 5,531 $ 6,418 ================================================= Earnings per common share - basic $ 0.27 $ 0.41 $ 1.05 $ 1.22 ================================================= Weighted average number of shares of common stock - basic 5,213 5,250 5,267 5,250 ================================================= Earnings per common share - diluted $ 0.27 $ 0.39 $ 1.04 $ 1.17 ================================================= Weighted average number of shares of common stock - diluted 5,213 5,452 5,338 5,468 =================================================
-3- GENESEE & WYOMING INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
Sept. 30, Dec. 31, 1996 1997 (unaudited) ------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 6,816 $ 11,434 Accounts receivable, net 20,293 20,895 Note receivable - related party 4,215 4,499 Materials and supplies 3,612 5,039 Prepaid expenses and other 5,348 3,145 Deferred income tax assets, net 2,316 2,523 ------------------------------------------ Total current assets 50,600 56,535 ------------------------------------------ PROPERTY AND EQUIPMENT, net 121,506 124,985 ------------------------------------------ SERVICE ASSURANCE AGREEMENT, net 13,001 13,563 ------------------------------------------ OTHER ASSETS, net 15,312 15,449 ------------------------------------------ Total assets $ 200,419 $ 210,532 ========================================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 292 $ 1,157 Accounts payable 23,481 30,025 Accrued expenses 8,289 6,796 ------------------------------------------ Total current liabilities 32,062 37,978 ------------------------------------------ LONG-TERM DEBT 67,849 72,987 ------------------------------------------ OTHER LIABILITIES 2,875 3,257 ------------------------------------------ DEFERRED INCOME TAX LIABILITIES, net 10,494 9,470 ------------------------------------------ DEFERRED ITEMS_grants from governmental agencies 14,714 15,053 ------------------------------------------ DEFERRED GAIN--sale/leaseback: 4,083 4,434 ------------------------------------------ STOCKHOLDERS' EQUITY: Class A common stock, $0.01 par value, one vote per share; 12,000,000 shares authorized; 4,449,531 and 4,404,262 issued and outstanding on September 30, 1998 and December 31, 1997, respectively. 45 44 Class B common stock, $0.01 par value, 10 votes per share: 1,500,000 shares authorized; 845,539 and 846,556 issued and outstanding on September 30, 1998 and December 31, 1997, respectively. 9 9 Additional paid-in capital 46,719 46,205 Warrants outstanding -- 471 Retained earnings 28,564 23,056 Foreign currency translation adjustment (2,365) (2,441) Less treasury stock, at cost, 345,000 Class A Shares (4,629) -- ------------------------------------------ Total stockholders' equity 68,342 69,343 ------------------------------------------ Total liabilities and stockholders' equity $ 200,419 $ 210,532 ==========================================
-4- GENESEE & WYOMING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
Nine Months Ended September 30, 1998 1997 ---------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,531 $ 6,418 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 7,357 4,985 Deferred income taxes 2,957 2,086 Gain on disposition of property and equipment (82) (12) Changes in assets and liabilities, net of balances assumed through acquisitions - Receivables 296 2,233 Materials and supplies 927 (251) Prepaid expenses and other 32 (5,585) Accounts payable and accrued expenses (6,701) (12,248) Other assets and liabilities, net 758 (532) ---------------------------- Net cash provided by (used in) operating activities 11,075 (2,906) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (13,431) (7,444) Proceeds from disposition of property 2,012 293 ---------------------------- Net cash used in investing activities (11,419) (7,151) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term borrowings, including capital leases (13,354) (9,577) Proceeds from issuance of long-term debt 13,800 14,880 Net proceeds on grants 155 2,465 Proceeds from issuance of common stock 44 79 Purchase of treasury stock (4,629) -- ---------------------------- Net cash (used in) provided by financing activities (3,984) 7,847 ---------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (290) -- ---------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENT (4,618) (2,210) CASH AND CASH EQUIVALENTS, beginning of period 11,434 14,121 ---------------------------- CASH AND CASH EQUIVALENTS, end of period $ 6,816 $ 11,911 ============================ CASH PAID DURING PERIOD FOR: Interest $ 5,016 $ 1,733 Income taxes 1,542 4,500 ============================ SUPPLEMETNAL NON-CASH INVESTING ACTIVITES: Capital lease obligation $ (5,200) $ 6,546 ============================ -5-
GENESEE & WYOMING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION: The interim consolidated financial statements presented herein include the accounts of Genesee & Wyoming Inc. and its subsidiaries. References to "GWI" or the "Company" mean Genesee & Wyoming Inc. and, unless the context indicates otherwise, its consolidated subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. These interim consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). In the opinion of management, the unaudited financial statements for the three-month and nine-month periods ended September 30, 1998 and 1997, are presented on a basis consistent with audited financial statements and contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation. The interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997 included in the Company's Form 10-K. The results of operations for interim periods are not necessarily indicative of results of operations for the full year. 2. CORPORATE DEVELOPMENTS: Chile and Bolivia On October 8, 1998 the Company announced that it has a memorandum of understanding in place with CB Transportes e Infrastructura S.A., a Chilean Corporation. The memorandum of understanding contemplates the purchase by a subsidiary of GWI of approximately 30 percent of the stock of CB Transportes S.A., a company which owns operating railroad interests in Chile and Bolivia, for combined cash and shares of GWI common stock totaling approximately $15.0 million. This investment is conditional on due diligence and documentation. Australia - On August 28, 1997 the Company announced that its wholly owned subsidiary, Genesee & Wyoming Australia Pty Ltd ("GWIA"), had been awarded the contract to purchase certain railroad assets of SA Rail, a division of Australian National Railway, through the Commonwealth of Australia Office of Asset Sales. SA Rail provided intrastate freight services in the State of South Australia, interstate haulage of contract freight, rolling stock rental and maintenance, and interstate track maintenance. GWIA bid as part of a consortium including EDI Clyde Engineering and Transfield Pty Ltd. EDI Clyde is a major Australian provider of railway rolling stock and holds the Australian license for GM/EMD locomotives. Transfield is a major Australian engineering, construction and infrastructure maintenance provider. On November 8, 1997 GWIA closed on the purchase and commenced operation of freight service under the name of Australia Southern Railroad Pty. Ltd. 3. JOINT VENTURE: The Company participates in a joint venture, Genesee Rail-One Inc. ("GRO") to acquire and operate railroads in Canada. GRO is a joint venture of the Company and Rail-One Inc., a subsidiary of The Cygnus Group which is an integrated transportation facilities, services and infrastructure provider in Canada. On October 9, 1998 GRO announced that it had reached an agreement in principle to acquire and opearate 364 miles of track in northwestern Alberta from Canadian National (CN). The -6- wholly owned subsidiary of GRO will be operated as an Alberta railway company to be known as Grande Prairie Grande Cache Railway. This acquisition is conditional on due diligence and documentation. GRO commenced operations on November 11, 1997 of Quebec Gatineau Railway Inc. ("QGRY"), a 354-mile railroad linking Quebec City, Montreal and Hull in southeastern Quebec. QGRY purchased the majority of assets and also leased a smaller portion of assets for this railroad from the Canadian Pacific Railway Company. On July 29, 1997, GRO commenced operations of the Huron Central Railway Inc. ("HCRY"), a 180-mile railroad located in central Ontario. HCRY leases its rail line from Canadian Pacific Railway for a 20 year term and is responsible for operation and maintenance of the leased line. Based on GWI's ownership position of 47.5%, the Company is reporting the results of operations of GRO under the equity method of accounting for investments. The results of operations of GRO are translated into U.S. dollars at a weighted average exchange rate for each period and are included in other income, net. The Company's 47.5 percent share of the after-tax results of GRO was a loss of $185,000 and income of $140,000 for the three month periods ended September 30, 1998 and 1997, respectively, and a loss of $172,000 and income of $140,000 for the nine month periods ended September 30, 1998 and 1997, respectively. GRO was formed through the Company's initial capital investment of approximately $4.9 million and an investment by Rail-One Inc., of approximately $4.9 million. The Rail-One Inc. investment was partially funded by the Company through a $4.6 million promissory note denominated in Canadian currency. The note bears interest at 7.5 percent per annum, earns a commitment fee equal to 4 percent of the principal amount of the note, and is secured by Rail-One's 47.5 percent ownership in GRO. The note was due on November 10, 1998 and Rail-One is negotiating with the Company for an extension of the note. On September 30, 1998 the Company's investment in GRO was valued at approximately $4.6 million, a reduction of $291,000 due to GRO operating losses. The Company's note receivable from Rail-One was valued at $4.2 million, a reduction of $398,000 due to currency exchange losses. Additionally, the Company has approximately $3.2 million of affiliate receivables arising from rolling stock leases and trade activities due from GRO or its subsidiaries. The Company has agreed to provide a $2.2 million letter of credit to GRO's primary lender in exchange for relief on certain financial covenants. The Company and Rail-One are in negotiations to finalize the consideration to the Company for providing the letter of credit. -7- Management believes that the Company's investments in GRO are adequately collateralized by the common stock held by Rail-One Inc., and that no impairment of assets has occurred. 4. LEASES: In March 1997, a subsidiary of the Company entered into master capital lease agreement with a leasing company. The captial lease provided for the inclusion of up to $13.0 million in railroad rolling stock, of which $11.6 million was under commitment as of August, 1998. In September 1998, the Company completed an exchange of like-kind assets with the leasing company reducing its commitment under the master lease agreement by aproximately $5.2 million. The reduction of the commitment was a non-cash transaction which is not included in amounts in the statement of cash flows. The Company incurred a $267,000 loss as a result of this like-kind exchange which was included as a reduction to operating revenue in the Company's leasing subsidiary. As of September 30, 1998, the Company's subsidiary had $6.4 million of equipment under this capital lease. Lease payments until September 30, 1998, were interest only at LIBOR plue 1.5%. After that date, the equipment currently under lease requires monthly payments of $64,000 until March 2017. The Company's subsidiary has the right to purchase the equipment at any time during the lease for fair market value. In June 1998, a subsidiary of the Company entered into a sale leaseback agreement with a bank for railroad rolling stock valued at $5.7 million. The agreement will be accounted for as an operating lease and will require monthly payments of $45,662 through July 2008. 5. CONTINGENCIES: IMRR - 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 1987 agreement entered into by a prior unrelated owner of the IMRR rail line. The provisions 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 in excess of $100,000. ComEd is IMRR's largest customer and in 1997 accounted for 15% of the consolidated revenues of the Company and its subsidiaries. The Company believes the suit is without merit. IMRR intends to vigorously defend against the suit. Conrail Merger - On July 23, 1998, the Surface Transportation Board ("STB") issued its written order approving the petition of CSX Transportation, Inc. ("CSX") and Norfolk Southern Corp. ("NS") to control and divide the assets of Consolidated Rail Corporation ("Conrail"). Railroads in the Company's New York and Pennsylvania region interchange with, or participate in overhead traffic with, one or both of these railroads. Overhead traffic is defined as traffic that neither originates nor terminates on the Company's northeastern rail network. In their joint filing with the STB, CSX and NS estimated that approximately $8.3 million in freight revenue related to overhead traffic on one of the Company's subsidiaries may be diverted as a result of the proposed transactions. The Company agrees with this estimate and is implementing operational changes aimed at minimizing this impact. On October 21, 1997 the Company and several of its subsidiaries entered into a confidential Rate and Route Agreement with CSX that the Company believes will facilitate the operations restructuring process. The STB's written order contains one or more conditions which also may minimize this impact. The division of Conrail's assets is expected to occur in the first or second quarters of 1999. While the Company believes that agreements reached with CSX and NS in regard to the Conrail breakup will ultimately benefit the Company, the transition will be uncertain until new operating patterns are established. Based on its initial studies the Company believes that no impairment of its assets will occur. -8- Stock Repurchase - On August 12, 1998, the Company's board of directors authorized management to repurchase up to one million shares of the Company's Class A common stock under SEC rule 10b-18. At September 30, 1998, the Company had purchased 345,000 shares at a total cost of $4,629,000. The repurchase program remains open and additional purchases, if any, are at the discretion of management. 6. COMPREHENSIVE INCOME: The Financial Accounting Standards Board recently issued SFAS No. 130, Reporting Comprehensive Income, which establishes standards for reporting and display of comprehensive income. The objective of this standard is to report a measure of changes in equity of an enterprise that result from transactions other than with owners. Comprehensive income is the total of net income and all other nonowner changes in equity. The following table sets forth the Company's comprehensive income for the three months and nine months ended September 30, 1998 and 1997: Statement of Comprehensive Income Three and Nine Month Periods Ended September 30, (in thousands)
Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 ---- ---- ---- ---- Net income $1,403 $2,127 $5,531 $6,418 Other comprehensive loss, net of tax Foreign currency translation adjustments (684) -0- (924) -0- ------------------------------------------------------------------- Comprehensive income $ 719 $2,127 $4,607 $6,418 ===================================================================
7. RECENTLY ISSUED ACCOUNTING STANDARDS: The Financial Accounting Standards Board recently issued SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits, which standardizes the disclosure requirements for pensions and other retirement benefits to the extent practicable. It requires additional information changes in the benefit obligation and fair values of plan assets. These changes will facilitate financial analysis, and eliminate certain disclosures that are no longer required. The statement suggests combined formats for presentation of pension and other postretirement benefit disclosures. The Company believes the statement will only slightly change the format by which it discloses information related to pension and other postretirement benefits in the current year 10K and annual report. Adoption of this statement is required no later than with fiscal year 1998, which is when the Company expects to adopt it. 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. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. 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 with the third quarter of 1999, which is when the Company expects to adopt it. -9- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Company's consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, and with the consolidated financial statements, related notes and other financial information included in the Company's 1997 Form 10-K. General The Company is a holding company whose subsidiaries own and operate short line and regional freight railroads in the United States and, beginning in November, 1997, Australia, and through its industrial switching subsidiary, provides railroad switching and related services to industries with extensive railroad facilities within their complexes. The Company's United States and Australia railroad subsidiaries generate revenues primarily from the movement of freight over track owned or operated by its railroads. These subsidiaries also generate non-freight revenues primarily by providing related rail services such as railcar leasing, railcar repair and storage to shippers along its lines and to the railroads that connect with its lines. The Company's industrial switching subsidiary generates non-freight revenues primarily by providing switching and other rail related services to industries with extensive railroad facilities within their complexes. The Company participates in a joint venture, Genesee Rail-One Inc. ("GRO") to acquire and operate railroads in Canada. The Company's initial capital investment in GRO was approximately $4,913,000. Based on GWI's ownership position of 47.5%, the Company is reporting the results of operations of GRO under the equity method of accounting for investments. The results of operations of GRO are translated into U.S. dollars at a weighted average exchange rate for each period and are included in other income, net. The Company's 47.5 percent share of the after-tax results of GRO were a loss of $185,000 and income of $140,000 for the three month periods ended September 30, 1998 and 1997, respectively, and a loss of $172,000 and income of $140,000 for the nine month periods ended September 30, 1998 and 1997, respectively. 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 shutdowns, railcar sales, accidents and derailments. In periods when these events occur, results of operations are not easily comparable to other periods. In addition, much of the Company's growth to date has resulted from various types of acquisitions. 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. -10- Year 2000 Compliance In late 1997, the Company began a comprehensive initiative to address and resolve potential exposure associated with the functioning of its information systems and non-information technology systems that include embedded technology with respect to dates in the Year 2000 and beyond. This initiative led to the development of the GWI Year 2000 Project Handbook. The Handbook was developed to report industry Year 2000 methods and standards, and document "best practices" for each of the Company's subsidiaries. Its purpose is to promote consistent implementation of the Year 2000 Project and encourage cost-effective practices and efficient use of resources. The Year 2000 Project Handbook contains information useful to managers, system analysts, and other technical staff members, including consultants and business partners. It is meant to be used as a reference throughout the Year 2000 design, modification, testing, and implementation phases. The Handbook addresses most of the obstacles the Company may face and their potential solutions, including project management issues, contracting and staffing, interface and data exchange standards, and test and development methodologies. Three major categories of systems addressed by the Company's Year 2000 Initiative are railroad operations/management systems, business systems and non- information technology systems. All of the Company's railroad operations and management processes are supported through licensed third party development and contracted operations. These systems are third party certified Year 2000 compliant. With respect to electronic commerce transmissions, the Company is currently capable of supporting certain Year 2000 compliant EDI (4010) transactions. Remaining Year 2000 compliant EDI transactions will be implemented according to industry-wide schedules. Full EDI compliance is expected during the second quarter of 1999. Because the potential exists that not all of the Company's trading partners will achieve Year 2000 compliance, the Company's operational systems will accommodate non-Year 2000 electronic commerce transmissions as well as Year 2000 ready transmissions. All of the Company's financial, purchasing, inventory, asset management, payroll and human resource systems supporting business operations are third party systems. The third party vendors have certified all packages to be Year 2000 compliant. With respect to non-information technology systems (e.g. fire and security, HVAC, etc.) that may impact operations and/or business processes, the Company has conducted initial assessments of its rail yard and office facilities and found no major Year 2000 problems or obstacles. As part of its Year 2000 initiative, the Company is in communication with its interline carriers, significant suppliers, large customers and financial institutions to assess their Year 2000 readiness and expects to conduct interface tests with its external trading partners in 1999 upon completion of internal testing of remediated applications. To date, the Company has expended less than $50,000 on its Year 2000 initiative and remaining costs are expected to be minimal. Overall, the Company's Year 2000 initiative is proceeding on schedule with completion of all areas expected by mid-1999. -11- Failure to achieve Year-2000 compliance by the Company, other railroads, its suppliers, and its customers could negatively affect the Company's ability to conduct business for an extended period. Management believes that the Company will be successful in its Year 2000 conversion; however, there can be no assurance that other companies on which the Company's systems and operations rely will be converted on a timely basis, and such failure could have a material effect on the Company's financial position, results of operations, or liquidity. The remainder of this page is intentionally left blank. -12- Results of Operations Three Months Ended September 30, 1998 Compared to Three Months Ended September 30, 1997 Consolidated Operating Revenues Operating revenues were $34.7 million in the quarter ended September 30, 1998 compared to $23.7 million in the quarter ended September 30, 1997, an increase of $11.0 million or 46.6%. The increase was attributable to $10.3 million in revenues from the Australia operation, an $84,000 increase in United States railroad revenues, and a $628,000 increase in industrial switching revenues. The following three sections provide information on railroad revenues in the United States and Australia, and industrial switching revenues in the United States. United States Operating Revenues Other Than Industrial Switching Operating revenues were $19.9 million in the quarter ended September 30, 1998 compared to $19.8 million in the quarter ended September 30, 1997, an increase of $84,000 or 0.4%. The increase was attributable to a $1.3 million increase in non-freight revenues, which offset a $1.2 million decrease in freight revenues. The following table compares United States freight revenues, carloads and average freight revenues per carload for the three months ended September 30, 1998 and 1997: United States Freight Revenues and Carloads Comparison by Commodity Group Three Months Ended September 30, 1998 and 1997 (dollars in thousands, except average per carload)
Average Freight Revenues Per Freight Revenues Carloads Carload ---------------- -------- ------- Commodity Group % of % of % of % of - --------------- 1998 Total 1997 Total 1998 Total 1997 Total 1998 1997 ------- ------- ------- ------- ------ ------- ------ ------- ----- ------ Coal, Coke & Ores $ 3,653 23.8% $ 4,543 27.5% 15,217 30.4% 16,929 32.2% $ 240 $ 268 Pulp & Paper 1,927 12.6% 2,042 12.4% 4,927 9.9% 5,365 10.2% 391 381 Petroleum Products 1,806 11.8% 2,350 14.2% 3,818 7.6% 5,053 9.6% 473 465 Chemicals - Plastics 1,709 11.1% 1,399 8.5% 3,425 6.8% 2,464 4.7% 499 568 Lumber and Forest Products 1,675 10.9% 1,550 9.4% 5,735 11.5% 4,702 9.0% 292 330 Farm & Food Products 1,165 7.6% 1,001 6.1% 4,211 8.4% 3,552 6.8% 277 282 Metals 1,021 6.7% 1,231 7.4% 3,539 7.1% 4,972 9.5% 288 248 Other 1,009 6.6% 700 4.2% 4,741 9.5% 4,293 8.1% 213 163 Minerals & Stone 991 6.5% 965 5.8% 3,668 7.3% 3,780 7.2% 270 255 Autos & Auto Parts 361 2.4% 742 4.5% 730 1.5% 1,409 2.7% 495 527 ------------------------------------------------------------------------------------------------------- Total $15,317 100.0% $16,523 100.0% 50,011 100.0% 52,519 100.0% 306 315 ====================================================================================================
The decrease of $1.2 million in United States freight revenues was primarily attributable to the decline in freight revenues from the shipment of Coal, Petroleum Products and Autos and Auto Parts. Freight revenues from Coal were $3.7 million in -13- the quarter ended September 30, 1998, compared to $4.5 million in the quarter ended September 30, 1997, a decrease of $890,000 or 19.6% due to reduced shipments resulting from scheduled inventory reductions and maintenance projects at a key customer's facilities. Freight revenues from Petroleum Products were $1.8 million in the quarter ended September 30, 1998, compared to $2.4 million in the quarter ended September 30, 1997, a decrease of $544,000 or 23.1% due to reduced shipments resulting from scheduled maintenance projects at a key customer's facilities. Freight revenues from Autos and Auto Parts were $361,000 in the quarter ended September 30, 1998, compared to $742,000 in the quarter ended September 30, 1997, a decrease of $381,000 or 51.3% due to reduced shipments resulting from loss of a freight contract. The decrease in freight revenues from Coal, Petroleum Products and Autos was partially offset by increases in freight revenues from Chemicals of $310,000 or 22.2% and Lumber and Forest Products of $125,000 or 8.1%. Freight revenues from all remaining commodities reflected a net increase of $174,000. Total United States carloads were 50,011 in the quarter ended September 30, 1998 compared to 52,519 in the quarter ended September 30, 1997, a decrease of 2,508 or 4.8%. Also, the overall average revenue per carload declined to $306 in the quarter ended September 30, 1998, compared to $315 per carload in the quarter ended September 30, 1997, a decrease of 2.9% due to changes in commodity mix and traffic patterns. United States non-freight railroad revenues were $4.6 million in the quarter ended September 30, 1998 compared to $3.3 million in the quarter ended September 30, 1997, an increase of $1.3 million or 38.9%. The increase was primarily due to increases in car hire and rental income of $447,000, management fee income of $304,000 and demurrage of $230,000. Australia Operating Revenues (US Dollars) Operating revenues were $10.3 million in the quarter ended September 30, 1998 and consisted of $9.4 million in freight revenues and a $963,000 in non-freight revenues. The following table outlines Australian freight revenues for the quarter ended September 30, 1998: Australian Freight Revenue by Commodity Three Months Ended September 30, 1998 (in thousands)
Commodity Group Revenue - --------------- ---------- Hook and Pull (Haulage) $3,478 Grain 2,730 Coal 1,846 Gypsum 552 Marble 457 Lime 265 Other 34 ---------- Total $9,362 ==========
Australia non-freight revenues were $963,000 in the quarter ended September 30, 1998 and consisted of $607,000 in revenues from car hire and car rentals and $356,000 in other non-freight revenue. -14- Industrial Switching Revenues Revenues from industrial switching activities were $4.5 million in the quarter ended September 30, 1998 compared to $3.8 million in the quarter ended September 30, 1997, an increase of $628,000 million or 16.4%. The increase was primarily attributable to a broadening of the customer base of Rail Link, Inc. Consolidated Operating Expenses Operating expenses were $30.6 million in the quarter ended September 30, 1998 compared to $19.8 million in the quarter ended September 30, 1997, an increase of $10.8 million or 54.6%. Expenses attributable to operations in Australia represented $8.1 million or 75.5% of the change, with increases in United States operating expenses making up the remaining $2.7 million or 24.5% of the change. The Company's operating ratio increased to 88.1% in the quarter ended September 30, 1998 from 83.5% in the quarter ended September 30, 1997. The increase is primarily attributable to increases in labor and benefits, equipment rents and other expenses in the United States railroad and industrial switching operations. The following table sets forth a comparison of the Company's operating expenses for the second quarters of 1998 and 1997: Operating Expense Comparison Three Months Ended September 30, 1998 and 1997 (dollars in thousands)
1998 1997 --------------------------------------- ------------------------------------- % of Operating % of Operating Amount Revenues Amount Revenues ----------------------------------------------------------------------------------- Labor and benefits $11,470 33.0% $ 9,272 39.2% Equipment rents 3,099 8.9% 2,159 9.1% Purchased services 3,765 10.8% 1,020 4.3% Depreciation and amortization 2,560 7.4% 1,764 7.5% Diesel fuel 2,738 7.9% 1,019 4.3% Casualties and insurance 1,462 4.2% 1,049 4.4% Materials 1,359 3.9% 1,202 5.1% Other 4,116 12.0% 2,284 9.6% ----------------------------------------------------------------------------------- Total $30,569 88.1% $19,769 83.5% ===================================================================================
Labor and benefits expense was $11.5 million in the quarter ended September 30, 1998 compared to $9.3 million in the quarter ended September 30, 1997, an increase of $2.2 million or 23.7%, of which $1.2 million or 55.3% is due to the commencement of operations in Australia and $982,000 or 44.7% is due to increases in United States railroad and switching operations. The increase of $982,000 in United States railroad and switching operations is primarily attributable to increases in industrial switching labor of $371,000 related to expansion of operations, several new corporate management positions totaling approximately $100,000, and cost of -15- living wage increases for employees which accounts for the remainder of the increase. However, labor costs decreased as a percentage of revenues to 33.0% in the quarter ended September 30, 1998 from 39.2% in the quarter ended September 30, 1997. The decrease is largely attributable to the purchased services nature of the Australia operation in which contractors perform maintenance of track and maintenance of equipment services traditionally performed by labor, thus resulting in a much lower labor-to-revenue ratio. Similarly, purchased services expense was $3.8 million in the quarter ended September 30, 1998 compared to $1.0 million in the quarter ended September 30, 1997, an increase of $2.8 million or 269.1%, due primarily to the commencement of operations in Australia. Diesel fuel expense was $2.7 million in the quarter ended September 30, 1998 compared to $1.0 million in the quarter ended September 30, 1997, an increase of $1.7 million or 168.7%. The increase was due to $1.9 million in diesel fuel expense in connection with the commencement of operations in Australia, which was partially offset by a decrease of $215,000 in diesel fuel expense in connection with United States operations. The price of diesel fuel is more expensive in Australia than in the United States on a per unit basis. Other expense was $4.1 million in the quarter ended September 30, 1998 compared to $2.3 million in the quarter ended September 30, 1997, an increase of $1.8 million or 80.3%, of which $1.2 million is due to the commencement of operations in Australia, and $676,000 is due to increases in United States operations primarily attributable to general and administrative expense increases related to acquisition endeavors and legal costs, and increases in trackage rights expense. Interest Expense and Income Taxes Interest expense in the quarter ended September 30, 1998 was $1.8 million compared to $629,000 in the quarter ended September 30, 1997, an increase of $1.1 million or 180.3%. The increase reflects the growth of overall debt outstanding during the 1998 period compared to the 1997 period due to the financing of the acquisition of assets in Australia; the investment in Genesee Rail-One in Canada; and the acquisition of railroad rolling stock by several domestic subsidiaries. The Company's effective income tax rate was 43.3% in the quarter ended September 30, 1998 compared to 40.0% in the quarter ended September 30, 1997. Net Income The Company's net income in the quarter ended September 30, 1998 was $1.4 million compared to $2.1 million in the quarter ended September 30, 1997, a decrease of $724,000 or 34.0%. The decrease in net income is the net result of decreases in net income from United States railroad operations and industrial switching operations of $1.5 million and $242,000, respectively, offset by net income due to the commencement of operations in Australia of $1.0 million. Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30, 1997 Consolidated Operating Revenues Operating revenues were $109.5 million in the first nine months of 1998 compared to $71.2 million in the first nine months of 1997, an increase of $38.3 million or 53.7%. The increase was attributable to $34.7 million in revenues from the Australia operation, a $1.6 million increase in United States railroad revenues and a $2.0 million increase in industrial switching revenues. -16- The following three sections provide information on railroad revenues in the United States and Australia, and industrial switching revenues in the United States. United States Operating Revenues Other Than Industrial Switching Operating revenues were $62.0 million in the first nine months of 1998 compared to $60.4 million in the first nine months of 1997, an increase of $1.6 million or 2.6%. The increase was attributable to a $3.3 million increase in non-freight revenues, which was partially offset by a $1.7 million decrease in freight revenues. The following table compares United States freight revenues, carloads and average freight revenues per carload for the nine months ended September 30, 1998 and 1997: United States Freight Revenues and Carloads Comparison by Commodity Group Nine Months Ended September 30, 1998 and 1997 (dollars in thousands, except average per carload)
Average Freight Revenues Per Freight Revenues Carloads Carload ---------------- -------- ------- Commodity % of % of % of % of Group 1998 Total 1997 Total 1998 Total 1997 Total 1998 1997 ------- ------- ------- ------- ------ ------- ------ ------- ----- ------ Coal, Coke & Ores $13,698 28.1% $15,956 31.6% 54,506 33.5% 62,029 38.0% $ 251 $ 257 Pulp & Paper 6,345 13.0% 5,84 11.6% 16,294 10.0% 15,351 9.4% 389 381 Petroleum Products 5,562 11.4% 6,441 12.8% 12,537 7.7% 13,368 8.2% 444 482 Chemicals and Plastics 4,786 9.8% 4,456 8.8% 9,327 5.7% 8,190 5.0% 513 544 Lumber and Forest Products 4,647 9.5% 4,545 9.0% 15,752 9.7% 13,536 8.3% 295 336 Metals 3,929 8.1% 3,668 7.3% 14,290 8.8% 15,321 9.4% 275 239 Farm & Food Products 3,164 6.5% 2,908 5.8% 11,442 7.0% 10,069 6.2% 277 289 Minerals & Stone 2,716 5.6% 2,402 4.7% 9,757 6.0% 9,097 5.5% 278 264 Other 2,473 5.1% 1,618 3.2% 16,170 9.9% 11,563 7.0% 153 140 Auto & Auto Parts 1,427 2.9% 2,607 5.2% 2,839 1.7% 4,906 3.0% 503 531 --------------------------------------------------------------------------------------- Total $48,747 100.0% $50,443 100.0% 162,914 100.0% 163,43 100.0% 299 309 ===========================================================================================================
The decrease in United States freight revenues was largely attributable to the decline in freight revenues from shipments of Coal, Autos and Auto Parts and Petroleum Products. Freight revenues from Coal were $13.7 million in the nine months ended September 30, 1998, compared to $16.0 million in the nine months ended September 30, 1997, a decrease of $2.3 million or 14.2% due to reduced shipments of coal resulting from scheduled maintenance and inventory adjustments at a key customer's facilities. Freight revenues from Autos and Auto Parts were $1.4 million in the nine months ended September 30, 1998, compared to $2.6 million in the nine months ended September 30, 1997, a decrease of $1.2 million or 45.3% due to reduced shipments resulting from loss of a freight contract and labor issues in the auto industry. Freight revenues from Petroleum Products were $5.6 million in the nine months ended September 30, 1998, compared to $6.4 million in the nine months ended September 30, 1997, a decrease of $879,000 or 13.6% due to reduced shipments of Petroleum Products resulting from scheduled maintenance at a key customer's -17- facilities. The decrease in freight revenues from Coal, Autos and Auto Parts and Petroleum Products was partially offset by increases in freight revenues from Pulp & Paper of $503,000 or 8.6%, Chemicals and Plastics of $330,000 or 7.4%, Minerals & Stone of $314,000 or 13.1% and Metals of $261,000 or 7.1%. Freight revenues from all remaining commodities reflected a net increase of $1.2 million. Total United States carloads were 162,914 in the nine months ended September 30, 1998 compared to 163,430 in the nine months ended September 30, 1997, a decrease of 516 or 0.3%. Also, the overall average revenue per carload declined to $299 in the nine months ended September 30, 1998, compared to $309 per carload in the nine months ended September 30, 1997, a decrease of 3.2% due to changes in commodity mix and traffic patterns. United States non-freight railroad revenues were $13.2 million in the nine months ended September 30, 1998 compared to $9.9 million in the nine months ended September 30, 1997, an increase of $3.3 million or 33.2%.%. The increase was primarily due to increases in car hire and rental income of $2.1 million, demurrage of $$416,000 and management fee income of $370,000. Australia Operating Revenues (US Dollars) Operating revenues were $34.7 million in the nine months ended September 30, 1998 and consisted of $31.0 million in freight revenues and a $3.7 million in non-freight revenues. The following table outlines Australian freight revenues for the nine months ended September 30, 1998: Australian Freight Revenue by Commodity Nine Months Ended September 30, 1998 (in thousands)
Commodity Group Revenue - --------------- ------------ Hook and Pull (Haulage) $11,355 Grain 9,202 Coal 5,702 Gypsum 2,093 Marble 1,467 Lime 789 Other 392 ----------- Total $31,000 ===========
Australia non-freight revenues were $3.7 million in the nine months ended September 30, 1998 and consisted of $2.5 million in revenues from car hire and car rentals and $1.2 million in other non-freight revenue. -18- Industrial Switching Revenues Revenues from industrial switching activities were $12.8 million in the nine months ended September 30, 1997 compared to $10.8 million in the nine months ended September 30, 1997, an increase of $2.0 million or 17.8%. The increase was primarily attributable to a broadening of the customer base of Rail Link, Inc. Consolidated Operating Expenses Operating expenses were $95.7 million in the nine months ended September 30, 1998 compared to $59.1 million in the nine months ended September 30, 1997, an increase of $36.6 million or 61.9%. Expenses attributable to operations in Australia represented $28.8 million or 78.6% of the change, with increases in domestic operating expenses accounting for the remaining $7.8 million or 21.4% of the change. The Company's operating ratio increased to 87.4% in the nine months ended September 30, 1998 from 83.0% in nine months ended September 30, 1997. The increase is primarily attributable to changes in the traffic mix, principally related to the level of coal movements in the United States, and to increases in labor and benefits and other expenses in the United States railroad and industrial switching operations. The following table sets forth a comparison of the Company's operating expenses for the nine months ended September 30, 1998 and 1997: Operating Expense Comparison Nine Months Ended September 30, 1998 and 1997 (dollars in thousands)
1998 1997 ------------------------------- -------------------------------- % of % of Operating Operating Amount Revenues Amount Revenues ---------------------------------------------------------------------- Labor and benefits $33,991 31.0% $27,005 37.9% Equipment rents 9,038 8.3% 6,711 9.4% Purchased services 13,950 12.7% 3,018 4.2% Depreciation and amortization 7,357 6.7% 4,985 7.0% Diesel fuel 9,456 8.6% 3,525 4.9% Casualties and insurance 4,160 3.8% 3,682 5.2% Materials 4,449 4.1% 3,315 4.7% Other 13,328 12.2% 6,893 9.7% ------- ---- ------- ---- Total $95,729 87.4% $59,134 83.0% =======================================================================
Labor and benefits expense was $34.0 million in the nine months ended September 30, 1998 compared to $27.0 million in the nine months ended September 30, 1997, an increase of $7.0 million or 25.9%, of which $3.8 million or 54.3% was due to the commencement of operations in Australia and $3.2 million or 45.7% was due to increases in United States railroad and switching operations. The increase of $3.2 million in United States railroad and switching operations is primarily attributable to increases in industrial switching labor of $1.3 million related to expansion of operations, several new corporate management positions totaling approximately -19- $289,000, and cost of living wage increases for employees which accounts for the remainder of the increase. However, labor costs decreased as a percentage of revenues to 31.0% in the nine months ended September 30, 1998 from 37.9% in the nine months ended September 30, 1997. The decrease is largely attributable to the purchased services nature of the Australia operation in which contractors perform maintenance of track and maintenance of equipment services traditionally performed by labor, thus resulting in a much lower labor-to-revenue ratio. Similarly, purchased services expense was $14.0 million in the nine months ended September 30, 1998 compared to $3.0 million in the nine months ended September 30, 1997, an increase of $10.9 million or 362.2%, due primarily to the commencement of operations in Australia. Diesel fuel expense was $9.5 million in the nine months ended September 30, 1998 compared to $3.5 million in the nine months ended September 30, 1997, an increase of $5.9 million or 168.3%. This increase was due to $6.7 million in diesel fuel expense in connection with the commencement of operations in Australia, which was partially offset by a decrease of $773,000 in diesel fuel expense in connection with United States operations. The price of diesel fuel is more expensive in Australia than in the United States on a per unit basis. Other expense was $13.3 million in the nine months ended September 30, 1998 compared to $6.9 million in the nine months ended September 30, 1997, an increase of $6.4 million or 93.4%, of which $3.9 million or 60.4% is due to the commencement of operations in Australia and $2.5 million or 39.6% is due to increases in United States operations primarily attributable to general and administrative increases related to acquisition endeavors and legal costs, and trackage rights expense increases. Interest Expense and Income Taxes Interest expense in the nine months ended September 30, 1998 was $5.0 million compared to $1.9 million in the nine months ended September 30, 1997, an increase of $3.1 million or 168.5%. The increase reflects the growth of overall debt outstanding during the 1998 period compared to the 1997 period due to the financing of the acquisition of assets in Australia; the investment in Genesee Rail-One in Canada; and the acquisition of railroad rolling stock by several domestic subsidiaries. The Company's effective income tax rate was 41.7% in the nine months ended September 30, 1998 compared to 40.4% in the nine months ended September 30, 1997. Net Income The Company's net income in the nine months ended September 30, 1998 was $5.5 million compared to $6.4 million in the nine months ended September 30, 1997, a decrease of $887,000 or 13.8%. The decrease in net income is the net result of decreases in net income from United States railroad operations and industrial switching operations of $3.0 million and $492,000, respectively, offset by net income due to the commencement of operations in Australia of $2.6 million. Liquidity and Capital Resources On August 12, 1998, the Company announced that it would repurchase up to one million shares of its Class A Common Stock in accordance with Exchange Act Rule 10b-18. During August and September, the Company repurchased 345,000 shares of Class A stock at a cost of $4.6 million which will be held in the Company treasury and may be used for customary corporate purposes. During the nine months ended September 30, 1998 the Company generated cash from operations of $11.1 million, invested $13.4 million in capital assets, had a net -20- reduction in debt of $4.5 million and received $2.0 million in proceeds from the disposition of property. During the nine months ended September 30, 1997 the Company used cash in operations of $2.9 million, had a net increase in debt of $5.3 million, entered into a $6.6 million long-term capital lease for rolling stock and recorded $2.5 million in net proceeds on governmental grants. A total of $14.0 million was invested in capital assets of which $6.6 million represented rolling stock under the long-term capital lease. The Company received $293,000 in proceeds from the disposition of property. The Company, through its initial budget and budget addendums for special projects, has appropriated approximately $15.0 million in capital expenditures in 1998, primarily for track rehabilitation. Of this amount, $1.5 million was used to complete an obligation to replace rail under the terms of a lease of one of the Company's railroads in the United States, and $2.5 million was used in Australia. Approximately $13.4 million of the budgeted capital expenditures of $15.0 million were completed as of September 30, 1998. At September 30, 1998 the Company had long-term debt (including current portion) totaling $68.1 million, which comprised 49.9% of its total capitalization. This compares to long-term debt, including current portion, of $74.1 million at December 31, 1997, comprising 52.0% 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable. -21- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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 1987 agreement entered into by a prior unrelated owner of the IMRR rail line. The provisions 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 in excess of $100,000. ComEd is IMRR's largest customer and in 1997 accounted for 15% of the consolidated revenues of the Company and its subsidiaries. The Company believes the suit is without merit. IMRR intends to vigorously defend against the suit. 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. -22- 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) Second Amendment and Restated Revolving Credit Agreement dated as of October 31, 1997 among the Registrant, its subsidiaries, BankBoston, N.A. and the banks named therein (Exhibit 4.1)4 (10) Material Contracts Not applicable. *(11.1) Statement re computation of per share earnings (15) Letter re unaudited interim financial information Not applicable. (18) Letter re change in accounting principles Not applicable. (19) Report furnished to security holders Not applicable. -23- (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. 1Exhibit 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. 2Exhibit 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. 3Exhibit 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. 4Exhibit 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, 1997. The exhibit number contained in parenthesis refers to the exhibit number in such Report. The remainder of this page is intentionally left blank. -24- 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 16, 1998 By: /s/ Mortimer B. Fuller, III --------------------------- Name: Mortimer B. Fuller, III Title: Chairman of the Board and CEO Date: November 16, 1998 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. -25- EX-11.1 2 COMPUTATION OF EARNINGS PER SHARE 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, 1998 September 30, 1998 ------------------ ------------------ BASIC EARNINGS PER SHARE CALCULATION: Net Income $1,403 5,531 Weighted average number of shares of common stock 5,213 5,267 Earnings per share - basic $0.27 $1.05 DILUTED EARNINGS PER SHARE CALCULATION: Net Income $1,403 $ 5,531 Weighted average number of shares of common stock and common stock equivalents outstanding: Weighted average number of shares of common stock 5,213 5,267 Common stock equivalents issuable under stock option plans -0- 71 Weighted average number of shares of common stock and common stock equivalents - diluted 5,213 5,338 Earnings per share - diluted $ 0.27 $1.04
EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE SHEET, INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 6,816 0 32,508 0 3,612 50,600 150,109 28,603 200,419 32,062 67,849 0 0 53 68,289 200,419 109,514 109,514 95,729 95,729 0 0 4,299 9,486 3,955 5,531 0 0 0 5,531 1.05 1.04
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