RailAmerica’s operating income in the fourth quarter of 2012 was $26.1 million, a decrease of $11.1 million, compared with $37.2 million in the fourth quarter of 2011. RailAmerica’s operating ratio in the fourth quarter of 2012 was 82.7%, compared with an operating ratio of 74.7% in the fourth quarter of 2011. RailAmerica’s operating income in the fourth quarter of 2012 included $1.4 million of incremental depreciation and amortization expense resulting from GWI’s acquisition accounting for RailAmerica. If the RailAmerica acquisition had occurred in 2011, RailAmerica’s operating income in the fourth quarter of 2011 would have had an incremental depreciation and amortization expense of approximately $1 million. Operating income in the fourth quarter of 2012 also included $5.7 million of acquisition-related expenses. In the fourth quarter of 2011, operating income benefited $3.6 million from the sale of short line tax credits and included $0.3 million of acquisition-related expenses. Adjusting for these items and the estimated acquisition-driven incremental depreciation and amortization expense for the fourth quarter of 2011, RailAmerica’s adjusted operating income was $31.8 million in the fourth quarter of 2012, compared with $33.0 million in the fourth quarter of 2011. RailAmerica’s adjusted operating ratio was 78.9% in the fourth quarter of 2012, compared with 77.6% in the fourth quarter of 2011 (4).
On January 2, 2013, the U.S. Short Line Tax Credit (which had previously expired on December 31, 2011) was extended for fiscal years 2012 and 2013. GWI expects the extension of the Short Line Tax Credit to reduce its book income tax expense by approximately $35 million and $25 million, respectively, for fiscal years 2012 and 2013. Since the extension became law in 2013, the 2012 impact will be recorded in the first quarter of 2013.
On February 13, 2013, GWI will convert all of the outstanding Mandatorily Convertible Preferred Stock, Series A-1, par value $0.01 per share (the “Series A-1 Preferred Stock”) issued in conjunction with the RailAmerica acquisition, and held by certain affiliates of Carlyle Partners V, L.P. (“Carlyle”). GWI is permitted to convert the Series A-1 Preferred Stock because it has satisfied the conversion criteria, including that the closing price of GWI’s Class A Common Stock exceed 130% of the conversion price, or $76.03, for 30 consecutive trading days, which condition was satisfied on February 12, 2013. Upon conversion, each share of Series A-1 Preferred Stock will be converted into 17.0978166 shares of GWI’s Class A Common Stock, resulting in the issuance of 5,984,232 shares of the Company’s Class A Common Stock. These shares are included in GWI’s weighted average diluted common shares outstanding in calculating adjusted earnings per diluted share for the three months ended December 31, 2012. In addition, GWI will be required to pay to Carlyle cash in lieu of fractional shares and all accrued and unpaid dividends in respect of the Series A-1 Preferred Stock on the conversion date. Following the conversion, GWI will not incur the quarterly dividend of approximately $4.4 million that would otherwise have been due on the Series A-1 Preferred Stock.
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