EX-99.1 2 gw6614ex991.txt EXHIBIT 99.1 Exhibit 99.1 GENESEE & WYOMING REPORTS RESULTS FOR THE SECOND QUARTER OF 2006 GREENWICH, Conn., August 1, 2006 /PRNewswire-FirstCall/ -- Genesee & Wyoming Inc. (GWI) (NYSE: GWR) reported net income of $117.7 million in the second quarter of 2006, compared to $11.4 million in the second quarter of 2005. GWI's diluted earnings per share in the second quarter of 2006 were $2.76 with 42.6 million shares outstanding, compared to diluted earnings per share of $0.27 with 41.6 million shares outstanding in the second quarter of 2005. Results for the second quarter of 2006 included certain gains and charges that totaled $183.3 million ($102.6 million after-tax, or $2.41 per diluted share). Additional information on these gains and charges is set forth below under Additional Financial Information. On June 1, 2006, GWI and its joint venture partner, Wesfarmers Limited (Wesfarmers), completed the sale of their Western Australia operations and certain other assets of the Australian Railroad Group (ARG) to Queensland Rail and Babcock & Brown Limited. ARG was 50 percent-owned by GWI and 50 percent-owned by Wesfarmers. GWI recorded a $208.4 million gain on the sale of its interest in ARG ($123.0 million after-tax, or $2.89 per diluted share). Also in the second quarter of 2006, GWI incurred ARG transaction-related expenses, including management bonuses, of $4.9 million, net ($3.4 million after-tax, or $0.08 per diluted share). In addition, GWI's contingent share of the post-closing adjustments, currently estimated to be a gain of approximately $10 million ($6 million after-tax, or $0.14 per diluted share), is expected to be recorded in the third quarter of 2006. Also on June 1, 2006, GWI completed the acquisition of certain South Australian operations of ARG. The Adelaide-based South Australian business has been renamed Genesee & Wyoming Australia Pty Ltd (GWA) and is a 100 percent-owned subsidiary that is reported on a consolidated basis in GWI's financial statements. GWI's results for the second quarter of 2006 include one month of GWA's operations. Also in the second quarter of 2006, GWI recorded an impairment loss on its investment in ARG of $16.2 million ($11.3 million after-tax, or $0.27 per diluted share). This loss reflects the difference between GWI's previously held 50 percent share of the book value of the assets acquired from ARG in South Australia and the price paid for the remaining 50 percent of those assets in the acquisition. In the second quarter of 2006, GWI recorded non-cash charges related to the impairment of its operations in Bolivia and Mexico. First, GWI recorded an impairment of $5.9 million on its investment in Ferroviaria Oriental (Oriental), a railroad located in eastern Bolivia, in which GWI owns a minority interest. This non-cash write-down reflects the heightened political uncertainty and risk of nationalization of GWI's assets in Bolivia. Second, GWI recorded a deferred tax valuation allowance of $1.0 million against the net operating losses (NOLs) of its Mexican subsidiaries. GWI believes that it is more likely than not that a portion of its NOLs in Mexico will expire before being used due to the continuing adverse business conditions since Hurricane Stan washed out a portion of its track in October 2005. Additional Financial Information Significant items impacting GWI's results for the second quarter of 2006 are enumerated in the following table: June 30, 2006 ------------------------------------------ Pre-Tax After-Tax Item Amount Amount EPS Impact -------------------------------- ------------ ------------ ------------ (dollars in millions, except per share amounts) ARG Sale Gain $ 208.4 $ 123.0 $ 2.89 Impairment of Australian Assets (16.2) (11.3) (0.27) ARG Transaction-Related Expenses (4.9) (3.4) (0.08) Bolivia Impairment (5.9) (5.9) (0.14) Mexico NOL Valuation Allowance -- (1.0) (0.02) Gain on Insurance Recovery 1.9 1.2 0.03 Operating Results In the second quarter of 2006, GWI's revenue increased 22.5 percent to $113.6 million, compared to $92.7 million in the second quarter of 2005. Of this $20.8 million increase in revenue, $3.8 million was same-railroad revenue growth in the U.S. and Canada, $12.5 million was from the acquisition of rail lines from Rail Management Corporation and the acquisition of a small rail property from CSX, and $6.7 million was from GWA. These gains were partially offset by a $2.2 million decrease in revenue in Mexico. The 4.6 percent growth in same-railroad revenue in the U.S. and Canada was primarily due to freight revenue increases of $1.4 million in coal, $1.3 million in pulp and paper and $1.3 million in metals. GWI's operating income in the second quarter of 2006 increased 2.0 percent to $16.3 million, compared with $16.0 million in the second quarter of 2005. The operating ratio was 85.6 percent compared to an operating ratio of 82.7 percent in the second quarter of 2005. GWI's operating results in the second quarter included ARG transaction-related expenses of $4.9 million, an insurance gain of $1.9 million, and $0.8 million of additional stock options expense. Excluding these items, the operating ratio would have been 82.3 percent.(1) GWI's Mexico operations had an operating loss of $1.1 million in the second quarter of 2006 compared to operating income of $0.6 million in the second quarter of 2005. Excluding Mexico and the items above, GWI's operating ratio would have been 80.1 percent in the second quarter of 2006 compared with 81.5 percent in the second quarter of 2005.(1) ---------- (1) The operating ratios that exclude the items described above are non-GAAP measures and are not intended to replace the operating ratio calculated using total operating expenses and total revenue, calculated on a basis consistent with GAAP. The information required by Regulation G under the Securities Exchange Act of 1934, including reconciliation to the operating ratio calculated using amounts determined in accordance with GAAP, is included in the tables attached to this press release. GWI traffic in the second quarter of 2006 increased by approximately 24,000 carloads, or 13.2 percent, compared with the second quarter of 2005. Excluding traffic from acquisitions, same railroad traffic in the second quarter of 2006 decreased by approximately 10,900 carloads, or 6.0 percent. GWI's Mexico Region experienced a decline of approximately 1,900 carloads. Same railroad revenue per carload increased by 8.7 percent (on higher rates of 6.7 percent, higher fuel surcharge of 3.3 percent, partially offset by a decrease of 1.3 percent due to a change of commodity mix). Excluding Mexico, same railroad revenue per carload increased by 11.2 percent (on higher rates of 8.5 percent, higher fuel surcharges of 3.7 percent, partially offset by a 1.0 percent decrease due to a change of commodity mix). Equity Accounting Equity income from ARG for the second quarter of 2006 (April and May results only) was US$3.3 million (US$2.3 million after-tax), which approximates the equity income recorded in the second quarter of 2005 (full three months of the quarter). This will be the final reporting period in which GWI records equity income from ARG. The loss from GWI's Bolivian investment was $5.9 million in the second quarter. This will be the final reporting period in which GWI records equity income/loss from the Bolivian operations. In future periods GWI will account for its interest in Oriental as a cost method investment. Generally, periodic income will be recorded to the extent that the GWI receives cash dividends from Oriental. Free Cash Flow(2) For the six months ended June 30, 2006, Net cash provided by operating activities was $47.5 million, compared to $39.3 million for the same period of 2005. For the six months ended June 30, 2006, GWI's operations generated free cash flow of $29.1 million, compared with $28.8 million in the same period of 2005. ---------- (2) Free cash flow is a non-GAAP measure and is not intended to replace net cash provided by operating activities, its most directly comparable GAAP measure. The information required by Regulation G under the Securities Exchange Act of 1934, including a reconciliation to net cash provided by operating activities, is included in the tables attached to this press release. Comments from the Chief Executive Officer Mortimer B. Fuller III, Chairman and Chief Executive Officer of GWI, commented, "While multiple events complicate the reporting of our second quarter results, they reflect the successful closing of the sale of ARG which resulted in a very large gain for the Company and created significant shareholder value. It leaves us with the strongest balance sheet in our history to pursue opportunities to further enhance that value. In addition, we are excited about future prospects for GWA in Australia." Mr. Fuller continued, "In North America, our operations, excluding Mexico, performed well. Improved pricing more than offset same railroad declines in coal carload volume related to plant maintenance and weather. Additionally, shipments of lumber and forest products declined due to a slower housing market." Mr. Fuller added, "The operating environment in Mexico remains challenging and results for the quarter were below our expectations. We are making progress in our discussions with the Mexican government on the reconstruction of our line damaged by Hurricane Stan. The scope and complexity of the project are significant." Conference Call and Webcast Details As previously announced, GWI's conference call to discuss financial results for the second quarter will be held today at 11:00 a.m. (Eastern Time). The dial-in number for the teleconference is 1 (800) 230 1085 (if outside U.S., call (612) 288 1038) or the call may be accessed live over the Internet (listen only) under the "Investors" tab of GWI's website (http://www.gwrr.com), by selecting "Second Quarter Earnings Audio Webcast." An audio replay of the conference call will be accessible via the Investors tab of GWI's website starting at 2:30 p.m. this afternoon. About Genesee & Wyoming Inc. GWI is a leading operator of short line and regional freight railroads in the United States, Canada, Mexico, Australia and Bolivia. The Company operates over 5,900 miles of owned and leased track and approximately 3,700 additional miles under track access arrangements. Cautionary Statement Concerning Forward-Looking Statements This press release contains forward-looking statements regarding future events and the future performance of Genesee & Wyoming Inc. that involve risks and uncertainties that could cause actual results to differ materially from its current expectations including, but not limited to, economic conditions, customer demand, increased competition in relevant markets, and others. GWI refers you to the documents that it files from time to time with the Securities and Exchange Commission, such as GWI's Forms 10-Q and 10-K which contain additional important factors that could cause its actual results to differ from its current expectations and from the forward-looking statements contained in this press release. GWI disclaims any intention to update the current expectations or forward looking statements contained in this press release. GENESEE & WYOMING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 2006 2005 2006 2005 ------------ ------------ ------------ ------------ REVENUES $ 113,590 $ 92,742 $ 226,572 $ 176,824 OPERATING EXPENSES 97,245 76,722 188,167 146,544 ------------ ------------ ------------ ------------ INCOME FROM OPERATIONS 16,345 16,020 38,405 30,280 GAIN ON SALE OF ARG 208,423 - 208,423 - IMPAIRMENT LOSS - AUSTRALIA (16,173) - (16,173) - LOSS ON INVESTMENT IN BOLIVIA (5,878) - (5,878) - EQUITY INCOME OF INTERNATIONAL AFFILIATES 3,414 3,487 5,421 6,857 INTEREST EXPENSE (4,689) (2,837) (9,697) (4,955) OTHER INCOME, NET 2,119 (475) 2,665 (380) ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 203,561 16,195 223,166 31,802 PROVISION FOR INCOME TAXES 85,812 4,830 91,403 9,537 ------------ ------------ ------------ ------------ NET INCOME $ 117,749 $ 11,365 $ 131,763 $ 22,265 ============ ============ ============ ============ BASIC EARNINGS PER SHARE: EARNINGS PER SHARE $ 3.12 $ 0.31 $ 3.51 $ 0.61 ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 37,680 36,801 37,515 36,715 ============ ============ ============ ============ DILUTED EARNINGS PER SHARE: EARNINGS PER SHARE $ 2.76 $ 0.27 $ 3.10 $ 0.54 ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 42,602 41,570 42,533 41,525 ============ ============ ============ ============
GENESEE & WYOMING INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) June 30, December 31, 2006 2005 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 242,267 $ 18,669 Accounts receivable, net 100,234 91,134 Materials and supplies 11,239 6,765 Prepaid expenses and other 8,638 8,298 Deferred income tax assets, net 7,948 4,230 ------------ ------------ Total current assets 370,326 129,096 PROPERTY AND EQUIPMENT, net 566,766 535,994 INVESTMENT IN UNCONSOLIDATED AFFILIATES 4,535 136,443 GOODWILL 38,174 31,233 INTANGIBLE ASSETS, net 126,819 135,444 OTHER ASSETS, net 13,013 12,388 ------------ ------------ Total assets $ 1,119,633 $ 980,598 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 4,637 $ 4,726 Accounts payable 97,379 87,496 Accrued expenses 30,021 28,270 Income tax payable - Australia 82,070 - ------------ ------------ Total current liabilities 214,107 120,492 LONG-TERM DEBT, less current portion 244,762 333,625 DEFERRED INCOME TAX LIABILITIES, net 70,400 59,891 DEFERRED ITEMS - grants from governmental agencies 48,311 48,242 DEFERRED GAIN - sale/leaseback 3,073 3,217 OTHER LONG-TERM LIABILITIES 16,625 13,982 MINORITY INTEREST 2,726 3,329 TOTAL STOCKHOLDERS' EQUITY 519,629 397,820 ------------ ------------ Total liabilities and stockholders' equity $ 1,119,633 $ 980,598 ============ ============ GENESEE & WYOMING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six Months Ended ---------------------------- June 30, June 30, 2006 2005 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 131,763 $ 22,265 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 14,250 10,659 Amortization of restricted stock 404 178 Compensation cost related to stock options 4,383 - Excess tax benefits from share-based payment arrangements (3,445) - Deferred income taxes 9,174 3,503 Gain on insurance recovery (1,937) - Gain on sale of equity investment in ARG (208,423) - Impairment loss - Australia 16,173 - Net (gain) loss on sale and impairment of assets (132) 2 Loss on investment in Oriental 5,878 - Equity earnings of unconsolidated international affiliates, net of tax (3,821) (4,877) Minority interest income (22) (103) Changes in assets and liabilities, net of effect of acquisitions - Accounts receivable 2,817 (5,499) Materials and supplies (1,937) 231 Prepaid expenses and other (207) 2,993 Accounts payable and accrued expenses 1,324 7,867 Income tax payable - Australia 82,070 - Other assets and liabilities, net (851) 2,064 ------------ ------------ Net cash provided by operating activities 47,461 39,283 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment, net of proceeds from government grants (18,690) (11,475) Net proceeds from Australian transactions 279,614 - Purchase of Rail Partners, net of cash received - (238,204) Cash received from unconsolidated international affiliates - 606 Valuation adjustment of split dollar life insurance 12 74 Proceeds from disposition of property and equipment, including sale/leasebacks 343 281 ------------ ------------ Net cash provided by (used in) investing activities 261,279 (248,718) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term borrowings, including capital leases (182,832) (89,129) Proceeds from issuance of long-term debt 92,500 302,800 Debt issuance costs - (1,629) Proceeds from employee stock purchases 3,969 1,473 Excess tax benefits from share-based payment arrangements 3,445 - ------------ ------------ Net cash (used in) provided by financing activities (82,918) 213,515 ------------ ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (2,224) 723 ------------ ------------ INCREASE IN CASH AND CASH EQUIVALENTS 223,598 4,803 CASH AND CASH EQUIVALENTS, beginning of period 18,669 14,451 ------------ ------------ CASH AND CASH EQUIVALENTS, end of period $ 242,267 $ 19,254 ============ ============
GENESEE & WYOMING INC. AND SUBSIDIARIES Selected Consolidated Financial Information (dollars in thousands) (Unaudited)
Three Months Ended June 30, --------------------------------------------------------- 2006 2005 --------------------------- --------------------------- % of % of Amount Revenue Amount Revenue ------------ ------------ ------------ ------------ Revenues: --------- Freight $ 82,923 73.0% $ 69,245 74.7% Non-freight 30,667 27.0% 23,497 25.3% ------------ ------------ ------------ ------------ Total revenues $ 113,590 100.0% $ 92,742 100.0% ============ ============ ============ ============ Operating Expense Comparison: ----------------------------- Natural Classification ---------------------- Labor and benefits $ 42,746 37.6% $ 29,570 31.9% Equipment rents 9,119 8.0% 8,115 8.8% Purchased services 8,372 7.4% 6,065 6.5% Depreciation and amortization 6,939 6.1% 5,669 6.1% Diesel fuel used in operations 11,357 10.0% 8,877 9.6% Diesel fuel sold to third parties 1,631 1.4% - 0.0% Casualties and insurance 4,139 3.6% 5,502 5.9% Materials 5,704 5.0% 4,820 5.2% Net (gain) loss on sale and impairment of assets (38) 0.0% 68 0.1% Gain on insurance recovery (1,937) -1.7% - 0.0% Other expenses 9,213 8.2% 8,036 8.6% ------------ ------------ ------------ ------------ Total operating expenses $ 97,245 85.6% $ 76,722 82.7% ============ ============ ============ ============ Functional Classification ------------------------- Transportation $ 41,420 36.5% $ 31,827 34.3% Maintenance of ways and structures 10,412 9.2% 8,558 9.2% Maintenance of equipment 15,169 13.4% 13,675 14.7% General and administrative 25,280 22.1% 16,925 18.3% Net (gain) loss on sale and impairment of assets (38) 0.0% 68 0.1% Gain on insurance recovery (1,937) -1.7% - 0.0% Depreciation and amortization 6,939 6.1% 5,669 6.1% ------------ ------------ ------------ ------------ Total operating expenses $ 97,245 85.6% $ 76,722 82.7% ============ ============ ============ ============
GENESEE & WYOMING INC. AND SUBSIDIARIES Selected Consolidated Financial Information (dollars in thousands) (Unaudited)
Six Months Ended June 30, --------------------------------------------------------- 2006 2005 --------------------------- --------------------------- % of % of Amount Revenue Amount Revenue ------------ ------------ ------------ ------------ Revenues: --------- Freight $ 168,437 74.3% $ 132,378 74.9% Non-freight 58,135 25.7% 44,446 25.1% ------------ ------------ ------------ ------------ Total revenues $ 226,572 100.0% $ 176,824 100.0% ============ ============ ============ ============ Operating Expense Comparison: ----------------------------- Natural Classification ---------------------- Labor and benefits $ 79,937 35.3% $ 58,454 33.1% Equipment rents 19,025 8.4% 16,005 9.1% Purchased services 15,724 6.9% 11,195 6.3% Depreciation and amortization 14,250 6.3% 10,659 6.0% Diesel fuel used in operations 22,632 10.0% 16,814 9.5% Diesel fuel sold to third parties 1,631 0.7% - 0.0% Casualties and insurance 6,921 3.1% 9,134 5.2% Materials 11,499 5.1% 9,028 5.1% Net (gain) loss on sale and impairment of assets (132) -0.1% 2 0.0% Gain on insurance recovery (1,937) -0.9% - 0.0% Other expenses 18,617 8.2% 15,253 8.6% ------------ ------------ ------------ ------------ Total operating expenses $ 188,167 83.0% $ 146,544 82.9% ============ ============ ============ ============ Functional Classification ------------------------- Transportation $ 79,821 35.2% $ 60,713 34.3% Maintenance of ways and structures 20,338 9.0% 16,450 9.3% Maintenance of equipment 31,601 13.9% 26,780 15.1% General and administrative 44,226 19.6% 31,940 18.2% Net (gain) loss on sale and impairment of assets (132) -0.1% 2 0.0% Gain on insurance recovery (1,937) -0.9% - 0.0% Depreciation and amortization 14,250 6.3% 10,659 6.0% ------------ ------------ ------------ ------------ Total operating expenses $ 188,167 83.0% $ 146,544 82.9% ============ ============ ============ ============
GENESEE & WYOMING INC. AND SUBSIDIARIES Railroad Freight Revenue, Carloads and Average Revenue Per Carload Comparison by Commodity Group (dollars in thousands, except average revenue per carload)
Three Months Ended June 30, 2006 Three Months Ended June 30, 2005 ------------------------------------ ------------------------------------ Average Average Revenue Revenue Freight Per Freight Per Commodity Group Revenues Carloads Carload Revenues Carloads Carload ------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- Paper $ 17,328 34,817 $ 498 $ 13,310 30,686 $ 434 Coal, Coke & Ores 14,998 47,335 317 13,144 49,786 264 Lumber & Forest Products 9,405 24,409 385 8,801 24,536 359 Metals 9,344 21,475 435 6,988 19,754 354 Minerals & Stone 8,935 25,423 351 7,225 17,724 408 Chemicals-Plastics 6,265 10,611 590 5,249 9,768 537 Farm & Food Products 5,947 16,321 364 3,689 11,035 334 Petroleum Products 5,256 7,090 741 6,835 8,730 783 Autos & Auto Parts 2,114 4,017 526 2,053 4,254 483 Intermodal 405 920 440 497 1,155 430 Other 2,926 14,440 203 1,454 5,288 275 ---------- ---------- ---------- ---------- Totals $ 82,923 206,858 401 $ 69,245 182,716 379 ========== ========== ========== ==========
GENESEE & WYOMING INC. AND SUBSIDIARIES Railroad Freight Revenue, Carloads and Average Revenue Per Carload Comparison by Commodity Group (dollars in thousands, except average revenue per carload)
Six Months Ended June 30, 2006 Six Months Ended June 30, 2005 ------------------------------------ ------------------------------------ Average Average Revenue Revenue Freight Per Freight Per Commodity Group Revenues Carloads Carload Revenues Carloads Carload ------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- Paper $ 34,727 70,179 $ 495 $ 25,011 56,095 $ 446 Coal, Coke & Ores 32,022 99,030 323 25,412 95,644 266 Lumber & Forest Products 18,934 49,841 380 16,352 45,487 359 Metals 18,745 43,867 427 13,342 37,919 352 Minerals & Stone 17,134 45,462 377 12,826 31,789 403 Chemicals-Plastics 12,504 21,610 579 9,922 19,073 520 Farm & Food Products 12,083 32,531 371 8,448 24,407 346 Petroleum Products 11,707 15,652 748 13,706 17,513 783 Autos & Auto Parts 3,779 7,451 507 3,883 8,208 473 Intermodal 855 1,955 437 998 2,298 434 Other 5,947 28,054 212 2,478 9,069 273 ---------- ---------- ---------- ---------- Totals $ 168,437 415,632 405 $ 132,378 347,502 381 ========== ========== ========== ==========
Reconciliation of non-GAAP Financial Measures This earnings release contains free cash flow and adjusted operating ratios, which are "non-GAAP financial measures" as this term is defined in Regulation G of the Securities Exchange Act of 1934. In accordance with Regulation G, GWI has reconciled these non-GAAP financial measures to their most directly comparable U.S. GAAP measures. Free Cash Flow Description and Discussion Management views Free Cash Flow as an important financial measure of how well GWI is managing its assets. Subject to the limitations discussed below, Free Cash Flow is a useful indicator of cash flow that may be available for discretionary use by GWI. Free Cash Flow is defined as Net Cash Provided by Operating Activities less Net Cash Used in/Provided by Investing Activities, excluding the Cost of Acquisitions/Proceeds from Divestitures. Key limitations of the Free Cash Flow measure include the assumptions that GWI will be able to refinance its existing debt when it matures and meet other cash flow obligations from financing activities, such as required dividend payments and principal payments on debt. Free Cash Flow is not intended to represent, and should not be considered more meaningful than, or as an alternative to, measures of cash flow determined in accordance with Generally Accepted Accounting Principles (GAAP). The following table sets forth a reconciliation of GWI's Net Cash Provided by Operating Activities to GWI's Free Cash Flow:
Years Ended June 30, --------------------------- 2006 2005 ------------ ------------ Net cash provided by operating activities $ 47,461 $ 39,283 Net cash provided by (used in) investing activities 261,279 (248,718) Cash used for acquisitions/proceeds from divestitures (279,614) 238,204 ------------ ------------ Free cash flow $ 29,126 $ 28,769 ============ ============
Operating Ratio Description and Discussion Management views the Operating Ratio, calculated as total Operating Expenses divided by total Revenues, as an important measure of GWI's operating performance. Because management believes it is useful for investors in assessing GWI's financial results compared to the same period in the prior year, Adjusted Operating Ratios are also presented excluding the effects of certain transaction-related expenses and additional stock options expense as well as a gain from insurance recovery in the six month period ended June 30, 2006. GWI also discloses Adjusted Operating Ratios that further exclude the effects of its operations in Mexico in the six month periods ended June 30, 2006 and 2005. The Adjusted Operating Ratios presented excluding these effects are not intended to represent, and should not be considered more meaningful than, or as an alternative to, the Operating Ratios calculated using amounts determined in accordance with GAAP. The following table sets forth a reconciliation of GWI's Operating Ratio calculated using amounts determined in accordance with GAAP to the Adjusted Operating Ratios described above: For the Three Months Ended June 30, 2006 ------------------------------------------ Total Total Operating Operating Revenues Expenses Ratio ------------ ------------ ------------ As Reported $ 113,590 $ 97,245 85.6% ARG Transaction-Related Expenses (4,888) Gain on Insurance Recovery 1,937 Additional Stock Options Expense (845) ------------ ------------ Excluding Above Items 113,590 93,449 82.3% ------------ ------------ Mexico Operations (7,155) (8,246) ------------ ------------ Excluding Above Items and Mexico $ 106,435 $ 85,203 80.1% ============ ============ For the Three Months Ended June 30, 2005 ------------------------------------------ Total Total Operating Operating Revenues Expenses Ratio ------------ ------------ ------------ As Reported $ 92,742 $ 76,722 82.7% Mexico Operations (9,359) (8,803) ------------ ------------ Excluding Mexico $ 83,383 $ 67,919 81.5% ============ ============