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| GWR > SEC Filings for GWR > Form 10-Q on 7-May-2009 | All Recent SEC Filings |
7-May-2009
Quarterly Report
The following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, and with the consolidated financial statements, related notes and other financial information included in our 2008 Annual Report on Form 10-K.
Forward-Looking Statements
This report and other documents referred to in this report may contain forward-looking statements based on current expectations, estimates and projections about our industry, management's beliefs, and assumptions made by management. Words such as "anticipates," "intends," "plans," "believes," "seeks," "expects," "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, including the following risks applicable to all of our operations: risks related to the acquisition and integration of railroads; difficulties associated with customers, competition, connecting carriers, employees and partners; derailments; adverse weather conditions; unpredictability of fuel costs; changes in environmental and other laws and regulations to which we are subject; general economic and business conditions; and additional risks associated with our foreign operations. Therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Such risks and uncertainties include, in addition to those set forth in this Item 2 and Part II, Item 1A, those noted in our 2008 Annual Report on Form 10-K under "Risk Factors." Forward-looking statements speak only as of the date of this report or as of the date they are made, and we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
We own and operate short line and regional freight railroads and provide railcar switching services in the United States, Canada, Australia and the Netherlands and own a minority interest in a railroad in Bolivia. Our operations currently include 63 railroads organized in nine regions, with more than 6,800 miles of owned and leased track and approximately 3,100 additional miles under track access arrangements. In addition, we provide rail service at 16 ports in North America and Europe and perform contract coal loading and railcar switching for industrial customers.
Net income attributable to Genesee & Wyoming Inc. (GWI) in the three months ended March 31, 2009, was $13.9 million, compared with net income attributable to GWI of $10.4 million in the three months ended March 31, 2008. Our diluted earnings per share (EPS) attributable to our common stockholders in the three months ended March 31, 2009, were $0.38 with 36.4 million weighted average shares outstanding, compared with diluted EPS attributable to our common stockholders of $0.29 with 36.0 million weighted average shares outstanding in the three months ended March 31, 2008.
Income from continuing operations attributable to our common stockholders in the three months ended March 31, 2009, was $14.0 million, compared with income from continuing operations attributable to our common stockholders of $11.2 million in the three months ended March 31, 2008. Our diluted EPS from continuing operations attributable to our common stockholders in the three months ended March 31, 2009, was $0.38 with 36.4 million weighted average shares outstanding, compared with diluted EPS from continuing operations attributable to our common stockholders of $0.31 with 36.0 million weighted average shares outstanding in the three months ended March 31, 2008. Our results in the three months ended March 31, 2009, benefited $0.05 per diluted share from the positive impact of the United States railroad track maintenance credit, known as the Short Line Tax Credit, which in is effect through 2009. Primarily as a result of the Short Line Tax Credit, our effective income tax rate on our continuing operations decreased from 37.7% in the first quarter of 2008 to 27.0% in the first quarter of 2009.
Operating revenues in the three months ended March 31, 2009, were $138.5 million, compared with $140.7 million in the three months ended March 31, 2008. The decrease in our revenues was due to a decrease of $23.4 million, or 16.6%, in revenues from existing operations, partially offset by $21.2 million in revenues from recent acquisitions, Rotterdam Rail Feeding B.V. (RRF), CAGY Industries, Inc. (CAGY), Ohio Central Railroad System (OCR) and Georgia Southwestern Railroad, Inc. (Georgia Southwestern). The decrease in revenues from existing operations included an $8.4 million decrease due to the depreciation of the Australian and Canadian dollars relative to the United States dollar and a $5.5 million decrease due to a decline in third-party fuel sales.
Our operating ratio was 81.1% in the three months ended March 31, 2009, compared with an operating ratio of 84.9% in the three months ended March 31, 2008. Operating expenses were $112.4 million in the three months ended March 31, 2009, compared with $119.4 million in the three months ended March 31, 2008, a decrease of $7.0 million, or 5.9%. The decrease in operating expenses was attributable to a decrease of $22.0 million from existing operations, partially offset by $15.0 million from new operations.
During the three months ended March 31, 2009, we generated $25.5 million in cash from operating activities from continuing operations, which included $3.5 million used for working capital. We purchased $20.7 million of property and equipment, received $0.1 million in cash from government grants for capital spending completed in 2009 and $3.7 million in cash from government grants for capital spending completed in prior years. We paid $4.8 million for the final working capital adjustment related to the October 2008 acquisition of OCR and $1.0 million (or €0.8 million) of contingent consideration related to our April 2008 acquisition of RRF. We received $3.6 million in cash from the sale of assets.
Changes in Operations
United States
Ohio Central Railroad System: On October 1, 2008, we acquired 100% of the equity interests of Summit View, Inc. (Summit View), the parent company of 10 short line railroads known as OCR for cash consideration of approximately $212.6 million (net of $2.8 million cash acquired). An additional $4.8 million was paid in the first quarter of 2009 to reflect adjustments for working capital. In addition, we placed $7.5 million of contingent consideration into escrow for payment to the seller on October 1, 2009 upon satisfaction of certain conditions. Any amounts paid will be recorded as an additional cost of the acquisition when the contingency is resolved. We have included 100% of the value of OCR's net assets in our consolidated balance sheet since October 1, 2008.
Georgia Southwestern Railroad, Inc.: On October 1, 2008, we acquired 100% of Georgia Southwestern for cash consideration of approximately $16.5 million (net of $0.4 million cash acquired). An additional $0.2 million was paid in the fourth quarter of 2008 to reflect adjustments for final working capital. We have included 100% of the value of Georgia Southwestern's net assets in our consolidated balance sheet since October 1, 2008.
CAGY Industries, Inc.: On May 30, 2008, we acquired 100% of CAGY for cash consideration of approximately $71.9 million (net of $17.2 million cash acquired). An additional $2.9 million was recorded in the second quarter of 2008 to reflect adjustments for working capital. During the third quarter of 2008, we paid contingent consideration of $15.1 million due to the satisfaction of certain conditions. In addition, we agreed to pay contingent consideration of up to $3.5 million upon satisfaction of certain conditions by May 30, 2010, which will be recorded as additional cost of the acquisition when the contingency is resolved. We have included 100% of the value of CAGY's net assets in our consolidated balance sheet since May 30, 2008.
Netherlands
Rotterdam Rail Feeding B.V.: On April 8, 2008, we acquired 100% of Rotterdam Rail Feeding B.V. (RRF) for cash consideration of approximately $22.6 million. In addition, we agreed to pay contingent consideration of up to €1.8 million (or $2.3 million at the March 31, 2009 exchange rate), of which €0.8 million (or $1.0 million) was accrued and recorded as additional cost of the acquisition at December 31, 2008, and was paid in the first quarter of 2009. The remaining €1.0 million (or $1.3 million at the March 31, 2009 exchange rate) is payable over the next two years, which will be recorded as additional cost of the acquisition when the contingencies are resolved. We have included 100% of the value of RRF's net assets in our consolidated balance sheet since April 8, 2008.
The allocation of purchase price to the assets acquired and liabilities assumed was finalized during the fourth quarter of 2008 for CAGY and RRF. The allocation of purchase price to the assets acquired and liabilities assumed has not been finalized for OCR or Georgia Southwestern. The purchase price allocation for these acquisitions will be finalized in the second quarter of 2009 upon the completion of fair value analyses. During the first quarter of 2009, there were no material adjustments made to the initial allocation of purchase price for OCR or Georgia Southwestern. The following table summarizes selected financial data for the opening balance sheets of the OCR and Georgia Southwestern acquisitions as of March 31, 2009 (dollars in thousands):
Georgia
OCR Southwestern
Purchase Price Allocations:
Cash $ 2,757 $ 364
Other current assets 6,845 748
Property and equipment 224,119 24,480
Intangible assets 32,490 -
Goodwill 60,728 4,754
Other assets 560 -
Total assets 327,499 30,346
Current liabilities 9,404 1,159
Long-term debt, including current portion 12,793 5,317
Deferred tax liabilities, net 85,026 6,806
Total liabilities 107,223 13,282
Net assets $ 220,276 $ 17,064
Intangible Assets:
Track access agreements $ 32,490 $ -
Amortization Period 46 Years -
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The deferred tax liabilities in the purchase price allocations are primarily driven by temporary differences between values assigned to non-current assets and the acquired tax basis in those assets. The amounts assigned to goodwill in the purchase price allocations will not be deductible for tax purposes.
Results from Continuing Operations
When comparing our results from continuing operations from one reporting period to another, consider that we have historically experienced fluctuations in revenues and expenses due to economic conditions, competitive forces, one-time freight moves, customer plant expansions and shut-downs, sales of property and equipment, derailments and weather related conditions such as hurricanes, droughts, heavy snowfall, freezing and flooding. In periods when these events occur, results of operations are not easily comparable to other periods. Also, we have completed and entered into a number of transactions recently that have changed and will change our results of operations. Because of variations in the structure, timing and size of these transactions, our operating results in any reporting period may not be directly comparable to our operating results in other reporting periods.
Certain of our railroads have commodity shipments that are sensitive to general
economic conditions, including steel products, paper products and lumber and
forest products. However, shipments of other commodities are less affected by
economic conditions and are more closely affected by other factors, such as
inventory levels maintained at a customer power plant (coal), winter weather
(salt) and seasonal rainfall (South Australian grain).
Operating Revenues
Overview
Operating revenues were $138.5 million in the three months ended March 31, 2009, compared with $140.7 million in the three months ended March 31, 2008, a decrease of $2.2 million, or 1.6%. The $2.2 million decrease in operating revenues consisted of a $23.4 million, or 16.6%, decrease in revenues from existing operations, partially offset by $21.2 million in revenues from new operations. The $23.4 million decrease in revenues from existing operations included decreases of $14.6 million in freight revenues and $8.8 million in non-freight revenues. The depreciation of the Australian dollar and Canadian dollar relative to the United States dollar resulted in an $8.4 million decrease in operating revenues from existing operations. New operations are those that did not exist in our consolidated financial results for a comparable period in the prior year. The following table breaks down our operating revenues into new operations and existing operations for the three months ended March 31, 2009 and 2008 (dollars in thousands):
2009 2008 2009-2008 Variance Information
Increase (Decrease)
Total New Existing Total Increase (Decrease) in Existing
Operations Operations Operations Operations in Total Operations Operations
Freight revenues $ 89,166 $ 16,043 $ 73,123 $ 87,728 $ 1,438 1.6 % $ (14,605 ) -16.6 %
Non-freight revenues 49,292 5,141 44,151 52,953 (3,661 ) -6.9 % (8,802 ) -16.6 %
Total operating revenues $ 138,458 $ 21,184 $ 117,274 $ 140,681 $ (2,223 ) -1.6 % $ (23,407 ) -16.6 %
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Freight Revenues
The following table compares freight revenues, carloads and average freight revenues per carload for the three months ended March 31, 2009 and 2008 (in thousands, except average freight revenues per carload):
Freight Revenues and Carloads Comparison by Commodity Group
Three Months Ended March 31, 2009 and 2008
Average Freight
Revenues Per
Freight Revenues Carloads Carload
% of % of % of % of
Commodity Group 2009 Total 2008 Total 2009 Total 2008 Total 2009 2008
Coal, Coke & Ores $ 21,117 23.7 % $ 16,746 19.1 % 57,946 27.0 % 45,480 24.0 % $ 364 $ 368
Pulp & Paper 13,400 15.0 % 18,013 20.5 % 24,086 11.2 % 29,926 15.8 % 556 602
Farm & Food Products 10,803 12.1 % 10,887 12.4 % 26,392 12.3 % 17,932 9.5 % 409 607
Metals 9,467 10.6 % 9,519 10.9 % 19,338 9.0 % 19,127 10.1 % 490 498
Minerals and Stone 8,507 9.5 % 9,214 10.5 % 31,250 14.6 % 31,653 16.7 % 272 291
Chemicals-Plastics 8,358 9.4 % 7,423 8.5 % 12,808 6.0 % 11,377 6.0 % 653 652
Lumber & Forest Products 6,616 7.4 % 7,972 9.1 % 14,715 6.9 % 18,137 9.6 % 450 440
Petroleum Products 5,689 6.4 % 5,007 5.7 % 7,887 3.7 % 7,451 3.9 % 721 672
Autos & Auto Parts 1,104 1.2 % 1,755 2.0 % 1,708 0.8 % 3,345 1.8 % 646 525
Intermodal 52 0.1 % 124 0.1 % 174 0.1 % 259 0.1 % 298 478
Other 4,053 4.6 % 1,068 1.2 % 18,135 8.4 % 4,740 2.5 % 223 225
Total freight revenues $ 89,166 100.0 % $ 87,728 100.0 % 214,439 100.0 % 189,427 100.0 % 416 463
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Total carloads increased by 25,012 carloads, or 13.2%, in the three months ended March 31, 2009, compared with the same period in 2008. The increase consisted of 40,771 carloads from new operations, partially offset by a decrease of 15,759 carloads, or 8.3%, from existing operations. The decrease in same railroad carloads of 8.3% was driven by decreases in traffic that is more economically sensitive, such as lumber and forest products, metals and pulp and paper, partially offset by increases in traffic that is less economically sensitive, such as Australian grain.
The following table sets forth freight revenues by new operations and existing operations for the three months ended March 31, 2009 and 2008 (dollars in thousands):
Freight Revenues by Commodity Group From Existing and New Operations
Three Months Ended March 31, 2009 and 2008
2009 2008 2009-2008 Variance Information
Increase (Decrease)
Total New Existing Total Increase (Decrease) in Existing
Commodity Group Operations Operations Operations Operations in Total Operations Operations
Coal, Coke & Ores $ 21,117 $ 6,169 $ 14,948 $ 16,746 $ 4,371 26.1 % $ (1,798 ) -10.7 %
Pulp & Paper 13,400 834 12,566 18,013 (4,613 ) -25.6 % (5,447 ) -30.2 %
Farm & Food Products 10,803 1,136 9,667 10,887 (84 ) -0.8 % (1,220 ) -11.2 %
Metals 9,467 2,550 6,917 9,519 (52 ) -0.5 % (2,602 ) -27.3 %
Minerals and Stone 8,507 819 7,688 9,214 (707 ) -7.7 % (1,526 ) -16.6 %
Chemicals-Plastics 6,970 111 6,859 7,423 (453 ) -6.1 % (564 ) -7.6 %
Lumber & Forest Products 8,004 1,499 6,505 7,972 32 0.4 % (1,467 ) -18.4 %
Petroleum Products 5,689 150 5,539 5,007 682 13.6 % 532 10.6 %
Autos & Auto Parts 1,104 - 1,104 1,755 (651 ) -37.1 % (651 ) -37.1 %
Intermodal 52 - 52 124 (72 ) -58.1 % (72 ) -58.1 %
Other 4,053 2,775 1,278 1,068 2,985 279.5 % 210 19.7 %
Total freight revenues $ 89,166 $ 16,043 $ 73,123 $ 87,728 $ 1,438 1.6 % $ (14,605 ) -16.6 %
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The following information discusses the significant changes in freight revenues by commodity group from existing operations. The decrease in average freight revenues per carload in a commodity group are generally related to lower fuel surcharges, the impact of lower fuel prices on rates that are indexed to fuel prices and changes in mix of business.
Coal, coke and ores revenues decreased by $1.8 million, or 10.7%, primarily due to an 11.1% decrease in average revenues per carload. The decrease was primarily due to changes in the mix of business in the United States.
Pulp and paper revenues decreased by $5.4 million, or 30.2%. The decrease consisted of $4.0 million due to a carload decrease of 7,292, or 24.4%, and $1.4 million due to a 7.8% decrease in average revenues per carload. The carload decrease was primarily due to production cutbacks at customer facilities, including the 2008 closure of a paper mill served by us, temporary plant shut-downs due to the recession and customers using other modes of transportation, primarily truck, due to pricing competition.
Farm and food products revenues decreased by $1.2 million, or 11.2%. Excluding a $1.8 million decrease due to the depreciation of the Canadian and Australian dollars relative to the United States dollar, farm and food products revenues increased by $0.6 million. Excluding currency impacts, the increase consisted of $2.7 million due to a carload increase of 6,353, or 35.4%, partially offset by $2.1 million due to a 20.9% decrease in average revenues per carload. The carload increase was primarily due to increased grain shipments in Australia and a stronger winter wheat season in Canada. Because rates for Australian grain traffic have both a fixed and variable component, the increase in grain traffic results in lower average revenues per carload. In addition, current Australian grain shipments were shorter-haul traffic for export compared with longer-haul interstate traffic to fulfill domestic demand needs during the severe drought last year.
Metals revenues decreased $2.6 million, or 27.3%. The decrease consisted of $3.6 million due to a carload decrease of 6,494, or 34.0%, partially offset by $1.0 million due to a 10.0% increase in average revenues per carload. The carload decrease was due to severe weakness in the steel market, reduced construction activity and the permanent closure of a plant served by us. The lack of demand in the metals market has forced some of our customers to temporarily shut-down operations to reduce existing inventories.
Lumber and forest products revenues decreased by $1.5 million, or 18.4 %. The decrease consisted of $1.6 million due to a carload decrease of 3,616, or 19.9%, partially offset by $0.2 million due to a 1.9% increase in average revenues per carload. The carload decrease was primarily due to the temporary shut-down of customer operations to reduce existing inventories as a result of the weak housing market in the United States.
Autos and auto parts revenues decreased $0.7 million, or 37.1%. The decrease consisted of $1.1 million due to a carload decrease of 1,639, or 49.0%, partially offset by $0.4 million due to a 23.3% increase in average revenues per carload. The carload decrease was primarily due to the severe decrease in production in the United States auto industry.
Freight revenues from all remaining commodities increased by $0.1 million, or 0.8%. The increase consisted of $0.6 million due to a 5.4% increase in average revenue per carload, partially offset by $0.5 million due to a carload decrease of 1,051 or 4.4%.
Non-Freight Revenues
Non-freight revenues were $49.3 million in the three months ended March 31, 2009, compared with $53.0 million in the three months ended March 31, 2008, a decrease of $3.7 million, or 6.9%. The $3.7 million decrease in non-freight revenues consisted of a decrease of $8.8 million in non-freight revenues from existing operations, partially offset by $5.1 million in non-freight revenues from new operations.
The following table compares non-freight revenues for the three months ended March 31, 2009 and 2008 (dollars in thousands):
Non-Freight Revenues Comparison
Three Months Ended March 31, 2009 and 2008
2009 % of Total 2008 % of Total
Railcar switching $ 22,854 46.4 % $ 21,108 39.9 %
Car hire and rental income 4,977 10.1 % 7,156 13.5 %
Fuel sales to third parties 3,571 7.3 % 9,094 17.2 %
Demurrage and storage 7,056 14.3 % 4,669 8.8 %
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