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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| Annual Report Pursuant to Section 13 or 15(d)of the Securities Exchange
Act of 1934 For the Fiscal Year Ended December 31, 2000
or
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from____to____
Commission File No. 0-20847
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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.)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
- ------------------- -------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $0.01 par value
-------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
|X| YES |_| NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of the Regulations S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this Form 10-K. |_|
Aggregate market value of Class A Common Stock and Class B Common Stock held by
non-affiliates based on closing price on March 19, 2001: $78,790,471.
Shares of common stock outstanding as of the close of business on March 19,
2001:
Class Number of Shares Outstanding
- ------------ -----------------------
Class A Common Stock 3,702,117
Class B Common Stock 845,447
Documents incorporated by reference and the Part of the Form 10-K into which
they are incorporated are listed hereunder.
PART OF FORM 10-K DOCUMENT INCORPORATED BY REFERENCE
Part III, Items 10, 11, 12 and 13 Registrant's proxy statement to be
issued in connection with the Annual
Meeting of the Stockholders of the
Registrant to be held on May 22, 2001.
Part I, Item 4 Registrant's information statement
(Schedule 14C) filed with the Commission
on October 23, 2000.
The remainder of this page is intentionally left blank.
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Part I
Item 1. BUSINESS
Genesee & Wyoming Inc. (the Registrant or the Company) is a holding
company whose subsidiaries and unconsolidated affiliates own and operate short
line and regional freight railroads and provide related rail services in North
America, South America and Australia. The Company, through its U.S. industrial
switching subsidiary, also provides railroad switching and related services to
United States industrial companies with extensive railroad facilities within
their complexes. The Company's predecessor, Genesee and Wyoming Railroad
Company, was founded in 1899 by E.L. Fuller and his partners. In 1977, when
Mortimer B. Fuller, III purchased a controlling interest in the Company and
became its Chief Executive Officer, the Company was dependent on a single
commodity, salt, produced by a single customer. At that time, the Company
generated $3.9 million in operating revenues over its 14 miles of track. In
1978, under the leadership of Mr. Fuller, the Company began a strategy of growth
by acquisition that broadened its sources of rail and rail-related revenues.
Initial expansion was into the railcar leasing business which was followed by 16
rail line acquisitions in the United States. Significant US acquisitions have
included the Rochester & Southern Railroad, Inc. (1986), Louisiana & Delta
Railroad, Inc. (1987), Buffalo & Pittsburgh Railroad, Inc. (1988), Allegheny &
Eastern Railroad, Inc. (1992), Willamette & Pacific Railroad, Inc. (1993),
Portland & Western Railroad, Inc. (1995), Illinois & Midland Railroad, Inc.
(1996), Pittsburg & Shawmut Railroad, Inc. (1996), and the rail and industrial
switching business of Rail Link, Inc. (1996).
The Company's domestic growth has been complemented by expansion into
deregulating rail markets worldwide. In 1997, the Company was awarded the
contract to operate the Australia Southern Railroad (ASR), a railroad that
provides freight services in South Australia. Also in 1997, the Company formed a
joint-venture for Canadian rail acquisitions, Genesee Rail-One Inc. (GRO), which
currently operates two railroads in Canada. In April 1999, the Company increased
its ownership interest in GRO to 95% and began consolidating its operating
results, and during the second quarter of 2000, the Company purchased the
remaining 5% minority interest in GRO (see Note 3. to Consolidated Financial
Statements).
In July 1998, the Company began serving as the operator of a mineral
railroad in northern Mexico. The railroad, known as Linea Coahuila Durango
(LCD), is a concession awarded by the Mexican government to two Mexican
industrial firms. Late in 1999, the Company changed its relationship with LCD to
that of being a provider of technical assistance so that management could focus
on the Company's new Mexican operation, Compania de Ferrocarriles Chiapas-Mayab,
S.A. de C.V. (FCCM). In August 1999, FCCM, a wholly-owned subsidiary of the
Company, was awarded a concession to operate two railways, the Chiapas line and
the Mayab line, owned by the state-owned Mexican rail company Ferronales. FCCM
began operations on September 1, 1999 (see Note 3. to Consolidated Financial
Statements).
In November 2000, the Company acquired an indirect 21.87% equity interest
in Empresa Ferroviaria Oriental, S.A. (Oriental) increasing its stake in
Oriental to 22.55%. Oriental is a railroad serving eastern Bolivia and
connecting to railroads in Argentina and Brazil. The Company previously acquired
a 0.68% indirect interest in Oriental on September 30, 1999 through its 47.5%
ownership interest in Latin American Rail LLC. (see Note 3. to Consolidated
Financial Statements).
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Most recently, in December 2000, the Company, through its newly-formed
joint venture, Australian Railroad Group Pty. Ltd. (ARG), completed the
acquisition of Westrail Freight from the government of Western Australia. ARG is
a joint venture owned 50% by the Company and 50% by Wesfarmers Limited, a public
corporation based in Perth, Western Australia. Westrail Freight was composed of
the freight operations of the formerly state-owned railroad of Western
Australia. To complete the acquisition, the Company contributed ASR to ARG along
with the Company'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 - and other consideration as
described in Note 3. to Consolidated Financial Statements.
As a result of the Company's growth strategy, the Company has become a
global rail operation extending over approximately 7,700 miles of owned,
jointly-owned or leased track and 2,700 miles of track under trackage rights or
similar access arrangements in five countries on three continents.
INDUSTRY OVERVIEW
The railroad industry in the United States has undergone significant
change since the passage of the Staggers Rail Act of 1980 (the Staggers Rail
Act), which deregulated the pricing and types of services provided by railroads.
Since 1980, Class I railroads in the United States and Canada have taken
aggressive steps to improve profitability and recapture market share. In
furtherance of that goal, these Class I railroads have focused their management
and capital resources on their long-haul core systems, and certain of them have
sold branch lines to smaller and more cost-efficient rail operators that are
willing to commit the resources necessary to meet the needs of the shippers
located on these lines. Divestment of branch lines enables Class I carriers to
minimize incremental capital expenditures, concentrate traffic density, improve
operating efficiency, and avoid traffic losses associated with rail line
abandonment.
The commitment of Class I carriers to increase efficiency and
profitability has also led to an increase in merger activity among long-haul
railroads, such as, the acquisition of Consolidated Rail Corporation by Norfolk
Southern Corp. and CSX Transportation, Inc., in 1999. Such consolidations
present both risk and opportunity for the Company.
Although the acquisition market is highly competitive, the Company
believes that there will continue to be opportunities to acquire railroad lines
in the United States and Canada from both Class I railroads and short line and
regional railroads. The Company believes there may be additional acquisition
opportunities in Australia as the state and federal governments continue the
privatization of the railway system. In addition, the Company believes there may
be acquisition opportunities in Mexico and South America.
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STRATEGY
The Company's strategy is to become the dominant provider of rail freight
transportation in the markets it serves by (i) growing its business through
acquisitions to establish new regions or increasing its presence in existing
regions, (ii) expanding its revenue base within each region through marketing
efforts, and (iii) improving its operating efficiency through rationalization
and consolidation of overhead expenses. The Company's growth to date has been
the result of the acquisition of and investment in rail properties, which has
expanded the Company's customer base and diversified its commodity mix, and its
marketing efforts.
Acquisition of and Investment in Rail Properties
The Company seeks to expand its international and U.S. business through
the selective acquisition of and investment in rail properties, both in new
regions and in regions in which it currently operates. The Company's fundamental
acquisition strategy is to identify properties that have large industrial
customers which will provide the Company with a stable revenue base and the
potential to generate incremental revenues and additional customers upon
implementation of a focused marketing plan. In new regions, the Company targets
rail properties that have adequate size to establish a presence in the region,
provide a platform for growth in the region, and attract qualified management.
When acquiring rail properties in its existing regions, in addition to seeking
properties with large industrial customers, the Company targets rail properties
where it believes the successful implementation of its operating strategy is
likely to generate significant operating efficiencies.
In evaluating acquisition opportunities, the Company considers, among
other matters, the size of the rail operations, opportunities for expansion,
commodity and customer diversification, revenue stability, connecting carriers,
track condition and maintenance requirements, and expected financial returns.
The Company also considers acquisition opportunities that have the potential to
enable its railroads to provide better or more cost-effective service to major
shippers or to increase and diversify the overall customer base of its
railroads. The Company develops acquisition prospects through its relationships
with Class I carriers and its reputation in the industry. In addition, the
Company uses consultants to assist in the identification and development of
acquisition opportunities. The Company has successfully integrated sixteen
acquisitions of varying sizes and operating characteristics, of which four were
existing short lines, six were Class I divestitures, four were governmental
privatizations, one was an industrial switching company which also operates four
wholly-owned subsidiary railroad companies, and one was a Canadian company which
operates two wholly-owned subsidiary railroad companies.
The Company acquires rail properties through the purchase or lease of
assets. Typically, the Company bids against other short line and regional
operators for available properties. The structure of each transaction is
determined based upon economic and strategic considerations. In addition to the
financial terms of the transaction, sellers consider more subjective criteria
such as a prospective acquiror's operating experience, its reputation among
shippers, and its ability to close a transaction and commence operations
smoothly. The Company believes it has established an excellent record in each of
these areas. In addition, by growing revenues on its acquired lines and
providing improved service to shippers, the Company is able to provide increased
revenue to the Class I carriers that connect with its North American
5
lines. The Company sees this ability to provide increased revenue to Class I
carriers as an advantage in bidding for properties in North America.
Marketing
The Company's marketing strategy is to build each region on a base of
major industrial customers, to grow that base business through marketing efforts
directed at its major customers, and to generate incremental revenues outside
the base of major customers by attracting smaller customers and providing
ancillary services which generate non-freight revenues. The Company believes
that over the long term, its strategy of building its regions around a core of
major industrial customers provides a stable revenue base and allows the Company
to focus its efforts on additional growth opportunities within a region. Through
implementation of its marketing strategy, the Company has further increased the
number of major customers so that, over time, the Company's reliance on any one
customer or commodity has been significantly reduced.
Consistent with its decentralized management structure, the Company's
sales and marketing activity is coordinated in each region by a marketing
manager. The marketing manager works closely with personnel of each of the
Company's railroads and with other department heads to develop marketing plans
to increase shipments from existing customers and develop new business. The
Company focuses on providing rail service to its customers that is easily
accessible, reliable and cost-effective. The Company considers all of its
employees to be customer service representatives and encourages them to initiate
and maintain regular contact with shippers.
Because most of the traffic transported by the Company's railroads in the
United States and Canada is interchanged with Class I carriers, the Company's
marketing efforts in these areas are often aimed at enhancing its railroads'
relationships with these Class I carriers as well as shippers. The Company
provides related rail services such as railcar leasing, railcar repair,
switching, storage, weighing and blocking and bulk transfer, which enable Class
I carriers and customers to move freight more easily and cost-effectively. For
example, the Company supplies cars to its customers or its railroads when, among
other things, a customer has a need which cannot be filled by cars supplied by
Class I railroads or the Company has an opportunity to provide cars on a cost
basis that both meets customer needs and improves the economics of a freight
move to the Company. The Company actively manages its railcar portfolio, buying,
selling and leasing equipment to take advantage of changes in market value in
conjunction with changes in its customers' needs.
Operations
The Company's operating strategy is to increase efficiency and
profitability in each region in which it operates. When acquiring new rail
properties within an existing region, the Company capitalizes on operating
efficiencies created by the presence of its other railroads within that region.
In addition, consolidation of revenue and accounting functions often allows the
Company to operate new railroads with fewer employees. The Company rationalizes
its track, where appropriate, to make its operations more efficient. The Company
also seeks and grants trackage rights to improve regional rail infrastructure
efficiency.
The Company intends to continue to improve the operating efficiency of its
railroads by track rehabilitation, especially where maintenance has been
6
deferred by the prior owner. Because of the importance of certain of the
Company's shippers to the economic stability and/or development of the regions
where they are located, and because of the importance of certain of the
Company's railroads to the economic infrastructure of those regions,
approximately $44.0 million in state, federal and third party grants for track
rehabilitation and service improvements has been invested in the Company's U.S.
rail properties since 1987.
MANAGEMENT
The Company's Chief Executive Officer, Chief Operating Officer, Chief
Financial Officer and Executive Vice President - Corporate Development have
responsibility for overall strategic and financial planning. The Chief Executive
Officer oversees the Company's global operations including its equity
investments in Australia and South America, while the Chief Operating Officer
manages operations in North America. The Company believes that through its
decentralized management structure it has developed a culture that encourages
employees to take initiative and responsibility which is rewarded through
performance-based profit sharing and bonus programs.
RAILROAD OPERATIONS - NORTH AMERICA
North American Customers
The Company's North American railroads currently serve over 660 customers.
A large portion of the Company's North American railroad operating revenue is
attributable to customers operating in the electric utility, paper, petroleum
products, lumber and forest products, farm and food products, chemicals and
metals industries. As the Company acquires new North American railroad
operations, the base of customers served continues to grow and diversify. The
largest ten North American customers accounted for approximately 30%, 34% and
38% of the Company's North American railroad revenues in 2000, 1999 and 1998,
respectively. The Company's largest North American customer was Commonwealth
Edison, an electric utility, which accounted for approximately 6%, 15% and 14%
of the Company's North American railroad revenues in 2000, 1999 and 1998,
respectively (see Note 15. to Consolidated Financial Statements). The Company
typically ships freight pursuant to transportation contracts among the Company,
its connecting carriers and the shipper. These contracts are in accordance with
industry norms and vary in duration from one to seven years.
North American Railroad Commodities
The Company's North American railroads transport a wide variety of
commodities for their customers. Some of the Company's railroads have a
diversified commodity mix while others transport one or two principal
commodities. In 2000, coal, coke and ores; and pulp and paper products were the
two largest commodity groups transported by the Company's North American
railroads, constituting 20.6% and 15.6%, respectively, of total North American
revenues (see Item 7. of this Report under the heading "Results of Operations -
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999"), and
31.2% and 13.8%, respectively, of total North American carloads. The following
table summarizes the aggregate traffic volume of the Company's North American
railroads by commodity group:
7
NORTH AMERICAN CARLOADS CARRIED BY COMMODITY GROUP
Year Ended Year Ended
December 31, 2000 December 31, 1999
----------------- -----------------
Commodity Group Carloads % of Total Carloads % of Total
--------------- -------- ----- -------- -----
Coal, Coke & Ores 117,189 31.2% 94,140 31.4%
Pulp & Paper 51,753 13.8% 39,952 13.3%
Minerals & Stone 42,146 11.2% 23,667 7.9%
Metals 36,554 9.7% 30,614 10.2%
Petroleum 30,075 8.0% 20,206 6.7%
Farm & Food Products 27,710 7.4% 19,898 6.6%
Lumber & Forest Products 25,426 6.8% 28,627 9.6%
Chemicals 16,985 4.5% 16,039 5.4%
Autos & Auto Parts 5,849 1.6% 4,790 1.6%
Other 21,438 5.8% 22,024 7.3%
-------------------------------------------------------------------
Total 375,125 100.0% 299,957 100.0%
===================================================================
Coal, coke and ores consists primarily of shipments of coal to utilities
and industrial customers.
Pulp and paper consists primarily of inbound shipments of pulp and
outbound shipments of kraft and fine papers.
Minerals and stone consists primarily of cement, gravel and stone used in
construction.
Metals consists primarily of scrap metal, finished steel products and
coated pipe.
Petroleum products consists primarily of fuel oil and crude oil.
Farm and food products consists primarily of sugar, molasses, rice and
other grains and fertilizer.
Lumber and forest products consists primarily of finished lumber used in
construction, particleboard used in furniture manufacturing, and wood chips and
pulpwood used in paper manufacturing.
Chemicals consists primarily of various chemicals used in manufacturing.
Autos and auto parts consists primarily of finished automobiles.
North American Railroad Employees
As of December 31, 2000, the Company's North American railroads had
approximately 1,175 full-time employees. Of this total, approximately 475 are
members of national labor organizations. The Company's North American railroads
have ten contracts with these national labor organizations which have expiration
dates ranging to 2005. The Company has also entered into collective bargaining
agreements with an additional 83 employees who represent themselves, which have
expiration dates ranging to 2004. The Company believes that its relationship
with its employees is good.
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RAILROAD OPERATIONS - AUSTRALIA
On December 16, 2000, the Company, through its newly-formed joint venture,
Australian Railroad Group Pty. Ltd. (ARG), completed the acquisition of Westrail
Freight from the government of Western Australia (See Note 3. to Consolidated
Financial Statements). ARG is a joint venture owned 50% by the Company and 50%
by Wesfarmers Limited, a public corporation based in Perth, Western Australia.
Westrail Freight is composed of the freight operations of the formerly
state-owned railroad of Western Australia.
To complete the acquisition, the Company contributed its formerly wholly-
owned subsidiary, Australia Southern Railroad (ASR), to ARG along with the
Company'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. The Company accounts for its 50%
ownership in ARG under the equity method of accounting and therefore
deconsolidated ASR from its consolidated financial statements as of
December 17, 2000.
The following information relates to the Company's Australian railroad
operations for the periods prior to the December 17 deconsolidation. ASR
commenced operations in November 1997, after acquiring certain freight railroad
assets of Australian National, a railroad company owned by the Commonwealth
Government of Australia. Coincident with closing the purchase, the Company sold
certain facilities and inventories to two third parties who are under long-term
contracts with ASR to perform locomotive, rolling stock and track infrastructure
maintenance and repairs. Approximately 900 miles of branchline track structure
is owned and exclusively maintained by ASR through one of the two third parties.
The land under the track structure is leased from the State of South Australia
for a 50 year term with an option for an additional 15 years. Some of these
branchlines are isolated from other parts of the system. Also, different parts
of the system have different track gauges, that is, narrow, standard and broad
gauge, and ASR must provide discrete locomotives and rolling stock for each
gauge. In some cases, dual gauge track is in place.
Australia Customers
ASR operates unit trains for four major customers, hauling four types of
commodities including grain, gypsum, limestone and marble. In December 1999, it
also commenced hauling iron ore to an integrated steel mill at Whyalla in South
Australia for Broken Hill Proprietary Limited (BHP). ASR also conducts shunting
(switching) within BHP's facility at Whyalla.
ASR provides switching, rail yard storage and other rail related
facilities for hire to its customers, and operates trains for the haulage of
rail, ballast and ties primarily for the owner of the interstate mainline. ASR
also operates "hook and pull" trains for several major customers. Unlike the
United States, the Australian system guarantees open access to rail lines. ASR
provides locomotives, fuel, train crews, and in some cases railcars, to freight
forwarding companies. These freight forwarding customers contract for blocks of
time within which their trains can be operated at certain designated speeds.
They are responsible for track access charges and all other costs of operating
these trains. ASR operates hook and pull trains over the 2,100 mile corridor
between Melbourne and Perth. Certain of ASR's branchline trains
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operate over these main lines as well. ASR is not responsible for maintenance of
these main lines.
Australian Railroad Commodities and Hook and Pull Service (Haulage)
The Company's Australian railroad transports a variety of commodities and
provides hook and pull (haulage) services for its customers. In the period
ending December 16, 2000, hook and pull (haulage) and grain products were the
two largest commodity groups by revenue transported by the Company's Australian
railroad, constituting 44.6% and 27.0%, respectively, of total Australian
revenues (see Item 7. of this Report under the heading "Results of Operations -
Year Ended December 31, 2000 compared to Year Ended December 31, 1999"), and
21.3% and 14.5%, respectively, of total Australian carloads. The following table
summarizes the aggregate traffic volume of the Company's Australian railroad by
commodity group:
AUSTRALIAN CARLOADS CARRIED BY COMMODITY GROUP
Period Ended Year Ended
December 16, 2000 December 31, 1999
----------------- -----------------
Commodity Group Carloads % of Total Carloads % of Total
--------------- -------- ----- -------- -----
--------------------------------------------------------------
Iron Ore 99,544 41.4% 8,069 4.8%
Hook and Pull
(Haulage) 51,165 21.3% 52,407 31.3%
Gypsum 40,841 17.0% 40,304 24.1%
Grain 34,875 14.5% 48,781 29.1%
Marble 8,171 3.4% 8,343 5.0%
Lime 4,182 1.7% 4,662 2.8%
Coal -- 0.0% 4,317 2.6%
Other 1,596 0.7% 603 0.3%
--------------------------------------------------------------
Total 240,374 100.0% 167,486 100.0%
==============================================================
Australian Railroad Employees
As of December 16, 2000, ASR had approximately 190 employees, some of whom
are operational staff that are members of a union.
U.S. INDUSTRIAL SWITCHING OPERATIONS
U.S. industrial switching operations generate 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. The Company's U.S.
industrial switching operation serves 26 customers in 10 states. These customers
are primarily in the chemicals, paper, grain, mining and power generation
industries. The provision of the service generally involves locating a work
force and locomotives at the customer's facility and tailoring the service level
to the switching requirements of the site. As of December 31, 2000, the
Company's U.S. industrial switching operations had approximately 214 employees.
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SAFETY
The Company's safety program involves all employees at all levels of the
company. Safety focuses on the prevention of accidents/injuries, and the
creation of a safety culture within the organization. The Senior Vice President
of each region is accountable for the results of the program, and each region
has an officer responsible for day-to-day program administration. Line
supervisors have direct responsibility for the safety and training of their
personnel.
The Company maintains a corporate-wide safety policy facilitated by a Vice
President of Safety, Compliance Officer, and a Safety Director. The Company's
safety program allows each of its subsidiaries the flexibility to develop safety
rules and procedures based on local requirements or statutes. The Company works
continuously to comply fully with all federal, state and local government
regulations. Operating personnel are trained and certified in train operations,
the transportation of hazardous materials, safety and operating rules, and
governmental rules and regulations.
The Company also participates in governmental and industry sponsored
safety programs. For example, members of the Company's management serve or have
served on the Board of Directors of Operation Lifesaver (the national grade
crossing awareness program), the New Program Committee of Operation Lifesaver,
and the American Short Line & Regional Railroad Association Safety Committee.
In addition, the Company has created two working safety groups. The first
group, the Focus Team, consisting of the general managers and the Vice President
of Safety, develops the corporate safety strategy and ensures consistency of
implementation for policies within the organization. The second group, the GWI
Team, includes safety representatives of each region, a general manager as team
leader, and the Vice President of Safety as the facilitator working together to
refine the Company's safety program. Each team coordinates with the Company's
subsidiaries to ensure compliance with and implementation of all safety rules
and regulations. The objective of both teams is to sponsor the Company's
initiatives to make it the safest carrier with regard to its employees,
customers, assets, the public and the environment.
INSURANCE
The Company has obtained insurance coverage for losses arising from
personal injury and for property damage in the event of derailments or other
accidents or occurrences. The liability policies have self-insured retentions
ranging from $50,000 to $400,000 per occurrence. In addition, the Company
maintains excess liability policies which provide supplemental coverage for
losses in excess of primary policy limits. With respect to the transportation of
hazardous commodities, the Company's liability policy covers sudden releases of
hazardous materials, including expenses related to evacuation. Personal injuries
associated with grade crossing accidents are also covered under the Company's
liability policies. The Company also maintains property damage coverage, subject
to a standard pollution sub-limit and self-insured retentions ranging from
$10,000 to $250,000.
Employees of the Company's United States railroads are covered by the
Federal Employers' Liability Act (FELA), a fault-based system under which
injuries and deaths of railroad employees are settled by negotiation or
litigation based on the comparative negligence of the employee and the
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employer. FELA-related claims are covered under the Company's liability
insurance policies. Employees of the Company's industrial switching business are
covered under workers' compensation policies.
ASR liability policies, now transferred to ARG, have self-insured
retentions for third party claims ranging from $100,000 per occurrence for
personal injury to $500,000 for property damage. Employees are covered for
injury or death by public and private sector insurance arrangements. A levy is
paid by ASR to the insurance provider based on the amount of wages and salaries
paid by ASR.
The Company believes its insurance coverage is adequate in light of its
experience and the experience of the rail industry. However, there can be no
assurance as to the adequacy, availability, or cost of insurance in the future.
COMPETITION
In acquiring rail properties, the Company competes with other short line
and regional railroad operators, some of which are larger and have greater
financial resources than the Company. Competition for rail properties is based
primarily upon price, operating history and financing capability. The Company
believes its established reputation as a successful acquiror and operator of
short line rail properties, in combination with its managerial and financial
resources, effectively positions it to take advantage of acquisition
opportunities.
Each of the Company's railroads is typically the only rail carrier
directly serving its customers; however, the Company's railroads compete
directly with other modes of transportation, principally motor carriers and, to
a lesser extent, ship and barge operators. The extent of this competition varies
significantly among the Company's railroads. Competition is based primarily upon
the rate charged and the transit time required, as well as the quality and
reliability of the service provided, for an origin-to-destination transportation
service. To the extent other carriers are involved in transporting a shipment,
the Company cannot control the cost and quality of such service. Cost reductions
achieved by major rail carriers over the past several years have generally
improved their ability to compete with alternate modes of transportation.
REGULATION
The Company's United States railroads are subject to regulation by the
Surface Transportation Board (STB), the Federal Railroad Administration (FRA),
state departments of transportation, and some state and local regulatory
agencies. The STB is the successor to certain regulatory functions previously
administered by the Interstate Commerce Commission. Established by the ICC
Termination Act of 1995 (ICCTA), the STB has jurisdiction over, among other
things, service levels and compensation of carriers for use of their railcars by
other carriers. It also must authorize extension or abandonment of rail lines,
the acquisition of rail lines, and consolidation, merger or acquisition of
control of rail common carriers; in limited circumstances, it may condition such
authorization upon the payment of severance benefits to affected employees. The
STB may review rail carrier pricing only in response to a complaint concerning
rates charged for transportation where there is an absence of effective
competition. The FRA has jurisdiction over safety and railroad equipment
standards and also assists in coordinating projects for railroad route
simplification.
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In 1980, the Staggers Rail Act fundamentally changed U.S. federal
regulatory policy by emphasizing the promotion of revenue adequacy (the
opportunity to earn revenues sufficient to cover costs and attract capital) for
the railroads and allowing competition to determine to a greater extent rail
prices and route and service options. The ICCTA continues the trend towards
limiting regulation of rail prices. As a result of these changes in legislative
policy, the railroad industry's rate structure has evolved from a system of
interrelated prices that applied over different routes between the same points
to a combination of market based prices that are now subject to limited
regulatory constraints. While U.S. federal regulation of rail prices has been
significantly curtailed, U.S. federal regulation of services continues to affect
profitability and competitiveness in the railroad industry.
ENVIRONMENTAL MATTERS
The Company's operations are subject to various federal, state and local
laws and regulations relating to the protection of the environment, which have
become increasingly stringent. In the United States, these environmental laws
and regulations, which are implemented principally by the Environmental
Protection Agency and comparable state agencies, govern the management of
hazardous wastes, the discharge of pollutants into the air and into surface and
underground waters, and the manufacture and disposal of certain substances.
Similarly, in Canada, these functions are administered at the federal level by
Environment Canada and the Department of Transport, and comparable agencies
provincial level. In Mexico, these functions are administered at the federal
level by the Ministry of Environment, Natural Resources and Fisheries and the
Attorney General for Environmental Protection, and by comparable agencies at the
state level. In Australia, these functions are administered primarily by the
Department of Transport on a federal level and by the Environmental Protection
Agency at the state level. There are no material environmental claims currently
pending or, to the Company's knowledge, threatened against the Company or any of
its railroads. In addition, the Company believes that the operations of its
railroads are in material compliance with current laws and regulations. The
Company estimates that any expenses incurred in maintaining compliance with
current laws and regulations will not have a material effect on the Company's
earnings or capital expenditures. However, there can be no assurance that the
current regulatory requirements will not change, or that currently unforeseen
environmental incidents will not occur, or that past non-compliance with
environmental laws will not be discovered on the Company's properties.
In Mexico, the Company's wholly-owned subsidiary, Compania de
Ferrocarriles Chiapas-Mayab, S.A. de C.V., was awarded a 30-year concession to
operate certain railways owned by the state-owned rail company Ferronales. Under
the terms of the concession agreement, Ferronales remains responsible for
remediation of all obligations, duty or liability arising from contamination or
other environmental issues that occurred prior to the execution date of the
concession agreement.
The Commonwealth of Australia has acknowledged that certain portions of
the leasehold and freehold land acquired under the sale and purchase agreement
by ASR contains contamination arising from activities associated with previous
operators. The Commonwealth has provided a release and indemnity to ASR from
obligations, duty or liability arising from pre-existing contamination. The
Commonwealth is required to remediate the relevant land to existing
environmental standards and for the purpose for which the land was used at the
13
date of the Sale and Purchase Agreement (or the date on which the land was last
used).
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, or management's beliefs and
assumptions. 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 not
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 1 and in Item 7 hereof, 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.
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14
ITEM 2. PROPERTIES
The Company, through its subsidiaries and unconsolidated affiliates,
currently has interests in twenty-three railroads of which seventeen are in the
United States, two are in Canada, two are in Australia, one is in Mexico and one
is in Bolivia. These rail properties typically consist of the track and the
underlying land. Real estate adjacent to the railroad rights-of-way is generally
retained by the seller, and the Company's holdings of such property are not
material. Similarly, the seller typically retains mineral rights and rights to
grant fiber optic and other easements in the properties acquired by the
Company's railroads. Several of the Company's railroads are operated under terms
of leases or operating licenses in which the Company does not assume ownership
of the track and the underlying land.
The Company's railroads operate over approximately 7,700 miles of track
that is owned, jointly-owned or leased by the Company or its affiliates. The
Company's or its affiliates' railroads also operate, through various trackage
rights agreements, over approximately 2,700 miles of track that is owned or
leased by others.
The following table sets forth certain information as of December 31, 2000
with respect to the Company's railroads:
RAILROAD AND LOCATION TRACK MILES STRUCTURE CONNECTING CARRIERS (1)
UNITED STATES:
Allegheny & Eastern Railroad, Inc.
(ALY) Pennsylvania 153 (2) Owned BPRR, NS, CSX
Bradford Industrial Rail, Inc.
(BR) Pennsylvania 4 (3) Owned BPRR
Buffalo & Pittsburgh Railroad, Inc. ALY, BLE, BR, CN, CP,
(BPRR) New York, Pennsylvania 279 (4) Owned/Leased CSX, NS, PS, RSR, SB
The Dansville & Mount Morris
Railroad Company
(DMM) New York 8 Owned GNWR
Genesee and Wyoming Railroad Company
(GNWR) New York 26 (5) Owned (5) CP, DMM, RSR, NS, CSX
Pittsburg & Shawmut Railroad, Inc.
(PS) Pennsylvania 224 (6) Owned BPRR, CSX, NS
Rochester & Southern Railroad, Inc.
(RSR) New York 66 (7) Owned BPRR, CP, GNWR, CSX
Illinois & Midland Railroad, Inc. BNSF, IAIS, IC, NS,
(IMR) Illinois 97 (8) Owned PPU, TPW, UP
Portland & Western Railroad, Inc.
(PNWR) Oregon 211 (9) Owned/Leased BNSF, UP, WPRR, POTB
Willamette & Pacific Railroad, Inc.
(WPRR) Oregon 185 (10) Leased UP, PNWR, HLSC
Louisiana & Delta Railroad, Inc.
(LDRR) Louisiana 87 (11) Owned/Leased UP
Carolina Coastal Railway, Inc.
(CLNA) North Carolina 17 (12) Leased NS
Commonwealth Railway, Inc.
(CWRY) Virginia 17 (13) Owned/Leased NS
15
Talleyrand Terminal Railroad
(TTR) Florida 10 (14) Leased NS, CSX
Corpus Christi Terminal Railroad, Inc.
(CCPN) Texas 26 (15) Leased UP, BNSF, TM
Golden Isles Terminal Railroad, Inc.
(GITM) Georgia 13 (16) Leased CSX, NS
Savannah Port Terminal Railroad, Inc.
(SAPT) Georgia 1 (17) Leased CSX, NS
CANADA:
Huron Central Railway, Inc.
(HCR) Canada 179 (18) Leased CP, WC
Quebec Gatineau Railway, Inc.
(QGRR) Canada 293 (19) Owned/Leased CP, CN
MEXICO:
Compania de Ferrocarriles
Chiapas-Mayab, S.A. de C.V. 960 (20) Leased Ferrosur
(FCCM) Mexico
AUSTRALIA (equity accounting):
Australia Southern Railroad
(ASR) 900 (21) Owned/Leased
Australia Western Railroad
(AWR) 3,286 (22) Owned/Leased
BOLIVIA: (equity accounting):
Ferrocarril Oriental, S.A. General Belgrano,
(Oriental) Bolivia 600 (23) Leased Novoeste
(1) See Legend of Connecting Carriers following this table.
(2) In addition, ALY operates by trackage rights over 3 miles of NS.
(3) In addition, BR operates by trackage rights over 14 miles of BPRR.
(4) Includes 92 miles under perpetual leases and 9 miles under a lease
expiring in 2090. In addition, BPRR operates by trackage rights over 27
miles of CSX under an agreement expiring in 2018, and 83 miles of NS under
an agreement expiring in 2027. The Company is seeking to rationalize
approximately 58 miles of owned track that parallels track under the NS
trackage rights agreement.
(5) The operations of the GNWR have been realigned with those of RSR.
(6) In addition, PS operates over 13 miles pursuant to an operating contract.
(7) In addition, RSR has a haulage contract over 52 miles of CP.
(8) In addition, IMR operates by trackage rights over 15 miles of IC, 9 miles
of PPU and 5 miles of UP.
(9) Includes 53 miles under lease expiring in 2015 with a 10-year renewal
unless terminated by either party, 53 miles formerly under lease which was
purchased in November, 1997, and is operated under a rail service
easement, and 92 miles which was purchased in July, 1997. In addition,
PNWR operates by trackage rights over 2 miles of UP and 4 miles of POTB.
(10) All under lease expiring in 2013, with renewal options subject to both
parties' consent. In addition, WPRR operates over 41 miles of UP under a
concurrent trackage rights agreement.
(11) Includes 14 miles under a lease expiring in 2011. In addition, LDRR
operates by trackage rights over 91 miles of UP under an agreement
terminable by either party after 1997 and has a haulage contract with M.A.
Patout & Sons over 4 miles of track.
(12) All leased on a month-to-month basis under a Lease and Option to Purchase
Agreement which commenced in 1989.
(13) Includes 12.5 miles under lease expiring in 2009.
(14) All under lease expiring in 2002.
(15) All under lease expiring in 2002.
(16) All under lease expiring in 2002.
(17) All under lease expiring in 2002.
(18) All under lease expiring in 2017, with renewal options subject to both
parties' consent.
(19) Consists of 275 miles which are owned and 18 which are under lease
expiring in 2017, with renewal options subject to both parties' consent.
In addition, QGRR operates by trackage rights over 27 miles of CP.
16
(20) All under a 30-year concession agreement operating on track structure
which is owned by the state-owned rail company Ferronales. In addition,
FCCM operates by trackage rights over 210 miles on Ferrosur (a recently
privatized rail concession) and a government-owned line.
(21) The track structure is owned by ARG. The land on which the track structure
is built is leased from the State of South Australia for a term of 50
years with a conditional right of renewal for an additional 15 years. In
addition, ASR operates over the 2,100 mile government-owned corridor
between Melbourne and Perth under a trackage rights agreement.
(22) ARG entered 49 year leases with the Government of Western Australia to
operate the standard and narrow gauge freight railway infrastructure owned
by the State. The lease obligations have been prepaid by ARG. ARG, in
connection with the Westrail Freight acquistion, purchased certain rail
yards, terminals, and other rail related maintenance facilities from the
State.
(23) All under a 40-year concession agreement operating on track structure
which is owned by the state-owned rail company Red Ferroviario Oriental.
LEGEND OF CONNECTING CARRIERS
BLE Bessemer and Lake Erie Railroad Company
BNSF Burlington Northern Santa Fe Railway Company
CN Canadian National
CP Canadian Pacific Railway
CSX CSX Transportation, Inc.
HLSC Hampton Railway
IAIS Iowa Interstate Railroad, Ltd.
IC Illinois Central Railroad Company
NS Norfolk Southern Corp.
POTB Port of Tillamook Bay Railroad
PPU Peoria & Pekin Union Railway
SB South Buffalo Railway Company
TM The Texas Mexican Railway Company
TPW Toledo, Peoria & Western Railway Corp.
UP Union Pacific Railroad Company
WC Wisconsin Central
EQUIPMENT
As of December 31, 2000, rolling stock of the Company's North American
operations consisted of 278 locomotives and 3,124 freight cars, some of which
were owned and some of which were leased from third parties. As of December 16,
2000, the Company's rolling stock for its subsidiary in Australia consisted of
approximately 80 locomotives and approximately 1,200 wagons (freight cars) owned
and in service.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in certain lawsuits resulting from railroad and
industrial switching operations, one of which includes the commencement of a
criminal investigation. Management believes that the Company has adequate
defenses to any criminal charge which may arise and that adequate provision has
been made in the financial statements for any expected liabilities which may
result from disposition of such lawsuits. While it is possible that some of the
foregoing matters may be resolved at a cost greater than that provided for, it
is the opinion of management that the ultimate liability, if any, will not be
material to the Company's results of operations or financial position.
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
17
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 3.1%, 6.6% and
6.3% of the consolidated revenues of the Company and its subsidiaries in 2000,
1999 and 1998, respectively. Failure to satisfactorily resolve this litigation
could have a material adverse effect on the Company.
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18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The information concerning matters submitted to a vote of security holders
required by this item is incorporated herein by reference to the Definitive
Information Statement (Schedule 14C) filed by the Company on October 23, 2000.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
On June 24, 1996, the Company's Class A Common Stock began publicly
trading and is quoted on the Nasdaq National Market. Its trading symbol is GNWR.
The tables below show the range of high and low actual trade prices for the
Company's Class A Common Stock during each quarterly period of 2000, 1999 and
1998.
YEAR ENDED
DECEMBER 31, 2000 HIGH LOW
1st Quarter $15.50 $11.875
2nd Quarter $19.25 $14.25
3rd Quarter $25.25 $16.00
4th Quarter $32.00 $17.25
YEAR ENDED
DECEMBER 31, 1999 HIGH LOW
1st Quarter $14.75 $10.375
2nd Quarter $11.625 $ 7.75
3rd Quarter $15.25 $ 9.875
4th Quarter $13.75 $11.25
YEAR ENDED
DECEMBER 31, 1998 HIGH LOW
1st Quarter $27.50 $20.625
2nd Quarter $27.50 $17.50
3rd Quarter $22.00 $11.75
4th Quarter $17.00 $11.375
The Company's Class B Common Stock is not publicly traded.
The Company did not pay cash dividends in 2000, 1999 or 1998. The Company
does not intend to pay cash dividends for the foreseeable future and intends to
retain earnings, if any, for future operation and expansion of the Company's
business. Any determination to pay dividends in the future will be at the
discretion of the Company's Board of Directors and will be dependent upon the
Company's results of operations, financial condition, contractual restrictions
and other factors deemed relevant by the Board of Directors.
19
On March 19, 2001 there were 113 holders of record of the Company's Class
A Common Stock and 9 holders of record of the Company's Class B Common Stock.
During 2000, the Company issued the following securities which were not
registered under the Securities Act of 1933, as amended (the Act). Each of such
issuances was made by private offering in reliance on the exemption from the
registration provisions of the Act provided by Section 4(2) of the Act. The
facts relied upon to establish such exemption included the recipients'
representations as to their investment intent with respect to such Securities
and restrictions on the transfer of such Securities imposed by the Company.
(1) On January 28, 2000, the Company issued to one of its employees, for
no additional consideration, options under the Genesee & Wyoming Inc. 1996 Stock
Option Plan to purchase an aggregate of 20,000 shares of Class A Common Stock at
an exercise price of $12.3125 per share. The shares issuable upon exercise of
such options are the subject of a Registration Statement on Form S-8 under the
Act.
(2) On March 17, 2000, the Company issued to one of its employees, for no
additional consideration, options under the Genesee & Wyoming Inc. 1996 Stock
Option Plan to purchase an aggregate of 4,500 shares of Class A Common Stock at
an exercise price of $12.9375 per share. The shares issuable upon exercise of
such options are the subject of a Registration Statement on Form S-8 under the
Act.
(3) On April 14, 2000, the Company issued to an aggregate of 135 of its
employees, for no additional consideration, options under the Genesee & Wyoming
Inc. 1996 Stock Option Plan to purchase an aggregate of 93,342 shares of Class A
Common Stock at an exercise price of $15.00 per share, and 12,708 shares of
Class A Common Stock at an exercise price of $16.50 per share. The shares
issuable upon exercise of such options are the subject of a Registration
Statement on Form S-8 under the Act.
(4) On April 14, 2000, the Company issued to six of its directors, for no
additional consideration, options under the Genesee & Wyoming Inc. Stock Option
Plan for Outside Directors to purchase an aggregate of 6,000 shares of Class A
Common Stock at an exercise price of $15.00 per share. The shares issuable upon
exercise of such options are the subject of a Registration Statement on Form S-8
under the Act.
(5) On July 28, 2000, the Company issued to one of its directors, for no
additional consideration, options under the Genesee & Wyoming Inc. Stock Option
Plan for Outside Directors to purchase an aggregate of 2,000 shares of Class A
Common Stock at an exercise price of $18.50 per share. The shares issuable upon
exercise of such options are the subject of a Registration Statement on Form S-8
under the Act.
(6) On July 30, 2000, the Company issued to one of its directors, for no
additional consideration, options under the Genesee & Wyoming Inc. Stock Option
Plan for Outside Directors to purchase an aggregate of 1,000 shares of Class A
Common Stock at an exercise price of $18.75 per share. The shares issuable upon
exercise of such options are the subject of a Registration Statement on Form S-8
under the Act.
(7) On September 20, 2000, the Company issued to one of its employees, for
no additional consideration, options under the Genesee & Wyoming Inc. 1996 Stock
Option Plan to purchase an aggregate of 10,000 shares of Class A Common
20
Stock at an exercise price of $19.50 per share. The shares issuable upon
exercise of such options are the subject of a Registration Statement on Form S-8
under the Act.
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21
Item 6. SELECTED FINANCIAL DATA.
The following selected consolidated income statement data and selected
consolidated balance sheet data of the Company as of and for the years ended
December 31, 2000, 1999, 1998, 1997, and 1996, have been derived from the
Company's consolidated financial statements. All of the information should be
read in conjunction with the consolidated financial statements and related notes
included elsewhere in this Annual Report on Form 10-K. See also Item 7. of this
Report.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
INCOME STATEMENT DATA: 2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Operating revenues $ 206,530 $ 175,586 $ 147,472 $ 103,643 $ 77,795
Operating expenses 182,777 153,218 127,904 87,200 63,801
Income from operations 23,753 22,368 19,568 16,443 13,994
Interest expense (11,233) (8,462) (7,071) (3,349) (4,720)
Gain on sale of 50% equity in
Australian operations (1) 10,062 -- -- -- --
Other income, net 1,508 1,682 7,290 345 651
Income before income taxes, equity
earnings and extraordinary item 24,090 15,588 19,787 13,439 9,925
Income taxes 10,569 2,175 7,708 5,441 4,020
Equity earnings (losses) 411 (618) (645) -- --
Income before extraordinary item 13,932 12,795 11,434 7,998 5,905
Extraordinary item -- (262) -- -- --
Net income 13,932 12,533 11,434 7,998 5,905
Impact of preferred stock outstanding 52 -- -- -- --
Net income available to
common stockholders $ 13,880 $ 12,533 $ 11,434 $ 7,998 $ 5,905
Basic earnings per common share:
Net income available to common
stockholders before extraordinary item $ 3.19 $ 2.85 $ 2.20 $ 1.52 $ 1.54
Extraordinary item -- (0.06) -- -- --
Net income $ 3.19 $ 2.79 $ 2.20 $ 1.52 $ 1.54
Weighted average number of shares
of common stock 4,346 4,491 5,187 5,250 3,829
Diluted earnings per common share:
Income before extraordinary item $ 3.11 $ 2.82 $ 2.19 $ 1.47 $ 1.49
Extraordinary item -- (0.06) -- -- --
Net income $ 3.11 $ 2.76 $ 2.19 $ 1.47 $ 1.49
Weighted average number of shares
of common stock and equivalents 4,486 4,540 5,229 5,447 3,966
Dividends per common share (2) -- -- -- -- $ 0.01
BALANCE SHEET DATA AT YEAR END:
Total assets $ 342,012 $ 303,940 $ 216,760 $ 210,532 $ 145,339
Total debt 104,801 108,376 65,690 74,144 18,731
Redeemable Convertible Preferred Stock 18,849 -- -- -- --
Stockholders' equity 94,732 81,829 74,537 68,343 61,683
22
(1) In December 2000, the Company issued shares of its Australian subsidiary at
a price per share in excess of its book value investment in that subsidiary
resulting in a $10.1 million gain and the deconsolidation of that subsidiary.
See Note 3 of the Notes to Consolidated Financial Statements for a complete
description of this transaction and its related impacts.
(2) Prior to its initial public offering on June 24, 1996, the Company paid
dividends at the discretion of the Company's Board of Directors. The Company has
not paid cash dividends after the initial public offering. The Company does not
intend to pay cash dividends for the foreseeable future and intends to retain
earnings, if any, for future operations and expansion of the Company's business.
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23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes included elsewhere in this
Annual Report.
General
The Company is a holding company whose subsidiaries and unconsolidated
affiliates own and/or operate short line and regional freight railroads and
provide related rail services in North America, South America and Australia. The
Company, through its U.S. industrial switching subsidiary, also provides freight
car switching and related services to United States industrial companies with
extensive railroad facilities within their complexes. The Company generates
revenues primarily from the movement of freight over track owned or operated by
its railroads. The Company also generates non-freight revenues primarily by
providing freight car switching and related rail services such as railcar
leasing, railcar repair and storage to industrial companies with extensive
railroad facilities within their complexes, to shippers along its lines, and to
the Class I railroads that connect with its North American lines.
The Company's operating expenses include wages and benefits, equipment
rents (including car hire), purchased services, depreciation and amortization,
diesel fuel, casualties and insurance, materials and other expenses. Car hire is
a charge paid by a railroad to the owners of railcars used by that railroad in
moving freight. Other expenses generally include property and other non-income
taxes, professional services, communication and data processing costs, and
general overhead expense.
When comparing the Company's results of operations from one reporting
period to another, the following factors should be taken into consideration. The
Company has historically experienced fluctuations in revenues and expenses such
as one-time freight moves, customer plant expansions and shut-downs, railcar
sales, accidents and derailments. In periods when these events occur, results of
operations are not easily comparable to other periods. Also, much of the
Company's growth to date has resulted from acquisitions, joint ventures, and
investments in unconsolidated affiliates. Most recently, the Company, through a
50% owned joint venture, completed an acquisition in Western Australia in
December 2000, and through an investment in an unconsolidated affiliate, began
operating a railroad in Bolivia in November 2000. The Company also completed two
acquisitions, one in Canada and one in Mexico, in 1999. Because of variations in
the structure, timing and size of these acquisitions and differences in
economics among the Company's railroads resulting from differences in the rates
and other material terms established through negotiation, the Company's results
of operations in any reporting period may not be directly comparable to its
results of operations in other reporting periods.
Expansion of Operations
Australia
On December 16, 2000, the Company, through its newly-formed joint venture,
Australian Railroad Group Pty. Ltd. (ARG), completed the acquisition of Westrail
Freight from the government of Western Australia for approximately
24
$334.4 million including working capital. ARG is a joint venture owned 50% by
the Company and 50% by Wesfarmers Limited, a public corporation based in Perth,
Western Australia. Westrail Freight is composed of the freight operations of the
formerly state-owned railroad of Western Australia.
To complete the acquisition, the Company contributed its formerly
wholly-owned subsidiary, Australia Southern Railroad (ASR), to ARG along with
the Company'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. Additionally, the Company
contributed $21.4 million of cash to ARG while Wesfarmers contributed $64.2
million in cash, including $8.2 million which represents a long-term
non-interest bearing note to match a similar note due to the Company from ASR at
the date of the transaction. ARG also received $258.6 million in acquisition
debt and $59.9 million of construction and working capital facilities from Bank
of America and the Australia and New Zealand Banking Group Limited. A portion of
the debt was used to refinance approximately $7.1 million of existing bank debt
of ASR. Should APTC reach financial close and meet other conditions as specified
in the agreement between the Company and Wesfarmers, the Company would receive
additional compensation.
To fund its cash investment in ARG, the Company also completed a private
placement of Redeemable Convertible Preferred Stock (the Convertible Preferred)
with the 1818 Fund III, L.P. (the Fund) managed by Brown Brothers Harriman & Co.
See Note 11 to Consolidated Financial Statements for a description of the
Convertible Preferred.
As a direct result of the ARG transaction, ASR stock options became
immediately exercisable by the option holders and, as allowed under the
provisions of the stock option plan, the option holders, in lieu of ASR stock,
were paid an equivalent value in cash, resulting in a $4.0 million pre-tax
compensation charge to ASR earnings.
The Company also recognized a $10.1 million gain upon the issuance of ASR
stock to Wesfarmers upon the formation of ARG as a result of such issuance being
at a per share price in excess of the Company's book value per share investment
in ASR. Additionally, due to the deconsolidation of ASR, the Company recognized
a $6.5 million deferred tax expense resulting from the financial reporting
versus tax basis difference in the Company's equity investment in ARG. Should
APTC reach financial close and meet other conditions as specified in the
agreement between the Company and Wesfarmers, additional gains will be reported.
The Company accounts for its 50% ownership in ARG under the equity method of
accounting and therefore deconsolidated ASR from its consolidated financial
statements as of December 17, 2000. The Company reported $261,000 in equity
earnings in its 2000 financial statements from ARG for the period of December 17
through December 31, 2000.
Mexico
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 rolling stock, an advance payment on track improvements to be
completed on the state-owned track property, an escrow payment which will
25
be returned to the Company upon successful completion of the track improvements,
prepaid value-added taxes and $3.1 million in goodwill. A portion of the
purchase price ($5.3 million) was also allocated to the 30-year operating
license. As the track improvements have been made, the related costs have been
reclassified into the property accounts as leasehold improvements and amortized
over the improvements' estimated useful life. Pursuant to the acquisition,
employee termination payments of $1.0 million were made to former state
employees and approximately 55 employees who the Company retained upon
acquisition but terminated as part of its plan to reduce operating costs after
September 30, 1999. All payments were made during the fourth quarter of 1999 and
are considered a cost of the acquisition.
The Chiapas-Mayab concession is made up of two separate rail lines. The
Chiapas is approximately 450 kilometers (280 miles) long and runs between
Ixtepec in the Mexican state of Oaxaca, and Ciudad Hidalgo in the Mexican state
of Chiapas. Principal commodities hauled include cement, corn, petroleum
products and various agricultural products. The Mayab extends approximately
1,100 kilometers (680 miles) from Coatzacoalcos in the Mexican state of Vera
Cruz, to beyond Merida in the Mexican state of Yucatan. Principal commodities
hauled on the line include cement, silica sand and various agricultural
products. The two railroads are connected via trackage rights over Ferrosur (a
recently privatized rail concession) and a government-owned line. FCCM began
operations on September 1, 1999.
On December 7, 2000, in conjunction with the refinancing of FCCM (see Note
9 to Consolidated Financial Statements) and its parent company, GW Servicios,
S.A. de C.V. (Servicios), the International Finance Corporation (IFC) invested
$1.9 million of equity for a 12.7% indirect interest in FCCM, through its parent
company Servicios. The Company contributed an additional $13.1 million and
maintains an 87.3% indirect ownership in FCCM. The Company funded $10.7 million
of its new investment with borrowings under its amended credit facility, with
the remaining investment funded by the conversion of intercompany advances into
permanent capital. Along with its equity investment, IFC received a put option
exercisable in 2005 to sell its equity stake back to the Company. The put price
will be based on a multiple of earnings before interest, taxes, depreciation and
amortization. The Company increases its minority interest expense in the event
that the value of the put option exceeds the otherwise minority interest
liability. Because the IFC equity stake can be put to the Company, the impact of
selling the equity stake at a per share price below the Company's book value per
share investment was recorded directly to paid-in capital.
Canada
On April 15, 1999, the Company acquired Rail-One Inc. (Rail-One) which has
a 47.5% ownership interest in Genesee Rail-One Inc. (GRO), thereby increasing
the Company's ownership of GRO to 95%. GRO owns and operates two short line
railroads in Canada. Under the terms of the purchase agreement, the Company
converted outstanding notes receivable from Rail-One of $4.6 million into
capital, will pay approximately $844,000 in cash to the sellers of Rail-One in
installments over a four year period, and granted options to the sellers of
Rail-One to purchase up to 80,000 shares of the Company's Class A Common Stock
at an exercise price of $8.625 per share. Exercise of the option is contingent
on the Company's recovery of its capital investment in GRO including debt
assumed if the Company were to sell GRO, and upon certain GRO income performance
measures which have not yet been met. The transaction was accounted for as a
purchase and resulted in $2.8 million of initial goodwill
26
which is being amortized over 15 years. The contingent purchase price will be
recorded as a component of goodwill at the value of the options issued, if and
when such options are exercisable. Effective with this agreement, the operating
results of GRO have been consolidated within the financial statements of the
Company, with a 5% minority interest due to another GRO shareholder. 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 due in 2001 and 2002. Prior to April 15, 1999, the
Company accounted for its investment in GRO under the equity method and recorded
equity losses of $618,000 and $645,000 in 1999 and 1998, respectively.
South America
On November 5, 2000, the Company acquired an indirect 21.87% equity
interest in Empresa Ferroviaria Oriental, S.A. (Oriental) increasing its stake
in Oriental to 22.55%. Oriental is a railroad serving eastern Bolivia and
connecting to railroads in Argentina and Brazil. The Company previously acquired
a 0.68% indirect interest in Oriental on September 30, 1999 through its 47.5%
ownership interest in Latin American Rail LLC. That original investment was for
$1.0 million in cash and 25,532 shares of the Company's stock valued at
$281,000. The Company's new ownership interest is largely through a 90% owned
holding company subsidiary in Bolivia which also received $740,000 from the
minority partner for investment into Oriental.
The Company's portion of the Oriental investment is composed of $6.7
million in cash, the assumption (via an unconsolidated subsidiary) 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 certain
financial results are achieved. The cash used by the Company to fund such
investment was obtained from its existing revolving credit facility. The Company
accounts for its indirect interest in the Oriental under the equity method of
accounting.
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27
Results of Operations
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Consolidated Operating Revenues
Operating revenues were $206.5 million in the year ended December 31, 2000
compared to $175.6 million in the year ended December 31, 1999, a net increase
of $30.9 million or 17.6%. The net increase was attributable to a $37.2 million
increase in North American railroad revenues of which $23.8 million was
attributable to a full year of railroad operations in Mexico compared to four
months of railroad operations in Mexico in the 1999 period, $10.2 million was
attributable to a full year of railroad operations in Canada compared to eight
and one-half months of railroad operations in Canada in the 1999 period, and
$3.2 million was on existing North American operations; offset by a $5.5 million
decrease in revenues from Australian railroad operations and a $768,000 decrease
in industrial switching revenues.
The following three sections provide information on railroad revenues for
North American and Australian railroad operations, and industrial switching
revenues in the United States. Australian railroad operations were
deconsolidated starting December 17, 2000.
North American Railroad Operating Revenues
Operating revenues increased $37.2 million or 30.7% to $158.3 million in
the year ended December 31, 2000 of which $126.4 million were freight revenues
and $31.9 million were non-freight revenues. Operating revenues in the year
ended December 31, 1999 were $121.1 million of which $95.5 million were freight
revenues and $25.6 million were non-freight revenues. The increase was
attributable to a $30.7 million increase in freight revenues and a $6.5 million
increase in non-freight revenues. The increase of $30.7 million in North
American freight revenues consisted of $20.7 million in freight revenues
attributable to a full year of railroad operations in Mexico, $8.6 million in
freight revenues attributable to a full year of railroad operations in Canada,
and $1.4 million on existing North American operations. The following table
compares North American freight revenues, carloads and average freight revenues
per carload for the years ended December 31, 2000 and 1999:
The remainder of this page is intentionally left blank.
28
North American Freight Revenues and Carloads Comparison by Commodity Group
Years Ended December 31, 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 $25,987 20.6% $24,779 25.9% 117,189 31.2% 94,140 31.4% $222 $263
Pulp & Paper 19,653 15.6% 14,867 15.6% 51,753 13.8% 39,952 13.3% 380 372
Petroleum Products 18,221 14.4% 10,210 10.7% 30,075 8.0% 20,206 6.7% 606 505
Minerals & Stone 17,901 14.2% 7,905 8.3% 42,146 11.2% 23,667 7.9% 425 334
Metals 10,069 8.0% 8,156 8.5% 36,554 9.7% 30,614 10.2% 275 266
Farm & Food Products 9,653 7.6% 5,831 6.1% 27,710 7.4% 19,898 6.6% 348 293
Chemicals-Plastics 8,800 7.0% 8,169 8.6% 16,985 4.5% 16,039 5.4% 518 509
Lumber & Forest Products 7,827 6.2% 8,304 8.7% 25,426 6.8% 28,627 9.6% 308 290
Autos & Auto Parts 3,148 2.5% 2,491 2.6% 5,849 1.6% 4,790 1.6% 538 520
Other 5,113 3.9% 4,825 5.0% 21,438 5.8% 22,024 7.3% 239 219
--------------------------------------------------------------------------------------
Totals $126,372 100.0% $95,537 100.0% 375,125 100.0% 299,957 100.0% 337 319
======================================================================================
Revenues from hauling Coal increased by $1.2 million or 4.9% of which
$77,000 was attributable to a full year of railroad operations in Canada, and
$1.1 million was on existing North American operations. The increase on existing
railroad operations was primarily attributable to freight revenues for two new
customers in the 2000 period. The average revenue per carload for coal decreased
by 15.6% due to lower revenue per carload for the new customers, and freight
rate reductions on certain existing traffic.
Pulp and Paper revenues increased by $4.8 million or 32.2% of which
$306,000 was attributable to a full year of railroad operations in Mexico, $2.9
million was attributable to a full year of railroad operations in Canada, and
$1.6 million was on existing North American operations.
Petroleum Products revenues increased by $8.0 million or 78.5% of which
$7.1 million was attributable to a full year of railroad operations in Mexico,
$33,000 was attributable to a full year of railroad operations in Canada, and
$868,000 was on existing North American operations.
Minerals and Stone revenues increased by $10.0 million or 126.5% of which
$8.9 million was attributable to a full year of railroad operations in Mexico,
$237,000 was attributable to a full year of railroad operations in Canada, and
$887,000 was on existing North American operations.
Farm and Food Products increased by a net $3.8 million or 65.5% of which
$2.2 million was attributable to a full year of railroad operations in Mexico
and $1.7 million was attributable to a full year of railroad operations in
Canada, offset by a decrease of $103,000 on existing North American operations.
29
Freight revenues from all remaining commodities reflected a net increase
of $3.0 million or 9.4% of which $2.3 million was attributable to a full year of
railroad operations in Mexico, $3.7 million was attributable to a full year of
railroad operations in Canada, offset by a net decrease of $3.0 million on
existing North American operations. The net decrease on existing North American
operations was primarily due to decreases in revenues from Lumber and Forest
Products of $1.5 million, Chemicals and Plastics of $698,000 and Other of $1.5
million, offset by increases in Metals of $293,000 and Auto and Auto Parts of
$436,000.
Total North American carloads were 375,125 in the year ended December 31,
2000 compared to 299,957 in the year ended December 31, 1999, an increase of
75,168 or 25.1%. The increase of 75,168 consisted of 29,914 carloads
attributable to a full year of railroad operations in Mexico, 24,962 carloads
attributable to a full year of railroad operations in Canada, and a net increase
of 20,292 carloads on existing North American railroad operations of which
23,049 were coal offset by a net decrease of 2,757 in all other commodities.
The overall average revenue per carload increased to $337 in the year
ended December 31, 2000, compared to $319 per carload in the year ended December
31, 1999, an increase of 5.6% due primarily to higher per carload revenues
attributable to Canada and Mexico carloads offset by a decrease on existing
North American railroad operations carloads.
North American non-freight railroad revenues were $31.9 million in the
year ended December 31, 2000 compared to $25.6 million in the year ended
December 31, 1999, an increase of $6.3 million or 25.0%. The increase of $6.3
million in North American non-freight revenues consisted of $3.1 million
attributable to a full year of operations in Mexico, $1.5 million attributable
to a full year of operations in Canada, and $1.7 million in non-freight revenues
on existing North American operations. The following table compares North
America non-freight revenues for the years ended December 31, 2000 and 1999:
North American Railroad
Non-Freight Operating Revenue Comparison
Years Ended December 31, 2000 and 1999
(dollars in thousands)
% of % of
2000 Total 1999 Total
---- ----- ---- -----
Railroad switching $11,340 35.5% $ 6,818 26.7%
Car hire and rental income 7,969 24.9% 7,981 31.2%
Car repair services 3,019 9.5% 2,346 9.2%
Other operating income 9,618 30.1% 8,411 32.9%
--------------------------------------------
Total non-freight revenues $31,946 100.0% $25,556 100.0%
============================================
The increase of $4.5 million in railroad switching revenues is primarily
attributable to a full year of railroad operations in Mexico.
30
Australian Railroad Operating Revenues
Operating revenues were $37.6 million in the period ended December 16,
2000, compared to $43.2 million in the year ended December 31, 1999, a decrease
of $5.6 million or 12.8%. The Company deconsolidated its Australian subsidiary
as part of the ARG transaction on December 17, 2000. The decrease was the result
of a decrease in freight revenues from Australian railroad operations of $5.2
million or 13.5% and a decrease in non-freight revenues of $284,000 or 6.3%. The
decrease in Australian operating revenues is due to the December 17
deconsolidation and the devaluation 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 year ended December 31, 2000 was $0.5828 compared
to $0.6449 in the year ended December 31, 1999, a decrease of $0.0621 or 9.6%.
The following table outlines Australian freight revenues for the two
periods:
Australian Freight Revenues by Commodity
Periods Ended December 16, 2000 and December 31, 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) $14,905 44.6% $17,533 45.4% 51,165 21.3% 52,407 31.3% $291 $335
Grain 9,009 27.0% 13,588 35.2% 34,875 14.5% 48,781 29.1% 258 279
Iron Ore 3,754 11.2% 350 0.9% 99,544 41.4% 8,069 4.8% 38 43
Gypsum 2,417 7.2% 2,861 7.4% 40,841 17.0% 40,304 24.1% 59 71
Marble 1,788 5.4% 2,034 5.3% 8,171 3.4% 8,343 5.0% 219 244
Lime 1,451 4.3% 1,531 4.0% 4,182 1.7% 4,662 2.8% 347 328
Coal - 0.0% 664 1.7% - 0.0% 4,317 2.6% - 154
Other 96 0.3% 88 0.1% 1,596 0.7% 603 0.3% 60 146
------------------------------------------------------------------------------------
Total $33,420 100.0% $38,649 100.0% 240,374 100.0% 167,486 100.0% 139 231
====================================================================================
The net decrease of $5.2 million in Australian freight revenues was
primarily attributable to the December 17 deconsolidation and the 9.6%
devaluation of the Australian dollar. Decreases in revenues from Grain of $4.6
million, Hook and Pull of $2.6 million, Coal of $664,000, and all remaining
commodities except Iron Ores of $762,000, were primarily due to the
deconsolidation and devaluation. Grain revenues for 1999 also reflect the strong
harvest experienced during the 1998/99 season. There were no freight revenues
from coal in the 2000 period due to the non-renewal of a coal contract. The
increase of $3.4 million from the shipment of Iron Ores was from a new customer
that began shipments in the forth quarter of 1999.
Australia carloads were 240,374 in the period ended December 16, 2000,
compared to 167,486 in the year ended December 31, 1999, an increase of 72,888
or 43.5%. The net increase of 72,888 was primarily the result of increases of
91,475 carloads from the shipment of Iron Ores and 537 carloads from the
31
shipment of Gypsum, offset by decreases in carloads from Grain, Coal, and all
other commodities of 13,906, 4,317, and 901, respectively.
The overall average revenue per carload decreased to $139 in the period
ended December 16, 2000, compared to $231 per carload in the year ended December
31, 1999. The decrease is primarily due to the significantly higher number of
carloads of lower revenue per carload Iron Ore, and the devaluation of the
Australian dollar against the U.S. dollar in the 2000 period compared to the
1999 period.
Australian non-freight revenues were $4.2 million in the period ended
December 16, 2000, compared to $4.5 million in the year ended December 31, 1999,
a decrease of $284,000 or 6.3%.
U.S. Industrial Switching Revenues
Revenues from U.S. industrial switching activities were $10.6 million in
the year ended December 31, 2000 compared to $11.3 million in the year ended
December 31, 1999, a decrease of $768,000 or 6.8% 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 $182.8 million in the
year ended December 31, 2000, compared to $153.2 million in the year ended
December 31, 1999, a net increase of $29.6 million or 19.3%. Expenses
attributable to North American railroad operations were $134.8 million in the
year ended December 31, 2000, compared to $105.2 million in the year ended
December 31, 1999, an increase of $29.6 million or 28.1% of which $17.5 million
are operating expenses attributable to a full year of railroad operations in
Mexico compared to four months of railroad operations in Mexico in the 1999
period, $8.1 million are operating expenses attributable to a full year of
railroad operations in Canada compared to eight and one-half months of railroad
operations in Canada in the 1999 period, and $4.0 million are operating expenses
on existing North American operations. Expenses attributable to operations in
Australia were $37.7 million in 2000, compared to $36.6 million in 1999, an
increase of $1.1 million or 2.9%. Expenses attributable to U.S. industrial
switching were $10.3 million in the year ended December 31, 2000, compared to
$11.4 million in the year ended December 31, 1999, a decrease of $1.1 million or
9.6%.
Operating Ratios
The Company's combined operating ratio increased to 88.5% in the year
ended December 31, 2000 from 87.3% in the year ended December 31, 1999. The
operating ratio for North American railroad operations decreased to 85.1% in the
year ended December 31, 2000 from 86.9% in the year ended December 31, 1999. The
operating ratio for Australian railroad operations increased to 100.1% in 2000
from 84.8% in 1999. The operating ratio for U.S. industrial switching operations
decreased to 97.7% in the year ended December 31, 2000 from 100.8% in the year
ended December 31, 1999.
The following three sections provide information on railroad expenses for
North American and Australian railroad operations, and industrial switching
expenses in the United States. Australian railroad operations were
deconsolidated starting December 17, 2000.
32
North American Railroad Operating Expenses
The following table sets forth a comparison of the Company's North
American railroad operating expenses in the years ended December 31, 2000 and
1999:
North American Railroad
Operating Expense Comparison
Years Ended December 31, 2000 and 1999
(dollars in thousands)
2000 1999
---- ----
Percent of Percent of
Operating Operating
Dollars Revenue Dollars Revenue
-----------------------------------------------
Labor and benefits $ 54,212 34.2% $ 38,819 32.1%
Equipment rents 19,787 12.5% 13,768 11.4%
Purchased services 10,805 6.8% 7,996 6.6%
Depreciation and amortization 11,068 7.0% 9,649 8.0%
Diesel fuel 12,888 8.1% 6,357 5.2%
Casualties and insurance 6,111 3.9% 4,172 3.4%
Materials 10,226 6.5% 8,503 7.0%
Other expenses 9,677 6.1% 15,929 13.2%
-----------------------------------------------
Total operating expenses $134,774 85.1% $105,193 86.9%
===============================================
Labor and benefits expense increased $15.4 million or 39.7% of which $7.5
million was attributable to a full year of railroad operations in Mexico, $2.2
million was attributable to a full year of railroad operations in Canada, and
$5.7 million was on existing North American operations.
Equipment rents increased $6.0 million or 43.7% of which $994,000 was
attributable to a full year of railroad operations in Mexico, $1.8 million was
attributable to a full year of railroad operations in Canada, and $3.2 million
was on existing North American operations.
Purchased services increased $2.8 million or 35.1% of which $1.8 million
was attributable to a full year of railroad operations in Mexico, $955,000 was
attributable to a full year of railroad operations in Canada, and $81,000 was on
existing North American operations.
Depreciation and amortization expense increased $1.4 million or 14.7% of
which $1.3 million was attributable to a full year of railroad operations in
Mexico and $512,000 was attributable to a full year of railroad operations in
Canada, offset by a decrease of $434,000 on existing North American operations.
Diesel fuel expense increased $6.5 million or 102.7% of which $2.4 million
was attributable to a full year of railroad operations in Mexico, $1.8 million
was attributable to a full year of railroad operations in Canada, and $2.3
million was on existing North American operations. The increase on existing
railroad operations was due primarily to increased fuel oil prices in 2000 and
secondarily to increased fuel consumption resulting from an increase in carloads
on existing operations.
33
Casualties and insurance expense increased $1.9 million or 46.5% of which
$1.4 million was attributable to a full year of railroad operations in Mexico,
$19,000 was attributable to a full year of railroad operations in Canada, and
$565,000 was on existing North American operations.
Materials expense increased $1.7 million or 20.3% of which $1.5 million
was attributable to a full year of railroad operations in Mexico and $231,000
was on existing North American operations, offset by a $48,000 decrease
attributable to Canada. The decrease attributable to Canada is due primarily to
increased capital work in the 2000 period compared to a higher level of
maintenance work in the 1999 period.
Other expenses were $9.7 million in the year ended December 31, 2000,
compared to $15.9 million in the year ended December 31, 1999, a net decrease of
$6.2 million or 39.2%. The net decrease of $6.2 million consists of an increase
of $531,000 attributable to a full year of railroad operations in Mexico,
$800,000 attributable to a full year of railroad operations in Canada, offset by
a $7.6 million decrease on existing North American operations.
Australian Railroad Operating Expenses
The following table sets forth a comparison of the Company's Australian
railroad operating expenses in the periods ended December 16, 2000 and December
31, 1999:
Australian Railroad
Operating Expense Comparison
Periods Ended December 16, 2000 and December 31, 1999
(dollars in thousands)
2000 1999
---- ----
Percent of Percent of
Operating Operating
Dollars Revenue Dollars Revenue
-----------------------------------------------
Labor and benefits $ 5,266 14.0% $ 5,443 12.6%
Equipment rents 210 0.6% 367 0.9%
Purchased services 11,947 31.7% 12,116 28.1%
Depreciation and amortization 2,254 6.0% 2,157 5.0%
Diesel fuel 6,672 17.7% 8,186 19.0%
Casualties and insurance 1,415 3.8% 1,635 3.8%
Materials 1,492 4.0% 1,861 4.3%
Other expenses 4,397 11.7% 4,833 11.1%
Stock option charge 4,015 10.6% -- 0.0%
-----------------------------------------------
Total operating expenses $37,668 100.1% $36,598 84.8%
===============================================
Operating expenses( exclusive of a $4.0 million stock option charge)
decreased by $2.9 million in 2000 primarily due to the December 17
deconsolidation and the 9.6% devaluation of the Australian dollar against the
U.S. dollar in the 2000 period compared to the 1999 period.
34
As a direct result of the Company's contribution of ASR to ARG, ASR stock
options became immediately exercisable by the option holders and, as allowed
under the provisions of the stock option plan, the option holders, in lieu of
ASR stock, were paid an equivalent value in cash, resulting in a $4.0 million
pre-tax compensation charge to ASR earnings.
U. S. Industrial Switching Operating Expenses
The following table sets forth a comparison of the Company's industrial
switching operating expenses in the years ended December 31, 2000 and 1999:
U.S. Industrial Switching
Operating Expense Comparison
Years Ended December 31, 2000 and 1999
(dollars in thousands)
2000 1999
---- ----
Percent of Percent of
Operating Operating
Dollars Revenue Dollars Revenue
-----------------------------------------------
Labor and benefits $ 6,419 60.7% $ 7,945 70.1%
Equipment rents 239 2.3% 187 1.6%
Purchased services 335 3.2% 476 4.2%
Depreciation and amortization 658 6.2% 768 6.8%
Diesel fuel 542 5.1% 421 3.7%
Casualties and insurance 529 5.0% 971 8.6%
Materials 643 6.1% 743 6.6%
Other expenses 970 9.1% (84) (0.8%)
-----------------------------------------------
Total operating expenses $ 10,335 97.7% $ 11,427 100.8%
===============================================
Labor and benefits expense decreased $1.5 million or 19.2%, due primarily
to the Company's decision to exit an unprofitable switching contract in May,
1999.
All other expenses were $3.9 million in the year ended December 31, 2000,
compared to $3.5 in the year ended December 31, 1999, an increase of $434,000 or
12.5%.
Interest Expense
Interest expense in the year ended December 31, 2000, was $11.2 million
compared to $8.5 million in the year ended December 31, 1999, an increase of
$2.7 million or 32.7% primarily due to the increase in debt used to fund
acquisitions in 1999 and investments in unconsolidated affiliates in 2000.
Gain on 50% Sale of Australia Southern Railroad to Australian Railroad Group
The Company recorded a non-cash gain of $10.1 million upon the issuance of
shares of ASR at a price per share in excess of its book value per share
investment in ASR in December 2000 (see Note 3. to Consolidated Financial
Statements).
35
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 year
ended December 31, 2000, compared to a loss of $191,000 in the year ended
December 31, 1999. On June 16, 2000, pursuant to a corporate and financial
restructuring of the Company's Mexican subsidiaries, the income statement impact
of the U.S. dollar denominated foreign debt revaluation was significantly
reduced.
Other Income, Net
Other income, net in the year ended December 31, 2000, was $3.0 million
compared to $1.9 million in the year ended December 31, 1999, an increase of
$1.1 million or 59.1%. Other income, net in the years ended December 31, 2000
and 1999, consists primarily of interest income of $2.3 million and $1.3
million, respectively. The increase in interest income in the year ended
December 31, 2000, is primarily due to a full year of earnings on a special
deposit at the Company's Mexican subsidiary.
Income Taxes
The Company's effective income tax rate in the years ended December 31,
2000 and 1999 was 43.9% and 14.0%, respectively. The 2000 rate was impacted by a
$6.6 million non-cash deferred tax expense related to the financial reporting
versus tax basis difference in the Company's investment in Australia which
resulted from the deconsolidation of those operations, and a $1.0 million
reduction in the valuation allowance established in 1999 against the positive
impact of a favorable tax law change in Australia. Without the impact of the
these items, the Company's effective income tax rate in the year ended December
31, 2000, was 35.8%. The 1999 rate was impacted by a $4.2 million benefit
recorded in the third quarter of 1999 as a result of the favorable tax law
change in Australia. Without this impact, 1999's effective income tax rate was
40.9%.
Equity in Net Income of Unconsolidated International Affiliates
Equity earnings of unconsolidated international affiliates in the year
ended December 31, 2000, were $411,000 compared to a loss of $618,000 in the
year ended December 31, 1999, an increase of $1.0 million. Equity earnings in
the year ended December 31, 2000, consist of $261,000 from Australian Railroad
Group for the period of December 17 through December 31, 2000, and $150,000 from
South America affiliates for the period of November 6 - December 31, 2000.
Equity losses of $618,000 in the year ended December 31, 1999, were from Genesee
Rail-One for the period of January 1 through April 15, 1999, at which date the
Company acquired majority ownership of Genesee Rail-One.
Net Income and Earnings Per Share
The Company's net income for the year ended December 31, 2000, was $13.9
million compared to net income in the year ended December 31, 1999, of $12.5
million, an increase of $1.4 million or 11.2%. The increase in net income is the
net result of an increase in net income from North American railroad operations
of $7.6 million, an increase in equity earnings of unconsolidated
36
affiliates of $1.0, and a decrease in the net loss of industrial switching of
$86,000; offset by a decrease in net income from Australian railroad operations
of $7.3 million.
Basic and Diluted Earnings Per Share in the year ended December 31, 2000,
were $3.19 and $3.11, respectively, on weighted average shares of 4.3 million
and 4.5 million, respectively, compared to $2.79 and $2.76, respectively, on
weighted average shares of 4.5 million in the year ended December 31, 1999.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Consolidated Operating Revenues
Operating revenues were $175.6 million in the year ended December 31, 1999
compared to $147.5 million in the year ended December 31, 1998, a net increase
of $28.1 million or 19.1%. The net increase was attributable to a $33.0 million
increase in North American railroad revenues of which $19.9 million were
revenues from new railroad operations in Canada, $8.8 million were revenues from
new railroad operations in Mexico and $4.3 million were increases in revenues on
existing North America railroad operations; offset by a $3.6 million decrease in
revenues from Australian railroad operations due primarily to the non-renewal of
a coal contract and a $1.3 million decrease in industrial switching revenues due
primarily to the Company's decision to exit an unprofitable switching contract.
The following three sections provide information on railroad revenues for
North American and Australian railroad operations, and industrial switching
revenues in the United States.
North American Railroad Operating Revenues
Operating revenues were $121.1 million in the year ended December 31, 1999
of which $95.5 million were freight revenues and $25.6 million were non-freight
revenues compared to $88.1 million of which $66.1 million were freight revenues
and $22.0 million were non-freight revenues in the year ended December 31, 1998,
an increase in operating revenues of $33.0 million or 37.5%. The increase was
attributable to a $29.5 million increase in freight revenues and a $3.5 million
increase in non-freight revenues. The increase of $29.5 million in North
American freight revenues was due to $15.0 million in freight revenues
attributable to new railroad operations in Canada, $7.2 million in freight
revenues attributable to new railroad operations in Mexico, and an increase of
$7.3 million in freight revenues on existing railroad operations. The following
table compares North American freight revenues, carloads and average freight
revenues per carload for the years ended December 31, 1999 and 1998:
The remainder of this page is intentionally left blank.
37
North American Freight Revenues and Carloads Comparison by Commodity Group
Years Ended December 31, 1999 and 1998
(dollars in thousands, except average per carload)
Average
Freight
Revenues
Per
Freight Revenues Carloads Carload
---------------- -------- -------
% of % of % of % of
Commodity Group 1999 Total 1998 Total 1999 Total 1998 Total 1999 1998
- --------------- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----
Coal, Coke & Ores $24,779 25.9% $19,245 29.1% 94,140 31.4% 75,881 34.8% $263 $254
Pulp & Paper 14,867 15.6% 8,295 12.6% 39,952 13.3% 21,318 9.7% 372 389
Petroleum Products 10,210 10.7% 7,135 10.8% 20,206 6.7% 15,992 7.3% 505 446
Lumber & Forest Products 8,304 8.7% 6,098 9.2% 28,627 9.6% 20,802 9.5% 290 293
Chemicals-Plastics 8,169 8.6% 6,337 9.6% 16,039 5.4% 12,503 5.7% 509 507
Metals 8,156 8.5% 4,879 7.4% 30,614 10.2% 17,862 8.2% 266 273
Minerals & Stone 7,905 8.3% 3,790 5.8% 23,667 7.9% 13,679 6.3% 334 277
Farm & Food Products 5,831 6.1% 4,919 7.4% 19,898 6.6% 17,451 8.0% 293 282
Autos & Auto Parts 2,491 2.6% 1,945 2.9% 4,790 1.6% 3,895 1.8% 520 499
Other 4,825 5.0% 3,438 5.2% 22,024 7.3% 18,922 8.7% 219 182
--------------------------------------------------------------------------------------
Totals $95,537 100.0% $66,081 100.0% 299,957 100.0% 218,305 100.0% 319 303
======================================================================================
Coal increased by $5.5 million or 28.8% of which $5.4 million was on
existing railroad operations and $182,000 was new freight revenues attributable
to the acquisition of GRO. The increase on existing railroad operations in 1999
was primarily attributable to a return to normal shipments at a key customer's
facilities which compare to reduced shipments in the 1998 period due to
scheduled inventory reductions and planned maintenance projects at the key
customer's facilities.
Pulp and Paper increased by $6.6 million or 79.2% of which $553,000 was on
existing railroad operations, $5.9 million was new freight revenues attributable
to the acquisition of GRO, and $125,000 was freight revenues attributable to new
railroad operations in Mexico.
Petroleum Products increased by $3.1 million or 43.0% of which $95,000 was
on existing railroad operations, $131,000 was new freight revenues attributable
to the acquisition of GRO, and $2.8 million was freight revenues attributable to
new railroad operations in Mexico.
Lumber and Forest Products increased by $2.2 million or 36.2% of which
$956,000 was on existing railroad operations, $1.2 million was new freight
revenues attributable to the acquisition of GRO, and $35,000 was freight
revenues attributable to new railroad operations in Mexico.
Chemicals and Plastics increased by $1.8 million or 28.9% of which
$258,000 was on existing railroad operations, $1.3 million was new freight
revenues attributable to the acquisition of GRO, and $233,000 was freight
revenues attributable to new railroad operations in Mexico.
38
Metals increased by $3.3 million or 67.2% of which $177,000 was an
increase on existing railroad operations, $3.0 million was new freight revenues
attributable to the acquisition of GRO, and $80,000 was freight revenues
attributable to new railroad operations in Mexico.
Minerals and Stone increased by a net $4.1 million or 108.8% of which $1.6
million was new freight revenues attributable to the acquisition of GRO, $2.9
was freight revenues attributable to new railroad operations in Mexico and
$360,000 was a decrease on existing railroad operations.
Freight revenues from all remaining commodities reflected an increase of
$2.8 million or 27.6% of which $245,000 was an increase on existing railroad
operations, $1.7 million was new freight revenues attributable to the
acquisition of GRO, and $916,000 was new freight revenues attributable to new
railroad operations in Mexico.
Total North American carloads were 299,957 in the year ended December 31,
1999 compared to 218,305 in the year ended December 31, 1998, an increase of
81,652 or 37.4%. The increase of 81,652 consisted of an increase of 25,951
carloads on existing railroad operations of which 17,557 were coal, 46,478
carloads attributable to the acquisition of GRO, and 9,223 carloads attributable
to new railroad operations in Mexico.
The overall average revenue per carload increased to $319 in the year
ended December 31, 1999, compared to $303 per carload in the year ended December
31, 1998, an increase of 5.3% due primarily to higher per carload revenues
attributable to Canada and Mexico carloads offset by a slight decrease on
existing railroad operations carloads.
North American non-freight railroad revenues were $25.6 million in the
year ended December 31, 1999 compared to $22.0 million in the year ended
December 31, 1998, an increase of $3.5 million or 16.1%. The increase is the net
result of $4.8 million of new non-freight revenues attributable to the
acquisition of GRO, $1.7 million of new non-freight revenues attributable to
Mexico and a decrease of $3.0 million of non-freight revenues on existing
railroad operations due primarily to a decrease in car hire and rental income.
The following table compares North America non-freight revenues for the years
ended December 31, 1999 and 1998:
North American Railroad
Non-Freight Operating Revenue Comparison
Years Ended December 31, 1999 and 1998
(dollars in thousands)
% of % of
1999 Total 1998 Total
---- ----- ---- -----
Railroad switching $ 6,818 26.7% $ 6,231 28.3%
Car hire and rental income 7,981 31.2% 7,577 34.4%
Car repair services 2,346 9.2% 1,890 8.6%
Other operating income 8,411 32.9% 6,341 28.7%
----------------------------------------
Total non-freight revenues $25,556 100.0% $22,039 100.0%
========================================
39
Australian Railroad Operating Revenues
Operating revenues were $43.2 million in the year ended December 31, 1999,
compared to $46.7 million in the year ended December 31, 1998, a decrease of
$3.6 million or 7.7%. The decrease was the result of a decrease in freight
revenues from Australian railroad operations of $3.4 million or 8.0% primarily
due to the non-renewal of a coal contract and a decrease in non-freight revenues
of $226,000 or 4.8%.
Australian freight revenues were $38.6 million in the year ended December
31, 1999, compared to $42.0 million in the year ended December 31, 1998, a
decrease of $3.4 million or 8.0%. The following table outlines Australian
freight revenues for the years ended December 31, 1999 and 1998:
Australian Freight Revenues by Commodity
Years Ended December 31, 1999 and 1998
(dollars in thousands, except average per carload)
Average
Freight
Revenues
Per
Freight Revenues Carloads Carload
---------------- -------- -------
% of % of % of % of
Commodity Group 1999 Total 1998 Total 1999 Total 1998 Total 1999 1998
- --------------- ---- ----- ---- ----- ---- ----- ---- ----- ---- ----
Hook and Pull
(Haulage) $17,533 45.4% $15,288 36.4% 52,407 31.3% 40,817 22.3% $335 $375
Grain 13,588 35.2% 13,040 31.0% 48,781 29.1% 45,896 25.1% 279 284
Gypsum 2,861 7.4% 2,788 6.6% 40,304 24.1% 36,611 20.0% 71 76
Marble 2,034 5.3% 1,949 4.6% 8,343 5.0% 8,294 4.5% 244 235
Lime 1,531 4.0% 1,052 2.5% 4,662 2.8% 2,500 1.4% 328 421
Coal 664 1.7% 7,514 17.9% 4,317 2.6% 47,286 25.9% 154 159
Iron Ore 350 0.9% -- 0.0% 8,069 4.8% -- 0.0% 43 --
Other 88 0.1% 368 1.0% 603 0.3% 1,382 0.8% 146 266
------------------------------------------------------------------------------------
Total $38,649 100.0% $41,999 100.0% 167,486 100.0% 182,786 100.0% 231 230
====================================================================================
The net decrease of $3.4 million in Australian freight revenues was
primarily attributable to a decrease in freight revenues from Coal of $6.9
million offset by new freight revenues from the shipment of Iron Ores of
$350,000, increases in freight revenues from the shipment of Grain of $548,000,
Hook and Pull of $2.2 million and all other non-coal commodities of $357,000.
The decrease in freight revenues from Coal in the year ended December 31, 1999,
was due to the non-renewal of a Coal contract.
Australia carloads were 167,486 in the year ended December 31, 1999
compared to 182,786 in the year ended December 31, 1998, a decrease of 15,300 or
8.4%. The decrease was primarily the result of a decrease in Coal carloads of
42,969 offset by increases in Hook and Pull of 11,590, Iron Ores of 8,069,
Gypsum of 3,693, Grain of 2,885, and all other commodities of 1,432.
The overall average revenue per carload increased to $231 in the year
ended December 31, 1999, compared to $230 per carload in the year ended December
31, 1998.
40
Australian non-freight revenues were $4.5 million in the year ended
December 31, 1999, compared to $4.7 million in the year ended December 31, 1998,
a decrease of $226,000 or 4.8% due primarily to a decrease in other income.
U.S. Industrial Switching Revenues
Revenues from U.S. industrial switching activities were $11.3 million in
the year ended December 31, 1999 compared to $12.6 million in the year ended
December 31, 1998, a decrease of $1.3 million or 10.3% due primarily to the
Company's decision to exit an unprofitable switching contract.
Consolidated Operating Expenses
Operating expenses for all operations combined were $153.2 million in the
year ended December 31, 1999, compared to $127.9 million in the year ended
December 31, 1998, a net increase of $25.3 million or 19.8%. Expenses
attributable to North American railroad operations were $105.2 million in the
year ended December 31, 1999, compared to $75.6 million in the year ended
December 31, 1998, an increase of $29.6 million or 39.2% of which $17.8 million
were expenses attributable to new railroad operations in Canada, $8.1 million
were expenses attributable to new railroad operations in Mexico and $3.7 were
expenses attributable to existing U.S. railroad operations. Expenses
attributable to operations in Australia were $36.6 million in the year ended
December 31, 1999, compared to $37.9 million in the year ended December 31,
1998, a decrease of $1.3 million or 3.5%. Expenses attributable to U.S.
industrial switching were $11.4 million in the year ended December 31, 1999,
compared to $14.4 million in the year ended December 31, 1998, a decrease of
$3.0 million or 20.9%.
Operating Ratios
The Company's combined operating ratio increased to 87.3% in the year
ended December 31, 1999 from 86.7% in the year ended December 31, 1998. The
operating ratio for North American railroad operations increased to 86.9% in the
year ended December 31, 1999 from 85.8% in the year ended December 31, 1998. The
operating ratio for Australian railroad operations increased to 84.8% in the
year ended December 31, 1999 from 81.1% in the year ended December 31, 1998. The
operating ratio for U.S. industrial switching operations decreased to 100.8% in
the year ended December 31, 1999 from 114.2% in the year ended December 31,
1998.
The following three sections provide information on railroad expenses for
North American and Australian railroad operations, and industrial switching
expenses in the United States.
North American Railroad Operating Expenses
The following table sets forth a comparison of the Company's North
American railroad operating expenses in the years ended December 31, 1999 and
1998:
41
North American Railroad
Operating Expense Comparison
Years Ended December 31, 1999 and 1998
(dollars in thousands)
1999 1998
---- ----
Percent of Percent of
Operating Operating
Dollars Revenue Dollars Revenue
--------------------------------------------
Labor and benefits $ 38,819 32.1% $ 30,822 35.0%
Equipment rents 13,768 11.4% 11,060 12.6%
Purchased services 7,996 6.6% 4,496 5.1%
Depreciation and amortization 9,649 8.0% 7,277 8.3%
Diesel fuel 6,357 5.2% 3,187 3.6%
Casualties and insurance 4,172 3.4% 2,937 3.3%
Materials 8,503 7.0% 3,485 4.0%
Other expenses 15,929 13.2% 12,285 13.9%
--------------------------------------------
Total operating expenses $105,193 86.9% $ 75,549 85.8%
============================================
Labor and benefits expense was $38.8 million in the year ended December
31, 1999 compared to $30.8 million in the year ended December 31, 1998, an
increase of $8.0 million or 25.9% of which $5.0 million was attributable to the
acquisition of GRO, $2.7 million was attributable to new railroad operations in
Mexico and $281,000 was attributable to an increase on existing railroad
operations.
Equipment rents were $13.8 million in the year ended December 31, 1999
compared to $11.1 million in the year ended December 31, 1998, a net increase of
$2.7 million or 24.5% of which $4.0 million was attributable to the acquisition
of GRO, $53,000 was attributable to new railroad operations in Mexico and $1.4
million was a decrease on existing railroad operations due primarily to a
reduction of rolling stock and associated costs.
Purchased services were $8.0 million in the year ended December 31, 1999
compared to $4.5 million in the year ended December 31, 1998, a net increase of
$3.5 million or 77.8% of which $2.8 million was attributable to the acquisition
of GRO, $865,000 was attributable to new railroad operations in Mexico and
$202,000 was a decrease on existing railroad operations resulting from increased
capital spending which reduced the need for certain purchased maintenance
services.
Depreciation and amortization expense was $9.6 million in the year ended
December 31, 1999 compared to $7.2 million in the year ended December 31, 1998,
an increase of $2.4 million or 32.6% of which $1.4 million was attributable to
the acquisition of GRO, $671,000 was attributable to new railroad operations in
Mexico and $280,000 was attributable to existing railroad operations as a result
of increased capital spending in 1998 and 1999.
Diesel fuel expense was $6.4 million in the year ended December 31, 1999
compared to $3.2 million in the year ended December 31, 1998, an increase of
$3.2 million or 99.5% of which $1.5 million was attributable to the acquisition
of GRO, $836,000 was attributable to new railroad operations in Mexico and
$831,000 was attributable to existing railroad operations due primarily to
42
increased fuel oil prices in 1999 and secondarily to increased fuel consumption
resulting from an increase in carloads on existing operations.
Casualties and insurance expense was $4.2 million in the year ended
December 31, 1999 compared to $2.9 million in the year ended December 31, 1998,
an increase of $1.3 million or 42.0% of which $498,000 was attributable to the
acquisition of GRO, $223,000 was attributable to new railroad operations in
Mexico and $514,000 was attributable to existing railroad operations due
primarily to increases in derailment and insurance expense.
Materials expense was $8.5 million in the year ended December 31, 1999
compared to $3.5 million in the year ended December 31, 1998, an increase of
$5.0 million or 144.0% of which $984,000 was attributable to the acquisition of
GRO, $1.2 million was attributable to new railroad operations in Mexico and $2.8
million was attributable to existing railroad operations due primarily to
increased track and locomotive materials expense.
Other expenses were $15.9 million in the year ended December 31, 1999
compared to $12.3 million in the year ended December 31, 1998, an increase of
$3.6 million or 29.6% of which $1.5 million was attributable to the acquisition
of GRO, $1.5 million was attributable to new railroad operations in Mexico and
$629,000 was attributable to existing railroad operations primarily related to
acquisition expenses which were $1.9 million in 1999 ($1.2 million of which was
incurred in the first quarter of 1999) compared to $1.5 million in 1998, an
increase of $404,000 or 27.9%.
Australian Railroad Operating Expenses
The following table sets forth a comparison of the Company's Australian
railroad operating expenses in the years ended December 31, 1999 and 1998:
Australian Railroad
Operating Expense Comparison
Years Ended December 31, 1999 and 1998
(dollars in thousands)
1999 1998
---- ----
Percent of Percent of
Operating Operating
Dollars Revenue Dollars Revenue
---------------------------------------------
Labor and benefits $ 5,443 12.6% $ 5,263 11.3%
Equipment rents 367 0.9% 593 1.3%
Purchased services 12,116 28.1% 13,538 29.0%
Depreciation and amortization 2,157 5.0% 1,842 3.9%
Diesel fuel 8,186 19.0% 8,895 19.0%
Casualties and insurance 1,635 3.8% 1,415 3.0%
Materials 1,861 4.3% 1,734 3.7%
Other expenses 4,833 11.1% 4,627 9.9%
---------------------------------------------
Total operating expenses $36,598 84.8% $37,907 81.1%
=============================================
Purchased services were $12.1 million in the year ended December 31, 1999
compared to $13.5 million in the year ended December 31, 1998, a decrease of
$1.4 million or 10.5%. The decrease was primarily related to the non-renewal
43
of a coal haulage contract which resulted in no contracted maintenance charges
on the track used for the coal haulage, and the positive impact of capital work
on ASR-owned tracks which reduced contract labor expense for maintenance.
All other operating expenses were $24.5 million in the year ended December
31, 1999 compared to $24.4 million in the year ended December 31, 1998, a net
increase of $113,000.
U. S. Industrial Switching Operating Expenses
The following table sets forth a comparison of the Company's industrial
switching operating expenses in the years ended December 31, 1999 and 1998:
U.S. Industrial Switching
Operating Expense Comparison
Years Ended December 31, 1999 and 1998
(dollars in thousands)
1999 1998
---- ----
Percent of Percent of
Operating Operating
Dollars Revenue Dollars Revenue
-------------------------------------------
Labor and benefits $ 7,945 70.1% $ 9,019 71.3%
Equipment rents 187 1.6% 217 1.7%
Purchased services 476 4.2% 291 2.3%
Depreciation and amortization 768 6.8% 798 6.3%
Diesel fuel 421 3.7% 466 3.7%
Casualties and insurance 971 8.6% 1,363 10.8%
Materials 743 6.6% 758 6.0%
Other expenses (84) -0.8% 1,533 12.1%
-------------------------------------------
Total operating expenses $ 11,427 100.8% $ 14,445 114.2%
===========================================
Labor and benefits expense was $7.9 million in the year ended December 31,
1999 compared to $9.0 million in the year ended December 31, 1998, a decrease of
$1.1 million or 11.9%, due primarily to the decision to exit unprofitable
switching contracts.
Other expense was a credit of $84,000 in the year ended December 31, 1999
compared to $1.5 million in the year ended December 31, 1998, a decrease of $1.6
million or 105.5%. The 1998 period was unusually high due to approximately
$550,000 of legal fees for still-pending litigation.
Interest Expense
Interest expense in the year ended December 31, 1999 was $8.5 million
compared to $7.1 million in the year ended December 31, 1998, an increase of
$1.4 million or 19.7% primarily related to the increase in debt used for
acquisitions.
Other Income and Income Taxes
The Company's other income consists primarily of interest income, gains
and losses on assets sales, and minority interest expense. Other income in the
44
year ended December 31, 1999 was $1.9 million compared to $7.3 million in the
year ended December 31, 1998, a decrease of $5.4 million or 74.3%. The 1998
other income reflected $6.0 million of non-recurring insurance proceeds recorded
in North American railroad operations.
The Company's effective income tax rate in the years ended December 31,
1999 and 1998 was 14.0% and 39.0%, respectively. The 1999 rate was impacted by a
$4.2 million benefit recorded in the third quarter of 1999 as a result of a
favorable tax law change in Australia. Without this impact, 1999's effective
income tax rate was 40.9%.
Equity in Net Income of Unconsolidated International Affiliates
Equity losses of unconsolidated international affiliates in the year ended
December 31, 1999, were $618,000 compared to losses of $645,000 in the year
ended December 31, 1998, a decrease of $27,000. The 1999 loss was from Genesee
Rail-One for the period of January 1 through April 15, 1999, at which date the
Company acquired majority ownership of Genesee Rail-One. The 1998 loss was from
Genesee Rail-One for the year ended December 31, 1998.
Net Income and Earnings Per Share
The Company's net income in the year ended December 31, 1999 was $12.5
million (including a $4.2 million income tax benefit described above and an
extraordinary non-cash expense of $262,000 related to the early extinguishment
of debt described in Note 9. to Consolidated Financial Statements) compared to
net income of $11.4 million (including a $3.9 million after-tax effect of an
insurance settlement described in Note 2. to Consolidated Financial Statements)
in the year ended December 31, 1998, an increase of $1.1 million or 9.6%. The
increase in net income is the net result of an increase in net income from
Australian railroad operations of $3.6 million, a decrease in net income from
North American railroad operations of $3.7 million, and a decrease in the net
loss of industrial switching of $1.2 million.
Basic and Diluted Earnings Per Share in the year ended December 31, 1999
were $2.79 and $2.76 respectively, on weighted average shares of 4.5 million
compared to $2.20 and $2.19 respectively, on weighted average shares of 5.2
million in the year ended December 31, 1998. The change in weighted average
shares outstanding primarily reflects the impact of a 1.0 million share buy-back
program which started in August 1998 and ended in April 1999.
Liquidity and Capital Resources
During 2000, 1999 and 1998, the Company generated $23.5 million, $29.3
million and $23.8 million, respectively, of cash from operations. The 2000
decrease is primarily due to higher earnings before depreciation, amortization,
deferred taxes and the gain from the issuance of ASR stock in 2000; being more
than offset by the $5.1 million net increase in operating assets and liabilities
during 2000 compared to the $2.5 million decrease in such net assets in 1999.
The 1999 increase over 1998 was primarily due to somewhat higher earnings before
depreciation, amortization and deferred taxes in 1999 and the $2.5 million
decrease in operating assets and liabilities during 1999 versus the $1.0 million
increase in such assets during 1998.
Cash flows from investing activities included capital expenditures of
$39.5 million, $35.8 million and $16.9 million in 2000, 1999 and 1998,
respectively. Of these expenditures, $14.4 million, $14.8 million and $10.0
45
million were for equipment and rolling stock in 2000, 1999 and 1998,
respectively. The remaining capital expenditure amounts each year were for track
improvements and are not net of funds received under governmental and other
third party grants. Year 2000 cash flows from investing activities also included
$29.4 million of investments in unconsolidated affiliates and $2.6 million of
proceeds from the issuance of minority shares in consolidated affiliates. Year
1999 and 1998 cash flows from investing activities also include $1.0 million and
$3.1 million, respectively, of investments into unconsolidated affiliates and
1999 includes $31.5 million for the acquisition by FCCM. Proceeds from assets
sales were $679,000 in 2000, $10.3 million in 1999 and $2.6 million in 1998
Cash flows from financing activities included net increases in outstanding
debt of $6.4 million in 2000 and $17.5 million in 1999 and a net decrease in
outstanding debt of $2.1 million in 1998. Proceeds from governmental and other
third party grants were $10.3 million, $10.9 million and $3.2 million in 2000,
1999 and 1998, respectively. Common stock activity resulted in cash inflows of
$2.1 million in 2000 and outflows of $6.3 million and $4.6 million in 1999 and
1998, respectively, such outflows primarily representing the Company's program
from August, 1998 to April, 1999 to repurchase 1.0 million shares of its Class A
common stock. Year 2000 cash flows from financing activities also included $18.8
million of net proceeds from the Company's December 2000 issuance of Redeemable
Convertible Preferred Stock to help fund the additional investment into the
Australia operations.
During 2000, the Company completed four amendments to its primary credit
agreement to facilitate the Company's corporate restructuring and refinancing of
its Mexico operations, issuance of Convertible Preferred Stock, and sale of a
50% interest in ASR to ARG. As amended, the Company's primary credit agreement
consists of a $135.0 million credit facility with $103.0 million in revolving
credit facilities and $32.0 million in term loan facilities. The term loan
facilities consist of a U.S. Term Loan facility in the amount of $10.0 million
and a Canadian Term Loan facility in the Canadian Dollar Equivalent of $22.0
million U.S. dollars. Prior to the 2000 amendments, this agreement allowed for
maximum borrowings of $150.0 million including $45.0 million in Mexico and $15.0
million in Australia. Amounts previously outstanding under the credit 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, the income statement impact
of the U.S. dollar denominated foreign debt revaluation was significantly
reduced.
The term loans are due in quarterly installments and mature, along with
the revolving credit facilities, on August 17, 2004. The credit facilities
accrue interest at various rates depending on the country in which the funds are
drawn, plus the applicable margin, which varies from 1.75% to 2.5% depending
upon the country in which the funds are drawn and the Company's funded debt to
EBITDAR ratio, as defined in the agreement. Interest is payable in arrears based
on certain elections of the Company, not to exceed three months outstanding. The
Company pays a commitment fee which varies between 0.375% and 0.500% per annum
on all unused portions of the revolving credit facility depending on the
Company's funded debt to EBITDAR ratio. The credit facilities agreement requires
mandatory prepayments from the issuance of new equity or debt and annual sale of
assets in excess of varying minimum amounts
46
depending on the country in which the sales occur. The credit facilities are
secured by essentially all the Company's assets in the United States and Canada.
The credit agreement requires the maintenance of certain covenant ratios or
amounts, including, but not limited to, funded debt to EBITDAR, cash flow
coverage, and Net Worth, all as defined in the credit agreement. The Company and
its subsidiaries were in compliance with the provisions of these covenants as of
December 31, 2000.
On August 17, 1999, the Company amended and restated its primary credit
agreement to provide for an increase in total borrowings. Borrowings under the
Canadian portion of the amended agreement were used to refinance certain GRO
debt. In conjunction with that refinancing, the Company recorded a non-cash
after tax extraordinary charge of $262,000 related to the unamortized deferred
financing costs of the retired debt.
On December 7, 2000, one of the Company's subsidiaries in Mexico,
Servicios, entered into three promissory notes payable totaling $27.5 million
with variable interest rates based on LIBOR plus 3.5%. Two of the notes have an
eight year term with principal payments of $1.4 million due semi-annually
beginning March 15, 2003, through the maturity date of September 15, 2008. The
third note has a nine year term with principal payments of $750,000 due in
semi-annually beginning March 15, 2003, with a maturity date of September 15,
2009. The promissory notes are secured by essentially all the assets of
Servicios and FCCM, and a pledge of the Company's shares of Servicios and FCCM.
The promissory notes contain certain financial covenants which Servicios is in
compliance with as of December 31, 2000.
In October 2000, the Company amended and restated its promissory note
payable to a Class I railroad, after making a $1.0 million principal payment, by
refinancing $7.9 million at 8% with interest due quarterly and principal
payments due in annual installments of $1.0 million beginning October 31, 2001
through the maturity date of October 31, 2007. Prior to this amendment and
restatement, the promissory note payable provided for annual principal payments
of $1.2 million provided a certain subsidiary of the Company met certain levels
of revenue and cash flow. In accordance with these prior provisions, the Company
was not required to make any principal payments through 1999.
In December 2000, to fund its cash investment in ARG, the Company
completed a private placement of Redeemable Convertible Preferred Stock (See
Note 11. to Consolidated Financial Statements). The Company exercised its option
to fund $20.0 million of a possible $25.0 million in gross proceeds from the
Convertible Preferred. The Fund also received an option to invest an additional
$5.0 million in the Company provided that the Company completes future
acquisitions with an aggregate purchase price greater than $25.0 million.
On December 7, 1999, the Company completed the sale of 483 freight cars to
a financial institution for a net sale price of $8.6 million. The proceeds were
used to reduce borrowings under the Company's revolving credit facilities.
Simultaneously, the Company entered into agreements with the financial
institution to lease these 483 freight cars and an additional 100 centerbeam
flat cars for a period of at least eight years including automatic renewals. The
sale/leaseback transaction resulted in a deferred gain of $612,000, which will
be amortized over the term of the lease as a non-cash offset to rent expense.
These leases also include an option to purchase all of the cars, subject to
certain conditions. If certain conditions related to the return of the cars are
met, the Company could be required to pay a fee.
47
At December 31, 2000 the Company had long-term debt, including current
portion, totaling $104.8 million, which comprised 48.0% of its total
capitalization including the Convertible Preferred. At December 31, 1999,
long-term debt, including current portion, was $108.4 million comprising 57.0%
of total capitalization.
The Company's railroads have entered into a number of rehabilitation or
construction grants with state and federal agencies and third parties. The grant
funds are used as a supplement to the Company's normal capital programs. In
return for the grants, the railroads pledge to maintain various levels of
service and maintenance on the rail lines that have been rehabilitated or
constructed. The Company believes that the levels of service and maintenance
required under the grants are not materially different from those that would be
required without the grant obligation. While the Company has benefited from
these grant funds in recent years including 2000 and 1999, there can be no
assurance that the funds will continue to be available.
On December 7, 2000, in conjunction with the refinancing of FCCM and
Servicios, the International Finance Corporation invested $1.9 million of equity
for a 12.7% indirect interest in FCCM, through its parent company Servicios (See
Notes 3. and 9. to Consolidated Financial Statements). Along with its equity
investment, IFC received a put option exercisable in 2005 to sell its equity
stake back to the Company. The put price will be based on a multiple of earnings
before interest, taxes, depreciation and amortization. The Company increases its
minority interest expense in the event that the value of the put option exceeds
the otherwise minority interest liability. This put option may result in a
future cash outflow of the Company.
The Company has budgeted approximately $18.0 million in capital
expenditures in 2001, primarily for track rehabilitation. Of the $18.0 million
in capital expenditures, $1.7 million is expected to be funded by rehabilitation
grants from state and federal agencies to several of the Company's railroads.
In connection with the Company's purchase of selected assets in Australia,
the Company had committed to the Commonwealth of Australia to spend
approximately $34.1 million (AU $52.3 million) to rehabilitate track structures
and equipment by December 31, 2002. This commitment was transferred to the
Australian Railroad Group Pty. Ltd. through the sale of 50% of Australia
Southern Railroad in December, 2000.
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 and stock issuances to finance
acquisitions and investments in unconsolidated affiliates. The Company believes
that its cash flow from operations together with amounts available under the
credit facilities will enable the Company to meet its liquidity and capital
expenditure requirements relating to ongoing operations for at least the
duration of the credit facilities.
48
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 7, 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 7A. 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 EBITDAR ratio, as defined in the credit agreement.
The Company is also exposed to the impact of foreign currency exchange rate risk
at its foreign operations in Canada, Mexico, Australia and Bolivia. In
particular, the Company is exposed to the non-cash impact of its equity earnings
in ARG which uses the Australian dollar as its functional currency. The Company
invests excess cash in overnight money market accounts.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary financial data required by this
item are listed at Part IV, Item 14 and are filed herewith immediately following
the signature page hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of the Stockholders of the Company to be held on May 22, 2001 under
"Election of Directors" and "Executive Officers", which proxy statement will be
filed within 120 days after the end of the Company's fiscal year.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of the Stockholders of the Company to be held on May 22, 2001 under
49
"Executive Compensation", which proxy statement will be filed within 120 days
after the end of the Company's fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of the Stockholders of the Company to be held on May 22, 2001 under
"Security Ownership of Certain Beneficial Owners and Management", which proxy
statement will be filed within 120 days after the end of the Company's fiscal
year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of the Stockholders of the Company to be held on May 22, 2001 under
"Related Transactions", which proxy statement will be filed within 120 days
after the end of the Company's fiscal year.
The remainder of this page is intentionally left blank.
50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) DOCUMENTS FILED AS PART OF THIS FORM 10-K
Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Income for the Years ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the Years Ended December 31, 2000,
1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
(B) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed during the last
quarter of the period covered by this report:
(a) Report dated October 30, 2000 reporting on Item 5. Other
Events and Regulation FD Disclosure
(b) Report dated November 3, 2000 reporting on Item 5. Other
Events and Regulation FD Disclosure
(c) Report dated November 6, 2000 reporting on Item 9.
Regulation FD Disclosure
(d) Report dated December 6, 2000 reporting on Item 9.
Regulation FD Disclosure
(e) Report dated December 7, 2000 reporting on Item 5. Other
Events and Regulation FD Disclosure
(C) EXHIBITS - SEE INDEX TO EXHIBITS
The remainder of this page is intentionally left blank.
51
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
GENESEE & WYOMING INC.
By: /s/ Mortimer B. Fuller, III
---------------------------
Mortimer B. Fuller, III
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons in the capacities
and on the date indicated below.
Date Title Signature
March 31, 2001 Chief Executive Officer /s/ Mortimer B. Fuller, III
and Director --------------------
Mortimer B. Fuller, III
March 31, 2001 Chief Financial Officer /s/ John C. Hellmann
--------------------
John C. Hellmann
March 31, 2001 Senior Vice President /s/ Alan R. Harris
and Chief Accounting ------------------
Officer Alan R. Harris
March 31, 2001 Director /s/ C. Sean Day
------------------
C. Sean Day
March 31, 2001 Director /s/ James M. Fuller
------------------
James M. Fuller
March 31, 2001 Director /s/ Louis S. Fuller
------------------
Louis S. Fuller
March 31, 2001 Director /s/ T. Michael Long
------------------
T. Michael Long
March 31, 2001 Director /s/ Robert M. Melzer
------------------
Robert M. Melzer
March 31, 2001 Director /s/ John M. Randolph
------------------
John M. Randolph
52
March 31, 2001 Director /s/ Philip J. Ringo
------------------
Philip J. Ringo
March 31, 2001 Director /s/ M. Douglas Young
------------------
M. Douglas Young
The remainder of this page is intentionally left blank.
53
INDEX TO FINANCIAL STATEMENTS
Page
Genesee & Wyoming Inc. and Subsidiaries:
Report of Independent Public Accountants..............................F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999..........F-3
Consolidated Statements of Income for the Years Ended
December 31, 2000, 1999 and 1998....................................F-4
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the Years Ended December 31, 2000, 1999 and
1998................................................................F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998....................................F-6
Notes to Consolidated Financial Statements............................F-7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
the Shareholders of
Genesee & Wyoming Inc.:
We have audited the accompanying consolidated balance sheets of GENESEE &
WYOMING INC. (a Delaware corporation) AND SUBSIDIARIES as of December 31, 2000
and 1999, and the related consolidated statements of income, stockholders'
equity and comprehensive income and cash flows for each of the three years in
the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The summarized
financial data for Australian Railroad Group Pty. Ltd. (ARG) contained in
Note 7. are based on the financial statements of ARG, which were audited by
other auditors. Their report has been furnished to us, and our opinion, insofar
as it relates to the data in Note 7., is based on the report of the other
auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Genesee & Wyoming Inc. and Subsidiaries as of December
31, 2000 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 13, 2001
F-2
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
December 31,
2000 1999
----------------------
ASSETS
CURRENTS ASSETS:
Cash and cash equivalents $ 3,373 $ 7,791
Accounts receivable, net 45,209 47,870
Materials and supplies 5,023 6,141
Prepaid expenses and other 7,249 7,689
Deferred income tax assets, net 2,202 3,087
----------------------
Total current assets 63,056 72,578
----------------------
PROPERTY AND EQUIPMENT, net 180,946 185,970
INVESTMENT IN UNCONSOLIDATED AFFILIATES 64,091 1,576
SERVICE ASSURANCE AGREEMENT, net 11,315 12,065
OTHER ASSETS, net 22,604 31,751
----------------------
Total assets $ 342,012 $ 303,940
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,996 $ 15,146
Accounts payable 43,045 52,501
Accrued expenses 10,860 9,738
----------------------
Total current liabilities 57,901 77,385
----------------------
LONG-TERM DEBT, less current portion 100,805 93,230
DEFERRED INCOME TAX LIABILITIES, net 22,179 13,145
DEFERRED ITEMS--grants from governmental agencies and third parties 36,526 27,427
DEFERRED GAIN--sale/leaseback 3,558 4,109
OTHER LONG-TERM LIABILITIES 4,737 6,231
MINORITY INTEREST 2,725 584
REDEEMABLE CONVERTIBLE PREFERRED STOCK 18,849 --
STOCKHOLDERS' EQUITY:
Class A Common Stock, $0.01 par value, one vote per share;
12,000,000 shares authorized; 4,609,167 and 4,453,368 issued and
outstanding on December 31, 2000 and 1999, respectively 46 45
Class B Common Stock, $0.01 par value, ten votes per share;
1,500,000 shares authorized; 845,447 issued and outstanding
on December 31, 2000 and 1999 8 8
Additional paid-in capital 49,711 47,072
Retained earnings 60,903 47,023
Currency translation adjustment (4,883) (1,316)
Less treasury stock, at cost, 1,001,686 and 1,000,000 Class A shares
on December 31, 2000 and 1999, respectively (11,053) (11,003)
----------------------
Total stockholders' equity 94,732 81,829
----------------------
Total liabilities and stockholders' equity $ 342,012 $ 303,940
======================
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Years Ended December 31,
2000 1999 1998
-----------------------------------
OPERATING REVENUES $ 206,530 $ 175,586 $ 147,472
-----------------------------------
OPERATING EXPENSES:
Transportation 69,132 55,811 46,784
Maintenance of ways and structures 22,225 21,096 17,306
Maintenance of equipment 40,378 34,597 27,968
General and administrative 33,047 29,140 25,929
Depreciation and amortization 13,980 12,574 9,917
Charge for buyout of Australian stock options 4,015 -- --
-----------------------------------
Total operating expenses 182,777 153,218 127,904
-----------------------------------
INCOME FROM OPERATIONS 23,753 22,368 19,568
Interest expense (11,233) (8,462) (7,071)
Gain on sale of 50% equity in Australian operations 10,062 -- --
Valuation adjustment of U.S. dollar denominated
foreign debt (1,472) (191) --
Other income, net 2,980 1,873 7,290
-----------------------------------
INCOME BEFORE INCOME TAX, EQUITY EARNINGS AND
EXTRAORDINARY ITEM 24,090 15,588 19,787
Provision for income tax 10,569 2,175 7,708
Equity in Net Income of International Affiliates:
Australia 261 -- --
South America 150 -- --
Canada -- (618) (645)
-----------------------------------
INCOME BEFORE EXTRAORDINARY ITEM 13,932 12,795 11,434
Extraordinary item from early extinguishment of
debt, net of related income tax benefit of $162 -- (262) --
-----------------------------------
NET INCOME 13,932 12,533 11,434
Impact of preferred stock outstanding 52 -- --
-----------------------------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 13,880 $ 12,533 $ 11,434
===================================
BASIC EARNINGS PER SHARE:
Net income available to common stockholders
before extraordinary item $ 3.19 $ 2.85 $ 2.20
Extraordinary item -- (0.06) --
-----------------------------------
Earnings per common share $ 3.19 $ 2.79 $ 2.20
===================================
Weighted average shares 4,346 4,491 5,187
===================================
DILUTED EARNINGS PER SHARE:
Net income before extraordinary item $ 3.11 $ 2.82 $ 2.19
Extraordinary item -- (0.06) --
-----------------------------------
Earnings per common share $ 3.11 $ 2.76 $ 2.19
===================================
Weighted average shares and equivalents 4,486 4,540 5,229
===================================
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(dollars in thousands)
Class A Class B Additional Currency Total
Common Common Paid-in Retained Translation Treasury Stockholders'
Stock Stock Capital Warrants Earnings Adjustment Stock Equity
----------------------------------------------------------------------------------------------
BALANCE, December 31, 1997 $ 44 $ 8 $ 46,205 $ 471 $ 23,056 $ (1,441) $ -- $ 68,343
Comprehensive income -- -- -- -- 11,434 (666) -- 10,768
Proceeds from employee --
stock purchases 1 -- 54 -- -- -- -- 55
Warrants exercised, 42,000 shares -- -- 471 (471) -- -- -- --
Treasury stock acquisitions,
345,000 shares -- -- -- -- -- -- $ (4,629) (4,629)
----------------------------------------------------------------------------------------------
BALANCE, December 31, 1998 45 8 46,730 -- 34,490 (2,107) (4,629) 74,537
Comprehensive income -- -- -- -- 12,533 791 -- 13,324
Proceeds from employee
stock purchases -- -- 61 -- -- -- -- 61
Shares issued for investment
in unconsolidated affiliate -- -- 281 -- -- -- -- 281
Treasury stock acquisitions,
655,000 shares -- -- -- -- -- -- (6,374) (6,374)
----------------------------------------------------------------------------------------------
BALANCE, December 31, 1999 45 8 47,072 -- 47,023 (1,316) (11,003) 81,829
Comprehensive income, net
of taxes of $996 -- -- -- -- 13,932 (3,567) -- 10,365
Proceeds from employee
stock purchases 1 -- 2,218 -- -- -- -- 2,219
Impact of sale of puttable
equity in Mexican operations -- -- (75) -- -- -- -- (75)
Tax benefit from exercise of
stock options -- -- 496 -- -- -- -- 496
Accretion of fees on Redeemable
Convertible Preferred Stock -- -- -- -- (8) -- -- (8)
4% dividend earned on Redeemable
Convertible Preferred Stock -- -- -- -- (44) -- -- (44)
Treasury stock acquisitions,
1,686 shares -- -- -- -- -- -- (50) (50)
----------------------------------------------------------------------------------------------
BALANCE, December 31, 2000 $ 46 $ 8 $ 49,711 $ -- $ 60,903 $ (4,883) $(11,053) $ 94,732
==============================================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,932 $ 12,533 $ 11,434
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 13,980 12,574 9,917
Deferred income taxes 9,571 1,170 3,203
Loss (gain) on disposition of property and equipment 41 (652) (410)
Extraordinary item, net of income tax -- 262 --
Gain on sale of 50% equity in Australian operations (10,062) -- --
Equity (earnings) losses of unconsolidated affiliates (411) 618 645
Minority interest expense 40 50 --
Valuation adjustment of U. S. dollar denominated foreign debt 1,472 191 --
Changes in assets and liabilities, net of effect of acquisitions
and deconsolidation of Australia Southern Railroad-
Accounts receivable (3,744) (10,250) (3,575)
Materials and supplies (517) (872) 1,188
Prepaid expenses and other 180 (985) 150
Accounts payable and accrued expenses (327) 13,497 3,492
Other assets and liabilities, net (664) 1,159 (2,240)
-----------------------------------
Net cash provided by operating activities 23,491 29,295 23,804
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (39,537) (35,767) (16,901)
Cash investments in unconsolidated affiliate - Australian
Railroad Group, net (21,738) -- --
Cash investments in unconsolidated affiliates - South America (7,635) (1,018) --
Cash investments in unconsolidated affiliate - Canada -- -- (3,084)
Proceeds from sale of equity in subsidiaries 2,640 -- --
Cash received in purchase of Rail-One Inc., net -- 57 --
Purchase of business assets by Ferrocarriles de Chiapas-Mayab -- (31,527) --
Proceeds from disposition of property and equipment 679 10,327 2,597
-----------------------------------
Net cash used in investing activities (65,591) (57,928) (17,388)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term borrowings, including capital leases (109,869) (89,954) (22,852)
Proceeds from issuance of long-term debt 116,267 107,477 20,800
Payment of debt issuance costs (1,388) (1,475) --
Proceeds from governement and third party grants 10,264 10,869 3,208
Proceeds from isuance of Redeemable Convertible Preferred Stock, net 18,841 -- --
Proceeds from employee stock purchases 2,219 61 55
Purchase of treasury stock (50) (6,374) (4,629)
-----------------------------------
Net cash provided by (used in) by financing activities 36,284 20,604 (3,418)
-----------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 1,398 1,424 (36)
-----------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,418) (6,605) 2,962
CASH AND CASH EQUIVALENTS, beginning of year 7,791 14,396 11,434
-----------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 3,373 $ 7,791 $ 14,396
===================================
CASH PAID DURING YEAR FOR:
Interest $ 10,395 $ 8,090 $ 7,092
Income taxes 1,291 3,774 1,042
===================================
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND CUSTOMERS:
Genesee & Wyoming Inc. and Subsidiaries (the Company) has interests in
twenty-three short line and regional railroads through its various subsidiaries
and unconsolidated affiliates of which seventeen are located in the United
States, two are located in Australia, one is located in Bolivia, one is located
in Mexico, and two are located in Canada. The seventeen U. S. railroads are
wholly owned by the Company through various acquisitions from 1985 to 1996. The
two Canadian railroads have been wholly owned by the Company since its June 2000
acquisition of the remaining 5% minority holding. In April 1999, the Company
increased its ownership Canadian in these roads from 47.5% to 95% and began
consolidating their results. The Mexican railroad, acquired in September 1999,
was wholly owned by the Company until November 2000, when the Company sold a
minority 12.7% interest in the operations. The Company wholly owned one of the
Australian railroads from November 1997 to December 2000, at which point, the
Company contributed the operations into a venture that then acquired the second
Australian railroad. The Company now owns 50% of the venture and accounts for
its investment under the equity method of accounting. Through a majority owned
subsidiary, the Company acquired an indirect 21.9% interest in the Bolivian
railroad in November 2000, thereby increasing its ownership to 22.6%. This
investment is also accounted for under the equity method of accounting. See Note
3 for descriptions of the Company's expansions in recent years.
The Company, through its leasing subsidiary, also buys, sells, leases and
manages railroad transportation equipment in the United States and Canada. The
Company, through its industrial switching subsidiary, provides freight car
switching and related services to industrial companies in the United States with
extensive railroad facilities within their complexes.
A large portion of the Company's operating revenue is attributable to customers
operating in the electric utility, cement and forest products industries in
North America, and the farm and food products, iron ores and transportation
(hook and pull) industries in Australia. As the Company acquires new railroad
operations, the base of customers and industries served continues to grow and
diversify. The largest ten customers accounted for approximately 29%, 36% and
42% of the Company's revenues in 2000, 1999 and 1998, respectively. In 2000, no
single customer accounted for more than 5% of the Company's operating revenue.
In 1999, one customer in the electric utility industry accounted for
approximately 10% (see Note 15.). The Company regularly grants trade credit to
all of its customers. In addition, the Company grants trade credit to other
railroads through the routine interchange of traffic. Although the Company's
accounts receivable include a diverse number of customers and railroads, the
collection of these receivables is substantially dependent upon the economies of
the regions in which the Company operates, the electric utility, cement, paper,
farm and food, iron ore and transportation industries, and the railroad sector
of the economy in general.
2. SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its controlled subsidiaries. The Company's investments in unconsolidated
affiliates are
F-7
accounted for under the equity method. All significant intercompany transactions
and accounts have been eliminated in consolidation.
Revenue Recognition
Railroad revenues are estimated and recognized as shipments initially move onto
the Company's tracks, which, due to the relatively short length of haul, is not
materially different from the recognition of revenues as shipments progress.
Industrial switching and other service revenues are recognized as such services
are provided.
Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents.
Materials and Supplies
Materials and supplies consist of purchased items for improvement and
maintenance of road property and equipment, and are stated at the lower of
average cost or market.
Property and Equipment
Property and equipment are carried at historical cost. Acquired railroad
property is recorded at the purchased cost. Major renewals or betterments are
capitalized while routine maintenance and repairs are charged to expense when
incurred. Gains or losses on sales or other dispositions are credited or charged
to other income upon disposition. Depreciation is provided on the straight-line
method over the useful lives of the road property (20-30 years) and equipment
(3-20 years).
The Company continually evaluates whether events and circumstances have occurred
that indicate that its long-lived assets may not be recoverable. When factors
indicate that assets should be evaluated for possible impairment, the Company
uses an estimate of the related undiscounted future cash flows over the
remaining lives of assets in measuring whether or not an impairment has
occurred. If an impairment is identified, a loss would be reported to the extent
that the carrying value of the related assets exceeds the fair value of those
assets as determined by valuation techniques available in the circumstances.
Deferred Grants
Grants received from governmental agencies and third parties are recorded as
long-term liabilities as received and amortized over the same period which the
underlying purchased assets are depreciated.
Gains/Losses on Sales of Stock in Subsidiaries
The Company records gains and losses on the sale of the stock of its
subsidiaries in current earnings unless the sales transaction is part of a
broader corporate reorganization which involves the potential for a repurchase
of the shares at a future date. If the sale is part of a broader corporate
reorganization, gains and losses are recorded in additional paid in capital.
Service Assurance Agreement
The service assurance agreement represents a commitment from one of the most
significant customers of the Company, to one of the subsidiary railroads in the
U.S. (see Note 15.), which grants the Company the exclusive right to serve
indefinitely three of the customer's then-current facilities. The service
assurance agreement is amortized on a
F-8
straight-line basis over the same period as the related track structure, which
is 20 years, and accumulated amortization was $3.6 million and $2.8 million as
of December 31, 2000 and 1999, respectively.
Earnings per Share
Unexercised stock options, calculated under the treasury stock method, and
redeemable convertible preferred stock (issued on December 12, 2000) are the
only reconciling items between the Company's basic and diluted weighted average
shares outstanding. The number of options used to calculate diluted earnings per
share is 732,967, 204,750 and 412,820 for 2000, 1999 and 1998, respectively.
Options to purchase 31,500, 637,500 and 280,400 shares of stock were outstanding
as of December 31, 2000, 1999 and 1998, respectively, but were not included in
the computation of diluted earnings per share because the options' exercise
prices were greater than the average market price of the common shares. Also
included in the diluted earnings per share calculation in 2000 is 47,647 shares
of common stock which represent the weighted average share impact of the assumed
conversion of the redeemable convertible preferred stock (See Note 11.).
Insurance Recoveries
The Company receives insurance proceeds in the normal course of business for
recoveries related to derailment damages and employee and third party claims.
These proceeds are accounted for as a reduction of operating expenses. Insurance
proceeds related to other matters are recorded in other income including
proceeds of $6.0 million in 1998.
Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument held by the Company:
Current assets and current liabilities: The carrying value approximates
fair value due to the short maturity of these items.
Long-term debt: The fair value of the Company's long-term debt is based on
secondary market indicators. Since the Company's debt is not quoted,
estimates are based on each obligation's characteristics, including
remaining maturities, interest rate, credit rating, collateral,
amortization schedule and liquidity. The carrying amount approximates fair
value.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries were prepared in
their respective local currencies and translated into U.S. dollars based on the
current exchange rate at the end of the period for balance sheet items and a
weighted-average rate for the year for the statement of income items.
Translation adjustments are reflected as currency translation adjustments in
Stockholders' Equity and accordingly only affect comprehensive income.
Revaluation adjustments for U. S. dollar denominated foreign debt were losses of
$1.5 million and $191,000 in 2000 and 1999, respectively. In 1998, included
separately in other income, net, was a loss of $331,000 for the revaluation of a
Canadian dollar receivable held by a U.S. subsidiary.
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-9
Reclassifications
Certain prior year balances have been reclassified to conform with the 2000
presentation.
3. EXPANSION OF OPERATIONS:
Australia
On December 17, 2000, the Company, through its newly-formed joint venture,
Australian Railroad Group Pty. Ltd. (ARG), completed the acquisition of Westrail
Freight from the government of Western Australia for approximately $334.4
million including working capital. ARG is a joint venture owned 50% by the
Company and 50% by Wesfarmers Limited, a public corporation based in Perth,
Western Australia. Westrail Freight is composed of the freight operations of the
formerly state-owned railroad of Western Australia.
To complete the acquisition, the Company contributed its formerly wholly-owned
subsidiary, Australia Southern Railroad (ASR), to ARG along with the Company'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. Additionally, the Company contributed $21.4
million of cash to ARG while Wesfarmers contributed $64.2 million in cash,
including $8.2 million which represents a long-term non-interest bearing note to
match a similar note due to the Company from ASR at the date of the transaction.
ARG also received $258.6 million in acquisition debt and $59.9 million of
construction and working capital facilities from Bank of America and the
Australia and New Zealand Banking Group Limited. A portion of the debt was used
to refinance approximately $7.1 million of existing bank debt of ASR. Should
APTC reach financial close and meet other conditions as specified in the
agreement between the Company and Wesfarmers, the Company would receive
additional compensation.
To fund its cash investment in ARG, the Company also completed a private
placement of Redeemable Convertible Preferred Stock (the Convertible Preferred)
with the 1818 Fund III, L.P. (the Fund) managed by Brown Brothers Harriman & Co.
See Note 11 for a description of the Convertible Preferred.
As a direct result of the ARG transaction, ASR stock options became immediately
exercisable by the option holders and, as allowed under the provisions of the
stock option plan, the option holders, in lieu of ASR stock, were paid an
equivalent value in cash, resulting in a $4.0 million pre-tax compensation
charge to ASR earnings.
The Company also recognized a $10.1 million gain upon the issuance of ASR stock
to Wesfarmers upon the formation of ARG as a result of such issuance being at a
per share price in excess of the Company's book value per share investment in
ASR. Additionally, due to the deconsolidation of ASR, the Company recognized a
$6.5 million deferred tax expense resulting from the financial reporting versus
tax basis difference in the Company's equity investment in ARG. Should APTC
reach financial close and meet other conditions as specified in the agreement
between the Company and Wesfarmers, additional gains will be reported.
The Company accounts for its 50% ownership in ARG under the equity method of
accounting and therefore deconsolidated ASR from its consolidated financial
statements as of December 16, 2000. ASR's net assets as of the deconsolidation
included currents assets of $12.0 million, net property and equipment of $32.2
million, other non-current assets of $49,000, current liabilities of $7.6
million, and other liabilities of $19.5 million. The Company reported $261,000
in equity earnings in its 2000 financial statements from ARG for the period of
December 17 through December 31, 2000.
F-10
Pro Forma Financial Results
The following table summarizes the Company's unaudited pro forma operating
results for the years ended December 31, 2000 and 1999 as if ARG had been formed
and acquired Westrail Freight as of the beginning of the applicable period (in
thousands except per share amounts):
2000 1999
---- ----
Pro forma operating revenues $168,891 $132,434
Before extraordinary item:
Pro forma income 20,019 15,960
Pro forma basic earnings per share 4.61 3.34
Pro forma diluted earnings per share 3.92 2.95
The pro forma operating results include the deconsolidation of ASR, incremental
interest expense (with related income tax benefit) related to borrowings used to
fund the stock option buyout and incremental preferred stock impacts on income
available to common stockholders related to the Convertible Preferred issuance.
These results also include the pro forma equity earnings attributable to
investment in ARG based on ARG's pro forma net income of $16,089 and $22,323 for
2000 and 1999, respectively. These pro forma net income results give effect to
ARG's acquisition of Westrail Freight and related purchase accounting
adjustments primarily for incremental depreciation and amortization expense,
elimination of access fees charged by the government, impacts of the new
financing structure and related income taxes. The pro forma financial
information does not purport to be indicative of the results that actually would
have been obtained had all the transactions been completed as of the assumed
dates and for the periods presented and are not intended to be a projection of
future results or trends.
Mexico
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 rolling stock, an advance payment on track improvements to be completed
on the state-owned track property, an escrow payment which will be returned to
the Company upon successful completion of the track improvements, prepaid
value-added taxes and $3.1 million in goodwill. A portion of the purchase price
($5.3 million) was also allocated to the 30-year operating license. As the track
improvements have been made, the related costs have been reclassified into the
property accounts as leasehold improvements and amortized over the improvements'
estimated useful life. Pursuant to the acquisition, employee termination
payments of $1.0 million were made to former state employees and approximately
55 employees whom the Company retained upon acquisition but terminated as part
of its plan to reduce operating costs after September 30, 1999. All payments
were made during the fourth quarter of 1999 and are considered a cost of the
acquisition.
The Chiapas-Mayab concession is made up of two separate rail lines. The Chiapas
is approximately 450 kilometers (280 miles) long and runs between Ixtepec in the
Mexican state of Oaxaca, and Ciudad Hidalgo in the Mexican state of Chiapas.
Principal commodities hauled include cement, corn, petroleum products and
various agricultural products. The Mayab extends approximately 1,100 kilometers
(680 miles) from Coatzacoalcos in the Mexican state of Vera Cruz, to beyond
Merida in the Mexican state of Yucatan. Principal commodities hauled on the line
include cement, silica sand and various agricultural products. The two railroads
are connected via trackage rights over
F-11
Ferrosur (a recently privatized rail concession) and a government-owned line.
FCCM began operations on September 1, 1999.
On December 7, 2000, in conjunction with the refinancing of FCCM (see Note 9.)
and its parent company, GW Servicios, S.A. de C.V. (Servicios), the
International Finance Corporation (IFC) invested $1.9 million of equity for a
12.7% indirect interest in FCCM, through its parent company Servicios. The
Company contributed an additional $13.1 million and maintains an 87.3% indirect
ownership in FCCM. The Company funded $10.7 million of its new investment with
borrowings under its amended credit facility, with the remaining investment
funded by the conversion of intercompany advances into permanent capital. Along
with its equity investment, IFC received a put option exercisable in 2005 to
sell its equity stake back to the Company. The put price will be based on a
multiple of earnings before interest, taxes, depreciation and amortization. The
Company increases its minority interest expense in the event that the value of
the put option exceeds the otherwise minority interest liability. Because the
IFC equity stake can be put to the Company, the impact of selling the equity
stake at a per share price below the Company's book value per share investment
was recorded directly to paid-in capital.
Canada
On April 15, 1999, the Company acquired Rail-One Inc. (Rail-One) which has a
47.5% ownership interest in Genesee Rail-One Inc. (GRO), thereby increasing the
Company's ownership of GRO to 95%. GRO owns and operates two short line
railroads in Canada. Under the terms of the purchase agreement, the Company
converted outstanding notes receivable from Rail-One of $4.6 million into
capital, will pay approximately $844,000 in cash to the sellers of Rail-One in
installments over a four year period, and granted options to the sellers of
Rail-One to purchase up to 80,000 shares of the Company's Class A Common Stock
at an exercise price of $8.625 per share. Exercise of the option is contingent
on the Company's recovery of its capital investment in GRO including debt
assumed if the Company were to sell GRO, and upon certain GRO income performance
measures which have not yet been met. The transaction was accounted for as a
purchase and resulted in $2.8 million of initial goodwill which is being
amortized over 15 years. The contingent purchase price will be recorded as a
component of goodwill at the value of the options issued, if and when such
options are exercisable. Effective with this agreement, the operating results of
GRO have been consolidated within the financial statements of the Company, with
a 5% minority interest due to another GRO shareholder. 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 due in 2001 and 2002. Prior to April 15, 1999, the Company accounted
for its investment in GRO under the equity method and recorded equity losses of
$618,000 and $645,000 in 1999 and 1998, respectively.
South America
On November 5, 2000, the Company acquired an indirect 21.87% equity interest in
Empresa Ferroviaria Oriental, S.A. (Oriental) increasing its stake in Oriental
to 22.55%. Oriental is a railroad serving eastern Bolivia and connecting to
railroads in Argentina and Brazil. The Company previously acquired a 0.68%
indirect interest in Oriental on September 30, 1999 through its 47.5% ownership
interest in Latin American Rail LLC. That original investment was for $1.0
million in cash and 25,532 shares of the Company's stock valued at $281,000. The
Company's new ownership interest is largely through a 90% owned holding company
subsidiary in Bolivia which also received $740,000 from the minority partner for
investment into Oriental.
The Company's portion of the Oriental investment is composed of $6.7 million in
cash, the assumption (via an unconsolidated subsidiary) 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
F-12
3 years if certain financial results are achieved. The cash used by the Company
to fund such investment was obtained from its existing revolving credit
facility. The Company accounts for its indirect interest in the Oriental under
the equity method of accounting.
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Activity in the Company's allowance for doubtful accounts was as follows
(amounts in thousands):
2000 1999 1998
---- ---- ----
Balance, beginning of year $ 1,264 $ 250 $ 167
Provisions 389 628 136
Charges (345) (836) (53)
Established in acquisitions -- 1,222 --
------- ------- -------
Balance, end of year $ 1,308 $ 1,264 $ 250
======= ======= =======
5. PROPERTY AND EQUIPMENT:
Major classifications of property and equipment are as follows (amounts in
thousands):
2000 1999
---- ----
Road properties $168,126 $117,786
Equipment and other 61,438 108,016
-------- --------
229,564 225,802
Less- Accumulated depreciation and amortization 48,618 39,832
-------- --------
$180,946 $185,970
======== ========
6. OTHER ASSETS:
Major classifications of other assets are as follows (amounts in thousands):
2000 1999
---- ----
Goodwill $11,082 $ 9,765
Chiapas-Mayab Operating License 5,125 5,213
Chiapas-Mayab Special Escrow Deposit - Track Project 1,638 9,668
Deferred financing costs 3,356 3,932
Executive split-dollar life insurance 2,728 1,846
Assets held for sale or future use 1,045 1,867
Other 1,298 2,516
------- -------
26,272 34,807
Less- Accumulated amortization 3,668 3,056
------- -------
$22,604 $31,751
======= =======
Goodwill is being amortized on a straight-line basis over lives of 15-20 years.
The Chiapas-Mayab Operating License (see Note 3.) is being amortized over 30
years. The Chiapas-Mayab Special Escrow Deposit - Track Project (see Note 3.) is
being reclassified into road property and depreciated as construction of the
project is completed. Deferred financing costs are amortized over terms of the
related debt using the straight-line
F-13
method, which is not materially different from amortization computed using the
effective-interest method. Executive split-dollar life insurance increases as
deposits are made. Assets held for sale or future use at December 31, 2000,
primarily represent excess locomotives and a segment of railroad track that is
inactive. Assets held for sale or future use at December 31, 1999, primarily
represent a segment of railroad track and related structures that was inactive
since 1996 as a result of the closure of that segment's primary customer's
facility. A similar facility is currently under construction by another customer
on that same segment of track. In November 2000, as a result of the new customer
receiving inbound shipments and the expectation of the near-term completion of
the new customer's facility leading to outbound shipments, these assets were put
back into service.
7. EQUITY INVESTMENT IN ARG:
The Company's 50% interest in ARG is accounted for under the equity method of
accounting. The related equity earnings in this investment are shown within the
Equity in Net income of International Affiliates in the accompanying
consolidated statements of income.
Condensed results of operations for ARG for the 15 days ended December 31, 2000
are as follows (in thousands of U.S. dollars):
Operating revenues $ 4,765
Income before income taxes 834
Net income 522
Condensed balance sheet information of ARG as of December 31, 2000 was as
follows (in thousands of U.S. dollars):
Current assets $ 53,545
Non-current assets 364,381
Current liabilities 39,073
Non-current liabilities 19,204
Senior debt 264,256
Shareholders' equity 95,393
8. LEASES:
Lessor
As of December 31, 2000, the Company had no significant operating leases as
lessor.
During 1999 and 1998, the Company sold, through several transactions,
approximately 700 railroad freight cars which had previously accounted for a
significant portion of the Company's minimum future rentals receivable on
noncancelable operating leases. The proceeds of the sales were used to acquire
railroad rolling stock which had previously been utilized under terms of a
capital lease.
Lessee
The Company has entered into several leases for freight cars, locomotives and
other equipment. Operating lease expense for the years ended December 31, 2000,
1999 and 1998 was approximately $7.6 million, $6.6 million and $6.3 million,
respectively.
On December 7, 1999, the Company completed the sale of 483 of its freight cars
to a financial institution for a net sale price of $8.6 million. The proceeds
were used to
F-14
reduce borrowings under the Company's revolving credit facilities.
Simultaneously, the Company entered into agreements with the financial
institution to lease these 483 freight cars and an additional 100 centerbeam
flat cars for a period of at least 8 years including automatic renewals. The
sale/leaseback transaction resulted in a deferred gain of $612,000, which is
being amortized over the term of the lease as a non-cash offset to rent expense.
These leases also include an option to purchase all of the cars, subject to
certain conditions. If certain conditions related to the return of the cars are
met, the Company could be required to pay a fee.
The following is a summary of future minimum payments under noncancelable leases
(amounts in thousands):
2001--------------------------------$ 6,271
2002-------------------------------- 1,980
2003-------------------------------- 1,599
2004-------------------------------- 1,374
2005-------------------------------- 652
Thereafter-------------------------- 1,757
-------
Total minimum payments--------------$13,633
=======
The Company is party to two lease agreements with Class I carriers to operate
238 miles of track in Oregon. Under the leases, no payments to the lessor are
required as long as certain operating conditions are met. The leases are subject
to an initial 20 year term and shall be renewed for successive ten year renewal
terms, unless either party elects not to renew the leases. If the lessor
terminates the leases for any reason, the lessor must reimburse the Company for
its depreciated basis in the property. The Company has assumed all operating and
financial responsibilities including maintenance and regulatory compliance under
these lease arrangements. Through December 31, 2000, no payments were required
under either lease arrangement.
9. LONG-TERM DEBT:
Long-term debt consists of the following (amounts in thousands):
2000 1999
---- ----
Credit facilities with variable interest rates (weighted
average of 8.41% and 8.40% at December 31, 2000 and 1999,
respectively), net of unamortized discount of $8
and $101 at December 31, 2000 and 1999, respectively $ 67,871 $ 97,395
Non-recourse promissory notes of Mexican
subsidiary with variable interest rates
(10.18% on December 31, 2000) 27,500 --
Promissory note payable to CSX 7,922 8,922
Other debt with interest rates up to 8% and maturing at
various dates between 2001 and 2006 1,508 2,059
-------- --------
104,801 108,376
Less- Current portion 3,996 15,146
-------- --------
Long-term debt, less current portion $100,805 $ 93,230
======== ========
F-15
Credit Facilities
During 2000, the Company completed four amendments to its primary credit
agreement to facilitate the Company's corporate restructuring and refinancing of
its Mexico operations, issuance of Convertible Preferred stock, and sale of a
50% interest in ASR to ARG. As amended, the Company's primary credit agreement
consists of a $135.0 million credit facility with $103.0 million in revolving
credit facilities and $32.0 million in term loan facilities. The term loan
facilities consist of a U.S. Term Loan facility in the amount of $10.0 million
and a Canadian Term Loan facility in the Canadian Dollar Equivalent of $22.0
million in U.S. dollars. Prior to the 2000 amendments, this agreement allowed
for maximum borrowings of $150.0 million including $45.0 million in Mexico and
$15.0 million in Australia. Amounts previously outstanding under the credit
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, the income
statement impact of the U.S. dollar denominated foreign debt revaluation was
significantly reduced.
The term loans are due in quarterly installments and mature, along with the
revolving credit facilities, on August 17, 2004. The credit facilities accrue
interest at various rates depending on the country in which the funds are drawn,
plus the applicable margin, which varies from 1.75% to 2.5% depending upon the
country in which the funds are drawn and the Company's funded debt to EBITDAR
ratio, as defined in the credit agreement. Interest is payable in arrears based
on certain elections of the Company, not to exceed three months outstanding. The
Company pays a commitment fee on all unused portions of the revolving credit
facility which varies between 0.375% and 0.500% per annum depending on the
Company's funded debt to EBITDAR ratio. The credit agreement requires mandatory
prepayments from the issuance of new equity or debt and annual sale of assets in
excess of varying minimum amounts depending on the country in which the sales
occur. The credit facilities are secured by essentially all the Company's assets
in the United States and Canada. The credit agreement requires the maintenance
of certain covenant ratios or amounts, including, but not limited to, funded
debt to EBITDAR, cash flow coverage, and Net Worth, all as defined in the
agreement. The Company and its subsidiaries were in compliance with the
provisions of these covenants as of December 31, 2000.
On August 17, 1999, the Company amended and restated its primary credit
agreement to provide for an increase in total borrowings. Borrowings under the
Canadian portion of the amended agreement were used to refinance certain GRO
debt. In conjunction with that refinancing, the Company recorded a non-cash
after tax extraordinary charge of $262,000 related to the unamortized deferred
financing costs of the retired debt.
Non-Recourse Promissory Notes
On December 7, 2000, one of the Company's subsidiaries in Mexico, Servicios,
entered into three promissory notes payable totaling $27.5 million with variable
interest rates based on LIBOR plus 3.5%. Two of the notes have an eight year
term with principal payments of $1.4 million due semi-annually beginning March
15, 2003, through the maturity date of September 15, 2008. The third note has a
nine year term with principal payments of $750,000 due semi-annually beginning
March 15, 2003, with a maturity date of September 15, 2009. The promissory notes
are secured by essentially all the assets of Servicios and FCCM, and a pledge of
the Company's shares of Servicios and FCCM. The promissory notes contain certain
financial covenants which Servicios is in compliance with as of December 31,
2000.
F-16
Promissory Note
In October 2000, the Company amended and restated its promissory note payable to
a Class I railroad, after making a $1.0 million discretionary principal payment,
by refinancing $7.9 million at 8% with interest due quarterly and principal
payments due in annual installments of $1.0 million beginning October 31, 2001
through the maturity date of October 31, 2007. Prior to this amendment and
restatement, the promissory note payable provided for annual principal payments
of $1.2 million provided a certain subsidiary of the Company met certain levels
of revenue and cash flow. In accordance with these prior provisions, the Company
was not required to make any principal payments through 1999.
Schedule of Future Payments
The following is a summary of the maturities of long-term debt as of December
31, 2000 (amounts in thousands):
2001........................................... $3,996
2002........................................... 4,516
2003........................................... 9,349
2004........................................... 63,669
2005........................................... 5,596
Thereafter..................................... 17,675
--------
$104,801
========
10. FINANCIAL RISK MANAGEMENT:
The Company uses derivative financial instruments to manage its variable
interest rate risk on long-term debt. In addition, the Company uses derivative
financial instruments to manage its currency exchange rate risk associated with
U.S. Dollar principal and interest payments on long-term debt that is serviced
by its Mexican Peso denominated operations.
During 2000 and 1999, the Company entered into various interest rate swaps
fixing its base interest rate by exchanging its variable LIBOR interest rates on
long-term debt for a fixed interest rate. The swaps expire at various dates
through December 31, 2002 and the fixed base rates range from 6.12% to 6.87%.
The notional amount under these agreements is $38.0 million. At December 31,
2000, the fair value of these interest rate swaps is a negative $392,000. During
2000 and 1999, the Company entered into various exchange rate option collars
that established exchange rates for converting Mexican Pesos to U.S. Dollars.
The options expire at various times through September 15, 2001, and give the
Company the right to sell Mexican Pesos for U.S. Dollars at exchange rates
ranging from 10.40 Mexican Pesos to the U.S. Dollar to 11.85 Mexican Pesos to
the U.S. Dollar. As part of these option collars, the Company gave to a third
party the right to sell to the Company U.S. Dollars for Mexican Pesos at
exchange rates ranging from 9.35 Mexican Pesos to the U.S. Dollar to 9.85
Mexican Pesos to the U.S. Dollar. The notional amount under these options is
$2.8 million. The Company paid an up-front premium for these options of $45,000.
At December 31, 2000, the fair value of these currency options is $4,000.
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK:
To fund its cash investment in ARG, the Company completed a private placement of
the Convertible Preferred with the Fund managed by Brown Brothers Harriman & Co.
The Company exercised its option to fund $20.0 million of a possible $25.0
million in gross proceeds
F-17
from the Convertible Preferred. The Fund also received an option to invest an
additional $5.0 million in the Company provided that the Company completes
future acquisitions with an aggregate purchase price greater than $25.0 million.
Dividends on the Convertible Preferred are cumulative and payable quarterly in
arrears in an amount equal to 4% of the issue price. Each share of the
Convertible Preferred is convertible by the Fund at any time into shares of
Class A Common Stock of the Company at a conversion price of $23.00 per share of
Class A Common Stock (if converted, 869,565 shares of Common Stock). The
Convertible Preferred is callable by the Company after four years, and is
mandatorily redeemable in eight years. At December 31, 2000, no shares of
Convertible Preferred have been converted into shares of Class A Common Stock.
Issuance fees are being amortized as additional dividends over the Convertible
Preferred's eight year life.
12. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS:
The Company administers one noncontributory defined benefit plan for non-union
employees of a U.S. subsidiary. Benefits are determined based on a fixed amount
per year of credited service. The Company's funding policy is to make
contributions for pension benefits based on actuarial computations which reflect
the long-term nature of the plan. The Company has met the minimum funding
requirements according to the Employee Retirement Income Security Act.
Historically, the Company has provided certain health care and life insurance
benefits for certain retired employees. Eligible employees include union
employees of one of its U.S. subsidiaries, and certain nonunion employees who
have reached the age of 55 with 30 or more years of service. The Company funds
the plan on a pay-as-you-go basis. The following provides a reconciliation of
benefit obligation, plan assets, and funded status of the plans (dollars in
thousands):
Other
Retirement
Pension Benefits
2000 1999 2000 1999
---- ---- ---- ----
Change in benefit obligation:
Benefit obligation at beginning of year $ 1,267 $ 1,098 $ 706 $ 544
Service cost 210 179 3 2
Interest cost 95 76 48 36
Actuarial (gain) loss (91) (85) (63) 169
Benefits paid (158) (1) (70) (45)
------- ------- ------- -------
Benefit obligation at end of year $ 1,323 $ 1,267 $ 624 $ 706
------- ------- ------- -------
Change in plan assets:
Fair value of assets at beginning of year $ 1,020 $ 443 $ -- $ --
Actual return on plan assets 163 21 -- --
Employer contribution 80 557 70 $ 45
Benefits paid (158) (1) (70) (45)
------- ------- ------- -------
Fair value of assets at end of year $ 1,105 $ 1,020 $ -- $ --
------- ------- ------- -------
Reconciliation of Funded Status:
Funded status ($ 217) ($ 247) ($ 624) ($ 706)
Unrecognized net actuarial (gain) loss (213) (45) (28) 54
Unrecognized prior service cost 204 227 -- --
------- ------- ------- -------
Accrued benefit obligation ($ 226) ($ 65) ($ 652) ($ 652)
------- ------- ------- -------
F-18
Weighted-average assumptions:
Discount rate 7.75% 7.75% 7.5% 7.5%
Expected return on plan assets 8.5% 8.5% N/A N/A
Rate of compensation increase 4.5% 4.5% N/A N/A
Other
Retirement
Pension Benefits
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
Components of net periodic benefit cost:
Service cost $ 210 $ 179 $ 149 $ 3 $ 2 --
Interest cost 95 76 58 48 36 $ 34
Expected return on plan assets (88) (38) (31) -- -- --
Amortization of prior service cost 23 24 23 -- -- --
Amortization of (gain) loss -- -- -- -- (6) --
----- ----- ----- ----- ----- -----
Net periodic benefit cost $ 240 $ 241 $ 199 $ 51 $ 32 $ 21
===== ===== ===== ===== ===== =====
For measurement purposes, a 5.0% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 2000 and thereafter.
The health care cost trend rate assumption has an effect on the amounts
reported. To illustrate, increasing (decreasing) the assumed health care cost
trend rates by one percentage point in each year would increase (decrease) the
aggregate of the service and interest cost components of the net periodic
postretirement benefit cost and the end of the year accumulated postretirement
benefit obligation as follows:
1 - Percentage 1 - Percentage
Point Increase Point Decrease
-------------- --------------
Effect on total of service and interest
cost components $ 3,846 $ (3,461)
Effect on postretirement benefit obligation $ 47,850 $(43,065)
Employee Bonus Programs
The Company has performance-based bonus programs which include a majority of
non-union employees. Key employees are granted bonuses on a discretionary basis.
Total compensation of approximately $1.7 million, $1.7 million and $1.4 million
was awarded under the various bonus plans in 2000, 1999 and 1998, respectively.
Profit Sharing
The Company has three 401(k) plans covering certain U.S. union and non-union
employees who have met specified length of service requirements. The 401(k)
plans qualify under Section 401(k) of the Internal Revenue Code as salary
reduction plans. Employees may elect to contribute a certain percentage of their
salary on a before-tax basis. Under two of these plans, the Company matches
participants' contributions up to 1.5% of the participants' salary. Under the
third plan, the Company matches participants' contributions up to 5.0% of the
participants' salary. The Company's contributions to the plans in 2000, 1999 and
1998 were approximately $299,000, $264,000 and $244,000, respectively.
F-19
As required by provisions within the Mexican Constitution and Mexican Labor
Laws, the Company's subsidiary, FCCM provides a statutory profit sharing benefit
to its employees. In accordance with these laws, FCCM is required to pay to its
employees a 10% share of its profits within 60 days of filing corporate income
tax returns. The profit sharing basis is computed under a section of the Mexican
Income Tax Law which, in general terms, differs from the taxable income by
excluding the inflation adjustment on depreciation, amortization, receivables
and payables. The provision for statutory profit sharing expense is allocated to
departmental operating expenses based on wages.
Postemployment Benefits
The Company does not provide any significant postemployment benefits to its
employees.
13. INCOME TAXES:
The Company files consolidated U.S. federal income tax returns which include all
of its U.S. subsidiaries. Each of the Company's foreign subsidiaries files
appropriate income tax returns in their respective countries. The components of
income before provision for income taxes, equity earnings and extraordinary item
for the presented periods are as follows (amounts in thousands):
2000 1999 1998
---- ---- ----
United States $ 9,199 $ 9,634 $13,587
Foreign (U.S.$) 14,891 5,954 6,200
------- ------- -------
$24,090 $15,588 $19,787
======= ======= =======
No provision is made for the U.S. income taxes applicable to the undistributed
earnings of controlled foreign subsidiaries as it is the intention of management
to utilize those earnings in the operations of the foreign subsidiaries for the
foreseeable future. In the event earnings should be distributed in the future,
those distributions may be subject to U.S. income taxes (appropriately reduced
by available foreign tax credits, some of which would become available upon the
distribution) and withholding taxes payable to various foreign countries. The
amount of undistributed earnings of the Company's controlled foreign
subsidiaries as of December 31, 2000 is $4.3 million. It is not practicable to
determine the amount of U.S. income taxes or foreign withholding taxes that
could be payable if a distribution of earnings were to occur. The components of
the provision for income taxes are as follows (amounts in thousands):
United States: 2000 1999 1998
---- ---- ----
Current-
Federal $ 495 $ 1,265 $ 2,055
State 339 952 715
Deferred 2,594 2,381 2,642
-------- -------- --------
3,428 4,598 5,412
-------- -------- --------
Foreign (U.S.$):
Current 164 (1,212) 1,735
Deferred 6,977 (1,211) 561
-------- -------- --------
7,141 (2,423) 2,296
-------- -------- --------
Total $ 10,569 $ 2,175 $ 7,708
======== ======== ========
F-20
The provision for income taxes differs from that which would be computed by
applying the statutory U.S. federal income tax rate to income before taxes. The
following is a summary of the effective tax rate reconciliation:
2000 1999 1998
---- ---- ----
Tax provision at statutory rate 34.0% 35.0% 35.0%
Effect of foreign operations 12.2% (100.7%) 0.6%
State income taxes, net of federal
income tax benefit 1.8% 5.7% 3.9%
Change in valuation allowance (3.6%) 71.9% --
Other, net (0.5%) 2.1% (0.5%)
------ ------ ------
Effective income tax rate 43.9% 14.0% 39.0%
====== ====== ======
Deferred income taxes reflect the net income effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes as well as available
income tax credits. The components of net deferred income taxes as of the
presented year ends are as follows (amounts in thousands):
2000 1999
---- ----
Deferred tax benefits-
Accruals and reserves not deducted
for tax purposes until paid $ 2,202 $ 2,511
Alternative minimum tax credits 935 1,230
Net operating losses 7,586 5,013
Postretirement benefits 233 233
Other 131 121
-------- --------
11,087 9,108
Deferred tax obligations -
Property and investment basis
differences (30,267) (7,969)
Valuation allowance (797) (11,197)
-------- --------
Net deferred tax obligations ($19,977) ($10,058)
======== ========
In the accompanying consolidated balance sheets, these deferred benefits and
deferred obligations are classified as current or non-current based on the
classification of the related asset or liability for financial reporting. A
deferred tax obligation or benefit that is not related to an asset or liability
for financial reporting, including deferred tax assets related to
carry-forwards, are classified according to the expected reversal date of the
temporary difference as of the end of the year.
The Company's alternative minimum tax credit can be carried forward
indefinitely; however, the Company must achieve future regular U.S. taxable
income in order to realize this credit. The Company had net operating loss
carry-forwards from its Mexican operations as of December 31, 2000 and 1999 of
$20.0 and $10.3 million, respectively. The Mexican losses, for income tax
purposes, primarily relate to the immediate deduction of the purchase price paid
for the FCCM operations. These loss carry-forwards will expire, if unused,
between 2009 and 2010. The Company had net operating loss carry-forwards from
its Canadian operations as of December 31, 2000 and 1999 of $1.5 million and
$2.2 million, respectively. The Canadian losses primarily represent losses
generated prior to the Company gaining control of those operations in April
1999. These loss carry-forwards will expire, if unused, between 2004 and 2006.
F-21
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 estimated
that it was more likely than not that the Company would be unable to fully
realize all of the potential income tax benefits and accordingly, established a
partial valuation allowance against the 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 the entire tax benefit. During
2000, based on the actual operating results achieved by the Australian
subsidiary, management revised its assessment of the likelihood that this tax
benefit would be realized. The 2000 reassessment resulted in a decrease in the
related valuation allowance of $1.0 million. Pursuant to the deconsolidation of
ASR, the remaining valuation allowance and related deferred tax assets are no
longer maintained by the Company.
As of December 31, 2000 and 1999, in addition to the valuation allowance
described above, the income tax benefit of the Mexican and Canadian net
operating losses had been offset by a partial valuation allowance based on
management's assessment regarding their ultimate realization. A certain portion
of this incremental valuation allowance was established in the acquisition of
GRO, and accordingly, when reversed will result in a decrease to goodwill.
Management does not believe that a valuation allowance is required for any other
deferred tax assets based on anticipated future profit levels and the reversal
of current deferred tax obligations.
14. GRANTS FROM GOVERNMENTAL AGENCIES AND THIRD PARTIES:
The Company periodically receives grants from states and provinces within which
it operates, and from third parties with whom it conducts business for
rehabilitation or construction of track. The states, provinces and third parties
typically reimburse the Company for 75% to 100% of the total cost of specific
projects. Under two such grant programs, the Company received $6.0 million and
$6.1 million in 2000 and 1999, respectively, from the State of New York and $2.2
million and $3.2 million in 2000 and 1999, respectively, from the State of
Pennsylvania. In addition, the Company received $341,000 and $200,000 of grants
in 2000 and 1999, respectively, from other states, and $315,000 in 2000 from a
province in Canada. The Company also received grants from third parties with
whom it conducts business of $1.3 million and $2.7 million in 2000 and 1999,
respectively. As of December 31, 2000, the Company is under agreement to receive
an additional $1.6 million of grants for projects in progress at that date.
None of the Company's grants represent a future liability of the Company unless
the Company abandons the rehabilitated or new track structure within a specified
period of time or fails to maintain the rehabilitated or new track to certain
standards and make certain minimum capital improvements, as defined in the
respective agreements. As the Company intends to comply with these agreements,
the Company has recorded additions to road property and has deferred the amount
of the grants as the construction and rehabilitation expenditures have been
incurred. The amortization of deferred grants is a non-cash offset to
depreciation expense over the useful lives of the related assets and is not
included as taxable income. During the years ended December 31, 2000, 1999 and
1998, the Company recorded offsets to depreciation expense from grant
amortization of $1.1 million, $1.0 million and $728,000, respectively.
F-22
15. COMMITMENTS AND CONTINGENCIES:
The Company has built its portfolio of railroad properties primarily through the
purchase or lease of road and track structure and through operating agreements.
These transactions have related only to the physical assets of the railroad
property. Typically, the Company does not assume the operations or liabilities
of the divesting railroads.
Legal Proceedings
The Company is a defendant in certain lawsuits resulting from railroad and
industrial switching operations, one of which includes the commencement of a
criminal investigation. Management believes that the Company has adequate
defenses to any criminal charge which may arise and that adequate provision has
been made in the financial statements for any expected liabilities which may
result from disposition of such lawsuits. While it is possible that some of the
foregoing matters may be resolved at a cost greater than that provided for, it
is the opinion of management that the ultimate liability, if any, will not be
material to the Company's results of operations or financial position.
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 3.1%, 6.6% and 6.3% of
the consolidated revenues of the Company and its subsidiaries in 2000, 1999 and
1998, respectively. Failure to satisfactorily resolve this litigation could have
a material adverse effect on the Company.
16. STOCK-BASED COMPENSATION PLANS:
The Company established an incentive and nonqualified stock option plan for key
employees and a nonqualified stock option plan for non-employee directors (the
Stock Option Plans). The Company accounts for these plans under APB Opinion No.
25, under which no compensation cost has been recognized. Had compensation cost
for these plans been determined consistent with FASB Statement No. 123, the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:
F-23
2000 1999 1998
------- ------- -------
Net Income: As reported $13,932 $12,533 $11,434
Pro Forma 12,925 11,468 10,451
Basic EPS: As reported $3.19 $2.79 $2.20
Pro Forma 2.96 2.55 2.01
Diluted EPS: As reported $3.11 $2.76 $2.19
Pro Forma 2.88 2.53 2.01
In May 2000, the Company reduced the number of shares of stock it may sell to
its full-time employees under its Stock Purchase Plan from 250,000 to 50,000. At
December 31, 2000 and 1999, 9,950 and 7,961 shares, respectively, had been
purchased under this plan. The Company sells shares at 100% of the stock's
market price at date of purchase, therefore, no compensation cost exists for
this plan.
In May 2000, the Company increased the number of shares available for option
grants under its Stock Option Plan for employees from 850,000 to 1,050,000. The
Company has reserved 1,100,000 shares of Class A Common Stock for issuance under
the Stock Option Plans. The Compensation and Stock Option Committee of the
Company's Board of Directors has discretion to determine employee grantees,
dates and amounts of grants, vesting and expiration dates. However, under both
Plans, the exercise price must equal at least 100% of the stock's market price
on the date of grant and must be exercised within five years, or ten years for
directors, from the date of grant. The following is a summary of stock option
activity for 2000, 1999 and 1998:
Year Ended Year Ended Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
Wtd. Ave. Wtd. Ave. Wtd. Ave.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------------------------------------------------------
Outstanding at
beginning of
year 762,250 $ 17.72 652,375 $ 19.51 406,975 $ 18.46
Granted 149,550 15.08 124,400 8.57 251,600 21.25
Exercised 127,833 17.09 -- -- 500 17.00
Forfeited 19,500 14.44 14,525 21.16 5,700 20.81
------- ------- -------
Outstanding at
end of year 764,467 17.36 762,250 17.72 652,375 19.51
======= ======= =======
Exercisable at
end of year 422,320 18.85 367,886 18.86 205,415 18.41
======= ======= =======
Weighted average
fair value of
options granted 7.81 4.16 8.97
F-24
The following table summarizes information about stock options outstanding at
December 31, 2000:
Options Outstanding Options Exercisable
-------------------------------------------------------------------- ------------------------------------
Number of Weighted Average Remaining Weighted Average Number of Weighted Average
Exercise Price Options Contractual Life Exercise Price Options Exercise Price
- ---------------------------------------- ------------------------------------------------------------------------------------
$ 8.38 - $ 9.21 110,967 3.3 Years $8.52 27,741 $8.52
11.00 - 12.31 24,000 4.8 Years 12.17 1,666 11.55
15.00 - 18.75 362,325 2.2 Years 16.58 248,575 17.18
19.50 - 21.25 235,675 2.2 Years 21.18 112,838 21.25
28.50 - 33.25 31,500 1.0 Years 32.95 31,500 32.95
---------- ---------
8.38 - 33.25 764,467 2.4 Years 17.36 422,320 18.85
========== =========
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions:
2000 1999 1998
------ ------ ------
Risk-free interest rate 6.20% 5.40% 5.48%
Expected dividend yield 0.00% 0.00% 0.00%
Expected lives in years 5.45 5.90 5.00
Expected volatility 47.80% 39.50% 37.77%
17. BUSINESS SEGMENT AND GEOGRAPHIC AREA 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 (through December 16, 2000), 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 expenses, are reported in
North American Railroad Operations. The Company's December 31, 2000, equity
investments in Australia and South America are also included in the Asset
section of North American Railroad Operations.
The accounting policies of the reportable segments are the same as those
described in Note 2. 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 and for
each geographic area for 2000, 1999 and 1998 are shown in the following tables
(amounts in thousands):
F-25
North American Australian Consolidated
-------------------------------- ----------- ------------
Industrial
Railroad Switching Railroad
2000 Operations Operations Total Operations Total
- --------------------------------------------------------------------------------
Operating revenues $158,318 $ 10,573 $168,891 $ 37,639 $206,530
Income (loss) from
operations 23,545 238 23,783 (30) 23,753
Depreciation and
amortization 11,068 658 11,726 2,254 13,980
Assets 333,987 8,025 342,012 -- 342,012
Capital expenditures 32,845 404 33,249 6,288 39,537
- --------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------
Operating revenues $121,093 $ 11,341 $132,434 $ 43,152 $175,586
Income (loss) from
operations 15,900 (86) 15,814 6,554 22,368
Depreciation and
amortization 9,649 768 10,417 2,157 12,574
Assets 253,624 8,319 261,943 41,997 303,940
Capital expenditures 29,129 130 29,259 6,508 35,767
- --------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------
Operating revenues $ 88,097 $ 12,647 $100,744 $ 46,728 $147,472
Income (loss) from
operations 12,546 (1,798) 10,748 8,820 19,568
Depreciation and
amortization 7,277 798 8,075 1,842 9,917
Assets 167,095 9,588 176,683 40,077 216,760
Capital expenditures 13,789 450 14,239 2,662 16,901
- --------------------------------------------------------------------------------
Refer to the accompanying consolidated statements of income for items to
reconcile from consolidated income from operations to consolidated net income.
18. QUARTERLY FINANCIAL DATA:
Quarterly Results (Unaudited)
First Second Third Fourth
(in thousands, except per share data) Quarter Quarter Quarter Quarter
2000
Operating revenues $ 55,411 $ 52,354 $ 50,095 $ 48,670
Income from operations 8,297 7,807 6,681 967
Net income 4,412 2,278 3,192 4,050
Diluted earnings per share 1.00 0.53 0.72 0.86
- --------------------------------------------------------------------------------
1999
Operating revenues $ 34,172 $ 42,669 $ 45,063 $ 53,682
Income from operations 2,038 5,723 6,351 8,257
Net income (loss) (331) 2,746 6,691 3,429
Diluted earnings (loss) per share (0.07) 0.62 1.53 0.78
- --------------------------------------------------------------------------------
F-26
1998
Operating revenues $ 37,740 $ 37,065 $ 34,707 $ 37,960
Income from operations 4,974 4,672 4,138 5,784
Net income 2,282 1,846 1,403 5,902
Diluted earnings per share 0.42 0.34 0.27 1.19
- --------------------------------------------------------------------------------
The fourth quarter of 2000 includes a $10.1 million pre-tax gain upon the
issuance of ASR stock to Wesfarmers, a $4.0 million pre-tax compensation charge
related to accelerating ASR stock options and a $6.6 million deferred tax
expense resulting from the deconsolidation of ASR (see Note 3).
The third quarter of 1999 includes $4.2 million of nonrecurring income tax
benefit related to a favorable income tax legislation change in Australia (see
Note 13.).
The fourth quarter of 1998 includes $6.0 million of pre-tax nonrecurring other
income related to proceeds from an insurance settlement (see Note 2.).
19. 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 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. As required, the Company adopted this statement on January 1, 2001,
resulting in the recording of a liability of $388,000 to recognize the fair
value of derivative instruments held as of that date with an offsetting charge
to Other Comprehensive Income.
F-27
INDEX TO EXHIBITS
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession
Not applicable.
(3) (i) Articles of Incorporation
The 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) Restated Certificate of Incorporation (Exhibit 3.1)14
(b) Certificate of Designation of 4.0% Senior Redeemable
Convertible Preferred Stock, Series A (Exhibit 3.2)14
(c) By-laws (Exhibit 3.3)1
(d) Specimen stock certificate representing shares of Class A
Common Stock (Exhibit 4.1)3
(e) 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
(f) Promissory Note dated October 7, 1991 of Buffalo & Pittsburgh
Railroad, Inc. in favor of CSX Transportation, Inc. (Exhibit
4.6)1
(g) First Amendment to Promissory Note dated as of March 19, 1999
between Buffalo & Pittsburgh Railroad, Inc. and CSX
Transportation, Inc. (Exhibit 4.1)7
(h) Third Amended and Restated Revolving Credit Agreement dated as
of August 17, 1999 among the Registrant, certain subsidiaries,
BankBoston, N.A. and the Banks named therein. (Exhibit 4.1)9
(i) Stock Purchase Agreement by and between Genesee & Wyoming Inc.
and The 1818 Fund III, L.P. dated October 19, 2000 (Exhibit
10.1)14
(j) Registration Rights Agreement between Genesee & Wyoming Inc.
and The 1818 Fund III, L.P. dated December 12, 2000 (Exhibit
10.2)14
(k) Letter Agreement between Genesee & Wyoming Inc., The 1818 Fund
III, L.P. and Mortimer B. Fuller, III dated December 12, 2000
(Exhibit 10.3)14
(9) Voting Trust Agreement
Voting Agreement and Stock Purchase Option dated March 21, 1980
among Mortimer B. Fuller, III, Mortimer B. Fuller, Jr. and Frances
A. Fuller, and amendments thereto dated May 7, 1988 and March 29,
1996 (Exhibit 9.1)1
(10) Material Contracts
The Exhibits referenced under (4)(d) through (4)(k) hereof are
incorporated herein by reference.
(a) Form of Genesee & Wyoming Inc. 1996 Stock Option Plan (Exhibit
10.1)2
(b) Form of Genesee & Wyoming Inc. Stock Option Plan for Outside
Directors (Exhibit 10.2)2
(c) Form of Compensation agreement between the Registrant and each
of its executive officers (Exhibit 10.3)1
(d) Form of Genesee & Wyoming Inc. Employee Stock Purchase Plan
(Exhibit 10.4)2
(e) Agreement dated February 6, 1996 between Illinois & Midland
Railroad, Inc. and the United Transportation Union. (Exhibit
10.65)1
(f) Amendment No. 1 to the Genesee & Wyoming Inc. 1996 Stock
Option Plan (Exhibit 10.1)4
(g) Amendment No. 1 to Genesee & Wyoming Inc. Stock Option Plan
for Outside Directors (Exhibit 10.1)5
(h) Memorandum of Lease between Minister for Transport and Urban
Planning a Body Corporate Under the Administrative
Arrangements Act, the Lessor, and Australia Southern Railroad
Pty. Ltd., the Lessee, dated 7 November 1997. (Exhibit 10.2)5
(i) Amendment No. 2. To the Genesee & Wyoming Inc. 1996 Stock
Option Plan (Exhibit 10.1)6
(j) Amendment No. 1. To the Genesee & Wyoming Inc. Employee Stock
Purchase Plan (Exhibit 10.2)6
(k) Promissory Note dated May 20, 1998 of Mortimer B. Fuller, III
in favor of the Registrant (Exhibit 10.1)7
(l) Assignment Letter between Charles W. Chabot and the
Registrant, effective November 1, 1998. (Exhibit 10.2)7
(m) Amendment No. 1 to Promissory Note dated May 28, 1999 of
Mortimer B. Fuller, III in favor of the Registrant (Exhibit
10.1)8
(n) Genesee Wyoming Deferred Stock Plan for Non-Employee
Directors 10
(o) Purchase and Sale Agreement dated August 17, 1999 between the
Federal Government of United Mexican States, Compania de
Ferrocarriles Chiapas-Mayab, S.A. de C.V., and Ferrocarriles
Nacionales de Mexico (Exhibit 10.1)9
(p) Amendment No. 3 to the Genesee & Wyoming Inc. 1996 Stock
Option Plan (Exhibit 10.1)11
(q) Amendment No. 4 to the Genesee & Wyoming Inc. 1996 Stock
Option Plan (Exhibit 10.1)12
(r) Amendment No. 5 to the Genesee & Wyoming Inc. 1996 Stock
Option Plan (Exhibit 10.2)12
(s) Amendment No 2. to the Genesee & Wyoming Inc. Stock Option
Plan for Outside Directors (Exhibit 10.3)12
(t) Amendment No. 6 to the Genesee & Wyoming Inc. 1996 Stock
Option Plan (Exhibit 10.1)13
(u) Genesee & Wyoming Australia Pty. Ltd. Executive Share Option
Plan (Exhibit 10.2)13
(v) Agreement for sale of Business dated December 16, 2000 among
The Hon Murray Criddle MLC, The Western Australian Government
Railways Commission, The Hon Richard Fairfax Court MLA,
Westrail Freight Employment Pty Ltd, AWR Holdings WA Pty Ltd,
Australian Western Railroad Pty Ltd, WestNet StandardGauge Pty
Ltd, WesterNet NarrowGauge Pty Ltd, AWR Lease Co. Pty Ltd, and
Australian Railroad Group Pty. Ltd. (Exhibit 2.1)15
(w) Westrail Freight Bidding and Share Subscription Agreement
dated October 25, 2000 among Wesfarmers Railroad Holdings Pty
Ltd, Wesfarmers Limited, GWI Holdings Pty Ltd, Genesee &
Wyoming Inc., and Genesee & Wyoming Australia Pty Ltd.
(Exhibit 99.1)15
(x) Shareholders Agreement, dated December 15, 2000 among
Wesfarmers Holdings Pty Ltd, GWI Holdings Pty Ltd, and
Australian Railroad Group Pty Ltd. (Exhibit 99.2)15
(y) Rail Freight Corridor Land Use Agreement (NarrowGauge) and
Railway Infrastructure Lease dated December 16, 2000 among The
Hon Murray Criddle MLC, The Western Australian Government
Railways Commission, The Hon Richard Fairfax Court MLA,
WestNet NarrowGauge Pty Ltd, Australia Western Railroad Pty
Ltd, and Australian Railroad Group Pty Ltd. (Exhibit 99.3)15
(z) Rail Freight Corridor Land Use Agreement (StandardGauge) and
Railway Infrastructure Lease dated December 16, 2000 among The
Hon Murray Criddle MLC, The Western Australian Government
Railways Commission, The Hon Richard Fairfax Court MLA,
WestNet StandardGauge Pty Ltd, Australia Western Railroad Pty
Ltd, and Australian Railroad Group Pty Ltd. (Exhibit 99.4)15
*(10.1) Loan Agreement between GW Servicios, S.A. de C.V., Compania de
Ferrocarriles Chiapas-Mayab, S.A. de C.V. and International Finance Corporation
dated December 5, 2000. (Copies of omitted Annexes and Schedules will be
provided upon written request.)
*(10.2) Loan Agreement between GW Servicios, S.A. de C.V., Compania de
Ferrocarriles Chiapas-Mayab, S.A. de C.V. and Nederlandse
Financierings-Mattaschappij Voor Ontwikkelingslanden N.V. dated December 5,
2000. (Copies of omitted Annexes and Schedules will be provided upon written
request.)
*(10.3) Subscription Agreement between GW Servicios S.A. de C.V. and
International Finance Corporation dated December 5, 2000.
*(11.1) Statement re computation of per share earnings
(12) Statements re computation of ratios
Not applicable.
(13) Annual report to security holders, Form 10-Q or quarterly report to
security holders
Not applicable.
(16) Letter re change in certifying accountant
Not applicable.
(18) Letter re change in accounting principles
Not applicable.
*(21.1) Subsidiaries of the Registrant
(22) Published report regarding matters submitted to vote of security
holders
Not applicable.
*(23.1) Consent of Arthur Andersen LLP
(24) Power of attorney
Not applicable.
(99) Additional Exhibits
Not applicable.
(24) Power of attorney
Not applicable.
(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-Q for the quarter ended June 30, 1997.
The exhibit number contained in parenthesis refers to the exhibit number in such
Report.
5Exhibit 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.
6Exhibit previously filed as part of, and incorporated herein by reference
to, the Registrant's Report on Form 10-Q for the quarter ended June 30, 1998.
The exhibit number contained in parenthesis refers to the exhibit number in such
Report.
7Exhibit 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.
8Exhibit previously filed as part of, and incorporated herein by reference
to, the Registrant's Report on Form 10-Q for the quarter ended June 30, 1999.
The exhibit number contained in parenthesis refers to the exhibit number in such
Report.
9Exhibit 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.
10Previously filed as part of, and incorporated herein by reference to,
the Registrant's 1999 Definitive Proxy Statement, which was filed in electronic
format on April 19, 1999 as Annex A to the Proxy Statement.
11Exhibit previously filed as part of, and incorporated herein by
reference to, the Registrant's Report on Form 10-Q for the quarter ended March
31, 2000. The exhibit number contained in parenthesis refers to the exhibit
number in such Report.
12Exhibit previously filed as part of, and incorporated herein by
reference to, the Registrant's Report on Form 10-Q for the quarter ended June
30, 2000. The exhibit number contained in parenthesis refers to the exhibit
number in such Report.
13Exhibit 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, 2000. The exhibit number contained in parenthesis refers to the
exhibit number in such Report.
14Exhibit previously filed as part of, and incorporated herein by
reference to, the Registrant's Report on Form 8-K dated December 7, 2000. The
exhibit number contained in parenthesis refers to the exhibit number in such
Report.
15Exhibit previously filed as part of, and incorporated herein by
reference to, the Registrant's Report on Form 8-K dated December 16, 2000. The
exhibit number contained in parenthesis refers to the exhibit number in such
report.
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