Genesee & Wyoming Inc. Annual Report 2000

← All annual reports

FY2000 Annual Report · Genesee & Wyoming Inc.

Loading PDF…

Genesee & Wyoming Inc. 2000 Annual Report

Genesee & Wyoming Inc.

is swiftly becoming a leader

in the rail freight transport

business worldwide and

a premier choice

as a business partner,

rail freight transport supplier,

employer and investment

opportunity.

(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
Oregon Region

Portland & Western

Astoria

Port Westward

)

P
U

(

F
S
N
B

St. Helens

n
a
e
c
O

c
i
f
i
c
a
P

Bowers Jct.

Banks

Forest Grove

Stimson-Forestex

United Jct.

Hillsboro

Beaverton

Portland

B N S F

U P

Newberg

Tualatin

McMinnville

Willamina

Reed Pit

Dallas

Quinaby

Salem

P
U

F
S
N
B

Albany

Toledo

Genesee • Rail-One

Huron Central

ONTARIO

R o c k y I s l a n d L a k e

ACRI

A C RI

Sault Ste. Marie

USA

Lake Huron

M a n i t o u l i n I s l a n d

CPRS

Cartier

Sudbury

QUÉBEC

CPRS

North Bay

CPRS

Little Current

Georgian Bay

C
N

Parry
Sound

Corvallis

P
U

F
S
N
B

Monroe

Dawson

Eugene

Louisiana Region
Louisiana & Delta

Lake Charles

BNSF

Lafayette

Breaux Bridge

Port of Lake Charles RR

Abbeville

BR Jct.

Cajun Sugar

New
Iberia

ARA

Pesson

Emma

Patoutville

Cypremort

Rail Link, Inc.
Contract Switching, Locomotive
Mobile Service Units & Shortline
Railroads

Illinois Region

Illinois & Midland

BNSF

U
P

S
I
A
I

Peoria

P
U

Sommer

TP&W

Pekin

& W

B N S F

R iv e r

Illin ois

Havana

Powerton

P
U

Baton Rouge

New Orleans

Avondale

Baldwin

Schriever

Raceland Jct.

North Bend

Morgan
City

Houma Branch
Transload

Lockport

Jay

G u l f o f M e x i c o

U P

Petersburg

Barr

P
U

Springfield

N S

G W W R

( B N S F )

Mexico

Ferrocarriles Chiapas-Mayab, S.A. de C.V.

Taylorville

P
U

Cimic

Ellis

N
C

P O T O S I

Q U E R R E T A R O

H I D A L G O

Mexico City

M E X I C O

P U E B L A

M O R E L O S

Cancún

Progreso

Izamal

Tizimín

Umán

Mérida
Y U C A T Á N

Valladolid

P e n í n s u l a d e
Y u c a t á n

Campeche

Bolivia

Empresa Ferroviaria Oriental, S. A.

G u l f o f M e x i c o

Q U I N T A N A
R O O

PERU

MEXICO

V E R A C R U Z
Coatzacoalcos

Minatitlán

Medias Aguas

Roberto
Ayala

Villahermosa

T A B A S C O

Pino Suárez

Tenosique

Teapa

La Placa

G U E R R E R O

O A X A C A

Matías Romero
Lagunas
Ixtepec

C H I A P A S

Tuxtla Gutiérrez

C A M P E C H E

Escárcega

BELIZE

Tehuantepec
Salina Cruz

Arriaga

Tonalá

a
h

Mapastepec

P a c i f i c O c e a n

GUATEMALA

Tapachula
Cuidad Hidalgo
Tecún Umán

HONDURAS

Dashed lines indicate trackage rights in North America

BOLIVIA

BRAZIL

La Paz

Montero

Tres Cruces

Santa Cruz

Abapó

Charagua

Boyuibe

Villa Montes

Yacuiba

San Jose

Robore

Suarez Arana

Quijarro

Corumbá

CHILE

PARAGUAY

ARGENTINA

Genesee • Rail-One
Québec Gatineau

Québec

Grand-Mère

G
B

Joliette

N
C

St.Jérôme

Saint-Augustin

Trois-Rivières

N
C

QUÉBEC

Montréal

C D A C

N
C

Gatineau

Buckingham

Hull

Ottawa

CPRS

Oxford

C P R S

C N

C
P
R
S

ONTARIO

t . L

e R i v

w r

Rouses Point

USA

La ke On tario

CANADA

Rochester

Caledonia

Le Roy

S (C

P/D

Buffalo

La ke E rie

Erie

Corry

USA

Warren

Orchard
Park

Silver Springs

Retsof

Mt. Morris

Dansville

West
Valley

Machias

Ashford Jct.

E. Salamanca

Bradford

Mt. Jewett

New York

Pennsylvania

Kane

Johnsonburg

Ridgway

Emporium

St. Marys

Driftwood

Brockway

Falls Creek Dellwood

Penfield

Brookville

New Castle

Sligo

Petrolia

Karns City

Butler

E. Butler

Reesedale

Eidenau

Kittanning

Dubois

Dora

Punxsutawney

Marion Center

Freeport

New York/Pennsylvania Region

Buffalo & Pittsburgh
Rochester & Southern

To Alice Springs

SOUTH AUSTRALIA

To Perth

Tarcoola

Kevin

Thevenard
(Ceduna)

Port Augusta

Whyalla

Port
Pirie

Great Aust ralian
Bight

Port
Lincoln

Penrice

Broken Hill

S
E
L
A
W
H
T
U
O
S
W
E
N

Adelaide

Pinnaroo

Sout he rn Oc ean

A
I
R
O
T
C
I
V

Mount
Gambier

South Australia

Australia Southern Railroad
Interstate lines

Western Australia

Australia Western Railroad
Interstate lines

Darwin

Alice Springs

Perth
Perth

Sydney

Adelaide

Melbourne

Asia Pacific Transport
Consortium (APTC)
Project

Leonora

Pindar

Mullewa

Geraldton

Narngulu

Mingenew

Maya

Miling

Coorow

Eneabba

Moora

Indian Ocean

Perth

Avon

York

Midland

Kwinana

WESTERN AUSTRALIA

Kalannie

Beacon

Koolyanobbing

Kalgoorlie

Bonnie Rock

Mukinbudin

Trayning

Merredin

Bruce Rock

Yealering

Salmon Gums

Kondinin

Hyden

Kulin

Newdegate

Narrogin

LakeGrace

Esperance

Bunbury

Wagin

Katanning

Tambellup

Nyabing

Gnowangerup

Lambert

Albany

Great Australian Bight

G e n e s e e & W y o m i n g I n c .

❘ 1

Financial Highlights

(in thousands, except per share data) Years Ended December 31

Income Statement Data

Operating revenues
Operating income
Net income
Diluted earnings per common share
Weighted average number

2000

1999

$206,530
$23,753
$13,932
$3.11

$175,586
$22,368
$12,533
$2.76

of shares of common stock–diluted

4,486

4,540

Balance Sheet Data as of Period End

Total assets
Total debt
Redeemable Convertible Preferred Stock
Stockholders’ equity

$342,012
$104,801
$18,849
$94,732

$303,940
$108,376
—
$81,829

Genesee & Wyoming Inc. (GWI) is a holding company whose subsidiaries and uncon-
solidated affiliates own and operate regional freight railroads and provide related rail
services. The Company generates revenues primarily from the movement of freight
over track owned or operated by its railroads. The company also generates nonfreight
revenues primarily by providing freight car switching and rail-related services to indus-
trial companies with extensive railroad facilities within their complexes. The map on
the inside of the cover reflects the geographical operations of GWI’s North American
subsidiaries, its unconsolidated 50% ownership in the Australian operations, and its
unconsolidated 22.6% ownership in the Bolivian operations.

Revenue Sources
By Business Segment
by 2000 revenues

North American Railroad (76.7%)

Industrial Switching (5.1%)

Australian Railroad (18.2%)

Revenues, Operating and Net Income

$220

$200

$180

$160

$140

$120

$100

$80

$60

$40

$20

)
s
n
o
i
l
l
i

m
n
i
(

s
e
u
n
e
v
e
R

$30

$20

$15

$10

)
s
n
o
i
l
l
i

m
n
i
(

e
m
o
c
n
I

1996

1997

1998
(in thousands)

1999

2000

Revenues

$77,795 $103,643 $147,472 $175,586 $206,530

Operating Income

13,994

16,443

19,568

22,368

23,753

Net Income

5,905

7,998

11,434

12,533

13,932

2 ❘ G e n e s e e & W y o m i n g I n c .

Letter to the Shareholders

Two thousand was a year of intense activity for Genesee & Wyoming Inc.

(GWI), marked by a series of accomplishments that accelerated our trans-

formation into a world-class provider of rail freight transportation services.

During this period, we fueled our internal growth by building our core cus-

tomer base, and integrating our Mexican and Canadian operations into our

expanding global organization. We also drove external growth by winning

the bid to privatize a profitable, state-owned freight railroad in Western

Australia; purchasing an equity interest in a Bolivian railroad that connects

to other railroads in Argentina and Brazil; and completing an agreement

with Brown Brothers Harriman & Co.’s 1818 Fund III, L.P., to receive up to

$25 million through a private placement of redeemable convertible pre-

ferred stock to finance our continued global expansion.

These accomplishments, and others, yielded record financial results

for our Company in 2000. Our revenues increased 17.6 percent to $206.5

million, compared with $175.6 million in 1999, driven primarily by

strong performance in our North American railroad operations. Net

income grew 11.2 percent to $13.9 million, from $12.5 million in 1999.

In addition, diluted earnings per share increased 12.7 percent to $3.11

from $2.76 in 1999. These results are particularly notable in that they

were achieved in a year characterized by several external challenges,

including high prices for diesel fuel.

To optimize the value of our strong operating and financial performance

for our shareholders, in 2000 we also stepped up our efforts to communicate

GWI’s story to the investment community, heightening the visibility of our

Company and, we believe, sparking new investor interest in our “old econo-

my” industry. As testament to our efforts to generate value, Forbes magazine

ranked GWI 99th on its list of the 200 Best Small Companies in America.

G e n e s e e & W y o m i n g I n c .

❘ 3

A Carefully Laid Track

Genesee & Wyoming’s beginnings were modest. Founded more than 100

years ago, we were originally a single, 14-mile railroad transporting salt

from a mine in western New York state. Today, we own or have interests in

23 railroads in five countries on three continents. We operate more than

7,700 miles of owned or leased track, and have access to an additional

2,350 miles through track access arrangements.

Our growth and success are due to a variety of factors. Initially, the

Staggers Act of 1980 created new opportunities as it deregulated the rail-

road industry and spurred the divestiture of branch lines by Class I rail-

Two thousand was

roads in the United States. We capitalized on this development by pur-

chasing or leasing routes that were disposed of by the major railroads and

others, with a goal to improve operating efficiencies and return on capital.

a year of intense

activity for GWI,

We have also benefited from the fact that, over the last several years,

marked by a series

many foreign governments have elected to privatize their railroads to

improve operating efficiencies. This privatization has created exciting

opportunities for GWI in Mexico, South America and Australia, where we

of accomplishments

that accelerated our

have made strategic acquisitions geared to improve our earnings, drive

transformation into

shareholder value and position our Company for future growth.

a world-class provider

of rail freight

transportation

services.

These acquisitions have enabled us to diversify our customer, com-

modity and geographic revenue bases to lessen the impact of perform-

ance fluctuations that stem from variations in usage by a specific cus-

tomer, volatility within a particular commodity group, and economic

cycles in a given region or country. Most importantly, these acquisitions

have allowed us to introduce our management principles into existing

operations, leverage the inherent strengths of the railroad, create effi-

ciencies and increase profitability.

In making these acquisitions, we carefully evaluated a variety of crite-

ria related to each railroad property so we could selectively add properties

to our portfolio. For example, we considered the size of the railroad, as

well as the strength of the economy and customers it serves. We assessed

our ability to generate improved operating efficiencies and cost savings.

We gauged how swiftly the acquisition would prove accretive to earn-

ings, and we examined the surrounding regions for future synergistic

expansion opportunities. In the New York and Pennsylvania region, for

example, we made six separate acquisitions that allowed us to create a

4 ❘ G e n e s e e & W y o m i n g I n c .

650-mile rail system, while in Oregon, a series of similar acquisitions has

extended our reach to 485 miles.

Building Up Steam

Our acquisition efforts in 2000 focused on forging new international routes

for GWI, particularly in Australia, where the federal and state governments

began to privatize railroads in 1997. In 2000, we expanded our market

share in Australia through our acquisition of Westrail Freight — the freight

operations of the state-owned railroad — from the Western Australia gov-

ernment. Westrail, one of only two profitable government-owned systems

in Australia, covers 3,280 miles of track and carries approximately 31 mil-

In 2000 we also

stepped up our efforts

to communicate GWI’s

lion tons of grain, alumina, nickel and other commodities.

story to the investment

community, heightening

The Westrail acquisition was made by the Australian Railroad Group

Pty. Ltd. (ARG), a 50-50 joint venture we formed with Wesfarmers

Limited, a $2.5-billion Perth-based diversified company, to build on our

the visibility of our

1997 investment in our wholly owned subsidiary, Australia Southern

Company and, we

believe, sparking new

Railroad (ASR). Wesfarmers brings financial strength and knowledge of

Australian markets to the joint venture. As part of the transaction, we

contributed ASR to ARG, along with our interest in the Asia Pacific

investor interest in

Transport Consortium (APTC), a consortium that has been nominated to

our “old economy”

industry.

construct the 931-mile Alice Springs–to–Darwin Railway in the Northern

Territory of Australia. ARG is now the largest private freight rail operator

in the country and is poised to play a pivotal role in the future of the

Australian rail industry. ARG, headed by Chief Executive Officer Chuck

Chabot, strengthens GWI’s strategic position in Australia and improves

the stability and growth potential of our earnings.

We also established a solid platform for growth in South America dur-

ing the year through a 22.6-percent equity interest in Empresa Ferroviaria

Oriental, S.A. Connecting to railroads in Argentina and Brazil, the Oriental

serves eastern Bolivia, and handles imports as well as eastbound agricul-

tural exports destined for Paraguay River transloading facilities. Our new

stake in the Oriental follows our initial entry to South America through

our 1999 minority investment in Latin American Rail LLC. It also pro-

vides us with a strong ownership position in a successful Bolivian rail-

road, as well as revenue growth and cost reduction opportunities in the

future.

G e n e s e e & W y o m i n g I n c .

❘ 5

Acquisitions require access to capital, and to fund our cash invest-

These acquisitions

ments in 2000, we completed a private placement of up to $25 million in

convertible preferred stock with the 1818 Fund III, L.P., managed by

Brown Brothers Harriman & Co. Twenty million dollars of this capital

have allowed us

to introduce our man-

was used for the Westrail Freight acquisition. The funding terms provide

agement principles into

us with the balance sheet flexibility to make additional acquisitions and

existing operations,

take advantage of the highly attractive global privatization climate.

Gathering Speed

leverage the

inherent strengths of

We have demonstrated that we can successfully acquire railroads, but our

the railroad, create

efficiencies and

increase profitability.

reputation and long-term credibility are predicated on our ability to oper-

ate these railroads profitably. We accomplish this by driving continuous

improvement and efficiencies within each segment of rail operations.

To this end, we have assembled interdisciplinary teams that focus on

organization-wide issues — from purchasing, to track maintenance, to

safety. Working together, these teams seek to develop “Best Practices,” to

be applied throughout GWI to drive improved results.

We also pay attention to improving service for our industrial customers

within each of our regions and businesses. Though there is stiff compe-

tition between rail freight transport companies and truck carriers, we

believe that we operate more fuel efficiently, more safely and offer

greater value than trucks. With service quality as a defining issue, we are

undertaking a number of measures at GWI to improve our service levels

to grow our market share and serve the freight transport needs of our

customers.

As a result of our focus on performance initiatives like these, we

proved the excellence of our managerial capabilities in several of our

ventures. In Canada, after purchasing our partner’s ownership stake in

Genesee • Rail-One (GRO) in 1999, our management team did an out-

standing job of applying our business disciplines and turning this busi-

ness into an important contributor to our profitability. In Mexico, our

wholly owned subsidiary, Compañía de Ferrocarriles Chiapas-Mayab, S.A.

de C.V. (FCCM), delivered strong results in its first full year as part of the

GWI family, nearly a year ahead of expectations for that newly privatized

operation. In a testament to our confidence in FCCM’s future, in 2000 we

completed the refinancing of FCCM and received $27.5 million of non-

6 ❘ G e n e s e e & W y o m i n g I n c .

We have assembled

recourse debt from a banking syndicate led by the International

interdisciplinary

teams that focus on

organization-wide

issues — from

Finance Corporation (IFC). The IFC, an affiliate of the World Bank, also

invested $1.9 million of equity capital.

Meanwhile, we have continued to diversify our customer base and

drive revenue growth in all regions across the United States:

In New York/Pennsylvania, our railroads in the region increased their

purchasing, to

revenues to $36 million from $33 million in 1999. The railroads,

track maintenance,

to safety. Working

spanning 650 miles, haul such products as petroleum, chemicals, and

pulp and paper. We expect to resume salt shipments during the second

half of 2001 from American Rock Salt’s new mine in Hampton

together, these

Corners.

teams seek to

develop “Best

Practices,” to be

applied throughout

In Oregon, our revenues rose to $22 million from $21 million in 1999.

The railroad, covering 485 miles, carries newsprint, linerboard, lum-

ber, metals and aggregates. Our increasing aggregates service to Morse

Brothers provides an effective freight transport alternative to roadway

traffic congestion around Portland. The new U.S. Gypsum plant in

GWI to drive

Rainier began shipping wallboard in December 2000 and should con-

improved results.

tribute to 2001 results.

In Illinois, our Illinois & Midland Railroad revenues remained strong

at $23 million. The railroad, which owns 97 miles of track and

extends over an additional 29 miles with trackage rights, transports

increasing volumes of coal for four large electic power plants in cen-

tral Illinois.

In Louisiana, our Louisiana & Delta Railroad revenues increased to $7

million from $6 million in 1999. The railroad, which traverses 206

miles, transports various commodities including carbon black and

harvested sugar cane.

Our rail-switching operations, Rail Link, Inc., also began to deliver sus-

tainable profits in 2000 and ended the year by winning a contract to

operate the Port of Baton Rouge, Louisiana. Rail Link offers shippers

a wide range of railcar handling services including industrial switch-

ing and track maintenance.

G e n e s e e & W y o m i n g I n c .

❘ 7

At the Controls

Successfully building our business requires expert management, and in

2000 we fortified our already excellent team. During the year, our new

Chief Financial Officer, Jack Hellmann, established aggressive goals for

financial performance and arranged a series of corporate finance trans-

actions to strengthen our capital structure. In his new post as Executive

Vice President of Corporate Development, Mark Hastings lent his more

than 20 years of experience with GWI and his financial expertise to struc-

turing and executing several major acquisitions in 2000; his skills will be

even more in demand if, as we expect, our growth through acquisition

becomes more complex and international. Mike Meyers joined GWI dur-

ing the year as Vice President of Information Management and Technol-

We plan to

continue to execute

ogy, and has already begun to drive the development of our information

our disciplined growth

systems and the expansion of our e-commerce initiatives.

Having led the development of our Australia Southern Railroad and

the successful Westrail bid, Chuck Chabot became the CEO of ARG.

strategy by building

our existing customer

Joining him are Wayne James, who headed Westrail and is now the CEO

base, integrating our

of ASR, and Murray Vitlich, ARG’s Chief Financial Officer, formerly the

general manager of a Wesfarmers business unit. I serve as Chairman of

the ARG Board of Directors and am joined by GWI directors Phil Ringo

acquisitions and

adding new rail hold-

and Doug Young. Our partner, Wesfarmers, is represented by its Chief Exec-

ings that meet our

utive Officer, Michael Chaney; its Finance Director, Erich Fraunschiel; and

investment criteria.

its Director of Business Development, Gene Tilbrook.

In addition, strong board stewardship is important to our future success.

We also strengthened the Genesee & Wyoming Board during the year with

the addition of C. Sean Day, Chairman of Teekay Shipping Corporation, and

T. Michael Long, a partner of Brown Brothers Harriman & Co. We look to

Sean, Mike and our entire GWI Board for steady guidance as we continue

to execute our growth strategy in the future.

Running On All Cylinders

As we reflect on GWI’s many successes in 2000, we must credit them to the

numerous factors that differentiate our Company from our competitors.

For example, we have strong management, which positions us favorably

in an extremely competitive environment. We have a proven strategy that

balances internal and external growth. Our management team — in my

8 ❘ G e n e s e e & W y o m i n g I n c .

We envision the

view, the finest in our industry — has the experience and depth to execute

day when we will be

recognized in the mar-

our strategy. We use “Best Practices” to help boost efficiencies and improve

margins. Our portfolio of profitable railroads is increasingly diverse from

customer, geographic and freight perspectives. We have a reasonable debt-

kets we serve as the

to-capital ratio, positive free cash flow, and access to the capital necessary

finest company in our

to seize acquisition opportunities.

industry — a time

when we will be

regarded the leading

choice as a business

I am proud of the fact that these strengths helped GWI’s stock to out-

perform our publicly traded competitors’ stocks in 2000. Yet, even as the

broad investment community began to take notice of GWI, boosting our

stock price appreciation into the top four percent of over 4,000 listed NAS-

DAQ companies, our stock remained undervalued in relation to our peers.

Our primary mission in 2001 is to close the gap between our strong per-

partner, employer

formance and our stock price. To fulfill this mission, we plan to continue

and investment

opportunity.

to execute our disciplined growth strategy by building our existing cus-

tomer base, integrating our acquisitions and adding new rail holdings that

meet our investment criteria. As we do so, we intend to also rationalize our

assets, consolidate where possible and continue to strengthen operating

efficiencies. We believe that these consistent efforts, combined with a

steady and clear communication of the GWI story to the investment com-

munity, will position the Company as a compelling investment.

Full Speed Ahead

In 2001, much about what we do and how we do it will remain the same.

We have a proven strategy, and we intend to continue to execute it effec-

tively. We envision the day when we will be recognized in the markets we

serve as the finest company in our industry — a time when we will be

regarded the leading choice as a business partner, employer and invest-

ment opportunity.

As GWI speeds into the future, we are aware that many forces are fuel-

ing our progress: the loyalty of our customers, the diligence and hard

work of our employees, and the support of our shareholders and lenders.

To all of these constituents, I would like to extend my warmest thanks,

and ask for your continued participation in Genesee & Wyoming’s drive to

become the global leader in rail freight services.

Mortimer B. Fuller III

Chairman and Chief Executive Officer

February 28, 2001

G e n e s e e & W y o m i n g I n c .

❘ 11

Page nine ❘ Australia Souther n Railroad (A S R ) engines en route to Per th. A S R is par t of the A u s t r a l i a n R a i l ro a d G ro u p , a
❘ The Illinois & Midland Railroad delivers coal to four power plants, including Midwest
G W I / Wesfar mers joint venture. Left
Generation’s Powerton Plant near Peoria, Illinois. Above top ❘ Rail Link, Inc., which offers shippers industrial switching services,
also serves seven coal mines in Wyoming’s Powder River Basin. Above bottom ❘ A winter move to Trois Rivieres and Québec City
on the Québec Gatineau Railway in Canada.

12 ❘ G e n e s e e & W y o m i n g I n c .

Above top ❘ Australia Wester n Railroad “S” class locomotives hauling alumina south of Per th, Wester n Australia. Above bottom
❘ The Por tland & Wester n Railroad moves logs from Teevin Bros. Land and Timber Company in Rainier, Oregon. Right ❘ The
Ferrocarriles Chiapas-Mayab, S.A. de C.V. (FCCM) railroad transpor ts Ford vehicles to FCCM’s new automotive facility in

Mérida, Mexico.

G e n e s e e & W y o m i n g I n c .

❘ 15

Left ❘ R a i l L i n k , I n c . h a n d l e s a u t o m o b i l e s a t t h e p o r t o f B r u n s w i c k , G e o r g i a , o n e o f f i v e p o r t f a c i l i t i e s i t s e r v e s i n t h e U . S .
Above top ❘
I n C a n a d a t h e H u ro n C e n t r a l R a i l w a y t r a n s ports steel from the Algoma Steel Mill in Sault Ste. Marie to Sudbury,
Ontario. Above bottom ❘ American Rock Salt’s mining operation in Hampton Cor ners, New York is expected to begin shipping
salt in the second half of 2001.

G e n e s e e & W y o m i n g I n c .

❘ 17

Index to Financial Statements
Genesee & Wyoming Inc.
and Subsidiaries:

Management’s Discussion and Analysis of
Financial Condition and Results of Operations 18

Selected Financial Data

Report of Independent Public Accountants

Consolidated Balance Sheets as of
December 31, 2000 and 1999

Consolidated Statements of Income
for the Years Ended December 31,
2000, 1999 and 1998

Consolidated Statements of
Stockholders’ Equity and Comprehensive
Income for the Years Ended December 31,
2000, 1999 and 1998

Consolidated Statements of Cash Flows
for the Years Ended December 31,
2000, 1999 and 1998

Notes to Consolidated Financial Statements

❘ Newly upgraded track on the FCCM fulfills part of
Left
GWI’s purchase commitment to the Mexican government
and improves service to customers in southern Mexico.

18 ❘ G e n e s e e & W y o m i n g I n c .

Management’s Discussion and
Analysis Of Financial Condition
and Results of Operations

The following discussion should be read in conjunction
with the Consolidated Financial Statements and related
notes included elsewhere in this Annual Report.

General ❘ The Company is a holding company whose
subsidiaries and unconsolidated affiliates own and/or
operate short line and regional freight railroads and pro-
vide related rail services in North America, South
America and Australia. The Company, through its U.S.
industrial switching subsidiary, also provides freight car
switching and related services to United States industrial
companies with extensive railroad facilities within their
complexes. The Company generates revenues primarily
from the movement of freight over track owned or oper-
ated by its railroads. The Company also generates non-
freight revenues primarily by providing freight car
switching and related rail services such as railcar leas-
ing, railcar repair and storage to industrial companies
with extensive railroad facilities within their complexes,
to shippers along its lines, and to the Class I railroads
that connect with its North American lines.

The Company’s operating expenses include wages
and benefits, equipment rents (including car hire), pur-
chased services, depreciation and amortization, diesel
fuel, casualties and insurance, materials and other
expenses. Car hire is a charge paid by a railroad to the
owners of railcars used by that railroad in moving
freight. Other expenses generally include property and
other non-income taxes, professional services, commu-
nication and data processing costs, and general over-
head expense.

When comparing the Company’s results of operations
from one reporting period to another, the following fac-
tors should be taken into consideration. The Company
has historically experienced fluctuations in revenues
and expenses such as one-time freight moves, customer
plant expansions and shut-downs, railcar sales, acci-
dents and derailments. In periods when these events
occur, results of operations are not easily comparable to
other periods. Also, much of the Company’s growth to
date has resulted from acquisitions, joint ventures, and
investments in unconsolidated affiliates. Most recently,
the Company, through a 50% owned joint venture, com-
pleted an acquisition in Western Australia in December

2000, and through an investment in an unconsolidated
affiliate, began operating a railroad in Bolivia in
November 2000. The Company also completed two
acquisitions, one in Canada and one in Mexico, in 1999.
Because of variations in the structure, timing and size of
these acquisitions and differences in economics among
the Company’s railroads resulting from differences in the
rates and other material terms established through nego-
tiation, the Company’s results of operations in any
reporting period may not be directly comparable to its
results of operations in other reporting periods.

Expansion of Operations

Australia ❘ On December 16, 2000, the Company,
through its newly-formed joint venture, Australian
Railroad Group Pty. Ltd. (ARG), completed the acquisi-
tion of Westrail Freight from the government of Western
Australia for approximately $334.4 million including
working capital. ARG is a joint venture owned 50% by
the Company and 50% by Wesfarmers Limited, a public
corporation based in Perth, Western Australia. Westrail
Freight is composed of the freight operations of the for-
merly state-owned railroad of Western Australia.

To complete the acquisition, the Company con-
tributed its formerly wholly-owned subsidiary, Australia
Southern Railroad (ASR), to ARG along with the
Company’s interest in the Asia Pacific Transport
Consortium (APTC) – a consortium selected to construct
and operate the Alice Springs to Darwin railway line in
the Northern Territory of Australia. Additionally, the
Company contributed $21.4 million of cash to ARG
while Wesfarmers contributed $64.2 million in cash,
including $8.2 million which represents a long-term
non-interest bearing note to match a similar note due to
the Company from ASR at the date of the transaction.
ARG also received $258.6 million in acquisition debt
and $59.9 million of construction and working capital
facilities from Bank of America and the Australia and
New Zealand Banking Group Limited. A portion of the
debt was used to refinance approximately $7.1 million
of existing bank debt of ASR. Should APTC reach finan-
cial close and meet other conditions as specified in the
agreement between the Company and Wesfarmers, the
Company would receive additional compensation.

To fund its cash investment in ARG, the Company
also completed a private placement of Redeemable
Convertible Preferred Stock (the Convertible Preferred)
with the 1818 Fund III, L.P. (the Fund) managed by
Brown Brothers Harriman & Co. See Note 11 to
Consolidated Financial Statements for a description of
the Convertible Preferred.

M a n a g e m e n t ’s D i s c u s s i o n a n d A n a l y s i s

❘ 19

operating costs after September 30, 1999. All payments
were made during the fourth quarter of 1999 and are con-
sidered a cost of the acquisition.

The Chiapas-Mayab concession is made up of two
separate rail lines. The Chiapas is approximately 450
kilometers (280 miles) long and runs between Ixtepec in
the Mexican state of Oaxaca, and Ciudad Hidalgo in the
Mexican state of Chiapas. Principal commodities hauled
include cement, corn, petroleum products and various
agricultural products. The Mayab extends approximate-
ly 1,100 kilometers (680 miles) from Coatzacoalcos in
the Mexican state of Vera Cruz, to beyond Merida in the
Mexican state of Yucatan. Principal commodities hauled
on the line include cement, silica sand and various agri-
cultural products. The two railroads are connected via
trackage rights over Ferrosur (a recently privatized rail
concession) and a government-owned line. FCCM began
operations on September 1, 1999.

(Servicios),

On December 7, 2000, in conjunction with the refi-
nancing of FCCM (see Note 9 to Consolidated Financial
Statements) and its parent company, GW Servicios, S.A.
de C.V.
International Finance
the
Corporation (IFC) invested $1.9 million of equity for a
12.7% indirect interest in FCCM, through its parent
company Servicios. The Company contributed an addi-
tional $13.1 million and maintains an 87.3% indirect
ownership in FCCM. The Company funded $10.7 million
of its new investment with borrowings under its amend-
ed credit facility, with the remaining investment funded
by the conversion of intercompany advances into per-
manent capital. Along with its equity investment, IFC
received a put option exercisable in 2005 to sell its equity
stake back to the Company. The put price will be based
on a multiple of earnings before interest, taxes, depreci-
ation and amortization. The Company increases its
minority interest expense in the event that the value of
the put option exceeds the otherwise minority interest
liability. Because the IFC equity stake can be put to the
Company, the impact of selling the equity stake at a per
share price below the Company’s book value per share
investment was recorded directly to paid-in capital.

As a direct result of the ARG transaction, ASR stock
options became immediately exercisable by the option
holders and, as allowed under the provisions of the stock
option plan, the option holders, in lieu of ASR stock,
were paid an equivalent value in cash, resulting in a $4.0
million pre-tax compensation charge to ASR earnings.

The Company also recognized a $10.1 million gain
upon the issuance of ASR stock to Wesfarmers upon the
formation of ARG as a result of such issuance being at a
per share price in excess of the Company’s book value
per share investment in ASR. Additionally, due to the
deconsolidation of ASR, the Company recognized a $6.5
million deferred tax expense resulting from the financial
reporting versus tax basis difference in the Company’s
equity investment in ARG. Should APTC reach financial
close and meet other conditions as specified in the
agreement between the Company and Wesfarmers, addi-
tional gains will be reported. The Company accounts for
its 50% ownership in ARG under the equity method of
accounting and therefore deconsolidated ASR from its
consolidated financial statements as of December 17,
2000. The Company reported $261,000 in equity earn-
ings in its 2000 financial statements from ARG for the
period of December 17 through December 31, 2000.

Mexico ❘ In August 1999, the Company’s wholly-owned
subsidiary, Compañía de Ferrocarriles Chiapas-Mayab,
S.A. de C.V. (FCCM), was awarded a 30-year concession
to operate certain railways owned by the state-owned
Mexican rail company Ferronales. FCCM also acquired
equipment and other assets. The aggregate purchase
price, including acquisition costs, was approximately
297 million pesos, or approximately $31.5 million at
then-current exchange rates. The purchase included
rolling stock, an advance payment on track improve-
ments to be completed on the state-owned track proper-
ty, an escrow payment which will be returned to the
Company upon successful completion of the track
improvements, prepaid value-added taxes and $3.1 mil-
lion in goodwill. A portion of the purchase price ($5.3
million) was also allocated to the 30-year operating
license. As the track improvements have been made, the
related costs have been reclassified into the property
accounts as leasehold improvements and amortized over
the improvements’ estimated useful life. Pursuant to the
acquisition, employee termination payments of $1.0 mil-
lion were made to former state employees and approxi-
mately 55 employees who the Company retained upon
acquisition but terminated as part of its plan to reduce

20 ❘ G e n e s e e & W y o m i n g I n c .

Canada ❘ On April 15, 1999, the Company acquired
Rail-One Inc. (Rail-One) which has a 47.5% ownership
interest in Genesee • Rail-One Inc. (GRO), thereby
increasing the Company’s ownership of GRO to 95%.
GRO owns and operates two short line railroads in
Canada. Under the terms of the purchase agreement, the
Company converted outstanding notes receivable from
Rail-One of $4.6 million into capital, will pay approxi-
mately $844,000 in cash to the sellers of Rail-One in
installments over a four year period, and granted
options to the sellers of Rail-One to purchase up to
80,000 shares of the Company’s Class A Common Stock
at an exercise price of $8.625 per share. Exercise of the
option is contingent on the Company’s recovery of its
capital investment in GRO including debt assumed if the
Company were to sell GRO, and upon certain GRO
income performance measures which have not yet been
met. The transaction was accounted for as a purchase
and resulted in $2.8 million of initial goodwill which is
being amortized over 15 years. The contingent purchase
price will be recorded as a component of goodwill at the
value of the options issued, if and when such options are
exercisable. Effective with this agreement, the operating
results of GRO have been consolidated within the finan-
cial statements of the Company, with a 5% minority
interest due to another GRO shareholder. During the
second quarter of 2000, the Company purchased the
remaining 5% minority interest in GRO with an initial
cash payment of $240,000 and subsequent annual cash
installments of $180,000 due in 2001 and 2002. Prior to
April 15, 1999, the Company accounted for its invest-
ment in GRO under the equity method and recorded
equity losses of $618,000 and $645,000 in 1999 and
1998, respectively.

South America ❘ On November 5, 2000, the Company
acquired an indirect 21.87% equity interest in Empresa
Ferroviaria Oriental, S.A. (Oriental) increasing its stake
in Oriental to 22.55%. Oriental is a railroad serving east-
ern Bolivia and connecting to railroads in Argentina and
Brazil. The Company previously acquired a 0.68% indi-
rect interest in Oriental on September 30, 1999 through
its 47.5% ownership interest in Latin American Rail LLC.
That original investment was for $1.0 million in cash
and 25,532 shares of the Company’s stock valued at
$281,000. The Company’s new ownership interest is
largely through a 90% owned holding company sub-
sidiary in Bolivia which also received $740,000 from the
minority partner for investment into Oriental.

The Company’s portion of the Oriental investment is
composed of $6.7 million in cash, the assumption (via
an unconsolidated subsidiary) of non-recourse debt of
$10.8 million at an interest rate of 7.67%, and a non-
interest bearing contingent payment of $450,000 due in
3 years if certain financial results are achieved. The cash
used by the Company to fund such investment was
obtained from its existing revolving credit facility. The
Company accounts for its indirect interest in the
Oriental under the equity method of accounting.

Results of Operations
Year Ended December 31, 2000
Compared to Year Ended
December 31, 1999

Consolidated Operating Revenues ❘ Operating
revenues were $206.5 million in the year ended
December 31, 2000 compared to $175.6 million in the
year ended December 31, 1999, a net increase of $30.9
million or 17.6%. The net increase was attributable to a
$37.2 million increase in North American railroad rev-
enues of which $23.8 million was attributable to a full
year of railroad operations in Mexico compared to four
months of railroad operations in Mexico in the 1999
period, $10.2 million was attributable to a full year of
railroad operations in Canada compared to eight and
one-half months of railroad operations in Canada in the
1999 period, and $3.2 million was on existing North
American operations; offset by a $5.5 million decrease
in revenues from Australian railroad operations and a
$768,000 decrease in industrial switching revenues.

The following three sections provide information on
railroad revenues for North American and Australian
railroad operations, and industrial switching revenues in
the United States. Australian railroad operations were
deconsolidated starting December 17, 2000.

North American Railroad Operating Revenues

Operating revenues increased $37.2 million or 30.7%
to $158.3 million in the year ended December 31, 2000
of which $126.4 million were freight revenues and $31.9
million were non-freight revenues. Operating revenues
in the year ended December 31, 1999 were $121.1 mil-
lion of which $95.5 million were freight revenues and
$25.6 million were non-freight revenues. The increase
was attributable to a $30.7 million increase in freight
revenues and a $6.5 million increase in non-freight rev-
enues. The increase of $30.7 million in North American
freight revenues consisted of $20.7 million in freight
revenues attributable to a full year of railroad operations
in Mexico, $8.6 million in freight revenues attributable
to a full year of railroad operations in Canada, and $1.4
million on existing North American operations. The fol-
lowing table compares North American freight revenues,
carloads and average freight revenues per carload for the
years ended December 31, 2000 and 1999:

M a n a g e m e n t ’s D i s c u s s i o n a n d A n a l y s i s

❘ 21

North American Freight Revenues and Carloads Comparison by Commodity Group

(dollars in thousands, except average per carload)

Years Ended December 31, 2000 and 1999

Freight Revenues

Carloads

Average Freight
Revenues Per Carload

2000

% of total

1999

% of total

2000

% of total

1999

% of total

2000

1999

Commodity Group

Coal, Coke & Ores
Pulp & Paper
Petroleum Products
Minerals & Stone
Metals
Farm & Food Products
Chemicals-Plastics
Lumber & Forest Products
Autos & Auto Parts
Other

$25,987
19,653
18,221
17,901
10,069
9,653
8,800
7,827
3,148
5,113

20.6% $24,779
14,867
15.6%
10,210
14.4%
7,905
14.2%
8,156
8.0%
5,831
7.6%
8,169
7.0%
8,304
6.2%
2,491
2.5%
4,825
3.9%

25.9% 117,189 31.2%
51,753 13.8%
15.6%
8.0%
30,075
10.7%
11.2%
42,146
8.3%
9.7%
36,554
8.5%
7.4%
27,710
6.1%
4.5%
16,985
8.6%
6.8%
25,426
8.7%
1.6%
5,849
2.6%
5.8%
21,438
5.0%

94,140
39,952
20,206
23,667
30,614
19,898
16,039
28,627
4,790
22,024

31.4%
13.3%
6.7%
7.9%
10.2%
6.6%
5.4%
9.6%
1.6%
7.3%

$222
380
606
425
275
348
518
308
538
239

$263
372
505
334
266
293
509
290
520
219

Totals

$126,372 100.0% $95,537 100.0% 375,125 100.0% 299,957

100.0%

337

319

Revenues from hauling Coal increased by $1.2 million
or 4.9% of which $77,000 was attributable to a full year
of railroad operations in Canada, and $1.1 million was
on existing North American operations. The increase on
existing railroad operations was primarily attributable to
freight revenues for two new customers in the 2000
period. The average revenue per carload for coal
decreased by 15.6% due to lower revenue per carload
for the new customers, and freight rate reductions on
certain existing traffic.

Pulp and Paper revenues increased by $4.8 million or
32.2% of which $306,000 was attributable to a full year
of railroad operations in Mexico, $2.9 million was attrib-
utable to a full year of railroad operations in Canada, and
$1.6 million was on existing North American operations.
Petroleum Products revenues increased by $8.0 million
or 78.5% of which $7.1 million was attributable to a full
year of railroad operations in Mexico, $33,000 was attrib-
utable to a full year of railroad operations in Canada, and
$868,000 was on existing North American operations.

Minerals and Stone revenues increased by $10.0 mil-
lion or 126.5% of which $8.9 million was attributable to a
full year of railroad operations in Mexico, $237,000 was
attributable to a full year of railroad operations in Canada,
and $887,000 was on existing North American opera-
tions.

Farm and Food Products increased by a net $3.8 mil-
lion or 65.5% of which $2.2 million was attributable to
a full year of railroad operations in Mexico and $1.7 mil-
lion was attributable to a full year of railroad operations
in Canada, offset by a decrease of $103,000 on existing
North American operations.

Freight revenues from all remaining commodities
reflected a net increase of $3.0 million or 9.4% of which
$2.3 million was attributable to a full year of railroad

operations in Mexico, $3.7 million was attributable to a
full year of railroad operations in Canada, offset by a net
decrease of $3.0 million on existing North American
operations. The net decrease on existing North
American operations was primarily due to decreases in
revenues from Lumber and Forest Products of $1.5 mil-
lion, Chemicals and Plastics of $698,000 and Other of
$1.5 million, offset by increases in Metals of $293,000
and Auto and Auto Parts of $436,000.

Total North American carloads were 375,125 in the
year ended December 31, 2000 compared to 299,957 in
the year ended December 31, 1999, an increase of 75,168
or 25.1%. The increase of 75,168 consisted of 29,914 car-
loads attributable to a full year of railroad operations in
Mexico, 24,962 carloads attributable to a full year of rail-
road operations in Canada, and a net increase of 20,292
carloads on existing North American railroad operations
of which 23,049 were coal offset by a net decrease of
2,757 in all other commodities.

The overall average revenue per carload increased to
$337 in the year ended December 31, 2000, compared to
$319 per carload in the year ended December 31, 1999,
an increase of 5.6% due primarily to higher per carload
revenues attributable to Canada and Mexico carloads off-
set by a decrease on existing North American railroad
operations carloads.

North American non-freight railroad revenues were
$31.9 million in the year ended December 31, 2000 com-
pared to $25.6 million in the year ended December 31,
1999, an increase of $6.3 million or 25.0%. The increase
of $6.3 million in North American non-freight revenues
consisted of $3.1 million attributable to a full year of
operations in Mexico, $1.5 million attributable to a full
year of operations in Canada, and $1.7 million in non-
freight revenues on existing North American operations.
The following table compares North America non-freight
revenues for the years ended December 31, 2000 and 1999:

22 ❘ G e n e s e e & W y o m i n g I n c .

North American Railroad
Non-Freight Operating Revenue Comparison
Years Ended December 31, 2000 and 1999

(dollars in thousands)

Year Ended December 31

2000

1999

% of
Operating
Revenue

$11,340

35.5% $6,818

26.7%

Railroad switching
Car hire and

rental income
Car repair services
Other operating income

7,969
3,019
9,618

24.9%
9.5%
30.1%

7,981
2,346
8,411

31.2%
9.2%
32.9%

Total non-freight

revenues

$31,946 100.0% $25,556 100.0%

The increase of $4.5 million in railroad switching
revenues is primarily attributable to a full year of rail-
road operations in Mexico.

Australian Railroad Operating Revenues

Operating revenues were $37.6 million in the period
ended December 16, 2000, compared to $43.2 million
in the year ended December 31, 1999, a decrease of $5.6
million or 12.8%. The Company deconsolidated its Aus-
tralian subsidiary as part of the ARG transaction on
December 17, 2000. The decrease was the result of a
decrease in freight revenues from Australian railroad
operations of $5.2 million or 13.5% and a decrease in
non-freight revenues of $284,000 or 6.3%. The decrease
in Australian operating revenues is due to the December
17 deconsolidation and the devaluation of the Australian
dollar against the U.S. dollar in the 2000 period com-
pared to the 1999 period. The weighted average curren-
cy exchange rate in the year ended December 31, 2000
was $0.5828 compared to $0.6449 in the year ended
December 31, 1999, a decrease of $0.0621 or 9.6%.

The following table outlines Australian freight rev-

enues for the two periods:

Australian Freight Revenues by Commodity

(dollars in thousands, except average per carload)

Periods Ended December 16, 2000 and December 31, 1999

Freight Revenues

Carloads

Average Freight
Revenues Per Carload

2000

% of total

1999

% of total

2000

% of total

1999

% of total

2000

1999

Commodity Group

Hook and Pull (Haulage)
Grain
Iron Ore
Gypsum
Marble
Lime
Coal
Other

$14,905
9,009
3,754
2,417
1,788
1,451

44.6%
27.0%
11.2%
7.2%
5.4%
4.3%
— 0.0%
0.3%
96

$17,533
13,588
350
2,861
2,034
1,531
664
88

45.4%
35.2%
0.9%
7.4%
5.3%
4.0%
1.7%
0.1%

51,165
34,875
99,544
40,841
8,171
4,182

21.3%
14.5%
41.4%
17.0%
3.4%
1.7%
— 0.0%
0.7%

1,596

52,407
48,781
8,069
40,304
8,343
4,662
4,317
603

31.3%
29.1%
4.8%
24.1%
5.0%
2.8%
2.6%
0.3%

$291
258
38
59
219
347
—
60

$335
279
43
71
244
328
154
146

Total

$33,420 100.0%

$38,649 100.0% 240,374 100.0% 167,486

100.0%

139

231

The net decrease of $5.2 million in Australian freight
revenues was primarily attributable to the December 17
deconsolidation and the 9.6% devaluation of the
Australian dollar. Decreases in revenues from Grain of
$4.6 million, Hook and Pull of $2.6 million, Coal of
$664,000, and all remaining commodities except Iron
Ores of $762,000, were primarily due to the deconsoli-
dation and devaluation. Grain revenues for 1999 also
reflect the strong harvest experienced during the
1998/99 season. There were no freight revenues from
coal in the 2000 period due to the non-renewal of a coal
contract. The increase of $3.4 million from the ship-
ment of Iron Ores was from a new customer that began
shipments in the fourth quarter of 1999.

M a n a g e m e n t ’s D i s c u s s i o n a n d A n a l y s i s

❘ 23

Operating Ratios ❘ The Company’s combined operat-
ing ratio increased to 88.5% in the year ended December
31, 2000 from 87.3% in the year ended December 31,
1999. The operating ratio for North American railroad
operations decreased to 85.1% in the year ended
December 31, 2000 from 86.9% in the year ended
December 31, 1999. The operating ratio for Australian
railroad operations increased to 100.1% in 2000 from
84.8% in 1999. The operating ratio for U.S. industrial
switching operations decreased to 97.7% in the year
ended December 31, 2000 from 100.8% in the year
ended December 31, 1999.

The following three sections provide information on
railroad expenses for North American and Australian
railroad operations, and industrial switching expenses in
the United States. Australian railroad operations were
deconsolidated starting December 17, 2000.

North American Railroad Operating Expenses

The following table sets forth a comparison of the
Company’s North American railroad operating expenses
in the years ended December 31, 2000 and 1999:

North American Railroad
Operating Expense Comparison

(dollars in thousands)

Year Ended December 31

2000

1999

Labor and benefits
Equipment rents
Purchased services
Depreciation and
amortization

Diesel fuel
Casualties and
insurance

Materials
Other expenses

Total operating
expenses

$54,212
19,787
10,805

% of
Operating
Revenue

34.2% $38,819 32.1%
12.5% 13,768 11.4%
6.6%

7,996

6.8%

11,068
12,888

7.0%
8.1%

9,649
6,357

8.0%
5.2%

6,111
10,226
9,677

4,172
3.9%
6.5%
8,503
6.1% 15,929 13.2%

3.4%
7.0%

$134,774

85.1% $105,193

86.9%

Labor and benefits expense increased $15.4 million
or 39.7% of which $7.5 million was attributable to a full
year of railroad operations in Mexico, $2.2 million was
attributable to a full year of railroad operations in Canada,
and $5.7 million was on existing North American opera-
tions.

Australia carloads were 240,374 in the period ended
December 16, 2000, compared to 167,486 in the year
ended December 31, 1999, an increase of 72,888 or
43.5%. The net increase of 72,888 was primarily the
result of increases of 91,475 carloads from the shipment
of Iron Ores and 537 carloads from the shipment of
Gypsum, offset by decreases in carloads from Grain,
Coal, and all other commodities of 13,906, 4,317, and
901, respectively.

The overall average revenue per carload decreased to
$139 in the period ended December 16, 2000, compared
to $231 per carload in the year ended December 31,
1999. The decrease is primarily due to the significantly
higher number of carloads of lower revenue per carload
Iron Ore, and the devaluation of the Australian dollar
against the U.S. dollar in the 2000 period compared to
the 1999 period.

Australian non-freight revenues were $4.2 million in
the period ended December 16, 2000, compared to $4.5
million in the year ended December 31, 1999, a decrease
of $284,000 or 6.3%.

U.S. Industrial Switching Revenues

Revenues from U.S. industrial switching activities
were $10.6 million in the year ended December 31, 2000
compared to $11.3 million in the year ended December
31, 1999, a decrease of $768,000 or 6.8% due primarily
to the Company’s decision to exit an unprofitable
switching contract in May, 1999.

Consolidated Operating Expenses ❘ Operating
expenses for all operations combined were $182.8 mil-
lion in the year ended December 31, 2000, compared to
$153.2 million in the year ended December 31, 1999, a
net increase of $29.6 million or 19.3%. Expenses attrib-
utable to North American railroad operations were
$134.8 million in the year ended December 31, 2000,
compared to $105.2 million in the year ended December
31, 1999, an increase of $29.6 million or 28.1% of which
$17.5 million are operating expenses attributable to a
full year of railroad operations in Mexico compared to
four months of railroad operations in Mexico in the
1999 period, $8.1 million are operating expenses attrib-
utable to a full year of railroad operations in Canada
compared to eight and one-half months of railroad oper-
ations in Canada in the 1999 period, and $4.0 million
are operating expenses on existing North American
operations. Expenses attributable to operations in
Australia were $37.7 million in 2000, compared to $36.6
million in 1999, an increase of $1.1 million or 2.9%.
Expenses attributable to U.S. industrial switching were
$10.3 million in the year ended December 31, 2000,
compared to $11.4 million in the year ended December
31, 1999, a decrease of $1.1 million or 9.6%.

24 ❘ G e n e s e e & W y o m i n g I n c .

Equipment rents increased $6.0 million or 43.7% of
which $994,000 was attributable to a full year of rail-
road operations in Mexico, $1.8 million was attributable
to a full year of railroad operations in Canada, and $3.2
million was on existing North American operations.

Purchased services increased $2.8 million or 35.1% of
which $1.8 million was attributable to a full year of rail-
road operations in Mexico, $955,000 was attributable to
a full year of railroad operations in Canada, and $81,000
was on existing North American operations.

Depreciation and amortization expense increased
$1.4 million or 14.7% of which $1.3 million was attrib-
utable to a full year of railroad operations in Mexico and
$512,000 was attributable to a full year of railroad oper-
ations in Canada, offset by a decrease of $434,000 on
existing North American operations.

Diesel fuel expense increased $6.5 million or 102.7%
of which $2.4 million was attributable to a full year of
railroad operations in Mexico, $1.8 million was attribut-
able to a full year of railroad operations in Canada, and
$2.3 million was on existing North American opera-
tions. The increase on existing railroad operations was
due primarily to increased fuel oil prices in 2000 and
secondarily to increased fuel consumption resulting
from an increase in carloads on existing operations.

Casualties and insurance expense increased $1.9 mil-
lion or 46.5% of which $1.4 million was attributable to
a full year of railroad operations in Mexico, $19,000 was
attributable to a full year of railroad operations in
Canada, and $565,000 was on existing North American
operations.

Materials expense increased $1.7 million or 20.3% of
which $1.5 million was attributable to a full year of rail-
road operations in Mexico and $231,000 was on existing
North American operations, offset by a $48,000
decrease attributable to Canada. The decrease attributa-
ble to Canada is due primarily to increased capital work
in the 2000 period compared to a higher level of main-
tenance work in the 1999 period.

Other expenses were $9.7 million in the year ended
December 31, 2000, compared to $15.9 million in the year
ended December 31, 1999, a net decrease of $6.2 million
or 39.2%. The net decrease of $6.2 million consists of an
increase of $531,000 attributable to a full year of railroad
operations in Mexico, $800,000 attributable to a full year
of railroad operations in Canada, offset by a $7.6 million
decrease on existing North American operations.

Australian Railroad Operating Expenses

The following table sets forth a comparison of the
Company’s Australian railroad operating expenses in the
periods ended December 16, 2000 and December 31,
1999:

Australian Railroad
Operating Expense Comparison

(dollars in thousands)

Periods Ended
December 16, 2000 and December 31, 1999

2000

1999

$5,266
210
11,947

2,254
6,672

1,415
1,492
4,397
4,015

% of
Operating
Revenue

14.0% $5,443
367
12,116

0.6%
31.7%

12.6%
0.9%
28.1%

6.0%
17.7%

2,157
8,186

5.0%
19.0%

3.8%
4.0%
11.7%
10.6%

1,635
1,861
4,833
—

3.8%
4.3%
11.1%
—

$37,668

100.1% $36,598

84.8%

Labor and benefits
Equipment rents
Purchased services
Depreciation and
amortization

Diesel fuel
Casualties and
insurance

Materials
Other expenses
Stock option charge

Total operating
expenses

Operating expenses (exclusive of a $4.0 million stock
option charge) decreased by $2.9 million in 2000 pri-
marily due to the December 17 deconsolidation and the
9.6% devaluation of the Australian dollar against the U.S.
dollar in the 2000 period compared to the 1999 period.
As a direct result of the Company’s contribution of
ASR to ARG, ASR stock options became immediately
exercisable by the option holders and, as allowed under
the provisions of the stock option plan, the option hold-
ers, in lieu of ASR stock, were paid an equivalent value in
cash, resulting in a $4.0 million pre-tax compensation
charge to ASR earnings.

U. S. Industrial Switching Operating Expenses

The following table sets forth a comparison of the
Company’s industrial switching operating expenses in
the years ended December 31, 2000 and 1999:

U.S. Industrial Switching
Operating Expense Comparisonn

(dollars in thousands)

Year Ended December 31

2000

1999

$6,419
239
335

% of
Operating
Revenue

60.7% $7,945
187
476

2.3%
3.2%

% of
Operating
Revenue

70.1%
1.6%
4.2%

658
542
529
643
970

6.2%
5.1%
5.0%
6.1%
9.1%

768
421
971
743
(84)

6.8%
3.7%
8.6%
6.6%
(0.8%)

Labor and benefits
Equipment rents
Purchased services
Depreciation and
amortization

Diesel fuel
Casualties and insurance
Materials
Other expenses

Total operating
expenses

$10,335

97.7% $11,427 100.8%

M a n a g e m e n t ’s D i s c u s s i o n a n d A n a l y s i s

❘ 25

Labor and benefits expense decreased $1.5 million or
19.2%, due primarily to the Company’s decision to exit
an unprofitable switching contract in May, 1999.

All other expenses were $3.9 million in the year ended
December 31, 2000, compared to $3.5 in the year ended
December 31, 1999, an increase of $434,000 or 12.5%.

Interest Expense ❘
Interest expense in the year
ended December 31, 2000, was $11.2 million compared
to $8.5 million in the year ended December 31, 1999, an
increase of $2.7 million or 32.7% primarily due to the
increase in debt used to fund acquisitions in 1999 and
investments in unconsolidated affiliates in 2000.

Gain on 50% Sale of Australia Southern Rail-
road to Australian Railroad Group ❘ The Compa-
ny recorded a non-cash gain of $10.1 million upon the
issuance of shares of ASR at a price per share in excess
of its book value per share investment in ASR in
December 2000 (see Note 3. to Consolidated Financial
Statements).

Valuation Adjustment of U.S. Dollar Denomi-
nated Foreign Debt ❘ Amounts outstanding under
the Company’s credit facilities which were borrowed by
FCCM represented U.S. dollar denominated foreign debt
of the Company’s Mexican subsidiary. As the Mexican
peso moved against the U.S. dollar, the revaluation of
this outstanding debt to its Mexican peso equivalent
resulted in non-cash gains and losses which totaled a
loss of $1.5 million in the year ended December 31,
2000, compared to a loss of $191,000 in the year ended
December 31, 1999. On June 16, 2000, pursuant to a
corporate and financial restructuring of the Company’s
Mexican subsidiaries, the income statement impact of
the U.S. dollar denominated foreign debt revaluation
was significantly reduced.

Other Income, Net ❘ Other income, net in the year
ended December 31, 2000, was $3.0 million compared
to $1.9 million in the year ended December 31, 1999, an
increase of $1.1 million or 59.1%. Other income, net in
the years ended December 31, 2000 and 1999, consists
primarily of interest income of $2.3 million and $1.3
million, respectively. The increase in interest income in
the year ended December 31, 2000, is primarily due to
a full year of earnings on a special deposit at the
Company’s Mexican subsidiary.

Income Taxes ❘ The Company’s effective income tax
rate in the years ended December 31, 2000 and 1999
was 43.9% and 14.0%, respectively. The 2000 rate was
impacted by a $6.6 million non-cash deferred tax
expense related to the financial reporting versus tax
basis difference in the Company’s investment in
Australia which resulted from the deconsolidation of
those operations, and a $1.0 million reduction in the
valuation allowance established in 1999 against the pos-
itive impact of a favorable tax law change in Australia.
Without the impact of the these items, the Company’s
effective income tax rate in the year ended December
31, 2000, was 35.8%. The 1999 rate was impacted by a
$4.2 million benefit recorded in the third quarter of
1999 as a result of the favorable tax law change in
Australia. Without this impact, 1999’s effective income
tax rate was 40.9%.

Equity in Net Income of Unconsolidated Inter-
national Affiliates ❘ Equity earnings of unconsolidat-
ed international affiliates in the year ended December
31, 2000, were $411,000 compared to a loss of $618,000
in the year ended December 31, 1999, an increase of
$1.0 million. Equity earnings in the year ended
December 31, 2000, consist of $261,000 from Australian
Railroad Group for the period of December 17 through
December 31, 2000, and $150,000 from South America
affiliates for the period of November 6 - December 31,
2000. Equity losses of $618,000 in the year ended
December 31, 1999, were from Genesee • Rail-One for
the period of January 1 through April 15, 1999, at which
date the Company acquired majority ownership of
Genesee •Rail-One.

Net Income and Earnings Per Share ❘ The Com-
pany’s net income for the year ended December 31, 2000,
was $13.9 million compared to net income in the year
ended December 31, 1999, of $12.5 million, an increase
of $1.4 million or 11.2%. The increase in net income is
the net result of an increase in net income from North
American railroad operations of $7.6 million, an increase
in equity earnings of unconsolidated affiliates of $1.0,
and a decrease in the net loss of industrial switching of
$86,000; offset by a decrease in net income from
Australian railroad operations of $7.3 million.

Basic and Diluted Earnings Per Share in the year
ended December 31, 2000, were $3.19 and $3.11,
respectively, on weighted average shares of 4.3 million
and 4.5 million, respectively, compared to $2.79 and
$2.76, respectively, on weighted average shares of 4.5
million in the year ended December 31, 1999.

26 ❘ G e n e s e e & W y o m i n g I n c .

Year Ended December 31, 1999
Compared to Year Ended
December 31, 1998

Consolidated Operating Revenues ❘ Operating
revenues were $175.6 million in the year ended
December 31, 1999 compared to $147.5 million in the
year ended December 31, 1998, a net increase of $28.1
million or 19.1%. The net increase was attributable to a
$33.0 million increase in North American railroad rev-
enues of which $19.9 million were revenues from new
railroad operations in Canada, $8.8 million were rev-
enues from new railroad operations in Mexico and $4.3
million were increases in revenues on existing North
America railroad operations; offset by a $3.6 million
decrease in revenues from Australian railroad operations
due primarily to the non-renewal of a coal contract and
a $1.3 million decrease in industrial switching revenues
due primarily to the Company’s decision to exit an
unprofitable switching contract.

The following three sections provide information on
railroad revenues for North American and Australian

railroad operations, and industrial switching revenues in
the United States.

North American Railroad Operating Revenues

Operating revenues were $121.1 million in the year
ended December 31, 1999 of which $95.5 million were
freight revenues and $25.6 million were non-freight rev-
enues compared to $88.1 million of which $66.1 million
were freight revenues and $22.0 million were non-
freight revenues in the year ended December 31, 1998,
an increase in operating revenues of $33.0 million or
37.5%. The increase was attributable to a $29.5 million
increase in freight revenues and a $3.5 million increase
in non-freight revenues. The increase of $29.5 million in
North American freight revenues was due to $15.0 mil-
lion in freight revenues attributable to new railroad
operations in Canada, $7.2 million in freight revenues
attributable to new railroad operations in Mexico, and
an increase of $7.3 million in freight revenues on exist-
ing railroad operations. The following table compares
North American freight revenues, carloads and average
freight revenues per carload for the years ended
December 31, 1999 and 1998:

North American Freight Revenues and Carloads Comparison by Commodity Group

(dollars in thousands, except average per carload)

Years Ended December 31, 1999 and 1998

Freight Revenues

Carloads

Average Freight
Revenues Per Carload

1999

% of total

1998

% of total

1999

% of total

1998

% of total

1999

1998

Commodity Group
Coal, Coke & Ores
Pulp & Paper
Petroleum Products
Lumber & Forest Products
Chemicals-Plastics
Metals
Minerals & Stone
Farm & Food Products
Autos & Auto Parts
Other

$24,779
14,867
10,210
8,304
8,169
8,156
7,905
5,831
2,491
4,825

25.9% $19,245
8,295
15.6%
7,135
10.7%
6,098
8.7%
6,337
8.6%
4,879
8.5%
3,790
8.3%
4,919
6.1%
1,945
2.6%
3,438
5.0%

29.1%
12.6%
10.8%
9.2%
9.6%
7.4%
5.8%
7.4%
2.9%
5.2%

94,140
39,952
20,206
28,627
16,039
30,614
23,667
19,898
4,790
22,024

31.4%
13.3%
6.7%
9.6%
5.4%
10.2%
7.9%
6.6%
1.6%
7.3%

75,881
21,318
15,992
20,802
12,503
17,862
13,679
17,451
3,895
18,922

34.8%
9.7%
7.3%
9.5%
5.7%
8.2%
6.3%
8.0%
1.8%
8.7%

$263
372
505
290
509
266
334
293
520
219

$254
389
446
293
507
273
277
282
499
182

Totals

$95,537 100.0% $66,081 100.0% 299,957

100.0% 218,305

100.0%

319

303

M a n a g e m e n t ’s D i s c u s s i o n a n d A n a l y s i s

❘ 27

Total North American carloads were 299,957 in the
year ended December 31, 1999 compared to 218,305 in
the year ended December 31, 1998, an increase of
81,652 or 37.4%. The increase of 81,652 consisted of an
increase of 25,951 carloads on existing railroad opera-
tions of which 17,557 were coal, 46,478 carloads attrib-
utable to the acquisition of GRO, and 9,223 carloads
attributable to new railroad operations in Mexico.

The overall average revenue per carload increased to
$319 in the year ended December 31, 1999, compared to
$303 per carload in the year ended December 31, 1998, an
increase of 5.3% due primarily to higher per carload rev-
enues attributable to Canada and Mexico carloads offset by
a slight decrease on existing railroad operations carloads.
North American non-freight railroad revenues were
$25.6 million in the year ended December 31, 1999
compared to $22.0 million in the year ended December
31, 1998, an increase of $3.5 million or 16.1%. The
increase is the net result of $4.8 million of new non-
freight revenues attributable to the acquisition of GRO,
$1.7 million of new non-freight revenues attributable to
Mexico and a decrease of $3.0 million of non-freight
revenues on existing railroad operations due primarily
to a decrease in car hire and rental income. The follow-
ing table compares North America non-freight revenues
for the years ended December 31, 1999 and 1998:

North American Railroad
Non-Freight Operating Revenue Comparison

(dollars in thousands)

Year Ended December 31

1999

1998

% of
Operating
Revenue

$6,818

26.7%

$6,231

28.3%

7,981
2,346
8,411

31.2%
9.2%
32.9%

7,577
1,890
6,341

34.4%
8.6%
28.7%

Railroad switching
Car hire and rental

income

Car repair services
Other operating income

Total non-freight
revenues

$25,556

100.0% $22,039 100.0%

Coal increased by $5.5 million or 28.8% of which
$5.4 million was on existing railroad operations and
$182,000 was new freight revenues attributable to the
acquisition of GRO. The increase on existing railroad
operations in 1999 was primarily attributable to a return
to normal shipments at a key customer’s facilities which
compare to reduced shipments in the 1998 period due to
scheduled inventory reductions and planned mainte-
nance projects at the key customer’s facilities.

Pulp and Paper increased by $6.6 million or 79.2% of
which $553,000 was on existing railroad operations,
$5.9 million was new freight revenues attributable to the
acquisition of GRO, and $125,000 was freight revenues
attributable to new railroad operations in Mexico.

Petroleum Products increased by $3.1 million or
43.0% of which $95,000 was on existing railroad opera-
tions, $131,000 was new freight revenues attributable to
the acquisition of GRO, and $2.8 million was freight rev-
enues attributable to new railroad operations in Mexico.
Lumber and Forest Products increased by $2.2 mil-
lion or 36.2% of which $956,000 was on existing rail-
road operations, $1.2 million was new freight revenues
attributable to the acquisition of GRO, and $35,000 was
freight revenues attributable to new railroad operations
in Mexico.

Chemicals and Plastics increased by $1.8 million or
28.9% of which $258,000 was on existing railroad oper-
ations, $1.3 million was new freight revenues attributa-
ble to the acquisition of GRO, and $233,000 was freight
revenues attributable to new railroad operations in
Mexico.

Metals increased by $3.3 million or 67.2% of which
$177,000 was an increase on existing railroad opera-
tions, $3.0 million was new freight revenues attributable
to the acquisition of GRO, and $80,000 was freight rev-
enues attributable to new railroad operations in Mexico.
Minerals and Stone increased by a net $4.1 million or
108.8% of which $1.6 million was new freight revenues
attributable to the acquisition of GRO, $2.9 was freight
revenues attributable to new railroad operations in
Mexico and $360,000 was a decrease on existing rail-
road operations.

Freight revenues from all remaining commodities
reflected an increase of $2.8 million or 27.6% of which
$245,000 was an increase on existing railroad opera-
tions, $1.7 million was new freight revenues attributa-
ble to the acquisition of GRO, and $916,000 was new
freight revenues attributable to new railroad operations
in Mexico.

28 ❘ G e n e s e e & W y o m i n g I n c .

Australian Railroad Operating Revenues

Operating revenues were $43.2 million in the year
ended December 31, 1999, compared to $46.7 million in
the year ended December 31, 1998, a decrease of $3.6
million or 7.7%. The decrease was the result of a
decrease in freight revenues from Australian railroad
operations of $3.4 million or 8.0% primarily due to the

non-renewal of a coal contract and a decrease in non-
freight revenues of $226,000 or 4.8%.

Australian freight revenues were $38.6 million in the
year ended December 31, 1999, compared to $42.0 mil-
lion in the year ended December 31, 1998, a decrease of
$3.4 million or 8.0%. The following table outlines
Australian freight revenues for the years ended
December 31, 1999 and 1998:

Australian Freight Revenues by Commodity

(dollars in thousands, except average per carload)

Years Ended December 31, 1999 and 1998

Freight Revenues

Carloads

Average Freight
Revenues Per Carload

1999

% of total

1998

% of total

1999

% of total

1998

% of total

1999

1998

Commodity Group
Hook and Pull (Haulage)
Grain
Gypsum
Marble
Lime
Coal
Iron Ore
Other

$17,533
13,588
2,861
2,034
1,531
664
350
88

45.4% $15,288
13,040
35.2%
2,788
7.4%
1,949
5.3%
1,052
4.0%
7,514
1.7%
0.9%
–
368
0.1%

36.4%
31.0%
6.6%
4.6%
2.5%
17.9%
0.0%
1.0%

52,407
48,781
40,304
8,343
4,662
4,317
8,069
603

31.3%
40,817
29.1% 45,896
36,611
24.1%
8,294
5.0%
2.8%
2,500
2.6% 47,286
–
4.8%
1,382
0.3%

22.3%
25.1%
20.0%
4.5%
1.4%
25.9%
0.0%
0.8%

$335
279
71
244
328
154
43
146

$375
284
76
235
421
159
–
266

Total

$38,649 100.0% $41,999 100.0% 167,486

100.0% 182,786

100.0%

231

230

The net decrease of $3.4 million in Australian freight
revenues was primarily attributable to a decrease in
freight revenues from Coal of $6.9 million offset by new
freight revenues from the shipment of Iron Ores of
$350,000, increases in freight revenues from the ship-
ment of Grain of $548,000, Hook and Pull of $2.2 mil-
lion and all other non-coal commodities of $357,000.
The decrease in freight revenues from Coal in the year
ended December 31, 1999, was due to the non-renewal
of a Coal contract.

Australia carloads were 167,486 in the year ended
December 31, 1999 compared to 182,786 in the year
ended December 31, 1998, a decrease of 15,300 or 8.4%.
The decrease was primarily the result of a decrease in
Coal carloads of 42,969 offset by increases in Hook and
Pull of 11,590, Iron Ores of 8,069, Gypsum of 3,693,
Grain of 2,885, and all other commodities of 1,432.

The overall average revenue per carload increased to
$231 in the year ended December 31, 1999, compared to
$230 per carload in the year ended December 31, 1998.
Australian non-freight revenues were $4.5 million in
the year ended December 31, 1999, compared to $4.7
million in the year ended December 31, 1998, a decrease
of $226,000 or 4.8% due primarily to a decrease in other
income.

U.S. Industrial Switching Revenues

Revenues from U.S. industrial switching activities
were $11.3 million in the year ended December 31, 1999
compared to $12.6 million in the year ended December
31, 1998, a decrease of $1.3 million or 10.3% due pri-
marily to the Company’s decision to exit an unprofitable
switching contract.

Consolidated Operating Expenses ❘ Operating
expenses for all operations combined were $153.2 mil-
lion in the year ended December 31, 1999, compared to
$127.9 million in the year ended December 31, 1998, a
net increase of $25.3 million or 19.8%. Expenses attrib-
utable to North American railroad operations were
$105.2 million in the year ended December 31, 1999,
compared to $75.6 million in the year ended December
31, 1998, an increase of $29.6 million or 39.2% of which
$17.8 million were expenses attributable to new railroad
operations in Canada, $8.1 million were expenses
attributable to new railroad operations in Mexico and
$3.7 were expenses attributable to existing U.S. railroad
operations. Expenses attributable to operations in
Australia were $36.6 million in the year ended
December 31, 1999, compared to $37.9 million in the
year ended December 31, 1998, a decrease of $1.3 mil-
lion or 3.5%. Expenses attributable to U.S. industrial
switching were $11.4 million in the year ended
December 31, 1999, compared to $14.4 million in the
year ended December 31, 1998, a decrease of $3.0 mil-
lion or 20.9%.

M a n a g e m e n t ’s D i s c u s s i o n a n d A n a l y s i s

❘ 29

Operating Ratios ❘ The Company’s combined operat-
ing ratio increased to 87.3% in the year ended December
31, 1999 from 86.7% in the year ended December 31,
1998. The operating ratio for North American railroad
operations increased to 86.9% in the year ended
December 31, 1999 from 85.8% in the year ended
December 31, 1998. The operating ratio for Australian
railroad operations increased to 84.8% in the year ended
December 31, 1999 from 81.1% in the year ended
December 31, 1998. The operating ratio for U.S. indus-
trial switching operations decreased to 100.8% in the
year ended December 31, 1999 from 114.2% in the year
ended December 31, 1998.

The following three sections provide information on
railroad expenses for North American and Australian
railroad operations, and industrial switching expenses in
the United States.

North American Railroad Operating Expenses

The following table sets forth a comparison of the
Company’s North American railroad operating expenses
in the years ended December 31, 1999 and 1998:

North American Railroad
Operating Expense Comparison

(dollars in thousands)

Year Ended December 31

1999

1998

$38,819
13,768
7,996

% of
Operating
Revenue

32.1% $30,822
11,060
11.4%
4,496
6.6%

35.0%
12.6%
5.1%

9,649
6,357

8.0%
5.2%

7,277
3,187

8.3%
3.6%

4,172
8,503
15,929

3.4%
7.0%
13.2%

2,937
3,485
12,285

3.3%
4.0%
13.9%

$105,193

86.9% $75,549

85.8%

Labor and benefits
Equipment rents
Purchased services
Depreciation and
amortization

Diesel fuel
Casualties and
insurance

Materials
Other expenses

Total operating
expenses

Labor and benefits expense was $38.8 million in the
year ended December 31, 1999 compared to $30.8 mil-
lion in the year ended December 31, 1998, an increase
of $8.0 million or 25.9% of which $5.0 million was
attributable to the acquisition of GRO, $2.7 million was
attributable to new railroad operations in Mexico and
$281,000 was attributable to an increase on existing
railroad operations.

Equipment rents were $13.8 million in the year
ended December 31, 1999 compared to $11.1 million
in the year ended December 31, 1998, a net increase of
$2.7 million or 24.5% of which $4.0 million was attrib-
utable to the acquisition of GRO, $53,000 was attribut-
able to new railroad operations in Mexico and $1.4 mil-
lion was a decrease on existing railroad operations due
primarily to a reduction of rolling stock and associated
costs.

Purchased services were $8.0 million in the year
ended December 31, 1999 compared to $4.5 million in
the year ended December 31, 1998, a net increase of
$3.5 million or 77.8% of which $2.8 million was attrib-
utable to the acquisition of GRO, $865,000 was attribut-
able to new railroad operations in Mexico and $202,000
was a decrease on existing railroad operations resulting
from increased capital spending which reduced the need
for certain purchased maintenance services.

Depreciation and amortization expense was $9.6
million in the year ended December 31, 1999 com-
pared to $7.2 million in the year ended December 31,
1998, an increase of $2.4 million or 32.6% of which
$1.4 million was attributable to the acquisition of GRO,
$671,000 was attributable to new railroad operations in
Mexico and $280,000 was attributable to existing rail-
road operations as a result of increased capital spend-
ing in 1998 and 1999.

Diesel fuel expense was $6.4 million in the year
ended December 31, 1999 compared to $3.2 million in
the year ended December 31, 1998, an increase of $3.2
million or 99.5% of which $1.5 million was attributa-
ble to the acquisition of GRO, $836,000 was attributa-
ble to new railroad operations in Mexico and $831,000
was attributable to existing railroad operations due pri-
marily to increased fuel oil prices in 1999 and second-
arily to increased fuel consumption resulting from an
increase in carloads on existing operations.

Casualties and insurance expense was $4.2 million
in the year ended December 31, 1999 compared to
$2.9 million in the year ended December 31, 1998, an
increase of $1.3 million or 42.0% of which $498,000
was attributable to the acquisition of GRO, $223,000
was attributable to new railroad operations in Mexico
and $514,000 was attributable to existing railroad
operations due primarily to increases in derailment
and insurance expense.

Materials expense was $8.5 million in the year ended
December 31, 1999 compared to $3.5 million in the
year ended December 31, 1998, an increase of $5.0 mil-
lion or 144.0% of which $984,000 was attributable to
the acquisition of GRO, $1.2 million was attributable to
new railroad operations in Mexico and $2.8 million was
attributable to existing railroad operations due primarily
to increased track and locomotive materials expense.

30 ❘ G e n e s e e & W y o m i n g I n c .

Other expenses were $15.9 million in the year ended
December 31, 1999 compared to $12.3 million in the
year ended December 31, 1998, an increase of $3.6 mil-
lion or 29.6% of which $1.5 million was attributable to
the acquisition of GRO, $1.5 million was attributable to
new railroad operations in Mexico and $629,000 was
attributable to existing railroad operations primarily
related to acquisition expenses which were $1.9 million
in 1999 ($1.2 million of which was incurred in the first
quarter of 1999) compared to $1.5 million in 1998, an
increase of $404,000 or 27.9%.

Australian Railroad Operating Expenses

The following table sets forth a comparison of the
Company’s Australian railroad operating expenses in the
years ended December 31, 1999 and 1998:

Australian Railroad
Operating Expense Comparison

(dollars in thousands)

Year Ended December 31

1999

1998

$5,443
367
12,116

2,157
8,186

1,635
1,861
4,833

% of
Operating
Revenue

12.6%
0.9%
28.1%

5.0%
19.0%

3.8%
4.3%
11.1%

$5,263
593
13,538

% of
Operating
Revenue

11.3%
1.3%
29.0%

1,842
8,895

3.9%
19.0%

1,415
1,734
4,627

3.0%
3.7%
9.9%

$36,598

84.8% $37,907

81.1%

Labor and benefits
Equipment rents
Purchased services
Depreciation and
amortization

Diesel fuel
Casualties and
insurance

Materials
Other expenses

Total operating
expenses

Purchased services were $12.1 million in the year
ended December 31, 1999 compared to $13.5 million in
the year ended December 31, 1998, a decrease of $1.4
million or 10.5%. The decrease was primarily related to
the non-renewal of a coal haulage contract which result-
ed in no contracted maintenance charges on the track
used for the coal haulage, and the positive impact of
capital work on ASR-owned tracks which reduced con-
tract labor expense for maintenance.

All other operating expenses were $24.5 million in
the year ended December 31, 1999 compared to $24.4
million in the year ended December 31, 1998, a net
increase of $113,000.

U. S. Industrial Switching Operating Expenses

The following table sets forth a comparison of the
Company’s industrial switching operating expenses in
the years ended December 31, 1999 and 1998:

U.S. Industrial Switching
Operating Expense Comparison

(dollars in thousands)

Year Ended December 31

1999

1998

$7,945
187
476

% of
Operating
Revenue

70.1%
1.6%
4.2%

$9,019
217
291

% of
Operating
Revenue

71.3%
1.7%
2.3%

768
421

971
743
(84)

6.8%
3.7%

8.6%
6.6%
(0.8%)

798
466

6.3%
3.7%

1,363
758
1,533

10.8%
6.0%
12.1%

$11,427

100.8% $14,445 114.2%

Labor and benefits
Equipment rents
Purchased services
Depreciation and
amortization

Diesel fuel
Casualties and
insurance

Materials
Other expenses

Total operating
expenses

Labor and benefits expense was $7.9 million in the
year ended December 31, 1999 compared to $9.0 mil-
lion in the year ended December 31, 1998, a decrease of
$1.1 million or 11.9%, due primarily to the decision to
exit unprofitable switching contracts.

Other expense was a credit of $84,000 in the year
ended December 31, 1999 compared to $1.5 million in
the year ended December 31, 1998, a decrease of $1.6
million or 105.5%. The 1998 period was unusually high
due to approximately $550,000 of legal fees for still-
pending litigation.

Interest Expense ❘ Interest expense in the year ended
December 31, 1999 was $8.5 million compared to $7.1
million in the year ended December 31, 1998, an
increase of $1.4 million or 19.7% primarily related to
the increase in debt used for acquisitions.

Other Income and Income Taxes ❘ The Compa-
ny’s other income consists primarily of interest income,
gains and losses on assets sales, and minority interest
expense. Other income in the year ended December 31,
1999 was $1.9 million compared to $7.3 million in the
year ended December 31, 1998, a decrease of $5.4 mil-
lion or 74.3%. The 1998 other income reflected $6.0
million of non-recurring insurance proceeds recorded in
North American railroad operations.

The Company’s effective income tax rate in the years
ended December 31, 1999 and 1998 was 14.0% and
39.0%, respectively. The 1999 rate was impacted by a
$4.2 million benefit recorded in the third quarter of
1999 as a result of a favorable tax law change in
Australia. Without this impact, 1999’s effective income
tax rate was 40.9%.

Equity in Net Income of Unconsolidated Inter-
national Affiliates ❘ Equity losses of unconsolidated
international affiliates in the year ended December 31,
1999, were $618,000 compared to losses of $645,000 in
the year ended December 31, 1998, a decrease of
$27,000. The 1999 loss was from Genesee • Rail-One for
the period of January 1 through April 15, 1999, at which
date the Company acquired majority ownership of
Genesee • Rail-One. The 1998 loss was from Genesee • Rail-
One for the year ended December 31, 1998.

Net Income and Earnings Per Share ❘ The Com-
pany’s net income in the year ended December 31, 1999
was $12.5 million (including a $4.2 million income tax
benefit described above and an extraordinary non-cash
expense of $262,000 related to the early extinguishment
of debt described in Note 9. to Consolidated Financial
Statements) compared to net income of $11.4 million
(including a $3.9 million after-tax effect of an insurance
settlement described in Note 2. to Consolidated Finan-
cial Statements) in the year ended December 31, 1998,
an increase of $1.1 million or 9.6%. The increase in net
income is the net result of an increase in net income
from Australian railroad operations of $3.6 million, a
decrease in net income from North American railroad
operations of $3.7 million, and a decrease in the net loss
of industrial switching of $1.2 million.

Basic and Diluted Earnings Per Share in the year
ended December 31, 1999 were $2.79 and $2.76 respec-
tively, on weighted average shares of 4.5 million com-
pared to $2.20 and $2.19 respectively, on weighted aver-
age shares of 5.2 million in the year ended December
31, 1998. The change in weighted average shares out-
standing primarily reflects the impact of a 1.0 million
share buy-back program which started in August 1998
and ended in April 1999.

M a n a g e m e n t ’s D i s c u s s i o n a n d A n a l y s i s

❘ 31

Liquidity and Capital Resources ❘ During 2000,
1999 and 1998, the Company generated $23.5 million,
$29.3 million and $23.8 million, respectively, of cash
from operations. The 2000 decrease is primarily due
to higher earnings before depreciation, amortization,
deferred taxes and the gain from the issuance of ASR
stock in 2000; being more than offset by the $5.1 mil-
lion net increase in operating assets and liabilities dur-
ing 2000 compared to the $2.5 million decrease in such
net assets in 1999. The 1999 increase over 1998 was pri-
marily due to somewhat higher earnings before depreci-
ation, amortization and deferred taxes in 1999 and the
$2.5 million decrease in operating assets and liabilities
during 1999 versus the $1.0 million increase in such
assets during 1998.

Cash flows from investing activities included capital
expenditures of $39.5 million, $35.8 million and $16.9
million in 2000, 1999 and 1998, respectively. Of these
expenditures, $14.4 million, $14.8 million and $10.0
million were for equipment and rolling stock in 2000,
1999 and 1998, respectively. The remaining capital
expenditure amounts each year were for track improve-
ments and are not net of funds received under govern-
mental and other third party grants. Year 2000 cash
flows from investing activities also included $29.4 mil-
lion of investments in unconsolidated affiliates and $2.6
million of proceeds from the issuance of minority shares
in consolidated affiliates. Year 1999 and 1998 cash flows
from investing activities also include $1.0 million and
$3.1 million, respectively, of investments in unconsoli-
dated affiliates and 1999 includes $31.5 million for the
acquisition by FCCM. Proceeds from assets sales were
$679,000 in 2000, $10.3 million in 1999 and $2.6 mil-
lion in 1998.

Cash flows from financing activities included net
increases in outstanding debt of $6.4 million in 2000
and $17.5 million in 1999 and a net decrease in out-
standing debt of $2.1 million in 1998. Proceeds from
governmental and other third party grants were $10.3
million, $10.9 million and $3.2 million in 2000, 1999
and 1998, respectively. Common stock activity resulted
in cash inflows of $2.1 million in 2000 and outflows of
$6.3 million and $4.6 million in 1999 and 1998, respec-
tively, such outflows primarily representing the
Company’s program from August, 1998 to April, 1999 to
repurchase 1.0 million shares of its Class A common
stock. Year 2000 cash flows from financing activities
also included $18.8 million of net proceeds from the
Company’s December 2000 issuance of Redeemable
Convertible Preferred Stock to help fund the additional
investment into the Australia operations.

32 ❘ G e n e s e e & W y o m i n g I n c .

During 2000, the Company completed four amend-
ments to its primary credit agreement to facilitate the
Company’s corporate restructuring and refinancing of
its Mexico operations, issuance of Convertible Preferred
stock, and sale of a 50% interest in ASR to ARG. As
amended, the Company’s primary credit agreement con-
sists of a $135.0 million credit facility with $103.0 mil-
lion in revolving credit facilities and $32.0 million in
term loan facilities. The term loan facilities consist of a
U.S. Term Loan facility in the amount of $10.0 million
and a Canadian Term Loan facility in the Canadian
Dollar Equivalent of $22.0 million U.S. dollars. Prior to
the 2000 amendments, this agreement allowed for max-
imum borrowings of $150.0 million including $45.0
million in Mexico and $15.0 million in Australia.
Amounts previously outstanding under the credit agree-
ment which were borrowed by FCCM represented U.S.
dollar denominated foreign debt of the Company’s
Mexican subsidiary. As the Mexican peso moved against
the U.S. dollar, the revaluation of this outstanding debt
to its Mexican peso equivalent resulted in non-cash
gains and losses as reflected in the accompanying state-
ments of income. On June 16, 2000, pursuant to a cor-
porate and financial restructuring of the Company’s
Mexican subsidiaries, the income statement impact of
the U.S. dollar denominated foreign debt revaluation
was significantly reduced.

The term loans are due in quarterly installments and
mature, along with the revolving credit facilities, on
August 17, 2004. The credit facilities accrue interest at
various rates depending on the country in which the
funds are drawn, plus the applicable margin, which
varies from 1.75% to 2.5% depending upon the country
in which the funds are drawn and the Company’s fund-
ed debt to EBITDAR ratio, as defined in the credit agree-
ment. Interest is payable in arrears based on certain
elections of the Company, not to exceed three months
outstanding. The Company pays a commitment fee
which varies between 0.375% and 0.500% per annum on
all unused portions of the revolving credit facility
depending on the Company’s funded debt to EBITDAR
ratio. The credit agreement requires mandatory prepay-
ments from the issuance of new equity or debt and
annual sale of assets in excess of varying minimum
amounts depending on the country in which the sales
occur. The credit facilities are secured by essentially all
the Company’s assets in the United States and Canada.
The credit agreement requires the maintenance of cer-
tain covenant ratios or amounts, including, but not lim-
ited to, funded debt to EBITDAR, cash flow coverage,
and Net Worth, all as defined in the agreement. The
Company and its subsidiaries were in compliance with
the provisions of these covenants as of December 31,
2000.

On August 17, 1999, the Company amended and
restated its primary credit agreement to provide for an
increase in total borrowings. Borrowings under the
Canadian portion of the amended agreement were used
to refinance certain GRO debt. In conjunction with that
refinancing, the Company recorded a non-cash after tax
extraordinary charge of $262,000 related to the
unamortized deferred financing costs of the retired debt.
On December 7, 2000, one of the Company’s sub-
sidiaries in Mexico, Servicios, entered into three promis-
sory notes payable totaling $27.5 million with variable
interest rates based on LIBOR plus 3.5%. Two of the
notes have an eight year term with principal payments
of $1.4 million due semi-annually beginning March 15,
2003, through the maturity date of September 15, 2008.
The third note has a nine year term with principal pay-
ments of $750,000 due semi-annually beginning March
15, 2003, with a maturity date of September 15, 2009.
The promissory notes are secured by essentially all the
assets of Servicios and FCCM, and a pledge of the
Company’s shares of Servicios and FCCM. The promis-
sory notes contain certain financial covenants which
Servicios is in compliance with as of December 31,
2000.

In October 2000, the Company amended and restated
its promissory note payable to a Class I railroad, after
making a discretionary $1.0 million principal payment,
by refinancing $7.9 million at 8% with interest due quar-
terly and principal payments due in annual installments
of $1.0 million beginning October 31, 2001 through the
maturity date of October 31, 2007. Prior to this amend-
ment and restatement, the promissory note payable
provided for annual principal payments of $1.2 million
provided a certain subsidiary of the Company met cer-
tain levels of revenue and cash flow. In accordance with
these prior provisions, the Company was not required to
make any principal payments through 1999.

In December 2000, to fund its cash investment in
ARG, the Company completed a private placement of
Redeemable Convertible Preferred Stock (See Note 11. to
Consolidated Financial Statements). The Company exer-
cised its option to fund $20.0 million of a possible $25.0
in gross proceeds from the Convertible
million
Preferred. The Fund also received an option to invest an
additional $5.0 million in the Company provided that
the Company completes future acquisitions with an
aggregate purchase price greater than $25.0 million.

On December 7, 1999, the Company completed the
sale of 483 freight cars to a financial institution for a net
sale price of $8.6 million. The proceeds were used to
reduce borrowings under the Company’s revolving cred-
it facilities. Simultaneously, the Company entered into
agreements with the financial institution to lease these
483 freight cars and an additional 100 centerbeam flat
cars for a period of at least eight years including auto-
matic renewals. The sale/leaseback transaction resulted

M a n a g e m e n t ’s D i s c u s s i o n a n d A n a l y s i s

❘ 33

The Company has historically relied primarily on
cash generated from operations to fund working capital
and capital expenditures relating to ongoing operations,
while relying on borrowed funds and stock issuances to
finance acquisitions and investments in unconsolidated
affiliates. The Company believes that its cash flow from
operations together with amounts available under the
credit facilities will enable the Company to meet its liq-
uidity and capital expenditure requirements relating to
ongoing operations for at least the duration of the cred-
it facilities.

Disclosures About Market Risk ❘ The Company is
exposed to the impact of interest rate changes. The
Company’s exposure to changes in interest rates applies
to its borrowings under its credit facilities which have
variable interest rates depending on the country in
which the funds are drawn, plus the applicable margin,
which varies from 1.75% to 2.5% depending upon the
country in which the funds are drawn and the
Company’s funded debt to EBITDAR ratio, as defined in
the credit agreement. The Company is also exposed to
the impact of foreign currency exchange rate risk at its
foreign operations in Canada, Mexico, Australia and
Bolivia. In particular, the Company is exposed to the
non-cash impact of its equity earnings in ARG which
uses the Australian dollar as its functional currency. The
Company invests excess cash in overnight money mar-
ket accounts.

Forward-looking Statements ❘ This discussion and
analysis contains forward-looking statements regarding
future events and the future performance of Genesee &
Wyoming Inc. that involve risks and uncertainties that
could cause actual results to differ materially including,
but not limited to, economic conditions, customer
demand, increased competition in relevant markets,
and others. Please refer to the documents that the
Company files from time to time with the Securities
and Exchange Commission, such as Forms 10-K and 10-
Q which contain additional important factors that could
cause actual results to differ from current expectations
and from the forward-looking statements contained in
this discussion and analysis.

in a deferred gain of $612,000, which will be amortized
over the term of the lease as a non-cash offset to rent
expense. These leases also include an option to purchase
all of the cars, subject to certain conditions. If certain
conditions related to the return of the cars are met, the
Company could be required to pay a fee.

At December 31, 2000 the Company had long-term
debt, including current portion, totaling $104.8 million,
which comprised 48.0% of its total capitalization includ-
ing the Convertible Preferred. At December 31, 1999,
long-term debt, including current portion, was $108.4
million comprising 57.0% of total capitalization.

The Company’s railroads have entered into a number
of rehabilitation or construction grants with state and
federal agencies and third parties. The grant funds are
used as a supplement to the Company’s normal capital
programs. In return for the grants, the railroads pledge
to maintain various levels of service and maintenance
on the rail lines that have been rehabilitated or con-
structed. The Company believes that the levels of serv-
ice and maintenance required under the grants are not
materially different from those that would be required
without the grant obligation. While the Company has
benefited from these grant funds in recent years includ-
ing 2000 and 1999, there can be no assurance that the
funds will continue to be available.

On December 7, 2000, in conjunction with the refi-
nancing of FCCM and Servicios, the International
Finance Corporation invested $1.9 million of equity for
a 12.7% indirect interest in FCCM, through its parent
company Servicios (See Notes 3. and 9. to Consolidated
Financial Statements). Along with its equity investment,
IFC received a put option exercisable in 2005 to sell its
equity stake back to the Company. The put price will be
based on a multiple of earnings before interest, taxes,
depreciation and amortization. The Company increases
its minority interest expense in the event that the value
of the put option exceeds the otherwise minority inter-
est liability. This put option may result in a future cash
outflow of the Company.

The Company has budgeted approximately $18.0
million in capital expenditures in 2001, primarily for
track rehabilitation. Of the $18.0 million in capital expen-
ditures, $1.7 million is expected to be funded by rehabil-
itation grants from state and federal agencies to several of
the Company’s railroads.

In connection with the Company’s purchase of select-
ed assets in Australia, the Company had committed to
the Commonwealth of Australia to spend approximately
$34.1 million (AU $52.3 million) to rehabilitate track
structures and equipment by December 31, 2002. This
commitment was transferred to the Australian Railroad
Group Pty. Ltd. through the sale of 50% of Australia
Southern Railroad in December, 2000.

34 ❘ G e n e s e e & W y o m i n g I n c .

Selected Financial Data

(In thousands, except per share amounts

Year Ended December 31

2000

1999

1998

1997

1996

Income Statement Data:

Operating revenues
Operating expenses

Income from operations
Interest expense
Gain on sale of 50% equity in

Australian operations (1)

Other income, net

Income before income taxes, equity earnings

and extraordinary item

Income taxes
Equity earnings (losses)

Income before extraordinary item
Extraordinary item

Net income
Impact of preferred stock outstanding

$206,530
182,777

$175,586
153,218

$147,472
127,904

$103,643
87,200

$77,795
63,801

23,753
(11,233)

10,062
1,508

24,090
10,569
411

13,932
—

13,932
52

22,368
(8,462)

—
1,682

15,588
2,175
(618)

12,795
(262)

12,533
—

19,568
(7,071)

—
7,290

19,787
7,708
(645)

11,434
—

16,443
(3,349)

13,994
(4,720)

—
345

13,439
5,441
—

7,998
—

—
651

9,925
4,020
—

5,905
—

Net income available to common stockholders

$13,880

$12,533

$11,434

$7,998

$5,905

Basic Earnings Per Common Share:

Net income available to common

stockholders before extraordinary item

Extraordinary item

Net income

Weighted average number of shares

of common stock

Diluted Earnings Per Common Share:

Net income before extraordinary item

Extraordinary item

Net income

Weighted average number of shares

$3.19
—

$3.19

$2.85
(0.06)

$2.79

$2.20
—

$2.20

$1.52
—

$1.52

$1.54
—

$1.54

4,346

4,491

5,187

5,250

3,829

$3.11

—

$3.11

$2.82

(0.06)

$2.76

$2.19

—

$2.19

$1.47

—

$1.47

$1.49

—

$1.49

of common stock and equivalents

4,486

4,540

5,229

5,447

3,966

Dividends per common share (2)

—

$0.01

Balance Sheet Data at Year End:

Total assets

Total debt

$342,012

$303,940

$216,760

$210,532

$145,339

104,801

108,376

65,690

74,144

18,731

Redeemable Convertible Preferred Stock

Stockholders’ equity

18,849

94,732

—

81,829

74,537

68,343

61,683

(1) In December 2000, the Company issued shares of its Australian subsidiary at a price per share in excess of its book value investment in that subsidiary
resulting in a $10.1 million gain and the deconsolidation of that subsidiary. See Note 3 of the Notes to Consolidated Financial Statements for a complete
description of this transaction and its related impacts.

(2) Prior to its initial public offering on June 24, 1996, the Company paid dividends at the discretion of the Company’s Board of Directors.
The Company has not paid cash dividends after the initial public offering. The Company does not intend to pay cash dividends for the foreseeable
future and intends to retain earnings, if any, for future operations and expansion of the Company’s business.

A u d i t o r ’s R e p o r t

❘ 35

Report of Independent
Public Accountants

To the Board of Directors and the Shareholders
of Genesee & Wyoming Inc.:

We have audited the accompanying consolidated balance
sheets of GENESEE & WYOMING INC. (a Delaware cor-
poration) AND SUBSIDIARIES as of December 31, 2000
and 1999, and the related consolidated statements of
income, stockholders’ equity and comprehensive income
and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements
are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these finan-
cial statements based on our audits. The summarized
financial data for Australian Railroad Group Pty. Ltd.
(ARG) contained in Note 7 are based on the financial
statements of ARG, which were audited by other audi-
tors. Their report has been furnished to us, and our opin-
ion, insofar as it relates to the data in Note 7, is based on
the report of the other auditors.

We conducted our audits in accordance with auditing
standards generally accepted in the United States. Those
standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting princi-
ples used and significant estimates made by manage-
ment, as well as evaluating the overall financial state-
ment presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the report of
other auditors, the financial statements referred to above
present fairly, in all material respects, the financial posi-
tion of Genesee & Wyoming Inc. and Subsidiaries as of
December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years
in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the
United States.

ARTHUR ANDERSEN LLP

Chicago, Illinois
February 13, 2001

36 ❘ G e n e s e e & W y o m i n g I n c .

Consolidated Balance Sheets

(in thousands, except share amounts)

Assets
Current Assets:

Cash and cash equivalents
Accounts receivable, net
Materials and supplies
Prepaid expenses and other
Deferred income tax assets, net

Total current assets

Property and Equipment, net

Investment in Unconsolidated Affiliates

Service Assurance Agreement, net

Other Assets, net

Total assets

Liabilities and Stockholders’ Equity
Current Liabilities:

Current portion of long-term debt
Accounts payable
Accrued expenses

Total current liabilities

Long-Term Debt, less current portion

Deferred Income Tax Liabilities, net

Deferred Items—grants from governmental agencies and third parties

Deferred Gain—sale/leaseback

Other Long-Term Liabilities

Minority Interest

Redeemable Convertible Preferred Stock

Stockholders’ Equity:

Class A Common Stock, $0.01 par value, one vote per share;

12,000,000 shares authorized; 4,609,167 and 4,453,368 issued and
outstanding on December 31, 2000 and 1999, respectively

Class B Common Stock, $0.01 par value, ten votes per share;

1,500,000 shares authorized; 845,447 issued and outstanding
on December 31, 2000 and 1999

Additional paid-in capital
Retained earnings
Currency translation adjustment
Less treasury stock, at cost, 1,001,686 and 1,000,000 Class A shares

on December 31, 2000 and 1999, respectively

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of these consolidated financial statements.

December 31

2000

1999

$3,373
45,209
5,023
7,249
2,202

$7,791
47,870
6,141
7,689
3,087

63,056

72,578

180,946

185,970

64,091

11,315

22,604

1,576

12,065

31,751

$342,012

$303,940

$3,996
43,045
10,860

$15,146
52,501
9,738

57,901

77,385

100,805

22,179

36,526

3,558

4,737

2,725

18,849

93,230

13,145

27,427

4,109

6,231

584

—

49,711
60,903
(4,883)

47,072
47,023
(1,316)

(11,053)

(11,003)

94,732

81,829

$342,012

$303,940

Consolidated Statements of Income

(in thousands, except per share amounts)

Operating Revenues

Operating Expenses:

Transportation
Maintenance of ways and structures
Maintenance of equipment
General and administrative
Depreciation and amortization
Charge for buyout of Australian stock options

Total operating expenses

Income from Operations

Interest expense
Gain on sale of 50% equity in Australian operations
Valuation adjustment of U.S. dollar denominated foreign debt
Other income, net

Income Before Income Taxes, Equity Earnings and

Extraordinary Item
Provision for income taxes
Equity in Net Income of International Affiliates:

Australia
South America
Canada

Income Before Extraordinary Item
Extraordinary item from early extinguishment of
debt, net of related income tax benefit of $162

Net Income
Impact of preferred stock outstanding

C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ❘ 37

Year Ended December 31

2000

1999

1998

$206,530

$175,586

$147,472

69,132
22,225
40,378
33,047
13,980
4,015

55,811
21,096
34,597
29,140
12,574
—

46,784
17,306
27,968
25,929
9,917
—

182,777

153,218

127,904

23,753

22,368

19,568

(11,233)
10,062
(1,472)
2,980

(8,462)
—
(191)
1,873

(7,071)
—
—
7,290

24,090
10,569

15,588

2,175

19,787
7,708

261
150
—

—
—
(618)

—
—
(645)

13,932

12,795

11,434

—

(262)

—

13,932

12,533

—

11,434
—

Net Income Available to Common Stockholders

$13,880

$12,533

$11,434

Basic Earnings Per Share:

Income available to common stockholders before extraordinary item
Extraordinary item

Earnings per common share

Weighted average shares

Diluted Earnings Per Share:

Net income before extraordinary item
Extraordinary item

Earnings per common share

Weighted average shares and equivalents

$3.19
—

$3.19

4,346

$3.11
—

$3.11

4,486

$2.85
(0.06)

$2.79

4,491

$2.82
(0.06)

$2.76

4,540

$2.20
—

$2.20

5,187

$2.19
—

$2.19

5,229

The accompanying notes are an integral part of these consolidated financial statements.

38 ❘ G e n e s e e & W y o m i n g I n c .

Consolidated Statements of Stockholders’ Equity
and Comprehensive Income

(dollars in thousands)

Class A
Common Stock

Class B
Common Stock

Additional
Paid-in
Capital

Warrants

Retained
Earnings

Currency
Translation
Adjustment

Treasury
Stock

Total
Stockholders’
Equity

Balance, December 31, 1997

Comprehensive income

Proceeds from employee

stock purchases

Warrants exercised, 42,000 shares
Treasury stock acquisitions,

345,000 shares

Balance, December 31, 1998

Comprehensive income

Proceeds from employee

stock purchases

Shares issued for investment
in unconsolidated affiliate

Treasury stock acquisitions,

655,000 shares

Balance, December 31, 1999

Comprehensive income, net

$44

—

1
—

—

$46,205

$471 $23,056 $(1,441)

— $68,343

—

—
—

—

11,434

(666)

— 10,768

54
471

—
(471)

—
—

55
—

—

— $ (4,629)

(4,629)

46,730

— 34,490

(2,107)

(4,629)

74,537

—

— 12,533

791

— 13,324

—

281

—

281

—

— (6,374)

(6,374)

47,072

— 47,023

(1,316)

(11,003)

81,829

of taxes of $996

—

— 13,932

(3,567)

— 10,365

Proceeds from employee

stock purchases

Impact of sale of puttable

equity in Mexican operations

Tax benefit from exercise of

stock options

Accretion of fees on Redeemable
Convertible Preferred Stock

4% dividend earned on Redeemable

Convertible Preferred Stock

Treasury stock acquisitions,

1,686 shares

—

2,218

—

(75)

—

496

—

(8)

—

(44)

—

2,219

—

(75)

—

496

(8)

(44)

(50)

Balance, December 31, 2000

$46

$49,711

— $60,903 $(4,883) $(11,053) $94,732

The accompanying notes are an integral part of these consolidated financial statements.

C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ❘ 39

Year Ended December 31

2000

1999

1998

$13,932

$12,533

$11,434

13,980
9,571
41
—
(10,062)
(411)
40
1,472

(3,744)
(517)
180
(327)
(664)

23,491

12,574
1,170
(652)
262
—
618
50
191

(10,250)
(872)
(985)
13,497
1,159

29,295

9,917
3,203

(410)
—
—
645
—
—

(3,575)
1,188
150
3,492
(2,240)

23,804

(39,537)

(35,767)

(16,901)

(21,738)
(7,635)
—
2,640
—
—
679

(65,591)

(109,869)
116,267
(1,388)
10,264
18,841
2,219
(50)

36,284

—
(1,018)
—
—
57
(31,527)
10,327

—
—
(3,084)
—
—
—
2,597

(57,928)

(17,388)

(89,954)
107,477
(1,475)
10,869
—
61
(6,374)

20,604

(22,852)
20,800
—
3,208
—
55
(4,629)

(3,418)

1,398

1,424

(36)

(4,418)
7,791

(6,605)
14,396

2,962
11,434

$3,373

$7,791

$14,396

$10,395
1,291

$8,090
3,774

$7,092
1,042

Consolidated Statements of Cash Flows

(dollars in thousands)

Cash Flows from Operating Activities

Net income
Adjustments to reconcile net income to net cash

provided by operating activities-
Depreciation and amortization
Deferred income taxes
Loss (gain) on disposition of property and equipment
Extraordinary item, net of income tax
Gain on sale of 50% equity in Australian operations
Equity (earnings) losses of unconsolidated affiliates
Minority interest expense
Valuation adjustment of U.S. dollar denominated foreign debt
Changes in assets and liabilities, net of effect of acquisitions

and deconsolidation of Australia Southern Railroad-

Accounts receivable
Materials and supplies
Prepaid expenses and other
Accounts payable and accrued expenses
Other assets and liabilities, net

Net cash provided by operating activities

Cash Flows from Investing Activities
Purchase of property and equipment
Cash investments in unconsolidated affiliate-

Australian Railroad Group, net

Cash investments in unconsolidated affiliate- South America
Cash investments in unconsolidated affiliate- Canada
Proceeds from sale of equity in subsidiaries
Cash received in purchase of Rail-One Inc., net
Purchase of business assets by Ferrocarriles de Chiapas-Mayab
Proceeds from disposition of property and equipment

Net cash used in investing activities

Cash Flows from Financing Activities

Principal payments on long-term borrowings, including capital leases
Proceeds from issuance of long-term debt
Payment of debt issuance costs
Proceeds from government and third party grants
Proceeds from issuance of Redeemable Convertible Preferred Stock, net
Proceeds from employee stock purchases
Purchase of treasury stock

Net cash provided by (used in) financing activities

Effect of Exchange Rate Changes on
Cash and Cash Equivalents

Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, beginning of year

Cash and Cash Equivalents, end of year

Cash Paid During Year For:

Interest
Income taxes

The accompanying notes are an integral part of these consolidated financial statements.

40 ❘ G e n e s e e & W y o m i n g I n c .

Notes to Consolidated
Financial Statements

1. Business and Customers:

Genesee & Wyoming Inc. and Subsidiaries (the
Company) has interests in twenty-three short line and
regional railroads through its various subsidiaries and
unconsolidated affiliates of which seventeen are located
in the United States, two are located in Australia, one is
located in Bolivia, one is located in Mexico, and two are
located in Canada. The seventeen U. S. railroads are
wholly owned by the Company through various acquisi-
tions from 1985 to 1996. The two Canadian railroads
have been wholly owned by the Company since its June
2000 acquisition of the remaining 5% minority holding.
In April 1999, the Company increased its ownership in
these Canadian roads from 47.5% to 95% and began con-
solidating their results. The Mexican railroad, acquired
in September 1999, was wholly owned by the Company
until November 2000, when the Company sold a minor-
ity 12.7% interest in the operations. The Company whol-
ly owned one of the Australian railroads from November
1997 to December 2000, at which point, the Company
contributed the operations into a venture that then
acquired the second Australian railroad. The Company
now owns 50% of the venture and accounts for its invest-
ment under the equity method of accounting. Through
a majority owned subsidiary, the Company acquired an
indirect 21.9% interest in the Bolivian railroad in
November 2000, thereby increasing its ownership to
22.6%. This investment is also accounted for under the
equity method of accounting. See Note 3 for descriptions
of the Company’s expansions in recent years.

The Company, through its leasing subsidiary, also
buys, sells, leases and manages railroad transportation
equipment in the United States and Canada. The
Company, through its industrial switching subsidiary,
provides freight car switching and related services to
industrial companies in the United States with extensive
railroad facilities within their complexes.

A large portion of the Company’s operating revenue
is attributable to customers operating in the electric util-
ity, cement and forest products industries in North
America, and the farm and food products, iron ores and
transportation (hook and pull) industries in Australia. As
the Company acquires new railroad operations, the base
of customers and industries served continues to grow
and diversify. The largest ten customers accounted for
approximately 29%, 36% and 42% of the Company’s rev-
enues in 2000, 1999 and 1998, respectively. In 2000, no
single customer accounted for more than 5% of the

Company’s operating revenue. In 1999, one customer in
the electric utility industry accounted for approximately
10% (see Note 15.). The Company regularly grants trade
credit to all of its customers. In addition, the Company
grants trade credit to other railroads through the routine
interchange of traffic. Although the Company’s accounts
receivable include a diverse number of customers and
railroads, the collection of these receivables is substan-
tially dependent upon the economies of the regions in
which the Company operates, the electric utility,
cement, paper, farm and food, iron ore and transporta-
tion industries, and the railroad sector of the economy
in general.

2. Significant Accounting Policies:

Principles of Consolidation

The consolidated financial statements include the
accounts of the Company and its controlled subsidiaries.
The Company’s investments in unconsolidated affiliates
are accounted for under the equity method. All signifi-
cant intercompany transactions and accounts have been
eliminated in consolidation.

Revenue Recognition

Railroad revenues are estimated and recognized as
shipments initially move onto the Company’s tracks,
which, due to the relatively short length of haul, is not
materially different from the recognition of revenues as
shipments progress. Industrial switching and other serv-
ice revenues are recognized as such services are provided.

Cash Equivalents

The Company considers all highly liquid instruments
with a maturity of three months or less when purchased
to be cash equivalents.

Materials and Supplies

Materials and supplies consist of purchased items for
improvement and maintenance of road property and
equipment, and are stated at the lower of average cost or
market.

Property and Equipment

Property and equipment are carried at historical cost.
Acquired railroad property is recorded at the purchased
cost. Major renewals or betterments are capitalized
while routine maintenance and repairs are charged to
expense when incurred. Gains or losses on sales or other
dispositions are credited or charged to other income
upon disposition. Depreciation is provided on the
straight-line method over the useful lives of the road
property (20-30 years) and equipment (3-20 years).

The Company continually evaluates whether events
and circumstances have occurred that indicate that its

N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ❘ 41

long-lived assets may not be recoverable. When factors
indicate that assets should be evaluated for possible
impairment, the Company uses an estimate of the relat-
ed undiscounted future cash flows over the remaining
lives of assets in measuring whether or not an impair-
ment has occurred. If an impairment is identified, a loss
would be reported to the extent that the carrying value
of the related assets exceeds the fair value of those assets
as determined by valuation techniques available in the
circumstances.

Deferred Grants

Grants received from governmental agencies and
third parties are recorded as long-term liabilities as
received and amortized over the same period which the
underlying purchased assets are depreciated.

Gains/Losses on Sales of Stock in Subsidiaries

The Company records gains and losses on the sale of
the stock of its subsidiaries in current earnings unless
the sales transaction is part of a broader corporate reor-
ganization which involves the potential for a repurchase
of the shares at a future date. If the sale is part of a
broader corporate reorganization, gains or losses are
recorded in additional paid in capital.

Service Assurance Agreement

The service assurance agreement represents a com-
mitment from one of the most significant customers of
the Company, to one of the subsidiary railroads in the
U.S. (see Note 15.), which grants the Company the exclu-
sive right to serve indefinitely three of the customer’s
then-current facilities. The service assurance agreement
is amortized on a straight-line basis over the same peri-
od as the related track structure, which is 20 years, and
accumulated amortization was $3.6 million and $2.8
million as of December 31, 2000 and 1999, respectively.

Earnings per Share

Unexercised stock options, calculated under the
treasury stock method, and redeemable convertible pre-
ferred stock (issued on December 12, 2000) are the only
reconciling items between the Company’s basic and
diluted weighted average shares outstanding. The num-
ber of options used to calculate diluted earnings per
share is 732,967, 204,750 and 412,820 for 2000, 1999
and 1998, respectively. Options to purchase 31,500,
637,500 and 280,400 shares of stock were outstanding
as of December 31, 2000, 1999 and 1998, respectively,
but were not included in the computation of diluted
earnings per share because the options’ exercise prices
were greater than the average market price of the com-
mon shares. Also included in the diluted earnings per
share calculation in 2000 is 47,647 shares of common

stock which represent the weighted average share
impact of the assumed conversion of the redeemable
convertible preferred stock (See Note 11.).

Insurance Recoveries

The Company receives insurance proceeds in the nor-
mal course of business for recoveries related to derail-
ment damages and employee and third party claims.
These proceeds are accounted for as a reduction of oper-
ating expenses. Insurance proceeds related to other mat-
ters are recorded in other income including proceeds of
$6.0 million in 1998.

Disclosures About Fair Value
of Financial Instruments

The following methods and assumptions were used to
estimate the fair value of each class of financial instru-
ment held by the Company:

Current assets and current liabilities: The carrying
value approximates fair value due to the short matu-
rity of these items.

Long-term debt: The fair value of the Company’s long-
term debt is based on secondary market indicators.
Since the Company’s debt is not quoted, estimates are
based on each obligation’s characteristics, including
remaining maturities, interest rate, credit rating, col-
lateral, amortization schedule and liquidity. The car-
rying amount approximates fair value.

Foreign Currency Translation

The financial statements of the Company’s foreign
subsidiaries were prepared in their respective local cur-
rencies and translated into U.S. dollars based on the cur-
rent exchange rate at the end of the period for balance
sheet items and a weighted-average rate for the year for
the statement of income items. Translation adjustments
are reflected as currency translation adjustments in
Stockholders’ Equity and accordingly only affect com-
prehensive income. Revaluation adjustments for U. S.
dollar denominated foreign debt were losses of $1.5 mil-
lion and $191,000 in 2000 and 1999, respectively. In
1998, included separately in other income, net, was a
loss of $331,000 for the revaluation of a Canadian dollar
receivable held by a U.S. subsidiary.

Management Estimates

The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, rev-
enues and expenses during the reporting period. Actual
results could differ from those estimates.

42 ❘ G e n e s e e & W y o m i n g I n c .

Reclassifications

Certain prior year balances have been reclassified to

conform with the 2000 presentation.

3. Expansion of Operations:

Australia

On December 17, 2000, the Company, through its
newly-formed joint venture, Australian Railroad Group
Pty. Ltd. (ARG), completed the acquisition of Westrail
Freight from the government of Western Australia for
approximately $334.4 million including working capital.
ARG is a joint venture owned 50% by the Company and
50% by Wesfarmers Limited, a public corporation based
in Perth, Western Australia. Westrail Freight is composed
of the freight operations of the formerly state-owned
railroad of Western Australia.

The Company accounts for its 50% ownership in ARG
under the equity method of accounting and therefore
deconsolidated ASR from its consolidated financial
statements as of December 16, 2000. ASR’s net assets as
of the deconsolidation included current assets of $12.0
million, net property and equipment of $32.2 million,
other non-currents assets of $49,000, current liabilities
of $7.6 million, and other liabilities of $19.5 million.
The Company reported $261,000 in equity earnings in
its 2000 financial statements from ARG for the period of
December 17 through December 31, 2000.

Pro Forma Financial Results

The following table summarizes the Company’s
unaudited pro forma operating results for the years
ended December 31, 2000 and 1999 as if ARG had been
formed and acquired Westrail Freight as of the beginning
of the applicable period (in thousands except per share
amounts):

2000

1999

Pro forma operating revenues
Before extraordinary item:
Pro forma income
Pro forma basic earnings per share
Pro forma diluted earnings per share

$168,891 $132,434

20,019
4.61
3.92

15,960
3.34
2.95

The pro forma operating results include the decon-
solidation of ASR, incremental interest expense (with
related income tax benefit) related to borrowings used to
fund the stock option buyout and incremental preferred
stock impacts on income available to common stock-
holders related to the Convertible Preferred issuance.
These results also include the pro forma equity earnings
attributable to investment in ARG based on ARG’s pro
forma net income of $16,089 and $22,323 for 2000 and
1999, respectively. These pro forma net income results
give effect to ARG’s acquisition of Westrail Freight and
related purchase accounting adjustments primarily for
incremental depreciation and amortization expense,
elimination of access fees charged by the government,
impacts of the new financing structure and related

N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ❘ 43

On December 7, 2000, in conjunction with the refi-
nancing of FCCM (see Note 9.) and its parent company,
GW Servicios, S.A. de C.V. (Servicios), the International
Finance Corporation (IFC) invested $1.9 million of equity
for a 12.7% indirect interest in FCCM, through its parent
company Servicios. The Company contributed an addi-
tional $13.1 million and maintains an 87.3% indirect
ownership in FCCM. The Company funded $10.7 million
of its new investment with borrowings under its amend-
ed credit facility, with the remaining investment funded
by the conversion of intercompany advances into per-
manent capital. Along with its equity investment, IFC
received a put option exercisable in 2005 to sell its equity
stake back to the Company. The put price will be based
on a multiple of earnings before interest, taxes, depreci-
ation and amortization. The Company increases its
minority interest expense in the event that the value of
the put option exceeds the otherwise minority interest
liability. Because the IFC equity stake can be put to the
Company, the impact of selling the equity stake at a per
share price below the Company’s book value per share
investment was recorded directly to paid-in capital.

Canada

On April 15, 1999, the Company acquired Rail-One
Inc. (Rail-One) which has a 47.5% ownership interest in
Genesee • Rail-One Inc. (GRO), thereby increasing the
Company’s ownership of GRO to 95%. GRO owns and
operates two short line railroads in Canada. Under the
terms of the purchase agreement, the Company con-
verted outstanding notes receivable from Rail-One of
$4.6 million into capital, will pay approximately
$844,000 in cash to the sellers of Rail-One in install-
ments over a four year period, and granted options to
the sellers of Rail-One to purchase up to 80,000 shares
of the Company’s Class A Common Stock at an exercise
price of $8.625 per share. Exercise of the option is con-
tingent on the Company’s recovery of its capital invest-
ment in GRO including debt assumed if the Company
were to sell GRO, and upon certain GRO income per-
formance measures which have not yet been met. The
transaction was accounted for as a purchase and result-
ed in $2.8 million of initial goodwill which is being
amortized over 15 years. The contingent purchase price
will be recorded as a component of goodwill at the value

income taxes. The pro forma financial information does
not purport to be indicative of the results that actually
would have been obtained had all the transactions been
completed as of the assumed dates and for the periods
presented and are not intended to be a projection of
future results or trends.

Mexico

In August 1999, the Company’s wholly-owned sub-
sidiary, Compañía de Ferrocarriles Chiapas-Mayab, S.A.
de C.V. (FCCM), was awarded a 30-year concession to
operate certain railways owned by the state-owned
Mexican rail company Ferronales. FCCM also acquired
equipment and other assets. The aggregate purchase
price, including acquisition costs, was approximately
297 million pesos, or approximately $31.5 million at
then-current exchange rates. The purchase included
rolling stock, an advance payment on track improve-
ments to be completed on the state-owned track proper-
ty, an escrow payment which will be returned to the
Company upon successful completion of the track
improvements, prepaid value-added taxes and $3.1 mil-
lion in goodwill. A portion of the purchase price ($5.3
million) was also allocated to the 30-year operating
license. As the track improvements have been made, the
related costs have been reclassified into the property
accounts as leasehold improvements and amortized over
the improvements’ estimated useful life. Pursuant to the
acquisition, employee termination payments of $1.0
million were made to former state employees and
approximately 55 employees whom the Company retained
upon acquisition but terminated as part of its plan to
reduce operating costs after September 30, 1999. All
payments were made during the fourth quarter of 1999
and are considered a cost of the acquisition.

44 ❘ G e n e s e e & W y o m i n g I n c .

of the options issued, if and when such options are exer-
cisable. Effective with this agreement, the operating
results of GRO have been consolidated within the finan-
cial statements of the Company, with a 5% minority
interest due to another GRO shareholder. During the
second quarter of 2000, the Company purchased the
remaining 5% minority interest in GRO with an initial
cash payment of $240,000 and subsequent annual cash
installments of $180,000 due in 2001 and 2002. Prior to
April 15, 1999, the Company accounted for its invest-
ment in GRO under the equity method and recorded
equity losses of $618,000 and $645,000 in 1999 and
1998, respectively.

4. Allowance for Doubtful Accounts:

Activity in the Company’s allowance for doubtful

accounts was as follows (amounts in thousands):

2000

1999

1998

Balance, beginning

$1,264
of year
389
Provisions
Charges
(345)
Established in acquisitions —

$250
628
(836)
1,222

$167
136
(53)
—

Balance, end of year

$1,308

$1,264

$250

South America

5. Property and Equipment:

On November 5, 2000, the Company acquired an
indirect 21.87% equity interest in Empresa Ferroviaria
Oriental, S.A. (Oriental) increasing its stake in Oriental
to 22.55%. Oriental is a railroad serving eastern Bolivia
and connecting to railroads in Argentina and Brazil. The
Company previously acquired a 0.68% indirect interest
in Oriental on September 30, 1999 through its 47.5%
ownership interest in Latin American Rail LLC. That
original investment was for $1.0 million in cash and
25,532 shares of the Company’s stock valued at
$281,000. The Company’s new ownership interest is
largely through a 90% owned holding company sub-
sidiary in Bolivia which also received $740,000 from the
minority partner for investment into Oriental.

Major classifications of property and equipment are

as follows (amounts in thousands):

Road properties
Equipment and other

2000

1999

$168,126
61,438

$117,786
108,016

229,564

225,802

Less- Accumulated depreciation

and amortization

48,618

39,832

$180,946

$185,970

6. Other Assets:

Major classifications of other assets are as follows

(amounts in thousands):

Goodwill
Chiapas-Mayab Operating License
Chiapas-Mayab Special

Escrow Deposit - Track Project

Deferred financing costs
Executive split-dollar life insurance
Assets held for sale or future use
Other

Less- Accumulated amortization

2000

1999

$11,082
5,125

$9,765
5,213

1,638
3,356
2,728
1,045
1,298

9,668
3,932
1,846
1,867
2,516

26,272
3,668

34,807
3,056

$22,604

$31,751

Goodwill is being amortized on a straight-line basis
over lives of 15-20 years. The Chiapas-Mayab Operating
License (see Note 3.) is being amortized over 30 years.
The Chiapas-Mayab Special Escrow Deposit - Track
Project (see Note 3.) is being reclassified into road prop-
erty and depreciated as construction of the project is

N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ❘ 45

Lessee

The Company has entered into several leases for
freight cars,
locomotives and other equipment.
Operating lease expense for the years ended December
31, 2000, 1999 and 1998 was approximately $7.6 mil-
lion, $6.6 million and $6.3 million, respectively.

On December 7, 1999, the Company completed the
sale of 483 of its freight cars to a financial institution for
a net sale price of $8.6 million. The proceeds were used
to reduce borrowings under the Company’s revolving
credit facilities. Simultaneously, the Company entered
into agreements with the financial institution to lease
these 483 freight cars and an additional 100 centerbeam
flat cars for a period of at least 8 years including auto-
matic renewals. The sale/leaseback transaction resulted
in a deferred gain of $612,000, which is being amortized
over the term of the lease as a non-cash offset to rent
expense. These leases also include an option to purchase
all of the cars, subject to certain conditions. If certain
conditions related to the return of the cars are met, the
Company could be required to pay a fee.

The following is a summary of future minimum pay-
ments under noncancelable leases (amounts in thousands):

2001
2002
2003
2004
2005
Thereafter

$ 6,271
1,980
1,599
1,374
652
1,757

Total minimum payments

$13,633

The Company is party to two lease agreements with
Class I carriers to operate 238 miles of track in Oregon.
Under the leases, no payments to the lessor are required
as long as certain operating conditions are met. The
leases are subject to an initial 20 year term and shall be
renewed for successive ten year renewal terms, unless
either party elects not to renew the leases. If the lessor
terminates the leases for any reason, the lessor must
reimburse the Company for its depreciated basis in the
property. The Company has assumed all operating and
financial responsibilities including maintenance and
regulatory compliance under these lease arrangements.
Through December 31, 2000, no payments were
required under either lease arrangement.

completed. Deferred financing costs are amortized over
terms of the related debt using the straight-line method,
which is not materially different from amortization
computed using the effective-interest method. Executive
split-dollar life insurance increases as deposits are made.
Assets held for sale or future use at December 31, 2000,
primarily represent excess locomotives and a segment of
railroad track that is inactive. Assets held for sale or
future use at December 31, 1999, primarily represent a
segment of railroad track and related structures that was
inactive since 1996 as a result of the closure of that seg-
ment's primary customer's facility. A similar facility is
currently under construction by another customer on
that same segment of track. In November 2000, as a
result of the new customer receiving inbound shipments
and the expectation of the near-term completion of the
new customer’s facility leading to outbound shipments,
these assets were put back into service.

7. Equity Investment in ARG:

The Company’s 50% interest in ARG is accounted for
under the equity method of accounting. The related
equity earnings in this investment are shown within the
Equity in Net Income of International Affiliates in the
accompanying consolidated statements of income.

Condensed results of operations for ARG for the 15
days ended December 31, 2000 are as follows (in thou-
sands of U.S. dollars):

Operating revenues
Income before income taxes
Net income

$4,765
834
522

Condensed balance sheet information of ARG as of
December 31, 2000 was as follows (in thousands of U.S.
dollars):

Current assets
Non-current assets

Current liabilities
Non-current liabilities
Senior debt
Shareholders’ equity

8. Leases:

Lessor

$53,545
364,381

39,073
19,204
264,256
95,393

As of December 31, 2000, the Company had no sig-

nificant operating leases as lessor.

During 1999 and 1998, the Company sold, through
several transactions, approximately 700 railroad freight
cars which had previously accounted for a significant
portion of the Company’s minimum future rentals
receivable on noncancelable operating leases. The pro-
ceeds of the sales were used to acquire railroad rolling
stock which had previously been utilized under terms of
a capital lease.

46 ❘ G e n e s e e & W y o m i n g I n c .

9. Long-term Debt:

Long-term debt consists of the following (amounts in

thousands):

2000

1999

Credit facilities with variable interest
rates (weighted average of 8.41%
and 8.40% at December 31, 2000
and 1999, respectively), net of
unamortized discount of $8
and $101 at December 31, 2000
and 1999, respectively

Non-recourse promissory notes
of Mexican subsidiary with
variable interest rates
(10.18% on December 31, 2000)

$67,871

$97,395

27,500

—

Promissory note payable to CSX

7,922

8,922

Other debt with interest rates up
to 8% and maturing at various
dates between 2001 and 2006

Less- Current portion

1,508

2,059

104,801
3,996

108,376
15,146

Long-term debt, less current portion

$100,805

$93,230

Credit Facilities

gains and losses as reflected in the accompanying state-
ments of income. On June 16, 2000, pursuant to a cor-
porate and financial restructuring of the Company’s
Mexican subsidiaries, the income statement impact of
the U.S. dollar denominated foreign debt revaluation
was significantly reduced.

The term loans are due in quarterly installments and
mature, along with the revolving credit facilities, on
August 17, 2004. The credit facilities accrue interest at
various rates depending on the country in which the
funds are drawn, plus the applicable margin, which
varies from 1.75% to 2.5% depending upon the country
in which the funds are drawn and the Company’s fund-
ed debt to EBITDAR ratio, as defined in the credit agree-
ment. Interest is payable in arrears based on certain
elections of the Company, not to exceed three months
outstanding. The Company pays a commitment fee on
all unused portions of the revolving credit facility which
varies between 0.375% and 0.500% per annum depend-
ing on the Company’s funded debt to EBITDAR ratio.
The credit agreement requires mandatory prepayments
from the issuance of new equity or debt and annual sale
of assets in excess of varying minimum amounts
depending on the country in which the sales occur. The
credit facilities are secured by essentially all the
Company’s assets in the United States and Canada. The
credit agreement requires the maintenance of certain
covenant ratios or amounts, including, but not limited
to, funded debt to EBITDAR, cash flow coverage, and Net
Worth, all as defined in the agreement. The Company and
its subsidiaries were in compliance with the provisions of
these covenants as of December 31, 2000.

Non-Recourse Promissory Notes

On December 7, 2000, one of the Company’s sub-
sidiaries in Mexico, Servicios, entered into three promis-
sory notes payable totaling $27.5 million with variable
interest rates based on LIBOR plus 3.5%. Two of the
notes have an eight year term with principal payments
totaling $1.4 million due semi-annually beginning
March 15, 2003, through the maturity date of
September 15, 2008. The third note has a nine year
term with principal payments of $750,000 due semi-
annually beginning March 15, 2003, with a maturity date
of September 15, 2009. The promissory notes are secured

N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ❘ 47

by essentially all the assets of Servicios and FCCM, and a
pledge of the Company’s shares of Servicios and FCCM.
The promissory notes contain certain financial covenants
which Servicios is in compliance with as of December 31,
2000.

Promissory Note

In October 2000, the Company amended and restated
its promissory note payable to a Class I railroad, after
making a $1.0 million discretionary principal payment,
by refinancing $7.9 million at 8% with interest due quar-
terly and principal payments due in annual installments
of $1.0 million beginning October 31, 2001 through the
maturity date of October 31, 2008. Prior to this amend-
ment and restatement, the promissory note payable pro-
vided for annual principal payments of $1.2 million pro-
vided a certain subsidiary of the Company met certain
levels of revenue and cash flow. In accordance with
these prior provisions, the Company was not required to
make any principal payments through 1999.

Schedule of Future Payments

The following is a summary of the maturities of long-

term debt as of December 31, 2000 (amounts in thousands):

2001
2002
2003
2004
2005
Thereafter

$3,996
4,516
9,349
63,669
5,596
17,675

$104,801

10. Financial Risk Management:

The Company uses derivative financial instruments
to manage its variable interest rate risk on long-term
debt. In addition, the company uses derivative financial
instruments to manage its currency exchange rate risk
associated with U.S. Dollar principal and interest pay-
ments on long-term debt that is serviced by its Mexican
Peso denominated operations.

During 2000 and 1999, the Company entered into
various interest rate swaps fixing its base interest rate by
exchanging its variable LIBOR interest rates on long-
term debt for a fixed base rate. The swaps expire at var-
ious dates through December 31, 2002 and the fixed
base rates range from 6.12% to 6.87%. The notional
amount under these agreements is $38.0 million. At
December 31, 2000, the fair value of these interest rate
swaps is a negative $392,000. During 2000 and 1999,
the Company entered into various exchange rate option
collars that established exchange rates for converting

Mexican Pesos to U.S. Dollars. The options expire at var-
ious times through September 15, 2001, and give the
Company the right to sell Mexican Pesos for U.S. Dollars
at exchange rates ranging from 10.40 Mexican Pesos to
the U.S. Dollar to 11.85 Mexican Pesos to the U.S. Dollar.
As part of these option collars, the Company gave to a
third party the right to sell to the Company U.S. Dollars
for Mexican Pesos at exchange rates ranging from 9.35
Mexican Pesos to the U.S. Dollar to 9.85 Mexican Pesos
to the U.S. Dollar. The notional amount under these
options is $2.8 million. The Company paid an up-front
premium for these options of $45,000. At December 31,
2000, the fair value of these currency options is $4,000.

11. Redeemable Convertible Preferred Stock:

than $25.0 million. Dividends on

To fund its cash investment in ARG, the Company
completed a private placement of the Convertible
Preferred with the Fund managed by Brown Brothers
Harriman & Co. The Company exercised its option to
fund $20.0 million of a possible $25.0 million in gross
proceeds from the Convertible Preferred. The Fund also
received an option to invest an additional $5.0 million
in the Company provided that the Company completes
future acquisitions with an aggregate purchase price
greater
the
Convertible Preferred are cumulative and payable quar-
terly in arrears in an amount equal to 4% of the issue
price. Each share of the Convertible Preferred is con-
vertible by the Fund at any time into shares of Class A
Common Stock of the Company at a conversion price of
$23.00 per share of Class A Common Stock (if converted,
869,565 shares of Common Stock). The Convertible
Preferred is callable by the Company after four years,
and is mandatorily redeemable in eight years. At
December 31, 2000, no shares of Convertible Preferred
have been converted into shares of Class A Common
Stock. Issuance fees are being amortized as additional
dividends over the Convertible Preferred’s eight year life.

12. Pension and Other Postretirement
Benefit Plans:

The Company administers one noncontributory
defined benefit plan for non-union employees of a U.S.
subsidiary. Benefits are determined based on a fixed
amount per year of credited service. The Company’s
funding policy is to make contributions for pension ben-
efits based on actuarial computations which reflect the
long-term nature of the plan. The Company has met the
minimum funding requirements according to the
Employee Retirement Income Security Act.

48 ❘ G e n e s e e & W y o m i n g I n c .

Historically, the Company has provided certain
health care and life insurance benefits for certain retired
employees. Eligible employees include union employees
of one of its U.S. subsidiaries, and certain nonunion
employees who have reached the age of 55 with 30 or

more years of service. The Company funds the plan on a
pay-as-you-go basis.

The following provides a reconciliation of benefit
obligation, plan assets, and funded status of the plans
(dollars in thousands):

Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid

Pension

Other Retirement Benefits

2000

1999

2000

1999

$1,267
210
95
(91)
(158)

$1,098
179
76
(85)
(1)

$706
3
48
(63)
(70)

$544
2
36
169
(45)

Benefit obligation at end of year

$1,323

$1,267

$624

$706

Change in plan assets:
Fair value of assets at beginning of year
Actual return on plan assets
Employer contribution
Benefits paid

Fair value of assets at end of year

Reconciliation of Funded Status:
Funded status
Unrecognized net actuarial (gain) loss
Unrecognized prior service cost

Accrued benefit obligation

Weighted-average assumptions
Discount rate
Expected return on plan assets
Rate of compensation increase

$1,020
163
80
(158)

$443
21
557
(1)

$1,105

$1,020

—
—
$70
(70)

$—

—
—
$45
(45)

$—

($217)
(213)
204

($247)
(45)
227

($624)
(28)
—

($706)
54
—

($226)

($65)

($652)

7.75%
8.5%
4.5%

7.5%
N/A
N/A

Components of net periodic benefit cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of (gain) loss

Pension

Other Retirement Benefits

2000

1999

1998

2000

1999

1998

$210
95
(88)
23
—

$179
76
(38)
24
—

$149
58
(31)
23
—

$3
48
—
—
—

$2
36
—
—
(6)

—
$34
—
—
(13)

Net periodic benefit cost

$240

$241

$199

$51

$32

$21

N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ❘ 49

For measurement purposes, a 5.0% annual rate of
increase in the per capita cost of covered health care
benefits was assumed for 2000 and thereafter.

The health care cost trend rate assumption has an
effect on the amounts reported. To illustrate, increasing
(decreasing) the assumed health care cost trend rates by
one percentage point in each year would increase
(decrease) the aggregate of the service and interest cost
components of the net periodic postretirement benefit
cost and the end of the year accumulated postretirement
benefit obligation as follows:

1–Percentage
Point Increase

1–Percentage
Point Decrease

Postemployment Benefits

The Company does not provide any significant

postemployment benefits to its employees.

13. Income Taxes:

The Company files consolidated U.S. federal income
tax returns which include all of its U.S. subsidiaries.
Each of the Company’s foreign subsidiaries files appro-
priate income tax returns in their respective countries.
The components of income before provision for income
taxes, equity earnings and extraordinary item for the
presented periods are as follows (amounts in thousands):

Effect on total of service and interest

cost components
Effect on postretirement
benefit obligation

$3,846

$(3,461)

$47,850 $(43,065)

United States
Foreign (U.S.$)

2000

1999

1998

$9,199
14,891

$9,634
5,954

$13,587
6,200

$24,090

$15,588

$19,787

Employee Bonus Programs

The Company has performance-based bonus pro-
grams which include a majority of non-union employ-
ees. Key employees are granted bonuses on a discre-
tionary basis. Total compensation of approximately $1.7
million, $1.7 million and $1.4 million was awarded
under the various bonus plans in 2000, 1999 and 1998,
respectively.

Profit Sharing

The Company has three 401(k) plans covering certain
U.S. union and non-union employees who have met
specified length of service requirements. The 401(k)
plans qualify under Section 401(k) of the Internal
Revenue Code as salary reduction plans. Employees may
elect to contribute a certain percentage of their salary on
a before-tax basis. Under two of these plans, the
Company matches participants’ contributions up to 1.5%
of the participants’ salary. Under the third plan, the
Company matches participants’ contributions up to 5.0%
of the participants’ salary. The Company's contributions
to the plans in 2000, 1999 and 1998 were approximately
$299,000, $264,000 and $244,000, respectively.

As required by provisions within the Mexican
Constitution and Mexican Labor Laws, the Company’s
subsidiary, FCCM provides a statutory profit sharing
benefit to its employees. In accordance with these laws,
FCCM is required to pay to its employees a 10% share of
its profits within 60 days of filing corporate income tax
returns. The profit sharing basis is computed under a
section of the Mexican Income Tax Law which, in gen-
eral terms, differs from the taxable income by excluding
the inflation adjustment on depreciation, amortization,
receivables and payables. The provision for statutory
profit sharing expense is allocated to departmental oper-
ating expenses based on wages.

No provision is made for the U.S. income taxes appli-
cable to the undistributed earnings of controlled foreign
subsidiaries as it is the intention of management to uti-
lize those earnings in the operations of the foreign sub-
sidiaries for the foreseeable future. In the event earnings
should be distributed in the future, those distributions
may be subject to U.S. income taxes (appropriately
reduced by available foreign tax credits, some of which
would become available upon the distribution) and with-
holding taxes payable to various foreign countries. The
amount of undistributed earnings of the Company’s con-
trolled foreign subsidiaries as of December 31, 2000 is
$4.3 million. It is not practicable to determine the
amount of U.S. income taxes or foreign withholding
taxes that could be payable if a distribution of earnings
were to occur. The components of the provision for
income taxes are as follows (amounts in thousands):

2000

1999

1998

United States:
Current-
Federal
State
Deferred

Foreign (U.S.$):
Current
Deferred

$495
339
2,594

3,428

164
6,977

7,141

$1,265
952
2,381

$2,055
715
2,642

4,598

5,412

(1,212)
(1,211)

1,735
561

(2,423)

2,296

Total

$10,569

$2,175

$7,708

50 ❘ G e n e s e e & W y o m i n g I n c .

The provision for income taxes differs from that which
would be computed by applying the statutory U.S. feder-
al income tax rate to income before taxes. The following
is a summary of the effective tax rate reconciliation:

Tax provision at
statutory rate
Effect of foreign
operations

2000

1999

1998

34.0%

35.0%

12.2%

(100.7%)

0.6%

State income taxes,
net of federal
income tax benefit

1.8%
Change in valuation allowance (3.6%)
(0.5%)
Other, net

5.7%
71.9%
2.1%

3.9%
—
(0.5%)

Effective income tax rate

43.9%

14.0%

39.0%

Deferred income taxes reflect the net income effects
of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes as well as
available income tax credits. The components of net
deferred income taxes as of the presented year ends are
as follows (amounts in thousands):

Deferred tax benefits-

Accruals and reserves not deducted

for tax purposes until paid
Alternative minimum tax credits
Net operating losses
Postretirement benefits
Other

Deferred tax obligations –

Property and investment

basis differences

Valuation allowance

2000

1999

$2,202

935

7,586

233
131

$2,511
1,230
5,013
233
121

11,087

9,108

(30,267)
(797)

(7,969)
(11,197)

Net deferred tax obligations

($19,977)

($10,058)

In the accompanying consolidated balance sheets,
these deferred benefits and deferred obligations are
classified as current or non-current based on the classi-
fication of the related asset or liability for financial
reporting. A deferred tax obligation or benefit that is not
related to an asset or liability for financial reporting,
including deferred tax assets related to carry-forwards,
are classified according to the expected reversal date of
the temporary difference as of the end of the year.

The Company’s alternative minimum tax credit can
be carried forward indefinitely; however, the Company

must achieve future regular U.S. taxable income in order
to realize this credit. The Company had net operating
loss carry-forwards from its Mexican operations as of
December 31, 2000 and 1999 of $20.0 million and $10.3
million, respectively. The Mexican losses, for income tax
purposes, primarily relate to the immediate deduction of
the purchase price paid for the FCCM operations. These
loss carry-forwards will expire, if unused, between 2009
and 2010. The Company had net operating loss carry-
forwards from its Canadian operations as of December
31, 2000 and 1999 of $1.5 million and $2.2 million,
respectively. The Canadian losses primarily represent
losses generated prior to the Company gaining control of
those operations in April 1999. These loss carry-for-
wards will expire, if unused, between 2004 and 2006.

In the third quarter of 1999, the Australian govern-
ment enacted an income tax law that, for assets acquired
from a tax-exempt entity, impacts the depreciable basis
of those assets. The impact of the new law on the
Company’s Australian operation is that it will be able to
deduct, for income tax purposes, depreciation in excess
of the financial reporting basis of certain fixed assets
acquired from the government in November 1997.
However, management estimated that it was more like-
ly than not that the Company would be unable to fully
realize all of the potential income tax benefits and
accordingly, established a partial valuation allowance
against the deferred tax assets recorded pursuant to the
tax law change. Accordingly, the net income tax benefit
recorded in the 1999 third quarter as a result of this tax
law change was $4.2 million. Management’s assessment
of the likelihood of realizing the full benefit of this
incremental tax depreciation included a review of the
Australian operation’s forecasted results for the next sev-
eral years which indicated that, with the additional tax
depreciation deductions and other accelerated deduc-
tions for income tax purposes, this operation would not
likely realize the entire tax benefit. During 2000, based
on the actual operating results achieved by the
Australian subsidiary, management revised its assess-
ment of the likelihood that this tax benefit would be
realized. The 2000 reassessment resulted in a decrease
in the related valuation allowance of $1.0 million.
Pursuant to the deconsolidation of ASR, the remaining
valuation allowance and related deferred tax assets are
no longer maintained by the Company.

As of December 31, 2000 and 1999, in addition to the
valuation allowance described above, the income tax
benefit of the Mexican and Canadian net operating loss-
es had been offset by a partial valuation allowance based
on management’s assessment regarding their ultimate
realization. A certain portion of this incremental valua-
tion allowance was established in the acquisition of
GRO, and accordingly, when reversed will result in a
decrease to goodwill. Management does not believe that
a valuation allowance is required for any other deferred
tax assets based on anticipated future profit levels and
the reversal of current deferred tax obligations.

N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ❘ 51

14. Grants from Governmental Agencies
and Third Parties:

The Company periodically receives grants from states
and provinces within which it operates, and from third
parties with whom it conducts business for rehabilita-
tion or construction of track. The states, provinces and
third parties typically reimburse the Company for 75%
to 100% of the total cost of specific projects. Under two
such grant programs, the Company received $6.0 mil-
lion and $6.1 million in 2000 and 1999, respectively,
from the State of New York and $2.2 million and $3.2
million in 2000 and 1999, respectively, from the State
of Pennsylvania. In addition, the Company received
$341,000 and $200,000 of grants in 2000 and 1999,
respectively, from other states, and $315,000 in 2000
from a province in Canada. The Company also received
grants from third parties with whom it conducts business
of $1.3 million and $2.7 million in 2000 and 1999,
respectively. As of December 31, 2000, the Company is
under agreement to receive an additional $1.6 million of
grants for projects in progress at that date.

None of the Company’s grants represent a future lia-
bility of the Company unless the Company abandons the
rehabilitated or new track structure within a specified
period of time or fails to maintain the rehabilitated or
new track to certain standards and make certain mini-
mum capital improvements, as defined in the respective
agreements. As the Company intends to comply with
these agreements, the Company has recorded additions
to road property and has deferred the amount of the
grants as the construction and rehabilitation expendi-
tures have been incurred. The amortization of deferred
grants is a non-cash offset to depreciation expense over
the useful lives of the related assets and is not included
as taxable income. During the years ended December 31,
2000, 1999 and 1998, the Company recorded offsets to
depreciation expense from grant amortization of $1.1
million, $1.0 million and $728,000, respectively.

15. Commitments and Contingencies:

The Company has built its portfolio of railroad prop-
erties primarily through the purchase or lease of road
and track structure and through operating agreements.
These transactions have related only to the physical
assets of the railroad property. Typically, the Company
does not assume the operations or liabilities of the
divesting railroads.

Legal Proceedings

The Company is a defendant in certain lawsuits
resulting from railroad and industrial switching opera-
tions, one of which includes the commencement of a
criminal investigation. Management believes that the
Company has adequate defenses to any criminal charge
which may arise and that adequate provision has been
made in the financial statements for any expected lia-
bilities which may result from disposition of such law-
suits. While it is possible that some of the foregoing mat-
ters may be resolved at a cost greater than that provided

for, it is the opinion of management that the ultimate
liability, if any, will not be material to the Company’s
results of operations or financial position.

On August 6, 1998, a lawsuit was commenced against
the Company and its subsidiary, Illinois & Midland
Railroad, Inc. (IMRR), by Commonwealth Edison Com-
pany (ComEd) in the Circuit Court of Cook County,
Illinois. The suit alleges that IMRR is in breach of cer-
tain provisions of a stock purchase agreement entered
into by a prior unrelated owner of the IMRR rail line.
The provisions allegedly pertain to limitations on rates
received by IMRR and the unrelated predecessor for
freight hauled for ComEd’s Powerton plant. The suit
seeks unspecified compensatory damages for alleged
past rate overcharges. The Company believes the suit is
without merit and intends to vigorously defend against
the suit.

The parent company of ComEd has sold certain of
ComEd’s power facilities, one of which is the Powerton
plant served by IMRR under the provisions of a 1987
Service Assurance Agreement (the SAA), entered into by
a prior unrelated owner of the IMRR rail line. The SAA,
which is not terminable except for failure to perform,
provides that IMRR has exclusive access to provide rail
service to the Powerton plant. On July 7, 2000, the
Company filed an amended counterclaim against
ComEd in the Cook County action. The counterclaim
seeks a declaration of certain rights regarding the SAA
and damages for ComEd’s failure to assign the SAA to
the purchaser of the Powerton plant. The Company
believes that its counterclaim against ComEd is well-
founded and is pursuing it vigorously.

Revenue for haulage to the Powerton plant accounted
for 3.1%, 6.6% and 6.3% of the consolidated revenues of
the Company and its subsidiaries in 2000, 1999 and
1998, respectively. Failure to satisfactorily resolve this
litigation could have a material adverse effect on the
Company.

16. Stock-Based Compensation Plans:

The Company established an incentive and nonqual-
ified stock option plan for key employees and a non-
qualified stock option plan for non-employee directors
(the Stock Option Plans). The Company accounts for
these plans under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensa-
tion cost for these plans been determined consistent
with FASB Statement No.123, the Company’s net income
and earnings per share would have been reduced to the
following pro forma amounts:

2000

1999

1998

Net Income: As reported
Pro Forma

$13,932
12,925

$12,533
11,468

$11,434
10,451

Basic EPS:

As reported
Pro Forma

Diluted EPS: As reported
Pro Forma

$3.19
2.96

$3.11
2.88

$2.79
2.55

$2.76
2.53

$2.20
2.01

$2.19
2.01

52 ❘ G e n e s e e & W y o m i n g I n c .

In May 2000, the Company reduced the number of
shares of stock it may sell to its full-time employees
under its Stock Purchase Plan from 250,000 to 50,000.
At December 31, 2000 and 1999, 9,950 and 7,961
shares, respectively, had been purchased under this
plan. The Company sells shares at 100% of the stock’s
market price at date of purchase, therefore, no compen-
sation cost exists for this plan.

In May 2000, the Company increased the number of
shares available for option grants under its Stock Option
Plan for employees from 850,000 to 1,050,000. The

Company has reserved 1,100,000 shares of Class A
Common Stock for issuance under the Stock Option
Plans. The Compensation and Stock Option Committee
of the Company’s Board of Directors has discretion to
determine employee grantees, dates and amounts of
grants, vesting and expiration dates. However, under
both Plans, the exercise price must equal at least 100%
of the stock’s market price on the date of grant and must
be exercised within five years, or ten years for directors,
from the date of grant. The following is a summary of
stock option activity for 2000, 1999 and 1998:

Outstanding at beginning

of year

Granted
Exercised
Forfeited

Year Ended December 31

2000

1999

1998

Wtd. Average
Exercise Price

762,250
149,550
(127,833)
(19,500)

$17.72
15.08
17.09
14.44

652,375
124,400
—
(14,525)

$19.51
8.57
—
21.16

406,975
251,600

(500)
(5,700)

$18.46
21.25
17.00
20.81

Outstanding at end of year

764,467

17.36

762,250

17.72

652,375

19.51

Exercisable at end of year

422,320

18.85

367,886

18.86

205,415

18.41

Weighted average fair value

of options granted

7.81

4.16

8.97

The following table summarizes information about stock

options outstanding at December 31, 2000:

Exercise Price

Number of Options

Options Outstanding

Options Exercisable

Weighted Average
Remaining
Contractual Life

Weighted
Average Exercise
Price

Number of Options

Weighted
Average Exercise
Price

$8.38 – 9.21
11.00 – 12.31
15.00 – 18.75
19.50 – 21.25
28.50 – 33.25

8.38 – 33.25

110,967
24,000
362,325
235,675
31,500

764,467

3.3 Years
4.8 Years
2.2 Years
2.2 Years
1.0 Years

2.4 Years

$8.52
12.17
16.58
21.18
32.95

17.36

27,741
1,666
248,575
112,838
31,500

422,320

$8.52
11.55
17.18
21.25
32.95

18.85

The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions:

2000

1999

1998

Risk-free interest rate
Expected dividend yield
Expected lives in years
Expected volatility

6.20%
0.00%
5.45
47.80%

5.40%
0.00%
5.90
39.50%

5.48%
0.00%
5.00
37.77%

N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ❘ 53

17. Business Segment and
Geographic Area Information:

The Company operates in three business segments in
two geographic areas: North American Railroad
Operations, which includes operating short line and
regional railroads, and buying, selling, leasing and man-
aging railroad transportation equipment within the
United States, Canada and Mexico; Australian Railroad
Operations (through December 16, 2000), which
includes operating a regional railroad and providing
hook and pull (haulage) services to other railroads with-
in Australia; and Industrial Switching, which includes
providing freight car switching and related services to
industrial companies with extensive railroad facilities
within their complexes in the United States.

Corporate overhead expenses, including acquisition
expenses, are reported in North American Railroad
Operations. The Company’s December 31, 2000, equity
investments in Australia and South America are also
included in the Asset section of North American
Railroad Operations.

The accounting policies of the reportable segments
are the same as those described in Note 2. The Company
evaluates the performance of its operating segments
based on operating income. Intersegment sales and
transfers are not significant. Summarized financial
information for each business segment and for each geo-
graphic area for 2000, 1999 and 1998 are shown in the
following tables (amounts in thousands):

2000

Operating revenues
Income (loss) from operations
Depreciation and amortization
Assets
Capital expenditures

1999

Operating revenues
Income (loss) from operations
Depreciation and amortization
Assets
Capital expenditures

1998

Operating revenues
Income (loss) from operations
Depreciation and amortization
Assets
Capital expenditures

North American

Australian

Consolidated

Railroad
Operations

Industrial Switching
Operations

Total

Railroad
Operations

$158,318
23,545
11,068
333,987
32,845

$10,573
238
658
8,025
404

$168,891
23,783
11,726
342,012
33,249

$37,639
(30)
2,254
—
6,288

$206,530
23,753
13,980
342,012
39,537

$121,093
15,900
9,649
253,624
29,129

$11,341
(86)
768
8,319
130

$132,434
15,814
10,417
261,943
29,259

43,152
6,554
2,157
41,997
6,508

$175,586
22,368
12,574
303,940
35,767

$88,097
12,546
7,277
167,095
13,789

$12,647
(1,798)
798
9,588
450

$100,744
10,748
8,075
176,683
14,239

$46,728
8,820
1,842
40,077
2,662

$147,472
19,568
9,917
216,760
16,901

Refer to the accompanying consolidated statements of income for items to reconcile from consolidated income from operations to consolidated net income.

54 ❘ G e n e s e e & W y o m i n g I n c .

18. Quarterly Financial Data:

Quarterly Results (Unaudited)

(in thousands, except per share data)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

2000

Operating revenues
Income from operations
Net income
Diluted earnings per share

1999

Operating revenues
Income from operations
Net income (loss)
Diluted earnings (loss) per share

1998

Operating revenues
Income from operations
Net income
Diluted earnings per share

The fourth quarter of 2000 includes a $10.1 million
pre-tax gain upon the issuance of ASR stock to
Wesfarmers, a $4.0 million pre-tax compensation charge
related to accelerating ASR stock options and a $6.6 mil-
lion deferred tax expense resulting from the deconsoli-
dation of ASR (see Note 3).

The third quarter of 1999 includes $4.2 million of
nonrecurring income tax benefit related to a favorable
income tax legislation change in Australia (see Note 13.).
The fourth quarter of 1998 includes $6.0 million of
pre-tax nonrecurring other income related to proceeds
from an insurance settlement (see Note 2.).

$55,411
8,297
4,412
1.00

$34,172
2,038
(331)
(0.07)

$37,740
4,974
2,282
0.42

$52,354
7,807
2,278
0.53

$42,669
5,723
2,746
0.62

$37,065
4,672
1,846
0.34

$50,095
6,681
3,192
0.72

$45,063
6,351
6,691
1.53

$34,707
4,138
1,403
0.27

$48,670
967
4,050
0.86

$53,682
8,257
3,429
0.78

$37,960
5,784
5,902
1.19

19. Recently Issued Accounting Standards:

The Financial Accounting Standards Board recently
issued FASB Statement No. 133, Accounting for Deriva-
tive Instruments and Hedging Activities, which estab-
lishes accounting and reporting standards for derivative
instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as
derivatives), and hedging activities. The new standard
requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure
those instruments at fair value with changes in fair value
reported in income. As required, the Company adopted
this statement on January 1, 2001, resulting in the
recording of a liability of $388,000 to recognize the fair
value of derivative instruments held as of that date with
an offsetting charge to Other Comprehensive Income.

N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ❘ 55

Corporate Data

Stock Registrar and Transfer Agent

Genesee & Wyoming Inc. is a leading operator of regional
freight railroads in the United States, Canada, Mexico,
Australia and Bolivia, and provides freight car switching
and related services to industrial companies with exten-
sive railroad facilities within their complexes.

EquiServe
P.O. Box 8040
Boston, MA 02266-8040
781-575-3120
www.equiserve.com

Auditors

Arthur Andersen LLP
33 West Monroe Street
Chicago, Illinois 60603-5385
312-580-0033
www.arthurandersen.com

Legal Counsel

Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
212-455-2000

Harter, Secrest & Emery LLP
700 Midtown Tower
Rochester, New York 14604-2070
716-232-6500

Corporate Headquarters

Genesee & Wyoming Inc.
66 Field Point Road
Greenwich, Connecticut 06830
203-629-3722
Fax 203-661-4106
www.gwrr.com

Common Stock

The Class A Common Stock of the Company has been
traded since June 24, 1996, on the Nasdaq National
Market under the symbol GNWR. The Class B Common
Stock is not publicly traded.

Actual trade prices of Class A Common Stock:

Year Ended December 31, 2000

1st Quarter
2nd Quarter
3rd Quarter
4th Quarter

Year Ended December 31, 1999

1st Quarter
2nd Quarter
3rd Quarter
4th Quarter

High Low

$11.875

$15.50
$ 19.25 $14.25
$25.25 $ 16.00
$32.00 $17.25

Low

High
$14.75 $10.375
$ 11.625 $ 7.75
$15.25 $ 9.875
$13.75 $11.25

As of March 19, 2001, there were 113 record holders of
Class A Common Stock and 9 holders of Class B Common
Stock. Class B Common Stock is not publicly traded. The
Company believes that there are approximately 1,400
beneficial owners of Class A Common Stock. Prior to its
initial public offering, the Company historically paid div-
idends on its common stock. See “Selected Financial
Data.” However, the Company does not intend to pay cash
dividends for the foreseeable future.

56 ❘ G e n e s e e & W y o m i n g I n c .

C. Sean Day

Mortimer B. Fuller III

John M. Randolph

James M. Fuller

T. Michael Long

Philip J. Ringo

Louis S. Fuller

Robert M. Melzer

Hon. M.Douglas Young, P.C.

Board of Directors

Corporate Officers

C. Sean Day
Chairman, Teekay
Shipping Corporation

James M. Fuller (2)
Retired, Harvey Salt Co.

Louis S. Fuller (3)
Retired, Courtright
and Associates

Mortimer B. Fuller III (3)
Chairman and
Chief Executive Officer

T. Michael Long
Partner, Brown Brothers
Harriman & Co.

Mortimer B. Fuller III
Chairman of the Board of Directors
and Chief Executive Officer

Charles N. Marshall
President and
Chief Operating Officer

Mark W. Hastings
Executive Vice President,
Corporate Development

John C. Hellmann
Chief Financial Officer

Forrest L. Becht
Senior Vice President
Louisiana

Robert M. Melzer (1)
Retired, former Chief Executive
Officer, Property Capital Trust

James W. Benz
Senior Vice President
GWI Rail Switching Services

John M. Randolph (1) (2) (3)
Financial Consultant and
Private Investor

Philip J. Ringo (1)
Director, ChemConnect, Inc.

Hon. M. Douglas Young, P.C. (2) (3)
Chairman, SUMMA Strategies
Canada, Inc.

(1) Member of Audit Committee
(2) Member of Compensation

and Stock Option Committees
(3) Member of Executive Committee

Charles W. Chabot
Senior Vice President
Australia

David J. Collins
Senior Vice President
New York/Pennsylvania

Alan R. Harris
Senior Vice President
and Chief Accounting Officer

Martin D. Lacombe
Senior Vice President
Canada

Thomas P. Loftus
Senior Vice President
Finance and Treasurer

Paul M. Victor
Senior Vice President
Mexico

Spencer D. White
Senior Vice President
Illinois

Corporate Headquarters

Genesee & Wyoming Inc.
66 Field Point Road
Greenwich, CT 06830
203-629-3722
Fax 203-661-4106

Administrative Headquarters
Genesee & Wyoming Railroad Services, Inc.
Suite 200
1200-C Scottsville Road
Rochester, NY 14624
716-328-8601

Canada

Québec Gatineau Railway
6650 rue Durocher
Outremont, Quebec
Canada H2V 3Z3
514-273-5739

Huron Central Railway
30 Oakland Avenue
Sault Ste. Marie, Ontario
Canada P6A 2T3
705-254-4511

R R OCARRIL

F E

HIAPAS - M A Y

A B

Mexico

Ferrocarriles Chiapas-Mayab, S.A. de C.V.
Calle 43 429-C
Col Industrial
Mérida, Yucatan
México, CP 97000
+52-99-30-2500

Australia
Australia Southern Railroad*
320 Churchill Road
Kilburn, South Australia 5084
+61-8-8343-5455

Mailing address:
PO Box 2086
Regency Park, South Australia 5942

Australia Western Railroad*
Westrail Centre
West Parade, Perth WA
GPO Box S1422
Perth, Western Australia 6845
+61-8-9326 2222

Bolivia
Empresa Ferroviaria Oriental S.A.*
Avenida Montes Final s/n
Santa Cruz
Bolivia
+591-3-463-900

*Unconsolidated international affiliates

R R OVIA

F E

RIE N T A

New York/Pennsylvania

Buffalo & Pittsburgh Railroad, Inc
Suite 200
1200-C Scottsville Road
Rochester, NY 14624
716-328-8601

Rochester & Southern Railroad, Inc
Suite 200
1200-C Scottsville Road
Rochester, NY 14624
716-328-8601

Illinois

Illinois & Midland Railroad, Inc.
1500 North Grand Avenue East
Springfield, IL 62702
217-788-8601

Oregon

Portland & Western Railroad, Inc.
110 West 10th Avenue
Albany, OR 97321
541-924-6565

Louisiana

Louisiana & Delta Railroad, Inc.
402 West Washington Street
New Iberia, LA 70560
337-364-9625

Rail Link

Rail Link, Inc.
Suite 1
8711 Perimeter Park Boulevard
Jacksonville, FL 32216
904-620-9454

The above railroads are the major lines of the Company.

Genesee & Wyoming Inc.
66 Field Point Road
Greenwich, CT 06830

Phone: 203-629-3722
Fax: 203-661-4106
www.gwrr.com

1537-AR-01