(Source: Genesee & Wyoming press release, November 5, 2012)
GREENWICH, Conn. — Short line railroad operator Genesee & Wyoming reported third quarter 2012 results on November 5, 2012)
Third quarter highlights:
• Adjusted diluted earnings per share of $0.74 (adjusted primarily for RailAmerica acquisition and financing-related expenses); Reported diluted net loss of $0.47 per share (1)
• Revenues increased 2.5% versus third quarter of 2011, as an increase in average revenues per carload more than offset weakness in U.S. coal and Australian grain traffic
• North American and European adjusted operating ratio of 74.7% (adjusted primarily for RailAmerica acquisition and financing-related expenses); Reported North American and European operating ratio of 77.7% (2)
• Australian adjusted operating ratio of 75.7% (adjusted primarily for net gains on the sale of assets); Reported Australian operating ratio of 73.3% (2)
Jack Hellmann, President and CEO of GWI, commented, “The third quarter of 2012 was significant for GWI as we finalized the documentation and financing that enabled us to close the RailAmerica acquisition on October 1st. The shares of RailAmerica are now being held in a voting trust while the U.S. Surface Transportation Board (STB) considers GWI’s pending control application. We are excited about the outlook for the Genesee & Wyoming and RailAmerica combination and we hope to receive the STB decision in the near term.”*
“Our financial results for the third quarter of 2012 were consistent with our expectations in both North America and Australia. In North America, despite continued weakness in our coal and overhead coal traffic, as well as lower salt shipments due to last year’s mild winter, we are managing our costs well and sustained an adjusted operating ratio of 74.7%. In Australia, our adjusted operating ratio of 75.7% was 1.4 percentage points higher than last year primarily due to hiring, training and start-up costs associated with a major new iron ore contract that commenced revenue shipments in late October. We expect our Australian iron ore shipments to increase in the fourth quarter of 2012 and into 2013, initially through the Port of Darwin and later through the Port of Whyalla, as soon as the necessary infrastructure construction has been completed.” (2)
“Although we did not own RailAmerica in the third quarter of 2012, its operating results were consistent with our expectations. RailAmerica’s revenues increased 11% to $155 million and its adjusted operating income increased 25% to $37 million (3). Starting in the fourth quarter, we will account for the earnings of RailAmerica using the equity method of accounting while the shares are held in a voting trust.”
Financial Results
GWI reported a net loss in the third quarter of 2012 of $19.6 million, compared with net income of $32.9 million in the third quarter of 2011. The net loss was primarily due to a previously disclosed, one-time, non-cash charge whereby GWI marked-to-market $350 million of Series A-1 Mandatorily Convertible Preferred Stock issued to Carlyle (Carlyle Convertible) pursuant to an Investment Agreement to partially fund the RailAmerica acquisition. As discussed below, the non-cash charge of $50.1 million for marking-to-market the Carlyle Convertible is a result of the significant increase in GWI’s share price between the execution of the RailAmerica Acquisition Agreement and the Investment Agreement on July 23, 2012 and the end of the third quarter of 2012. Excluding the impact of marking-to-market the Carlyle Convertible and certain other significant items discussed below, GWI’s adjusted net income in the third quarter of 2012 was $32.0 million, compared with adjusted net income of $30.8 million in the third quarter of 2011 (1).
GWI’s reported diluted loss per share in the third quarter of 2012 was $0.47 with 41.7 million weighted average shares outstanding, compared with diluted earnings per share (EPS) of $0.77 with 42.8 million weighted average shares outstanding in the third quarter of 2011. Excluding the largely RailAmerica acquisition-related significant items discussed below, GWI’s adjusted diluted EPS in the third quarter of 2012 were $0.74 with 43.3 million weighted average shares outstanding, compared with adjusted diluted EPS of $0.72 with 42.8 million weighted average shares outstanding in the third quarter of 2011 (1).
GWI acquired RailAmerica, Inc. (RailAmerica) on October 1, 2012. GWI’s financial results for the third quarter of 2012 do not incorporate RailAmerica’s operations for this period, however the impact of certain RailAmerica acquisition-related expenses are included in the financial results for the quarter and described in more detail below. RailAmerica’s third quarter 2012 earnings press release and supplemental information presentation are posted on RailAmerica’s website www.railamerica.com, under the public information tab.
Explanation of Q3 2012 Significant Items
In conjunction with the execution of the Agreement and Plan of Merger for the acquisition of RailAmerica (RailAmerica Acquisition Agreement) on July 23, 2012, GWI entered into an Investment Agreement with Carlyle Partners V, L.P. (Carlyle). Pursuant to the Investment Agreement, GWI agreed to sell a minimum of $350 million in Series A-1 Mandatorily Convertible Preferred Stock, or the Carlyle Convertible, to partially fund the RailAmerica acquisition. The conversion price of the Carlyle Convertible into Class A Common Stock was set at approximately $58.49, which was a 4.5% premium to the market price of GWI’s Class A common stock prior to the announcement of the RailAmerica acquisition. As previously disclosed, for the period between July 23, 2012 and closing of the acquisition, this instrument was accounted for as a contingent forward sale contract resulting in mark-to-market non-cash income or expense based on changes in GWI’s share price, with the cumulative effect represented as an asset or liability included in our consolidated financial results. Over this period GWI’s share price increased 19.4% to $66.86 as of September 30, 2012, and, accordingly, with the acquisition closing on October 1, 2012, the Company recorded a one-time $50.1 million non-cash mark-to-market loss and corresponding liability on the forward sale contract in the third quarter of 2012. Simultaneous with the October 1, 2012 acquisition closing, this liability was reclassified to the Carlyle Convertible to reflect its total fair value, before issuance costs, of $400.1 million (i.e., to reflect the $350 million provided by Carlyle in cash and $50.1 million in stock price appreciation) on GWI’s balance sheet. In addition, GWI incurred $5.8 million of acquisition-related costs in the third quarter of 2012, primarily associated with the RailAmerica acquisition. Also in the third quarter of 2012, GWI recorded $3.0 million in net gains on the sale of assets, primarily associated with the sale of its third-party fueling operation in South Australia.
Results from Continuing Operations
In the third quarter of 2012, GWI’s total operating revenues increased $5.5 million, or 2.5%, to $222.7 million, compared with $217.2 million in the third quarter of 2011. The increase included $6.4 million in revenues from new operations, partially offset by a $0.8 million, or 0.4%, decrease in same railroad operating revenues. During the third quarter of 2012, the depreciation of foreign currencies versus the U.S. dollar decreased same railroad operating revenues by $1.4 million, or 0.6%. Excluding the impact from foreign currency depreciation, GWI’s same railroad operating revenues increased $0.6 million, or 0.3%.
Same railroad freight revenues in the third quarter of 2012 were $154.6 million, essentially equal to same railroad freight revenues in the third quarter of 2011. Excluding $0.7 million from the impact of foreign currency depreciation, GWI’s same railroad freight revenues increased by $0.8 million, or 0.5%.
GWI’s traffic in the third quarter of 2012 was 242,783 carloads, a decrease of 13,407 carloads, or 5.2%, compared with the third quarter of 2011. Traffic in the third quarter of 2012 included 7,184 carloads from new operations. Same railroad traffic decreased 20,591 carloads, or 8.0%, in the third quarter of 2012. The same railroad traffic decrease was principally due to decreases of 9,129 carloads of other commodity traffic, which was primarily related to a reduction in coal haulage traffic, 8,689 carloads of farm and food products traffic and 6,283 carloads of minerals and stone traffic. These decreases were partially offset by an increase of 1,932 carloads of lumber and forest products traffic, 1,921 carloads of intermodal traffic and 1,919 carloads of metallic ores traffic. All remaining traffic decreased by a net 2,262 carloads.
Average same railroad freight revenues per carload increased 8.8% in the third quarter of 2012. A change in the mix of commodities increased average same railroad freight revenues per carload by 3.7%, partially offset by lower fuel surcharges and the depreciation of the Australian and Canadian dollars versus the U.S. dollar, each of which decreased average same railroad freight revenues per carload by 0.5%. Other than these factors, average same railroad freight revenues per carload increased 6.1%. In addition to higher freight rates, same railroad average freight revenues per carload were positively impacted by changes in the mix of customers within certain commodity groups, primarily other commodities and by a decrease in Australian grain traffic which increased average revenues per carload due to the fixed/variable rate structure.
GWI’s same railroad non-freight revenues in the third quarter of 2012 were $61.8 million, compared with same railroad non-freight revenues in the third quarter of 2011 of $62.6 million. Excluding a $0.7 million decrease from the impact of foreign currency depreciation, GWI’s same railroad non-freight revenues decreased by $0.2 million, or 0.3%, primarily due to a $2.6 million decrease in third party fuel sales, partially offset by a $2.0 million increase in railcar switching.
GWI’s operating income in the third quarter of 2012 was $52.9 million, a decrease of $3.1 million, compared with $56.0 million in the third quarter of 2011. GWI’s operating ratio in the third quarter of 2012 was 76.3%, compared with an operating ratio of 74.2% in the third quarter of 2011. Operating income in the third quarter of 2012 included $5.8 million of acquisition-related expenses, primarily associated with the RailAmerica acquisition, partially offset by $3.0 million of net gains on the sale of assets. Operating income in the third quarter of 2011 included $1.2 million of acquisition and financing-related expenses, partially offset by $0.6 million of net gains on the sale of assets. Excluding these items, GWI’s adjusted operating ratio was 75.0% in the third quarter of 2012, compared with 73.9% in the third quarter of 2011 (2).
GWI’s free cash flow from continuing operations for the nine months ended September 30, 2012 and 2011 was $38.0 million and $55.1 million, respectively (4).
Conference Call and Webcast Details
As previously announced, GWI’s conference call to discuss financial results for the third quarter will be held Monday, November 5, 2012, at 11 a.m. EST. The dial-in number for the teleconference in the U.S. is (800) 288-8976; outside the U.S. is (612) 332-0430, or the call may be accessed live over the Internet (listen only) under the “Investors” tab of GWI’s website (http://www.gwrr.com), by selecting “Third Quarter Earnings Conference Call Webcast.” Management will be referring to a slide presentation that will also be available under the “Investors” tab of GWI’s website prior to the conference call. An audio replay of the conference call will be accessible via the “Investors” tab of GWI’s website starting at 1 p.m. EST on November 5, 2012, until the following quarter’s earnings press release. Telephone replay is available for 30 days beginning at 1 p.m. EST on November 5 by dialing (800) 475-6701 (or outside the U.S., dial 320-365-3844). The access code is 222300.