ITEM 1. FINANCIAL STATEMENTS.
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF
JUNE 30, 2019
and
DECEMBER 31, 2018
(Unaudited)
(dollars in thousands, except per share and share amounts)
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
ASSETS
|
|
|
|
CURRENT ASSETS:
|
|
|
|
Cash and cash equivalents
|
$
|
82,383
|
|
|
$
|
90,387
|
|
Accounts receivable, net
|
444,168
|
|
|
426,305
|
|
Materials and supplies
|
55,321
|
|
|
56,716
|
|
Prepaid expenses and other
|
40,074
|
|
|
54,185
|
|
Total current assets
|
621,946
|
|
|
627,593
|
|
PROPERTY AND EQUIPMENT, net
|
4,669,704
|
|
|
4,613,014
|
|
GOODWILL
|
1,114,478
|
|
|
1,115,849
|
|
INTANGIBLE ASSETS, net
|
1,401,971
|
|
|
1,430,197
|
|
DEFERRED INCOME TAX ASSETS, net
|
5,376
|
|
|
4,616
|
|
OTHER ASSETS
|
550,714
|
|
|
77,192
|
|
Total assets
|
$
|
8,364,189
|
|
|
$
|
7,868,461
|
|
LIABILITIES AND EQUITY
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
Current portion of long-term debt
|
$
|
57,289
|
|
|
$
|
28,303
|
|
Accounts payable
|
269,644
|
|
|
288,070
|
|
Accrued expenses
|
246,188
|
|
|
165,280
|
|
Total current liabilities
|
573,121
|
|
|
481,653
|
|
LONG-TERM DEBT, less current portion
|
2,281,191
|
|
|
2,425,235
|
|
DEFERRED INCOME TAX LIABILITIES, net
|
889,197
|
|
|
877,721
|
|
DEFERRED ITEMS - grants from outside parties
|
335,485
|
|
|
326,520
|
|
OTHER LONG-TERM LIABILITIES
|
594,293
|
|
|
127,280
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
EQUITY:
|
|
|
|
Class A Common Stock, $0.01 par value, one vote per share; 180,000,000 shares authorized at June 30, 2019 and December 31, 2018; 75,584,503 and 75,240,513 shares issued and 56,581,921 and 56,349,327 shares outstanding (net of 19,002,582 and 18,891,186 shares in treasury) on June 30, 2019 and December 31, 2018, respectively
|
756
|
|
|
752
|
|
Class B Common Stock, $0.01 par value, ten votes per share; 30,000,000 shares authorized at June 30, 2019 and December 31, 2018; 376,392 and 517,138 shares issued and outstanding on June 30, 2019 and December 31, 2018, respectively
|
4
|
|
|
5
|
|
Additional paid-in capital
|
1,797,794
|
|
|
1,785,005
|
|
Retained earnings
|
2,571,251
|
|
|
2,482,252
|
|
Accumulated other comprehensive loss
|
(173,797
|
)
|
|
(146,456
|
)
|
Treasury stock, at cost
|
(708,482
|
)
|
|
(699,852
|
)
|
Total Genesee & Wyoming Inc. stockholders' equity
|
3,487,526
|
|
|
3,421,706
|
|
Noncontrolling interest
|
203,376
|
|
|
208,346
|
|
Total equity
|
3,690,902
|
|
|
3,630,052
|
|
Total liabilities and equity
|
$
|
8,364,189
|
|
|
$
|
7,868,461
|
|
The accompanying notes are an integral part of these consolidated financial statements.
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE
THREE AND SIX
MONTHS ENDED
JUNE 30, 2019
and
2018
(Unaudited)
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
OPERATING REVENUES
|
$
|
571,480
|
|
|
$
|
594,990
|
|
|
$
|
1,129,569
|
|
|
$
|
1,169,651
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
Labor and benefits
|
179,943
|
|
|
179,838
|
|
|
364,251
|
|
|
363,554
|
|
Equipment rents
|
32,010
|
|
|
34,802
|
|
|
64,243
|
|
|
68,889
|
|
Purchased services
|
54,034
|
|
|
61,045
|
|
|
105,282
|
|
|
125,147
|
|
Depreciation and amortization
|
62,517
|
|
|
65,745
|
|
|
125,143
|
|
|
131,735
|
|
Diesel fuel used in train operations
|
41,504
|
|
|
45,623
|
|
|
86,141
|
|
|
91,774
|
|
Electricity used in train operations
|
2,226
|
|
|
2,044
|
|
|
4,550
|
|
|
4,278
|
|
Casualties and insurance
|
11,839
|
|
|
12,984
|
|
|
23,211
|
|
|
22,950
|
|
Materials
|
31,294
|
|
|
32,376
|
|
|
62,514
|
|
|
64,845
|
|
Trackage rights
|
21,727
|
|
|
23,303
|
|
|
43,367
|
|
|
44,281
|
|
Net loss/(gain) on sale and impairment of assets
|
980
|
|
|
(823
|
)
|
|
(510
|
)
|
|
(1,859
|
)
|
Restructuring and related costs
|
7,561
|
|
|
9,362
|
|
|
15,195
|
|
|
9,645
|
|
Other expenses, net
|
31,645
|
|
|
25,566
|
|
|
62,272
|
|
|
54,374
|
|
Total operating expenses
|
477,280
|
|
|
491,865
|
|
|
955,659
|
|
|
979,613
|
|
OPERATING INCOME
|
94,200
|
|
|
103,125
|
|
|
173,910
|
|
|
190,038
|
|
Interest income
|
824
|
|
|
584
|
|
|
1,371
|
|
|
1,082
|
|
Interest expense
|
(27,399
|
)
|
|
(28,940
|
)
|
|
(55,009
|
)
|
|
(54,176
|
)
|
Other income/(loss), net
|
2,614
|
|
|
288
|
|
|
3,033
|
|
|
(1,752
|
)
|
Income before income taxes
|
70,239
|
|
|
75,057
|
|
|
123,305
|
|
|
135,192
|
|
Provision for income taxes
|
(18,866
|
)
|
|
(26,446
|
)
|
|
(33,126
|
)
|
|
(10,556
|
)
|
Net income
|
$
|
51,373
|
|
|
$
|
48,611
|
|
|
$
|
90,179
|
|
|
$
|
124,636
|
|
Less: Net (loss)/income attributable to noncontrolling interest
|
(68
|
)
|
|
4,443
|
|
|
32
|
|
|
5,370
|
|
Net income attributable to Genesee & Wyoming Inc.
|
$
|
51,441
|
|
|
$
|
44,168
|
|
|
$
|
90,147
|
|
|
$
|
119,266
|
|
Basic earnings per common share attributable to Genesee & Wyoming Inc. common stockholders:
|
$
|
0.91
|
|
|
$
|
0.74
|
|
|
$
|
1.60
|
|
|
$
|
1.96
|
|
Weighted average shares – Basic
|
56,536
|
|
|
59,996
|
|
|
56,433
|
|
|
60,946
|
|
Diluted earnings per common share attributable to Genesee & Wyoming Inc. common stockholders:
|
$
|
0.90
|
|
|
$
|
0.73
|
|
|
$
|
1.58
|
|
|
$
|
1.93
|
|
Weighted average shares – Diluted
|
57,272
|
|
|
60,879
|
|
|
57,182
|
|
|
61,841
|
|
The accompanying notes are an integral part of these consolidated financial statements.
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE
THREE AND SIX
MONTHS ENDED
JUNE 30, 2019
and
2018
(Unaudited)
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
NET INCOME
|
$
|
51,373
|
|
|
$
|
48,611
|
|
|
$
|
90,179
|
|
|
$
|
124,636
|
|
OTHER COMPREHENSIVE INCOME/(LOSS):
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
(2,191
|
)
|
|
(48,923
|
)
|
|
4,828
|
|
|
(49,541
|
)
|
Net unrealized (loss)/gain on qualifying hedges, net of tax benefit/(provision) of $6,484, ($879), $10,710 and ($3,029), respectively
|
(21,525
|
)
|
|
2,701
|
|
|
(34,499
|
)
|
|
9,603
|
|
Changes in pension and other postretirement benefits, net of tax (provision)/benefit of ($7), ($14), $82 and ($28), respectively
|
62
|
|
|
43
|
|
|
(154
|
)
|
|
86
|
|
Other comprehensive loss
|
(23,654
|
)
|
|
(46,179
|
)
|
|
(29,825
|
)
|
|
(39,852
|
)
|
COMPREHENSIVE INCOME
|
$
|
27,719
|
|
|
$
|
2,432
|
|
|
$
|
60,354
|
|
|
$
|
84,784
|
|
Less: Comprehensive loss attributable to noncontrolling interest
|
(3,370
|
)
|
|
(4,225
|
)
|
|
(2,452
|
)
|
|
(7,316
|
)
|
COMPREHENSIVE INCOME ATTRIBUTABLE TO GENESEE & WYOMING INC.
|
$
|
31,089
|
|
|
$
|
6,657
|
|
|
$
|
62,806
|
|
|
$
|
92,100
|
|
The accompanying notes are an integral part of these consolidated financial statements.
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2019
and
2018
(Unaudited)
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G&W Stockholders
|
|
|
|
|
|
|
Class A
Common Stock
|
|
Class B
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
(Loss)/Income
|
|
Treasury
Stock
|
|
Non-controlling Interest
|
|
Total
Equity
|
BALANCE, December 31, 2018
|
|
$
|
752
|
|
|
$
|
5
|
|
|
$
|
1,785,005
|
|
|
$
|
2,482,252
|
|
|
$
|
(146,456
|
)
|
|
$
|
(699,852
|
)
|
|
$
|
208,346
|
|
|
3,630,052
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38,706
|
|
|
—
|
|
|
—
|
|
|
100
|
|
|
38,806
|
|
Other comprehensive (loss)/income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,989
|
)
|
|
—
|
|
|
818
|
|
|
(6,171
|
)
|
Conversion of 100,000 shares Class B Common Stock to Class A Common Stock
|
|
1
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Value of stock issued for stock-based compensation - 164,732 shares Class A Common Stock
|
|
2
|
|
|
—
|
|
|
2,069
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,071
|
|
Compensation cost related to stock-based compensation
|
|
—
|
|
|
—
|
|
|
3,884
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,884
|
|
Value of treasury stock repurchased - 111,289 shares
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,630
|
)
|
|
—
|
|
|
(8,630
|
)
|
Other
|
|
—
|
|
|
—
|
|
|
(832
|
)
|
|
(1,104
|
)
|
|
—
|
|
|
—
|
|
|
(796
|
)
|
|
(2,732
|
)
|
BALANCE, March 31, 2019
|
|
$
|
755
|
|
|
$
|
4
|
|
|
$
|
1,790,126
|
|
|
$
|
2,519,854
|
|
|
$
|
(153,445
|
)
|
|
$
|
(708,482
|
)
|
|
$
|
208,468
|
|
|
$
|
3,657,280
|
|
Net income/(loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51,441
|
|
|
—
|
|
|
—
|
|
|
(68
|
)
|
|
51,373
|
|
Other comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,352
|
)
|
|
—
|
|
|
(3,302
|
)
|
|
(23,654
|
)
|
Conversion of 40,746 shares Class B Common Stock to Class A Common Stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Value of stock issued for stock-based compensation - 38,512 shares Class A Common Stock
|
|
1
|
|
|
—
|
|
|
2,095
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,096
|
|
Compensation cost related to stock-based compensation
|
|
—
|
|
|
—
|
|
|
4,227
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,227
|
|
Other (including treasury stock repurchased - 107 shares)
|
|
—
|
|
|
—
|
|
|
1,346
|
|
|
(44
|
)
|
|
—
|
|
|
—
|
|
|
(1,722
|
)
|
|
(420
|
)
|
BALANCE, June 30, 2019
|
|
$
|
756
|
|
|
$
|
4
|
|
|
$
|
1,797,794
|
|
|
$
|
2,571,251
|
|
|
$
|
(173,797
|
)
|
|
$
|
(708,482
|
)
|
|
$
|
203,376
|
|
|
$
|
3,690,902
|
|
The accompanying notes are an integral part of these consolidated financial statements.
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED
JUNE 30, 2019
and
2018
(Unaudited)
(dollars in thousands) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G&W Stockholders
|
|
Non-controlling Interest
|
|
Total
Equity
|
|
|
Class A
Common Stock
|
|
Class B
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
(Loss)/Income
|
|
Treasury
Stock
|
|
|
BALANCE, December 31, 2017
|
|
$
|
748
|
|
|
$
|
7
|
|
|
$
|
1,757,332
|
|
|
$
|
2,234,864
|
|
|
$
|
(105,534
|
)
|
|
$
|
(236,951
|
)
|
|
$
|
245,626
|
|
|
$
|
3,896,092
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
75,098
|
|
|
—
|
|
|
—
|
|
|
927
|
|
|
76,025
|
|
Other comprehensive income/(loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,345
|
|
|
—
|
|
|
(4,018
|
)
|
|
6,327
|
|
Value of stock issued for stock-based compensation - 115,897 shares Class A Common Stock
|
|
1
|
|
|
—
|
|
|
1,049
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,050
|
|
Compensation cost related to stock-based compensation
|
|
—
|
|
|
—
|
|
|
4,056
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,056
|
|
Value of treasury stock repurchased - 832,232 shares
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(60,175
|
)
|
|
—
|
|
|
(60,175
|
)
|
Amounts reclassified from accumulated other comprehensive loss to retained earnings related to the United States Tax Cuts and Jobs Act
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,970
|
|
|
(2,970
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
BALANCE, March 31, 2018
|
|
$
|
749
|
|
|
$
|
7
|
|
|
$
|
1,762,437
|
|
|
$
|
2,312,932
|
|
|
$
|
(98,159
|
)
|
|
$
|
(297,126
|
)
|
|
$
|
242,536
|
|
|
$
|
3,923,376
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
44,168
|
|
|
—
|
|
|
—
|
|
|
4,443
|
|
|
48,611
|
|
Other comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(37,511
|
)
|
|
—
|
|
|
(8,668
|
)
|
|
(46,179
|
)
|
Conversion of 30,000 shares Class B Common Stock to Class A Common Stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Value of stock issued for stock-based compensation - 42,102 shares Class A Common Stock
|
|
1
|
|
|
—
|
|
|
1,856
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,857
|
|
Compensation cost related to stock-based compensation
|
|
—
|
|
|
—
|
|
|
4,515
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,515
|
|
Value of treasury stock repurchased - 1,873,170 shares
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(134,952
|
)
|
|
—
|
|
|
(134,952
|
)
|
Distribution to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,898
|
)
|
|
(14,898
|
)
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
48
|
|
|
48
|
|
BALANCE, June 30, 2018
|
|
$
|
750
|
|
|
$
|
7
|
|
|
$
|
1,768,808
|
|
|
$
|
2,357,100
|
|
|
$
|
(135,670
|
)
|
|
$
|
(432,078
|
)
|
|
$
|
223,461
|
|
|
$
|
3,782,378
|
|
The accompanying notes are an integral part of these consolidated financial statements.
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2019 and 2018 (Unaudited)
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
June 30,
|
|
2019
|
|
2018
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net income
|
$
|
90,179
|
|
|
$
|
124,636
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
Depreciation and amortization
|
125,143
|
|
|
131,735
|
|
Stock-based compensation
|
8,100
|
|
|
8,601
|
|
Deferred income taxes
|
22,534
|
|
|
(11,489
|
)
|
Insurance proceeds received
|
1,600
|
|
|
—
|
|
Net gain on sale and impairment of assets
|
(510
|
)
|
|
(1,859
|
)
|
Changes in assets and liabilities which provided/(used) cash:
|
|
|
|
Accounts receivable, net
|
(4,930
|
)
|
|
(46,519
|
)
|
Materials and supplies
|
1,278
|
|
|
2,460
|
|
Prepaid expenses and other
|
(7,121
|
)
|
|
(7,587
|
)
|
Accounts payable and accrued expenses
|
(18,673
|
)
|
|
20,665
|
|
Other assets and liabilities, net
|
5,521
|
|
|
10,684
|
|
Net cash provided by operating activities
|
223,121
|
|
|
231,327
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
Purchases of property and equipment
|
(144,740
|
)
|
|
(133,328
|
)
|
Grant proceeds from outside parties
|
14,881
|
|
|
12,901
|
|
Proceeds from settlement of derivative transactions
|
45,360
|
|
|
—
|
|
Proceeds from sale of business
|
—
|
|
|
7,927
|
|
Insurance proceeds for replacement of assets
|
1,597
|
|
|
1,866
|
|
Proceeds from disposition of property and equipment
|
4,176
|
|
|
2,795
|
|
Contributions to joint venture
|
(2,700
|
)
|
|
(2,921
|
)
|
Net cash used in investing activities
|
(81,426
|
)
|
|
(110,760
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Principal payments on revolving line-of-credit, long-term debt and finance lease obligations
|
(319,338
|
)
|
|
(706,965
|
)
|
Proceeds from revolving line-of-credit and long-term debt
|
178,726
|
|
|
795,241
|
|
Debt amendment/issuance costs
|
—
|
|
|
(5,303
|
)
|
Purchase of additional shares in Freightliner Australia
|
(4,696
|
)
|
|
—
|
|
Common share repurchases
|
(4,796
|
)
|
|
(192,324
|
)
|
Distribution to noncontrolling interest
|
—
|
|
|
(14,898
|
)
|
Installment payments on Freightliner deferred consideration
|
(2,522
|
)
|
|
(6,255
|
)
|
Other financing related activities, net
|
(253
|
)
|
|
(893
|
)
|
Net cash used in financing activities
|
(152,879
|
)
|
|
(131,397
|
)
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
3,180
|
|
|
60
|
|
DECREASE IN CASH AND CASH EQUIVALENTS
|
(8,004
|
)
|
|
(10,770
|
)
|
CASH AND CASH EQUIVALENTS, beginning of period
|
90,387
|
|
|
80,472
|
|
CASH AND CASH EQUIVALENTS, end of period
|
$
|
82,383
|
|
|
$
|
69,702
|
|
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1
. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:
The interim consolidated financial statements presented herein include the accounts of Genesee & Wyoming Inc. and its subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. These interim consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and are unaudited. They do not contain all disclosures which would be required in a full set of financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). In the opinion of management, the unaudited financial statements for the
three and six
months ended
June 30, 2019
and
2018
are presented on a basis consistent with the audited financial statements and contain all adjustments, consisting only of normal recurring adjustments, necessary to provide a fair statement of the results for the interim periods presented. The results of operations for interim periods are not necessarily indicative of results of operations for the full year. The consolidated balance sheet data for
2018
was derived from the audited financial statements in the Company's
2018
Annual Report on Form 10-K, but does not include all disclosures required by U.S. GAAP.
The results of operations of the foreign entities are maintained in the local currency of the respective subsidiary and translated into United States dollars at the applicable exchange rates for inclusion in the consolidated financial statements. As a result, any appreciation or depreciation of these currencies against the United States dollar will impact the Company's results of operations.
The interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended
December 31, 2018
included in the Company's
2018
Annual Report on Form 10-K.
During the process of preparing the Form 10-K for the year ended December 31, 2018, the Company determined that there was an error in and revised its statement of cash flows for the six months ended June 30, 2018, which resulted in the following offsetting adjustments: an increase of
$33 million
in principal payments on revolving line-of-credit, long-term debt and capital lease obligations, representing cash outflows from financing activities, and an increase of
$33 million
in proceeds from revolving line-of-credit and long-term debt, representing cash inflows from financing activities. There was no effect on any other section of the Company's statement of cash flows, and this revision had no impact on the Company's consolidated balance sheet as of December 31, 2018 or the Company's consolidated statements of operations or comprehensive income for the three and six months ended June 30, 2018. The Company does not consider this revision material to any previously issued consolidated financial statements.
When comparing the Company's results of operations from one reporting period to another, it is important to consider that the Company has historically experienced fluctuations in revenues and expenses due to acquisitions and divestitures, changing economic conditions, fluctuations in commodity prices, competitive forces, changes in foreign currency exchange rates, rail network issues and congestion, the ability to attract and retain skilled workers, one-time freight moves, fuel price fluctuations, customer plant expansions and shutdowns, sales of property and equipment, derailments and weather-related conditions, such as hurricanes, cyclones, tornadoes, high winds, droughts, heavy snowfall, unseasonably hot or cold weather, freezing and flooding, among other factors. In periods when these events occur, the Company's results of operations are not easily comparable from one period to another. Finally, certain of the Company's railroads have commodity shipments that are sensitive to general economic conditions, global commodity prices and foreign exchange rates, such as steel products, iron ore, paper products, lumber and forest products and agricultural products, as well as product specific market conditions, such as the availability of lower priced alternative sources of power generation (coal) and energy commodity price differentials (crude oil and natural gas liquids) or congestion at ports (intermodal). Other shipments are relatively less affected by economic conditions and are more closely affected by other factors, such as winter weather (salt) and seasonal rainfall (agricultural products). As a result of these and other factors, the Company's results of operations in any reporting period may not be directly comparable to the Company's results of operations in other reporting periods.
2
. CHANGES IN OPERATIONS:
North American Operations
Canada Lease Expirations:
Two of the Company's short line railroad leases in Canada (Goderich-Exeter Railway (GEXR) and Southern Ontario Railway (SORR)) expired at the end of 2018. The Company's results for the three and six months ended June 30, 2018 included
$5.6 million
and
$11.1 million
, respectively, of revenues from these leased railroads. The Company's results included no material operating income from these leased railroads for the three and six months ended June 30, 2018.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.K./European Operations
U.K. Operations Optimization:
In May 2018, the Company began a program to restructure and further optimize its operations in the U.K., which it intends to complete by 2020. The program includes the rationalization of the locomotive and railcar fleet, management restructuring (following the U.K. consultative process) and technology investments to upgrade systems to enhance productivity and service quality.
Restructuring and related costs associated with the optimization are expected to be approximately
$37 million
(at an exchange rate of
$1.30
for one British pound) and are comprised of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2019
|
|
Six Months Ended June 30, 2019
|
|
Total Costs Incurred Through
June 30, 2019
|
|
Estimated Total Restructuring and Related Costs
|
Rationalization of locomotive and railcar fleet
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,301
|
|
|
$
|
9,000
|
|
Management restructuring
(a)
|
5,058
|
|
|
9,141
|
|
|
13,781
|
|
|
16,000
|
|
Productivity and automation investments
|
1,725
|
|
|
3,138
|
|
|
7,181
|
|
|
12,000
|
|
Total
|
$
|
6,783
|
|
|
$
|
12,279
|
|
|
$
|
27,263
|
|
|
$
|
37,000
|
|
|
|
(a)
|
Subject to requisite U.K. consultative process.
|
Changes in restructuring and related liabilities for the U.K. Operations Optimization program for the
six
months ended
June 30, 2019
was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rationalization of Locomotive and Railcar Fleet
|
|
Management Restructuring
|
|
Productivity and Automation Investments
|
|
Total
|
Restructuring and related liabilities as of December 31, 2018
|
$
|
4,094
|
|
|
$
|
982
|
|
|
$
|
—
|
|
|
$
|
5,076
|
|
Restructuring and related costs incurred
|
—
|
|
|
9,141
|
|
|
3,138
|
|
|
12,279
|
|
Cash payments
|
(610
|
)
|
|
(6,691
|
)
|
|
(3,138
|
)
|
|
(10,439
|
)
|
Non-cash settlements
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Restructuring and related liabilities as of June 30, 2019
|
$
|
3,484
|
|
|
$
|
3,432
|
|
|
$
|
—
|
|
|
$
|
6,916
|
|
Continental Europe Intermodal Business:
On June 5, 2018, the Company sold its Continental Europe intermodal business, ERS Railways B.V. (ERS), for gross cash proceeds of
€11.2 million
(or
$13.1 million
at the exchange rate on June 5, 2018) or
€6.8 million
(or
$7.9 million
at the exchange rate on June 5, 2018) net of
€4.4 million
(or
$5.2 million
at the exchange rate on June 5, 2018) of cash on hand that transferred to the buyer. The Company's results for the three and six months ended June 30, 2018 included
$9.4 million
and
$24.1 million
, respectively, of revenues from ERS.
The Company's results for the three and six months ended June 30, 2018 included no material operating income
from ERS.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
3
. EARNINGS PER COMMON SHARE:
The following table sets forth the computation of basic and diluted earnings per common share for the
three and six
months ended
June 30, 2019
and
2018
(in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Numerators:
|
|
|
|
|
|
|
|
Net income attributable to Genesee & Wyoming Inc.
|
$
|
51,441
|
|
|
$
|
44,168
|
|
|
$
|
90,147
|
|
|
$
|
119,266
|
|
Denominators:
|
|
|
|
|
|
|
|
Weighted average Class A common shares outstanding – Basic
|
56,536
|
|
|
59,996
|
|
|
56,433
|
|
|
60,946
|
|
Weighted average Class B common shares outstanding
|
405
|
|
|
673
|
|
|
452
|
|
|
687
|
|
Dilutive effect of employee stock-based awards
|
331
|
|
|
210
|
|
|
297
|
|
|
208
|
|
Weighted average shares – Diluted
|
57,272
|
|
|
60,879
|
|
|
57,182
|
|
|
61,841
|
|
Earnings per common share attributable to Genesee & Wyoming Inc. common stockholders:
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.91
|
|
|
$
|
0.74
|
|
|
$
|
1.60
|
|
|
$
|
1.96
|
|
Diluted earnings per common share
|
$
|
0.90
|
|
|
$
|
0.73
|
|
|
$
|
1.58
|
|
|
$
|
1.93
|
|
The following total number of shares of Class A Common Stock issuable under the assumed exercise of stock-based awards computed based on the treasury stock method were excluded from the calculation of diluted earnings per common share, as the effect of including these shares would have been antidilutive (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Antidilutive shares
|
257
|
|
|
1,130
|
|
|
566
|
|
|
1,043
|
|
Share Repurchase
In October 2018, the Company completed its
$300 million
share repurchase program that had been approved in 2015, and the Company's Board of Directors authorized a new
$500 million
share repurchase program of Class A Common Stock, subject to certain limitations under the Company's credit facility. The table below presents information regarding shares repurchased by the Company under the share repurchase programs during the
three and six
months ended
June 30, 2019
and
2018
(in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Class A Common Stock repurchased
|
—
|
|
|
1,873
|
|
|
65
|
|
|
2,666
|
|
Average price paid per share of Class A Common Stock repurchased
|
$
|
—
|
|
|
$
|
72.04
|
|
|
$
|
73.94
|
|
|
$
|
72.14
|
|
Repurchased shares are recorded in treasury stock, at cost, which includes any applicable commissions and fees. As of
June 30, 2019
, the remaining amount authorized for repurchase under the
$500 million
share repurchase program was
$335.0 million
. In light of the Company's entry into the merger agreement with affiliates of Brookfield Infrastructure and GIC, future share repurchases under the repurchase program have been suspended. See Note
15
,
Subsequent Events
, for additional information regarding the merger agreement.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
4
. ACCOUNTS RECEIVABLE:
Accounts receivable consisted of the following as of
June 30, 2019
and
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
Accounts receivable – trade
|
$
|
406,770
|
|
|
$
|
397,255
|
|
Accounts receivable – grants from outside parties
|
18,748
|
|
|
19,376
|
|
Accounts receivable – insurance and other third-party claims
|
31,707
|
|
|
19,729
|
|
Total accounts receivable
|
457,225
|
|
|
436,360
|
|
Less: Allowance for doubtful accounts
|
(13,057
|
)
|
|
(10,055
|
)
|
Accounts receivable, net
|
$
|
444,168
|
|
|
$
|
426,305
|
|
The timing of revenue recognition, billings and cash collections result in trade accounts receivable, contract assets and contract liabilities. The Company’s contract assets and liabilities are typically short-term in nature, with terms settled within a 12-month period. The Company had
no
material contract assets or contract liabilities recorded on the consolidated balance sheet as of
June 30, 2019
or
December 31, 2018
.
Grants from Outside Parties
The Company periodically receives grants for the upgrade and construction of rail lines and the upgrade of locomotives from federal, provincial, state and local agencies in the United States and provinces in Canada in which the Company operates.
These grants typically reimburse the Company for 50% to 100% of the actual cost of specific projects. In total, the Company received grant proceeds of
$14.9 million
and
$12.9 million
for the
six
months ended
June 30, 2019
and
2018
, respectively, from such grant programs. The proceeds were presented as cash inflows from investing activities within the statement of cash flows for each of the applicable periods. The Company records additions to property and equipment for its grant-funded projects and defers the amount of the grants. The amortization of deferred grants is a non-cash offset to depreciation expense over the useful lives of the related assets.
The following table sets forth the offset to depreciation expense from the amortization of deferred grants recorded by the Company during the
three and six
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Amortization of deferred grants
|
$
|
3,315
|
|
|
$
|
3,136
|
|
|
$
|
6,823
|
|
|
$
|
5,603
|
|
Insurance and Third-Party Claims
The increase in the balance of the accounts receivable from insurance and other third-party claims for the
six
months ended
June 30, 2019
was primarily related to the anticipated insurance recovery associated with a personal injury that occurred in the U.K. in 2019. The receivable and the associated claim liability were recorded on the balance sheet as of
June 30, 2019
.
The Company recently completed its annual property insurance renewal, which takes effect on August 1, 2019. Effective with this renewal, the Company's property policies will have various self-insured retentions, which vary based on the type and location of the incident, up to
$10.0 million
.
5
. LEASES:
On January 1, 2019, the Company adopted Accounting Standards Update (ASU) 2016-02,
Leases
(the New Standard), and all related amendments, which supersedes the previous lease guidance, using the transition method with the election not to adjust comparative periods. The New Standard requires lessees to recognize leases on their balance sheet as a right-of-use (ROU) asset with a corresponding lease liability. The adoption resulted in the recognition of ROU assets included in other assets and lease liabilities included in accrued expenses and other long-term liabilities of approximately
$495 million
in the Company's consolidated balance sheet, each as a result of the new requirement to recognize operating leases. No material cumulative-effect adjustment was recognized in retained earnings, and the adoption did not materially impact operating results, liquidity or the Company's debt-covenant compliance under these agreements. The Company continues to recognize its capital leases on the balance sheet but these leases are now referred to as "finance" leases, as required by the New Standard.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The Company enters into leases for railcars, locomotives and other equipment as well as real property. These leases may contain variable payments that vary with rate or index changes or include payment of a per car fee or per mile fee to use the track under variable lease contracts. The Company may receive rent holidays and other incentives provided by the lessor on lease agreements. On occasion, the Company subleases assets to other parties.
As of January 1, 2019, the Company adopted a number of practical expedients and exemptions included in the New Standard, which were intended to reduce the cost and complexity of complying with the transition requirements. The Company chose the following practical expedients and exemptions in setting its accounting policy elections for transition to:
|
|
1.
|
Not recognize an asset and liability for leases of all asset classes with a term of 12 months or less;
|
|
|
2.
|
Carry forward the historical lease classification and not reassess its existing contracts to determine whether the arrangements contained a lease or whether initial direct costs qualified for capitalization;
|
|
|
3.
|
Not separate lease and non-lease components; and
|
|
|
4.
|
Carry forward its current accounting treatment for land easements on existing agreements.
|
Lease contracts may include one or more renewal options, with renewal terms from one to fifty years or more. Leases may also include options to terminate the arrangement or options to purchase the underlying leased property. The exercise of lease options are generally at the discretion of the Company's management team. The Company determines the expected term of a lease and includes options that are reasonably certain to be exercised in the calculation of its ROU assets and lease liabilities.
The determination of whether a contract contains a lease, as well as the analysis regarding the allocation of consideration in a contract between lease and non-lease components, is performed on a case by case basis and considers the nature and interdependency of the individual assets in the arrangement. The Company generally accounts for lease assets as a single component as the assets in most agreements are highly interrelated and dependent upon each other to fulfill the arrangement.
As the implicit rate is not readily determinable in most of the Company's lease agreements, the Company uses its estimated secured incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
The following table summarizes the Company's leased assets and lease liabilities recorded in the consolidated balance sheet as of
June 30, 2019
(dollars in thousands):
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
June 30,
2019
|
Leased right-of-use assets:
|
|
|
|
Operating leased assets
|
Other assets
|
|
$
|
494,803
|
|
Finance leased assets, net
|
Property and equipment, net
(a)
|
|
90,716
|
|
Total leased assets
|
|
|
$
|
585,519
|
|
Lease liabilities:
|
|
|
|
Current
|
|
|
|
Operating lease liabilities
|
Accrued expenses
|
|
$
|
65,004
|
|
Finance lease liabilities
|
Current portion of long-term debt
|
|
11,477
|
|
Non-current
|
|
|
|
Operating lease liabilities
|
Other long-term liabilities
|
|
428,087
|
|
Finance lease liabilities
|
Long-term debt, less current portion
|
|
72,500
|
|
Total lease liabilities
|
|
|
$
|
577,068
|
|
|
|
(a)
|
Net of
$29.2 million
of accumulated amortization as of
June 30, 2019
, which was recognized in depreciation and amortization expense within the Company's consolidated statement of operations.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The following table summarizes the components of lease expense for the
three and six
months ended
June 30, 2019
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Location of Amount Recognized in Earnings
|
|
Three Months Ended
|
|
Six Months
Ended
|
|
|
June 30, 2019
|
|
June 30, 2019
|
Finance leases:
|
|
|
|
|
|
Amortization of right-of-use assets
|
Depreciation and amortization
|
|
$
|
1,888
|
|
|
$
|
3,761
|
|
Interest on lease liability
|
Interest expense
|
|
847
|
|
|
1,673
|
|
Total finance lease cost
|
|
|
$
|
2,735
|
|
|
$
|
5,434
|
|
Operating leases:
|
|
|
|
|
|
Operating lease cost
|
Equipment rents/Trackage rights
|
|
$
|
22,533
|
|
|
$
|
44,684
|
|
Short-term lease cost
|
Equipment rents/Trackage rights
|
|
2,566
|
|
|
4,993
|
|
Variable lease cost
|
Equipment rents/Trackage rights
|
|
2,995
|
|
|
4,907
|
|
Sublease income (gross basis)
|
Operating revenues
|
|
(1,527
|
)
|
|
(2,250
|
)
|
Total operating lease cost
|
|
|
$
|
26,567
|
|
|
$
|
52,334
|
|
Total lease cost
|
|
|
$
|
29,302
|
|
|
$
|
57,768
|
|
The maturities of lease liabilities under the New Standard based on the Company's reasonably certain holding period for each lease were as follows as of
June 30, 2019
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
Finance Leases
|
|
Operating Leases
|
Maturity of lease liabilities:
|
|
|
|
2019 (remainder)
|
$
|
7,789
|
|
|
$
|
45,446
|
|
2020
|
19,586
|
|
|
74,453
|
|
2021
|
10,807
|
|
|
64,080
|
|
2022
|
15,097
|
|
|
52,091
|
|
2023
|
10,862
|
|
|
43,242
|
|
Thereafter
|
35,671
|
|
|
564,700
|
|
Total lease payments
|
99,812
|
|
|
844,012
|
|
Less: Imputed interest
|
15,835
|
|
|
350,921
|
|
Total lease liabilities
|
$
|
83,977
|
|
|
$
|
493,091
|
|
The following is a summary of future minimum lease payments based on the minimum non-cancelable lease term as required under previous guidance for capital and operating leases as of December 31, 2018 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
Capital
|
|
Operating
|
2019
|
$
|
11,405
|
|
|
$
|
82,191
|
|
2020
|
17,261
|
|
|
63,062
|
|
2021
|
8,668
|
|
|
54,305
|
|
2022
|
9,625
|
|
|
44,739
|
|
2023
|
10,780
|
|
|
35,919
|
|
Thereafter
|
13,988
|
|
|
383,739
|
|
Total minimum payments
|
$
|
71,727
|
|
|
$
|
663,955
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The following table presents supplemental cash flow and other information for the Company's leases as of and for the
six
months ended
June 30, 2019
(dollars in thousands):
|
|
|
|
|
|
Six Months Ended
|
|
June 30, 2019
|
Cash flow information:
|
|
Cash paid for operating leases included in operating activities
|
$
|
45,571
|
|
Cash paid for finance leases included in operating activities
|
$
|
1,387
|
|
Cash paid for finance leases included in financing activities
|
$
|
4,688
|
|
|
|
Weighted average remaining lease term (in years):
|
|
Operating leases
|
26.5
|
|
Finance leases
|
8.2
|
|
|
|
Weighted average discount rate:
|
|
Operating leases
|
3.8
|
%
|
Finance leases
|
4.4
|
%
|
|
|
New leases:
|
|
Right-of-use assets obtained in exchange for operating lease liabilities
|
$
|
31,445
|
|
Right-of-use assets obtained in exchange for finance lease liabilities
|
$
|
27,335
|
|
6
. DERIVATIVE FINANCIAL INSTRUMENTS:
The Company actively monitors its exposure to interest rate and foreign currency exchange rate risks and uses derivative financial instruments to manage the impact of risks associated with underlying interest rate and foreign exchange rate exposures. The Company's use of these derivative financial instruments may result in short-term gains or losses and increased earnings volatility. The instruments held by the Company are recorded in the consolidated balance sheets at fair value in prepaid expenses and other, other assets, accrued expenses or other long-term liabilities.
The Company may designate derivatives as a hedge of a forecasted transaction or a hedge of the variability of the cash flows to be received or paid in the future related to a recognized asset or liability (cash flow hedge). The portion of the changes in the fair value of the derivative used as a cash flow hedge that is offset by changes in the expected cash flows related to a recognized asset or liability is recorded in other comprehensive income/(loss) (OCI). Amounts recorded in OCI may be realized and reported in the consolidated statements of operations on the same line item as the hedged item in the event the hedged item is settled, did not or is no longer expected to occur or if the hedging relationship is no longer effective.
The Company may designate fair value hedges to mitigate foreign currency exchange rates on non-functional currency assets or liabilities. The Company uses the mark-to-market approach to remeasure the hedged item and the hedging instrument. The changes in the fair value of the hedged item is included in other income/(loss), net and are offset by changes in the fair value of the hedging instrument which are reported in the same income statement line item.
In addition, the Company may designate net investment hedges to reduce the impact of the variability of foreign currency exchange rates on its net investments in certain non-U.S. operations using cross-currency swaps. The Company measures the effectiveness of the hedge by offsetting the changes in the fair value of the cross-currency swap and the hedged asset or liability. Gains and losses on the after-tax effective portion of the net investment hedge are reported in currency translation adjustments where they remain until the investment is liquidated. The Company records the portion of the gain or loss on the hedging instrument that exceeds the gain or loss of the hedged item as an offset to the tax impact recognized during the period.
The Company matches the hedge instrument to the underlying hedged item (assets, liabilities, firm commitments or forecasted transactions). At inception of the hedge and at least quarterly thereafter, the Company assesses whether the derivatives used to hedge transactions are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. When it is determined that a derivative instrument ceases to be a highly effective hedge of the underlying transaction, the Company discontinues hedge accounting, and any gains or losses on the derivative instrument thereafter are recognized in earnings during the period in which it no longer qualifies for hedge accounting. Gains and losses on any excluded components of derivatives designated as hedges are recorded in OCI and amortized to other income/(loss), net over the life of the hedge.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
From time to time, the Company may enter into certain derivative instruments that may not be designated as hedges for accounting purposes. The Company believes such instruments are closely correlated with the underlying exposure, thus reducing the associated risk. The gains or losses from the changes in the fair value of derivative instruments not accounted for using hedge accounting are recognized in current period earnings within other income/(loss), net.
The following table summarizes the fair value of the Company's derivative instruments recorded in the consolidated balance sheets as of
June 30, 2019
and
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Balance Sheet Location
|
|
June 30,
2019
|
|
December 31, 2018
|
Asset Derivatives:
|
|
|
|
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
British pound forward contracts
|
Prepaid expenses and other
|
|
$
|
3,055
|
|
|
$
|
—
|
|
British pound forward contracts
|
Other assets
|
|
—
|
|
|
26,011
|
|
Total derivatives designated as hedges
|
|
|
$
|
3,055
|
|
|
$
|
26,011
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
Cross-currency swap contract
|
Prepaid expenses and other
|
|
$
|
—
|
|
|
$
|
19,684
|
|
Total derivatives not designated as hedges
|
|
|
$
|
—
|
|
|
$
|
19,684
|
|
|
|
|
|
|
|
Liability Derivatives:
|
|
|
|
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
Interest rate swap agreements
|
Accrued expenses
|
|
$
|
6,774
|
|
|
$
|
1,954
|
|
British pound forward contracts
|
Accrued expenses
|
|
14
|
|
|
—
|
|
Interest rate swap agreements
|
Other long-term liabilities
|
|
53,446
|
|
|
12,441
|
|
British pound forward contracts
|
Other long-term liabilities
|
|
—
|
|
|
59
|
|
Derivative designated as a net investment hedge:
|
|
|
|
|
|
Cross-currency swap contract
|
Other long-term liabilities
|
|
807
|
|
|
—
|
|
Derivative designated as a fair value hedge:
|
|
|
|
|
|
Cross-currency swap contract
|
Other long-term liabilities
|
|
2,387
|
|
|
—
|
|
Total derivatives designated as hedges
|
|
|
$
|
63,428
|
|
|
$
|
14,454
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The following table shows the effective portion of net changes in the fair value of the Company's derivative instruments designated as hedges recognized in OCI, net of tax for the
three and six
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives Designated as Hedges OCI Activity, Net of Tax
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Derivatives Designated as Hedges:
|
|
|
|
|
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
(21,299
|
)
|
|
$
|
2,687
|
|
|
$
|
(34,705
|
)
|
|
$
|
9,580
|
|
Foreign currency forward contracts
|
|
—
|
|
|
288
|
|
|
—
|
|
|
288
|
|
British pound forward contracts, net
(a)
|
|
1,026
|
|
|
(274
|
)
|
|
1,458
|
|
|
(265
|
)
|
|
|
$
|
(20,273
|
)
|
|
$
|
2,701
|
|
|
$
|
(33,247
|
)
|
|
$
|
9,603
|
|
Net Investment Hedge:
|
|
|
|
|
|
|
|
|
Cross-currency swap contract
|
|
$
|
(822
|
)
|
|
$
|
—
|
|
|
$
|
(822
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hedge:
|
|
|
|
|
|
|
|
|
Cross-currency swap contract
|
|
$
|
(430
|
)
|
|
$
|
—
|
|
|
$
|
(430
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedges
|
|
$
|
(21,525
|
)
|
|
$
|
2,701
|
|
|
$
|
(34,499
|
)
|
|
$
|
9,603
|
|
|
|
(a)
|
The
three and six
months ended
June 30, 2019
represented a net gain of
$16.7 million
and
$19.5 million
, respectively, for the mark-to-market of the U.K. intercompany loan, partially offset by a net loss of
$15.6 million
and
$18.0 million
, respectively, for the mark-to-market of the British pound forward contracts.
|
The
three and six
months ended
June 30, 2018
represented a net loss of
$9.2 million
and
$3.7 million
, respectively, for the mark-to-market of the U.K. intercompany loan, partially offset by a net gain of
$9.0 million
and
$3.5 million
, respectively, for the mark-to-market of the British Pound forward contracts.
The following table shows the effect of the Company's derivative instruments not designated as hedges for the
three and six
months ended
June 30, 2019
and
2018
in the consolidated statements of operations (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Recognized in Earnings
|
|
|
Location of Amount Recognized in Earnings
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Derivatives Not Designated as Hedges:
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swap agreements, net
(a)
|
|
Other income/(loss), net
|
|
$
|
715
|
|
|
$
|
272
|
|
|
$
|
(1,770
|
)
|
|
$
|
(2,490
|
)
|
|
|
(a)
|
The three months ended
June 30, 2019
represented a net gain of
$7.1 million
for the mark-to-market of the swaps, partially offset by a net loss of
$6.4 million
for the mark-to-market of the GRail Intercompany Loan. The six months ended
June 30, 2019
represented a net loss of
$1.4 million
for the mark-to-market of the GRail Intercompany Loan and a net loss of
$0.3 million
for the mark-to-market of the swaps. This derivative was settled in June 2019, and the Company received cash proceeds of
€17.0 million
(or
$19.3 million
at the exchange rate on June 30, 2019).
|
The three months ended
June 30, 2018
represented a net gain of
$3.0 million
for the mark-to-market of the GRail Intercompany Loan, partially offset by a net loss of
$2.8 million
for the mark-to-market of the swaps. The six months ended
June 30, 2018
represented a net loss of
$5.1 million
for the mark-to-market of the GRail Intercompany Loan, partially offset by a net gain of
$2.6 million
for the mark-to-market of the swaps.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The following table shows the cash flow impacts from the Company's derivatives that settled during the
six
months ended
June 30, 2019
(dollars in thousands):
|
|
|
|
|
|
Six Months Ended
|
|
June 30, 2019
|
Derivatives designated as hedges:
|
|
British pound forward contracts
|
$
|
26,088
|
|
|
|
Derivatives not designated as hedges:
|
|
Cross-currency swap contract
|
19,272
|
|
Total cash received from settlement of derivative transactions, investing activities
|
$
|
45,360
|
|
Interest Rate Risk Management
The Company uses interest rate swap agreements to manage its exposure to the changes in interest rates on the Company's variable rate debt. Interest payments accrued each reporting period for these interest rate swaps are recognized in interest expense.
The following table summarizes the terms of the Company's outstanding interest rate swap agreements entered into to manage the Company's exposure to changes in interest rates on its variable rate debt (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Effective Date
|
|
Expiration Date
|
|
Notional Amount
|
|
Pay Fixed Rate
|
|
Receive Variable Rate
|
12/1/2016
|
|
12/1/2021
|
|
A$
|
517,500
|
|
|
2.44%
|
|
AUD-BBR
|
8/31/2018
|
|
8/31/2021 - 8/31/2048
|
|
$
|
500,000
|
|
|
2.70% - 2.87%
|
|
1-month LIBOR
|
During the
three and six
months ended
June 30, 2019
,
$1.0 million
and
$1.5 million
, respectively, of net losses associated with the Company's interest rate swaps were realized and recorded as interest expense in the consolidated statements of operations. During the
three and six
months ended
June 30, 2018
,
$0.2 million
and
$0.7 million
, respectively, of net losses associated with the Company's interest rate swaps were realized and recorded as interest expense in the consolidated statements of operations. Based on the Company's fair value assumptions as of
June 30, 2019
, it expects to realize
$7.0 million
of net losses that are reported in accumulated other comprehensive loss (AOCL) into earnings within the next 12 months. See Note
11
,
Accumulated Other Comprehensive Loss
, for additional information regarding the Company's derivatives designated as hedges.
Foreign Currency Exchange Rate Risk
As of
June 30, 2019
, the Company's foreign subsidiaries had
$1.0 billion
of third-party debt, including finance leases, denominated in the local currencies in which the Company's foreign subsidiaries operate, including the Australian dollar, the British pound, the Canadian dollar and the Euro. The debt service obligations associated with this foreign currency debt are generally funded directly from those foreign operations. As a result, foreign currency risk related to this portion of the Company's debt service payments is limited. However, in the event the foreign currency debt service is not paid by the Company's foreign subsidiaries and is paid by its United States subsidiaries, the Company may face exchange rate risk if the Australian dollar, the British pound, the Canadian dollar or the Euro were to appreciate relative to the United States dollar and require higher United States dollar equivalent cash.
The Company is also exposed to foreign currency exchange rate risk, including non-functional currency intercompany debt, typically associated with acquisitions and any timing difference between announcement and closing of an acquisition of a foreign business. To mitigate currency exposures related to non-functional currency denominated intercompany debt, foreign currency forward contracts or cross-currency swaps may be entered into for periods consistent with the underlying debt. In cases where foreign currency forward contracts or cross-currency swaps do not qualify for hedge accounting, the gains or losses from changes in the fair value are recognized in current period earnings within other income/(loss), net.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
In 2015, the Company, in conjunction with the acquisition of Freightliner Group Limited (Freightliner) in the U.K., transferred cash from the United States to the U.K. through an intercompany loan with a notional amount of
£120.0 million
(or
$181.0 million
at the exchange rate on the effective date of the loan). To mitigate the foreign currency exchange rate risk related to the outstanding balance of this loan, the Company entered into British pound forward contracts, which were accounted for as cash flow hedges. During the
six
months ended
June 30, 2019
, the Company settled certain of its British pound forward contracts, which had notional amounts totaling
£120.0 million
with a settlement date of
March 31, 2020
and exchange rates ranging from
1.50
to
1.51
GBP to USD. Upon settlement, the Company received cash proceeds of
$26.1 million
.
As of
June 30, 2019
, the Company's outstanding British pound forward contracts had a notional amount of
£32.6 million
with a settlement date of
March 31, 2020
and exchange rates ranging from
1.28
to
1.57
GBP to USD. During the
three and six
months ended
June 30, 2019
,
$0.5 million
and
$0.7 million
, respectively, of net gains were recorded as interest income in the consolidated statements of operations. During the
three and six
months ended
June 30, 2018
,
$0.2 million
and
$0.3 million
, respectively, of net gains were recorded as interest expense in the consolidated statements of operations. Based on the Company's fair value assumptions as of
June 30, 2019
, it expects to realize
$0.3 million
of net gains that are reported in AOCL into earnings within the next 12 months. See Note
11
,
Accumulated Other Comprehensive Loss
, for additional information regarding the Company's derivatives designated as hedges.
In 2016, in conjunction with an acquisition in Australia, the Company's subsidiaries, G&W Australia Holdings LP (GWAHLP) and GWI Holding B.V. (GWBV), entered into an
A$248.9 million
non-recourse subordinated partner loan agreement (GRail Intercompany Loan), which is eliminated in consolidation. To mitigate the foreign currency exchange rate risk related to the non-functional currency intercompany loan, the Company entered into two Euro/Australian dollar floating-to-floating cross-currency swap agreements (the Swaps) on December 22, 2016. These agreements did not qualify as hedges for accounting purposes, and, accordingly, mark-to-market changes in the fair value of the Swaps relative to the underlying GRail Intercompany Loan were recorded over the life of the agreements, which expired on
June 30, 2019
. Upon settlement of the agreements, the Company received cash proceeds of
€17.0 million
(or
$19.3 million
at the exchange rate on June 30, 2019).
In June 2019, the Company entered into two new cross-currency swap agreements designated as fair value hedges of the non-functional currency GRail intercompany loan. In addition, the Company entered into a cross-currency swap in June 2019 that was designated as a net investment hedge of the GWBV investment. During the
three and six
months ended
June 30, 2019
, the Company recognized a gain of less than
$0.1 million
of foreign currency translation adjustment within OCI and a loss of less than
$0.1 million
within other income/(loss), net in the consolidated statement of operations related to amortization of excluded components of its net investment hedge. Based on the Company's assumptions as of
June 30, 2019
, its net investment hedge and fair value hedge, which each terminate on
June 30, 2021
, are expected to realize
$0.4 million
and
$0.2 million
, respectively, of net losses that are currently reported in AOCL into earnings within the next 12 months. See Note
11
,
Accumulated Other Comprehensive Loss
, for additional information regarding the Company's derivatives designated as hedges.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
7
. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following table presents the Company's financial instruments carried at fair value using Level 2 inputs as of
June 30, 2019
and
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
Financial instruments carried at fair value using Level 2 inputs:
|
|
|
|
Financial assets carried at fair value:
|
|
|
|
British pound forward contracts
|
$
|
3,055
|
|
|
$
|
26,011
|
|
Cross-currency swap contracts
|
—
|
|
|
19,684
|
|
Total financial assets carried at fair value
|
$
|
3,055
|
|
|
$
|
45,695
|
|
Financial liabilities carried at fair value:
|
|
|
|
Interest rate swap agreements
|
$
|
60,220
|
|
|
$
|
14,395
|
|
British pound forward contracts
|
14
|
|
|
59
|
|
Cross-currency swap contract - net investment hedge
|
807
|
|
|
—
|
|
Cross-currency swap contract - fair value hedge
|
2,387
|
|
|
—
|
|
Total financial liabilities carried at fair value
|
$
|
63,428
|
|
|
$
|
14,454
|
|
Financial Instruments Carried at Fair Value:
Derivative instruments are recorded on the consolidated balance sheets as either assets or liabilities measured at fair value. As more fully described in Note
6
,
Derivative Financial Instruments
, during the reporting period, the Company's derivative financial instruments consisted of interest rate swap agreements, foreign currency forward contracts and cross-currency swap agreements. The Company estimated the fair value of its derivative financial instruments based on Level 2 valuation inputs, including fixed interest rates, LIBOR, British pound LIBOR, BBR and EURIBOR implied forward interest rates and the remaining time to maturity.
The following table presents the carrying value, net of debt issuance costs and fair value using Level 2 inputs of the Company's financial instruments carried at historical cost as of
June 30, 2019
and
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
Financial liabilities carried at historical cost:
|
|
|
|
|
|
|
|
|
United States term loan
|
|
$
|
1,296,549
|
|
|
$
|
1,294,634
|
|
|
$
|
1,295,672
|
|
|
$
|
1,296,079
|
|
U.K. term loan
|
|
314,078
|
|
|
317,394
|
|
|
315,524
|
|
|
319,556
|
|
Australian credit agreement
|
|
441,768
|
|
|
447,511
|
|
|
450,252
|
|
|
457,978
|
|
Australia subordinated shareholder loan from Macquarie Infrastructure and Real Assets
|
|
166,962
|
|
|
164,153
|
|
|
167,796
|
|
|
166,974
|
|
Revolving credit facility
|
|
32,707
|
|
|
36,150
|
|
|
160,033
|
|
|
163,662
|
|
Other debt
|
|
2,438
|
|
|
2,424
|
|
|
2,356
|
|
|
2,352
|
|
Total
|
|
$
|
2,254,502
|
|
|
$
|
2,262,266
|
|
|
$
|
2,391,633
|
|
|
$
|
2,406,601
|
|
Financial Instruments Carried at Historical Cost:
Since the Company's long-term debt is not actively traded, fair value was estimated using a discounted cash flow analysis based on Level 2 valuation inputs, including borrowing rates the Company believes are currently available to it for loans with similar terms and maturities.
8
. U.K. PENSION PLAN:
Through its Freightliner subsidiary, the Company has a defined benefit pension plan for Freightliner's eligible U.K. employees through a standalone shared cost arrangement within the Railways Pension Scheme (Pension Program). The Pension Program is managed and administered by a professional pension administration company and is overseen by trustees with professional advice from independent actuaries and other advisers. The Pension Program is a shared cost arrangement with required contributions shared between Freightliner and its participating members, with Freightliner contributing
60%
and the remaining
40%
contributed by active employees. The Company engages independent actuaries to compute the amounts of liabilities and expenses relating to the Pension Program subject to the assumptions that the Company selects.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The following tables summarize the components of the Pension Program related to the net benefit costs recognized in labor and benefits and other income/(loss), net in the Company's consolidated statements of operations for the
three and six
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Operating expense:
|
|
|
|
|
|
|
|
|
Service cost
(a)
|
$
|
3,397
|
|
|
$
|
3,770
|
|
|
$
|
6,837
|
|
|
$
|
7,625
|
|
Nonoperating income, net:
|
|
|
|
|
|
|
|
|
Interest cost
|
2,336
|
|
|
2,488
|
|
|
4,702
|
|
|
5,033
|
|
|
Expected return on plan assets
|
(4,336
|
)
|
|
(4,775
|
)
|
|
(8,727
|
)
|
|
(9,659
|
)
|
|
Amortization of prior year service cost
|
44
|
|
|
—
|
|
|
88
|
|
|
—
|
|
|
Total nonoperating income, net
(b)
|
(1,956
|
)
|
|
(2,287
|
)
|
|
(3,937
|
)
|
|
(4,626
|
)
|
Net periodic benefit cost
|
$
|
1,441
|
|
|
$
|
1,483
|
|
|
$
|
2,900
|
|
|
$
|
2,999
|
|
(a) Included in labor and benefits within the Company’s consolidated statements of operations.
(b) Included in other income/(loss), net within the Company’s consolidated statements of operations.
During the
six
months ended
June 30, 2019
, the Company contributed
£3.1 million
(or
$4.1 million
at the exchange rate when the payments were made) to fund the Pension Program. The Company expects to contribute
£3.8 million
(or
$4.9 million
at the
June 30, 2019
exchange rate) to the Pension Program for the remainder of
2019
. The Pension Program's assets may undergo significant changes over time as a result of market conditions, and its assets and liabilities are formally valued on an independent actuarial basis every three years to assess the adequacy of funding levels. A key element of the valuation process is an assessment of the creditworthiness of the participating employer. In the event that the Pension Program's projected assets and liabilities reveal additional funding requirements, the shared cost arrangement generally means that the Company will be required to pay
60%
of any additional contributions, with active members contributing the remaining
40%
, in each case over an agreed recovery period. If the Pension Program was to be terminated and wound up, any deficit would fall entirely on the Company and could not be shared with active members. Currently, the Company has no intention of terminating the Pension Program.
9
. INCOME TAXES:
The Company's provision for income taxes for the
three
months ended
June 30, 2019
was
$18.9 million
, compared with
$26.4 million
for the
three
months ended
June 30, 2018
. The Company's provision for income taxes for the
six
months ended
June 30, 2019
was
$33.1 million
compared with
$10.6 million
for the
six
months ended
June 30, 2018
. Based on developments during the
three and six
months ended
June 30, 2018
, the Company recorded a reserve for uncertain tax positions of
$4.8 million
related to tax deductions on intercompany financing arrangements in the U.K., of which
$0.7 million
related to the three months ended June 30, 2018,
$0.4 million
related to the three months ended March 31, 2018 and
$3.7 million
related to the period from March 25, 2015, the date of the Freightliner acquisition when the arrangements were established, through December 31, 2017. The provision for income taxes for the
six
months ended
June 30, 2018
also included an income tax benefit of
$31.6 million
associated with the retroactive extension of the United States Short Line Tax Credit for fiscal year 2017, which was enacted in February 2018.
The Company's effective income tax rate for the
three and six
months ended
June 30, 2019
was
26.9%
. Excluding the prior period portion of the reserve for uncertain tax positions, the Company's effective income tax rate for the
three
months ended
June 30, 2018
was
29.8%
. Excluding the benefit from the retroactive extension and the prior period portion of the reserve for uncertain tax positions, the Company's effective income tax rate for the
six
months ended
June 30, 2018
was
28.5%
.
The United States Short Line Tax Credit is an income tax track maintenance credit for Class II and Class III railroads to reduce their federal income tax based on qualified railroad track maintenance expenditures. Qualified expenditures include amounts incurred for maintaining track, including roadbed, bridges and related track structures owned or leased by a Class II or Class III railroad. The credit is equal to
50%
of the qualified expenditures, subject to an annual limitation of
$3,500
multiplied by the number of miles of railroad track owned or leased by the Class II or Class III railroad as of the end of its tax year. The United States Short Line Tax Credit was initially enacted for a three-year period, 2005 through 2007, and was subsequently extended a series of times with the last extension enacted in February 2018. The February 2018 extension provided a retroactive credit, solely for fiscal year 2017. Legislation is currently pending that seeks to make the United States Short Line Tax Credit permanent for fiscal year 2018 and beyond.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
10
. COMMITMENTS AND CONTINGENCIES:
From time to time, the Company is a defendant in certain lawsuits and a party to certain arbitrations resulting from the Company's operations in the ordinary course as the nature of the Company's business exposes it to the potential for various claims and litigation, including those related to property damage, personal injury, freight loss, labor and employment, environmental and other matters. The Company maintains insurance policies to mitigate the financial risk associated with such claims. Management believes there are adequate provisions in the financial statements for any probable liabilities that may result from disposition of the pending lawsuits and arbitrations. However, any material changes to pending litigation or a catastrophic rail accident or series of accidents involving material freight loss or property damage, personal injuries or environmental liability or other claims or disputes that are not covered by insurance could have a material adverse effect on the Company's results of operations, financial condition and liquidity.
In November 2014, the Company received a notice from the United States Environmental Protection Agency (EPA) requesting information under the Clean Water Act related to the discharge of crude oil as a result of a derailment of an Alabama & Gulf Coast Railway LLC (AGR) freight train in November 2013 in the vicinity of Aliceville, Alabama. In May 2018, the EPA notified the AGR of a maximum civil payment of up to
$14.1 million
, based on the amount of oil allegedly discharged and other relevant factors considered under the applicable regulation. The Company's evaluation of its defenses, settlement options and insurance coverage is ongoing. Although the cleanup associated with this derailment is substantially complete, the civil penalty associated with the contamination is subject to further discussion and potential litigation.
11
. ACCUMULATED OTHER COMPREHENSIVE LOSS:
The following tables set forth the components of AOCL attributable to Genesee & Wyoming Inc. included in the consolidated balance sheets and consolidated statements of comprehensive income (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustment
|
|
Defined Benefit Plans
|
|
Net Unrealized Gain/(Loss) on Hedges
|
|
Accumulated Other Comprehensive Loss
|
Balance, December 31, 2018
|
$
|
(144,503
|
)
|
|
$
|
11,120
|
|
|
$
|
(13,073
|
)
|
|
$
|
(146,456
|
)
|
Other comprehensive income/(loss) before reclassifications
|
5,835
|
|
|
—
|
|
|
(31,995
|
)
|
|
(26,160
|
)
|
Amounts reclassified from accumulated other comprehensive loss, net of tax benefit of $82 and $233, respectively
|
—
|
|
|
(154
|
)
|
(a)
|
(1,027
|
)
|
(b)
|
(1,181
|
)
|
Current period change
|
5,835
|
|
|
(154
|
)
|
|
(33,022
|
)
|
|
(27,341
|
)
|
Balance, June 30, 2019
|
$
|
(138,668
|
)
|
|
$
|
10,966
|
|
|
$
|
(46,095
|
)
|
|
$
|
(173,797
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustment
|
|
Defined Benefit Plans
|
|
Net Unrealized Gain/(Loss) on Hedges
|
|
Accumulated Other Comprehensive Loss
|
Balance, December 31, 2017
|
$
|
(74,617
|
)
|
|
$
|
(19,601
|
)
|
|
$
|
(11,316
|
)
|
|
$
|
(105,534
|
)
|
Other comprehensive income before reclassifications
|
(36,698
|
)
|
|
—
|
|
|
9,736
|
|
|
(26,962
|
)
|
Amounts reclassified from accumulated other comprehensive loss, net of tax (provision)/benefit of ($28) and $115, respectively
|
—
|
|
|
86
|
|
(a)
|
(290
|
)
|
(b)
|
(204
|
)
|
Current period change
|
(36,698
|
)
|
|
86
|
|
|
9,446
|
|
|
(27,166
|
)
|
Amounts reclassified from accumulated other comprehensive loss to retained earnings related to the United States Tax Cuts and Jobs Act
|
—
|
|
|
(132
|
)
|
|
(2,838
|
)
|
|
(2,970
|
)
|
Balance, June 30, 2018
|
$
|
(111,315
|
)
|
|
$
|
(19,647
|
)
|
|
$
|
(4,708
|
)
|
|
$
|
(135,670
|
)
|
|
|
(a)
|
Net (losses)/gains realized were recorded in labor and benefits on the consolidated statements of operations.
|
|
|
(b)
|
For the six months ended
June 30, 2019
,
$0.5 million
and
$0.5 million
of net losses were recorded in interest expense and other income/(loss), net, respectively, within the consolidated statements of operations. For the six months ended
June 30, 2018
, net losses realized were recorded in interest expense on the consolidated statements of operations. See Note
6
,
Derivative Financial Instruments
.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Comprehensive Loss Attributable to Noncontrolling Interest
The following table sets forth comprehensive loss attributable to noncontrolling interest for the
three and six
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net (loss)/income attributable to noncontrolling interest
|
$
|
(68
|
)
|
|
$
|
4,443
|
|
|
$
|
32
|
|
|
$
|
5,370
|
|
Other comprehensive income/(loss):
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
(2,594
|
)
|
|
(8,825
|
)
|
|
(1,007
|
)
|
|
(12,843
|
)
|
Net unrealized (loss)/gain on qualifying cash flow hedges, net of tax benefit/(provision) of $303, ($67), $633 and ($67), respectively
|
(708
|
)
|
|
157
|
|
|
(1,477
|
)
|
|
157
|
|
Comprehensive loss attributable to noncontrolling interest
|
$
|
(3,370
|
)
|
|
$
|
(4,225
|
)
|
|
$
|
(2,452
|
)
|
|
$
|
(7,316
|
)
|
12
. SIGNIFICANT NON-CASH INVESTING AND FINANCING ACTIVITIES:
As of
June 30, 2019
and
2018
, the Company had outstanding accounts receivable from outside parties for the funding of capital expenditures of
$18.7 million
and
$10.9 million
, respectively. As of
June 30, 2019
and
2018
, the Company also had
$22.3 million
and
$9.2 million
, respectively, of purchases of property and equipment that were not paid and, accordingly, were accrued in accounts payable in the normal course of business. See Note
5
,
Leases
, for ROU assets obtained during the reporting period in exchange for lease liabilities.
13
. SEGMENT INFORMATION:
The Company presents the financial results of its
eight
operating regions as
three
reportable segments: North American Operations, Australian Operations and U.K./European Operations. During the
three
months ended March 31, 2019, the Company's Central Region railroads were consolidated into the Company's Midwest and Southern regions. The Company's remaining
six
North American regions are aggregated into one segment as a result of having similar economic and operating characteristics. Each of the Company's segments generates the following three categories of revenues from external customers: freight revenues, freight-related revenues and all other revenues.
The Company's Australian business underwent a transformational change on December 1, 2016, with the acquisition of
Glencore Rail (NSW) Pty Limited (GRail) and the formation of a partnership with Macquarie Infrastructure and Real Assets (MIRA) (the Australia Partnership), which the Company controls through its
51.1%
interest. The GRail acquisition significantly expanded the Company's operations in New South Wales. In conjunction with the GRail acquisition, the Company issued a
48.9%
equity stake in its Australian subsidiary, GWAHLP, to MIRA. The Company retained a
51.1%
controlling interest in GWAHLP and continues to consolidate 100% of its Australian Operations in the Company's financial statements and reports a noncontrolling interest for MIRA's
48.9%
equity ownership. As a result, (1) 100% of the assets and liabilities of the Company's Australian Operations, after the elimination of intercompany balances, were included in the Company's consolidated balance sheets as of
June 30, 2019
and
December 31, 2018
, with MIRA's
48.9%
noncontrolling interest reflected in the equity section, (2) the Company's operating revenues and operating income for the three months ended
June 30, 2019
and
2018
included 100% of the Australian Operations, while net income attributable to G&W reflected the Company's
51.1%
ownership position in the Australian Operations and (3) 100% of the cash flows of the Australian Operations, after the elimination of intercompany items, were included in the Company's consolidated statements of cash flows for the
six
months ended
June 30, 2019
and
2018
. Accordingly, any payments between the Company's Australian Operations and its other businesses are eliminated in consolidation, while the Company's cash flows reflect 100% of any cash flows between the Australian Operations and MIRA.
In accordance with the Company's Australian Partnership agreement with MIRA, the cash and cash equivalents of the Company's Australian Operations can be used to make payments in the ordinary course of business, to pay down debt of the Australia Partnership and to make distributions to the partners in proportion to their investments. No such distributions were made during the
six
months ended
June 30, 2019
. During the
six
months ended
June 30, 2018
, the Australia Partnership made an
A$40.0 million
distribution, of which
A$20.4 million
(or
$15.6 million
at the exchange rate on June 5, 2018) and
A$19.6 million
(or
$14.9 million
at the exchange rate on June 5, 2018) were distributed to the Company and MIRA, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The results of operations of the Company's foreign entities are maintained in the respective local currency (the Australian dollar, the British pound, the Canadian dollar and the Euro) and then translated into United States dollars at the exchange rate at the end of the period for balance sheet items and, for the statement of operations, at the average rate for the period. Currency translation adjustments are reflected within the equity section of the balance sheet and are included in OCI. Upon complete or substantially complete liquidation of the underlying investment in the foreign subsidiary, cumulative translation adjustments are recognized in the consolidated statements of operations. As a result, any appreciation or depreciation of these currencies against the United States dollar will impact the Company's results of operations.
The following table reflects the balance sheet exchange rates used to translate each foreign entity's respective local currency balance sheet into United States dollars as of
June 30, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
United States dollar per Australian dollar
|
|
|
|
|
$
|
0.70
|
|
|
$
|
0.70
|
|
United States dollar per British pound
|
|
|
|
|
$
|
1.27
|
|
|
$
|
1.28
|
|
United States dollar per Canadian dollar
|
|
|
|
|
$
|
0.76
|
|
|
$
|
0.73
|
|
United States dollar per Euro
|
|
|
|
|
$
|
1.14
|
|
|
$
|
1.15
|
|
The following table reflects the average exchange rates used to translate each foreign entity's respective local currency results of operations into United States dollars for the
three and six
months ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
United States dollar per Australian dollar
|
$
|
0.70
|
|
|
$
|
0.76
|
|
|
$
|
0.71
|
|
|
$
|
0.77
|
|
United States dollar per British pound
|
$
|
1.29
|
|
|
$
|
1.36
|
|
|
$
|
1.29
|
|
|
$
|
1.38
|
|
United States dollar per Canadian dollar
|
$
|
0.75
|
|
|
$
|
0.77
|
|
|
$
|
0.75
|
|
|
$
|
0.78
|
|
United States dollar per Euro
|
$
|
1.12
|
|
|
$
|
1.19
|
|
|
$
|
1.13
|
|
|
$
|
1.21
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The following tables set forth select financial data for the Company's reportable segments, including operating revenues by commodity group, for the
three and six
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
June 30, 2019
|
|
North American Operations
|
|
Australian Operations
|
|
U.K./European Operations
|
|
Total
Operations
|
Operating revenues:
|
|
|
|
|
|
|
|
Freight revenues by commodity group:
|
|
|
|
|
|
|
|
Agricultural Products
|
$
|
32,846
|
|
|
$
|
2,999
|
|
|
$
|
512
|
|
|
$
|
36,357
|
|
Autos & Auto Parts
|
6,084
|
|
|
—
|
|
|
—
|
|
|
6,084
|
|
Chemicals & Plastics
|
39,813
|
|
|
—
|
|
|
—
|
|
|
39,813
|
|
Coal & Coke
|
18,563
|
|
|
28,965
|
|
|
896
|
|
|
48,424
|
|
Food & Kindred Products
|
8,801
|
|
|
—
|
|
|
—
|
|
|
8,801
|
|
Intermodal
|
523
|
|
|
15,459
|
|
|
58,297
|
|
|
74,279
|
|
Lumber & Forest Products
|
23,519
|
|
|
—
|
|
|
—
|
|
|
23,519
|
|
Metallic Ores
|
2,865
|
|
|
7,523
|
|
|
—
|
|
|
10,388
|
|
Metals
|
29,055
|
|
|
—
|
|
|
—
|
|
|
29,055
|
|
Minerals & Stone
|
38,597
|
|
|
1,817
|
|
|
21,155
|
|
|
61,569
|
|
Petroleum Products
|
17,053
|
|
|
160
|
|
|
717
|
|
|
17,930
|
|
Pulp & Paper
|
28,013
|
|
|
—
|
|
|
—
|
|
|
28,013
|
|
Waste
|
7,964
|
|
|
—
|
|
|
—
|
|
|
7,964
|
|
Other
|
5,485
|
|
|
—
|
|
|
—
|
|
|
5,485
|
|
Total freight revenues
|
259,181
|
|
|
56,923
|
|
|
81,577
|
|
|
397,681
|
|
Freight-related revenues
|
66,135
|
|
|
8,036
|
|
|
68,225
|
|
|
142,396
|
|
All other revenues
|
16,531
|
|
|
1,572
|
|
|
13,300
|
|
|
31,403
|
|
Total operating revenues
|
$
|
341,847
|
|
|
$
|
66,531
|
|
|
$
|
163,102
|
|
|
$
|
571,480
|
|
Operating income/(loss)
|
$
|
84,261
|
|
|
$
|
11,655
|
|
|
$
|
(1,716
|
)
|
|
$
|
94,200
|
|
Depreciation and amortization
|
$
|
38,738
|
|
|
$
|
14,192
|
|
|
$
|
9,587
|
|
|
$
|
62,517
|
|
Interest expense, net
|
$
|
11,872
|
|
|
$
|
11,800
|
|
|
$
|
2,903
|
|
|
$
|
26,575
|
|
Provision for/(benefit from) income taxes
|
$
|
18,140
|
|
|
$
|
(44
|
)
|
|
$
|
770
|
|
|
$
|
18,866
|
|
Cash expenditures for additions to property & equipment, net of grants from outside parties
|
$
|
52,649
|
|
|
$
|
9,103
|
|
|
$
|
6,814
|
|
|
$
|
68,566
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
June 30, 2018
|
|
North American Operations
|
|
Australian Operations
|
|
U.K./European Operations
|
|
Total
Operations
|
Operating revenues:
|
|
|
|
|
|
|
|
Freight revenues by commodity group:
|
|
|
|
|
|
|
|
Agricultural Products
|
$
|
29,693
|
|
|
$
|
6,006
|
|
|
$
|
785
|
|
|
$
|
36,484
|
|
Autos & Auto Parts
|
5,806
|
|
|
—
|
|
|
—
|
|
|
5,806
|
|
Chemicals & Plastics
|
38,972
|
|
|
—
|
|
|
—
|
|
|
38,972
|
|
Coal & Coke
|
19,087
|
|
|
32,570
|
|
|
2,687
|
|
|
54,344
|
|
Food & Kindred Products
|
8,476
|
|
|
—
|
|
|
—
|
|
|
8,476
|
|
Intermodal
|
380
|
|
|
17,102
|
|
|
66,483
|
|
|
83,965
|
|
Lumber & Forest Products
|
23,810
|
|
|
—
|
|
|
—
|
|
|
23,810
|
|
Metallic Ores
|
3,670
|
|
|
8,125
|
|
|
—
|
|
|
11,795
|
|
Metals
|
32,493
|
|
|
—
|
|
|
—
|
|
|
32,493
|
|
Minerals & Stone
|
38,034
|
|
|
2,087
|
|
|
22,326
|
|
|
62,447
|
|
Petroleum Products
|
16,151
|
|
|
185
|
|
|
8
|
|
|
16,344
|
|
Pulp & Paper
|
29,514
|
|
|
—
|
|
|
—
|
|
|
29,514
|
|
Waste
|
7,339
|
|
|
—
|
|
|
—
|
|
|
7,339
|
|
Other
|
6,443
|
|
|
—
|
|
|
—
|
|
|
6,443
|
|
Total freight revenues
|
259,868
|
|
|
66,075
|
|
|
92,289
|
|
|
418,232
|
|
Freight-related revenues
|
63,467
|
|
|
11,515
|
|
|
67,420
|
|
|
142,402
|
|
All other revenues
|
16,222
|
|
|
1,439
|
|
|
16,695
|
|
|
34,356
|
|
Total operating revenues
|
$
|
339,557
|
|
|
$
|
79,029
|
|
|
$
|
176,404
|
|
|
$
|
594,990
|
|
Operating income/(loss)
|
$
|
80,274
|
|
|
$
|
25,896
|
|
|
$
|
(3,045
|
)
|
|
$
|
103,125
|
|
Depreciation and amortization
|
$
|
41,247
|
|
|
$
|
15,288
|
|
|
$
|
9,210
|
|
|
$
|
65,745
|
|
Interest expense, net
|
$
|
11,778
|
|
|
$
|
12,893
|
|
|
$
|
3,685
|
|
|
$
|
28,356
|
|
Provision for income taxes
|
$
|
20,091
|
|
|
$
|
3,901
|
|
|
$
|
2,454
|
|
|
$
|
26,446
|
|
Cash expenditures for additions to property & equipment, net of grants from outside parties
|
$
|
48,924
|
|
|
$
|
14,489
|
|
|
$
|
4,726
|
|
|
$
|
68,139
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
June 30, 2019
|
|
North American Operations
|
|
Australian Operations
|
|
U.K./European Operations
|
|
Total
Operations
|
Operating revenues:
|
|
|
|
|
|
|
|
Freight revenues by commodity group:
|
|
|
|
|
|
|
|
Agricultural Products
|
$
|
64,809
|
|
|
$
|
6,053
|
|
|
$
|
1,248
|
|
|
$
|
72,110
|
|
Autos & Auto Parts
|
11,566
|
|
|
—
|
|
|
—
|
|
|
11,566
|
|
Chemicals & Plastics
|
76,986
|
|
|
—
|
|
|
—
|
|
|
76,986
|
|
Coal & Coke
|
37,753
|
|
|
58,136
|
|
|
5,589
|
|
|
101,478
|
|
Food & Kindred Products
|
17,204
|
|
|
—
|
|
|
—
|
|
|
17,204
|
|
Intermodal
|
978
|
|
|
29,259
|
|
|
117,502
|
|
|
147,739
|
|
Lumber & Forest Products
|
45,376
|
|
|
—
|
|
|
—
|
|
|
45,376
|
|
Metallic Ores
|
5,658
|
|
|
15,141
|
|
|
—
|
|
|
20,799
|
|
Metals
|
58,917
|
|
|
—
|
|
|
—
|
|
|
58,917
|
|
Minerals & Stone
|
70,407
|
|
|
3,855
|
|
|
37,037
|
|
|
111,299
|
|
Petroleum Products
|
37,752
|
|
|
298
|
|
|
1,408
|
|
|
39,458
|
|
Pulp & Paper
|
58,292
|
|
|
—
|
|
|
—
|
|
|
58,292
|
|
Waste
|
14,826
|
|
|
—
|
|
|
—
|
|
|
14,826
|
|
Other
|
10,420
|
|
|
—
|
|
|
—
|
|
|
10,420
|
|
Total freight revenues
|
510,944
|
|
|
112,742
|
|
|
162,784
|
|
|
786,470
|
|
Freight-related revenues
|
130,611
|
|
|
15,891
|
|
|
132,156
|
|
|
278,658
|
|
All other revenues
|
32,738
|
|
|
3,005
|
|
|
28,698
|
|
|
64,441
|
|
Total operating revenues
|
$
|
674,293
|
|
|
$
|
131,638
|
|
|
$
|
323,638
|
|
|
$
|
1,129,569
|
|
Operating income/(loss)
|
$
|
153,576
|
|
|
$
|
24,158
|
|
|
$
|
(3,824
|
)
|
|
$
|
173,910
|
|
Depreciation and amortization
|
$
|
77,169
|
|
|
$
|
28,603
|
|
|
$
|
19,371
|
|
|
$
|
125,143
|
|
Interest expense, net
|
$
|
24,273
|
|
|
$
|
23,923
|
|
|
$
|
5,442
|
|
|
$
|
53,638
|
|
Provision for income taxes
|
$
|
32,227
|
|
|
$
|
70
|
|
|
$
|
829
|
|
|
$
|
33,126
|
|
Cash expenditures for additions to property & equipment, net of grants from outside parties
|
$
|
100,720
|
|
|
$
|
11,952
|
|
|
$
|
17,187
|
|
|
$
|
129,859
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
June 30, 2018
|
|
North American Operations
|
|
Australian Operations
|
|
U.K./European Operations
|
|
Total
Operations
|
Operating revenues:
|
|
|
|
|
|
|
|
Freight revenues by commodity group:
|
|
|
|
|
|
|
|
Agricultural Products
|
$
|
61,065
|
|
|
$
|
11,489
|
|
|
$
|
2,020
|
|
|
$
|
74,574
|
|
Autos & Auto Parts
|
11,173
|
|
|
—
|
|
|
—
|
|
|
11,173
|
|
Chemicals & Plastics
|
75,189
|
|
|
—
|
|
|
—
|
|
|
75,189
|
|
Coal & Coke
|
39,032
|
|
|
64,149
|
|
|
6,163
|
|
|
109,344
|
|
Food & Kindred Products
|
16,826
|
|
|
—
|
|
|
—
|
|
|
16,826
|
|
Intermodal
|
689
|
|
|
33,075
|
|
|
133,804
|
|
|
167,568
|
|
Lumber & Forest Products
|
46,249
|
|
|
—
|
|
|
—
|
|
|
46,249
|
|
Metallic Ores
|
7,243
|
|
|
15,856
|
|
|
—
|
|
|
23,099
|
|
Metals
|
60,887
|
|
|
—
|
|
|
—
|
|
|
60,887
|
|
Minerals & Stone
|
68,552
|
|
|
4,181
|
|
|
41,505
|
|
|
114,238
|
|
Petroleum Products
|
34,634
|
|
|
336
|
|
|
8
|
|
|
34,978
|
|
Pulp & Paper
|
58,385
|
|
|
—
|
|
|
—
|
|
|
58,385
|
|
Waste
|
13,227
|
|
|
—
|
|
|
—
|
|
|
13,227
|
|
Other
|
12,134
|
|
|
—
|
|
|
—
|
|
|
12,134
|
|
Total freight revenues
|
505,285
|
|
|
129,086
|
|
|
183,500
|
|
|
817,871
|
|
Freight-related revenues
|
127,299
|
|
|
22,078
|
|
|
134,222
|
|
|
283,599
|
|
All other revenues
|
32,603
|
|
|
2,699
|
|
|
32,879
|
|
|
68,181
|
|
Total operating revenues
|
$
|
665,187
|
|
|
$
|
153,863
|
|
|
$
|
350,601
|
|
|
$
|
1,169,651
|
|
Operating income/(loss)
|
$
|
153,434
|
|
|
$
|
41,872
|
|
|
$
|
(5,268
|
)
|
|
$
|
190,038
|
|
Depreciation and amortization
|
$
|
81,878
|
|
|
$
|
31,295
|
|
|
$
|
18,562
|
|
|
$
|
131,735
|
|
Interest expense, net
|
$
|
20,233
|
|
|
$
|
26,134
|
|
|
$
|
6,727
|
|
|
$
|
53,094
|
|
Provision for income taxes
|
$
|
606
|
|
|
$
|
4,722
|
|
|
$
|
5,228
|
|
|
$
|
10,556
|
|
Cash expenditures for additions to property & equipment, net of grants from outside parties
|
$
|
87,487
|
|
|
$
|
19,751
|
|
|
$
|
13,189
|
|
|
$
|
120,427
|
|
The following tables set forth select balance sheet data for the Company's reportable segments as of
June 30, 2019
and
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
North American Operations
|
|
Australian Operations
|
|
U.K./European Operations
|
|
Total
Operations
|
Cash and cash equivalents
|
$
|
23,624
|
|
|
$
|
41,325
|
|
|
$
|
17,434
|
|
|
$
|
82,383
|
|
Property and equipment, net
|
$
|
3,727,668
|
|
|
$
|
601,130
|
|
|
$
|
340,906
|
|
|
$
|
4,669,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
North American Operations
|
|
Australian Operations
|
|
U.K./European Operations
|
|
Total
Operations
|
Cash and cash equivalents
|
$
|
33,996
|
|
|
$
|
26,902
|
|
|
$
|
29,489
|
|
|
$
|
90,387
|
|
Property and equipment, net
|
$
|
3,679,279
|
|
|
$
|
609,450
|
|
|
$
|
324,285
|
|
|
$
|
4,613,014
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
14
. RECENTLY ISSUED ACCOUNTING STANDARDS:
Accounting Standards Not Yet Effective
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13,
Measurement of Credit Losses on Financial Instruments
, which requires assessment of credit losses on an expected model rather than an incurred loss model. The guidance requires the consideration of all available relevant information when estimating expected credit losses, including past events, current conditions and forecasts. The amendment will become effective for the Company beginning January 1, 2020. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04,
Intangibles–Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment,
which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The amendments will become effective for the Company beginning January 1, 2020. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework–Changes to the Disclosure for Fair Value Measurement
. The amendments modify the disclosure requirements for fair value measurements in FASB Accounting Standards Codification (ASC) 820 based on revisions to the FASB Concepts Statement, Conceptual Framework for Financial Reporting (Concepts Statement), and cost/benefit considerations. The amendments will become effective for the Company beginning January 1, 2020. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on its disclosure requirements.
In August 2018, the FASB issued ASU 2018-14,
Compensation–Retirement Benefits–Defined Benefit Plans–General (Subtopic 715-20): Changes to the Disclosure Requirements for Defined Benefit Plans.
The amendments modify the disclosure requirements for employers that sponsor defined benefit pension plans or other postretirement benefit plans to make disclosure requirements more consistent with the revisions to the Concepts Statement. The amendments will become effective for the Company beginning January 1, 2021. Early adoption is permitted on a retrospective basis to all periods presented. The Company is still evaluating the potential impact of this guidance on its disclosure requirements.
15
. SUBSEQUENT EVENTS:
Proposed Merger
On July 1, 2019, the Company, together with Brookfield Infrastructure, GIC and Brookfield Infrastructure's institutional partners, announced an agreement pursuant to which affiliates of Brookfield Infrastructure and GIC will acquire G&W for a transaction price of
$112.00
per share of common stock valued at approximately
$8.4 billion
including debt (the Merger). The proposed Merger is expected to close by year end 2019 or early 2020 and is subject to customary closing conditions and regulatory approvals, including approval by the Company's stockholders, described in more detail below.
The Merger will be effected pursuant to the Agreement and Plan of Merger (the Merger Agreement), by and among the Company, DJP XX, LLC, a Delaware limited liability company (Parent), and MKM XXII Corp., a Delaware corporation and a wholly owned subsidiary of Parent (Merger Sub), Merger Sub will be merged with and into G&W with G&W surviving the Merger as a wholly-owned subsidiary of Parent. The proposed Merger will result in G&W becoming a privately held company.
Completion of the proposed Merger is subject to various closing conditions, including, among others, (i) the adoption of the Merger Agreement by holders of 66 2/3% of the voting power of the outstanding shares of G&W’s common stock, (ii) the absence of any law, injunction or other order that prohibits the consummation of the Merger, (iii) the approval or authorization of, or exemption by, the Surface Transportation Board (or approval of the use of a voting trust structure), (iv) receipt of other antitrust and regulatory approvals, including approval of the Committee on Foreign Investment in the United States, and (v) other customary closing conditions, including the accuracy of each party’s representations and warranties and each party’s compliance with its covenants and agreements contained in the Merger Agreement (subject in the case of this clause (v) to certain materiality qualifiers).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Divestiture of 51.1% Interest in G&W Australia Holdings LP(GWAHLP)
Under the Merger Agreement (as described in more detail above), the Company agreed to use reasonable best efforts to assist and cooperate with Parent in Parent’s efforts to consummate any planned divestiture by Parent of G&W's interests in GWAHLP, the holding company for all of the Company's Australian businesses, to a third party (the GWA Divestiture), provided that (1) such cooperation would not unreasonably interfere with the Company's business or operations and (2) the Company would not be required to take any action that would subject it to actual or potential liability, to bear any cost or expense or to pay any fee or make any other payment or agree to provide any indemnity in connection with the GWA Divestiture prior to the effective time of the Merger. Following the execution of the Merger Agreement, Parent requested that G&W cause certain of its subsidiaries to enter into a Definitive Interest Sale Agreement for the GWA Divestiture (the GWA Divestiture Agreement), and, on August 4, 2019, G&W's board of directors and the governing bodies of such subsidiaries approved the GWA Divestiture Agreement and such subsidiaries entered into the GWA Divestiture Agreement.
Under the GWA Divestiture Agreement, certain entities affiliated with MIRA that currently own
48.9%
of GWAHLP will acquire, directly or indirectly, the remaining interests in GWAHLP from certain subsidiaries of G&W in exchange for
A$627.4 million
, subject to adjustment. The GWA Divestiture is subject to customary closing conditions, including the satisfaction of the closing conditions set forth in the Merger Agreement. Neither the Company nor any of its subsidiaries will have any liability under the GWA Divestiture Agreement prior to the consummation of the Merger. The GWA Divestiture Agreement may be terminated under certain circumstances, including by any party thereto if the transactions contemplated by the GWA Divestiture Agreement have not been consummated on or before July 1, 2020.
The consideration to be received by the subsidiaries of the Company that are parties to the GWA Divestiture Agreement will not be distributed to any of the Company’s stockholders prior to consummation of the Merger, and the sole consideration that the Company's stockholders will receive in the Merger is
$112.00
in cash per share of G&W common stock on the terms and conditions set forth in the Merger Agreement.
The consummation of the GWA Divestiture is not a condition to the closing of the Merger or any of Parent’s other obligations under the Merger Agreement.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with our consolidated financial statements and related notes set forth in this Quarterly Report on Form 10-Q and our
2018
Annual Report on Form 10-K. Our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP).
When comparing our results of operations from one reporting period to another, it is important to consider that we have historically experienced fluctuations in revenues and expenses due to acquisitions and divestitures, changing economic conditions, commodity prices, competitive forces, changes in foreign currency exchange rates, rail network issues and congestion, the ability to attract and retain skilled workers, one-time freight moves, fuel price fluctuations, customer plant expansions and shutdowns, sales of property and equipment, derailments and weather-related conditions, such as hurricanes, cyclones, tornadoes, high winds, droughts, heavy snowfall, unseasonably hot or cold weather, freezing and flooding, among other factors. In periods when these events occur, our results of operations are not easily comparable from one period to another. Finally, certain of our railroads have commodity shipments that are sensitive to general economic conditions, global commodity prices and foreign exchange rates, such as steel products, iron ore, paper products, lumber and forest products and agricultural products, as well as product specific market conditions, such as the availability of lower priced alternative sources of power generation (coal) and energy commodity price differentials (crude oil and natural gas liquids) or congestion at ports (intermodal). Other shipments are relatively less affected by economic conditions and are more closely affected by other factors, such as winter weather (salt) and seasonal rainfall (agricultural products). As a result of these and other factors, our results of operations in any reporting period may not be directly comparable to our results of operations in other reporting periods.
When we discuss foreign exchange impact, we are referring to the change in our results due to the change in foreign currency exchange rates. We calculate foreign exchange impact by comparing the prior period results translated from local currency to United States dollars using current period exchange rates to the prior period results in United States dollars as reported. Constant currency, which is a non-GAAP measure, reflects the prior period results translated at the current period exchange rates. When we discuss results from existing operations or same railroad operations, we are referring to the change in our results, period-over-period, associated with operations that we managed in both periods (
i.e
., excluding the impact of acquisitions and divestitures).
Overview
We own or lease
120
freight railroads worldwide that are organized in
eight
operating regions with approximately
8,000
employees and
3,000
customers. The financial results of our
eight
operating regions are reported in the following
three
distinct segments:
|
|
•
|
Our North American Operations segment includes
six
regions (Coastal, Midwest, Northeast, Southern, Western and Canada) that serve
41
U.S. states and
four
Canadian provinces and include
114
short line and regional freight railroads with more than
13,000
track-miles.
|
|
|
•
|
Our Australian Operations segment serves New South Wales, the Northern Territory and South Australia and operates the
1,400
-mile Tarcoola-to-Darwin rail line. Since December 1, 2016, the Australia Region has been
51.1%
owned by us and
48.9%
owned by a consortium of funds and clients managed by Macquarie Infrastructure and Real Assets (MIRA).
|
|
|
•
|
Our U.K./European Operations segment is led by Freightliner Group Limited (Freightliner), the United Kingdom's (U.K.) largest rail maritime intermodal operator and second-largest freight rail provider, as well as regional rail services in Continental Europe.
|
Our subsidiaries and joint ventures also provide rail service at more than
40
major ports, rail-ferry service between the U.S. Southeast and Mexico, transload services, contract coal loading, and industrial railcar switching and repair. As more fully described in Note
13
,
Segment Information
, to our Consolidated Financial Statements set forth in "Part I Item 1. Financial Statements" of this quarterly report, the results of operations of the foreign entities are maintained in the respective local currency and then translated into United States dollars at the applicable exchange rates for inclusion in the consolidated financial statements. As a result, any appreciation or depreciation of these currencies against the United States dollar will impact our results of operations.
Subsequent Events
Proposed Merger
On July 1, 2019, G&W, together with Brookfield Infrastructure, GIC and Brookfield Infrastructure's institutional partners, announced an agreement pursuant to which affiliates of Brookfield Infrastructure and GIC will acquire G&W for a transaction price of
$112
per share of common stock valued at approximately
$8.4 billion
including debt (the Merger). The proposed Merger is expected to close by year-end 2019 or early 2020 and is subject to customary closing conditions and regulatory approvals, including approval by our stockholders, described in more detail below.
The Merger will be effected pursuant to the Agreement and Plan of Merger (the Merger Agreement), by and among the Company, DJP XX, LLC, a Delaware limited liability company (Parent), and MKM XXII Corp., a Delaware corporation and a wholly owned subsidiary of Parent (Merger Sub), Merger Sub will be merged with and into G&W with G&W surviving the Merger as a wholly-owned subsidiary of Parent. The proposed Merger will result in G&W becoming a privately held company.
Completion of the proposed Merger is subject to various closing conditions, including, among others, (i) the adoption of the Merger Agreement by holders of 66 2/3% of the voting power of the outstanding shares of G&W’s common stock, (ii) the absence of any law, injunction or other order that prohibits the consummation of the Merger, (iii) the approval or authorization of, or exemption by, the Surface Transportation Board (or approval of the use of a voting trust structure), (iv) receipt of other antitrust and regulatory approvals, including approval of the Committee on Foreign Investment in the United States, and (v) other customary closing conditions, including the accuracy of each party’s representations and warranties and each party’s compliance with its covenants and agreements contained in the Merger Agreement (subject in the case of this clause (v) to certain materiality qualifiers).
Divestiture of 51.1% Interest in G&W Australia Holdings LP(GWAHLP)
Under the Merger Agreement (as described in more detail above), we agreed to use reasonable best efforts to assist and cooperate with Parent in Parent’s efforts to consummate any planned divestiture by Parent of our interests in GWAHLP, the holding company for all of our Australian businesses, to a third party (the GWA Divestiture), provided that (1) such cooperation would not unreasonably interfere with our business or operations and (2) we would not be required to take any action that would subject us to actual or potential liability, to bear any cost or expense or to pay any fee or make any other payment or agree to provide any indemnity in connection with the GWA Divestiture prior to the effective time of the Merger. Following the execution of the Merger Agreement, Parent requested that we cause certain of our subsidiaries to enter into a Definitive Interest Sale Agreement for the GWA Divestiture (the GWA Divestiture Agreement), and, on August 4, 2019, our board of directors and the governing bodies of such subsidiaries approved the GWA Divestiture Agreement and such subsidiaries entered into the GWA Divestiture Agreement.
Under the GWA Divestiture Agreement, certain entities affiliated with MIRA that currently own 48.9% of GWAHLP will acquire, directly or indirectly, the remaining interests in GWAHLP from certain subsidiaries of G&W in exchange for
A$627.4 million
, subject to adjustment. The GWA Divestiture is subject to customary closing conditions, including the satisfaction of the closing conditions set forth in the Merger Agreement. Neither G&W nor any of its subsidiaries will have any liability under the GWA Divestiture Agreement prior to the consummation of the Merger. The GWA Divestiture Agreement may be terminated under certain circumstances, including by any party thereto if the transactions contemplated by the GWA Divestiture Agreement have not been consummated on or before July 1, 2020.
The consideration to be received by our subsidiaries that are parties to the GWA Divestiture Agreement will not be distributed to any of our stockholders prior to consummation of the Merger, and the sole consideration that our stockholders will receive in the Merger is
$112.00
in cash per share of G&W common stock on the terms and conditions set forth in the Merger Agreement.
The consummation of the GWA Divestiture is not a condition to the closing of the Merger or any of Parent's other obligations under the Merger Agreement.
Overview of Three-Month Results
Consolidated Results
Our operating revenues
decreased
$23.5 million
, or
4.0%
, to
$571.5 million
for the
three
months ended
June 30, 2019
, compared with
$595.0 million
for the
three
months ended
June 30, 2018
. Operating income for the
three
months ended
June 30, 2019
was
$94.2 million
, compared with
$103.1 million
for the
three
months ended
June 30, 2018
, a
decrease
of
$8.9 million
, or
8.7%
. Our operating ratio, defined as operating expenses divided by operating revenues, was
83.5%
for the
three
months ended
June 30, 2019
, compared with
82.7%
for the
three
months ended
June 30, 2018
.
Net income attributable to G&W for the
three
months ended
June 30, 2019
was
$51.4 million
, compared with
$44.2 million
for the
three
months ended
June 30, 2018
. Our diluted earnings per common share (EPS) for the
three
months ended
June 30, 2019
were
$0.90
with
57.3 million
weighted average shares outstanding, compared with diluted EPS of
$0.73
with
60.9 million
weighted average shares outstanding for the
three
months ended
June 30, 2018
.
Our provision for income taxes for the
three
months ended
June 30, 2019
was
$18.9 million
compared with
$26.4 million
for the
three
months ended
June 30, 2018
. Our effective income tax rate for the
three
months ended
June 30, 2019
was
26.9%
. Based on developments during the three months ended June 30, 2018, we recorded a reserve for uncertain tax positions of
$4.8 million
related to tax deductions on intercompany financing arrangements in the U.K., of which
$0.7 million
related to the three months ended June 30, 2018,
$0.4 million
related to the three months ended March 31, 2018 and
$3.7 million
related to the period from March 25, 2015, the date of the Freightliner acquisition when the arrangements were established, through December 31, 2017. The reserve for uncertain tax positions was included in our provision for income taxes for the
three
months ended
June 30, 2018
. Excluding the prior period portion of the reserve for uncertain tax positions, our effective income tax rate for the
three
months ended
June 30, 2018
was
29.8%
.
Items Affecting Comparability
Our results for the
three
months ended
June 30, 2019
and
2018
included certain items affecting comparability between the periods that are set forth below (dollars in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) Before Taxes Impact
|
|
After-Tax Net Income/(Loss) Attributable to G&W Impact
|
|
Diluted Earnings/(Loss) Per Common Share Impact
|
Three Months Ended June 30, 2019
|
|
|
|
|
|
|
Corporate development and related costs
|
|
$
|
(2.4
|
)
|
|
$
|
(1.7
|
)
|
|
$
|
(0.03
|
)
|
Restructuring and related costs
|
|
$
|
(7.6
|
)
|
|
$
|
(6.0
|
)
|
|
$
|
(0.10
|
)
|
Net loss on sale and impairment of certain assets in North America
|
|
$
|
(1.0
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
(0.01
|
)
|
Australia enterprise bargaining agreement amendment
|
|
$
|
(2.6
|
)
|
|
$
|
(0.9
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
|
|
|
|
|
Corporate development and related costs
|
|
$
|
(0.4
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
—
|
|
Restructuring and related costs
|
|
$
|
(9.4
|
)
|
|
$
|
(7.6
|
)
|
|
$
|
(0.12
|
)
|
Loss on sale of ERS
|
|
$
|
(1.4
|
)
|
|
$
|
(1.4
|
)
|
|
$
|
(0.02
|
)
|
Gain on settlement
|
|
$
|
6.3
|
|
|
$
|
2.3
|
|
|
$
|
0.04
|
|
Credit facility refinancing-related costs
|
|
$
|
(2.7
|
)
|
|
$
|
(2.0
|
)
|
|
$
|
(0.03
|
)
|
Prior period portion of tax adjustment
|
|
$
|
—
|
|
|
$
|
(4.1
|
)
|
|
$
|
(0.07
|
)
|
For the
three
months ended
June 30, 2019
, our results included restructuring and related costs of
$7.6 million
, primarily associated with our optimization activities in the U.K.,
$2.6 million
of expense associated with amending an enterprise bargaining agreement in Australia, corporate development and related costs of
$2.4 million
and a
$1.0 million
net loss on the sale and impairment of assets in North America resulting from the impairment of assets associated with the expiration of a lease of a rail line in the southeastern United States, partially offset by a gain on the sale of land in the northeastern United States.
For the
three
months ended
June 30, 2018
, our results included restructuring and related costs of
$9.4 million
, primarily associated with our optimization activities in the U.K., credit facility refinancing-related costs of
$2.7 million
, a
$1.4 million
loss on the sale of our Continental Europe intermodal business, ERS Railways B.V. (ERS), and a gain on settlement of
$6.3 million
from the recovery of pre-petition claims associated with Arrium Limited's voluntary administration (bankruptcy) in the second quarter of 2016. The
three
months ended
June 30, 2018
also included a
$4.1 million
income tax expense associated with uncertain tax deductions on intercompany financing arrangements in the U.K. previously recorded from March 25, 2015, the date of the Freightliner acquisition when the arrangements were established, through March 31, 2018.
Results by Segment
North America
Operating revenues from our North American Operations
increased
$2.3 million
, or
0.7%
, to
$341.8 million
for the
three
months ended
June 30, 2019
, compared with
$339.6 million
for the
three
months ended
June 30, 2018
. Excluding
$5.6 million
of revenues in 2018 from two leased railroads in Canada that we ceased operating at the end of 2018, and a
$0.8 million
decrease
due to the impact of foreign currency depreciation, North American existing operations revenues
increased
$8.7 million
, or
2.6%
, primarily due to increases in freight and freight-related revenues.
Total traffic from our North American Operations
decreased
23,458
carloads, or
5.5%
, to
406,895
carloads for the
three
months ended
June 30, 2019
, compared with the
three
months ended
June 30, 2018
. Excluding traffic from the two railroad leases in Canada that expired at the end of 2018, existing operations traffic
decreased
14,779
carloads, or
3.5%
. The decrease in traffic from existing operations included decreases of 11,206
carloads of coal and coke traffic, 4,221 carloads of metals traffic, 3,734 carloads of pulp and paper traffic, 2,307 carloads of lumber and forest products traffic and 1,683 carloads of other commodity traffic, partially offset by increases of 5,418 carloads of agricultural products traffic and 1,015 carloads of chemicals and plastics traffic. All remaining traffic increased by a net 1,939 carloads.
Operating income from our North American Operations was
$84.3 million
for the
three
months ended
June 30, 2019
, compared with
$80.3 million
for the
three
months ended
June 30, 2018
. Operating income for the
three
months ended
June 30, 2019
included corporate development and related costs of
$2.3 million
, a
$1.0 million
net loss on the sale and impairment of certain assets in the United States and restructuring and related costs of
$0.6 million
. Operating income for the
three
months ended
June 30, 2018
included credit facility refinancing-related costs of
$0.4 million
and corporate development and related costs of
$0.3 million
. The operating ratio was
75.4%
for the
three
months ended
June 30, 2019
, compared with
76.4%
for the
three
months ended
June 30, 2018
.
Australia
Operating revenues from our Australian Operations
decreased
$12.5 million
, or
15.8%
, to
$66.5 million
for the
three
months ended
June 30, 2019
, compared with
$79.0 million
for the
three
months ended
June 30, 2018
. Excluding a
$5.9 million
decrease
due to the impact of foreign currency
depreciation
, Australian Operations operating revenues
decreased
$6.6 million
, or
9.0%
, primarily due to decreases in drought impacted agricultural products freight and freight-related revenues.
Total traffic from our Australian Operations
decreased
13,570
carloads, or
9.2%
, to
134,395
carloads for the
three
months ended
June 30, 2019
, compared with the
three
months ended
June 30, 2018
.
The traffic
decrease
was primarily
due to decreases of 9,951 carloads of agricultural products traffic and 2,100 carloads of minerals and stone traffic. All remaining traffic decreased by a net 1,519 carloads.
Operating income from our Australian Operations was
$11.7 million
for the
three
months ended
June 30, 2019
, compared with
$25.9 million
for
the
three
months ended
June 30, 2018
. The
operating income for the
three
months ended
June 30, 2019
was negatively impacted by
$1.9 million
from foreign currency depreciation, a
$2.6 million
decrease in grain volumes due to drought conditions in South Australia and New South Wales as well
as
$2.6 million
of expense associated with amending an enterprise bargaining agreement
. The operating income for the
three
months ended
June 30, 2018
included a gain on settlement of
$6.3 million
from the recovery of pre-petition claims associated with Arrium Limited's voluntary administration (bankruptcy) in the second quarter of 2016. The operating ratio for our Australian Operations was
82.5%
for the
three
months ended
June 30, 2019
, compared with an operating ratio of
67.2%
for the
three
months ended
June 30, 2018
.
U.K./Europe
Operating revenues from our U.K./European Operations
decreased
$13.3 million
, or
7.5%
, to
$163.1 million
for the
three
months ended
June 30, 2019
, compared with
$176.4 million
for the
three
months ended
June 30, 2018
. Excluding
$8.7 million
of revenues for 2018 from our
Continental Europe intermodal business, ERS Railways B.V. (ERS), which was sold in June 2018,
and a
$10.0 million
decrease
due to the impact of foreign currency
depreciation
, U.K./European existing operations revenues increased
$5.4 million
, or
3.4%
, primarily due to increases in freight-related revenues in the U.K. and Poland.
Total traffic from our U.K./European Operations
decreased
30,980
carloads, or
12.1%
, to
225,065
carloads for the
three
months ended
June 30, 2019
, compared with
256,045
carloads for the
three
months ended
June 30, 2018
. Excluding traffic from our divested ERS operations for 2018, existing operations traffic decreased 10,157 carloads, or 4.3%. The
decrease
in traffic from existing operations was primarily due to a decrease of 7,269 carloads of intermodal traffic, 3,805 carloads of minerals and stone traffic and 2,383 carloads of coal and coke traffic, partially offset by an increase of 3,514 carloads of petroleum products traffic.
All remaining traffic decreased by a net 214 carloads.
Operating loss from our U.K./European Operations was
$1.7 million
for the
three
months ended
June 30, 2019
, compared with an operating loss of
$3.0 million
for the
three
months ended
June 30, 2018
. The operating loss for the
three
months ended
June 30, 2019
included
$6.8 million
of restructuring and related costs primarily driven by our optimization activities in the U.K. The operating loss for the
three
months ended
June 30, 2018
included
$9.4 million
of restructuring and related costs. The operating ratio was
101.1%
for the
three
months ended
June 30, 2019
, compared with
101.7%
for the
three
months ended
June 30, 2018
.
Overview of
Six
-Month Results
Our operating revenues
decreased
$40.1 million
, or
3.4%
, to
$1,129.6 million
for the
six
months ended
June 30, 2019
, compared with
$1,169.7 million
for the
six
months ended
June 30, 2018
. Operating income for the
six
months ended
June 30, 2019
was
$173.9 million
, compared with
$190.0 million
for the
six
months ended
June 30, 2018
, a
decrease
of
$16.1 million
, or
8.5%
. Our operating ratio was
84.6%
for the
six
months ended
June 30, 2019
, compared with
83.8%
for the
six
months ended
June 30, 2018
.
Net income for the
six
months ended
June 30, 2019
was
$90.2 million
, compared with net income of
$124.6 million
for the
six
months ended
June 30, 2018
. Our diluted EPS for the
six
months ended
June 30, 2019
was
$1.58
with
57.2 million
weighted average shares outstanding, compared with diluted EPS of
$1.93
with
61.8 million
weighted average shares outstanding for the
six
months ended
June 30, 2018
.
Our provision for income taxes for the
six
months ended
June 30, 2019
was
$33.1 million
compared with
$10.6 million
for the
six
months ended
June 30, 2018
. Our effective income tax rate for the
six
months ended
June 30, 2019
was
26.9%
. Our results for the
six
months ended
June 30, 2018
included an income tax benefit of
$31.6 million
associated with the retroactive extension of the United States Short Line Tax Credit for fiscal year 2017, which was enacted in February 2018. Based on developments during the
six
months ended
June 30, 2018
, we recorded a reserve for uncertain tax positions of
$4.8 million
related to tax deductions on intercompany financing arrangements in the U.K., of which
$3.7 million
related to the period from March 25, 2015, the date of the Freightliner acquisition when the arrangements were established, through December 31, 2017. Excluding the benefit from the retroactive extension and the prior period portion of the reserve for uncertain tax positions, our effective income tax rate for the
six
months ended
June 30, 2018
was
28.5%
.
During the
six
months ended
June 30, 2019
, we generated
$223.1 million
in cash flows from operating activities. During the same period, we purchased
$144.7 million
of property and equipment, including
$7.3 million
for new business investments, partially offset by
$14.9 million
in cash received from government grants and other outside parties for capital spending. We also paid
$140.6 million
in cash from the net
decrease
in outstanding debt and received cash of
$45.4 million
from the settlement of derivative transactions.
During the
six
months ended
June 30, 2018
, we generated
$231.3 million
in cash flows from operating activities. During the same period, we purchased
$133.3 million
of property and equipment, including
$22.7 million
for new business investments, partially offset by
$12.9 million
in cash received from government grants and other outside parties for capital spending. We also repurchased
2.7 million
shares of our Class A common stock for
$192.3 million
and received
$88.3 million
in cash from the net increase in outstanding debt. In addition, Genesee & Wyoming Australia (GWA) made a distribution of
$14.9 million
to its noncontrolling interest holders.
Items Affecting Comparability
Our results for the
six
months ended
June 30, 2019
and
2018
included certain items affecting comparability between the periods that are set forth below (dollars in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) Before Taxes Impact
|
|
After-Tax Net Income/(Loss) Attributable to G&W Impact
|
|
Diluted Earnings/(Loss) Per Common Share Impact
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
Restructuring and related costs
|
|
$
|
(15.2
|
)
|
|
$
|
(11.5
|
)
|
|
$
|
(0.20
|
)
|
Corporate development and related costs
|
|
$
|
(2.9
|
)
|
|
$
|
(2.0
|
)
|
|
$
|
(0.04
|
)
|
Net loss on sale and impairment of certain assets in North America
|
|
$
|
(1.0
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
(0.01
|
)
|
Australia enterprise bargaining agreement amendment
|
|
$
|
(2.6
|
)
|
|
$
|
(0.9
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
|
|
|
|
|
Corporate development and related costs
|
|
$
|
(0.5
|
)
|
|
$
|
(0.4
|
)
|
|
$
|
(0.01
|
)
|
Restructuring costs
|
|
$
|
(9.6
|
)
|
|
$
|
(7.8
|
)
|
|
$
|
(0.13
|
)
|
Loss on sale of ERS
|
|
$
|
(1.4
|
)
|
|
$
|
(1.4
|
)
|
|
$
|
(0.02
|
)
|
Gain on settlement
|
|
$
|
6.3
|
|
|
$
|
2.3
|
|
|
$
|
0.04
|
|
Credit facility refinancing-related costs
|
|
$
|
(2.7
|
)
|
|
$
|
(2.0
|
)
|
|
$
|
(0.03
|
)
|
2017 Short Line Tax Credit
|
|
$
|
—
|
|
|
$
|
31.6
|
|
|
$
|
0.51
|
|
Prior period portion of tax adjustment
|
|
$
|
—
|
|
|
$
|
(3.7
|
)
|
|
$
|
(0.06
|
)
|
Changes in Operations
North American Operations
Canada Lease Expirations:
Two of our short line railroad leases in Canada (Goderich-Exeter Railway (GEXR) and Southern Ontario Railway (SORR)) expired at the end of 2018. Our results for the three and six months ended June 30, 2018 included
$5.6 million
and
$11.1 million
, respectively, of revenues from these leased railroads. Our results included no material operating income from these leased railroads for the three and six months ended June 30, 2018.
U.K./European Operations
U.K. Operations Optimization:
In May 2018, we began a program to restructure and further optimize our operations in the U.K., which we intend to complete by 2020. The program includes the rationalization of the locomotive and railcar fleet, management restructuring (following the U.K. consultative process) and technology investments to upgrade systems to enhance productivity and service quality.
We recorded restructuring and related costs associated with the optimization of
$6.8 million
and
$12.3 million
for the
three
and
six
months ended
June 30, 2019
, respectively. Restructuring and related costs of
$9.4 million
and
$9.6 million
were recorded associated with the optimization for the
three
and
six
months ended
June 30, 2018
, respectively. For additional information regarding the optimization of our U.K. operations, see Note
2
,
Changes in Operations
, to our Consolidated Financial Statements set forth in "Part I Item 1. Financial Statements" of this quarterly report.
Continental Europe Intermodal Business:
On June 5, 2018, we sold our Continental Europe intermodal business, ERS, for gross cash proceeds of
€11.2 million
(or
$13.1 million
at the exchange rate on June 5, 2018) or
€6.8 million
(or
$7.9 million
at the exchange rate on June 5, 2018) net of
€4.4 million
(or
$5.2 million
at the exchange rate on June 5, 2018) of cash on
hand
that transferred to the buyer. Our results for the three and six months ended June 30, 2018 included
$9.4 million
and
$24.1 million
of revenues, respectively, from ERS. Our
results for the three and six months ended June 30, 2018 included no material operating income
from ERS.
Three Months Ended
June 30, 2019
Compared with
Three Months Ended
June 30, 2018
Consolidated Operating Results
Operating Revenues
The following table sets forth our total operating revenues and carloads for the three months ended
June 30, 2019
and
2018
. The table below also reflects the calculation of our existing operations by subtracting the 2018 revenues and carloads of the divested operations of ERS and the leased railroads in Canada that we ceased operating at the end of 2018, from our total operations for the
three
months ended
June 30, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Increase/(Decrease) in Total Operations
|
|
Increase/(Decrease) in Existing Operations
|
|
Currency Impact on 2018 Total Operations*
|
|
Currency Impact on 2018 Existing Operations*
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Total Operations
|
|
Divested Operations
|
|
Existing Operations
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
|
Freight revenues
|
$
|
397,681
|
|
|
$
|
418,232
|
|
|
$
|
10,407
|
|
|
$
|
407,825
|
|
|
$
|
(20,551
|
)
|
|
(4.9
|
)%
|
|
$
|
(10,144
|
)
|
|
(2.5
|
)%
|
|
$
|
(10,885
|
)
|
|
$
|
(10,286
|
)
|
Freight-related revenues
|
142,396
|
|
|
142,402
|
|
|
4,152
|
|
|
138,250
|
|
|
(6
|
)
|
|
—
|
%
|
|
4,146
|
|
|
3.0
|
%
|
|
(4,876
|
)
|
|
(4,646
|
)
|
All other revenues
|
31,403
|
|
|
34,356
|
|
|
432
|
|
|
33,924
|
|
|
(2,953
|
)
|
|
(8.6
|
)%
|
|
(2,521
|
)
|
|
(7.4
|
)%
|
|
(1,143
|
)
|
|
(1,128
|
)
|
Total operating revenues
|
$
|
571,480
|
|
|
$
|
594,990
|
|
|
$
|
14,991
|
|
|
$
|
579,999
|
|
|
$
|
(23,510
|
)
|
|
(4.0
|
)%
|
|
$
|
(8,519
|
)
|
|
(1.5
|
)%
|
|
$
|
(16,904
|
)
|
|
$
|
(16,060
|
)
|
Carloads
|
766,355
|
|
|
834,363
|
|
|
29,502
|
|
|
804,861
|
|
|
(68,008
|
)
|
|
(8.2
|
)%
|
|
(38,506
|
)
|
|
(4.8
|
)%
|
|
|
|
|
* Currency impact was calculated by comparing the
2018
results translated from local currency to United States dollars using
2019
exchange rates to the
2018
results in United States dollars as reported.
Operating Expenses
Total operating expenses for the
three
months ended
June 30, 2019
decreased
$14.6 million
, or
3.0%
, to
$477.3 million
, compared with
$491.9 million
for the
three
months ended
June 30, 2018
. The decrease consisted of
$14.2 million
from divested operations and
$0.4 million
from existing operations. Excluding a
$14.3 million
benefit from the net
depreciation
of foreign currencies relative to the United States dollar, operating expenses from existing operations increased
$13.9 million
, or
3.0%
. The
increase
from existing operations included increases of
$5.9 million
in other expense,
$5.8 million
in labor and benefits expense,
$3.9 million
in purchased services expense,
$2.1 million
in depreciation and amortization expense and
$1.7 million
in net gain on the sale and impairment of assets, partially offset by decreases of
$1.9 million
in the cost of diesel fuel used in train operations,
$1.3 million
in restructuring and related costs and
$1.1 million
in equipment rents expense.
The following table sets forth our total operating expenses for the
three
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Increase/(Decrease)
|
|
Currency
Impact
|
|
2018 Constant Currency*
|
|
Increase/(Decrease)Constant Currency*
|
|
2019
|
|
2018
|
|
|
|
|
|
Amount
|
|
% of
Operating
Revenues
|
|
Amount
|
|
% of
Operating
Revenues
|
|
|
|
Labor and benefits
|
$
|
179,943
|
|
|
31.4
|
%
|
|
$
|
179,838
|
|
|
30.2
|
%
|
|
$
|
105
|
|
|
$
|
(4,637
|
)
|
|
$
|
175,201
|
|
|
$
|
4,742
|
|
Equipment rents
|
32,010
|
|
|
5.6
|
%
|
|
34,802
|
|
|
5.9
|
%
|
|
(2,792
|
)
|
|
(1,263
|
)
|
|
33,539
|
|
|
(1,529
|
)
|
Purchased services
|
54,034
|
|
|
9.5
|
%
|
|
61,045
|
|
|
10.3
|
%
|
|
(7,011
|
)
|
|
(2,875
|
)
|
|
58,170
|
|
|
(4,136
|
)
|
Depreciation and amortization
|
62,517
|
|
|
10.9
|
%
|
|
65,745
|
|
|
11.0
|
%
|
|
(3,228
|
)
|
|
(1,889
|
)
|
|
63,856
|
|
|
(1,339
|
)
|
Diesel fuel used in train operations
|
41,504
|
|
|
7.3
|
%
|
|
45,623
|
|
|
7.7
|
%
|
|
(4,119
|
)
|
|
(1,513
|
)
|
|
44,110
|
|
|
(2,606
|
)
|
Electricity used in train operations
|
2,226
|
|
|
0.4
|
%
|
|
2,044
|
|
|
0.3
|
%
|
|
182
|
|
|
(113
|
)
|
|
1,931
|
|
|
295
|
|
Casualties and insurance
|
11,839
|
|
|
2.1
|
%
|
|
12,984
|
|
|
2.2
|
%
|
|
(1,145
|
)
|
|
(206
|
)
|
|
12,778
|
|
|
(939
|
)
|
Materials
|
31,294
|
|
|
5.5
|
%
|
|
32,376
|
|
|
5.4
|
%
|
|
(1,082
|
)
|
|
(1,185
|
)
|
|
31,191
|
|
|
103
|
|
Trackage rights
|
21,727
|
|
|
3.8
|
%
|
|
23,303
|
|
|
3.9
|
%
|
|
(1,576
|
)
|
|
(775
|
)
|
|
22,528
|
|
|
(801
|
)
|
Net gain on sale and impairment of assets
|
980
|
|
|
0.2
|
%
|
|
(823
|
)
|
|
(0.1
|
)%
|
|
1,803
|
|
|
(14
|
)
|
|
(837
|
)
|
|
1,817
|
|
Restructuring and related costs
|
7,561
|
|
|
1.3
|
%
|
|
9,362
|
|
|
1.6
|
%
|
|
(1,801
|
)
|
|
(481
|
)
|
|
8,881
|
|
|
(1,320
|
)
|
Other expenses, net
|
31,645
|
|
|
5.5
|
%
|
|
25,566
|
|
|
4.3
|
%
|
|
6,079
|
|
|
(78
|
)
|
|
25,488
|
|
|
6,157
|
|
Total operating expenses
|
$
|
477,280
|
|
|
83.5
|
%
|
|
$
|
491,865
|
|
|
82.7
|
%
|
|
$
|
(14,585
|
)
|
|
$
|
(15,029
|
)
|
|
$
|
476,836
|
|
|
$
|
444
|
|
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
Operating Income/Operating Ratio
Operating income was
$94.2 million
for the
three
months ended
June 30, 2019
, compared with
$103.1 million
for the
three
months ended
June 30, 2018
. Operating income for the
three
months ended
June 30, 2019
included restructuring and related costs of
$7.6 million
, primarily driven by our optimization activities in the U.K.,
$2.6 million
of expense associated with amending an enterprise bargaining agreement in Australia, corporate development and related costs of
$2.4 million
and a
$1.0 million
net loss on the sale and impairment of certain assets in North America. Operating income for the
three
months ended
June 30, 2018
included restructuring and related costs of
$9.4 million
and corporate development and related costs of
$0.4 million
. Our operating ratio was
83.5%
for the
three
months ended
June 30, 2019
, compared with
82.7%
for the
three
months ended
June 30, 2018
.
Interest Expense
Interest expense was
$27.4 million
for the
three
months ended
June 30, 2019
, compared with
$28.9 million
for the
three
months ended
June 30, 2018
. The
decrease
in interest expense for the three months ended
June 30, 2019
was primarily driven by the write-off of deferred financing fees associated with our credit facility refinancing in June 2018.
Provision for Income Taxes
Our provision for income taxes for the
three
months ended
June 30, 2019
was
$18.9 million
compared with
$26.4 million
for the
three
months ended
June 30, 2018
. Our effective income tax rate for the
three
months ended
June 30, 2019
was
26.9%
. Based on developments during the three months ended June 30, 2018, we recorded a reserve for uncertain tax positions of
$4.8 million
related to tax deductions on intercompany financing arrangements in the U.K., of which
$0.7 million
related to the three months ended June 30, 2018,
$0.4 million
related to the three months ended March 31, 2018 and
$3.7 million
related to the period from March 25, 2015, the date of the Freightliner acquisition when the arrangements were established, through December 31, 2017. The reserve for uncertain tax positions was included in our provision for income taxes for the
three
months ended
June 30, 2018
. Excluding the prior period portion of the reserve for uncertain tax positions, our effective income tax rate for the
three
months ended
June 30, 2018
was
29.8%
. For additional information regarding income taxes, see Note
9
,
Income Taxes
, to our Consolidated Financial Statements set forth in "Part I Item 1. Financial Statements" of this quarterly report.
Net Income Attributable to G&W and Earnings Per Common Share
Net income attributable to G&W for the
three
months ended
June 30, 2019
was
$51.4 million
, compared with
$44.2 million
for the
three
months ended
June 30, 2018
. Our basic EPS were
$0.91
with
56.5 million
weighted average shares outstanding for the
three
months ended
June 30, 2019
, compared with basic EPS of
$0.74
with
60.0 million
weighted average shares outstanding for the
three
months ended
June 30, 2018
. Our diluted EPS for the
three
months ended
June 30, 2019
were
$0.90
with
57.3 million
weighted average shares outstanding, compared with diluted EPS of
$0.73
with
60.9 million
weighted average shares outstanding for the
three
months ended
June 30, 2018
. Our results for the
three
months ended
June 30, 2019
and
2018
included certain items affecting comparability between the periods as previously presented in the "Overview—Overview of Three-Month Results—Items Affecting Comparability."
Net Loss/Income Attributable to Noncontrolling Interest
We own a
51.1%
controlling interest in our Australian Operations. As such, we include
100%
of the revenues and expenses from our Australian Operations within our consolidated financial statements and report a noncontrolling interest for MIRA’s
48.9%
equity ownership. Net loss attributable to noncontrolling interest for the
three
months ended
June 30, 2019
was
$0.1 million
, compared with net income attributable to noncontrolling interest of
$4.4 million
for
three
months ended
June 30, 2018
.
Operating Results by Segment
Our various rail operations are organized into
eight
operating regions. We present our financial information as three reportable segments: North American Operations, Australian Operations and U.K./European Operations. Our
six
North American regions are aggregated into one segment as a result of having similar economic and operating characteristics. Each of our segments generates the following three categories of revenues from external customers: freight revenues, freight-related revenues and all other revenues.
North American Operations
Operating Revenues
The following table sets forth our North American Operations total operating revenues and carloads for the
three
months ended
June 30, 2019
and
2018
. The table also reflects the calculation of our existing operations by subtracting the 2018 revenues and carloads from the Canadian leases that expired at the end of 2018 from our total operations for the
three
months ended
June 30, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Increase/(Decrease) in Total Operations
|
|
Increase/(Decrease) in Existing Operations
|
|
Currency Impact on 2018 Total Operations*
|
|
Currency Impact on 2018 Existing Operations*
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Total Operations
|
|
Divested Operations
|
|
Existing Operations
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
|
Freight revenues
|
$
|
259,181
|
|
|
$
|
259,868
|
|
|
$
|
3,733
|
|
|
$
|
256,135
|
|
|
$
|
(687
|
)
|
|
(0.3
|
)%
|
|
$
|
3,046
|
|
|
1.2
|
%
|
|
$
|
(645
|
)
|
|
$
|
(518
|
)
|
Freight-related revenues
|
66,135
|
|
|
63,467
|
|
|
1,467
|
|
|
62,000
|
|
|
2,668
|
|
|
4.2
|
%
|
|
4,135
|
|
|
6.7
|
%
|
|
(224
|
)
|
|
(171
|
)
|
All other revenues
|
16,531
|
|
|
16,222
|
|
|
423
|
|
|
15,799
|
|
|
309
|
|
|
1.9
|
%
|
|
732
|
|
|
4.6
|
%
|
|
(91
|
)
|
|
(77
|
)
|
Total operating revenues
|
$
|
341,847
|
|
|
$
|
339,557
|
|
|
$
|
5,623
|
|
|
$
|
333,934
|
|
|
$
|
2,290
|
|
|
0.7
|
%
|
|
$
|
7,913
|
|
|
2.4
|
%
|
|
$
|
(960
|
)
|
|
$
|
(766
|
)
|
Carloads
|
406,895
|
|
|
430,353
|
|
|
8,679
|
|
|
421,674
|
|
|
(23,458
|
)
|
|
(5.5
|
)%
|
|
(14,779
|
)
|
|
(3.5
|
)%
|
|
|
|
|
|
|
*
|
Currency impact was calculated by comparing the
2018
results translated from local currency to United States dollars using
2019
exchange rates to the
2018
results in United States dollars as reported.
|
Freight Revenues
The following table sets forth our North American Operations total freight revenues for the
three
months ended
June 30, 2019
and
2018
. The table below also reflects the calculation of our existing operations by subtracting the 2018 revenues and carloads from the Canadian leases that expired at the end of 2018 from our total operations for the
three
months ended
June 30, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Increase/(Decrease) in Existing Operations
|
|
Currency Impact on Existing Operations
|
|
2018 Constant Currency Existing Operations*
|
|
Increase/(Decrease) in Existing Operations Constant Currency*
|
|
2019
|
|
2018
|
|
|
|
|
Commodity Group
|
|
Total Operations
|
|
Divested Operations
|
|
Existing Operations
|
|
|
|
|
Agricultural Products
|
$
|
32,846
|
|
|
$
|
29,693
|
|
|
$
|
458
|
|
|
$
|
29,235
|
|
|
$
|
3,611
|
|
|
$
|
(24
|
)
|
|
$
|
29,211
|
|
|
$
|
3,635
|
|
Autos & Auto Parts
|
6,084
|
|
|
5,806
|
|
|
301
|
|
|
5,505
|
|
|
579
|
|
|
(26
|
)
|
|
5,479
|
|
|
605
|
|
Chemicals & Plastics
|
39,813
|
|
|
38,972
|
|
|
775
|
|
|
38,197
|
|
|
1,616
|
|
|
(87
|
)
|
|
38,110
|
|
|
1,703
|
|
Coal & Coke
|
18,563
|
|
|
19,087
|
|
|
—
|
|
|
19,087
|
|
|
(524
|
)
|
|
(34
|
)
|
|
19,053
|
|
|
(490
|
)
|
Food & Kindred Products
|
8,801
|
|
|
8,476
|
|
|
186
|
|
|
8,290
|
|
|
511
|
|
|
(2
|
)
|
|
8,288
|
|
|
513
|
|
Intermodal
|
523
|
|
|
380
|
|
|
—
|
|
|
380
|
|
|
143
|
|
|
—
|
|
|
380
|
|
|
143
|
|
Lumber & Forest Products
|
23,519
|
|
|
23,810
|
|
|
109
|
|
|
23,701
|
|
|
(182
|
)
|
|
(40
|
)
|
|
23,661
|
|
|
(142
|
)
|
Metallic Ores
|
2,865
|
|
|
3,670
|
|
|
1
|
|
|
3,669
|
|
|
(804
|
)
|
|
(28
|
)
|
|
3,641
|
|
|
(776
|
)
|
Metals
|
29,055
|
|
|
32,493
|
|
|
589
|
|
|
31,904
|
|
|
(2,849
|
)
|
|
(57
|
)
|
|
31,847
|
|
|
(2,792
|
)
|
Minerals & Stone
|
38,597
|
|
|
38,034
|
|
|
268
|
|
|
37,766
|
|
|
831
|
|
|
(31
|
)
|
|
37,735
|
|
|
862
|
|
Petroleum Products
|
17,053
|
|
|
16,151
|
|
|
717
|
|
|
15,434
|
|
|
1,619
|
|
|
(40
|
)
|
|
15,394
|
|
|
1,659
|
|
Pulp & Paper
|
28,013
|
|
|
29,514
|
|
|
41
|
|
|
29,473
|
|
|
(1,460
|
)
|
|
(127
|
)
|
|
29,346
|
|
|
(1,333
|
)
|
Waste
|
7,964
|
|
|
7,339
|
|
|
66
|
|
|
7,273
|
|
|
691
|
|
|
(3
|
)
|
|
7,270
|
|
|
694
|
|
Other
|
5,485
|
|
|
6,443
|
|
|
222
|
|
|
6,221
|
|
|
(736
|
)
|
|
(19
|
)
|
|
6,202
|
|
|
(717
|
)
|
Total
|
$
|
259,181
|
|
|
$
|
259,868
|
|
|
$
|
3,733
|
|
|
$
|
256,135
|
|
|
$
|
3,046
|
|
|
$
|
(518
|
)
|
|
$
|
255,617
|
|
|
$
|
3,564
|
|
* Constant currency amounts reflect the prior period existing operations translated at the current period exchange rates.
The following table sets forth our North American Operations freight revenues, carloads and average freight revenues per carload for the
three
months ended
June 30, 2019
and
2018
(dollars in thousands, except average freight revenues per carload):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenues
|
|
Carloads
|
|
Average Freight Revenues Per
Carload
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Three Months Ended June 30,
|
|
Three Months Ended June 30,
|
|
|
2019
|
|
2018 Constant Currency*
|
|
|
Commodity Group
|
Amount
|
|
% of
Total
|
|
Amount
|
|
% of
Total
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2018 Constant Currency*
|
Agricultural Products
|
$
|
32,846
|
|
|
12.7
|
%
|
|
$
|
29,653
|
|
|
11.4
|
%
|
|
56,134
|
|
|
51,762
|
|
|
$
|
585
|
|
|
$
|
574
|
|
|
$
|
573
|
|
Autos & Auto Parts
|
6,084
|
|
|
2.3
|
%
|
|
5,769
|
|
|
2.2
|
%
|
|
9,041
|
|
|
9,106
|
|
|
673
|
|
|
638
|
|
|
634
|
|
Chemicals & Plastics
|
39,813
|
|
|
15.3
|
%
|
|
38,858
|
|
|
15.0
|
%
|
|
44,376
|
|
|
45,285
|
|
|
897
|
|
|
861
|
|
|
858
|
|
Coal & Coke
|
18,563
|
|
|
7.2
|
%
|
|
19,053
|
|
|
7.4
|
%
|
|
48,140
|
|
|
59,346
|
|
|
386
|
|
|
322
|
|
|
321
|
|
Food & Kindred Products
|
8,801
|
|
|
3.4
|
%
|
|
8,468
|
|
|
3.3
|
%
|
|
14,699
|
|
|
14,907
|
|
|
599
|
|
|
569
|
|
|
568
|
|
Intermodal
|
523
|
|
|
0.2
|
%
|
|
380
|
|
|
0.1
|
%
|
|
3,984
|
|
|
3,816
|
|
|
131
|
|
|
100
|
|
|
100
|
|
Lumber & Forest Products
|
23,519
|
|
|
9.1
|
%
|
|
23,765
|
|
|
9.2
|
%
|
|
35,140
|
|
|
37,733
|
|
|
669
|
|
|
631
|
|
|
630
|
|
Metallic Ores
|
2,865
|
|
|
1.1
|
%
|
|
3,642
|
|
|
1.4
|
%
|
|
3,813
|
|
|
4,448
|
|
|
751
|
|
|
825
|
|
|
819
|
|
Metals
|
29,055
|
|
|
11.2
|
%
|
|
32,418
|
|
|
12.5
|
%
|
|
34,860
|
|
|
40,806
|
|
|
833
|
|
|
796
|
|
|
794
|
|
Minerals & Stone
|
38,597
|
|
|
14.9
|
%
|
|
37,994
|
|
|
14.7
|
%
|
|
62,005
|
|
|
62,156
|
|
|
622
|
|
|
612
|
|
|
611
|
|
Petroleum Products
|
17,053
|
|
|
6.6
|
%
|
|
16,085
|
|
|
6.2
|
%
|
|
23,811
|
|
|
24,340
|
|
|
716
|
|
|
664
|
|
|
661
|
|
Pulp & Paper
|
28,013
|
|
|
10.8
|
%
|
|
29,386
|
|
|
11.3
|
%
|
|
37,943
|
|
|
41,762
|
|
|
738
|
|
|
707
|
|
|
704
|
|
Waste
|
7,964
|
|
|
3.1
|
%
|
|
7,334
|
|
|
2.8
|
%
|
|
15,331
|
|
|
14,837
|
|
|
519
|
|
|
495
|
|
|
494
|
|
Other
|
5,485
|
|
|
2.1
|
%
|
|
6,418
|
|
|
2.5
|
%
|
|
17,618
|
|
|
20,049
|
|
|
311
|
|
|
321
|
|
|
320
|
|
Total
|
$
|
259,181
|
|
|
100.0
|
%
|
|
$
|
259,223
|
|
|
100.0
|
%
|
|
406,895
|
|
|
430,353
|
|
|
$
|
637
|
|
|
$
|
604
|
|
|
$
|
602
|
|
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
Total traffic from our North American Operations
decreased
23,458
carloads, or
5.5%
, to
406,895
carloads for the
three
months ended
June 30, 2019
, compared with the
three
months ended
June 30, 2018
. Excluding traffic from the two railroad leases in Canada that expired at the end of 2018, existing operations traffic
decreased
14,779
carloads, or
3.5%
. The decrease in traffic from existing operations included decreases of 11,206
carloads of coal and coke traffic, 4,221 carloads of metals traffic, 3,734 carloads of pulp and paper traffic, 2,307 carloads of lumber and forest products traffic and 1,683 carloads of other commodity traffic, partially offset by increases of 5,418 carloads of agricultural products traffic and 1,015 carloads of chemicals and plastics traffic. All remaining traffic increased by a net 1,939 carloads.
Changes in average freight revenues per carload in a commodity group may be impacted by changes in customer rates, fuel surcharges, commodity mix and the mix of customer traffic within a commodity group. Excluding a 0.3% impact of foreign currency, average freight revenues per carload from our North American Operations
increased
5.8%
to
$637
for the
three
months ended
June 30, 2019
, compared with the same period in
2018
. Average freight revenues per carload from existing operations, excluding the impact of foreign currency,
increased
5.1%
for the
three
months ended
June 30, 2019
, compared with the same period in
2018
. The increase in average freight revenues per carload was impacted by a change in the mix of commodities, which increased average freight revenues per carload by 0.7%, and higher fuel surcharges, which increased average freight revenues per carload by 0.6%. Excluding these factors, average freight revenues per carload increased 3.8%.
The following information discusses the significant changes in our North American Operations freight revenues by commodity group excluding the impact of foreign currency and the Canadian leases that expired at the end of 2018.
Agricultural products revenues
increased
$3.6 million
, or
12.4%
. Agricultural products traffic increased 5,418 carloads, or 10.7%, which increased revenues by $3.2 million, and average freight revenues per carload increased 1.6%, which increased revenues by $0.4 million. The increase in carloads was primarily due to increased farm products shipments in the western United States and grain shipments in the midwestern United States.
Chemicals and plastics revenues
increased
$1.7 million
, or
4.5%
. Chemicals and plastics traffic increased 1,015 carloads, or 2.3%, which increased revenues by $0.9 million, and average freight revenues per carload increased 2.0%, which increased revenues by $0.8 million. The increase in carloads was primarily due to an increase in industrial chemical shipments in the western United States.
Coal and coke revenues
decreased
$0.5 million
, or
2.6%
. Coal and coke traffic decreased 11,206 carloads, or 18.9%, which decreased revenues by $4.3 million, while average freight revenues per carload increased 20.2%, which increased revenues by $3.8 million. The decrease in carloads was primarily due to decreased demand in the southern United States primarily associated with low natural gas prices, high inventory levels and mild temperatures as well as decreased coal shipments in the midwestern United States due to flooding, partially offset by increased demand in the northeastern United States primarily associated with new business. The increase in average freight revenues per carload was primarily due to stronger pricing and a change in the mix of business.
Metals revenues
decreased
$2.8 million
, or
8.8%
. Metals traffic decreased 4,221 carloads, or 10.8%, which decreased revenues by $3.5 million, while average freight revenues per carload increased 2.2%, which increased revenues by $0.7 million. The decrease in carloads was primarily due to decreased scrap and finished steel shipments across the United States, decreased pipe shipments in the northeastern and midwestern United States and decreased pig iron shipments in the southern and midwestern United States.
Minerals and stone revenues
increased
$0.9 million
, or
2.3%
. Minerals and stone traffic increased 704 carloads, or 1.0%, which increased revenues $0.4 million, and average freight per carload increased 1.0%, which increased revenues by $0.4 million. The increase in average freight per carload and traffic was primarily due to new business and strong demand for rock salt and frac sand in the northeastern United States, partially offset by a decrease in bentonite and clay shipments due to flooding in the midwestern and southern United States.
Petroleum products revenues
increased
$1.7 million
, or
10.8%
. Petroleum products average freight revenues per carload increased 9.6%, which increased revenues by $1.5 million, and traffic increased 233 carloads, or 1.0%, which increased revenues by $0.2 million. The increase in average freight revenues per carload was primarily due to stronger pricing and a change in the mix of business.
Pulp and paper revenues
decreased
$1.3 million
, or
4.5%
. Pulp and paper traffic decreased 3,734 carloads, or 9.0%, which decreased revenues by $2.8 million, while average freight revenues per carload increased 4.8%, which increased revenues by $1.5 million. The decrease in carloads was primarily due to decreased containerboard shipments across North America.
Freight revenues from all remaining commodities combined
increased
by
$0.3 million
.
Freight-Related Revenues
Freight-related revenues from our North American Operations, which includes revenues from railcar switching, track access fees, storage and other ancillary revenues related to the movement of freight, were
$66.1 million
for the
three
months ended
June 30, 2019
, compared with
$63.5 million
for the
three
months ended
June 30, 2018
, an
increase
of
$2.7 million
, or
4.2%
. Excluding a decrease of
$1.5 million
in revenues from leased railroads in Canada that we ceased operating at the end of 2018, and a
$0.2 million
decrease due to the impact of foreign currency depreciation, freight-related revenues from our North American Operations
increased
$4.3 million
, or
7.0%
, for the
three
months ended
June 30, 2019
, compared with
$61.8 million
for the
three
months ended
June 30, 2018
. The increase was primarily due to increased switching and storage revenues in the southeastern United States and increased demurrage revenues in the midwestern United States.
All Other Revenues
All other revenues from our North American Operations, which includes revenues from third-party railcar and locomotive repairs, property rentals and other ancillary revenues not directly related to the movement of freight, were
$16.5 million
for the
three
months ended
June 30, 2019
, compared with
$16.2 million
for the
three
months ended
June 30, 2018
, an
increase
of
$0.3 million
, or
1.9%
. Excluding a decrease of
$0.4 million
in revenues from the Canadian leases that expired at the end of 2018 and a
$0.1 million
decrease due to the impact of foreign currency depreciation, all other revenues from our North American Operations
increased
$0.8 million
, or
5.1%
, for the
three
months ended
June 30, 2019
, compared with
$15.7 million
for the
three
months ended
June 30, 2018
.
Operating Expenses
Total operating expenses from our North American Operations
decreased
$1.7 million
, or
0.7%
, to
$257.6 million
for the
three
months ended
June 30, 2019
, compared with
$259.3 million
for the
three
months ended
June 30, 2018
. The decrease included a
$5.7 million
decrease in expenses from the two leased railroads in Canada that we ceased operating at the end of 2018, and a
$0.9 million
decrease
due to the impact of foreign currency depreciation, partially offset by a
$4.9 million
increase from existing operations. The increase from existing operations included increases of
$2.7 million
in purchased services expense,
$1.7 million
in net loss on sale and impairment of assets,
$1.5 million
in materials expense and
$1.1 million
in depreciation and amortization expense, partially offset by decreases of
$1.2 million
in equipment rent expense and
$1.1 million
in casualties and insurance expense. The following table sets forth operating expenses from our North American Operations for the
three
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Increase/(Decrease)
|
|
Currency
Impact
|
|
2018 Constant Currency*
|
|
Increase/(Decrease) Constant Currency*
|
|
2019
|
|
2018
|
|
|
|
|
|
Amount
|
|
% of
Operating
Revenues
|
|
Amount
|
|
% of
Operating
Revenues
|
|
|
|
|
Labor and benefits
|
$
|
108,458
|
|
|
31.7
|
%
|
|
$
|
109,289
|
|
|
32.2
|
%
|
|
$
|
(831
|
)
|
|
$
|
(326
|
)
|
|
$
|
108,963
|
|
|
$
|
(505
|
)
|
Equipment rents
|
12,257
|
|
|
3.6
|
%
|
|
13,633
|
|
|
4.0
|
%
|
|
(1,376
|
)
|
|
(41
|
)
|
|
13,592
|
|
|
(1,335
|
)
|
Purchased services
|
16,821
|
|
|
4.9
|
%
|
|
14,652
|
|
|
4.3
|
%
|
|
2,169
|
|
|
(56
|
)
|
|
14,596
|
|
|
2,225
|
|
Depreciation and amortization
|
38,738
|
|
|
11.3
|
%
|
|
41,247
|
|
|
12.2
|
%
|
|
(2,509
|
)
|
|
(225
|
)
|
|
41,022
|
|
|
(2,284
|
)
|
Diesel fuel used in train operations
|
21,672
|
|
|
6.4
|
%
|
|
23,253
|
|
|
6.8
|
%
|
|
(1,581
|
)
|
|
(105
|
)
|
|
23,148
|
|
|
(1,476
|
)
|
Casualties and insurance
|
8,978
|
|
|
2.6
|
%
|
|
10,156
|
|
|
3.0
|
%
|
|
(1,178
|
)
|
|
(11
|
)
|
|
10,145
|
|
|
(1,167
|
)
|
Materials
|
14,551
|
|
|
4.3
|
%
|
|
13,163
|
|
|
3.9
|
%
|
|
1,388
|
|
|
(51
|
)
|
|
13,112
|
|
|
1,439
|
|
Trackage rights
|
10,906
|
|
|
3.2
|
%
|
|
10,527
|
|
|
3.1
|
%
|
|
379
|
|
|
(7
|
)
|
|
10,520
|
|
|
386
|
|
Net loss/(gain) on sale and impairment of assets
|
1,037
|
|
|
0.3
|
%
|
|
(706
|
)
|
|
(0.2
|
)%
|
|
1,743
|
|
|
—
|
|
|
(706
|
)
|
|
1,743
|
|
Restructuring and related costs
|
641
|
|
|
0.2
|
%
|
|
7
|
|
|
—
|
%
|
|
634
|
|
|
—
|
|
|
7
|
|
|
634
|
|
Other expenses, net
|
23,527
|
|
|
6.9
|
%
|
|
24,062
|
|
|
7.1
|
%
|
|
(535
|
)
|
|
(62
|
)
|
|
24,000
|
|
|
(473
|
)
|
Total operating expenses
|
$
|
257,586
|
|
|
75.4
|
%
|
|
$
|
259,283
|
|
|
76.4
|
%
|
|
$
|
(1,697
|
)
|
|
$
|
(884
|
)
|
|
$
|
258,399
|
|
|
$
|
(813
|
)
|
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
The following information discusses the significant changes in operating expenses of our North American Operations excluding a
decrease
of
$0.9 million
due to the impact from foreign currency
depreciation
.
Equipment rents expense was
$12.3 million
for the
three
months ended
June 30, 2019
, compared with
$13.6 million
for the
three
months ended
June 30, 2018
, a
decrease
of
$1.3 million
, or
9.8%
. The decrease was primarily due to decreased car hire expense from existing operations.
Purchased services expense was
$16.8 million
for the
three
months ended
June 30, 2019
, compared with
$14.6 million
for the
three
months ended
June 30, 2018
, an
increase
of
$2.2 million
, or
15.2%
. The
increase
consisted of
$2.7 million
from existing operations, partially offset by a
decrease
of
$0.5 million
from the expired Canadian leases. The increase in existing operations was primarily due to increases in track maintenance expense in 2019.
Depreciation and amortization expense was
$38.7 million
for the
three
months ended
June 30, 2019
, compared with
$41.0 million
for the
three
months ended
June 30, 2018
, a
decrease
of
$2.3 million
, or
5.6%
. The
decrease
consisted of
$3.4 million
from the expired Canadian leases, partially offset by an
increase
of
$1.1 million
from existing operations. The
increase
from existing operations was primarily attributable to a larger depreciable asset base in 2019 compared with 2018, reflecting capital spending in 2018.
The cost of diesel fuel used in train operations was
$21.7 million
for the
three
months ended
June 30, 2019
, compared with
$23.1 million
for the
three
months ended
June 30, 2018
, a
decrease
of
$1.5 million
, or
6.4%
. The
decrease
consisted of
$0.8 million
from existing operations and
$0.7 million
from the expired Canadian leases.
Casualties and insurance expense was
$9.0 million
for the
three
months ended
June 30, 2019
, compared with
$10.1 million
for the
three
months ended
June 30, 2018
, a
decrease
of
$1.2 million
, or
11.5%
. The
decrease
was primarily attributable to decreased derailment expenses in 2019.
Materials expense was
$14.6 million
for the
three
months ended
June 30, 2019
, compared with
$13.1 million
for the
three
months ended
June 30, 2018
, an
increase
of
$1.4 million
, or
11.0%
. The
increase
was primarily due to an increase in track maintenance expense in 2019.
Net loss on the sale and impairment of assets was
$1.0 million
for the
three
months ended
June 30, 2019
, compared with a net gain on the sale and impairment of assets of
$0.7 million
for the
three
months ended
June 30, 2018
, an
increase
of
$1.7 million
. The net loss in the
three
months ended
June 30, 2019
was primarily attributable to the impairment of assets related to the expiration of a lease of a rail line in the southeastern United States, partially offset by a gain on the sale of land in the northeastern United States.
Operating Income/Operating Ratio
Operating income from our North American Operations was
$84.3 million
for the
three
months ended
June 30, 2019
, compared with
$80.3 million
for the
three
months ended
June 30, 2018
. Operating income for the
three
months ended
June 30, 2019
included corporate development and related costs of
$2.3 million
, net loss on the sale and impairment of certain assets in United States of
$1.0 million
and restructuring and related costs of
$0.6 million
. Operating income for the
three
months ended
June 30, 2018
included credit facility refinancing-related costs of
$0.4 million
and corporate development and related costs of
$0.3 million
. The operating ratio was
75.4%
for the
three
months ended
June 30, 2019
, compared with
76.4%
for the
three
months ended
June 30, 2018
.
Australian Operations
Operating Revenues
As previously disclosed, we own a controlling
51.1%
interest in our Australian Operations, and therefore, we include
100%
of our Australian Operations within our consolidated financial statements with a
48.9%
noncontrolling interest recorded to reflect MIRA's ownership. The following table sets forth our Australian Operations operating revenues and carloads for the
three
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Increase/(Decrease) in Total Operations
|
|
Currency Impact on 2018 Total Operations*
|
|
2019
|
|
2018
|
|
Amount
|
|
%
|
|
Freight revenues
|
$
|
56,923
|
|
|
$
|
66,075
|
|
|
$
|
(9,152
|
)
|
|
(13.9
|
)%
|
|
$
|
(4,960
|
)
|
Freight-related revenues
|
8,036
|
|
|
11,515
|
|
|
(3,479
|
)
|
|
(30.2
|
)%
|
|
(866
|
)
|
All other revenues
|
1,572
|
|
|
1,439
|
|
|
133
|
|
|
9.2
|
%
|
|
(108
|
)
|
Total operating revenues
|
$
|
66,531
|
|
|
$
|
79,029
|
|
|
$
|
(12,498
|
)
|
|
(15.8
|
)%
|
|
$
|
(5,934
|
)
|
Carloads
|
134,395
|
|
|
147,965
|
|
|
(13,570
|
)
|
|
(9.2
|
)%
|
|
|
|
|
*
|
Currency impact was calculated by comparing the
2018
results translated from local currency to United States dollars using
2019
exchange rates to the
2018
results in United States dollars as reported.
|
Freight Revenues
The following table sets forth the changes in our Australian Operations freight revenues by commodity group for the
three
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Increase/(Decrease) in Total Operations
|
|
Currency Impact
|
|
2018 Constant Currency*
|
|
Increase/(Decrease) in Total Operations Constant Currency*
|
|
|
|
|
|
Commodity Group
|
2019
|
|
2018
|
|
|
|
|
Agricultural Products
|
$
|
2,999
|
|
|
$
|
6,006
|
|
|
$
|
(3,007
|
)
|
|
$
|
(451
|
)
|
|
$
|
5,555
|
|
|
$
|
(2,556
|
)
|
Coal & Coke
|
28,965
|
|
|
32,570
|
|
|
(3,605
|
)
|
|
(2,445
|
)
|
|
30,125
|
|
|
(1,160
|
)
|
Intermodal
|
15,459
|
|
|
17,102
|
|
|
(1,643
|
)
|
|
(1,284
|
)
|
|
15,818
|
|
|
(359
|
)
|
Metallic Ores
|
7,523
|
|
|
8,125
|
|
|
(602
|
)
|
|
(610
|
)
|
|
7,515
|
|
|
8
|
|
Minerals & Stone
|
1,817
|
|
|
2,087
|
|
|
(270
|
)
|
|
(157
|
)
|
|
1,930
|
|
|
(113
|
)
|
Petroleum Products
|
160
|
|
|
185
|
|
|
(25
|
)
|
|
(13
|
)
|
|
172
|
|
|
(12
|
)
|
Total
|
$
|
56,923
|
|
|
$
|
66,075
|
|
|
$
|
(9,152
|
)
|
|
$
|
(4,960
|
)
|
|
$
|
61,115
|
|
|
$
|
(4,192
|
)
|
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
The following table sets forth our Australian Operations freight revenues, carloads and average freight revenues per carload for the
three
months ended
June 30, 2019
and
2018
(dollars in thousands, except average freight revenues per carload):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenues
|
|
Carloads
|
|
Average Freight Revenues Per
Carload
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Three Months Ended June 30,
|
|
Three Months Ended June 30,
|
|
|
2019
|
|
2018 Constant Currency*
|
|
|
Commodity Group
|
Amount
|
|
% of
Total
|
|
Amount
|
|
% of
Total
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2018 Constant Currency*
|
Agricultural Products
|
$
|
2,999
|
|
|
5.3
|
%
|
|
$
|
5,555
|
|
|
9.1
|
%
|
|
4,224
|
|
|
14,175
|
|
|
$
|
710
|
|
|
$
|
424
|
|
|
$
|
392
|
|
Coal & Coke
|
28,965
|
|
|
50.9
|
%
|
|
30,125
|
|
|
49.3
|
%
|
|
96,749
|
|
|
97,282
|
|
|
299
|
|
|
335
|
|
|
310
|
|
Intermodal
|
15,459
|
|
|
27.1
|
%
|
|
15,818
|
|
|
25.9
|
%
|
|
13,294
|
|
|
13,957
|
|
|
1,163
|
|
|
1,225
|
|
|
1,133
|
|
Metallic Ores
|
7,523
|
|
|
13.2
|
%
|
|
7,515
|
|
|
12.3
|
%
|
|
5,272
|
|
|
5,586
|
|
|
1,427
|
|
|
1,455
|
|
|
1,345
|
|
Minerals & Stone
|
1,817
|
|
|
3.2
|
%
|
|
1,930
|
|
|
3.1
|
%
|
|
14,791
|
|
|
16,891
|
|
|
123
|
|
|
124
|
|
|
114
|
|
Petroleum Products
|
160
|
|
|
0.3
|
%
|
|
172
|
|
|
0.3
|
%
|
|
65
|
|
|
74
|
|
|
2,462
|
|
|
2,500
|
|
|
2,324
|
|
Total
|
$
|
56,923
|
|
|
100.0
|
%
|
|
$
|
61,115
|
|
|
100.0
|
%
|
|
134,395
|
|
|
147,965
|
|
|
$
|
424
|
|
|
$
|
447
|
|
|
$
|
413
|
|
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
Total traffic from our Australian Operations
decreased
13,570
carloads, or
9.2%
, to
134,395
carloads for the
three
months ended
June 30, 2019
, compared with the
three
months ended
June 30, 2018
.
The traffic
decrease
was primarily
due to decreases of 9,951 carloads of agricultural products traffic and 2,100 carloads of minerals and stone traffic. All remaining traffic decreased by a net 1,519 carloads.
Changes in average freight revenues per carload in a commodity group may be impacted by changes in customer rates, fuel surcharges, commodity mix and the mix of customer traffic within a commodity group. Excluding a 7.8% impact of foreign currency, average freight revenues per carload from our Australian Operations
increased
2.7%
to
$424
for the
three
months ended
June 30, 2019
, compared with the same period in
2018
. A change in the mix of commodities decreased average freight revenues per carload by 4.8%, while higher fuel surcharges increased average freight revenues per carload by 0.3%. Excluding these factors, average freight revenues per carload increased 7.2%.
The following information discusses the significant changes in our Australian Operations freight revenues by commodity group excluding the impact of foreign currency.
Agricultural products revenues
decreased
$2.6 million
, or
46.0%
. Agricultural products traffic decreased 9,951 carloads, or 70.2%, which decreased revenues by $7.1 million, while average freight revenues per carload increased 81.1%, which increased revenues by $4.5 million. The carload decrease was primarily due to a smaller grain harvest in 2019. The decrease in grain traffic resulted in higher average freight revenues per carload, primarily due to the rate structure for Australian grain traffic, which has both a fixed and variable component.
Coal and coke revenues
decreased
$1.2 million
, or
3.9%
. Coal and coke average freight revenues per carload decreased 3.5%, which decreased revenues by $1.0 million, and traffic decreased 533 carloads, or 0.5%, which decreased revenues by $0.2 million. The decrease in average freight revenues per carload was primarily due to lower spot coal revenue in 2019.
Freight revenues from all remaining commodities
decreased
by a net
$0.5 million
.
Freight-Related Revenues
Excluding a
$0.9 million
decrease
due to the impact of foreign currency depreciation, freight-related revenues from our Australian Operations, which includes revenues from railcar switching, track access rights, crewing services, storage and other ancillary revenues related to the movement of freight,
decreased
$2.6 million
, or
24.5%
, to
$8.0 million
for the
three
months ended
June 30, 2019
, compared with
$10.6 million
for the
three
months ended
June 30, 2018
. The decrease was primarily due to switching competition and prolonged drought conditions in 2019.
All Other Revenues
All other revenues from our Australian Operations for the
three
months ended
June 30, 2019
, which includes revenues from third-party railcar and locomotive repairs, property rentals and other ancillary revenues not directly related to the movement of freight, remained relatively flat compared with the
three
months ended
June 30, 2018
.
Operating Expenses
Total operating expenses from our Australian Operations for the
three
months ended
June 30, 2019
increased
$1.7 million
, or
3.3%
, to
$54.9 million
, compared with
$53.1 million
for the
three
months ended
June 30, 2018
. The operating expenses for the
three
months ended
June 30, 2018
included a
$6.3 million
gain on settlement related to Arrium's voluntary administration that was recognized as an offset to other expenses, net. The operating expenses for the
three
months ended
June 30, 2019
included
$2.6 million
of expense associated with amending an enterprise bargaining agreement, partially offset by decreases in purchased services expense, trackage rights expense and the cost of diesel fuel used in train operations. In addition, operating expenses included a
$4.0 million
decrease due to the impact of foreign currency depreciation for the
three
months ended
June 30, 2019
compared with the
three
months ended
June 30, 2018
.
The following table sets forth operating expenses from our Australian Operations for the
three
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Increase/(Decrease)
|
|
Currency Impact
|
|
2018 Constant Currency*
|
|
Increase/(Decrease)
Constant Currency*
|
|
2019
|
|
2018
|
|
|
|
|
|
Amount
|
|
% of
Operating
Revenues
|
|
Amount
|
|
% of
Operating
Revenues
|
|
|
|
|
Labor and benefits
|
$
|
19,462
|
|
|
29.3
|
%
|
|
$
|
18,886
|
|
|
23.9
|
%
|
|
$
|
576
|
|
|
$
|
(1,417
|
)
|
|
$
|
17,469
|
|
|
$
|
1,993
|
|
Equipment rents
|
827
|
|
|
1.2
|
%
|
|
1,183
|
|
|
1.5
|
%
|
|
(356
|
)
|
|
(89
|
)
|
|
1,094
|
|
|
(267
|
)
|
Purchased services
|
5,451
|
|
|
8.2
|
%
|
|
6,895
|
|
|
8.7
|
%
|
|
(1,444
|
)
|
|
(518
|
)
|
|
6,377
|
|
|
(926
|
)
|
Depreciation and amortization
|
14,192
|
|
|
21.3
|
%
|
|
15,288
|
|
|
19.4
|
%
|
|
(1,096
|
)
|
|
(1,147
|
)
|
|
14,141
|
|
|
51
|
|
Diesel fuel used in train operations
|
6,962
|
|
|
10.5
|
%
|
|
8,173
|
|
|
10.3
|
%
|
|
(1,211
|
)
|
|
(614
|
)
|
|
7,559
|
|
|
(597
|
)
|
Casualties and insurance
|
1,573
|
|
|
2.4
|
%
|
|
1,766
|
|
|
2.2
|
%
|
|
(193
|
)
|
|
(131
|
)
|
|
1,635
|
|
|
(62
|
)
|
Materials
|
2,693
|
|
|
4.0
|
%
|
|
2,761
|
|
|
3.5
|
%
|
|
(68
|
)
|
|
(207
|
)
|
|
2,554
|
|
|
139
|
|
Trackage rights
|
1,576
|
|
|
2.4
|
%
|
|
2,364
|
|
|
3.0
|
%
|
|
(788
|
)
|
|
(178
|
)
|
|
2,186
|
|
|
(610
|
)
|
Net gain on sale and impairment of assets
|
(42
|
)
|
|
(0.1
|
)%
|
|
(67
|
)
|
|
(0.1
|
)%
|
|
25
|
|
|
5
|
|
|
(62
|
)
|
|
20
|
|
Restructuring and related costs
|
137
|
|
|
0.2
|
%
|
|
—
|
|
|
—
|
%
|
|
137
|
|
|
—
|
|
|
—
|
|
|
137
|
|
Other expenses, net
|
2,045
|
|
|
3.1
|
%
|
|
(4,116
|
)
|
|
(5.2
|
)%
|
|
6,161
|
|
|
296
|
|
|
(3,820
|
)
|
|
5,865
|
|
Total operating expenses
|
$
|
54,876
|
|
|
82.5
|
%
|
|
$
|
53,133
|
|
|
67.2
|
%
|
|
$
|
1,743
|
|
|
$
|
(4,000
|
)
|
|
$
|
49,133
|
|
|
$
|
5,743
|
|
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
The following information discusses the significant changes in operating expenses of our Australian Operations excluding a
$4.0 million
decrease
from the impact of foreign currency depreciation.
Labor and benefits expense was
$19.5 million
for the
three
months ended
June 30, 2019
, compared with
$17.5 million
for the
three
months ended
June 30, 2018
, an
increase
of
$2.0 million
, or
11.4%
. The increase was primarily due to
$2.6 million
of expense associated with amending an enterprise bargaining agreement.
Other expenses, net were
$2.0 million
for the
three
months ended
June 30, 2019
, compared with a net gain of
$3.8 million
for the
three
months ended
June 30, 2018
. The
three
months ended
June 30, 2018
included a
$6.3 million
gain on settlement related to Arrium's voluntary administration.
Operating Income/Operating Ratio
Our Australian Operations had operating income of
$11.7 million
for
the
three
months ended
June 30, 2019
, compared with
$25.9 million
for
the
three
months ended
June 30, 2018
. Operating income for the
three
months ended
June 30, 2019
included
$0.1 million
of restructuring and related costs. The operating ratio was
82.5%
for the
three
months ended
June 30, 2019
, compared with
67.2%
for the
three
months ended
June 30, 2018
.
Operating income from our Australian Operations was negatively impacted by
$1.9 million
from foreign currency depreciation, a decrease in grain volumes due to drought conditions in South Australia and New South Wales as well
as $2.6 million of expense associated with amending an enterprise bargaining agreement
. The operating income for the
three
months ended
June 30, 2018
included a gain on settlement of
$6.3 million
from the recovery of pre-petition claims associated with Arrium's voluntary administration (bankruptcy) in the second quarter of 2016.
U.K./European Operations
Operating Revenues
The following table sets forth our U.K./European Operations total operating revenues for the
three
months ended
June 30, 2019
and
2018
. The table below also reflects the calculation of our U.K./European Operations existing operations by subtracting the revenues and carloads from the divested ERS operations from our U.K./European Operations total operations for the
three
months ended
June 30, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Increase/(Decrease) in Total Operations
|
|
Increase/(Decrease) in Existing Operations
|
|
Currency Impact on 2018 Total Operations*
|
|
Currency Impact on 2018 Existing Operations*
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Total Operations
|
|
Divested Operations
|
|
Existing Operations
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
|
Freight revenues
|
$
|
81,577
|
|
|
$
|
92,289
|
|
|
$
|
6,674
|
|
|
$
|
85,615
|
|
|
$
|
(10,712
|
)
|
|
(11.6
|
)%
|
|
$
|
(4,038
|
)
|
|
(4.7
|
)%
|
|
$
|
(5,280
|
)
|
|
$
|
(4,808
|
)
|
Freight-related revenues
|
68,225
|
|
|
67,420
|
|
|
2,685
|
|
|
64,735
|
|
|
805
|
|
|
1.2
|
%
|
|
3,490
|
|
|
5.4
|
%
|
|
(3,786
|
)
|
|
(3,609
|
)
|
All other revenues
|
13,300
|
|
|
16,695
|
|
|
9
|
|
|
16,686
|
|
|
(3,395
|
)
|
|
(20.3
|
)%
|
|
(3,386
|
)
|
|
(20.3
|
)%
|
|
(944
|
)
|
|
(943
|
)
|
Total operating revenues
|
$
|
163,102
|
|
|
$
|
176,404
|
|
|
$
|
9,368
|
|
|
$
|
167,036
|
|
|
$
|
(13,302
|
)
|
|
(7.5
|
)%
|
|
$
|
(3,934
|
)
|
|
(2.4
|
)%
|
|
$
|
(10,010
|
)
|
|
$
|
(9,360
|
)
|
Carloads
|
225,065
|
|
|
256,045
|
|
|
20,823
|
|
|
235,222
|
|
|
(30,980
|
)
|
|
(12.1
|
)%
|
|
(10,157
|
)
|
|
(4.3
|
)%
|
|
|
|
|
* Currency impact was calculated by comparing the
2018
results translated from local currency to United States dollars using
2019
exchange rates to the
2018
results in United States dollars as reported.
Freight Revenues
The following table sets forth our U.K./European Operations total freight revenues for the
three
months ended
June 30, 2019
and
2018
. The table below also reflects the calculation of our U.K./European Operations existing operations by subtracting the revenues from the divested ERS operations from our U.K./European Operations total operations for the
three
months ended
June 30, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Increase/(Decrease) in Existing Operations
|
|
Currency Impact on Existing Operations
|
|
2018 Constant Currency Existing Operations*
|
|
Increase/(Decrease) in Existing Operations Constant Currency*
|
|
2019
|
|
2018
|
|
|
|
|
Commodity Group
|
|
Total Operations
|
|
Divested Operations
|
|
Existing Operations
|
|
|
|
|
Agricultural Products
|
$
|
512
|
|
|
$
|
785
|
|
|
$
|
—
|
|
|
$
|
785
|
|
|
$
|
(273
|
)
|
|
$
|
(43
|
)
|
|
$
|
742
|
|
|
$
|
(230
|
)
|
Coal & Coke
|
896
|
|
|
2,687
|
|
|
—
|
|
|
2,687
|
|
|
(1,791
|
)
|
|
(150
|
)
|
|
2,537
|
|
|
(1,641
|
)
|
Intermodal
|
58,297
|
|
|
66,483
|
|
|
6,674
|
|
|
59,809
|
|
|
(1,512
|
)
|
|
(3,311
|
)
|
|
56,498
|
|
|
1,799
|
|
Minerals & Stone
|
21,155
|
|
|
22,326
|
|
|
—
|
|
|
22,326
|
|
|
(1,171
|
)
|
|
(1,304
|
)
|
|
21,022
|
|
|
133
|
|
Petroleum Products
|
717
|
|
|
8
|
|
|
—
|
|
|
8
|
|
|
709
|
|
|
—
|
|
|
8
|
|
|
709
|
|
Total
|
$
|
81,577
|
|
|
$
|
92,289
|
|
|
$
|
6,674
|
|
|
$
|
85,615
|
|
|
$
|
(4,038
|
)
|
|
$
|
(4,808
|
)
|
|
$
|
80,807
|
|
|
$
|
770
|
|
* Constant currency amounts reflect the prior period existing operations translated at the current period exchange rates.
The following table sets forth our U.K./European Operations freight revenues, carloads and average freight revenues per carload for the
three
months ended
June 30, 2019
and
2018
(dollars in thousands, except average freight revenues per carload):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenues
|
|
Carloads
|
|
Average Freight Revenues Per
Carload
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Three Months Ended June 30,
|
|
Three Months Ended June 30,
|
|
|
2019
|
|
2018 Constant Currency*
|
|
|
Commodity Group
|
Amount
|
|
% of
Total
|
|
Amount
|
|
% of
Total
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2018 Constant Currency*
|
Agricultural Products
|
$
|
512
|
|
|
0.6
|
%
|
|
$
|
742
|
|
|
0.8
|
%
|
|
393
|
|
|
607
|
|
|
$
|
1,303
|
|
|
$
|
1,293
|
|
|
$
|
1,222
|
|
Coal & Coke
|
896
|
|
|
1.1
|
%
|
|
2,537
|
|
|
2.9
|
%
|
|
1,655
|
|
|
4,038
|
|
|
541
|
|
|
665
|
|
|
628
|
|
Intermodal
|
58,297
|
|
|
71.5
|
%
|
|
62,700
|
|
|
72.1
|
%
|
|
172,966
|
|
|
201,058
|
|
|
337
|
|
|
331
|
|
|
312
|
|
Minerals & Stone
|
21,155
|
|
|
25.9
|
%
|
|
21,022
|
|
|
24.2
|
%
|
|
46,517
|
|
|
50,322
|
|
|
455
|
|
|
444
|
|
|
418
|
|
Petroleum Products
|
717
|
|
|
0.9
|
%
|
|
8
|
|
|
—
|
%
|
|
3,534
|
|
|
20
|
|
|
203
|
|
|
400
|
|
|
400
|
|
Total
|
$
|
81,577
|
|
|
100.0
|
%
|
|
$
|
87,009
|
|
|
100.0
|
%
|
|
225,065
|
|
|
256,045
|
|
|
$
|
362
|
|
|
$
|
360
|
|
|
$
|
340
|
|
|
|
*
|
Constant currency amounts reflect the prior period results translated at the current period exchange rates.
|
Total traffic from our U.K./European Operations
decreased
30,980
carloads, or
12.1%
, to
225,065
carloads for the
three
months ended
June 30, 2019
, compared with the same period in
2018
. Excluding traffic from our divested ERS operations for 2018, existing operations traffic decreased 10,157 carloads, or 4.3%. The
decrease
in traffic from existing operations was primarily due to decreases of 7,269 carloads of intermodal traffic, 3,805 carloads of minerals and stone traffic and 2,383 carloads of coal and coke traffic, partially offset by an increase of 3,514 carloads of petroleum products traffic. All remaining traffic decreased by a net 214 carloads.
Changes in average freight revenues per carload in a commodity group may be impacted by changes in customer rates, fuel surcharges, commodity mix and the mix of customer traffic within a commodity group. Excluding a 5.9% impact of foreign currency, average freight revenues per carload from our U.K./European Operations
increased
6.5%
to
$362
for the
three
months ended
June 30, 2019
, compared with the same period in
2018
. Average freight revenues per carload from existing operations, excluding the impact of foreign currency, increased 5.2% for the
three
months ended
June 30, 2019
, compared with the same period in
2018
.
The following information discusses the significant changes in our U.K./European Operations freight revenues by commodity group excluding the impact of foreign currency and the divested ERS operations.
Coal and coke revenues
decreased
$1.6 million
, or
64.7%
. Coal and coke traffic decreased 2,383 carloads, or 59.0%, which decreased revenues by $1.3 million, and average freight revenues per carload decreased 13.7%, which decreased revenues by $0.3 million. The carload decrease was primarily due to decreased demand in the U.K.
Intermodal revenues
increased
$1.8 million
, or
3.2%
. Intermodal average freight revenues per carload increased 7.7%, which increased revenues by $4.2 million, while traffic decreased 7,269 carloads, or 4.0%, which decreased revenues by $2.4 million. The increase in average freight revenues per carload was primarily due to stronger pricing in the U.K. The decrease in carloads was primarily due to temporary rail network outages.
Freight revenues from all remaining commodities combined
increased
by a net
$0.6 million
.
Freight-Related Revenues
Freight-related revenues from our U.K./European Operations includes trucking haulage services, container storage and switching services, as well as infrastructure services where we operate work trains for the track infrastructure owner. Freight-related revenues from our U.K./European Operations also include traction services (or hook and pull), which requires us to provide locomotives and drivers to move a customer's train between specified origin and destination points and other ancillary revenues related to the movement of freight.
Freight-related revenues from our U.K./European Operations were
$68.2 million
for the
three
months ended
June 30, 2019
, compared with
$67.4 million
for the
three
months ended
June 30, 2018
, an
increase
of
$0.8 million
, or
1.2%
. Excluding a decrease of
$3.8 million
due to the impact of foreign currency depreciation and
$2.5 million
from our divested ERS operations, freight-related revenues from our existing operations increased
$7.1 million
, or
11.6%
, for the
three
months ended
June 30, 2019
, compared with
$61.1 million
for the
three
months ended
June 30, 2018
. The increase in freight-related revenues from our existing operations was primarily due to increased rates on trucking, switching and storage revenues and stronger trucking volumes in the U.K. as well as increased crewing services in Poland.
All Other Revenues
All other revenues from our U.K./European Operations includes revenues from container sales and conversions, third-party car and locomotive repairs, property rentals and other ancillary revenues not directly related to the movement of freight. All other revenues from our U.K./European Operations were
$13.3 million
for the
three
months ended
June 30, 2019
, compared with
$16.7 million
for the
three
months ended
June 30, 2018
, a
decrease
of
$3.4 million
, or
20.3%
. Excluding a
$0.9 million
decrease
due to the impact of foreign currency depreciation, all other revenues from our existing operations decreased
$2.4 million
, or
15.5%
, for the
three
months ended
June 30, 2019
, compared with the
three
months ended
June 30, 2018
. The decrease in all other revenues from our existing operations was primarily due to decreased container sales.
Operating Expenses
Total operating expenses from our U.K./European Operations
decreased
$14.6 million
, or
8.2%
, to
$164.8 million
for the
three
months ended
June 30, 2019
, compared with
$179.4 million
for the
three
months ended
June 30, 2018
. The decrease consisted of
$10.1 million
due to the impact of foreign currency depreciation and
$7.7 million
from divested operations, partially offset by a
$3.2 million
increase from existing operations. The increase from existing operations included increases of
$3.6 million
in labor and benefits expense and
$2.1 million
in purchased services expense, partially offset by decreases of
$2.1 million
in restructuring and related costs and
$1.5 million
in materials expense.
The following table sets forth operating expenses from our U.K./European Operations for the
three
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Increase/(Decrease)
|
|
Currency Impact
|
|
2018 Constant Currency*
|
|
Increase/(Decrease)
Constant Currency*
|
|
2019
|
|
2018
|
|
|
|
|
|
Amount
|
|
% of
Operating
Revenues
|
|
Amount
|
|
% of
Operating
Revenues
|
|
|
|
|
Labor and benefits
|
$
|
52,023
|
|
|
31.9
|
%
|
|
$
|
51,663
|
|
|
29.3
|
%
|
|
$
|
360
|
|
|
$
|
(2,894
|
)
|
|
$
|
48,769
|
|
|
$
|
3,254
|
|
Equipment rents
|
18,926
|
|
|
11.6
|
%
|
|
19,986
|
|
|
11.3
|
%
|
|
(1,060
|
)
|
|
(1,133
|
)
|
|
18,853
|
|
|
73
|
|
Purchased services
|
31,762
|
|
|
19.5
|
%
|
|
39,498
|
|
|
22.4
|
%
|
|
(7,736
|
)
|
|
(2,301
|
)
|
|
37,197
|
|
|
(5,435
|
)
|
Depreciation and amortization
|
9,587
|
|
|
5.9
|
%
|
|
9,210
|
|
|
5.2
|
%
|
|
377
|
|
|
(517
|
)
|
|
8,693
|
|
|
894
|
|
Diesel fuel used in train operations
|
12,870
|
|
|
7.9
|
%
|
|
14,197
|
|
|
8.0
|
%
|
|
(1,327
|
)
|
|
(794
|
)
|
|
13,403
|
|
|
(533
|
)
|
Electricity used in train operations
|
2,226
|
|
|
1.4
|
%
|
|
2,044
|
|
|
1.2
|
%
|
|
182
|
|
|
(113
|
)
|
|
1,931
|
|
|
295
|
|
Casualties and insurance
|
1,288
|
|
|
0.8
|
%
|
|
1,062
|
|
|
0.6
|
%
|
|
226
|
|
|
(64
|
)
|
|
998
|
|
|
290
|
|
Materials
|
14,050
|
|
|
8.6
|
%
|
|
16,452
|
|
|
9.3
|
%
|
|
(2,402
|
)
|
|
(927
|
)
|
|
15,525
|
|
|
(1,475
|
)
|
Trackage rights
|
9,245
|
|
|
5.7
|
%
|
|
10,412
|
|
|
5.9
|
%
|
|
(1,167
|
)
|
|
(590
|
)
|
|
9,822
|
|
|
(577
|
)
|
Net gain on sale and impairment of assets
|
(15
|
)
|
|
—
|
%
|
|
(50
|
)
|
|
—
|
%
|
|
35
|
|
|
(19
|
)
|
|
(69
|
)
|
|
54
|
|
Restructuring and related costs
|
6,783
|
|
|
4.1
|
%
|
|
9,355
|
|
|
5.3
|
%
|
|
(2,572
|
)
|
|
(481
|
)
|
|
8,874
|
|
|
(2,091
|
)
|
Other expenses, net
|
6,073
|
|
|
3.7
|
%
|
|
5,620
|
|
|
3.2
|
%
|
|
453
|
|
|
(312
|
)
|
|
5,308
|
|
|
765
|
|
Total operating expenses
|
$
|
164,818
|
|
|
101.1
|
%
|
|
$
|
179,449
|
|
|
101.7
|
%
|
|
$
|
(14,631
|
)
|
|
$
|
(10,145
|
)
|
|
$
|
169,304
|
|
|
$
|
(4,486
|
)
|
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
The following information discusses the significant changes in operating expenses from our U.K./European Operations excluding a
decrease
of
$10.1 million
due to the impact of foreign currency depreciation.
Labor and benefits expense was
$52.0 million
for the
three
months ended
June 30, 2019
, compared with
$48.8 million
for the
three
months ended
June 30, 2018
, an
increase
of
$3.3 million
, or
6.7%
. The
increase
consisted of
$3.6 million
from existing operations, partially offset by a
$0.3 million
decrease from our divested ERS operations. The increase from existing operations was primarily due to annual wage increases and an increase in headcount to support increased infrastructure services and new aggregate business expected to commence in the fourth quarter of 2019, partially offset by savings resulting from the U.K. operations optimization program.
Purchased services expense was
$31.8 million
for the
three
months ended
June 30, 2019
, compared with
$37.2 million
for the
three
months ended
June 30, 2018
, a
decrease
of
$5.4 million
, or
14.6%
. The
decrease
consisted of
$7.6 million
from our divested ERS operations, partially offset by an increase of
$2.1 million
from existing operations. The increase from existing operations was primarily due to an increase in subcontractor costs associated with trucking activity.
Materials expense, which primarily consists of the cost of containers sold to third parties, materials purchased for use in repairing and maintaining our locomotives, railcars and other equipment, as well as costs for general tools and supplies used in our business, was
$14.1 million
for the
three
months ended
June 30, 2019
, compared with
$15.5 million
for the
three
months ended
June 30, 2018
, a
decrease
of
$1.5 million
, or
9.5%
. The decrease was primarily due to a decrease in container sales.
Restructuring and related costs for the
three
months ended
June 30, 2019
and
2018
of
$6.8 million
and
$8.9 million
, respectively, were primarily related to our optimization activities in the U.K.
Operating Loss/Operating Ratio
Operating loss from our U.K./European Operations was
$1.7 million
for the
three
months ended
June 30, 2019
, compared with an operating loss of
$3.0 million
for the
three
months ended
June 30, 2018
. The operating loss for the
three
months ended
June 30, 2019
included
$6.8 million
of restructuring and related costs primarily driven by our optimization activities in the U.K. The operating loss for the
three
months ended
June 30, 2018
included
$9.4 million
, or
$8.9 million
excluding the impact of foreign currency, of restructuring and related costs. The operating ratio was
101.1%
for the
three
months ended
June 30, 2019
, compared with
101.7%
for the
three
months ended
June 30, 2018
.
Six Months Ended
June 30, 2019
Compared with
Six Months Ended
June 30, 2018
Consolidated Operating Results
Operating Revenues
The following table sets forth our total operating revenues and carloads for the
six
months ended
June 30, 2019
and
2018
. The table below also reflects the calculation of our existing operations by subtracting the 2018 revenues and carloads of the divested operations of ERS and the leased railroads in Canada that we ceased operating at the end of 2018, from our total operations for the
six
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Increase/(Decrease) in
Total Operations
|
|
Increase/(Decrease) in
Existing Operations
|
|
Currency Impact on 2018 Total Operations*
|
|
Currency Impact on 2018 Existing Operations*
|
|
|
|
2018
|
|
|
|
|
|
2019
|
|
Total Operations
|
|
Divested Operations
|
|
Existing Operations
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
|
Freight revenues
|
$
|
786,470
|
|
|
$
|
817,871
|
|
|
$
|
23,905
|
|
|
$
|
793,966
|
|
|
$
|
(31,401
|
)
|
|
(3.8
|
)%
|
|
$
|
(7,496
|
)
|
|
(0.9
|
)%
|
|
$
|
(24,258
|
)
|
|
$
|
(22,720
|
)
|
Freight-related revenues
|
278,658
|
|
|
283,599
|
|
|
10,325
|
|
|
273,274
|
|
|
(4,941
|
)
|
|
(1.7
|
)%
|
|
$
|
5,384
|
|
|
2.0
|
%
|
|
(10,563
|
)
|
|
(9,948
|
)
|
All other revenues
|
64,441
|
|
|
68,181
|
|
|
958
|
|
|
67,223
|
|
|
(3,740
|
)
|
|
(5.5
|
)%
|
|
$
|
(2,782
|
)
|
|
(4.1
|
)%
|
|
(2,474
|
)
|
|
(2,432
|
)
|
Total operating revenues
|
$
|
1,129,569
|
|
|
$
|
1,169,651
|
|
|
$
|
35,188
|
|
|
$
|
1,134,463
|
|
|
$
|
(40,082
|
)
|
|
(3.4
|
)%
|
|
$
|
(4,894
|
)
|
|
(0.4
|
)%
|
|
$
|
(37,295
|
)
|
|
$
|
(35,100
|
)
|
Carloads
|
1,527,868
|
|
|
1,645,676
|
|
|
67,094
|
|
|
1,578,582
|
|
|
(117,808
|
)
|
|
(7.2
|
)%
|
|
(50,714
|
)
|
|
(3.2
|
)%
|
|
|
|
|
* Currency impact was calculated by comparing the
2018
results translated from local currency to United States dollars using
2019
exchange rates to the
2018
results in United States dollars as reported.
Operating Expenses
Total operating expenses for the
six
months ended
June 30, 2019
decreased
$24.0 million
, or
2.4%
, to
$955.7 million
, compared with
$979.6 million
for the
six
months ended
June 30, 2018
. The decrease consisted of
$34.0 million
from divested operations, partially offset by an increase of
$10.1 million
from existing operations. Excluding a
$31.9 million
benefit from the net
depreciation
of foreign currencies relative to the United States dollar, operating expenses from existing operations increased
$42.0 million
. The
increase
from existing operations included increases of
$13.3 million
in labor and benefits expense,
$8.4 million
in other expenses, net,
$7.2 million
of purchased services expense,
$6.0 million
in restructuring and related costs and
$4.5 million
in depreciation and amortization expense.
The following table sets forth our total operating expenses for the
six
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Increase/(Decrease)
|
|
Currency
Impact
|
|
2018 Constant Currency*
|
|
Increase/(Decrease)
Constant Currency*
|
|
2019
|
|
2018
|
|
|
|
|
|
Amount
|
|
% of
Operating
Revenues
|
|
Amount
|
|
% of
Operating
Revenues
|
|
|
|
Labor and benefits
|
$
|
364,251
|
|
|
32.3
|
%
|
|
$
|
363,554
|
|
|
31.1
|
%
|
|
$
|
697
|
|
|
$
|
(10,393
|
)
|
|
$
|
353,161
|
|
|
$
|
11,090
|
|
Equipment rents
|
64,243
|
|
|
5.7
|
%
|
|
68,889
|
|
|
5.9
|
%
|
|
(4,646
|
)
|
|
(2,944
|
)
|
|
65,945
|
|
|
(1,702
|
)
|
Purchased services
|
105,282
|
|
|
9.3
|
%
|
|
125,147
|
|
|
10.7
|
%
|
|
(19,865
|
)
|
|
(6,561
|
)
|
|
118,586
|
|
|
(13,304
|
)
|
Depreciation and amortization
|
125,143
|
|
|
11.1
|
%
|
|
131,735
|
|
|
11.3
|
%
|
|
(6,592
|
)
|
|
(4,336
|
)
|
|
127,399
|
|
|
(2,256
|
)
|
Diesel fuel used in train operations
|
86,141
|
|
|
7.6
|
%
|
|
91,774
|
|
|
7.9
|
%
|
|
(5,633
|
)
|
|
(3,344
|
)
|
|
88,430
|
|
|
(2,289
|
)
|
Electricity used in train operations
|
4,550
|
|
|
0.4
|
%
|
|
4,278
|
|
|
0.4
|
%
|
|
272
|
|
|
(283
|
)
|
|
3,995
|
|
|
555
|
|
Casualties and insurance
|
23,211
|
|
|
2.1
|
%
|
|
22,950
|
|
|
2.0
|
%
|
|
261
|
|
|
(528
|
)
|
|
22,422
|
|
|
789
|
|
Materials
|
62,514
|
|
|
5.5
|
%
|
|
64,845
|
|
|
5.5
|
%
|
|
(2,331
|
)
|
|
(2,589
|
)
|
|
62,256
|
|
|
258
|
|
Trackage rights
|
43,367
|
|
|
3.8
|
%
|
|
44,281
|
|
|
3.8
|
%
|
|
(914
|
)
|
|
(1,724
|
)
|
|
42,557
|
|
|
810
|
|
Net gain on sale and impairment of assets
|
(510
|
)
|
|
—
|
%
|
|
(1,859
|
)
|
|
(0.2
|
)%
|
|
1,349
|
|
|
(2
|
)
|
|
(1,861
|
)
|
|
1,351
|
|
Restructuring costs
|
15,195
|
|
|
1.3
|
%
|
|
9,645
|
|
|
0.8
|
%
|
|
5,550
|
|
|
(497
|
)
|
|
9,148
|
|
|
6,047
|
|
Other expenses, net
|
62,272
|
|
|
5.5
|
%
|
|
54,374
|
|
|
4.6
|
%
|
|
7,898
|
|
|
(818
|
)
|
|
53,556
|
|
|
8,716
|
|
Total operating expenses
|
$
|
955,659
|
|
|
84.6
|
%
|
|
$
|
979,613
|
|
|
83.8
|
%
|
|
$
|
(23,954
|
)
|
|
$
|
(34,019
|
)
|
|
$
|
945,594
|
|
|
$
|
10,065
|
|
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
Operating Income/Operating Ratio
Operating income was
$173.9 million
for the
six
months ended
June 30, 2019
, compared with
$190.0 million
for the
six
months ended
June 30, 2018
. Operating income for the
six
months ended
June 30, 2019
included restructuring and related costs of
$15.2 million
, primarily driven by our optimization activities in the U.K.,
$2.9 million
of corporate development and related costs,
$2.6 million
of expense associated with amending an enterprise bargaining agreement in Australia and a
$1.0 million
net loss on the sale and impairment of certain assets in North America. Operating income for the
six
months ended
June 30, 2018
included restructuring and related costs of
$9.6 million
, primarily related to the restructuring of ERS, and corporate development and related costs of
$0.5 million
, partially offset by a
$6.3 million
gain on settlement related to Arrium's voluntary administration. Our operating ratio was
84.6%
for the
six
months ended
June 30, 2019
, compared with
83.8%
for the
six
months ended
June 30, 2018
.
Interest Expense
Interest expense was
$55.0 million
for the
six
months ended
June 30, 2019
, compared with
$54.2 million
for the
six
months ended
June 30, 2018
. The increase in interest expense for the
six
months ended
June 30, 2019
was primarily driven by an increase in interest rates as compared with the
six
months ended
June 30, 2018
and an increase in outstanding borrowing primarily related to the funding of our share repurchases, partially offset by the write-off of deferred financing fees associated with our credit facility refinancing in June 2018.
Provision for Income Taxes
Our provision for income taxes for the
six
months ended
June 30, 2019
was
$33.1 million
compared with
$10.6 million
for the
six
months ended
June 30, 2018
. Our effective income tax rate for the
six
months ended
June 30, 2019
was
26.9%
. Our results for the
six
months ended
June 30, 2018
included an income tax benefit of
$31.6 million
associated with the retroactive extension of the United States Short Line Tax Credit for fiscal year 2017, which was enacted in February 2018. Based on developments during the
six
months ended
June 30, 2018
, we recorded a reserve for uncertain tax positions of
$4.8 million
related to tax deductions on intercompany financing arrangements in the U.K., of which
$3.7 million
related to the period from March 25, 2015, the date of the Freightliner acquisition when the arrangements were established, through December 31, 2017. Excluding the benefit from the retroactive extension and the prior period portion of the reserve for uncertain tax positions, our effective income tax rate for the
six
months ended
June 30, 2018
was
28.5%
. For additional information regarding our provision for income taxes, see Note
9
,
Income Taxes
, to our Consolidated Financial Statements set forth in "Part I Item 1. Financial Statements" of this quarterly report.
Net Income Attributable to G&W and Earnings Per Common Share
Net income attributable to G&W for the
six
months ended
June 30, 2019
was
$90.1 million
, compared with
$119.3 million
for the
six
months ended
June 30, 2018
. Our basic EPS were
$1.60
with
56.4 million
weighted average shares outstanding for the
six
months ended
June 30, 2019
, compared with basic EPS of
$1.96
with
60.9 million
weighted average shares outstanding for the
six
months ended
June 30, 2018
. Our diluted EPS for the
six
months ended
June 30, 2019
were
$1.58
with
57.2 million
weighted average shares outstanding, compared with diluted EPS of
$1.93
with
61.8 million
weighted average shares outstanding for the
six
months ended
June 30, 2018
. Our results for the
six
months ended
June 30, 2019
and
2018
included certain items affecting comparability between the periods as previously presented in the "Overview—Overview of Six-Month Results—Items Affecting Comparability."
Net Income Attributable to Noncontrolling Interest
We own a
51.1%
controlling interest in our Australian Operations. As such, we include
100%
of the revenues and expenses from our Australian Operations within our consolidated financial statements and report a noncontrolling interest for MIRA’s
48.9%
equity ownership. Net income attributable to noncontrolling interest for the
six
months ended
June 30, 2019
was less than $0.1 million, compared with
$5.4 million
for
six
months ended
June 30, 2018
.
North American Operations
Operating Revenues
The following table sets forth our North American Operations total operating revenues and carloads for the
six
months ended
June 30, 2019
and
2018
. The table also reflects the calculation of our existing operations by subtracting the 2018 revenues and carloads from the Canadian leases that expired at the end of
2018
from our total operations for the
six
months ended
June 30, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Increase/(Decrease) in
Total Operations
|
|
Increase/(Decrease) in Existing Operations
|
|
Currency Impact on 2018 Total Operations*
|
|
Currency Impact on 2018 Existing Operations*
|
|
|
|
2018
|
|
|
|
|
|
2019
|
|
Total Operations
|
|
Divested Operations
|
|
Existing Operations
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
|
Freight revenues
|
$
|
510,944
|
|
|
$
|
505,285
|
|
|
$
|
6,819
|
|
|
$
|
498,466
|
|
|
$
|
5,659
|
|
|
1.1
|
%
|
|
$
|
12,478
|
|
|
2.5
|
%
|
|
$
|
(1,533
|
)
|
|
$
|
(1,258
|
)
|
Freight-related revenues
|
130,611
|
|
|
127,299
|
|
|
3,319
|
|
|
123,980
|
|
|
3,312
|
|
|
2.6
|
%
|
|
6,631
|
|
|
5.3
|
%
|
|
(493
|
)
|
|
(352
|
)
|
All other revenues
|
32,738
|
|
|
32,603
|
|
|
937
|
|
|
31,666
|
|
|
135
|
|
|
0.4
|
%
|
|
1,072
|
|
|
3.4
|
%
|
|
(256
|
)
|
|
(216
|
)
|
Total operating revenues
|
$
|
674,293
|
|
|
$
|
665,187
|
|
|
$
|
11,075
|
|
|
$
|
654,112
|
|
|
$
|
9,106
|
|
|
1.4
|
%
|
|
$
|
20,181
|
|
|
3.1
|
%
|
|
$
|
(2,282
|
)
|
|
$
|
(1,826
|
)
|
Carloads
|
800,752
|
|
|
836,366
|
|
|
16,145
|
|
|
820,221
|
|
|
(35,614
|
)
|
|
(4.3
|
)%
|
|
(19,469
|
)
|
|
(2.4
|
)%
|
|
|
|
|
* Currency impact was calculated by comparing the
2018
results translated from local currency to United States dollars using
2019
exchange rates to the
2018
results in United States dollars as reported.
Freight Revenues
The following table sets forth our North American Operations total freight revenues for the
six
months ended
June 30, 2019
and
2018
. The table below also reflects the calculation of our existing operations by subtracting the revenues and carloads from the Canadian leases that expired at the end of 2018 from our total operations for the
six
months ended
June 30, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Increase/(Decrease) in Existing Operations
|
|
Currency Impact on Existing Operations
|
|
2018 Constant Currency Existing Operations*
|
|
Increase/(Decrease) in Existing Operations Constant Currency*
|
|
|
|
2018
|
|
|
|
|
Commodity Group
|
2019
|
|
Total Operations
|
|
Divested Operations
|
|
Existing Operations
|
|
|
|
|
Agricultural Products
|
$
|
64,809
|
|
|
$
|
61,065
|
|
|
$
|
1,007
|
|
|
$
|
60,058
|
|
|
$
|
4,751
|
|
|
$
|
(123
|
)
|
|
$
|
59,935
|
|
|
$
|
4,874
|
|
Autos & Auto Parts
|
11,566
|
|
|
11,173
|
|
|
481
|
|
|
10,692
|
|
|
874
|
|
|
(53
|
)
|
|
10,639
|
|
|
927
|
|
Chemicals & Plastics
|
76,986
|
|
|
75,189
|
|
|
1,368
|
|
|
73,821
|
|
|
3,165
|
|
|
(206
|
)
|
|
73,615
|
|
|
3,371
|
|
Coal & Coke
|
37,753
|
|
|
39,032
|
|
|
—
|
|
|
39,032
|
|
|
(1,279
|
)
|
|
(62
|
)
|
|
38,970
|
|
|
(1,217
|
)
|
Food & Kindred Products
|
17,204
|
|
|
16,826
|
|
|
326
|
|
|
16,500
|
|
|
704
|
|
|
(5
|
)
|
|
16,495
|
|
|
709
|
|
Intermodal
|
978
|
|
|
689
|
|
|
—
|
|
|
689
|
|
|
289
|
|
|
(1
|
)
|
|
688
|
|
|
290
|
|
Lumber & Forest Products
|
45,376
|
|
|
46,249
|
|
|
187
|
|
|
46,062
|
|
|
(686
|
)
|
|
(88
|
)
|
|
45,974
|
|
|
(598
|
)
|
Metallic Ores
|
5,658
|
|
|
7,243
|
|
|
3
|
|
|
7,240
|
|
|
(1,582
|
)
|
|
(72
|
)
|
|
7,168
|
|
|
(1,510
|
)
|
Metals
|
58,917
|
|
|
60,887
|
|
|
983
|
|
|
59,904
|
|
|
(987
|
)
|
|
(147
|
)
|
|
59,757
|
|
|
(840
|
)
|
Minerals & Stone
|
70,407
|
|
|
68,552
|
|
|
527
|
|
|
68,025
|
|
|
2,382
|
|
|
(63
|
)
|
|
67,962
|
|
|
2,445
|
|
Petroleum Products
|
37,752
|
|
|
34,634
|
|
|
1,357
|
|
|
33,277
|
|
|
4,475
|
|
|
(101
|
)
|
|
33,176
|
|
|
4,576
|
|
Pulp & Paper
|
58,292
|
|
|
58,385
|
|
|
83
|
|
|
58,302
|
|
|
(10
|
)
|
|
(297
|
)
|
|
58,005
|
|
|
287
|
|
Waste
|
14,826
|
|
|
13,227
|
|
|
117
|
|
|
13,110
|
|
|
1,716
|
|
|
(4
|
)
|
|
13,106
|
|
|
1,720
|
|
Other
|
10,420
|
|
|
12,134
|
|
|
380
|
|
|
11,754
|
|
|
(1,334
|
)
|
|
(36
|
)
|
|
11,718
|
|
|
(1,298
|
)
|
Total
|
$
|
510,944
|
|
|
$
|
505,285
|
|
|
$
|
6,819
|
|
|
$
|
498,466
|
|
|
$
|
12,478
|
|
|
$
|
(1,258
|
)
|
|
$
|
497,208
|
|
|
$
|
13,736
|
|
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
The following table sets forth our North American Operations freight revenues, carloads and average freight revenues per carload for the
six
months ended
June 30, 2019
and
2018
(dollars in thousands, except average freight revenues per carload):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenues
|
|
Carloads
|
|
Average Freight Revenues Per
Carload
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2019
|
|
2018 Constant Currency*
|
|
|
Commodity Group
|
Amount
|
|
% of
Total
|
|
Amount
|
|
% of
Total
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2018 Constant Currency*
|
Agricultural Products
|
$
|
64,809
|
|
|
12.7
|
%
|
|
$
|
60,900
|
|
|
12.1
|
%
|
|
110,389
|
|
|
105,526
|
|
|
$
|
587
|
|
|
$
|
579
|
|
|
$
|
577
|
|
Autos & Auto Parts
|
11,566
|
|
|
2.3
|
%
|
|
11,101
|
|
|
2.2
|
%
|
|
17,460
|
|
|
17,822
|
|
|
662
|
|
|
627
|
|
|
623
|
|
Chemicals & Plastics
|
76,986
|
|
|
15.1
|
%
|
|
74,928
|
|
|
14.9
|
%
|
|
85,304
|
|
|
88,627
|
|
|
902
|
|
|
848
|
|
|
845
|
|
Coal & Coke
|
37,753
|
|
|
7.4
|
%
|
|
38,970
|
|
|
7.7
|
%
|
|
102,210
|
|
|
121,312
|
|
|
369
|
|
|
322
|
|
|
321
|
|
Food & Kindred Products
|
17,204
|
|
|
3.4
|
%
|
|
16,808
|
|
|
3.4
|
%
|
|
29,064
|
|
|
30,090
|
|
|
592
|
|
|
559
|
|
|
559
|
|
Intermodal
|
978
|
|
|
0.2
|
%
|
|
688
|
|
|
0.1
|
%
|
|
7,793
|
|
|
6,900
|
|
|
125
|
|
|
100
|
|
|
100
|
|
Lumber & Forest Products
|
45,376
|
|
|
8.9
|
%
|
|
46,153
|
|
|
9.2
|
%
|
|
68,085
|
|
|
73,983
|
|
|
666
|
|
|
625
|
|
|
624
|
|
Metallic Ores
|
5,658
|
|
|
1.0
|
%
|
|
7,170
|
|
|
1.4
|
%
|
|
7,415
|
|
|
8,844
|
|
|
763
|
|
|
819
|
|
|
811
|
|
Metals
|
58,917
|
|
|
11.5
|
%
|
|
60,702
|
|
|
12.1
|
%
|
|
72,110
|
|
|
76,044
|
|
|
817
|
|
|
801
|
|
|
798
|
|
Minerals & Stone
|
70,407
|
|
|
13.8
|
%
|
|
68,468
|
|
|
13.6
|
%
|
|
109,510
|
|
|
109,852
|
|
|
643
|
|
|
624
|
|
|
623
|
|
Petroleum Products
|
37,752
|
|
|
7.4
|
%
|
|
34,476
|
|
|
6.8
|
%
|
|
50,879
|
|
|
50,000
|
|
|
742
|
|
|
693
|
|
|
690
|
|
Pulp & Paper
|
58,292
|
|
|
11.4
|
%
|
|
58,085
|
|
|
11.5
|
%
|
|
79,256
|
|
|
83,119
|
|
|
735
|
|
|
702
|
|
|
699
|
|
Waste
|
14,826
|
|
|
2.9
|
%
|
|
13,218
|
|
|
2.6
|
%
|
|
28,305
|
|
|
26,818
|
|
|
524
|
|
|
493
|
|
|
493
|
|
Other
|
10,420
|
|
|
2.0
|
%
|
|
12,085
|
|
|
2.4
|
%
|
|
32,972
|
|
|
37,429
|
|
|
316
|
|
|
324
|
|
|
323
|
|
Total
|
$
|
510,944
|
|
|
100.0
|
%
|
|
$
|
503,752
|
|
|
100.0
|
%
|
|
800,752
|
|
|
836,366
|
|
|
$
|
638
|
|
|
$
|
604
|
|
|
$
|
602
|
|
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
Total traffic from our North American Operations
decreased
35,614
carloads, or
4.3%
, for the
six
months ended
June 30, 2019
, compared with the same period in
2018
.
Excluding traffic from the Canadian leases that expired at the end of 2018, existing operations traffic
decreased
19,469
carloads, or
2.4%
. The
decrease
in traffic from existing operations was primarily due to decreases of 19,102 carloads of coal and coke traffic, 5,404 carloads of lumber and forest products traffic, 3,695 carloads of pulp and paper traffic, 3,143 carloads of other commodities traffic, 1,422 carloads of metallic ores traffic and 1,053 carloads of metals traffic, partially offset by increases of 7,191 carloads of agricultural products traffic, 2,509 carloads of petroleum products traffic, 1,670 carloads of waste traffic and 1,378 carloads of minerals and stone traffic. All remaining traffic increased by a net 1,602 carloads.
Changes in average freight revenues per carload in a commodity group may be impacted by changes in customer rates, fuel surcharges, commodity mix and the mix of customer traffic within a commodity group. Excluding a 0.4% impact of foreign currency, average freight revenues per carload from our North American Operations
increased
6.0%
to
$638
for the
six
months ended
June 30, 2019
, compared with the same period in
2018
. Average freight revenues per carload from existing operations, excluding the impact of foreign currency,
increased
5.3%
to
$638
for the
six
months ended
June 30, 2019
, compared with the same period in
2018
. The increase in average freight revenues per carload from existing operations was impacted by higher fuel surcharges, which increased average freight revenues per carload by 0.9%, and a change in the mix of commodities, which increased average freight revenues per carload by 0.9%. Excluding these factors, average freight revenues per carload increased 3.4%.
The following information discusses the significant changes in our North American Operations freight revenues from existing operations by commodity group excluding the impact of foreign currency.
Agricultural products revenues
increased
$4.9 million
, or
8.1%
. Agricultural products traffic increased 7,191 carloads, or 7.0%, which increased revenues by $4.2 million, and average freight revenues per carload increased 1.0%, which increased revenues by $0.7 million. The increase in carloads was primarily due to increased farm products and soybean shipments in the western United States and increased grain and dried distillers' grains in the midwestern United States, partially offset by decreased grain shipments in Canada.
Chemicals and plastics revenues
increased
$3.4 million
, or
4.6%
, primarily due to an increase in average freight revenues per carload of 4.3%, which increased revenues $3.2 million. Traffic remained relatively flat at a net increase of 171 carloads, or 0.2%, which increased revenues by $0.2 million. The increase in average revenue per carload was primarily related to increased sulphuric acid shipments in the western United States.
Coal and coke revenues
decreased
$1.2 million
, or
3.1%
. Coal and coke traffic decreased 19,102 carloads, or 15.7%, which decreased revenues by $7.0 million, while average freight revenues per carload increased 15.0%, which increased revenues by $5.8 million. The decrease in carloads was primarily due to decreased demand in the midwestern and southern United States. The increase in average freight revenues per carload was primarily due to a change in the mix of business.
Metallic ores revenues
decreased
$1.5 million
, or
21.1%
. Metallic ores traffic decreased 1,422 carloads, or 16.1%, which decreased revenues by $1.1 million, and average freight revenues per carload decreased 5.9%, which decreased revenues by $0.4 million. The decrease in carloads was primarily due to decreased copper shipments in the western United States and decreased alumina shipments in Canada.
Minerals and stone revenues
increased
$2.4 million
, or
3.6%
. Minerals and stone average freight revenues per carload increased 2.2%, which increased revenues by $1.6 million, and traffic increased 1,378 carloads, or 1.3%, which increased revenues by $0.9 million. The increase in average freight revenue per carload was primarily due to stronger pricing and increased fuel surcharge revenues. The increase in carloads was primarily due to increased rock salt and sand shipments in the northeastern United States, partially offset by decreased aggregates shipments in the western United States and decreased sand shipments in the southern United States.
Petroleum products revenues
increased
$4.6 million
, or
13.8%
. Petroleum products average freight revenues per carload increased 8.2%, which increased revenues by $2.7 million, and traffic increased 2,509 carloads, or 5.2%, which increased revenues by $1.9 million. The increase in average freight revenues per carload was primarily due to stronger pricing and increased fuel surcharge revenues. The increase in carloads was primarily due to increased liquid petroleum gas shipments in the western and southern United States and increased other petroleum products shipments in the northeastern United States, partially offset by decreased liquid petroleum gas and other petroleum products shipments in Canada.
Waste revenues
increased
$1.7 million
, or
13.1%
. Waste traffic increased 1,670 carloads, or 6.3%, which increased revenues by $0.9 million, and average freight revenues per carload increased 6.5%, which increased revenues by $0.8 million. The increase in carloads was primarily due to increased waste carloads in the northeastern United States.
Other revenues
decreased
$1.3 million
, or
11.1%
. Other traffic decreased 3,143 carloads, or 8.7%, which decreased revenues by $1.0 million, and average freight revenues per carload decreased 2.5%, which decreased revenues by $0.3 million. The decrease in carloads was primarily due to decreased empty car traffic across North America. The decrease in average freight revenues per carload was primarily due to decreased shipments of wind tower components in the midwestern United States.
Freight revenues from all remaining commodities combined
increased
by a net
$0.8 million
.
Freight-Related Revenues
Freight-related revenues from our North American Operations, which includes revenues from railcar switching, track access fees, storage and other ancillary revenues related to the movement of freight, were
$130.6 million
for the
six
months ended
June 30, 2019
, compared with
$127.3 million
for the
six
months ended
June 30, 2018
, an
increase
of
$3.3 million
, or
2.6%
. Excluding a decrease of
$3.3 million
in revenues from leased railroads in Canada that we ceased operating at the end of 2018, and a
$0.4 million
decrease due to the impact of foreign currency depreciation, freight-related revenues from our North American Operations
increased
$7.0 million
, or
5.6%
, for the
six
months ended
June 30, 2019
, compared with
$123.6 million
for the
six
months ended
June 30, 2018
. The increase was primarily due to increased demurrage revenues across North America.
All Other Revenues
All other revenues from our North American Operations, which includes revenues from third-party railcar and locomotive repairs, property rentals and other ancillary revenues not directly related to the movement of freight, were
$32.7 million
for the
six
months ended
June 30, 2019
, compared with
$32.6 million
for the
six
months ended
June 30, 2018
, an
increase
of
$0.1 million
, or
0.4%
. Excluding a decrease of
$0.9 million
in revenues from the Canadian leases that expired at the end of 2018 and a
$0.2 million
decrease due to the impact of foreign currency depreciation, all other revenues from our North American Operations
increased
$1.3 million
, or
4.1%
, for the
six
months ended
June 30, 2019
, compared with
$31.5 million
for the
six
months ended
June 30, 2018
. The increase was primarily due to increases in other rental revenues in the western and midwestern United States.
Operating Expenses
Total operating expenses from our North American Operations
increased
$9.0 million
, or
1.8%
, to
$520.7 million
for the
six
months ended
June 30, 2019
, compared with
$511.8 million
for the
six
months ended
June 30, 2018
. The increase included an
$11.1 million
decrease in expenses from the two leased railroads in Canada that we ceased operating at the end of 2018, and a
$2.2 million
decrease
due to the impact of foreign currency depreciation, partially offset by a
$22.2 million
increase
from existing operations. The
increase
from existing operations was primarily due to increases of
$6.8 million
in labor and benefits expense,
$5.3 million
in purchased services expense,
$2.6 million
in depreciation and amortization expense,
$2.5 million
in trackage rights expense,
$1.6 million
in materials expense,
$1.4 million
in casualties and insurance expense and
$1.2 million
in restructuring and related costs, partially offset by a decrease of
$1.3 million
in equipment rents expense. The
six
months ended
June 30, 2019
also included a
$0.4 million
net loss on the sale and impairment of assets compared with a
$1.6 million
net gain on the sale and impairment of assets for the
six
months ended
June 30, 2018
.
The following table sets forth operating expenses from our North American Operations for the
six
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Increase/(Decrease)
|
|
Currency
Impact
|
|
2018 Constant Currency*
|
|
Increase/(Decrease) Constant Currency*
|
|
2019
|
|
2018
|
|
|
|
|
|
Amount
|
|
% of
Operating
Revenues
|
|
Amount
|
|
% of
Operating
Revenues
|
|
|
|
|
Labor and benefits
|
$
|
225,810
|
|
|
33.5
|
%
|
|
$
|
221,206
|
|
|
33.3
|
%
|
|
$
|
4,604
|
|
|
$
|
(800
|
)
|
|
$
|
220,406
|
|
|
$
|
5,404
|
|
Equipment rents
|
24,534
|
|
|
3.6
|
%
|
|
26,133
|
|
|
3.9
|
%
|
|
(1,599
|
)
|
|
(99
|
)
|
|
26,034
|
|
|
(1,500
|
)
|
Purchased services
|
33,116
|
|
|
4.9
|
%
|
|
28,582
|
|
|
4.3
|
%
|
|
4,534
|
|
|
(111
|
)
|
|
28,471
|
|
|
4,645
|
|
Depreciation and amortization
|
77,169
|
|
|
11.4
|
%
|
|
81,878
|
|
|
12.3
|
%
|
|
(4,709
|
)
|
|
(542
|
)
|
|
81,336
|
|
|
(4,167
|
)
|
Diesel fuel used in train operations
|
47,140
|
|
|
7.0
|
%
|
|
48,733
|
|
|
7.3
|
%
|
|
(1,593
|
)
|
|
(285
|
)
|
|
48,448
|
|
|
(1,308
|
)
|
Casualties and insurance
|
17,829
|
|
|
2.6
|
%
|
|
16,613
|
|
|
2.5
|
%
|
|
1,216
|
|
|
(54
|
)
|
|
16,559
|
|
|
1,270
|
|
Materials
|
27,716
|
|
|
4.1
|
%
|
|
26,353
|
|
|
4.0
|
%
|
|
1,363
|
|
|
(111
|
)
|
|
26,242
|
|
|
1,474
|
|
Trackage rights
|
22,095
|
|
|
3.3
|
%
|
|
19,639
|
|
|
2.9
|
%
|
|
2,456
|
|
|
(16
|
)
|
|
19,623
|
|
|
2,472
|
|
Net loss/(gain) on sale and impairment of assets
|
358
|
|
|
0.1
|
%
|
|
(1,618
|
)
|
|
(0.2
|
)%
|
|
1,976
|
|
|
3
|
|
|
(1,615
|
)
|
|
1,973
|
|
Restructuring and related costs
|
1,230
|
|
|
0.2
|
%
|
|
41
|
|
|
—
|
%
|
|
1,189
|
|
|
—
|
|
|
41
|
|
|
1,189
|
|
Other expenses, net
|
43,720
|
|
|
6.5
|
%
|
|
44,193
|
|
|
6.6
|
%
|
|
(473
|
)
|
|
(147
|
)
|
|
44,046
|
|
|
(326
|
)
|
Total operating expenses
|
$
|
520,717
|
|
|
77.2
|
%
|
|
$
|
511,753
|
|
|
76.9
|
%
|
|
$
|
8,964
|
|
|
$
|
(2,162
|
)
|
|
$
|
509,591
|
|
|
$
|
11,126
|
|
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
The following information discusses the significant changes in operating expenses of our North American Operations excluding a
decrease
of
$2.2 million
due to the impact of foreign currency depreciation.
Labor and benefits expense was
$225.8 million
for the
six
months ended
June 30, 2019
, compared with
$220.4 million
for the
six
months ended
June 30, 2018
, an
increase
of
$5.4 million
, or
2.5%
. The
increase
consisted of
$6.8 million
, or
3.1%
, from existing operations, partially offset by a
decrease
of
$1.4 million
from the expired Canadian leases. The increase from existing operations was primarily due to annual wage increases and $2.1 million of expense representing the mark-to-market impact on our deferred compensation plan liabilities. This expense was offset by $2.1 million of mark-to-market earnings on investment assets associated with the deferred compensation plan recognized in other non-operating income.
Equipment rents expense was
$24.5 million
for the
six
months ended
June 30, 2019
, compared with
$26.0 million
for the
six
months ended
June 30, 2018
, a
decrease
of
$1.5 million
, or
5.8%
. The
decrease
consisted of
$1.3 million
, or
5.2%
, from existing operations and
$0.2 million
from the expired Canadian leases. The decrease from existing operations was primarily due to decreases in car hire expense.
Purchased services expense was
$33.1 million
for the
six
months ended
June 30, 2019
, compared with
$28.5 million
for the
six
months ended
June 30, 2018
, an
increase
of
$4.6 million
, or
16.3%
. The
increase
consisted of
$5.3 million
, or
19.0%
, from existing operations, partially offset by a
decrease
of
$0.6 million
from the expired Canadian leases. The increase from existing operations was primarily due to increases in track maintenance expense in 2019.
Depreciation and amortization expense was
$77.2 million
for the
six
months ended
June 30, 2019
, compared with
$81.3 million
for the
six
months ended
June 30, 2018
, a
decrease
of
$4.2 million
, or
5.1%
. The
decrease
consisted of
$6.8 million
from the expired Canadian leases, partially offset by an
increase
of
$2.6 million
, or
3.5%
, from existing operations. The
increase
from existing operations was primarily attributable to a larger depreciable asset base in 2019 compared with 2018, reflecting capital spending in 2018.
The cost of diesel fuel used in train operations was
$47.1 million
for the
six
months ended
June 30, 2019
, compared with
$48.4 million
for the
six
months ended
June 30, 2018
, a
decrease
of
$1.3 million
, or
2.7%
, which was primarily due to the expired Canadian leases.
Casualties and insurance expense was
$17.8 million
for the
six
months ended
June 30, 2019
, compared with
$16.6 million
for the
six
months ended
June 30, 2018
, an
increase
of
$1.3 million
, or
7.7%
, primarily due to increased derailment expense in the first quarter of 2019, partially offset by decreased derailment expense in the second quarter of 2019 and a gain on an insurance recovery from a business interruption claim related to Hurricane Michael in the southern United States in October 2018.
Materials expense was
$27.7 million
for the
six
months ended
June 30, 2019
, compared with
$26.2 million
for the
six
months ended
June 30, 2018
, an
increase
of
$1.5 million
, or
5.6%
. The
increase
consisted of
$1.6 million
, or
6.3%
, from existing operations, partially offset by a
decrease
of
$0.2 million
from the expired Canadian leases. The increase in existing operations was primarily due to increases in track maintenance expense in 2019.
Trackage rights expense was
$22.1 million
for the
six
months ended
June 30, 2019
, compared with
$19.6 million
for the
six
months ended
June 30, 2018
, an
increase
of
$2.5 million
, or
12.6%
. The increase was primarily attributable to increased traffic at port switching locations and increased rail traffic.
Net loss on the sale and impairment of assets was
$0.4 million
for the
six
months ended
June 30, 2019
, compared with a net gain on the sale and impairment of assets of
$1.6 million
for the
six
months ended
June 30, 2018
, a change of
$2.0 million
. The net loss for the
six
months ended
June 30, 2019
was primarily attributable to an impairment of assets related to the expiration of a lease of a rail line in the southeastern United States, partially offset by a gain on the sale of land in the northeastern United States.
Restructuring costs for the
six
months ended
June 30, 2019
of
$1.2 million
were primarily related to the consolidation of our Central Region.
Operating Income/Operating Ratio
Operating income from our North American Operations was
$153.6 million
for the
six
months ended
June 30, 2019
, compared with
$153.4 million
for the
six
months ended
June 30, 2018
. Operating income for the
six
months ended
June 30, 2019
and
2018
included corporate development and related costs of
$2.7 million
and
$0.5 million
, respectively. The operating ratio was
77.2%
for the
six
months ended
June 30, 2019
, compared with
76.9%
for the
six
months ended
June 30, 2018
.
Australian Operations
Operating Revenues
As previously disclosed, we own a controlling
51.1%
interest in our Australian Operations, and therefore, we include
100%
of our Australian Operations within our consolidated financial statements with a
48.9%
noncontrolling interest recorded to reflect MIRA's ownership. The following table sets forth our Australian Operations operating revenues and carloads for the
six
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Increase/(Decrease) in Total Operations
|
|
Currency Impact on 2018 Total Operations*
|
|
2019
|
|
2018
|
|
Amount
|
|
%
|
|
Freight revenues
|
$
|
112,742
|
|
|
$
|
129,086
|
|
|
$
|
(16,344
|
)
|
|
(12.7
|
)%
|
|
$
|
(10,863
|
)
|
Freight-related revenues
|
15,891
|
|
|
22,078
|
|
|
(6,187
|
)
|
|
(28.0
|
)%
|
|
(1,852
|
)
|
All other revenues
|
3,005
|
|
|
2,699
|
|
|
306
|
|
|
11.3
|
%
|
|
(226
|
)
|
Total operating revenues
|
$
|
131,638
|
|
|
$
|
153,863
|
|
|
$
|
(22,225
|
)
|
|
(14.4
|
)%
|
|
$
|
(12,941
|
)
|
Carloads
|
271,773
|
|
|
291,480
|
|
|
(19,707
|
)
|
|
(6.8
|
)%
|
|
|
* Currency impact was calculated by comparing the
2018
results translated from local currency to United States dollars using
2019
exchange rates to the
2018
results in United States dollars as reported.
Freight Revenues
The following table sets forth the changes in our Australian Operations freight revenues by commodity group for the
six
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease) in Total Operations
|
|
Currency Impact
|
|
2018 Constant Currency*
|
|
Increase/(Decrease) Total Operations Constant Currency*
|
|
Six Months Ended June 30,
|
|
|
|
|
Commodity Group
|
2019
|
|
2018
|
|
|
|
|
Agricultural Products
|
$
|
6,053
|
|
|
$
|
11,489
|
|
|
$
|
(5,436
|
)
|
|
$
|
(963
|
)
|
|
$
|
10,526
|
|
|
$
|
(4,473
|
)
|
Coal and Coke
|
58,136
|
|
|
64,149
|
|
|
(6,013
|
)
|
|
(5,406
|
)
|
|
58,743
|
|
|
(607
|
)
|
Intermodal
|
29,259
|
|
|
33,075
|
|
|
(3,816
|
)
|
|
(2,780
|
)
|
|
30,295
|
|
|
(1,036
|
)
|
Metallic Ores
|
15,141
|
|
|
15,856
|
|
|
(715
|
)
|
|
(1,333
|
)
|
|
14,523
|
|
|
618
|
|
Minerals & Stone
|
3,855
|
|
|
4,181
|
|
|
(326
|
)
|
|
(354
|
)
|
|
3,827
|
|
|
28
|
|
Petroleum Products
|
298
|
|
|
336
|
|
|
(38
|
)
|
|
(27
|
)
|
|
309
|
|
|
(11
|
)
|
Total
|
$
|
112,742
|
|
|
$
|
129,086
|
|
|
$
|
(16,344
|
)
|
|
$
|
(10,863
|
)
|
|
118,223
|
|
|
$
|
(5,481
|
)
|
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
The following table sets forth our Australian Operations freight revenues, carloads and average freight revenues per carload for the
six
months ended
June 30, 2019
and
2018
(dollars in thousands, except average freight revenues per carload):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenues
|
|
Carloads
|
|
Average Freight Revenues Per
Carload
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2019
|
|
2018 Constant Currency*
|
|
|
Commodity Group
|
Amount
|
|
% of
Total
|
|
Amount
|
|
% of
Total
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2018 Constant Currency*
|
Agricultural Products
|
$
|
6,053
|
|
|
5.4
|
%
|
|
$
|
10,526
|
|
|
8.9
|
%
|
|
8,484
|
|
|
27,287
|
|
|
$
|
713
|
|
|
$
|
421
|
|
|
$
|
386
|
|
Coal & Coke
|
58,136
|
|
|
51.6
|
%
|
|
58,743
|
|
|
49.7
|
%
|
|
196,251
|
|
|
194,138
|
|
|
296
|
|
|
330
|
|
|
303
|
|
Intermodal
|
29,259
|
|
|
25.9
|
%
|
|
30,295
|
|
|
25.6
|
%
|
|
24,995
|
|
|
26,711
|
|
|
1,171
|
|
|
1,238
|
|
|
1,134
|
|
Metallic Ores
|
15,141
|
|
|
13.4
|
%
|
|
14,523
|
|
|
12.3
|
%
|
|
10,629
|
|
|
10,457
|
|
|
1,424
|
|
|
1,516
|
|
|
1,389
|
|
Minerals & Stone
|
3,855
|
|
|
3.4
|
%
|
|
3,827
|
|
|
3.2
|
%
|
|
31,290
|
|
|
32,754
|
|
|
123
|
|
|
128
|
|
|
117
|
|
Petroleum Products
|
298
|
|
|
0.3
|
%
|
|
309
|
|
|
0.3
|
%
|
|
124
|
|
|
133
|
|
|
2,403
|
|
|
2,526
|
|
|
2,323
|
|
Total
|
$
|
112,742
|
|
|
100.0
|
%
|
|
$
|
118,223
|
|
|
100.0
|
%
|
|
271,773
|
|
|
291,480
|
|
|
$
|
415
|
|
|
$
|
443
|
|
|
$
|
406
|
|
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
Total traffic from our Australian Operations
decreased
19,707
carloads, or
6.8%
, to
271,773
carloads for the
six
months ended
June 30, 2019
, compared with the same period in
2018
. The traffic
decrease
was primarily due to decreases of 18,803 carloads of agricultural products traffic, 1,716 carloads of intermodal traffic and 1,464 carloads of minerals and stone traffic, partially offset by an increase of 2,113 carloads of coal and coke traffic. All remaining traffic increased by a net 163 carloads
.
Changes in average freight revenues per carload in a commodity group may be impacted by changes in customer rates, fuel surcharges, commodity mix and the mix of customer traffic within a commodity group. Excluding an 8.5% impact of foreign currency, average freight revenues per carload from our Australian Operations
increased
2.2%
to
$415
for the
six
months ended
June 30, 2019
, compared with the same period in
2018
. A change in the mix of commodities decreased average freight revenues per carload by 5.6%, while higher fuel surcharges increased average freight revenues per carload by 0.2%. Excluding these factors, average freight revenues per carload increased 7.6%.
The following information discusses the significant changes in our Australian Operations freight revenues by commodity group excluding the impact of foreign currency.
Agricultural products revenues decreased
$4.5 million
, or
42.5%
. Agricultural products traffic decreased 18,803 carloads, or 68.9%, which decreased revenues by $13.4 million, while average freight revenues per carload increased 85.0%, which increased revenues by $8.9 million. The carload decrease was primarily due to a smaller grain harvest in 2019. The decrease in grain traffic resulted in higher average freight revenues per carload, primarily due to the rate structure for Australian grain traffic, which has both a fixed and variable component.
Intermodal revenues decreased
$1.0 million
, or
3.4%
. Intermodal traffic decreased 1,716 carloads, or 6.4%, which decreased revenues by $2.0 million, while average freight revenues per carload increased 3.3%, which increased revenues by $1.0 million. The carload decrease was primarily due to service cancellations and decreased automotive movements.
Freight revenues from all remaining commodities combined had a net increase of less than $0.1 million.
Freight-Related Revenues
Excluding a
$1.9 million
decrease
due to the impact of foreign currency depreciation, freight-related revenues from our Australian Operations, which includes revenues from railcar switching, track access rights, crewing services, storage and other ancillary revenues related to the movement of freight,
decreased
$4.3 million
, or
21.4%
, to
$15.9 million
for the
six
months ended
June 30, 2019
, compared with
$20.2 million
for the
six
months ended
June 30, 2018
. The decrease in freight-related revenues was primarily due to prolonged drought conditions in 2019, switching competition and a customer termination payment received in 2018.
All Other Revenues
Excluding the impact of foreign currency depreciation, all other revenues from our Australian Operations, which includes revenues from third-party railcar and locomotive repairs, property rentals and other ancillary revenues not directly related to the movement of freight,
decreased
to
$3.0 million
for the
six
months ended
June 30, 2019
, compared with
$2.5 million
for the
six
months ended
June 30, 2018
.
Operating Expenses
Total operating expenses from our Australian Operations for the
six
months ended
June 30, 2019
decreased
$4.5 million
, or
4.0%
, to
$107.5 million
, compared with
$112.0 million
for the
six
months ended
June 30, 2018
. The decrease in operating expenses included decreases of
$9.5 million
from the impact of foreign currency depreciation,
$1.3 million
in trackage rights expense,
$1.1 million
in purchased services expense and
$1.0 million
in the cost of diesel fuel used in operations, partially offset by increases of
$1.7 million
in restructuring and related costs and
$1.0 million
in labor and benefits expense. In addition, total operating expenses for the
six
months ended
June 30, 2018
included a
$6.3 million
gain on settlement related to Arrium's voluntary administration that was recognized as an offset to other expenses, net.
The following table sets forth operating expenses from our Australian Operations for the
six
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Increase/(Decrease)
|
|
Currency
Impact
|
|
2018 Constant Currency*
|
|
Increase/(Decrease) Constant Currency*
|
|
2019
|
|
2018
|
|
|
|
|
|
Amount
|
|
% of
Operating
Revenues
|
|
Amount
|
|
% of
Operating
Revenues
|
|
|
|
|
Labor and benefits
|
$
|
35,740
|
|
|
27.1
|
%
|
|
$
|
37,918
|
|
|
24.7
|
%
|
|
$
|
(2,178
|
)
|
|
$
|
(3,201
|
)
|
|
$
|
34,717
|
|
|
$
|
1,023
|
|
Equipment rents
|
1,884
|
|
|
1.4
|
%
|
|
2,498
|
|
|
1.6
|
%
|
|
(614
|
)
|
|
(213
|
)
|
|
2,285
|
|
|
(401
|
)
|
Purchased services
|
11,023
|
|
|
8.4
|
%
|
|
13,284
|
|
|
8.6
|
%
|
|
(2,261
|
)
|
|
(1,114
|
)
|
|
12,170
|
|
|
(1,147
|
)
|
Depreciation and amortization
|
28,603
|
|
|
21.7
|
%
|
|
31,295
|
|
|
20.3
|
%
|
|
(2,692
|
)
|
|
(2,648
|
)
|
|
28,647
|
|
|
(44
|
)
|
Diesel fuel used in train operations
|
13,165
|
|
|
10.0
|
%
|
|
15,483
|
|
|
10.1
|
%
|
|
(2,318
|
)
|
|
(1,300
|
)
|
|
14,183
|
|
|
(1,018
|
)
|
Casualties and insurance
|
2,955
|
|
|
2.2
|
%
|
|
3,547
|
|
|
2.3
|
%
|
|
(592
|
)
|
|
(298
|
)
|
|
3,249
|
|
|
(294
|
)
|
Materials
|
5,491
|
|
|
4.2
|
%
|
|
5,722
|
|
|
3.7
|
%
|
|
(231
|
)
|
|
(482
|
)
|
|
5,240
|
|
|
251
|
|
Trackage rights
|
2,942
|
|
|
2.2
|
%
|
|
4,578
|
|
|
3.0
|
%
|
|
(1,636
|
)
|
|
(385
|
)
|
|
4,193
|
|
|
(1,251
|
)
|
Net (gain)/loss on sale and impairment of assets
|
(59
|
)
|
|
—
|
%
|
|
(113
|
)
|
|
(0.1
|
)%
|
|
54
|
|
|
9
|
|
|
(104
|
)
|
|
45
|
|
Restructuring and related costs
|
1,686
|
|
|
1.3
|
%
|
|
—
|
|
|
—
|
%
|
|
1,686
|
|
|
—
|
|
|
—
|
|
|
1,686
|
|
Other expenses, net
|
4,050
|
|
|
3.1
|
%
|
|
(2,221
|
)
|
|
(1.4
|
)%
|
|
6,271
|
|
|
121
|
|
|
(2,100
|
)
|
|
6,150
|
|
Total operating expenses
|
$
|
107,480
|
|
|
81.6
|
%
|
|
$
|
111,991
|
|
|
72.8
|
%
|
|
$
|
(4,511
|
)
|
|
$
|
(9,511
|
)
|
|
$
|
102,480
|
|
|
$
|
5,000
|
|
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
The following information discusses the significant changes in operating expenses of our Australian Operations excluding a
decrease
of
$9.5 million
due to the impact of foreign currency depreciation.
Labor and benefits expense was
$35.7 million
for the
six
months ended
June 30, 2019
, compared with
$34.7 million
for the
six
months ended
June 30, 2018
, an
increase
of
$1.0 million
, or
2.9%
. The increase from existing operations was primarily due to
$2.6 million
of expense associated with amending an enterprise bargaining agreement, partially offset by a decrease in labor expense attributable to a smaller grain harvest in 2019.
Purchased services expense was
$11.0 million
for the
six
months ended
June 30, 2019
, compared with
$12.2 million
for the
six
months ended
June 30, 2018
, a
decrease
of
$1.1 million
, or
9.4%
. The
decrease
was primarily due to the timing of track maintenance, decreased unscheduled repairs in 2019 and decreased infrastructure services.
The cost of diesel fuel used in train operations was
$13.2 million
for the
six
months ended
June 30, 2019
, compared with
$14.2 million
for the
six
months ended
June 30, 2018
, a
decrease
of
$1.0 million
, or
7.2%
. The decrease consisted of $1.7 million due to a 10.9% decrease in diesel fuel consumption, partially offset by an increase of $0.7 million due to a 4.1% increase in average fuel cost per gallon.
Trackage rights expense was
$2.9 million
for the
six
months ended
June 30, 2019
, compared with
$4.2 million
for the
six
months ended
June 30, 2018
, a
decrease
of
$1.3 million
, or
29.8%
. The
decrease
was primarily due to lower volumes related to drought affected harvests and decreased intermodal activity in 2019.
Restructuring and related costs of
$1.7 million
for the
six
months ended
June 30, 2019
were primarily related to a severance provision associated with the termination of grain service on the Eyre Peninsula.
Other expenses, net for the
six
months ended
June 30, 2018
included
a
$6.3 million
gain on settlement related
to Arrium's voluntary administration
.
Operating Income/Operating Ratio
Operating income from our Australian Operations was
$24.2 million
for the
six
months ended
June 30, 2019
, compared with
$41.9 million
for the
six
months ended
June 30, 2018
. Operating income for the
six
months ended
June 30, 2019
included
$2.6 million
of expense associated with amending an enterprise bargaining agreement and
$1.7 million
of expense primarily related to a severance provision associated with the termination of grain service on the Eyre Peninsula. Operating income for the
six
months ended
June 30, 2018
included a
$6.3 million
gain on a settlement related to Arrium's voluntary administration. The operating ratio was
81.6%
for the
six
months ended
June 30, 2019
, compared with
72.8%
for the
six
months ended
June 30, 2018
.
U.K./European Operations
Operating Revenues
The following table sets forth our U.K./European Operations total operating revenues for the
six
months ended
June 30, 2019
and
2018
. The table below also reflects the calculation of our U.K./European Operations existing operations by subtracting the revenues and carloads from the divested ERS operations from our U.K./European total operations for the
six
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Increase/(Decrease) in Total Operations
|
|
Increase/(Decrease) in Existing Operations
|
|
Currency Impact on 2018 Total Operations*
|
|
Currency Impact on 2018 Existing Operations*
|
|
|
|
2018
|
|
|
|
|
|
2019
|
|
Total Operations
|
|
Divested Operations
|
|
Existing Operations
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
|
Freight revenues
|
$
|
162,784
|
|
|
$
|
183,500
|
|
|
$
|
17,086
|
|
|
$
|
166,414
|
|
|
$
|
(20,716
|
)
|
|
(11.3
|
)%
|
|
$
|
(3,630
|
)
|
|
(2.2
|
)%
|
|
$
|
(11,862
|
)
|
|
$
|
(10,599
|
)
|
Freight-related revenues
|
132,156
|
|
|
134,222
|
|
|
7,006
|
|
|
127,216
|
|
|
(2,066
|
)
|
|
(1.5
|
)%
|
|
4,940
|
|
|
3.9
|
%
|
|
(8,218
|
)
|
|
(7,744
|
)
|
All other revenues
|
28,698
|
|
|
32,879
|
|
|
21
|
|
|
32,858
|
|
|
(4,181
|
)
|
|
(12.7
|
)%
|
|
(4,160
|
)
|
|
(12.7
|
)%
|
|
(1,992
|
)
|
|
(1,990
|
)
|
Total operating revenues
|
$
|
323,638
|
|
|
$
|
350,601
|
|
|
$
|
24,113
|
|
|
$
|
326,488
|
|
|
$
|
(26,963
|
)
|
|
(7.7
|
)%
|
|
$
|
(2,850
|
)
|
|
(0.9
|
)%
|
|
$
|
(22,072
|
)
|
|
$
|
(20,333
|
)
|
Carloads
|
455,343
|
|
|
517,830
|
|
|
50,949
|
|
|
466,881
|
|
|
(62,487
|
)
|
|
(12.1
|
)%
|
|
(11,538
|
)
|
|
(2.5
|
)%
|
|
|
|
|
* Currency impact was calculated by comparing the
2018
results translated from local currency to United States dollars using
2019
exchange rates to the
2018
results in United States dollars as reported.
Freight Revenues
The following table sets forth our U.K./European Operations total freight revenues for the
six
months ended
June 30, 2019
and
2018
. The table below also reflects the calculation of our U.K./European Operations existing operations by subtracting the revenues from the divested ERS operations from our U.K./ European Operations total operations for the
six
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Increase/(Decrease) in Existing Operations
|
|
Currency Impact on Existing Operations
|
|
2018 Constant Currency Existing Operations*
|
|
Increase/(Decrease) in Existing Operations Constant Currency*
|
|
|
|
2018
|
|
|
|
|
Commodity Group
|
2019
|
|
Total Operations
|
|
Divested Operations
|
|
Existing Operations
|
|
|
|
|
Agricultural Products
|
$
|
1,248
|
|
|
$
|
2,020
|
|
|
$
|
—
|
|
|
$
|
2,020
|
|
|
$
|
(772
|
)
|
|
$
|
(171
|
)
|
|
$
|
1,849
|
|
|
$
|
(601
|
)
|
Coal & Coke
|
5,589
|
|
|
6,163
|
|
|
—
|
|
|
6,163
|
|
|
(574
|
)
|
|
(426
|
)
|
|
5,737
|
|
|
(148
|
)
|
Intermodal
|
117,502
|
|
|
133,804
|
|
|
17,086
|
|
|
116,718
|
|
|
784
|
|
|
(6,955
|
)
|
|
109,763
|
|
|
7,739
|
|
Minerals & Stone
|
37,037
|
|
|
41,505
|
|
|
—
|
|
|
41,505
|
|
|
(4,468
|
)
|
|
(3,047
|
)
|
|
38,458
|
|
|
(1,421
|
)
|
Petroleum Products
|
1,408
|
|
|
8
|
|
|
—
|
|
|
8
|
|
|
1,400
|
|
|
—
|
|
|
8
|
|
|
1,400
|
|
Total
|
$
|
162,784
|
|
|
$
|
183,500
|
|
|
$
|
17,086
|
|
|
$
|
166,414
|
|
|
$
|
(3,630
|
)
|
|
$
|
(10,599
|
)
|
|
$
|
155,815
|
|
|
$
|
6,969
|
|
*Constant currency amounts reflect the prior period Total Ongoing Operations translated at the current period exchange rates.
The following table sets forth our U.K./European Operations freight revenues, carloads and average freight revenues per carload for the
six
months ended
June 30, 2019
and
2018
(dollars in thousands, except average freight revenues per carload):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Revenues
|
|
Carloads
|
|
Average Freight Revenues Per
Carload
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2019
|
|
2018 Constant Currency*
|
|
|
Commodity Group
|
Amount
|
|
% of
Total
|
|
Amount
|
|
% of
Total
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2018 Constant Currency*
|
Agricultural Products
|
$
|
1,248
|
|
|
0.8
|
%
|
|
$
|
1,849
|
|
|
1.1
|
%
|
|
926
|
|
|
1,573
|
|
|
$
|
1,348
|
|
|
$
|
1,284
|
|
|
$
|
1,175
|
|
Coal & Coke
|
5,589
|
|
|
3.4
|
%
|
|
5,737
|
|
|
3.3
|
%
|
|
9,939
|
|
|
9,933
|
|
|
562
|
|
|
620
|
|
|
578
|
|
Intermodal
|
117,502
|
|
|
72.2
|
%
|
|
125,586
|
|
|
73.2
|
%
|
|
353,968
|
|
|
411,838
|
|
|
332
|
|
|
325
|
|
|
305
|
|
Minerals & Stone
|
37,037
|
|
|
22.7
|
%
|
|
38,458
|
|
|
22.4
|
%
|
|
83,990
|
|
|
94,466
|
|
|
441
|
|
|
439
|
|
|
407
|
|
Petroleum Products
|
1,408
|
|
|
0.9
|
%
|
|
8
|
|
|
—
|
%
|
|
6,520
|
|
|
20
|
|
|
216
|
|
|
400
|
|
|
400
|
|
Total
|
$
|
162,784
|
|
|
100.0
|
%
|
|
$
|
171,638
|
|
|
100.0
|
%
|
|
455,343
|
|
|
517,830
|
|
|
$
|
357
|
|
|
$
|
354
|
|
|
$
|
331
|
|
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
Total traffic from our U.K./European Operations
decreased
62,487
carloads, or
12.1%
, to
455,343
carloads for the
six
months ended
June 30, 2019
, compared with the same period in
2018
. Excluding traffic from our divested ERS operations, existing operations traffic decreased 11,538 carloads, or 2.5%. The
decrease
in traffic from existing operations was primarily due to decreases of 10,476 carloads of minerals and stone traffic and 6,921 carloads of intermodal traffic, partially offset by an increase of 6,500 carloads of petroleum products traffic. All remaining traffic decreased by a net 641 carloads.
Changes in average freight revenues per carload in a commodity group may be impacted by changes in customer rates, fuel surcharges, commodity mix and the mix of customer traffic within a commodity group. Excluding a 7.1% impact of foreign currency, average freight revenues per carload from our U.K./European Operations
increased
7.9%
to
$357
for the
six
months ended
June 30, 2019
, compared with the same period in
2018
. Average freight revenues per carload from existing operations, excluding the impact of foreign currency, increased 6.9% to $357 for the
six
months ended
June 30, 2019
, compared with the same period in
2018
.
The following information discusses the significant changes in our U.K./European Operations freight revenues by commodity group excluding the impact of foreign currency and the divested ERS operations.
Intermodal revenues
increased
$7.7 million
, or
7.1%
. Intermodal average freight revenues per carload increased 9.2%, which increased revenues by $10.0 million, while traffic decreased 6,921 carloads, or 1.9%, which decreased revenues by $2.3 million. The increase in average freight revenues per carload was primarily due to stronger pricing in the U.K. The decrease in carloads was primarily due to temporary rail network outages.
Minerals and stone revenues
decreased
$1.4 million
, or
3.7%
. Minerals and stone traffic decreased 10,476 carloads, or 11.1%, which decreased revenues by $4.6 million, while average freight revenues per carload increased 8.3%, which increased revenues by $3.2 million. The carload decrease was due to lower construction aggregates shipments in Poland primarily as a result of unfavorable weather conditions, partially offset by higher construction aggregates shipments in the U.K. The increase in average freight revenues per carload was primarily due to stronger pricing.
Petroleum products revenues
increased
$1.4 million
, primarily due to an increase in traffic of 6,500 carloads. The carload increase was primarily due to a new customer contract in the U.K.
Freight revenues from all remaining commodities decreased by
$0.7 million
.
Freight-Related Revenues
Freight-related revenues from our U.K./European Operations includes trucking haulage services, container storage and switching services, as well as infrastructure services, where we operate work trains for the track infrastructure owner. Freight-related revenues from our U.K./European Operations also include traction service (or hook and pull), which requires us to provide locomotives and drivers to move a customer's train between specified origin and destination points and other ancillary revenues related to the movement of freight.
Freight-related revenues from our U.K./European Operations were
$132.2 million
for the
six
months ended
June 30, 2019
, compared with
$134.2 million
for the
six
months ended
June 30, 2018
, a
decrease
of
$2.1 million
, or
1.5%
. Excluding a decrease of
$8.2 million
due to the impact of foreign currency depreciation and
$6.5 million
from our divested ERS operations, freight-related revenues from our existing operations increased
$12.7 million
, or
10.6%
, for the
six
months ended
June 30, 2019
, compared with
$119.5 million
for the
six
months ended
June 30, 2018
. The increase in freight-related revenues from our existing operations was primarily due to increased rates on trucking, switching and storage services in the U.K. and increased crewing services in Poland, partially offset by a decrease in infrastructure services in the U.K.
All Other Revenues
All other revenues from our U.K./European Operations includes revenues from container sales, third-party car and locomotive repairs, property rentals and other ancillary revenues not directly related to the movement of freight. All other revenues from our U.K./European Operations were
$28.7 million
for the
six
months ended
June 30, 2019
, compared with
$32.9 million
for the
six
months ended
June 30, 2018
, a
decrease
of
$4.2 million
, or
12.7%
. Excluding a
$2.0 million
decrease
due to the impact of foreign currency depreciation, all other revenues from our existing operations decreased
$2.2 million
, or
7.0%
, for the
six
months ended
June 30, 2019
, compared with
$30.9 million
for the
six
months ended
June 30, 2018
. The decrease in all other revenues from our existing operations was primarily due to reduced management and technical support revenues in Saudi Arabia and decreased container sales in 2019.
Operating Expenses
Total operating expenses from our U.K./European Operations were
$327.5 million
for the
six
months ended
June 30, 2019
, compared with
$355.9 million
for the
six
months ended
June 30, 2018
, a
decrease
of
$28.4 million
, or
8.0%
. The decrease consisted of
$22.3 million
due to the impact of foreign currency depreciation and
$20.9 million
from divested operations, partially offset by a
$14.8 million
increase from existing operations. The increase from existing operations included increases of
$5.5 million
in labor and benefits expense,
$3.2 million
in restructuring and related costs,
$3.1 million
in purchased services expense,
$2.2 million
in other expenses, net,
$2.0 million
in depreciation and amortization expense and
$1.1 million
in equipment rents expense, partially offset by a decrease of
$1.5 million
in materials expense.
The following table sets forth operating expenses from our U.K./European Operations for the
six
months ended
June 30, 2019
and
2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Increase/(Decrease)
|
|
Currency
Impact
|
|
2018 Constant Currency*
|
|
Increase/(Decrease) Constant Currency*
|
|
2019
|
|
2018
|
|
|
|
|
|
Amount
|
|
% of
Operating
Revenues
|
|
Amount
|
|
% of
Operating
Revenues
|
|
|
|
|
Labor and benefits
|
$
|
102,701
|
|
|
31.7
|
%
|
|
$
|
104,430
|
|
|
29.8
|
%
|
|
$
|
(1,729
|
)
|
|
$
|
(6,392
|
)
|
|
$
|
98,038
|
|
|
$
|
4,663
|
|
Equipment rents
|
37,825
|
|
|
11.7
|
%
|
|
40,258
|
|
|
11.5
|
%
|
|
(2,433
|
)
|
|
(2,632
|
)
|
|
37,626
|
|
|
199
|
|
Purchased services
|
61,143
|
|
|
18.9
|
%
|
|
83,281
|
|
|
23.8
|
%
|
|
(22,138
|
)
|
|
(5,336
|
)
|
|
77,945
|
|
|
(16,802
|
)
|
Depreciation and amortization
|
19,371
|
|
|
6.0
|
%
|
|
18,562
|
|
|
5.3
|
%
|
|
809
|
|
|
(1,146
|
)
|
|
17,416
|
|
|
1,955
|
|
Diesel fuel used in train operations
|
25,836
|
|
|
8.0
|
%
|
|
27,558
|
|
|
7.9
|
%
|
|
(1,722
|
)
|
|
(1,759
|
)
|
|
25,799
|
|
|
37
|
|
Electricity used in train operations
|
4,550
|
|
|
1.4
|
%
|
|
4,278
|
|
|
1.2
|
%
|
|
272
|
|
|
(283
|
)
|
|
3,995
|
|
|
555
|
|
Casualties and insurance
|
2,427
|
|
|
0.7
|
%
|
|
2,790
|
|
|
0.8
|
%
|
|
(363
|
)
|
|
(176
|
)
|
|
2,614
|
|
|
(187
|
)
|
Materials
|
29,307
|
|
|
9.0
|
%
|
|
32,770
|
|
|
9.3
|
%
|
|
(3,463
|
)
|
|
(1,996
|
)
|
|
30,774
|
|
|
(1,467
|
)
|
Trackage rights
|
18,330
|
|
|
5.7
|
%
|
|
20,064
|
|
|
5.7
|
%
|
|
(1,734
|
)
|
|
(1,323
|
)
|
|
18,741
|
|
|
(411
|
)
|
Net loss/(gain) on sale and impairment of assets
|
(809
|
)
|
|
(0.2
|
)%
|
|
(128
|
)
|
|
—
|
%
|
|
(681
|
)
|
|
(14
|
)
|
|
(142
|
)
|
|
(667
|
)
|
Restructuring and related costs
|
12,279
|
|
|
3.8
|
%
|
|
9,604
|
|
|
2.7
|
%
|
|
2,675
|
|
|
(497
|
)
|
|
9,107
|
|
|
3,172
|
|
Other expenses, net
|
14,502
|
|
|
4.5
|
%
|
|
12,402
|
|
|
3.5
|
%
|
|
2,100
|
|
|
(792
|
)
|
|
11,610
|
|
|
2,892
|
|
Total operating expenses
|
$
|
327,462
|
|
|
101.2
|
%
|
|
$
|
355,869
|
|
|
101.5
|
%
|
|
$
|
(28,407
|
)
|
|
$
|
(22,346
|
)
|
|
$
|
333,523
|
|
|
$
|
(6,061
|
)
|
* Constant currency amounts reflect the prior period results translated at the current period exchange rates.
The following information discusses the significant changes in operating expenses of our U.K./European Operations excluding a
decrease
of
$22.3 million
due to the impact of foreign currency depreciation.
Labor and benefits expense was
$102.7 million
for the
six
months ended
June 30, 2019
, compared with
$98.0 million
for the
six
months ended
June 30, 2018
, an
increase
of
$4.7 million
, or
4.8%
. The
increase
consisted of
$5.5 million
from existing operations, partially offset by a decrease of
$0.8 million
from divested operations. The
increase
from existing operations was primarily due to annual wage increases and an increase in headcount to support increased infrastructure services and new aggregate business expected to commence in the fourth quarter of 2019, partially offset by savings resulting from the U.K. Operations optimization program.
Purchased services expense was
$61.1 million
for the
six
months ended
June 30, 2019
, compared with
$77.9 million
for the
six
months ended
June 30, 2018
, a
decrease
of
$16.8 million
, or
21.6%
. The
decrease
consisted of
$19.9 million
from divested operations, partially offset by an increase of
$3.1 million
from existing operations. The decrease was primarily due to crewing costs incurred in 2018 associated with our divested ERS operations. The increase from existing operations was primarily due to an increase in trucking activity and the timing of maintenance.
Depreciation and amortization expense was
$19.4 million
for the
six
months ended
June 30, 2019
, compared with
$17.4 million
for the
six
months ended
June 30, 2018
, an
increase
of
$2.0 million
, or
11.2%
. The
increase
was primarily attributable to a larger depreciable asset base in 2019 compared with 2018, reflecting capital spending in 2018.
Materials expense, which primarily consists of the cost of containers sold to third parties, materials purchased for use in repairing and maintaining our locomotives, railcars and other equipment, as well as costs for general tools and supplies used in our business, was
$29.3 million
for the
six
months ended
June 30, 2019
, compared with
$30.8 million
for the
six
months ended
June 30, 2018
, a
decrease
of
$1.5 million
, or
4.8%
. The
decrease
was primarily due to a decrease in container sales in 2019 and timing of roadway maintenance.
Restructuring and related costs for the
six
months ended
June 30, 2019
and
2018
of
$12.3 million
and
$9.1 million
, respectively, were primarily related to our optimization activities in the U.K.
Other expenses, net were
$14.5 million
for the
six
months ended
June 30, 2019
, compared with
$11.6 million
for the
six
months ended
June 30, 2018
, an
increase
of
$2.9 million
, or
24.9%
. The
increase
consisted of
$2.2 million
from existing operations and
$0.7 million
from divested operations. The increase from existing operations was primarily attributable to implementation costs associated with information technology initiatives.
Operating Loss and Operating Ratio
Our U.K./European Operations had an operating loss of
$3.8 million
for the
six
months ended
June 30, 2019
, compared with an operating loss of
$5.3 million
for the
six
months ended
June 30, 2018
. The operating loss for the
six
months ended
June 30, 2019
included
$12.3 million
of restructuring and related costs primarily driven by our optimization activities in the U.K. The operating loss for the
six
months ended
June 30, 2018
included
$9.6 million
, or
$9.1 million
excluding the impact of foreign currency, of restructuring and related costs. The operating ratio was
101.2%
for the
six
months ended
June 30, 2019
, compared with
101.5%
for the
six
months ended
June 30, 2018
.
Liquidity and Capital Resources
We had cash and cash equivalents of
$82.4 million
as of
June 30, 2019
, of which
$41.3 million
was from our Australian Operations, which we control through a
51.1%
ownership interest. In accordance with our Australia partnership agreement with MIRA, the cash and cash equivalents of our Australian Operations can be used to make payments in the ordinary course of business, pay down debt of the Australia Partnership and make distributions to the partners in proportion to their investments. No such distributions were made during the
six
months ended
June 30, 2019
. During the
six
months ended
June 30, 2018
, the Australia Partnership made an
A$40.0 million
distribution, of which
A$20.4 million
(or
$15.6 million
at the exchange rate on June 5, 2018) and
A$19.6 million
(or
$14.9 million
at the exchange rate on June 5, 2018) were distributed to us and MIRA, respectively.
Based on current expectations, we believe our cash, together with our other liquid assets, anticipated future cash flows from operations, availability under our credit agreement and access to debt and equity capital markets and other sources of available financing will be sufficient to fund expected operating, capital and debt service requirements and other financial commitments for the foreseeable future. As of
June 30, 2019
, we had
$586.1 million
of unused borrowing capacity under our credit agreement.
As of
June 30, 2019
, we had long-term debt, including current portion, of
$2,338.5 million
, which comprised
38.8%
of our total capitalization. As of
December 31, 2018
, we had long-term debt, including current portion, of
$2,453.5 million
, which comprised
40.3%
of our total capitalization. Our long-term debt, including current portion, consisted of the following as of
June 30, 2019
and
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
Senior secured credit facility
|
$
|
1,654,098
|
|
|
$
|
1,783,423
|
|
Australian senior secured credit facility
(a)
|
448,266
|
|
|
458,166
|
|
Australian subordinated shareholder loan from MIRA
(b)
|
166,962
|
|
|
167,796
|
|
Other debt
|
86,416
|
|
|
64,261
|
|
Less: deferred financing fees
|
(17,262
|
)
|
|
(20,108
|
)
|
Total debt
|
$
|
2,338,480
|
|
|
$
|
2,453,538
|
|
(a) Standalone credit agreement is non-recourse to us and MIRA.
(b) Shareholder loan is non-recourse to us.
During the
six
months ended
June 30, 2019
and
2018
, we generated
$223.1 million
and
$231.3 million
, respectively, of cash from operating activities. Changes in working capital decreased net cash flows by
$23.9 million
and
$20.3 million
for the
six
months ended
June 30, 2019
and
2018
, respectively.
During the
six
months ended
June 30, 2019
and
2018
, our cash used in investing activities was
$81.4 million
and
$110.8 million
, respectively. For the
six
months ended
June 30, 2019
, the primary drivers of cash used in investing activities were
$144.7 million
of cash used for capital expenditures, including
$26.8 million
related to capital expenditures accrued in
2018
, partially offset by
$14.9 million
of cash received from grants from outside parties for capital spending and
$45.4 million
of cash received from the settlement of certain derivative investments. For the
six
months ended
June 30, 2018
, primary drivers of cash used in investing activities were
$133.3 million
of cash used for capital expenditures, including
$20.1 million
related to capital expenditures accrued in 2017, partially offset by
$12.9 million
in cash received from grants from outside parties for capital spending and
$7.9 million
of net proceeds received from the sale of ERS.
During the
six
months ended
June 30, 2019
and
2018
, our cash used in financing activities was
$152.9 million
and
$131.4 million
, respectively. For the
six
months ended
June 30, 2019
, the primary drivers of cash used in financing activities were net payments on outstanding debt of
$140.6 million
,
$4.8 million
for common share repurchases and
$4.7 million
for the purchase of additional shares in Freightliner Australia from its noncontrolling interest holders. For the
six
months ended
June 30, 2018
, the primary drivers of cash used in financing activities were
$192.3 million
for common share repurchases and
$14.9 million
of cash distributed to MIRA, partially offset by a net increase in outstanding debt of
$88.3 million
. For additional information regarding our common share repurchases, see Note
3
,
Earnings Per Common Share
, to our Consolidated Financial Statements set forth in "Part I Item 1. Financial Statements" of this quarterly report.
Property Insurance
We recently completed our annual property insurance renewal, which takes effect on August 1, 2019. Effective with this renewal, our property policies will have various self-insured retentions, which vary based on the type and location of the incident, up to $10.0 million.
2019
Capital Expenditures
During the
six
months ended
June 30, 2019
, we incurred
$140.3 million
in aggregate capital expenditures related to current year projects of which we paid
$118.0 million
in cash and accrued
$22.3 million
in accounts payable as of
June 30, 2019
. We expect to receive
$11.5 million
of grants from outside parties related to these current year projects, which was included in outstanding grant receivables from outside parties as of
June 30, 2019
.
The following table sets forth our capital expenditures related to current year projects incurred by segment for the
six
months ended
June 30, 2019
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
North American Operations
|
|
Australian Operations
|
|
U.K./European Operations
|
|
Total
|
Capital Expenditures:
|
|
|
|
|
|
|
|
Track and equipment, self-funded
|
$
|
103,184
|
|
|
$
|
4,637
|
|
|
$
|
17,187
|
|
|
$
|
125,008
|
|
Track and equipment, subject to third-party funding
|
7,992
|
|
|
—
|
|
|
—
|
|
|
7,992
|
|
New business investments
|
1,208
|
|
|
6,117
|
|
|
—
|
|
|
7,325
|
|
Gross capital expenditures
|
112,384
|
|
|
10,754
|
|
|
17,187
|
|
|
140,325
|
|
Grants from outside parties
|
(13,993
|
)
|
|
—
|
|
|
—
|
|
|
(13,993
|
)
|
Net capital expenditures
|
$
|
98,391
|
|
|
$
|
10,754
|
|
|
$
|
17,187
|
|
|
$
|
126,332
|
|
Cash paid for purchases of property and equipment during the
six
months ended
June 30, 2019
of
$144.7 million
consisted of
$118.0 million
for
2019
capital projects and
$26.8 million
related to capital expenditures accrued in
2018
. Grant proceeds from outside parties received during the
six
months ended
June 30, 2019
of
$14.9 million
were primarily related to our capital expenditures from prior years.
Recently Adopted and Recently Issued Accounting Standards
See Note
5
,
Leases
, and Note
14
,
Recently Issued Accounting Standards
, to our Consolidated Financial Statements set forth in "Part I Item 1. Financial Statements" of this quarterly report for additional information regarding recently adopted and recently issued accounting standards.
Off-Balance Sheet Arrangements
An off-balance sheet arrangement includes any contractual obligation, agreement or transaction involving an unconsolidated entity under which we (1) have made guarantees, (2) have a retained or contingent interest in transferred assets, or a similar arrangement, that serves as credit, liquidity or market risk support to that entity for such assets, (3) have an obligation under certain derivative instruments or (4) have any obligation arising out of a material variable interest in such an entity that provides financing, liquidity, market risk or credit risk support to us, or that engages in leasing or hedging services with us.
Our off-balance sheet arrangements as of
December 31, 2018
consisted of operating lease obligations. Effective January 1, 2019, we adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-02,
Leases (Topic 842),
which required lessees to now recognize operating leases on their balance sheet as a right-of-use asset with a corresponding liability. See Note
5
,
Leases
, to our Consolidated Financial Statements set forth in "Part I Item 1. Financial Statements" of this quarterly report for additional information regarding this standard. As of
June 30, 2019
, we had no off-balance sheet arrangements.
Impact of Foreign Currencies on Consolidated Results
As more fully described in Note
13
,
Segment Information
, to our Consolidated Financial Statements set forth in "Part I Item 1. Financial Statements" of this quarterly report, the results of operations of our foreign entities are maintained in the respective local currency and then translated into United States dollars at the applicable exchange rates for inclusion in the consolidated financial statements. When comparing the effects of average foreign currency exchange rates on operating revenues and operating expenses during the
three and six
months ended
June 30, 2019
and
2018
, foreign currency translation had a negative impact on our consolidated operating revenues and a positive impact on our consolidated operating expenses. Currency effects related to operating revenues and operating expenses are presented within the discussion of these respective items included within this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.