Genesee& Wyoming Inc. (NYSE:GWR) Files An 8-K Regulation FD Disclosure
Item7.01 Regulation FD.
On December12, 2016, Genesee Wyoming Inc. (the Company or GW)
announced that a subsidiary of the Company entered into an
agreement to acquire Pentalver Transport Limited (Pentalver) from
a subsidiary of APM Terminals (a subsidiary of AP Meller-Maersk
A/S) for approximately 87million (or approximately US$110 million
at current exchange rates). In its first full year of operation,
the Company anticipates Pentalver will generate approximately 105
million of revenue and 12 million of EBITDA. Through the planned
expansion of existing terminal space as well as the benefit of
operational efficiencies, the Company expects to generate an
additional 2 million of EBITDA that will be realized over the
next two to three years. GW believes Pentalver will require less
than 500,000 in annual capital expenditures and will have annual
depreciation and amortization expense of approximately
4million.(1)
The Company plans to fund the Pentalver acquisition and repay
indebtedness under its Senior Secured Syndicated Credit Facility
Agreement (the Credit Agreement) with the proceeds from the sale
of 4,000,000 shares of its ClassA Common Stock (the Equity Sale).
Assuming the completion of the Equity Sale and after adjusting
for the expected 12-month impact from contributions from the
pending Pentalver acquisition, the November1, 2016 acquisition of
the Providence Worcester Railroad Company (PW) (currently held in
a voting trust until the U.S. Surface Transportation Board
approves the Companys control of PW) and the acquisition of
Glencore Rail (NSW) Pty Limited (GRail) on December1, 2016, the
illustrative Credit Agreement covenant-based net adjusted debt to
adjusted EBITDA ratio for the twelve months ended September30,
2016 (as defined and calculated under the Credit Agreement) would
have been approximately 3.2 to 1.0.(1)
| (1) |
Earnings before interest, taxes, depreciation and amortization (EBITDA) as well as net adjusted debt and adjusted EBITDA, calculated in accordance with the covenant requirements of the Credit Agreement, are non-GAAP financial measures as this term is defined in Regulation G under the Securities Exchange Act of 1934. These non-GAAP financial measures are not intended to represent, and should not be considered more meaningful than, or as an alternative to, their most directly comparable GAAP measures. These non-GAAP financial measures may be different from similarly-titled non-GAAP financial measures used by other companies. |
Reconciliations of these non-GAAP financial measures to
their most directly comparable GAAP measures are set forth in the
tables attached hereto under Item 9.01 as Exhibit 99.1 and
incorporated into this Item 7.01 by reference.
The information
contained in this Item 7.01 and Exhibit 99.1 hereto shall not be
deemed filed for purposes of Section18 of the Securities Exchange
Act of 1934, as amended, or incorporated by reference in any
filing under the Exchange Act or the Securities Act of 1933, as
amended, except as shall be expressly set forth by specific
reference in such filing.
Item8.01
Other Events.
In connection with
the Equity Sale, the Company is disclosing the information set
forth below and included in Exhibit 99.2, which is incorporated
into this Item 8.01 by reference.
North
American Region
United States
Short Line Tax Credit
Since 2005, we
have benefited from the United States Short Line Tax Credit,
which is an income tax credit for ClassII and ClassIII railroads
to reduce their federal income tax based on qualified
railroad
2
track maintenance
expenditures (the Short Line Tax Credit). Unless extended, the
Short Line Tax Credit will expire on December31, 2016. As of
September30, 2016, there were approximately 275 Congressional
co-sponsors of legislation that would permanently extend the
Short Line Tax Credit. However, the outcome of the November8,
2016 U.S. presidential election has rendered enactment of
extension legislation prior to December31, 2016 less likely, as
the current Congress is expected to delay any tax legislation
until President-elect Trump enters office. Further, recent
discussions related to potential corporate tax reform in the
United States, as well as presidential infrastructure spending
objectives, could impact the likelihood of an extension of the
Short Line Tax Credit or yield changes to the Short Line Tax
Credit. Since 2005, the Short Line Tax Credit has been extended
on five occasions subsequent to expiration. Further, the
extension of the Short Line Tax Credit for fiscal year 2012, was
not enacted until January 2013. Although there is precedent for
retroactive extension of the Short Line Tax Credit following
expiration, there is no guarantee that the Short Line Tax Credit
will be extended for fiscal year 2017 or future years.
Australian
Region
Arrium
Limited
Arrium Limited
(Arrium), a mining and materials company located in Australia,
accounted for approximately 2% of our operating revenues for the
nine months ended September30, 2016. GW Australia Holdings LPs
(GWA) operations historically served two of Arriums mining
assets, including the Southern Iron mine, which was mothballed in
the second quarter of 2015 as a result of the significant decline
in the price of iron ore, and the Whyalla-based operations, which
comprise the Middleback Ranges iron ore mines and the Whyalla
Steelworks (Whyalla Contract), that continue to operate. During
the nine months ended September30, 2016, GWA generated
approximately A$28.9 million in freight-related revenues (or
approximately $21.4 million, at the average exchange rate for
such nine-month period of A$1.00 = $0.74) under the fixed and
variable payment structure of the Whyalla Contract that is
customary in large contracts in Australia. On April7, 2016,
Arrium announced it had entered into voluntary administration and
more recently announced that a sale of the Whyalla operations is
likely. Following the voluntary administration, all payments to
GWA associated with the Southern Iron rail haulage agreement
ceased. While GWA continues to receive payments and provide
service under the Whyalla Contract pending the outcome of the
voluntary administration and sale process, GWA could also lose
some or all of the revenue associated with these Arrium
services.
U.K./Europe
Region
Continental
Europe Intermodal Business
We are continuing
to explore ways to enhance the long-term viability of ERS
Railways B.V. (ERS), the Continental Europe intermodal business
Freightliner acquired from AP Meller-Maersk A/S (Maersk). We
acquired this business when we acquired Freightliner in 2015, but
ascribed little value to it at the time of acquisition due to its
limited history of profitability and competitive dynamics in the
market in which it operates. As of September30, 2016, ERS had net
assets of approximately $9.1million, allocated as follows ($ in
millions):
|
Cash and cash equivalents |
$ | 3.6 | ||
|
Accounts receivable |
31.4 | |||
|
Prepaid expenses and other |
11.2 | |||
|
Property and equipment |
0.4 | |||
|
Goodwill |
15.4 | |||
|
Intangible assets |
4.5 | |||
|
Other assets |
0.4 | |||
|
Total assets |
66.9 | |||
|
Accounts payable and accrued expenses |
34.2 | |||
|
Long-term debt, including current portion |
20.2 | |||
|
Other long-term liabilities |
3.4 | |||
|
Net assets |
$ | 9.1 | ||
3
For the nine
months ended September30, 2016, ERS produced a net loss of
$10.0million, which was included in our consolidated financial
results. We are committed to determining a path forward with ERS
no later than early 2017, which may include fundamentally
changing the services offered, restructuring operations and
implementing cost savings initiatives. Consistent with these
actions, earlier in 2016, the ERS management team was replaced.
However, we may not be successful in formulating a business plan
that generates meaningful and sustainable profitability at ERS,
which may lead to a decision by us to exit the business.
Accordingly, we may incur further losses and/or impairment
charges.
Carload
Data
On December9,
2016, the Company issued a press release reporting carload
traffic for November 2016. The full text of the press release
reporting carload traffic for November 2016 is attached hereto
under Item 9.01 as Exhibit 99.1 and is incorporated into this
Item 8.01 by reference.
4
Cautionary
Statement Regarding Forward-Looking Statements
This filing
contains forward-looking statements. Statements that are not
historical facts, including statements about beliefs or
expectations, are forward-looking statements. These statements
are based on plans, estimates and projections, including with
respect to Pentalver and other recent acquisitions, at the time
the Company makes the statements and readers should not place
undue reliance on them. In some cases, readers can identify
forward-looking statements by the use of forward-looking terms
such as may, will, should, expect, intend, plan, anticipate,
believe, estimate, predict, potential, or continue or the
negative of these terms or other comparable terms.
Forward-looking statements involve inherent risks and
uncertainties and the Company cautions readers that a number of
important factors could cause actual results to differ materially
from those contained in any such forward-looking statement.
Factors that could cause actual results to differ materially from
those described in this filing include, among others:
uncertainties as to whether and when the Pentalver acquisition
will be consummated; general economic and business conditions;
and other factors. Readers are cautioned not to place undue
reliance on the forward-looking statements included in this
filing, which speak only as of the date hereof. The Company does
not undertake to update any of these statements in light of new
information or future events.
5
Item
9.01Financial Statements and
Exhibits.
| (d) | Exhibits. |
The following
exhibits are filed herewith:
| Exhibit | Description | |
| 99.1 | Reconciliation of Non-GAAP Financial Measures | |
| 99.2 |
Press release, dated December9, 2016, announcing carload traffic for November 2016. |
6
About Genesee & Wyoming Inc. (NYSE:GWR)
Genesee & Wyoming Inc. owns and operates over 120 freight railroads across the world, which are organized in approximately 10 regions. The Company operates through three segments, which include North American Operations, Australian Operations and U.K./European Operations. In the United States, the Company has over eight regions, such as Central, Coastal (which includes industrial switching and port operations), Midwest, Mountain West (which includes industrial switching operations), Northeast, Ohio Valley, Pacific and Southern. Outside the United States, the Company has approximately three regions, such as Canada (which includes a contiguous railroad located in the United States), Australia, and U.K./Europe (which consists of operations in Belgium, Germany, the Netherlands, Poland and the United Kingdom). The Company provides rail services at over 40 ports in North America, Australia and Europe and perform contract coal loading and railcar switching for industrial customers. Genesee & Wyoming Inc. (NYSE:GWR) Recent Trading Information
Genesee & Wyoming Inc. (NYSE:GWR) closed its last trading session down -3.84 at 71.55 with 1,014,579 shares trading hands.
