GWI acquired RailAmerica, Inc. (RailAmerica) on October 1, 2012 for approximately $2.0 billion, including the assumption of debt.1 Immediately following the acquisition, GWI placed the shares of RailAmerica into an independent voting trust pending regulatory approval of the transaction by the U.S. Surface Transportation Board (STB). The STB approved the transaction and permitted GWI to take control of RailAmerica on December 28, 2012. Immediately thereafter, GWI commenced integration activities. As a result, GWI’s reported earnings for the fourth quarter of 2012 include after-tax charges of $30.7 million, or $0.61 per diluted common share, associated with the RailAmerica transaction, financing and integration related expenses.
During the pendency of the voting trust in the fourth quarter of 2012, GWI accounted for the earnings of RailAmerica using the equity method of accounting. GWI’s initial allocation of the purchase price to the acquired assets and assumed liabilities is included in GWI’s consolidated balance sheet at December 31, 2012.
Fourth Quarter Highlights and Recent Developments
Adjusted diluted earnings per common share (EPS) of $0.79 (adjusted primarily for RailAmerica acquisition and financing-related expenses); Reported diluted earnings per common share of $0.18 (1)
Revenues increased 8.0% versus fourth quarter of 2011, led by higher Australian iron ore shipments.
Consolidated adjusted operating ratio of 74.6% (adjusted primarily for RailAmerica acquisition and financing-related expenses); Reported operating ratio of 85.2% (2)
Australian adjusted operating ratio of 70.0% (adjusted primarily for contract termination expense, business/corporate development costs and net gain on insurance recovery); Reported Australian operating ratio of 71.5% (2)
Adjusted equity earnings from RailAmerica of $19.1 million (adjusted primarily for integration costs); Reported equity earnings from RailAmerica of $15.6 million (3)
GWI will convert $350 million of Mandatorily Convertible Preferred Stock with a 5% coupon, issued to The Carlyle Group, into approximately 6 million shares of GWI Class A common stock, effective February 13, 2013; the conversion will eliminate annual dividends of $17.5 million and will not increase GWI’s diluted shares outstanding.
Jack Hellmann, President and CEO of GWI, commented, “G&W’s financial results for the fourth quarter of 2012 were consistent with our expectations. Our fourth quarter revenues increased 8%, our adjusted operating income increased 28% and our adjusted operating ratio improved 4.0 percentage points to 74.6%. In Australia, where our grain traffic was unusually low due to now-fixed mechanical issues in the Adelaide Outer Harbor, we nevertheless reported an adjusted operating ratio of 70.0% due to the smooth start-up of iron ore shipments from a new mine. Meanwhile, RailAmerica’s fourth quarter financial results were solid while it was held in a voting trust, contributing adjusted equity earnings of $19.1 million.” (2)(3)
“The integration of RailAmerica is well underway, with new regional management teams largely established, overlapping functions being rationalized and best practices being established in each department. We are optimistic that we will complete the vast majority of the integration work by the end of the second quarter of 2013.”
1 GWI financed the $1.37 billion cash purchase price for RailAmerica’s shares, the refinancing of $1.23 billion of GWI and RailAmerica total outstanding debt prior to the acquisition, as well as transaction and financing-related expenses with approximately $1.80 billion in borrowings under its new five-year Senior Secured Credit Facility, approximately $460 million of cash from public offerings of common stock and tangible equity units and $350 million through a private issuance of mandatorily convertible preferred stock to The Carlyle Group.
GWI reported net income in the fourth quarter of 2012 of $13.4 million, compared with net income of $33.3 million in the fourth quarter of 2011. Excluding the impact of certain significant items discussed below that primarily related to the RailAmerica acquisition, GWI's adjusted net income in the fourth quarter of 2012 was $44.2 million, compared with adjusted net income of $29.1 million in the fourth quarter of 2011 (1).
GWI's reported diluted EPS in the fourth quarter of 2012 were $0.18 with 50.6 million weighted average common shares outstanding, compared with diluted EPS of $0.77 with 42.9 million weighted average common shares outstanding in the fourth quarter of 2011. Excluding the significant items discussed below, GWI's adjusted diluted EPS in the fourth quarter of 2012 were $0.79 with 56.6 million weighted average common shares outstanding, including the common stock equivalents associated with the Mandatorily Convertible Preferred Stock Series A-1 on an “if-converted” basis, compared with adjusted diluted EPS of $0.68 with 42.9 million weighted average shares outstanding in the fourth quarter of 2011 (1).
In the fourth quarter of 2012 and 2011, GWI's results included certain significant items that are set forth in the following table ($ in millions, except per share amounts).