Genesee & Wyoming Inc. Annual Report 2002

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FY2002 Annual Report · Genesee & Wyoming Inc.

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2002 Annual Report

IGenesee & Wyoming Inc.

W
G

Financial
Highlights

(in thousands, except per share data)

Years Ended December 31

2002

2001

Income Statement Data

Operating revenues

Operating income

Net income

Diluted earnings per common share,

$209,540

$173,576

$32,007

$22,954

$25,607

$19,084

excluding extraordinary item

$1.48

Weighted average number

of shares of common stock–diluted

17,585

12,917

Balance Sheet Data as of Period End

Total assets

Total debt

$514,859

$402,519

$125,417

$60,591

Redeemable Convertible Preferred Stock

$23,980

$23,808

Stockholders’ equity

$209,621

$185,663

Net Income by Geography

2002 Net Income = $25.6 million

61.8% North America

5.1% South America

33.1% Australia

Cover Photos: (top) A string of open top hopper cars snakes southward from
Provo on the Utah Railway. (middle) A Portland & Western sand train heads
to a distribution center in Hillsboro, Oregon. (bottom) Illinois & Midland delivers
coal to Midwest Generation’s Powerton Generating Station. Left: Portland &
Western Railroad outside Amity enroute to McMinnville, Oregon. The second
locomotive unit, known as a slug unit, contains additional traction motors which
are powered by the lead locomotive. The combination provides substantially
more efficient power and traction for GWI’s lower speed operations.

GWISafetyFirst

Employee commitment and participa-
tion drive safety improvements at
Genesee & Wyoming Inc. (GWI).
North American operations achieved
record safety results in 2002 with
a same-railroad injury frequency rate
of 1.89 (injuries per 200,000 hours
worked), a level comparable to the
best in the railroad industry. Industrial
switching subsidiary, Rail Link, Inc.,
won GWI’s 2002 Chairman’s Award
for the best record with an injury
frequency rate of .80.

G E N E S E E & W YO M I N G I N C . | 20 02

To Our Shareholders

2002 was a challenging year.
Regardless of our record net
income, we expected better
results than we achieved. We
underestimated the negative
impact of weather on our rev-
enues in Mexico and Australia.
We were overconfident of our
ability to manage certain costs
in Australia. The weather will
change, and the cost issues are
now being addressed. Neither of
these issues raises any question
regarding the soundness of our
strategy or our opportunity for
growth. Our foundation is strong,
and we will continue on the path
that has driven our growth and
enhanced shareholder value.

In 2002 we:

Further diversified our geogra-
phy and commodity base with
the acquisition of Emons
Transportation in February,
Utah Railway in August and
the expansion of our Oregon
Region at the end of the year;
Linked management incentive
compensation with targeted
returns on invested capital;
Expanded our borrowing
capacity to support future
acquisitions;
Increased visibility in our
stock by listing on the New
York Stock Exchange; and
Improved North American
safety to levels that are the
best in our company’s history.

For 2002, Genesee & Wyoming

Inc. (GWI) net income was up
34 percent from $19.1 million
in 2001 to a record $25.6 million
in 2002. Fully diluted earnings
per share were $1.46 in 2002, or
$1.48 excluding an extraordinary
charge on the early retirement
of debt, with 17.6 million shares
outstanding. For 2001, fully
diluted earnings per share were
$1.48, with 12.9 million shares
outstanding.

We see many opportunities
in 2003 and will work toward
them with strong management
focus in order to expand our
earnings capacity.

GWI Builds
Regional Railroads
…last year’s North American
acquisitions strengthen our foundation.

Our acquisition of Emons
expanded our Canada Region
and its performance exceeded
our expectations. Utah Railway
gave us a new regional base upon
which to grow, and we met our
performance expectations for the
year. In Oregon, we leased an
additional 76 miles of track from
Burlington Northern Santa Fe on
December 30. This contiguous
expansion is expected not only
to bring additional carloads but
also to make our Oregon opera-
tion more efficient.

As a result of these acquisi-
tions, the North American portion
of our net income rose to 62
percent in 2002 from 54 percent
in 2001.

Mortimer B. Fuller III

Chairman of the Board of Directors

and Chief Executive Officer

Comparing “same store” rail-

road operations, general com-
modity freight volume (excluding
coal) in North America was flat
for the year, reflecting generally
weak economic conditions.
While our numbers show a
decline in coal shipments in
2002 from 2001, it is important
to remember that the coal ship-
ments in 2001 were above aver-
age and our 2002 coal shipments
were at expected normal levels.
We could not predict the
impact from two unusually
severe weather events in the
fourth quarter of 2002. Hurri-
cane Isidore directly struck
our Mexican operations on the
Yucatán Peninsula, and severe
drought in Australia further
devastated the 2002-03 grain
harvest.

Left: GWI’s Utah Railway (top) acquisi-
tion closed in August, adding a new
region with opportunity for growth.
The acquisition of Emons Transportation
earlier in the year added the St. Lawrence
& Atlantic Railroad (bottom) to GWI’s
Canada Region.

G E N E S E E & W YO M I N G I N C . | 20 02

(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
Our people in Mexico did a
remarkable job of restoring track
at minimal expense in the after-
math of Isidore—some segments
were underwater for more than
two weeks—but the rebound in
revenue from our customers was
very slow. In response, we have
begun to reduce costs in line with
reduced volume. Also, we are
excited about opportunities to
build new revenues in Mexico
in 2003.

At Australian Railroad Group

(ARG), our 50-percent-owned
joint venture with Wesfarmers
Limited, volumes increased in
most commodity groups for
2002, reflecting growing expan-
sion of customer facilities. Grain
shipments, which accounted
for 21 percent of ARG’s carloads,
improved for the year, but the
increases were substantially
limited as a result of grain held
in storage. Then, the drought
caused a dramatic drop in grain
shipments in November and
December.

An unusually high number of
accidents resulting in expensive
damage to track and equipment,
increased depreciation and
higher insurance costs squeezed
ARG’s margins in 2002. We are
moving aggressively to reduce
our cost structure. Organizational
restructuring and staff reduc-
tions in 2002 have created sig-
nificant opportunity for 2003
and beyond. We expect safety to

improve considerably as a result
of operational improvements
and initiation of a focused safety
program.

I am extremely pleased that
Mike Mohan joined ARG as Chief
Executive Officer in March 2003.
Mr. Mohan spent much of his
34-year railroad career with
the Southern Pacific Transporta-
tion Company, where he was
President, Chief Operating Officer
and a member of the Board of
Directors. He is a skilled execu-
tive and leader, respected for his
operating achievements as well
as his commitment to customer
service and rail safety. He will be
based in Perth where his expert-
ise should greatly enhance the
ARG team.

Fostering a Safety
Culture Worldwide
…last year’s North American
performance was the best in our
company’s history.

One of Genesee & Wyoming’s
top goals is to be the safest in
our industry at each of our oper-
ations worldwide. A safe opera-
tion supports the health of our
employees and protects lives.
It also means we are working
at optimum productivity, serving
customers well and supporting
profitable businesses.

Last year’s North American

performance was the best in
our company’s history. From
1998 through 2002, the injury
frequency rate for our North
American operations improved

G E N E S E E & W YO M I N G I N C . | 20 02

President and Chief Operating Officer
Charles N. Marshall at our shops in
Santa Cruz, Bolivia.

by more than 50-percent, to a
level better than our peers and
comparable to the best in the
industry. This is a major accom-
plishment. Moreover, the injury
frequency rate has declined
each year even as the number
of hours worked has increased
with GWI’s growth. I credit our
strong safety program and each
and every one of our employees
who have made their personal
safety and the safety of coworkers
their paramount goal.

In contrast, our safety record
in Australia in 2002 was totally
unacceptable. That was clearly the
bad news. The good news is that
we can fix it. We have a team
of highly experienced railroaders
in place changing work practices
and building a new safety cul-
ture with defined accountability.
Change will happen. We expect
the same kind of focused safety
program used in North America
to bring ARG improved safety
results in 2003 and beyond.

Growing the
Core Business
…our businesses are sound
and growing their revenues.

While the outlook for U.S.
industry is unclear in 2003,
we have good fundamentals in
our North American general
commodity traffic. This strength
was reflected in fourth quarter
growth, led by metals and pulp
and paper products, which con-
tinued early into this year.
These fundamentals should
be supported by our Utah and
Oregon acquisitions. Our non-
cyclical commodities, coal and
salt, appear to have the funda-
mentals in place for a better year
in 2003, independent of how the
U.S. economy performs. Severe
winter weather in the Northeast
has had a positive effect on
these businesses.

Australia’s richness in natural
resources provides a solid foun-
dation for continued growth.
ARG’s principal customers oper-
ate in the well-established grain,
ores and minerals and alumina
industries, where the long-term
outlook is strong. In the near
term, our results will continue
to be affected by weak grain
shipments due to the drought,
although this weakness could be
mitigated by shipments of grain
held in storage. We expect other
major commodities, including
iron ore, alumina and bauxite,
to continue to grow in 2003.
Our businesses are funda-
mentally sound and growing
their revenues. Uncertain market
conditions related to the general

economy, the weather or changes
in customer operations will always
exist. The strength of GWI is in
its broad geographic and com-
modity diversity. Weakness in
one regional economy or com-
modity group may be balanced
by strength in others. Despite
changing markets, the focus of
our management to grow revenue
and improve return on capital
remains clear.

Aligning Management
Incentives with Creation
of Shareholder Value
…our managers are focused on
projects where the returns exceed
our cost of capital.

In 2002, for the first time, our
compensation plan linked bonuses
to targeted improvements in
return on capital. Our regions
are managed as stand-alone
businesses. In addition to the
traditional focus on operating
ratio, each regional manager is
now more intent on driving bet-
ter returns by managing invento-
ries, payables and receivables;
asset utilization; capital expendi-
tures and new investment.

An excellent example of our
focus to improve our return on
invested capital is a locomotive
upgrade program that started in
late 2002 in our Canada Region
and that we expect to complete
in 2003. In total, we will spend
approximately US$6 million on
the program and are targeting
a pre-tax return on capital of
18 percent through reduced fuel
expense, reduced locomotive

2002 North American Freight Mix
by carloads

Intermodal 1.2%

3.7% Auto

Coal 29.6%

Paper 14.0%

3.4% Other

4.3% Chemicals-Plastics

5.9% Farm & Food

6.4% Petroleum

Minerals/Stone 11.0%

7.9% Lumber & Forest

Metals 12.6%

2002 Australian Freight Mix
by carloads

Other Ores 12.0%

14.8% Bauxite

Hook & Pull 2.9%

Gypsum 4.9%

Other 6.9%

20.5% Grain

Alumina 17.5%

20.5% Iron Ore

G E N E S E E & W YO M I N G I N C . | 20 02

We are positioned to continue

growth by acquisition, and we
see several opportunities for 2003.
Our approach in evaluating these
opportunities will remain careful
and disciplined. We measure each
target against risk-adjusted IRR,
return on capital, and accretion
to earnings.

In summary, I’m pleased
with our progress in 2002. Our
strategy is proven and has pro-
duced a compounded annual
growth rate of 17.9 percent in
earnings per share since our IPO
in 1996. Our North American
results in safety are impressive,
and we are on course for con-
tinued improvements worldwide.
Our core businesses remain
strong. Our financial stability is
firmly established. The outlook
for future acquisitions is bright.
We’ve got the right combination
of businesses and talented, expe-
rienced people to continue the
solid performance and growth
shareholders have come to expect
from Genesee & Wyoming Inc.

Mortimer B. Fuller III
Chairman and
Chief Executive Officer
March 24, 2003

Financial Stability
… we’ve never been financially
stronger than we are right now.

While we build the strength of
our core businesses, we also have
pursued a financial strategy to
assure our continued capacity
to compete and grow.

On November 1, we closed on
$250 million of new senior credit
facilities. The financing was over-
subscribed and a total of 16 banks
participated, including all six
of GWI’s existing lenders who
recommitted to the transaction.
The facilities have been used to
refinance $100 million of GWI’s
existing debt. The remaining $150
million of unused borrowing
capacity is available for general
corporate purposes, including
acquisitions.

Our balance sheet is strong.
At year-end, GWI’s net debt was
$114 million, with net debt to
capital of 33 percent and a net
debt to EBITDA ratio of 2.2 to 1.
Finally, we listed on the New
York Stock Exchange (NYSE) on
September 27. Through stock
splits in 2001 and 2002, our sec-
ondary offering in December
2001, and our listing on the NYSE,
we have progressively increased
the liquidity of our stock.

Genesee & Wyoming Inc. has
never been financially stronger
than we are right now. We have
significant borrowing capacity,
strong cash flow from our busi-
nesses and a strong balance
sheet.

John C. Hellmann

Chief Financial Officer

maintenance costs and the
redeployment of old locomotives
to our newly expanded Oregon
Region. We believe the program
will reduce fuel consumption
by approximately 30 percent
in a region where our cost of
fuel is highest. The project had
its genesis in a cross-regional
Locomotive Team intent on
improving fuel efficiency. Other
cross-regional teams for Market-
ing, Transportation, Freight Cars
and Track work on a variety of
projects to improve revenues and
operations and to reduce costs.
The common goal is improving
return on invested capital to
enhance shareholder value.

Right: An Australian Railroad Group train
laden with alumina pulls away from the
Worsley Alumina Refinery in Western
Australia. Overleaf: Illinois & Midland
(top) delivers Wyoming’s Powder River
Basin (PRB) coal, which it receives from
Burlington Northern Santa Fe and Union
Pacific. GWI switching subsidiary Rail
Link, Inc. (bottom) serves nine PRB
coal mining operations, improving
productivity for both mines and the
Class I railroads.

G E N E S E E & W YO M I N G I N C . | 20 02

United State Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-K

¥ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2002
or
(cid:1) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from

Commission File No. 001-31456

Genesee & Wyoming Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

06-0984624
(I.R.S. Employer Identification No.)

66 Field Point Road, Greenwich, Connecticut 06830
(203) 629-3722

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Class A Common Stock, $0.01 par value

Name of Each Exchange on which Registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. ¥ Yes (cid:1) No

Indicate by check mark if disclosure of delinquent ﬁlers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in deﬁnitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (cid:1)

Indicate by check mark whether the registrant is an accelerated ﬁler (as deﬁned in Exchange Act Rule 12b-2) ¥ Yes (cid:1) No

Aggregate market value of Class A Common Stock held by non-afﬁliates based on closing price on June 30, 2002, the last business day of
Registrant’s most recently completed second ﬁscal quarter: $279,105,394.

Shares of common stock outstanding as of the close of business on March 18, 2003:

Class
Class A Common Stock
Class B Common Stock

Number of Shares Outstanding
13,211,002
1,805,290

Documents incorporated by reference and the Part of the Form 10-K into which they are incorporated are listed hereunder.

PART OF FORM 10-K
Part III, Items 10, 11, 12 and 13

DOCUMENT INCORPORATED BY REFERENCE
Registrant’s proxy statement to be issued in connection with
the Annual Meeting of the Stockholders of the Registrant to be
held on May 29, 2003.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

Genesee & Wyoming Inc.

FORM 10-K

For The Fiscal Year Ended December 31, 2002

INDEX

Part I
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.

Part II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.

Part III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.

Part IV
ITEM 15.

Business **************************************************************************************************
Properties *************************************************************************************************
Legal Proceedings ******************************************************************************************
Submission of Matters to a Vote of Security Holders*************************************************************

Market for Registrant’s Common Equity and Related Stockholder Matters ******************************************
Selected Financial Data **************************************************************************************
Management’s Discussion and Analysis of Financial Condition and Results of Operations *****************************
Quantitative and Qualitative Disclosures About Market Risk *******************************************************
Financial Statements and Supplementary Data ******************************************************************
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ****************************

Directors and Executive Ofﬁcers of the Registrant ***************************************************************
Executive Compensation*************************************************************************************
Security Ownership of Certain Beneﬁcial Owners and Management and Related Stockholder Matters ******************
Certain Relationships and Related Transactions *****************************************************************
Controls and Procedures ************************************************************************************

Page

11
19
21
21

21
23
24
45
47
47

47
47
47
47
48

Exhibits, Financial Statement Schedules and Reports on Form 8-K ************************************************
Signatures *************************************************************************************************
Certiﬁcation of Chief Executive Ofﬁcer *************************************************************************
Certiﬁcation of Chief Financial Ofﬁcer **************************************************************************
Index to Exhibits ********************************************************************************************
Index to Financial Statements ********************************************************************************
Report of Independent Accountants ***************************************************************************
Report of Independent Public Accountants *********************************************************************
Genesee & Wyoming Inc. and Subsidiaries Consolidated Balance Sheets*******************************************
Genesee & Wyoming Inc. and Subsidiaries Consolidated Statements of Income *************************************
Genesee & Wyoming Inc. and Subsidiaries Consolidated Statements of Stockholders’ Equity *************************
Genesee & Wyoming Inc. and Subsidiaries Consolidated Statements of Cash Flows *********************************
Genesee & Wyoming Inc. and Subsidiaries Notes to Consolidated Financial Statements ******************************
Report of the Independent Auditors ***************************************************************************
Australian Railroad Group Pty Ltd and Subsidiaries Consolidated Balance Sheets************************************
Australian Railroad Group Pty Ltd and Subsidiaries Consolidated Statements of Income ******************************
Australian Railroad Group Pty Ltd and Subsidiaries Consolidated Statements of Stockholders’ Equity and Comprehensive
Income **********************************************************************************************
Australian Railroad Group Pty Ltd and Subsidiaries Consolidated Statements of Cash Flows **************************
Australian Railroad Group Pty Ltd and Subsidiaries Notes to Consolidated Financial Statements ***********************

49
50
51
52
53
57
58
59
60
61
62-63
64
65
91
92
93

94
95
96

1 0 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

Item 1. Business

PART I

Genesee & Wyoming Inc. (the Registrant or the Company) is a holding company whose subsidiaries and unconsolidated affiliates
own and operate short line and regional freight railroads in the United States, Australia, Canada, Mexico and Bolivia. The
Company, through its U.S. industrial switching subsidiary, also provides freight car switching and rail-related services to indus-
trial companies in the United States. The Company was incorporated as a Delaware corporation in 1977.

The Company was founded in 1899 as a 14-mile rail line serving a single salt mine in upstate New York. Since 1977, when
Mortimer B. Fuller, III purchased a controlling interest in the Genesee and Wyoming Railroad Company and became Chief
Executive Officer, the Company has completed 23 acquisitions and now operates over approximately 8,000 miles of owned,
jointly owned or leased track as well as over 3,000 additional miles under track access arrangements. Based on track miles, the
Company believes that:

(cid:2) it is the second-largest operator of regional railroads in the United States and Canada;

(cid:2) its 50/50 joint venture with Wesfarmers Limited, the Australian Railroad Group (ARG), owns and operates the second

largest privately owned rail system in Australia;

(cid:2) it owns and operates Mexico’s fourth-largest railroad; and

(cid:2) it is a strategic investor in, and operator of, the second largest railroad in Bolivia.

Information set forth in this Item 1 as well as in Item 2. Properties should be read in conjunction with Management’s Discussion
and Analysis of Financial Conditions and Results of Operations in Item 7 of this report, including the discussion of risk factors and
the forward-looking statement disclosure.

The Company makes available free of charge, on or through its Internet web site, its annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after
those materials are electronically filed with the Securities and Exchange Commission. The Company’s Internet address is
http://www.gwrr.com.

GROWTH STRATEGY

The Company intends to increase its earnings per share and return on invested capital by:

(cid:2) acquiring rail lines that are close to or contiguous with its existing regional rail systems in order to improve asset utilization

and reduce operating costs;

(cid:2) broadening its geographic presence by acquiring significant rail lines in new regions where the Company believes there are

additional business development and acquisition opportunities;

(cid:2) expanding its revenue base within each region it serves through focused marketing efforts and a high level of customer

service; and

(cid:2) improving its operating performance through the more efficient use of equipment and facilities and the reduction of

overhead and operating expenses.

The Company has a disciplined acquisition and investment-driven strategy that focuses on both domestic and international
opportunities. From 1977 to 1997, the Company acquired and integrated twelve acquisitions in the United States. From 1997 to
2000, the Company acquired or made investments in seven railroads internationally, including in South Australia (1997), Canada
(1997), Mexico (1999), Western Australia (2000) and Bolivia (2000). Since 2001, the Company has made four acquisitions in the
U.S. and Canada, including South Buffalo Railway Company (October 2001), Emons Transportation Group (February 2002), Utah
Railway Company (August 2002), and a rail line leased from Burlington Northern Santa Fe in Oregon (December 2002).

The Company’s recent acquisitions and investments include:

(cid:2) branch lines of U.S. and Canadian Class I railroads;

(cid:2) rail lines of industrial companies, such as Bethlehem Steel and Mueller Industries;

(cid:2) other regional railroads or short-line railroads; and

(cid:2) the privatization of foreign government-owned rail systems.

The Company believes that the market for acquisitions in the United States includes over 500 short line and regional railroads
operating over approximately 50,000 miles of track, as well as additional lines expected to be sold by Class I railroads.
Internationally, the Company believes there are additional acquisition or privatization candidates in Australia, Canada, South
America and other markets. Furthermore, the Company believes that there is a relatively small number of well capitalized
operators currently bidding for properties in the international and U.S. rail markets. As a result, the Company believes that i t is
well positioned to capitalize on additional acquisition opportunities.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

1 1

In evaluating potential acquisitions and investments, the criteria the Company considers, among others, include:

(cid:2) projected risk adjusted return on investment;

(cid:2) potential for additional revenue and service improvements;

(cid:2) identifiable cost savings and synergies, such as asset utilization improvements, consolidation of administrative functions,

and operational improvements; and

(cid:2) diversity of overall commodity and geographic mix.

In new regions, the Company targets rail properties that have adequate size to establish a presence in the region, provide a
platform for growth in the region, and attract qualified management. When acquiring rail properties in its existing regions, the
Company targets contiguous rail properties where it believes there are significant opportunities to realize operating efficiencies.
The Company’s strategy of building regional rail systems is illustrated by its original U.S. region, the New York-Pennsylvania
Region, and ARG, its joint venture in Australia.

(cid:2) New York-Pennsylvania Region. Starting with its original rail line, the Genesee and Wyoming Railroad Company, the
Company has completed seven contiguous acquisitions since 1985, creating a regional railroad linking Western New York
with Western Pennsylvania. After giving effect to the 2001 acquisition of South Buffalo, the region now has approximately
$50.0 million in annual revenue and a diverse commodity base including petroleum, auto parts, chemicals, pulp and paper
and steel.

(cid:2) Australian Railroad Group. Over the past four years, the Company has been sequentially building a regional rail system
that covers more than half of the Australian continent. In Australia, the Company (1) entered the market through the
privatization of the rail system of South Australia in 1997; (2) acquired the right to operate iron ore supply rail-lines and in-
plant rail operations for a steel mill in Whyalla, South Australia in 1999; (3) combined its South Australian railroad business
with previously state-owned rail assets of Western Australia, which were acquired with its 50/50 joint venture partner for
$334.4 million in December 2000; and (4) acquired a 2.6% equity interest in a consortium to build, own and operate an
885-mile rail line from Alice Springs to Darwin in the Northern Territory of Australia in April 2001.

MARKETING

The Company builds each regional railroad business on a base of large industrial customers, grows that business through
focused marketing efforts, and creates additional revenues by attracting new customers and providing ancillary rail services. By
providing improved service to shippers, the Company is often able to provide increased revenue to the Class I carriers that
connect with its North American lines. The Company’s marketing efforts are often aimed at enhancing its railroads — relation-
ships with both Class I carriers and shippers. Thus the Company provides related rail services such as railcar repair, switching,
storage, weighing and blocking and bulk transfer, which enable Class I carriers and customers to move freight more easily and
cost-effectively. Wherever possible, the Company also seeks to divert freight traffic from trucking companies to its railroads. At
newly privatized railroads, the Company has generated new business through improved marketing efforts and improved service
levels.

OPERATIONS

The Company focuses on lowering operating costs and improving asset efficiency to maximize its return on invested capital, and
has historically been able to operate acquired rail lines more efficiently than the Class I railroads and governments from whom it
acquired these properties. The Company typically achieves efficiencies through lowering administrative overhead, consolidating
equipment and track maintenance contracts, reducing transportation costs, and selling unutilized assets.

The Company also intends to continue to improve the operating efficiency of its railroads by track rehabilitation, especially where
maintenance has been deferred by the prior owner. Because of the importance of certain of the Company’s shippers to the
economic stability and/or development of the regions where they are located, and because of the importance of certain of the
Company’s railroads to the economic infrastructure of those regions, approximately $59.0 million in state and federal grants for
track rehabilitation and service improvements have been invested in the Company’s North American rail properties since 1987.

INDUSTRY OVERVIEW

According to the Association of American Railroads Railroad Facts, 2002 Edition, there are 571 railroads in the United States
operating roughly 143,000 miles of track. U.S. railroads are segmented into one of three categories based on the amount of their
revenues. Class I railroads, those with over $266.7 million in revenues, represent over 90% of total rail revenues. Regional and
short line railroads operate approximately 45,000 miles of track in the United States. The primary function of these smaller
railroads is to provide feeder traffic to the Class I carriers. In terms of revenue, regional and short line railroads combined account
for approximately 8% of total railroad revenue.

1 2 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

The following table shows the breakdown of railroads by classification.

Classiﬁcation of Railroads

Number

Miles Operated

Revenues

Class I
Regional (Class II)
Local (Class III)

Total

8
34
529

571

97,631
17,439
27,563

142,633

over $266.7 million
$21.3 to $266.7 million
less than $21.3 million

Source: Association of American Railroads Railroad Facts, 2002 Edition.

The railroad industry in the United States has undergone significant change since the passage of the Staggers Rail Act of 1980,
which deregulated the pricing and types of services provided by railroads. Following the passage of the Staggers Act, Class I
railroads in the United States and Canada took steps to improve profitability and recapture market share. In furtherance of that
goal, Class I railroads focused their management and capital resources on their long-haul core systems, and some of them sold
branch lines to smaller and more cost-efficient rail operators willing to commit the resources necessary to meet the needs of the
shippers located on these lines. Divestiture of branch lines enabled Class I carriers to minimize incremental capital expenditures,
concentrate traffic density and improve operating efficiency.

Although the acquisition market is competitive, the Company believes that there will continue to be opportunities to acquire rail
properties in the United States and Canada from Class I railroads, industrial companies, and independent short line and regional
railroads. The Company also believes there may be additional acquisition opportunities in Australia, Canada, South America and
other markets.

MANAGEMENT

The Company’s Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and Executive Vice President
Corporate Development have responsibility for overall strategic and financial planning. The Chief Executive Officer oversees the
Company’s global operations including its equity investments in Australia and South America, while the Chief Operating Officer
manages operations in North America. The Company believes that through its decentralized management structure it has
developed a culture that encourages employees to take initiative and responsibility which is rewarded through performance-
based bonus programs.

The Company currently operates in two business segments: North American Railroad Operations, which includes operating short
line and regional railroads, and Industrial Switching, which includes providing freight car switching and related services to
industrial companies with railroad facilities within their complexes in the United States. Through December 16, 2000, the
Company also operated in the Australian Railroad Operations segment. For financial information with respect to each of the
Company’s business segments and for each geographic area for 2002, 2001 and 2000, see Note 18 to the Company’s
Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K.

RAILROAD OPERATIONS — NORTH AMERICA

North American Customers

The Company’s North American railroads served over 800 customers in 2002 compared with approximately 680 customers in
2001. The ten largest North American customers accounted for approximately 29%, 30% and 30% of the Company’s North
American railroad revenues in 2002, 2001 and 2000, respectively. In 2002, 2001 and 2000, the Company’s largest North
American customer was a coal-fired electricity generating plant owned by Dominion Resources, which accounted for approxi-
mately 5%, 7% and 6%, respectively, of the Company’s North American railroad revenues. The Company typically handles freight
pursuant to transportation contracts among the Company, its connecting carriers and the shipper. These contracts are in
accordance with industry norms and vary in duration from one to seven years. These contracts establish price but do not typically
obligate the shipper to move any particular volume.

North American Railroad Commodities

The Company’s North American railroads transport a wide variety of commodities. Some of the Company’s railroads have a
diversified commodity mix while others transport one or two principal commodities. In 2002, coal, coke and ores, and paper
products were the two largest commodity groups transported by the Company’s North American railroads, constituting 18.2%
and 16.3%, respectively, of total North American freight revenues (see Item 7. of this Annual Report under the heading ‘‘Results
of Operations — Year Ended December 31, 2002 Compared to Year Ended December 31, 2001’’), and 29.6% and 14.0%,
respectively, of total North American carloads. The following table compares North American freight revenues, carloads and
average freight revenues per carload for the years ended December 31, 2002 and 2001:

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

1 3

North American Freight Revenues and Carloads Comparison by Commodity Group
Years Ended December 31, 2002 and 2001
(dollars in thousands, except average per carload)

Commodity Group

Coal, Coke & Ores

Pulp & Paper

Minerals & Stone

Lumber & Forest Products

Farm & Food Products

Petroleum Products

Metals

Chemicals-Plastics

Autos & Auto Parts

Intermodal

Other

Totals

Freight Revenues

Carloads

% of
Total

2001

% of
Total

2002

% of
Total

2001

% of
Total

Average
Freight
Revenue
Per Carload
2001
2002

18.2% $ 28,081
16.3%
18,663

13.5%

8.2%

6.5%

13.1%

10.2%

6.1%

4.4%

0.8%

2.7%

19,439

8,846

10,008

16,971

11,239

8,359

2,499

622

5,134

21.6% 136,044
14.4% 64,494
15.0% 50,844
6.8% 36,265
7.7% 27,378
13.1% 29,479
8.7% 57,846
6.4% 19,949
1.9% 17,130
5,387
0.5%
3.9% 15,527

29.6% 128,286
14.0% 49,033
11.0% 43,615
7.9% 26,727
5.9% 28,205
6.4% 27,541
12.6% 40,679
4.3% 16,574
3.7%
5,283

1.2%
1,954
3.4% 20,086

33.1% $211
12.6% 399
11.2% 418
6.9% 354
7.3% 371
7.1% 701
10.5% 276
4.3% 477
1.4% 408
0.5% 242
5.1% 271

$219

381

446

331

355

616

276

504

473

318

256

335

2002

$ 28,685

25,711

21,236

12,828

10,158

20,655

15,993

9,523

6,996

1,302

4,202

$157,289

100.0% $129,861

100.0% 460,343

100.0% 387,983

100.0% 342

Coal, coke and ores consist primarily of shipments of coal to utilities and industrial customers.

Pulp and paper consists primarily of inbound shipments of pulp and outbound shipments of kraft and finished papers.

Minerals and stone consists primarily of cement, gravel and stone used in construction, and salt used in highway ice control.

Lumber and forest products consists primarily of finished lumber used in construction, particleboard used in furniture manufac-
turing, and wood chips and pulpwood used in paper manufacturing.

Farm and food products consists primarily of sugar, molasses, rice and other grains and fertilizer.

Petroleum products consists primarily of fuel oil and crude oil.

Metals consists primarily of scrap metal, finished steel products and coated pipe.

Chemicals consists primarily of various chemicals used in manufacturing.

Autos and auto parts consists primarily of finished automobiles and stamped auto parts.

Intermodal consists primarily of various commodities shipped in trailers or containers on flat cars.

North American Railroad Employees

As of December 31, 2002, the Company’s North American railroads had 1,549 full-time employees. Of this total, 861 are
members of national labor organizations. The Company’s North American railroads have 29 contracts with these national labor
organizations which have expiration dates ranging to 2005. The Company has also entered into employee bargaining agreements
with an additional 75 employees who represent themselves, which have expiration dates ranging to 2005. The Company believes
that its relationship with its employees is good.

RAILROAD OPERATIONS — AUSTRALIA (Equity Accounting)

On December 16, 2000, the Company, through its joint venture, ARG, completed the acquisition of Westrail Freight from the
government of Western Australia. ARG is a joint venture owned 50% by the Company and 50% by Wesfarmers Limited, a public
corporation based in Perth, Western Australia.

In conjunction with the acquisition of Westrail, the Company contributed to ARG: (1) its formerly wholly-owned subsidiary,
Australia Southern Railroad (ASR); (2) its 2.6% interest in the Asia Pacific Transport Consortium, a consortium selected to
construct and operate the Alice Springs to Darwin railway line in the Northern Territory of Australia; and (3) $21.4 million in cash.
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.

Australian Railroad Customers

ARG currently serves over 50 customers. A significant portion of ARG’s railroad operating revenue is attributable to customers
operating in the grain, ores and minerals, and alumina industries. ARG’s largest ten customers accounted for approximately 69%
and 67% of its revenues for the years ended December 31, 2002 and 2001, respectively. ARG’s largest customer, the Australian

1 4 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

Wheat Board, accounted for 20% and 22% of its operating revenue for the years ended December 31, 2002, and 2001. ARG
typically ships freight under transportation contracts between ARG and the shipper. The terms of these contracts vary from
customer to customer and vary in duration from one to ten years, subject to certain review and extension provisions.

Australian Railroad Commodities

The following table provides ARG’s freight revenues, carloads and average freight revenues per carload for the years ended
December 31, 2002 and 2001.

Australian Railroad Group Freight Revenues and Carloads by Commodity Group
Years ended December 31, 2002 and 2001
(U.S. dollars in thousands, except average per carload)

Commodity Group

Grain

Other Ores and Minerals

Iron Ore

Alumina

Bauxite

Hook and Pull (Haulage)

Gypsum

Other

Total

Freight Revenues

Carloads

% of
Total

2001

% of
Total

2002

% of
Total

2001

% of
Total

Average
Freight
Revenue
Per Carload
2001
2002

2002

$ 53,590

38,075

27,038

13,828

10,125

8,343

2,327

30.5% $ 49,757
21.7%
42,064

15.4%

7.9%

5.8%

4.8%

1.3%

20,594

15,309

9,334

10,556

1,980

14,977

30.2% 177,651
25.6% 103,510
12.5% 177,619
9.3% 151,756
5.7% 127,892
6.4% 25,170
1.2% 42,389
9.1% 60,030

20.5% 171,037
12.0% 101,257
20.5% 159,038
17.5% 145,073
14.8% 127,263
2.9% 43,628
4.9% 38,837
6.9% 60,625

20.2% $302
12.0% 368
18.8% 152
91
17.1%

15.0%

79
5.2% 331
55
4.6%
7.1% 368

22,114

12.6%

$175,440

100.0% $164,571

100.0% 866,017

100.0% 846,758

100.0% 203

$291

415

129

106

242

247

194

Australian Railroad Employees

As of December 31, 2002, ARG had 1,016 full-time employees. Of this total, approximately 26% are employed under collective bargaining
agreements. In South Australia, ARG has one collective bargaining agreement that expires in September 2004. In Western Australia, some
employees have chosen to bargain locally rather than through national organizations, and other employees will consider similar arrangements during
2003. ARG believes that its relationship with its employees is good.

U.S. INDUSTRIAL SWITCHING OPERATIONS

U.S. industrial switching operations generate non-freight revenues primarily by providing freight car switching and related rail services such as railcar
repair to industrial companies with railroad facilities within their complexes. The Company’s U.S. industrial switching operation serves 28 customers
in 11 states. These customers are primarily in the chemicals, paper, mining, and power generation industries. The provision of the service generally
involves locating a work force and locomotives at the customer’s facility. As of December 31, 2002, the Company’s U.S. industrial switching
operations had 264 employees. The Company believes that its relationship with its employees is good.

The Company’s safety program involves all employees and focuses on the prevention of accidents and injuries. The Senior Vice President of each
region is accountable for the results of the program. Each region has an ofﬁcer responsible for day-to-day program administration.

The Company maintains a corporate-wide safety policy effort facilitated by the Vice President & Chief Safety Ofﬁcer. The Company works
continuously to comply fully with all federal, state, and local government regulations. Operating personnel are trained and certiﬁed in train
operations, the transportation of hazardous materials, safety and operating rules, and governmental rules and regulations.

SAFETY

INSURANCE

The Company has obtained insurance coverage for losses arising from personal injury and for property damage in the event of
derailments or other accidents or occurrences. The liability policies have self-insured retentions ranging from $150,000 to
$500,000 per occurrence. In addition, the Company maintains excess liability policies which provide supplemental coverage for
losses in excess of primary policy limits. With respect to the transportation of hazardous commodities, the Company’s liability
policy covers sudden releases of hazardous materials, including expenses related to evacuation. Personal injuries associated
with grade crossing accidents are also covered under the Company’s liability policies. The Company also maintains property
damage coverage, subject to a standard pollution sub-limit and self-insured retentions ranging from $25,000 to $250,000.

Employees of the Company’s United States railroads are covered by the Federal Employers — Liability Act (FELA), a fault-based
system under which injuries and deaths of railroad employees are settled by negotiation or litigation based on the comparative

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

1 5

negligence of the employee and the employer. FELA-related claims are covered under the Company’s liability insurance policies.
Employees of the Company’s industrial switching business are covered under workers — compensation policies.

The Company believes its insurance coverage is adequate in light of its experience and the experience of the rail industry.
However, there can be no assurance as to the adequacy, availability, or cost of insurance in the future.

COMPETITION

In acquiring rail properties, the Company generally competes with other short line and regional railroad operators. Competition
for rail properties is based primarily upon price, operating history and financing capability. The Company believes its established
reputation as a successful acquiror and operator of short line rail properties, combined with its managerial and financial
resources, effectively positions it to take advantage of acquisition opportunities.

Each of the Company’s railroads is typically the only rail carrier directly serving its customers, however, the Company’s railroads
compete directly with other modes of transportation, principally motor carriers. Competition is based primarily upon the rate
charged and the transit time required, as well as the quality and reliability of the service provided, for an origin-to-destination
transportation service. To the extent other carriers are involved in transporting a shipment, the Company cannot control the cost
and quality of such service. To the extent that highway competition is involved, the effectiveness of that competition is affected
by government policy with respect to fuel and other taxes, highway tolls, and permissible truck sizes and weights.

To a lesser degree, the Company also faces competition with similar products made in other areas, a kind of competition
commonly known as geographic competition. For example, a paper producer may choose to increase or decrease production at
a specific plant served by one of the Company’s railroads depending on the relative competitiveness of that plant versus paper
plants in other locations.

REGULATION

United States

The Company’s U.S. railroads are subject to regulation by:

(cid:2) The Surface Transportation Board;

(cid:2) the Federal Railroad Administration;

(cid:2) state departments of transportation; and

(cid:2) some state and local regulatory agencies.

The Surface Transportation Board is the successor to certain regulatory functions previously administered by the Interstate
Commerce Commission. Established by the ICC Termination Act of 1995, The Surface Transportation Board has jurisdiction over,
among other things, freight rates (where there is no effective competition), extension or abandonment of rail lines, the acquisition
of rail lines, and consolidation, merger or acquisition of control of rail common carriers. In limited circumstances, it may condition
its approval upon the payment of severance benefits to affected employees. The Federal Railroad Administration has jurisdiction
over safety.

Canada

St. Lawrence & Atlantic Railroad (Quebec) is subject to the jurisdiction of the federal government of Canada while Quebec
Gatineau Railway and Huron Central Railway are subject to the jurisdiction of provincial governments of Canada.

Federally regulated railways fall under the jurisdiction of the Canada Transportation Agency (CTA) and Transport Canada (TC) and
are subject to the provisions of the Railway Safety Act. The CTA has power to regulate construction and operation of railways,
financial transactions of railway companies, all aspects of rates, tariffs and services, and the transferring and discontinuing of the
operation of railway lines. TC administers the Railway Safety Act which ensures that federally regulated railway companies abide
by all regulations with respect to engineering standards governing the construction or alteration of railway works and the
operation and maintenance standards of railway works and equipment.

Provincially regulated railways operate within the boundary of one province and hold a Certificate of Fitness delivered by a
provincial authority. In the Province of Quebec, the Fitness Certificate is delivered by the Transport Commission of Quebec, while
in Ontario, under the Short Line Railways Act, a license has to be obtained from the Registrar of short line railways. Construction,
operation and discontinuance of operation are regulated, as well as railway services.

Australia

In Australia, regulation of rail safety is generally governed by State legislation and administered by State regulatory agencies.
Regulation of access is governed by overriding Federal legislation with State-based regimes operating in compliance with that
legislation. ARG’s assets are therefore subject to the regulatory regimes governing safety in each of Western Australia, South

1 6 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

Australia, the Northern Territory, Victoria and New South Wales. In addition, with respect to access to rail infrastructure, ARG’s
Australian assets are subject to individual access regimes established under Part IIIA of the Trade Practices Act 1974.

ARG’s interstate access includes the standard gauge tracks linking Wodonga (in Victoria), Melbourne (in Victoria), Adelaide (in
South Australia), Broken Hill (in New South Wales), Tarcoola (in South Australia) and Kalgoorlie (in Western Australia). The
interstate network is part of the larger standard gauge network linking all capital cities in Australia from Brisbane to Perth, as well
as Broken Hill in New South Wales and Alice Springs in the Northern Territory. Those parts of this larger standard gauge network
which are not covered by the interstate network are governed by the various State access regimes and the national access
regime.

Mexico

In Mexico, the Secretary of Communications and Transport (SCT) has jurisdiction over, among other things:

(cid:2) policies and programs related to the railroad system;

(cid:2) the granting of concessions;

(cid:2) regulating the concessions and resolving any issues regarding amendments or terminations to the concessions;

(cid:2) regulation of tariff application; and

(cid:2) sanctions when operators have not complied with the terms of a concession.

A Mexican railroad is also subject to the Mexican Foreign Investments Law and the Federal Law of Economic Competition. The
Foreign Investments Law governs the ownership of Mexican Railroads by foreign entities, while the Law of Economic Competition
is an antitrust statute.

ENVIRONMENTAL MATTERS

The Company’s operations are subject to various federal, state, provincial and local laws and regulations relating to the
protection of the environment. In the United States, these environmental laws and regulations, which are implemented principally
by the Environmental Protection Agency and comparable state agencies, govern the management of hazardous wastes, the
discharge of pollutants into the air and into surface and underground waters, and the manufacture and disposal of certain
substances. Similarly, in Canada, these functions are administered at the federal level by Environment Canada and the Depart-
ment of Transport and comparable agencies at the provincial level. In Mexico, these functions are administered at the federal
level by the Secretary of Environment, Natural Resources and Fisheries and the Attorney General for Environmental Protection,
and by comparable agencies at the state level. In Australia, these functions are administered primarily by the Department of
Transport on a federal level and by the Environmental Protection Agency at the state level. There are no material environmental
claims currently pending or, to the Company’s knowledge, threatened against the Company or any of its railroads. In addition,
the Company believes that the operations of its railroads are in material compliance with current laws and regulations. The
Company estimates that any expenses incurred in maintaining compliance with current laws and regulations will not have a
material effect on the Company’s earnings or capital expenditures. However, there can be no assurance that the current
regulatory requirements will not change, or that currently unforeseen environmental incidents will not occur, or that past non-
compliance with environmental laws will not be discovered on the Company’s properties.

In Mexico, the Company’s wholly-owned subsidiary, Compa ˜n´ıa de Ferrocarriles Chiapas-Mayab, S.A. de C.V., was awarded a 30-
year concession to operate certain railways owned by the state-owned rail company. Under the terms of the concession
agreement, the federal railway company remains responsible for remediation of all contamination that occurred prior to the
execution date of the concession agreement.

The Commonwealth of Australia has acknowledged that certain portions of the leasehold and freehold land acquired under the
sale and purchase agreement by ASR contains contamination arising from activities associated with previous operators. The
Commonwealth has carried out certain remediation work to existing South Australian environmental standards which reflect the
purpose for which the land was used at the date of the Sale and Purchase Agreement.

RISK FACTORS OF FOREIGN OPERATIONS

The Company’s operations and financial condition are subject to certain risks that could cause actual operating and financial
results to differ materially from those expressed or forecast in the Company’s forward-looking statements. These risks include the
fact that the Company’s 50/50 joint venture in Australia, ARG, and some of the Company’s significant subsidiaries transact
business in foreign countries, namely in Australia, Canada, Mexico and Bolivia. In addition, the Company may consider acquisi-
tions in other foreign countries in the future. The risks of doing business in foreign countries may include:

(cid:2) changes or greater volatility in the economies of those countries,

(cid:2) effects of currency exchange controls,

(cid:2) changes to the regulatory environment of those countries,

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

1 7

(cid:2) changes to the tax laws and regulations of those countries,

(cid:2) restrictions on the withdrawal of foreign investment and earnings,

(cid:2) the nationalization of the businesses that the Company operates,

(cid:2) the actual or perceived failure by the Company to fulfill commitments under concession agreements,

(cid:2) the potential instability of foreign governments, including from domestic insurgency, and

(cid:2) the challenge of managing a culturally and geographically diverse operation.

The Company’s operations in foreign countries are also subject to economic uncertainties, including among others, risk of
renegotiation or modification of existing agreements or arrangements with governmental authorities, exportation and transporta-
tion tariffs, foreign exchange restrictions and changes in taxation structure.

ARG derives a significant portion of its rail freight revenues from shipments of grain. For the years ended December 31, 2002 and
2001, grain shipments in South Australia and Western Australia generated approximately 26.0% and 27.4%, respectively, of
ARG’s operating revenues. A decrease in grain shipments as a result of adverse weather or other negative agricultural conditions
could have a material effect on the Company’s income from ARG and financial condition. For example, drought conditions during
the 2002 growing season are expected to result in a significant reduction in ARG’s grain shipments in 2003.

Australia’s open access regime could lead to additional competition for ARG’s business, which could result in decreased
revenues and profit margins. The legislative and regulatory framework in Australia allows third party rail operators to gain access
to ARG’s railway infrastructure, and in turn governs ARG’s access to track owned by others. ARG currently operates on the
Commonwealth-owned interstate network from Sydney, New South Wales and Melbourne, Victoria to Kalgoorlie, Western Austra-
lia and on State-owned track in New South Wales. Access charges are paid for access onto the track of other companies, and
access charges under state and federal regimes continue to evolve because privatization of railways in Australia is recent. Where
ARG pays access fees to others, if those fees are increased, ARG’s operating margins could be negatively affected. Conversely,
if the federal government or respective state regulators determine that access fees charged to current or prospective third party
rail freight operators by ARG in Western Australia or South Australia do not meet competitive standards, then ARG’s income from
those fees could be negatively affected. Furthermore, ARG has agreements with some customers which would obligate it to make
refunds to these customers should a determination be made by the Independent Rail Access Regulator (Regulator) that access
fees charged by ARG are too high. The Regulator has not issued a determination on these rates and the amount of any refund, if
any, cannot be calculated.

When ARG operates over track networks owned by others, including Commonwealth-owned and State-owned networks, the
owners of the network rather than the operators are responsible for scheduling the use of the tracks as well as for determining
the amount and timing of the expenditures necessary to maintain the network in satisfactory condition. Therefore, in areas where
ARG operates over tracks owned by others, it is subject to train scheduling set by the owners as well as the risk that the network
is not adequately maintained.

The results of operations of the Company’s foreign operations are reported in the local currency — the Australian dollar, the
Canadian dollar and the Mexican peso — and then translated into U.S. dollars at the applicable exchange rates for inclusion in
the Company’s financial statements. The functional currency of the Company’s Bolivian operations is the U.S. dollar. The
exchange rates between these currencies and the U.S. dollar have fluctuated significantly in recent years and may continue to do
so in the future. In addition, because the Company’s financial statements are stated in U.S. dollars, the translation effect of such
fluctuations may affect the Company’s results of operations and financial position and may affect the comparability of the
Company’s results between financial periods.

FORWARD-LOOKING STATEMENTS

The information contained in this Report, including Management’s Discussion and Analysis (Part II, Item 7) contains forward-
looking statements with the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, regarding future events and future performance of Genesee & Wyoming Inc. Words such as
‘’anticipates,’’ ‘‘intends,’’ ‘‘plans,’’ ‘‘believes,’’ ‘‘seeks,’’ ‘‘estimates,’’ variations of these words and similar expressions are
intended to identify these forward-looking statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to forecast. Actual results may differ materially from those
expressed or forecast in these forward-looking statements. These risks and uncertainties include those noted above under the
caption ‘‘Risk Factors of Foreign Operations’’, risks related to adverse weather conditions, changes in environmental and other
laws and regulations to which the Company is subject, difficulties associated with the integration of acquired railroads, derail-
ments, unpredictability of fuel costs and general economic and business conditions, as well as those noted in 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 herein.

1 8 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

Item 2. Properties

The Company, through its subsidiaries and unconsolidated affiliates, currently has interests in thirty railroads of which twenty-two
are in the United States, three are in Canada, three are in Australia, one is in Mexico and one is in Bolivia. These rail properties
typically consist of the track and the underlying land. Real estate adjacent to the railroad rights-of-way is generally retained by
the seller, and the Company’s holdings of such property are not material. Similarly, the seller typically retains mineral rights and
rights to grant fiber optic and other easements in the properties acquired by the Company’s railroads. Several of the Company’s
railroads are operated under terms of leases or operating licenses in which the Company does not assume ownership of the track
and the underlying land.

The Company’s railroads operate over approximately 8,000 miles of track that is owned, jointly-owned or leased by the Company
or its affiliates. The Company’s or its affiliates, railroads also operate, through various trackage rights agreements, over approxi-
mately 3,000 miles of track that is owned or leased by others.

The following table sets forth certain information as of March 24, 2003 with respect to the Company’s railroads:

Railroad and Location

UNITED STATES:

Track Miles

Structure

Connecting Carriers(1)

Allegheny & Eastern Railroad, Inc. (ALY) Pennsylvania

153(2)

Owned

BPRR, NS, CSX

Bradford Industrial Rail, Inc. (BR) Pennsylvania

4(3)

Owned

BPRR

Buffalo & Pittsburgh Railroad, Inc. (BPRR) New York, Pennsylvania

279(4)

Owned/Leased

ALY, BLE, BR, CN, CP,
CSX, NS, PS, RSR, SB

The Dansville & Mount Morris Railroad Company (DMM) New York

Owned

GNWR

Genesee and Wyoming Railroad Company (GNWR) New York

26(5)

Owned(5)

Pittsburg & Shawmut Railroad, Inc. (PS) Pennsylvania

Rochester & Southern Railroad, Inc. (RSR) New York

Illinois & Midland Railroad, Inc. (IMR) Illinois

181(6)

66(7)

Owned

97(8)

Owned

Portland & Western Railroad, Inc. (PNWR) Oregon

287(9)

Owned/Leased

CP, DMM, RSR, NS,
CSX

BPRR, CSX, NS

BPRR, CP, GNWR, CSX

BNSF, IAIS, IC, NS,
PPU, TPW, UP

BNSF, UP, WPRR,
POTB

Willamette & Paciﬁc Railroad, Inc. (WPRR) Oregon

185(10)

Leased

UP, PNWR, HLSC

Louisiana & Delta Railroad, Inc. (LDRR) Louisiana

87(11)

Owned/Leased

UP, BNSF

Carolina Coastal Railway, Inc. (CLNA) North Carolina

Commonwealth Railway, Inc. (CWRY) Virginia

17(12)

Leased

17(13)

Owned/Leased

Talleyrand Terminal Railroad Company, Inc. (TTR) Florida

10(14)

Leased

NS, CSX

Corpus Christi Terminal Railroad, Inc. (CCPN) Texas

26(15)

Leased

UP, BNSF, TM

Golden Isles Terminal Railroad, Inc. (GITM) Georgia

Savannah Port Terminal Railroad, Inc. (SAPT) Georgia

South Buffalo Railway (SB) New York

St. Lawrence & Atlantic Railroad Company (SLR) Maine, New Hampshire and
Vermont

York Railway Company (YRC) Pennsylvania

Utah Railway Company (URC) Utah

Salt Lake City Southern Railroad Company (SLCS) Utah

CANADA:

St. Lawrence & Atlantic Railroad (Quebec) Inc. (SLQ) Canada

Huron Central Railway Inc. (HCR) Canada

Quebec Gatineau Railway Inc. (QGRR) Canada

13(16)

Leased

1(17)

Leased

Owned

CSX, NS

BPRR, CSX, NS, CP,
CN

165(18)

Owned

GRS, SLQ

40(18)

Owned

CSX, NS

44(19)

Owned

2(20)

Owned

UP, BNSF

95(18)

Owned

179(21)

Leased

CP, CN

CP, WC

293(22)

Owned/Leased

CP, CN

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

1 9

Railroad and Location

MEXICO:

Track Miles

Structure

Connecting Carriers(1)

Compa ˜n´ıa de Ferrocarriles Chiapas-Mayab, S.A. de C.V. (FCCM) Mexico

960(23)

Leased

Ferrosur

AUSTRALIA (equity accounting):

Australia Southern Railroad (ASR) South Australia

Australia Western Railroad (AWR) Western Australia

Australia Northern Railroad (ANR) Northern Territory

BOLIVIA (equity accounting):

Ferroviaria Oriental, S.A. (Oriental) Bolivia

900(24)

Owned/Leased

3,286(25)

Owned/Leased

885(26)

Operator

600(27)

Leased

General Belgrano,
Novoeste

(1) See Legend of Connecting Carriers following this table.

(2)

In addition, ALY operates by trackage rights over 3 miles of NS.

(3)

In addition, BR operates by trackage rights over 14 miles of BPRR.

(4)

Includes 92 miles under perpetual leases and 9 miles under a lease expiring in 2090. In addition, BPRR operates by trackage rights over 27
miles of CSX under an agreement expiring in 2018, and 83 miles of NS under an agreement expiring in 2027. The Company is seeking to
rationalize approximately 58 miles of owned track that parallels track under the NS trackage rights agreement.

(5) The GNWR is now operated by RSR.

(6)

In addition, PS operates over 13 miles pursuant to an operating contract.

(7)

In addition, RSR has a haulage contract over 52 miles of CP.

(8)

In addition, IMR operates by trackage rights over 15 miles of IC, 9 miles of PPU and 5 miles of UP.

(9)

Includes 53 miles under lease expiring in 2015 with a 10-year renewal unless terminated by either party, 53 miles formerly under lease which
was purchased in November, 1997, and is operated under a rail service easement, 92 miles which was purchased in July, 1997, and beginning
in December 2002, 76 miles under lease expiring in 2017. In addition, PNWR operates by trackage rights over 2 miles of UP and 4 miles of
POTB.

(10) All under lease expiring in 2013, with renewal options subject to both parties — consent. In addition, WPRR operates over 41 miles of UP

under a concurrent trackage rights agreement.

(11)

Includes 14 miles under a lease expiring in 2011. In addition, LDRR operates by trackage rights over 91 miles of UP under an agreement
terminable by either party after 1997 and has a haulage contract with M.A. Patout & Sons over 4 miles of track.

(12) All leased on a month-to-month basis under a Lease and Option to Purchase Agreement which commenced in 1989.

(13)

Includes 12.5 miles under lease expiring in 2009.

(14) All under lease expiring in 2005.

(15) All under lease expiring in 2007.

(16) All under lease expiring in 2006.

(17) All under lease expiring in 2006.

(18) Subsidiary of Emons Transportation Group, Inc., acquired February 22, 2002.

(19) URC was acquired August 28, 2002. In addition, URC operates by trackage rights over 326 miles of UP and 96 miles of BNSF.

(20) Subsidiary of Utah Railway Company, acquired August 28, 2002. In addition, SLCS operates by trackage rights over 21 miles of UP.

(21) All under lease expiring in 2017, with renewal options subject to both parties, consent.

(22) Consists of 275 miles which are owned and 18 which are under lease expiring in 2017, with renewal options subject to both parties —

consent. In addition, QGRR operates by trackage rights over 27 miles of CP.

(23) All under a 30-year concession agreement operating on track structure which is owned by the state-owned rail company Ferronales. In

addition, FCCM operates by trackage rights over 210 miles on Ferrosur (another privatized rail concession) and a government-owned line.

(24) The track structure is owned by ARG. The land on which the track structure is built is leased from the State of South Australia for a term of
50 years with a conditional right of renewal for an additional 15 years. In addition, ASR operates over the 2,100 mile government-owned
corridor between Melbourne and Perth under a track access agreement.

(25) ARG entered 49 year leases with the Government of Western Australia to operate the standard and narrow gauge freight railway infrastructure
owned by the State. The lease obligations have been prepaid by ARG. ARG, in connection with the Westrail Freight acquisition, purchased
certain rail yards, terminals, and other rail related maintenance facilities from the State.

(26) The Asia Paciﬁc Transport Consortium (APTC) has undertaken a project to build, own and operate an 885-mile rail line from Alice Springs to
Darwin in the Northern Territory of Australia. ARG is a 2.6% equity participant in APTC and will be the rail operator once construction of the rail
line is complete, which is expected to be later in 2003.

2 0 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

(27) All under a 40-year concession agreement operating on track structure which is owned by the state-owned rail company Red Ferroviario

Oriental.

Legend of Connecting Carriers
Bessemer and Lake Erie Railroad Company

Canadian National
Canadian Paciﬁc Railway
CSX Transportation, Inc.
Guilford Rail System

BLE
BNSF Burlington Northern Santa Fe Railway Company
CN
CP
CSX
GRS
HLSC Hampton Railway
Iowa Interstate Railroad, Ltd.
IAIS
Illinois Central Railroad Company
IC
NS
Norfolk Southern Corp.
POTB Port of Tillamook Bay Railroad
Peoria & Pekin Union Railway
PPU
TM
The Texas Mexican Railway Company
TPW Toledo, Peoria & Western Railway Corp.
Union Paciﬁc Railroad Company
UP
Wisconsin Central
WC

EQUIPMENT

As of December 31, 2002, rolling stock of the Company’s North American operations consisted of 353 locomotives and 4,542
freight cars, some of which were owned and some of which were leased from third parties.

Item 3. Legal Proceedings

The Company is a defendant in certain lawsuits resulting from railroad and industrial switching operations. Management believes
that the Company has adequate provisions in the financial statements for any expected liabilities which may result from disposi-
tion of such lawsuits. While it is possible that some of the foregoing matters 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 Company (ComEd) in the Circuit Court of Cook County, Illinois. The suit alleges that IMRR breached
certain 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 previously
owned Powerton Plant. The suit seeks up to $19.0 million in compensatory damages for alleged past rate overcharges. The
Company believes the suit is without merit and is vigorously defending against the suit. However, an adverse outcome of this
lawsuit could have a material adverse effect on the Company’s financial condition.

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 18, 2002, 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 in excess of $45.0 million 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.

Item 4. Submission of Matters to a Vote of Security Holders

None

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

On June 24, 1996, the Company’s Class A Common Stock began publicly trading and was quoted on the Nasdaq National
Market until September 26, 2002, under the trading symbol GNWR. On September 27, 2002, the Company’s Class A Common
Stock began publicly trading on the New York Stock Exchange under the trading symbol GWR. The tables below show the range
of high and low actual trade prices for the Company’s Class A Common Stock during each quarterly period of 2002, 2001 and
2000.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

2 1

Year Ended December 31, 2002

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Year Ended December 31, 2001

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Year Ended December 31, 2000

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

High

Low

$23.770

$19.200

$26.300

$19.760

$24.170

$15.700

$23.200

$18.000

High

Low

$13.055

$ 9.000

$14.600

$ 9.028

$17.966

$12.340

$22.066

$15.000

High

Low

$ 6.888

$ 5.278

$ 8.555

$ 6.333

$11.222

$ 7.111

$14.222

$ 7.666

The Company’s Class B Common Stock is not publicly traded.

The Company did not pay cash dividends in 2002, 2001 or 2000. The Company does not intend to pay cash dividends for the
foreseeable future and intends to retain earnings, if any, for future operation and expansion of the Company’s business. Any
determination to pay dividends in the future will be at the discretion of the Company’s Board of Directors and will be dependent
upon the Company’s results of operations, financial condition, contractual restrictions and other factors deemed relevant by the
Board of Directors.

On March 3, 2003 there were 154 holders of record of the Company’s Class A Common Stock and 9 holders of record of the
Company’s Class B Common Stock.

During 2002, the Company issued the following securities which were not registered under the Securities Act of 1933, as
amended (the Act). Each of such issuances was made by private offering in reliance on the exemption from the registration
provisions of the Act provided by Section 4(2) of the Act. The facts relied upon to establish such exemption included the
recipients — representations as to their investment intent with respect to such Securities and restrictions on the transfer of such
Securities imposed by the Company.

(1) On January 11, 2002, the Company issued to one of its directors, for no additional consideration, options under the Genesee
& Wyoming Inc. 1996 Stock Option Plan for Outside Directors to purchase an aggregate of 2,250 shares of Class A Common
Stock at an exercise price of $19.9667 per share. The shares issuable upon exercise of such options are the subject of a
Registration Statement on Form S-8 under the Act.

(2) On May 23, 2002, the Company issued to an aggregate of 194 of its employees, for no additional consideration, options
under the Genesee & Wyoming Inc. 1996 Stock Option Plan to purchase an aggregate of 323,366 shares of Class A Common
Stock at an exercise price of $21.35 per share, and 4,684 shares of Class A Common Stock at an exercise price of $23.49 per
share. The shares issuable upon exercise of such options are the subject of a Registration Statement on Form S-8 under the Act.

(3) On July 28, 2002, the Company issued to one of its directors, for no additional consideration, options under the Genesee &
Wyoming Inc. Stock Option Plan for Outside Directors to purchase an aggregate of 2,250 shares of Class A Common Stock at an
exercise price of $16.70 per share. The shares issuable upon exercise of such options are the subject of a Registration
Statement on Form S-8 under the Act.

See Item 12. below for the equity compensation plan table required by this Item 5.

2 2 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

Item 6. Selected Financial Data

The following selected consolidated income statement data and selected consolidated balance sheet data of the Company as of
and for the years ended December 31, 2002, 2001, 2000, 1999, and 1998, have been derived from the Company’s consolidated
financial statements. All of the information should be read in conjunction with the consolidated financial statements and related
notes included elsewhere in this Annual Report on Form 10-K. See also Item 7. of this Report.

(In thousands, except per share amounts)
Year Ended December 31,
2000

1999

2001

2002

1998

Income Statement Data:

Operating revenues

Operating expenses

Income from operations

Interest expense

$209,540

$173,576

$206,530

$175,586

$147,472

177,533

150,622

182,818

152,828

127,494

32,007

22,954

23,712

22,758

19,978

(7,542)

(10,049)

(11,233)

(8,462)

(7,071)

Gain on sale of 50% equity in Australian operations(1)

Other income, net

—

726

2,985

497

Income before income taxes, equity earnings and extraordinary item

25,191

16,387

Income taxes

Equity earnings (losses)

Income before extraordinary item

Extraordinary item

Net income

Preferred stock dividends and cost accretion

Net income available to common stockholders

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:

Income before extraordinary item

Extraordinary item

Net income

10,062

1,549

24,090

10,569

411

1,292

15,588

2,175

—

6,880

19,787

7,708

(618)

(645)

8,983

9,774

6,166

8,863

25,982

19,084

13,932

12,795

11,434

(375)

25,607

1,172

—

(262)

—

19,084

13,932

12,533

11,434

957

—

$ 24,435

$ 18,127

$ 13,880

$ 12,533

$ 11,434

1.69

(0.03)

1.66

14,704

1.48

(0.02)

1.46

1.72

—

1.72

10,509

1.48

—

1.48

1.42

—

1.42

9,779

1.38

—

1.38

1.27

(0.03)

1.24

10,104

1.26

(0.03)

1.23

0.98

—

0.98

11,671

0.97

—

0.97

Weighted average number of shares of common stock and equivalents

17,585

12,917

10,094

10,215

11,765

BALANCE SHEET DATA AT YEAR END:

Total assets

Total debt

Mandatorily Redeemable Convertible

Preferred Stock

Stockholders’ equity

$514,859

$402,519

$338,383

$303,940

$216,760

125,417

60,591

104,801

108,376

65,690

23,980

23,808

209,621

185,663

18,849

94,732

—

81,829

74,537

(1)

In 2001 and 2000, the Company recorded gains of $2.9 million and $10.1 million, respectively, resulting from the Company issuing shares of its
Australian subsidiary at a price per share in excess of its book value investment in that subsidiary 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) The Company has completed a number of recent acquisitions. 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
negotiation, the Company’s results of operations in any reporting period may not be directly comparable to its results of operations in other
reporting periods. See Note 3 of the Notes to Consolidated Financial Statements for a complete description of recent acquisitions.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

2 3

Item 7. 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 provide 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
railroad facilities within their complexes. The Company generates revenues primarily from the movement of freight over track
owned or operated by its railroads. The Company also generates non-freight revenues primarily by providing freight car switching
and ancillary rail services.

The Company’s operating expenses include wages and benefits, equipment rents (including car hire), purchased services,
depreciation and amortization, diesel fuel, casualties and insurance, materials, net (gain) loss on sale and impairment of assets,
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, communication and data processing
costs, and general overhead expense.

When comparing the Company’s results of operations from one reporting period to another, the following factors 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, accidents and derailments. In periods when these events
occur, results of operations are not easily comparable to other periods. Also, the Company has completed a number of recent
acquisitions. The Company completed acquisitions in the United States of Utah Railway Company in August 2002, Emons
Transportation Group, Inc. in February 2002, and South Buffalo Railway Company in October 2001. The Company, through a 50%
owned joint venture, completed an acquisition in Western Australia in December 2000, and through an investment in an uncon-
solidated affiliate, acquired an interest in a railroad in Bolivia in November 2000. 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 negotiation, the Company’s results of operations in any reporting period may not be
directly comparable to its results of operations in other reporting periods.

The general downturn in economies in North America for 2002 and 2001 has adversely affected the Company’s cyclical
shipments of commodities such as paper products in Canada, chemicals in the United States, and cement in Mexico. However,
shipments of other important commodities such as coal and salt are less affected by economic downturns and are more closely
affected by the weather. The economic downturn has also impacted the Company’s customers and while a limited number of
them have declared bankruptcy, their traffic volumes have remained largely unaffected and the impact on the collection of their
receivables has not been significant to date.

On February 14, 2002 and May 1, 2001, the Company announced three-for-two common stock splits in the form of 50% stock
dividends distributed on March 14, 2002 to shareholders of record as of February 28, 2002, and on June 15, 2001 to sharehold-
ers of record as of May 31, 2001, respectively. All share, per share and par value amounts presented herein have been restated
to reflect the retroactive effect of both of the stock splits.

Expansion of Operations

United States

On December 30, 2002, the Company expanded its Oregon region by commencing railroad operations over a 76-mile rail line
between Salem and Eugene, Oregon previously operated by Burlington Northern Santa Fe Railway Company (BNSF). The rail line
is contiguous to the Company’s existing Oregon railroad operations and is expected to increase that region’s annual carloads by
approximately 20,000 and enhance operations through more efficient routing of existing traffic. The rail line is being operated
under a 15-year lease agreement with BNSF.

On August 28, 2002, the Company acquired all of the issued and outstanding shares of common stock of Utah Railway Company
(URC) for approximately $55.7 million in cash, including transaction costs. The purchase price was allocated to current assets
($4.3 million), property and equipment ($18.1 million), and intangible assets ($35.9 million), less current liabilities assumed ($2.6
million). As contemplated with the acquisition, the Company implemented a severance program under which certain URC
employees were terminated in the third quarter of 2002. The aggregate $336,000 cost of these restructuring activities is
considered a liability assumed in the acquisition, and as such, was allocated to the purchase price. The majority of these costs
were paid in the three months ended September 30, 2002. The Company funded the acquisition through its revolving line of
credit held under its primary credit agreement. URC (either directly or through its wholly-owned subsidiary, Salt Lake City
Southern Railroad Company, Inc.) operates over 46 miles of owned track and 374 miles of track under trackage rights agree-
ments. The tracks over which URC operates run from Ogden, Utah to Grand Junction, Colorado. In addition, URC serves
industrial customers in and around Salt Lake City, Utah through trackage rights from the Utah Transit Authority.

2 4 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

acquisition, the Company implemented early retirement and severance programs under which certain Emons employees were
terminated in the first quarter of 2002. The aggregate $804,000 cost of these restructuring activities is considered a liability
assumed in the acquisition and as such, was allocated to the purchase price. The majority of these costs were paid in the three
months ended March 31, 2002. The Company funded the acquisition through its revolving line of credit held under its primary
credit agreement. Emons is a short line railroad holding company with operations over 340 miles of owned track in Maine,
Vermont, New Hampshire, Quebec and Pennsylvania.

On October 1, 2001, the Company acquired all of the issued and outstanding shares of common stock of South Buffalo Railway
Company (South Buffalo) from Bethlehem Steel Corp. (Bethlehem) for $33.1 million in cash, including transaction costs and the
assumption of certain liabilities of $5.6 million. At the closing, the Company acquired beneficial ownership of the shares and,

having received the necessary approvals from The SurfaceTransportation Board on November 21, 2001, assumed actual owner-
ship on December 6, 2001. The purchase price was allocated to current assets ($2.3 million), property and equipment ($17.6 mil-
lion) and goodwill ($18.8 million), less current liabilities assumed ($2.4 million) and long-term liabilities assumed ($3.2 million).
South Buffalo operates over 52 miles of owned track in Buffalo, New York. The purchase price was reduced by a $669,000
adjustment pursuant to the final determination of the net assets of South Buffalo on the sale date. This amount, together with
another $728,000 related to pre-acquisition liabilities paid by the Company on Bethlehem’s behalf, was paid to the Company in
December 2002. Although Bethlehem filed for voluntary protection under U.S. bankruptcy laws on October 5, 2001, these
payments were funded from a $3.0 million escrow account held by an independent trustee to settle amounts due to the Company
pursuant to the South Buffalo acquisition.

As contemplated with the acquisition, the Company closed the former South Buffalo headquarters office in March 2002 and
implemented an early retirement program under which certain South Buffalo employees were terminated in December 2001. The
aggregate $876,000 cost of these restructuring activities is considered a liability assumed in the acquisition, and therefore is
included in purchase consideration. The majority of these costs were paid in 2001.

The acquisition of South Buffalo triggered the right of The 1818 Fund III, L.P. (the Fund), a private equity fund managed by Brown
Brothers Harriman & Co., to purchase an additional $5.0 million of the Company’s Series A Mandatorily Redeemable Convertible
Preferred Stock (the Convertible Preferred), and the Fund exercised that right on December 11, 2001 (see Note 12 to Consoli-
dated Financial Statements).

Australia

On December 16, 2000, the Company, through its 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 (This amount and all
other dollar amounts in this report being U.S. dollars) 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 was com-
posed of the freight operations of the formerly state-owned railroad of Western Australia.

To complete the acquisition, the Company contributed its formerly wholly-owned subsidiary, Australia Southern Railroad (ASR),
to ARG along with the Company’s 2.6% 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 (partially funded by a $20.0 million private placement of the Convertible Preferred with
the Fund) while Wesfarmers contributed $64.2 million in cash, including $8.2 million which represents a long-term Australian
dollar denominated non-interest bearing note to match a similar note due to the Company from ASR at the date of the
transaction. ARG funded the remaining purchase price with proceeds from its Australian bank credit facility.

As a direct result of the ARG transaction, ASR stock options became immediately exercisable by key management of ASR 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 compensation charge to ASR earnings.

The Company 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.

On April 20, 2001, completed the arrangement of debt and equity capital to finance a project to build, own and operate the Alice
Springs to Darwin railway line in the Northern Territory of Australia. As previously arranged, upon APTC reaching financial closure,
Wesfarmers contributed an additional $7.4 million into ARG and accordingly, the Company recorded an additional first quarter
gain of $3.7 million related to the December 2000 issuance of ARG stock to Wesfarmers. A related deferred income tax expense
of $1.1 million was also recorded. In the second quarter of 2001, ARG paid the $7.4 million to its two shareholders, in equal
amounts of $3.7 million each, as partial payment of each shareholder’s Australian dollar denominated non-interest bearing note
which resulted in a $508,000 currency transaction loss.

The combined gains totaling $13.8 million relating to the formation of ARG represented the difference between the recorded
balance of the Company’s previously wholly-owned investment in Australia, less investment amounts that the Company esti-
mated would be reimbursed by ARG, and the value of those Australian operations when ARG was formed. In the fourth quarter of
2001, the Company, ARG and Wesfarmers reached agreement as to the level of acquisition-related costs to be reimbursed to
both venture partners. Accordingly, in the fourth quarter of 2001, the Company recorded a $728,000 decrease to its previously
recorded gains to reflect the lower than estimated reimbursed amount for acquisition-related costs.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

2 5

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. Prior to its deconsolidation, ASR accounted for $37.6 million
and $0.0 of operating revenue and income from operations (including the $4.0 option buyout charge), respectively, for 2000.

Mexico

On December 7, 2000, in conjunction with the refinancing of the Company’s then wholly-owned subsidiary, Compa ˜n´ıa de
Ferrocarriles Chiapas-Mayab, S.A. de C.V. (FCCM), and its parent company, GW Servicios, S.A. de C.V. (Servicios) (see Note 9 to
Consolidated Financial Statements), the International Finance Corporation (IFC) invested $1.9 million of equity for a 12.7%
indirect interest in FCCM, through Servicios. The Company contributed an additional $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 amended credit
facility, with the remaining investment funded by the conversion of intercompany advances into permanent 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, depreciation 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 in 2000.

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% from its original indirect 0.68% interest acquired in September 1999. On July 24, 2001,
the Company increased its indirect equity interest in Oriental to 22.89% with an additional investment of $246,000. Oriental is a
railroad serving eastern Bolivia and connecting to railroads in Argentina and Brazil. The Company’s ownership interest is largely
through a 90% owned holding company 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 $6.9 million in cash, the assumption (via an
unconsolidated subsidiary) of non-recourse debt of $10.8 million (90% of $12.0 million) at an adjustable interest rate dependent
on operating results of Oriental, and a non-interest bearing contingent payment of $450,000 due in 2003 if certain financial
results are achieved. The Company does not expect this financial target to be achieved. The cash used by the Company to fund
such investment was obtained from its existing revolving credit facility. Additionally, the Company received the right to collect
dividends from Oriental related to its full year 2000 earnings. Dividends received were $263,000 and $617,000 in 2002 and 2001,
respectively. The non-recourse debt ($12.0 million as of December 31, 2002) bears interest, based on the availability of dividends
received from Oriental, between a floor of 4% and a ceiling of 7.67%. The debt bore interest at an effective rate of 4.0% and
6.12% in 2002 and 2001, respectively, and is due in annual payments. Such payments are primarily funded by dividends received
from Oriental, with any shortfalls to be funded by the Company and its partner. The debt is due and payable on December 2,
2003. The Company accounts for its indirect interest in Oriental under the equity method of accounting.

Results of Operations

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Consolidated Operating Revenues

Consolidated operating revenues (which exclude revenues from the Company’s equity investees) were $209.5 million in the year
ended December 31, 2002, compared to $173.6 million in the year ended December 31, 2001, a net increase of $35.9 million or
20.7%. The increase was attributable to a $12.2 million increase in North American railroad revenues from a full year of
operations of South Buffalo, a $20.7 million increase in North American railroad revenues from the February 22, 2002 acquisition
of Emons, a $6.7 million increase in North American railroad revenues from the August 28, 2002 acquisition of URC, and a
$3.0 million increase in industrial switching revenues, offset by a $6.7 million decrease on existing North American railroad
operations.

The following two sections provide information on railroad revenues for North America and industrial switching revenues in the
United States.

North American Railroad Operating Revenues

Operating revenues had a net increase of $32.9 million, or 20.4%, to $194.4 million in the year ended December 31, 2002 of
which $157.3 million were freight revenues and $37.1 million were non-freight revenues. Operating revenues in the year ended
December 31, 2001 were $161.4 million of which $129.9 million were freight revenues and $31.5 million were non-freight
revenues. The increase in operating revenue was attributable to a $27.4 million net increase in freight revenues and a $5.5 million
net increase in non-freight revenues. The $27.4 million net increase in freight revenues consisted of $10.2 million in freight
revenue from a full year of operations of South Buffalo, $15.2 million in freight revenues from Emons, and $4.1 million in freight
revenues from URC, offset by a $2.1 million decrease on existing North American railroad operations. The $5.5 million net
increase in non-freight revenues consisted of $2.0 million in non-freight revenue from a full year of operations of South Buffalo,
$5.4 million in non-freight revenues from Emons, and $2.7 million in non-freight revenues from URC, offset by a $4.6 million
decrease on existing North American railroad operations. The following table compares North American freight revenues, car-
loads and average freight revenues per carload for the years ended December 31, 2002 and 2001:

2 6 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

North American Freight Revenues and Carloads Comparison by Commodity Group
Years Ended December 31, 2002 and 2001
(dollars in thousands, except average per carload)

Commodity Group

Coal, Coke & Ores

Pulp & Paper

Minerals & Stone

Petroleum Products

Metals

Lumber & Forest Products

Farm & Food Products

Chemicals-Plastics

Autos & Auto Parts

Intermodal

Other

Totals

Freight Revenue

Carloads

2002

% of
Total

2001

% of
Total

2002

% of
Total

2001

% of
Total

Average
Freight
Revenue
Per Carload

2002

2001

$ 28,685

18.2% $ 28,081

21.6% 136,044

29.6% 128,286

33.1% $211

$219

25,711

16.3%

18,663

14.4%

64,494

14.0%

49,033

12.6%

21,236

13.5%

19,439

15.0%

50,844

11.0%

43,615

11.2%

20,655

13.1%

16,971

13.1%

29,479

6.4%

27,541

7.1%

15,993

10.2%

12,828

10,158

9,523

6,996

1,302

4,202

8.2%

6.5%

6.1%

4.4%

0.8%

2.7%

11,239

8,846

10,008

8,359

2,499

622

5,134

8.7%

6.8%

7.7%

6.4%

1.9%

0.5%

3.9%

57,846

12.6%

40,679

10.5%

36,265

27,378

19,949

17,130

5,387

15,527

7.9%

5.9%

4.3%

3.7%

1.2%

3.4%

26,727

28,205

16,574

5,283

1,954

20,086

6.9%

7.3%

4.3%

1.4%

0.5%

5.1%

399

418

701

276

354

371

477

408

242

271

$157,289

100.0% $129,861

100.0% 460,343

100.0% 387,983

100.0% 342

381

446

616

276

331

355

504

473

318

256

335

Coal, Coke and Ores revenues increased by a net $604,000 or 2.2%, primarily due to an increase of $3.8 million in freight
revenues from hauling new carloads of Coal from the acquisition of URC, offset by a decrease in revenues of $3.2 million from
hauling carloads of Coal on existing railroad operations for customers operating in the electric utility industry.

Pulp and Paper revenues increased by $7.0 million, or 37.8%, primarily due to an increase of $5.3 million in freight revenues from
hauling new carloads of Pulp and Paper from the acquisition of Emons and an increase of $1.7 million in revenue from existing
North American railroad operations serving Pulp and Paper industries located on the Company’s Oregon, New York-Pennsylvania
and Canada railroad operations.

Minerals and Stone revenues increased by $1.8 million, or 9.2%, primarily due to $1.3 million in freight revenues from the
acquisition of Emons and a net increase of $500,000 in revenue from existing North American railroad operations. The $500,000
net increase from existing North American railroad operations primarily consisted of a $2.0 million increase on existing US and
Canada railroad operations of which $1.7 million was from hauling additional carloads of Salt as the result of a new salt mine
customer which began shipping in May 2001, offset by a $1.5 million decrease on existing Mexico railroad operations, primarily
cement, due to the downturn in the Mexican economy and the impact of Hurricane Isidore.

Petroleum Products revenues increased by $3.7 million, or 21.7%, primarily due to $1.0 million in freight revenues from the
acquisition of Emons, an increase of $2.2 million in freight revenues on the Company’s existing Mexico railroad operations
primarily due to a new contract and shifting traffic patterns, and an increase of $424,000 on existing US and Canada railroad
operations.

Metals revenues increased by a net $4.8 million, or 42.3%, primarily due to $4.8 million in freight revenue from a full year of
operations of South Buffalo.

Lumber and Forest Products revenues increased by $4.0 million, or 45.0%, primarily due to $2.0 million in freight revenues from
the acquisition of Emons, $634,000 in freight revenue from a full year of operations of South Buffalo, and an increase of
$1.3 million in freight revenue on existing railroad operations, primarily the Company’s Oregon and New York-Pennsylvania
railroad operations.

Chemicals and Plastics revenues increased by a net $1.2 million, or 13.9%, primarily due to $1.6 million in freight revenues from
the acquisition of Emons, offset by a decrease of $442,000 in freight revenue on existing railroad operations.

Auto and Auto Parts revenues increased by $4.5 million, or 180.0%, primarily due to $3.9 million in freight revenue from a full year
of operations of South Buffalo and an increase of $567,000 in freight revenue on existing railroad operations.

Freight revenues from all remaining commodities reflected a net decrease of $102,000 of which $1.1 million was a net decrease
on existing railroad operations, offset by $1.0 million in freight revenues from the acquisitions of Emons and URC.

Total North American carloads were 460,343 in the year ended December 31, 2002 compared to 387,983 in the year ended
December 31, 2001, an increase of 72,360 or 18.7%. The increase of 72,360, consisted of 36,884 carloads from a full year of
operations of South Buffalo, 36,190 carloads from the acquisition of Emons, 17,385 from the acquisition of URC, offset by a net
decrease of 18,099 carloads on existing railroad operations of which 15,632 carloads were Coal.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

2 7

The overall average revenue per carload increased to $342 in the year ended December 31, 2002, compared to $335 per carload
in the year ended December 31, 2001, an increase of 2.1%, due primarily to higher average revenues per carload on the carloads
from the acquisition of Emons, and higher average revenue per carload on long-haul Petroleum Products in Mexico resulting from
a new contract.

North American non-freight railroad revenues were $37.1 million in the year ended December 31, 2002, compared to $31.6 million
in the year ended December 31, 2001, a net increase of $5.5 million, or 17.4%. The net increase consisted of $2.1 million in non-
freight revenues from a full year of operations of South Buffalo, $5.4 million in non-freight revenues from Emons, and $2.7 million
in non-freight revenues from URC, offset by a $4.6 million decrease on existing North American railroad operations. The following
table compares North American non-freight revenues for the years ended December 31, 2002 and 2001:

North American Railroad
Non-Freight Operating Revenues Comparison
Years Ended December 31, 2002 and 2001
(dollars in thousands)

Railroad switching

Car hire and rental income

Car repair services

Other operating income

Total non-freight revenues

% of
Non-freight
Total

2001

% of
Non-freight
Total

2002

$13,270

35.8% $ 8,785

7,503

3,563

12,759

20.2%

9.6%

34.4%

7,484

3,135

12,180

27.8%

23.7%

9.9%

38.6%

$37,095

100.0% $31,584

100.0%

The net increase of $4.5 million in railroad switching revenues is primarily attributable to $1.3 million in railroad switching
revenues from a full year of operations of South Buffalo, $743,000 in railroad switching revenues from Emons, $2.3 million in
railroad switching revenues from URC, and a $89,000 increase on existing North American railroad operations.

The net increase of $579,000 in other operating income is primarily attributable to $422,000 from a full year of operations of
South Buffalo, $2.8 million in revenues from Emons and $278,000 in revenues from URC, offset by a decrease of $2.9 million on
existing railroad operations. The decrease of $2.9 million on existing railroad operations relates primarily to a decrease of $1.7
million in trackage rights and haulage revenues on the Company’s New York-Pennsylvania and Mexico operations, a decrease of
$781,000 in demurrage and storage on the Company’s Mexico and Canada operations, and a decrease of $398,000 in revenues
from the Company’s start-up logistics operation, Speedlink, for which operations ceased in September 2001.

U.S. Industrial Switching Revenues

Revenues from U.S. industrial switching activities were $15.2 million in the year ended December 31, 2002 compared to
$12.1 million in the year ended December 31, 2001, an increase of $3.1 million, or 25.2%, due primarily to the addition of several
new switching contracts in 2002.

Consolidated Operating Expenses

Consolidated operating expenses for all operations were $177.5 million in the year ended December 31, 2002, compared to
$150.6 million in the year ended December 31, 2001, an increase of $26.9 million, or 17.9%. The increase was attributable to a
$6.3 million increase in North American railroad operating expense from a full year of operations of South Buffalo, a $17.4 million
increase from the acquisition of Emons, a $5.9 million increase from the acquisition of URC, and a $2.9 million increase in
industrial switching expenses, offset by a $5.6 million decrease on existing North American railroad operations. The $5.6 million
decrease in existing North American railroad operating expenses was attributable to an increase in net gain on sale of assets of
$2.3 million, a $1.0 million decrease in existing North American railroad operating expenses resulting from cost reduction
programs implemented to offset decreased revenues on certain of the Company’s existing North American railroad operations,
and a $2.3 million decrease resulting from the termination of the Company’s logistics operation, Speedlink, which ceased
operations in September 2001.

Operating Ratios

The Company’s consolidated operating ratio improved to 84.7% in the year ended December 31, 2002 from 86.8% in the year
ended December 31, 2001. The operating ratio for North American railroad operations improved to 83.8% in the year ended
December 31, 2002 from 86.1% in the year ended December 31, 2001. The operating ratio for U.S. industrial switching
operations was 96.1% in the year ended December 31, 2002 versus 96.0% in the year ended December 31, 2001.

The following two sections provide information on railroad expenses in North America and industrial switching expenses in the
United States.

2 8 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

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, 2002 and 2001:

North American Railroad
Operating Expense Comparison
Years Ended December 31, 2002 and 2001
(dollars in thousands)

Labor and beneﬁts

Equipment rents

Purchased services

Depreciation and amortization

Diesel fuel

Casualties and insurance

Materials

Net gain on sale and impairment of assets

Other expenses

Total operating expenses

2002

2001

Percent of
Operating
Revenues

Dollars

Percent of
Operating
Revenues

Dollars

$ 68,557

35.3% $ 55,902

19,024

14,994

13,073

12,629

9,113

12,275

(3,140)

16,439

9.8%

7.7%

6.7%

6.5%

4.7%

6.3%

(1.6%)

8.4%

18,188

11,942

12,139

11,596

6,779

10,560

(814)

12,687

34.7%

11.2%

7.4%

7.5%

7.2%

4.3%

6.5%

(0.5%)

7.8%

$162,964

83.8% $138,979

86.1%

Labor and benefits expense increased $12.7 million, or 22.6%, of which $3.0 million was an increase from a full year of
operations of South Buffalo, $7.2 million was an increase from Emons, $2.3 million was an increase from URC and $165,000 was
an increase on existing North American railroad operations.

Equipment rents expense increased a net $836,000, or 4.6%, of which $345,000 was an increase from a full year of operations of
South Buffalo, $2.1 million was an increase from Emons and $526,000 was an increase from URC, offset by a $2.1 million
decrease on existing North American railroad operations of which $1.7 million was primarily car hire and equipment rents and
$330,000 was
in
September 2001.

logistics operation, Speedlink, which ceased operations

from the termination of the Company’s

Purchased services increased $3.1 million, or 25.6%, of which $319,000 was an increase from a full year of operations of South
Buffalo, $1.9 million was an increase from Emons, $553,000 was an increase from URC and $329,000 was an increase on
existing North American railroad operations.

Depreciation and amortization expense increased a net $934,000, or 7.7%, of which $458,000 was an increase from a full year of
operations of South Buffalo, $1.0 million was an increase from Emons, and $222,000 was an increase from URC, offset by a
$751,000 decrease on existing North American railroad operations primarily due to discontinued amortization of the Service
Assurance Agreement and goodwill. Pursuant to adopting SFAS No. 142 on January 1, 2002, the Service Assurance Agreement
and goodwill are no longer being amortized (see Note 6 to Consolidated Financial Statements).

Diesel fuel expense increased a net $1.0 million, or 8.9%, of which $193,000 was an increase from a full year of operations of
South Buffalo, $1.3 million was an increase from Emons, and $742,000 was an increase from URC, offset by a $1.2 million
decrease on existing North American operations resulting primarily from decreased fuel prices and consumption in 2002.

Casualties and insurance increased $2.3 million, or 34.4%, of which $372,000 was an increase from a full year of operations of
South Buffalo, $693,000 was an increase from Emons, $134,000 was an increase from URC and $1.1 million was an increase on
existing North American railroad operations due primarily to an increase of $1.0 million in liability and property insurance
premiums since August 2002.

Materials expense increased a net $1.7 million, or 16.2%, of which $495,000 was an increase from a full year of operations of
South Buffalo, $1.6 million was an increase from Emons, $185,000 was an increase from URC, offset by a $558,000 decrease on
existing North American railroad operations.

Net gain on sale and impairment of assets increased $2.3 million due primarily to a gain of $2.8 million from an asset sale on the
Company’s New York-Pennsylvania railroad operations (see Note 2 to Consolidated Financial Statements).

Other expenses increased $3.8 million, or 29.6%, of which $1.1 million was an increase from a full year of operations of South
Buffalo, $754,000 was an increase from Emons, $598,000 was an increase from URC and $1.3 million was an increase on
existing North American railroad operations primarily due to increases in legal and other professional fees, trackage rights, a nd
information technology costs.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

2 9

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, 2002 and 2001:

U.S. Industrial Switching
Operating Expense Comparison
Years Ended December 31, 2002 and 2001
(dollars in thousands)

Labor and beneﬁts

Equipment rents

Purchased services

Depreciation and amortization

Diesel fuel

Casualties and insurance

Materials

Other expenses

Total operating expenses

2002

2001

Percent of
Operating
Revenue

Dollars

Percent of
Operating
Revenue

Dollars

$ 9,221

60.8%

$ 8,061

66.4%

354

477

497

739

1,479

772

1,030

2.3%

3.1%

3.3%

4.9%

9.7%

5.1%

6.9%

289

392

617

464

294

702

824

2.4%

3.2%

5.1%

3.8%

2.4%

5.8%

6.9%

$14,569

96.1%

$11,643

96.0%

Labor and benefits expense increased $1.2 million, or 14.4%. The net increase of $1.2 million was primarily due to costs
associated with new switching contracts in 2002 of approximately $1.6 million offset by a decrease in pension expense of
$395,000. The decrease in pension expense results from a $286,000 credit in the 2002 period due to the curtailment of a
pension plan compared to $109,000 of pension expense in the 2001 period.

Casualties and insurance expense increased by $1.2 million due primarily to an increase of $1.0 million in claims expense of
which $814,000 was expensed in the 2002 period compared to a $188,000 credit in the 2001 period, and a $141,000 increase in
insurance premiums in the 2002 period. The claims cost in 2002 is associated in part with a fatality while the claims credit in
2001 results from the settlement of a claim for less than the amount reserved.

All other expenses were $3.9 million in the year ended December 31, 2002, compared to $3.3 million in the year ended
December 31, 2001, an increase of $581,000, or 17.7%, due primarily to costs associated with new switching contracts in 2002.

Interest Expense

Interest expense in the year ended December 31, 2002, was $7.5 million compared to $10.0 million in the year ended Decem-
ber 31, 2001, a decrease of $2.5 million, or 24.9%, primarily due to a decrease in average outstanding debt and lower interest
rates in 2002, offset by new borrowings to acquire Emons and URC.

Gain on 50% Sale of Australia Southern Railroad

The Company recorded a non-cash gain of $3.0 million in 2001 related to its original non-cash gain of $10.1 million recognized in
December 2000 upon the issuance of shares of ASR at a price per share in excess of its book value per share investment in ASR
(see Note 3 to Consolidated Financial Statements).

Other Income, Net

Other income, net, in the year ended December 31, 2002, was $693,000 compared to $578,000 in the year ended December 31,
2001, an increase of $115,000, or 19.9%. Other income, net, in the years ended December 31, 2002 and 2001 consists primarily
of interest income and currency gains and losses on Australian dollar denominated cash and receivable balances.

Income Taxes

The Company’s effective income tax rate in the years ended December 31, 2002 and 2001 was 35.7% and 37.6%, respectively.
The decrease in 2002 is partially attributable to lower tax rates on foreign operations offset by an increase in the Company’s
effective state tax rate.

3 0 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

Equity in Net Income of Unconsolidated International Affiliates

Equity earnings of unconsolidated international affiliates in the year ended December 31, 2002, were $9.8 million compared to
$8.9 million in the year ended December 31, 2001, an increase of $911,000. Equity earnings in the year ended December 31,
2002, consist of $8.5 million from Australian Railroad Group and $1.3 million from South America affiliates. Equity earnings in the
year ended December 31, 2001, consist of $8.5 million from Australian Railroad Group and $412,000 from South America
affiliates.

Net Income and Earnings Per Share

The Company’s net income for the year ended December 31, 2002, was $25.6 million compared to net income in the year ended
December 31, 2001, of $19.1 million, an increase of $6.5 million, or 34.2%. The increase in net income is the result of an increase
from North American railroad operations of $5.3 million, an increase in equity earnings of unconsolidated affiliates of $911,000,
and an increase in the net income of industrial switching of $351,000.

Basic and Diluted Earnings Per Share in the year ended December 31, 2002, were $1.66 and $1.46, respectively, on weighted
average shares of 14.7 million and 17.6 million, respectively, compared to $1.72 and $1.48, respectively, on weighted average
shares of 10.5 million and 12.9 million in the year ended December 31, 2001. The earnings per share and weighted average
shares outstanding for the years ended December 31, 2002 and 2001 are adjusted for the impact of the March 14, 2002 and
June 15, 2001 stock splits (see Note 2 to Consolidated Financial Statements). The increase in weighted average shares
outstanding for Basic Earnings Per Share of 4.2 million is primarily attributable to the impact of the December 21, 2001 offering of
common stock (see Note 11 to Consolidated Financial Statements), and the exercise of employee stock options in 2002. The
increase in weighted average shares outstanding for Diluted Earnings Per Share of 4.7 million is primarily attributable to the
above impact and the dilutive impact of the common stock equivalents associated with the Mandatorily Redeemable Convertible
Preferred Stock issued in December 2001 and the dilutive impact of unexercised employee and director stock options.

Supplemental Information — Australian Railroad Group

ARG is a joint venture owned 50% by the Company and 50% by Wesfarmers Limited, a public corporation based in Perth,
Western Australia. The Company accounts for its 50% ownership in ARG under the equity method of accounting. As a result of
the strengthening of the Australian dollar in 2002, the average currency translation rate for the year ended December 31, 2002
was 5.2% more favorable than the rate for the year ended December 31, 2001, the impact of which should be considered in the
following discussions of equity earnings, freight and non-freight operating revenues, and operating expenses.

In the years ended December 31, 2002 and 2001, the Company recorded $8.5 million and $8.5 million, respectively, of equity
earnings from ARG, which is reported in the accompanying consolidated statements of income under the caption Equity in Net
Income of International Affiliates
Australian Railroad Group. The following table provides ARG’s freight revenues, carloads
and average freight revenues per carload for the years ended December 31, 2002 and 2001.

Australian Railroad Group Freight Revenues and Carloads by Commodity Group
Years Ended December 31, 2002 and 2001
(U.S. dollars in thousands, except average per carload)

Commodity Group

Freight Revenues

Carloads

2002

% of
Total

2001

% of
Total

2002

% of
Total

2001

% of
Total

Average
Freight
Revenue
Per Carload

2002

2001

Grain

$ 53,590

30.5% $ 49,757

30.2% 177,651

20.5% 171,037

20.2% $302

$291

Other Ores and Minerals

Iron Ore

Alumina

Bauxite

Hook and Pull(Haulage)

Gypsum

Other

Total

38,075

27,038

13,828

10,125

8,343

2,327

21.7%

15.4%

7.9%

5.8%

4.8%

1.3%

42,064

20,594

15,309

9,334

10,556

1,980

25.6% 103,510

12.0% 101,257

12.0% 368

12.5% 177,619

20.5% 159,038

18.8% 152

9.3% 151,756

17.5% 145,073

5.7% 127,892

14.8% 127,263

17.1%

15.0%

6.4% 25,170

2.9% 43,628

5.2% 331

1.2% 42,389

4.9% 38,837

4.6%

22,114

12.6%

14,977

9.1% 60,030

6.9% 60,625

7.1% 368

$175,440

100.0% $164,571

100.0% 866,017

100.0% 846,758

100.0% 203

415

129

106

242

247

194

ARG’s freight revenues were $175.4 million in the year ended December 31, 2002, compared to $164.6 million in the year ended
December 31, 2001, an increase of $10.8 million or 6.6%. This increase was primarily attributable to increases in iron ores of
$6.4 million, grain of $4.7 million and a net increase in other and other ores and minerals of $3.1 million, offset by decreases in
alumina of $1.5 million and hook and pull of $2.2 million. Freight revenues from hauling iron ores were up primarily due to
expansion by one of ARG’s major iron ores customers. Freight revenues from hauling grain were up primarily due to a better

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

3 1

harvest in Western Australia, offset by lower grain revenues in South Australia due to a weaker harvest. Freight revenues from
hauling alumina were down due to lowered rates after new contracts went into effect with major customers. The decline in hook
and pull was primarily business that was handled for two Australian companies prior to their joint acquisition of Pacific National.

Total ARG carloads were 866,017 in the year ended December 31, 2002 compared to 846,758 in the year ended December 31,
2001, an increase of 19,259 or 2.3%. The average revenue per carload increased to $203 in the year ended
December 31, 2002, compared to $194 per carload in the year ended December 31, 2001, an increase of 4.6%.

ARG’s non-freight railroad revenues were $31.0 million in the year ended December 31, 2002 compared to $17.3 million in the
year ended December 31, 2001, an increase of $13.7 million or 79.4%. This increase included $13.4 million of revenues from the
construction of the Alice Springs to Darwin rail line. The Alice Springs to Darwin construction-related revenue is expected to
continue into the third quarter of 2003 at which point ARG’s role in the project will be as a contracted operator and the revenue
contribution will be significantly reduced.

ARG Operating Expenses

ARG’s operating expenses were $160.0 million in the year ended December 31, 2002, compared to $134.3 million in the year
ended December 31, 2001, an increase of $25.7 million or 19.1%. The following table sets forth a comparison of Australian
Railroad Group’s operating expenses in the years ended December 31, 2002 and 2001:

Australian Railroad Group
Operating Expense Comparison
Years Ended December 31, 2002 and 2001
(U.S. dollars in thousands)

Transportation

Maintenance of ways and structure

Maintenance of equipment

General and administrative

Net gain on sale and impairment of assets

Depreciation and amortization

Total operating expenses

2002

2001

% of
Operating
Revenue

$ 59,110

28.6% $ 53,552

27,680

23,187

33,106

(314)

17,191

13.4%

11.2%

16.2%

(0.2%)

8.3%

23,623

20,301

23,581

(152)

13,392

29.4%

13.0%

11.2%

13.0%

(0.1%)

7.4%

$159,960

77.5% $134,297

73.9%

Transportation expense increased to $59.1 million in the year ended December 31, 2002, compared to $53.6 million in the year
ended December 31, 2001, an increase of $5.5 million or 10.4%. The primary cause of this increase was truck transportation
costs related to the Alice Springs to Darwin construction project and the transportation costs associated with increased grain
and iron ore volumes.

Maintenance of ways and structures expense increased to $27.7 million in the year ended December 31, 2002, compared to
$23.6 million in the year ended December 31, 2001, an increase of $4.1 million or 17.2%, primarily due to scheduled maintenance
being higher than in the prior year period.

General and administrative expense increased to $33.1 million in the year ended December 31, 2002, compared to $23.6 million
in the year ended December 31, 2001, an increase of $9.5 million or 40.4%. This $9.5 million increase included an increase of
$4.3 million in the cost of incidents including derailments, an increase of $1.6 million in insurance premiums, and a $2.6 million
restructuring charge related to headcount reductions and office relocation in the fourth quarter of 2002. Previously, an initial
phase of restructuring at ARG began in October 2001 and was completed in March 2002. However, those costs were part of a
plan existing at acquisition of Westrail Freight in December 2000, and were included in the basis of property, plant and
equipment and are being depreciated.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Consolidated Operating Revenues

Consolidated operating revenues (which exclude revenues from the Company’s equity investees) were $173.6 million in the year
ended December 31, 2001 compared to $206.5 million in the year ended December 31, 2000, a net decrease of $33.0 million or
16.0%. The net decrease was attributable to a $37.6 million decrease due to the deconsolidation of Australian railroad operations
as of December 16, 2000 and a $275,000 net decrease on existing North American railroad operations, offset by a $3.4 million
increase in North American railroad revenues from the October 1, 2001 acquisition of South Buffalo, and a $1.5 million increase in
industrial switching revenues.

3 2 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

The following two sections provide information on railroad revenues for North America and industrial switching revenues in the
United States.

North American Railroad Operating Revenues

Operating revenues had a net increase of $3.1 million, or 2.0%, to $161.5 million in the year ended December 31, 2001 of which
$129.9 million were freight revenues and $31.6 million were non-freight revenues. Operating revenues in the year ended Decem-
ber 31, 2000 were $158.3 million of which $126.4 million were freight revenues and $31.9 million were non-freight revenues. The
net increase in operating revenue was attributable to a $3.5 million increase in freight revenues which consisted of $2.8 million in
freight revenue from South Buffalo and a $643,000 increase on existing North American railroad operations, offset by a $362,000
decrease in non-freight revenues which consisted of $556,000 in non-freight revenue from South Buffalo offset by a $918,000
decrease on existing North American railroad operations. The following table compares North American freight revenues, car-
loads and average freight revenues per carload for the years ended December 31, 2001 and 2000:

North American Freight Revenues and Carloads Comparison by Commodity Group
Years Ended December 31, 2001 and 2000
(dollars in thousands, except average per carload)

Commodity Group

Coal, Coke & Ores

Minerals & Stone

Pulp & Paper

Petroleum Products

Metals

Farm & Food Products

Lumber & Forest Products

Chemicals-Plastics

Autos & Auto Parts

Other

Totals

Freight Revenues

Carloads

2001

% of
Total

2000

% of
Total

2001

% of
Total

2000

% of
Total

Average
Freight
Revenue
Per Carload
2000
2001

$ 28,081

21.6% $ 25,987

20.6% 128,286

33.1% 117,189

31.2% $219

$222

19,439

18,663

16,971

11,239

10,008

8,846

8,359

2,499

5,756

15.0%

14.4%

13.1%

8.7%

7.7%

6.8%

6.4%

1.9%

4.4%

17,901

19,653

18,221

10,069

9,653

7,827

8,800

3,148

5,113

14.2% 43,615

11.2% 42,146

11.2% 446

15.6% 49,033

12.6% 51,753

13.8% 381

14.4% 27,541

7.1% 30,075

8.0% 616

8.0% 40,679

10.5% 36,554

9.7% 276

7.6% 28,205

7.3% 27,710

7.4% 355

6.2% 26,727

6.9% 25,426

6.8% 331

7.0% 16,574

4.3% 16,985

4.5% 504

2.5%

5,283

1.4%

5,849

1.6% 473

3.9% 22,040

5.6% 21,438

5.8% 261

$129,861

100.0% $126,372

100.0% 387,983

100.0% 375,125

100.0% 335

425

380

606

275

348

308

518

538

239

337

Coal, Coke and Ores revenue increased by $2.1 million, or 8.1%, primarily due to hauling additional carloads of Coal on existing
railroad operations for customers operating in the electric utility industry.

Minerals and Stone revenue increased by $1.5 million, or 8.6%, primarily due to hauling additional carloads of Salt on existing
railroad operations as the result of a new salt mine customer which began shipping in May 2001.

Pulp and Paper revenue decreased by $1.0 million, or 5.0%, primarily due to a decrease of 2,720 carloads hauled in 2001
resulting from a business decline in the Pulp and Paper industries located on the Company’s Oregon, New York-Pennsylvania and
Canada railroad operations.

Petroleum Products revenue decreased by $1.3 million, or 6.9%, primarily due to a decrease of 2,534 carloads hauled in 2001 for
Petroleum Products industries located on the Company’s Mexico railroad operations due to a weakening Mexican economy and
shifting traffic patterns.

Metals revenue increased by a net $1.2 million, or 11.6%, primarily due to $1.4 million in freight revenue from South Buffalo,
offset by a $222,000 decrease on existing railroad operations.

Lumber and Forest Products revenue increased by $1.0 million, or 13.0%, primarily due to an increase of 1,301 carloads hauled
in 2001 for lumber and forest products industries located on the Company’s Oregon and New York-Pennsylvania railroad
operations.

Freight revenues from all remaining commodities reflected a net decrease of $92,000, after consideration of $1.4 million of mostly
Auto and Auto Parts revenue from South Buffalo during its 13 weeks of operations as part of the Company.

Total North American carloads were 387,983 in the year ended December 31, 2001 compared to 375,125 in the year ended
December 31, 2000, an increase of 12,858 or 3.4%. The increase of 12,858 consisted of 9,652 carloads from South Buffalo and
10,584 carloads of coal on existing railroad operations, offset by a net decrease of 7,378 carloads in all other commodities
combined on existing railroad operations.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

3 3

The overall average revenue per carload decreased to $335 in the year ended December 31, 2001, compared to $337 per
carload in the year ended December 31, 2000, a decrease of 0.6%, due primarily to a 1.4% decrease in per carload revenues
attributable to coal resulting from volume discounts.

North American non-freight railroad revenues were $31.6 million in the year ended December 31, 2001, compared to $31.9 million
in the year ended December 31, 2000, a decrease of $362,000, or 1.1%, which consisted of $556,000 in non-freight revenue
from South Buffalo offset by a $918,000 decrease on existing North American railroad operations. The following table compares
North American non-freight revenues for the years ended December 31, 2001 and 2000:

North American Railroad
Non-Freight Operating Revenues Comparison
Years Ended December 31, 2001 and 2000
(dollars in thousands)

Railroad switching

Car hire and rental income

Car repair services

Other operating income

Total non-freight revenues

% of Non-
freight
Total

2001

% of Non-
freight
Total

2000

$ 8,785

27.8% $11,340

7,484

3,135

12,180

23.7%

9.9%

38.6%

7,969

3,019

9,618

35.5%

24.9%

9.5%

30.1%

$31,584

100.0% $31,946

100.0%

The net decrease of $2.6 million in railroad switching revenues is primarily attributable to a decrease of $3.1 million from
passenger train operations in Mexico, offset by an increase of $531,000 in switching revenues from operations in the United
States of which $413,000 is revenue from South Buffalo.

The increase of $2.6 million in other operating income is primarily attributable to a $1.1 million increase in storage and demurrage
of which $93,000 is revenue from South Buffalo and $1.0 million is from existing railroad operations, and a $1.1 million increase in
other income. The increase in other income consists primarily of a $420,000 increase in management fee revenue on existing
railroad operations related to coal unloading facilities, and $398,000 of revenue from the Company’s start-up logistics operation,
Speedlink, for which operations ceased in September 2001.

U.S. Industrial Switching Revenues

Revenues from U.S. industrial switching activities were $12.1 million in the year ended December 31, 2001 compared to
$10.6 million in the year ended December 31, 2000, an increase of $1.5 million, or 14.7%, due primarily to the addition of several
new switching contracts in 2001.

Consolidated Operating Expenses

Consolidated operating expenses for all operations were $150.6 million in the year ended December 31, 2001, compared to
$182.8 million in the year ended December 31, 2000, a net decrease of $32.2 million, or 17.6%. The decrease was attributable to
a $37.7 million decrease due to the deconsolidation of Australian railroad operations on December 16, 2000, offset by a
$1.3 million increase in industrial switching operating expenses, and a $4.2 million increase in North American railroad operating
expenses of which $2.4 million was attributable to the Company’s start-up logistics operation, Speedlink, for which operations
ceased in September 2001, and $1.9 million resulted from the October 1, 2001 acquisition of South Buffalo, offset by a $108,000
decrease in existing North American railroad operations.

Operating Ratios

The Company’s consolidated operating ratio improved to 86.8% in the year ended December 31, 2001 from 88.5% in the year
ended December 31, 2000. The operating ratio for North American railroad operations declined to 86.1% in the year ended
December 31, 2001 from 85.2% in the year ended December 31, 2000. The operating ratio for U.S. industrial switching
operations improved to 96.0% in the year ended December 31, 2001 from 97.7% in the year ended December 31, 2000. The
operating ratio for Australian railroad operations was 89.4% in 2000 (excluding the $4.0 million stock option charge).

The following two sections provide information on railroad expenses in North America and industrial switching expenses in the
United States.

3 4 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

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, 2001 and 2000:

North American Railroad
Operating Expense Comparison
Years Ended December 31, 2001 and 2000
(dollars in thousands)

Labor and beneﬁts

Equipment rents

Purchased services

Depreciation and amortization

Diesel fuel

Casualties and insurance

Materials

Net (gain) loss on sale and impairment of assets

Other expenses

Total operating expenses

2001

2000

Percent
of
Operating
Revenue

Dollars

Percent
of
Operating
Revenue

Dollars

$ 55,902

34.7% $ 54,212

18,188

11,942

12,139

11,596

6,779

10,560

(814)

12,687

11.2%

7.4%

7.5%

7.2%

4.3%

6.5%

(0.5%)

7.8%

19,787

10,805

11,068

12,888

6,111

10,226

9,677

34.2%

12.5%

6.8%

7.0%

8.1%

3.9%

6.5%

0.1%

6.1%

$138,979

86.1% $134,815

85.2%

Labor and benefits expense increased $1.7 million, or 3.1%, of which $945,000 was attributable to South Buffalo, $252,000 was
attributable to the Company’s start-up logistics operation, Speedlink, for which operations ceased in September 2001, and
$493,000 was on existing North American railroad operations.

Purchased services increased a net $1.1 million, or 10.5%, of which $139,000 was attributable to South Buffalo and $1.3 million
was attributable to Speedlink, offset by a $334,000 decrease on existing North American railroad operations.

Depreciation and amortization expense increased $1.1 million, or 9.7%, of which $150,000 was attributable to South Buffalo and
$921,000 was on existing North American railroad operations. Pursuant to adopting SFAS No. 142 on January 1, 2002, goodwill
will no longer be amortized (see Note 21 to Consolidated Financial Statements).

Diesel fuel expense decreased a net $1.3 million, or 10.0%, of which $1.4 million was a decrease on existing North American
railroad operations resulting primarily from decreased fuel prices in 2001, offset by $52,000 of expense attributable to South
Buffalo.

Net gain on sale and impairment of assets increased $855,000 due primarily to gains from asset sales on the Company’s New
York-Pennsylvania railroad operations (see Note 2 to Consolidated Financial Statements).

All remaining operating expenses combined increased $2.4 million, or 5.3%, of which $625,000 was attributable to South Buffalo,
$839,000 was attributable to Speedlink, and $1.0 million was on existing North American operations.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

3 5

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, 2001 and 2000:

U.S. Industrial Switching
Operating Expense Comparison
Years Ended December 31, 2001 and 2000
(dollars in thousands)

Labor and beneﬁts

Equipment rents

Purchased services

Depreciation and amortization

Diesel fuel

Casualties and insurance

Materials

Other expenses

Total operating expenses

2001

2000

Percent
of
Operating
Revenue

Dollars

Percent
of
Operating
Revenue

Dollars

$ 8,061

66.4% $ 6,419

60.7%

289

392

617

464

294

702

824

2.4%

3.2%

5.1%

3.8%

2.4%

5.8%

6.9%

239

335

658

542

529

643

970

2.3%

3.2%

6.2%

5.1%

5.0%

6.1%

9.1%

$11,643

96.0% $10,335

97.7%

Labor and benefits expense increased $1.6 million, or 25.6%, due primarily to the addition of several new switching contracts in
2001.

All other expenses were $3.6 million in the year ended December 31, 2001, compared to $3.9 million in the year ended
December 31, 2000, a decrease of $334,000, or 8.5%, due primarily to a $235,000 net decrease in casualties and insurance
which resulted from the settlement of a long-standing claim for $350,000 less than the Company’s recorded accrual, offset by a
$115,000 increase in actual 2001 casualties and insurance expense.

Interest Expense

Interest expense in the year ended December 31, 2001, was $10.0 million compared to $11.2 million in the year ended
December 31, 2000, a decrease of $1.2 million, or 10.5%, primarily due to a decrease in debt and lower interest rates in 2001,
offset by new borrowings to acquire South Buffalo.

Gain on 50% Sale of Australia Southern Railroad

The Company 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 and a related net $3.0 million increase of that gain in 2001 (see Note
3 to Consolidated Financial Statements).

Valuation Adjustment of U.S. Dollar Denominated 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. 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, 2001, was $578,000 compared to $3.0 million in the year ended Decem-
ber 31, 2000, a decrease of $2.4 million, or 80.9%. Other income, net, in the year ended December 31, 2001 consists primarily of
interest income of $1.1 million, offset by currency losses of $508,000 on Australian dollar denominated receivables. Other
income, net, in the year ended December 31, 2000, consisted primarily of interest income of $2.3 million. The decrease in interest
income in the year ended December 31, 2001, is primarily due to a partial year of earnings compared to a full year of earnings in
the year ended December 31, 2000 on a special deposit at the Company’s Mexican subsidiary.

3 6 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

Income Taxes

The Company’s effective income tax rate in the years ended December 31, 2001 and 2000 was 37.6% and 43.9%, respectively.
The decrease in 2001 is partially attributable to a lower Australian income tax rate (30%) recorded on the $3.0 million one-time
gain on the sale of 50% of its interest in APTC. 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
positive impact of a favorable tax law change in Australia.

Without the impact of these items, the Company’s effective income tax rate in the year ended December 31, 2000, was 35.8%.

Equity in Net Income of Unconsolidated International Affiliates

Equity earnings of unconsolidated international affiliates in the year ended December 31, 2001, were $8.9 million compared to
$411,000 in the year ended December 31, 2000, an increase of $8.5 million. Equity earnings in the year ended December 31,
2001, consist of $8.5 million from Australian Railroad Group and $412,000 from South America affiliates. 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 through December 31, 2000.

Net Income and Earnings Per Share

The Company’s net income for the year ended December 31, 2001, was $19.1 million compared to net income in the year ended
December 31, 2000, of $13.9 million, an increase of $5.2 million, or 37.0%. The increase in net income is the net result of an
increase in equity earnings of unconsolidated affiliates of $8.5 million and a decrease in the net loss of industrial switching of
$83,000, offset by a decrease in net income from existing North American railroad operations of $3.2 million and a decrease in
net income from Australian railroad operations of $204,000 due to its deconsolidation.

Basic and Diluted Earnings Per Share in the year ended December 31, 2001, were $1.72 and $1.48, respectively, on weighted
average shares of 10.5 million and 12.9 million, respectively, compared to $1.42 and $1.38, respectively, on weighted average
shares of 9.8 million and 10.1 million in the year ended December 31, 2000. The earnings per share and weighted average shares
outstanding for the years ended December 31, 2001 and 2000 are adjusted for the impact of the March 14, 2002 and June 15,
2001 stock splits (see Note 2 to Consolidated Financial Statements). The increase in weighted average shares outstanding for
Basic Earnings Per Share of 731,000 is primarily attributable to the exercise of employee stock options in 2001, and the impact
of the December 21, 2001, offering of common stock (see Note 11 to Consolidated Financial Statements). The increase in
weighted average shares outstanding for Diluted Earnings Per Share of 2.8 million is primarily attributable to the above impact
and the dilutive impact of the common stock equivalents associated with the Mandatorily Redeemable Convertible Preferred
Stock issued in December 2001 and December 2000, (26,802 and 1,956,522 weighted average shares, respectively).

Liquidity and Capital Resources

During 2002, 2001 and 2000, the Company generated $27.6 million, $28.6 million and $23.5 million, respectively, of cash from
operations. The decrease from 2001 to 2002 was primarily due to the net increase in non-cash working capital during 2002
compared to the net decrease in non-cash working capital during 2001, offset by higher cash earnings in 2002. The 2001
increase over 2000 was primarily due to the net decrease in non-cash working capital during 2001 compared to the increase in
non-cash working capital in 2000, offset by lower cash earnings in 2001.

Cash flows from investing activities included capital expenditures of $22.3 million (inclusive of $2.0 million for the locomotive
upgrade project), $16.6 million and $29.3 million in 2002, 2001 and 2000, respectively. Of these expenditures, $7.9 million,
$4.5 million and $14.8 million were for equipment and rolling stock in 2002, 2001 and 2000, respectively. The remaining capital
expenditure amounts each year were for track improvements and are net of funds received under governmental grants of
$9.0 million, $3.9 million and $8.9 million in 2002, 2001 and 2000, respectively. Year 2002 cash flows from investing activities
included $55.7 million for the acquisition of Utah Railway Company, $29.4 million for the acquisition of Emons Transportation
Group, Inc., and $263,000 in cash received from unconsolidated affiliates. Year 2001 cash flows from investing activities included
$33.1 million for the acquisition of South Buffalo Railway Company, $246,000 of investments in unconsolidated affiliates, and
$4.3 million in cash received from unconsolidated affiliates. Year 2000 cash flows from investing activities included $29.4 million
of investments in unconsolidated affiliates and $2.6 million of proceeds from the issuance of minority shares in consolidated
affiliates.

Cash flows from financing activities included a net increase in outstanding debt of $61.6 million in 2002, a net decrease in
outstanding debt of $43.0 million in 2001 and a net increase in outstanding debt of $6.4 million in 2000. Common stock activity
resulted in net cash inflows of $3.1 million, $71.6 million and $2.2 million, in 2002, 2001 and 2000, respectively. Year 2001 and
2000 cash flows from financing activities also included $4.8 million and $18.8 million, respectively, of net proceeds from the
Company’s respective December 2001 and December 2000 issuances of Mandatorily Redeemable Convertible Preferred Stock,
and 2002 and 2001 included $1.0 million and $855,000, respectively, of dividends paid on the Preferred.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

3 7

will be made in Canadian dollars. Under the terms of the financing, the Company may expand the size of the facilities to
$350.0 million if certain criteria are met in the future. The new $250.0 million facilities were used to refinance approximately
$100.0 million of existing debt at the Company’s U.S. and Canadian subsidiaries. The remaining $150.0 million of unused
borrowing capacity are available for general corporate purposes including acquisitions. In conjunction with refinancing, the
Company recorded a non-cash after tax extraordinary charge of $375,000 related to the write off of unamortized deferred
financing costs of the retired debt.

The Canadian term loan is due in quarterly installments beginning March 31, 2003, and matures, along with the revolving credit
facilities, on September 30, 2007. The credit facilities accrue interest at rates based on various indices plus an applicable margin,
which varies from 1.75 to 2.5 percentage points depending upon the ratio of the Company’s funded debt to Earnings Before
Interest, Taxes, Depreciation, Amortization and Operating Leases (EBITDAR), as defined in the credit agreement. 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
depending on the Company’s funded debt to EBITDAR ratio. The credit agreement requires mandatory prepayments from the
issuance of new equity or debt and from the proceeds of asset sales that are not reinvested in capital assets in certain periods of
time, as defined in the agreement. 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, interest coverage, minimum net worth, and maximum capital expenditures, all as defined in the
agreement. The Company and its subsidiaries were in compliance with the provisions of these covenants as of December 31,
2002.

During 2001, the Company completed two amendments to its primary credit agreement (neither of which affected the terms of
the debt) to facilitate the Company’s acquisition of South Buffalo, the issuance of Class A Common Stock, and the acquisition of
Emons. During 2000, the Company completed four amendments to its primary credit agreement to facilitate the Company’s
corporate restructuring and refinancing of its Mexico operations, the issuance of Convertible Preferred stock, and the sale of a
50% interest in ASR. As amended, and before the change in terms on October 31, 2002, the Company’s primary credit
agreement consisted of a $135.0 million credit facility with $103.0 million in revolving credit facilities and $32.0 million in term
loan facilities. The term loan facilities consisted 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.

On December 7, 2000, one of the Company’s subsidiaries in Mexico, Servicios, entered into three promissory notes payable
totaling $27.5 million with variable interest rates based on LIBOR plus 3.5 percentage points. 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 Septem-
ber 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 by essentially all the assets of Servicios
and FCCM, and a pledge of the Company’s shares of Servicios and FCCM. The Company is obligated to provide up to
$8.0 million of funding to its Mexican subsidiaries, if necessary, to meet their investment or financial obligations prior to
completing the investment phase of the project funded by the promissory notes (‘‘Physical Completion’’), consisting of several
obligations related to capital investments, operating performance and management systems and controls, as defined in the loan
agreements. After Physical Completion, the Company is obligated to provide up to $7.5 million of funding, if necessary, to
Servicios to meet its debt service obligations prior to completing the financial phase of the project (‘‘Financial Completion’’),
consisting of several financial performance thresholds, as defined in the loan agreements. The Company has not been required to
provide funds to its Mexican subsidiaries pursuant to either of these obligations as of December 31, 2002. The promissory notes
contain certain financial covenants which Servicios is in compliance with as of December 31, 2002.

On October 31, 2002, in conjunction with refinancing of its senior secured credit facilities, the Company paid the balance of
$6.8 million on its promissory note to CSX Transportation, Inc. Previously, in October 2000, the Company had amended and
restated its promissory note after making a $1.0 million discretionary principal payment, by refinancing $7.9 million at 8% with
interest due quarterly 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 amendment and restatement, the promissory note payable provided for annual
principal payments of $1.2 million provided 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.

In November 2001, the Company completed a universal shelf registration of up to $200.0 million of various debt and equity
securities. The form and terms of such securities shall be determined when and if these securities are issued. On December 21,
2001, as an initial draw on the shelf registration, the Company sold 3.9 million shares of Class A Common Stock in a public
offering at a price of $18.50 per share for net proceeds of $66.5 million. The proceeds were used to pay off all revolving debt
under the Company’s primary credit agreement and for general corporate purposes.

In December 2000, to fund its cash investment in ARG, the Company completed a private placement of Mandatorily Redeemable
Convertible Preferred Stock. The Company exercised its option to take down $20.0 million of a possible $25.0 million in gross
proceeds from the Convertible Preferred. In December 2001, upon final approval by the Surface Transportation Board of the
Company’s acquisition of South Buffalo Railway, the Fund exercised the option it had received in December 2000 to purchase an
additional $5.0 million in the Company through the private placement of Mandatorily Redeemable Convertible Preferred Stock
(See Note 12 to Consolidated Financial Statements).

3 8 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

Company entered into an agreement with this financial institution to lease this rolling stock for a period of eight years including
automatic renewals.

The Company anticipates renewing the above-mentioned lease at all available lease renewal dates. If the Company chooses not
to renew this and certain other leases, it would be obligated to return the rolling stock and pay maximum aggregate fees of
approximately $8.6 million. Under certain of these leases, in lieu of this payment, the Company has the option to purchase the
rolling stock for approximately $16.3 million in aggregate. Management anticipates the future market value of the leased rolling
stock will equal or exceed the payments necessary to purchase the rolling stock.

At December 31, 2002 the Company had long-term debt, including current portion, totaling $125.4 million, which comprised
34.9% of its total capitalization including the Convertible Preferred. At December 31, 2001 the Company had long-term debt,
including current portion, totaling $60.6 million, which comprised 22.4% of its total capitalization including the Convertible
Preferred.

The Company’s railroads have entered into a number of rehabilitation or construction grants with state and federal agencies. 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 constructed. The Company
believes that the levels of service and maintenance required under the grants are not materially different from those that would be
required without the grant obligation. In addition to government grants, customers occasionally provide fixed funding of certain
track rehabilitation or construction projects to facilitate the Company’s service over that track. The Company records any
excesses in the fixed funding compared to the actual cost of rehabilitation and construction as gains in the current period. While
the Company has benefited from these grant funds in recent years, including 2002 and 2001, there can be no assurance that the
funds will continue to be available.

On December 7, 2000, in conjunction with the refinancing 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 interest liability. This put option may result in a future cash outflow of the Company.

The Company has budgeted approximately $23.1 million in capital expenditures in 2003, primarily for track rehabilitation and $4.1
for the locomotive upgrade project. The $23.1 million in capital expenditures is net of $2.3 million that is expected to be funded
by rehabilitation grants from state and federal agencies to several of the Company’s railroads.

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 liquidity and capital expenditure requirements relating to ongoing operations
for at least the duration of the credit facilities.

The Company has the potential to draw on its remaining universal shelf registration up to $128.5 million of various debt and
equity securities. The form and terms of such securities shall be determined when and if these securities are issued.

Supplemental Information — Australian Railroad Group

ARG’s debt of $328.3 million, used for the acquisition of Westrail Freight and subsequent capital expenditures, consists of a
3-year facility of $133.3 million due December 18, 2003, a 5-year facility of $133.3 million due December 18, 2005, and a 5-year
facility of $61.7 million for capital expenditures due December 18, 2005 (‘‘the Capital Facility’’). The debt due in 2003 has been
classified as a current liability in ARG’s balance sheet. As of December 31, 2002, $53.4 million ($6.3 million as of December 31,
2001) of the amount drawn on the Capital Facility was Restricted Cash, as defined in the Credit Facility. Once restricted, the cash
may only be used for capital expenditures as defined under the Credit Facility, up to a maximum of $16.8 million in 2003 and
without restriction thereafter. Any restricted cash not used for capital expenditures during the period of December 2003 to
December 2005 may be used to retire bank debt. ARG management expects that $16.8 million of its budgeted 2003 capital
expenditures of $50.8 million will be funded from currently restricted cash. ARG plans to re-finance all or the current portion of
the outstanding debt in 2003.

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Contractual Obligations and Commercial Commitments

The following table represents the Company’s obligations and commitments for future cash payments under debt and lease
agreements as of December 31, 2002:

Year

2003

2004

2005

2006

2007

Thereafter

Total

Debt

Leases

Total

6,116

$ 9,433

$ 15,549

6,510

6,078

6,061

93,926

6,726

8,518

7,516

6,921

6,256

4,921

15,028

13,594

12,982

100,182

11,647

$125,417

$43,565

$168,982

Critical Accounting Policies and Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to use
judgment and to make estimates and assumptions that affect reported assets, liabilities, revenues and expenses; actual results
may differ from such estimates. The diversity of the Company’s services, customers, geographic operations, sources of supply
and markets reduces the risk that any one event would have a severe impact on the Company’s operating results. Those areas
requiring the greatest degree of management judgment or deemed most critical to the Company’s financial reporting are
discussed below.

Management has discussed the development and selection of the critical accounting estimates described below with the Audit
Committee of the Board of Directors and the Audit Committee has reviewed the Company’s disclosure relating to it in this
Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Goodwill and Intangible Assets Acquired in Business Combinations

The valuation of intangible assets acquired in business combinations requires management to use judgment and make estimates
that are critical to the Company’s financial reports. The Company adopted Statement of Financial Accounting Standards No. 142
(SFAS No. 142) as of January 1, 2002. Under this pronouncement, a two-step goodwill impairment model is used. Step 1
compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit is
less than the carrying amount, goodwill would be considered impaired and Step 2 measures the goodwill impairment as the
excess of recorded goodwill over its implied fair value. The Company tests impairment on an annual basis or when specific
triggering events occur.

Recoverability and Realization of Tangible Assets

The Company continually evaluates whether events and circumstances have occurred that indicate that its long-lived tangible
assets may not be recoverable. When factors indicate that assets should be evaluated for possible impairment, the Company
uses an estimate of the related undiscounted future cash flows over the remaining lives of assets in measuring whether or not
impairment has occurred. If 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. The
Company closely monitors its assets in foreign operations where fluctuating currencies and unsettled economic conditions can
create greater uncertainty. The Company adopted SFAS No. 144 ‘‘Accounting for the Impairment or Disposal of Long-lived
Assets’’ effective January 1, 2002.

Financial Risk Management

The Company actively monitors its exposure to interest rate and foreign currency exchange rate risks and uses derivative
financial instruments to manage the impact of certain of these risks. The Company uses derivatives only for purposes of
managing risk associated with underlying exposures. The Company does not trade or use instruments with the objective of
earning financial gains on the interest rate or exchange rate fluctuations alone, nor does it use instruments where there are not
underlying exposures. Complex instruments involving leverage or multipliers are not used. Management believes that its use of
derivative instruments to manage risk is in the Company’s best interest. However, the Company’s use of derivative financial
instruments may result in short-term gains or losses and increased earnings volatility.

Derailment and Property Damages, Personal Injuries and Third Party Claims

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personal injury or other claims, limited when appropriate to the applicable deductible, are estimated and recorded when such
claims are incurred.

Pensions and Other Post-Retirement Benefits

The Company administers two noncontributory defined benefit plans for union and non-union employees of two U.S. subsidiaries,
one of which was implemented in conjunction with the acquisition of South Buffalo. Benefits are determined based on a fixed
amount per year of credited service. The Company’s funding policy is to make contributions for pension benefits based on
actuarial computations which reflect the long-term nature of the plans. The Company has met the minimum funding requirements
according to the Employee Retirement Income Security Act. The plan assets are managed by Registered Investment Companies
that invest in Balanced Asset Funds, none of which are invested in the Company’s stock. On January 31, 2002, the Company
froze the defined benefit plan for non-union employees. Effective that date, new employees will not be eligible to participate in
this plan, and future earnings for current participants will not be eligible in the computation of benefits for those participants.

The Company provides health care and life insurance benefits for certain retired employees including 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. As of
December 31, 2002, there were 104 current or retired employees eligible for these health care and life insurance benefits. Thirty-
five of the employees currently participate and the remaining sixty-nine employees may become eligible for these benefits upon
retirement if certain combinations of age and years of service are met. The Company funds the plans on a pay-as-you-go basis.

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 appropriate income tax returns in their respective countries. No provision is made for the U.S. income
taxes applicable to the undistributed earnings of controlled foreign subsidiaries as it is the intention of management to utilize
those earnings in the operations of the foreign subsidiaries. If the earnings were to be distributed in the future, those distributions
may be subject to U.S. income taxes (appropriately reduced by available foreign tax credits) and withholding taxes payable to
various foreign countries. The amount of undistributed earnings of the Company’s controlled foreign subsidiaries as of Decem-
ber 31, 2002 is $32.5 million. It is not practicable to determine the amount of U.S. income and foreign withholding taxes payable
if a distribution of earnings were to occur.

Deferred income taxes reflect the net income tax 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.
In the Company’s balance sheets, these deferred benefits and deferred obligations are classified as current or non-current based
on the classification 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
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, 2002 and 2001 of $21.2 million and $18.1 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 2012. The Company had net operating loss carry-forwards from its Canadian
operations as of December 31, 2002 and 2001 of $1.1 million and $1.1 million, respectively. The Canadian losses primarily
represent losses generated prior to the Company gaining control of those operations in April 1999. These loss carry-forwards will
expire between 2004 and 2006.

In 1999, the Australian government enacted a law allowing the Company to deduct, for income tax purposes, depreciation in
excess of the financial reporting basis of certain fixed assets it acquired from the government in November 1997. At the time,
management estimated the Company would be unable to fully realize all of the potential income tax benefits and recorded a
partial valuation allowance against the deferred tax assets. The net income tax benefit recorded in 1999 as a result of this tax law
change was $4.2 million. During 2000, management revised its assessment of the likelihood this tax benefit would be realized.
The 2000 reassessment resulted in a decrease in the valuation allowance of $1.0 million. Pursuant to the deconsolidation of ASR,
the deferred tax assets and related valuation allowance are no longer included in the consolidated results of the Company.

As of December 31, 2002 and 2001, the income tax benefit of the Canadian net operating losses has been offset by a valuation
allowance. Management does not anticipate sufficient taxable income, in amount or character, to utilize the losses prior to
expiration. A portion of the valuation allowance was established in the acquisition of GRO, and accordingly, if reversed will result
in a decrease to goodwill. Management does not believe 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.

Depreciation

Due to the capital-intensive nature of the railroad industry, depreciation expense is a significant component of the Company’s
operating expense. The Company recorded depreciation and amortization expense of $13.6 million, $12.8 million and $14.0 mil-
lion for the years ended December 31, 2002, 2001 and 2000, respectively. At December 31, 2002 and 2001, the Company had
property and equipment, net balances of $264.7 million and $199.1 million which include $72.5 million and $59.1 million,
respectively, of accumulated depreciation.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

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Property and equipment are carried at historical cost. Acquired railroad property is recorded at the allocated cost. Major
renewals or betterments are capitalized while routine maintenance and repairs are charged to expense when incurred. Deprecia-
tion is provided on the straight-line method over the useful lives of the road property (20-50 years) and equipment (3-20 years).

Management believes that full consideration has been given to all relevant circumstances that the Company may be currently
subject to, and the financial statements accurately reflect management’s best estimate of the results of operations, financial
condition and cash flows of the Company for the years presented.

Risk Factors of Foreign Operations

(cid:2) changes or greater volatility in the economies of those countries,

(cid:2) effects of currency exchange controls,

(cid:2) changes to the regulatory environment of those countries,

(cid:2) changes to the tax laws and regulations of those countries,

(cid:2) restrictions on the withdrawal of foreign investment and earnings,

(cid:2) the nationalization of the businesses that the Company operates,

(cid:2) the actual or perceived failure by the Company to fulfill commitments under concession agreements,

(cid:2) the potential instability of foreign governments, including from domestic insurgency, and

(cid:2) the challenge of managing a culturally and geographically diverse operation.

ARG derives a significant portion of its rail freight revenues from shipments of grain. For example, for the years ended Decem-
ber 31, 2002 and 2001, grain shipments in South Australia and Western Australia generated approximately 26.0 % and 27.4%,
respectively, of ARG’s operating revenues. A decrease in grain shipments as a result of adverse weather or other negative
agricultural conditions could have a material effect on the Company’s income from ARG and financial condition. For example,
drought conditions during the 2002 growing season are expected to result in a significant reduction in ARG’s grain shipments in
2003.

When ARG operates over track networks owned by others, including Commonwealth-owned and State-owned networks, the owners of the
network rather than the operators are responsible for scheduling the use of the tracks as well as for determining the amount and timing of the
expenditures necessary to maintain the network in satisfactory condition. Therefore, in areas where ARG operates over tracks owned by others, it is
subject to train scheduling set by the owners as well as the risk that the network not adequately maintained.

The results of operations of the Company’s foreign operations are reported in the local currency — the Australian dollar, the
Canadian dollar and the Mexican peso — and then translated into U.S. dollars at the applicable exchange rates for inclusion in
the Company’s financial statements. The functional currency of the Company’s Bolivian operations is the U.S. dollar. The
exchange rates between some of these currencies and the U.S. dollar have fluctuated significantly in recent years and may
continue to do so in the future. In addition, because the Company’s financial statements are stated in U.S. dollars, the translation
effect of such fluctuations may affect the Company’s results of operations and financial position and may affect the comparability
of the Company’s results between financial periods.

4 2 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

Recently Issued Accounting Standards

The Financial Accounting Standards Board (FASB) recently issued the following Statements of Financial Accounting Standards
(SFAS):

FASB 141 — ‘‘Business Combinations’’

Under SFAS No. 141, all business combinations initiated after June 30, 2001 must be accounted for using the purchase method
of accounting. Use of the pooling-of-interests method is prohibited. Additionally, Statement No. 141 requires that certain
intangible assets that can be identified and named be recognized as assets apart from goodwill. SFAS No. 141 was issued in
June 2001 and is effective for all business combinations initiated after June 30, 2001. The Company adopted SFAS No. 141 on
July 1, 2001.

FASB 142 — ‘‘Goodwill and Other Intangible Assets’’

Under SFAS No. 142, goodwill and intangible assets that have indefinite useful lives will not be amortized but rather will be tested
at least annually for impairment. Intangible assets that have finite useful lives will continue to be amortized over their useful lives.
SFAS No. 142 was issued in June 2001 and is effective for fiscal years beginning after December 15, 2001. In accordance with
this statement, the Company adopted SFAS 142 as of January 1, 2002 for the Service Assurance Agreement, existing goodwill
and intangible assets. The Company completed the appropriate impairment tests on goodwill and intangible assets upon
adoption of SFAS No. 142 and did not record any impairment charges.

FASB 143 — ‘‘Accounting for Asset Retirement Obligations’’

Under SFAS No. 143, the fair value of a liability for an asset retirement obligation should be recorded in the period in which it is
incurred. SFAS No. 143 was issued in June 2001 and is effective for fiscal years beginning after June 15, 2002 (with earlier
application encouraged). In accordance with this statement, the Company adopted SFAS 143 as of January 1, 2003.

FASB 144 — ‘‘Accounting for the Impairment or Disposal of Long-Lived Assets’’

Under SFAS No. 144, the financial accounting and reporting for the impairment and disposal of long-lived assets is addressed.
SFAS No. 144 supersedes SFAS No. 121, ‘‘Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of.’’ SFAS No. 144, however, retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement
of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale.
SFAS No. 144 supersedes the accounting and reporting provisions of APB Opinion No. 30 (‘‘Opinion 30’’), ‘‘Reporting the
Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infre-
quently Occurring Events and Transactions,’’ for segments of a business to be disposed of. SFAS No. 144, however, retains the
requirement of Opinion 30 to report discontinued operations separately from continuing operations and extends that reporting to
a component of an entity that either has been disposed of (by sale, by abandonment, or in a distribution to owners) or is
classified as held for sale. SFAS No. 144 was issued in August 2001 and is effective for fiscal years beginning after December 15,
2001 and interim periods within those fiscal years (with earlier application encouraged). In accordance with this Statement, the
Company adopted SFAS No. 144 on January 1, 2002 and did not record any impairment charges upon adoption.

FASB 145 — ‘‘Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections’’

Under SFAS No. 145, FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of
that Statement, and FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements are rescinded.
This Statement also rescinds FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement amends
FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-
leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed conditions. SFAS No. 145 was issued in April 2002
and the provisions of this Statement related to the rescission of Statement 4 shall be effective for the fiscal years beginning after
May 15, 2002. All other provisions of this Statement shall be effective for financial statements issued on or after May 15, 2002
with early adoption permitted. The Company is in the process of evaluating what impact, if any, this standard will have on the
Company’s Consolidated Financial Statements. The most significant change will impact the reporting of losses associated with
the write-off of deferred financing costs which are currently reported as extraordinary. The Company has elected not to adopt
this pronouncement early.

FASB 146 — ‘‘Accounting for Costs Associated with Exit or Disposal Activities’’

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4 3

and is effective for fiscal years beginning January 1, 2003 (with earlier application encouraged). The Company is in the process of
evaluating what impact, if any, this standard will have on the Company’s Consolidated Financial Statements.

FASB 148 — ‘‘Accounting for Stock-Based Compensation’’

Under SFAS No. 148, SFAS No. 123 was amended and it has implications for all entities that issue stock based compensation to
their employees. This standard provides transition guidance for companies that adopt the fair value expense provisions of SFAS
No. 123 for stock-based compensation. Even those companies that choose not to adopt the provisions of FAS 123 will be
affected by this standard. SFAS No. 148 mandates certain new disclosures that are incremental to those required by SFAS
No. 123. The standard modifies the current disclosure requirements under SFAS No. 123 to provide prominent disclosure about
the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensa-
tion. It also requires interim disclosures of the pro forma impact if SFAS No. 123 were adopted for companies that continue to
apply APB 25 for stock-based compensation. SFAS No. 148 was issued in December 2002 and is effective for fiscal years
beginning after December 15, 2002 (with earlier application encouraged). In accordance with this Statement, the Company
adopted SFAS No. 148 on December 31, 2002. This statement will have no impact on the Company’s financial statements.

FIN 45 — ‘‘Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation
No. 34’’

This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about
its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. This Interpretation does
not prescribe a specific approach for subsequently measuring the guarantor’s recognized liability over the term of the related
guarantee. This Interpretation also incorporates, without change, the guidance in FASB Interpretation No. 34 Disclosure of
Indirect Guarantees of Indebtedness of Others, which is being superseded.

This Interpretation does not apply to certain guarantee contracts: guarantees issued by insurance and reinsurance companies
and accounted for under accounting principles for those companies, residual value guarantees provided by lessees in capital
leases, contingent rents, vendor rebates, and guarantees whose existence prevents the guarantor from recognizing a sale or the
earnings from a sale. Furthermore, the provisions related to recognizing a liability at inception for the fair value of the guarantor’s
obligation do not apply to the following:

a. Product warranties

b. Guarantees that are accounted for as derivatives

c. Guarantees that represent contingent consideration in a business combination

d. Guarantees for which the guarantor’s obligations would be reported as an equity item (rather than a liability)

e. An original lessee’s guarantee of lease payments when that lessee remains secondarily liable in conjunction with being

relieved from being the primary obligor (that is, the principal debtor) under a lease restructuring

f. Guarantees issued between either parents and their subsidiaries or corporations under common control

g. A parent’s guarantee of a subsidiary’s debt to a third party, and a subsidiary’s guarantee of the debt owed to a third party

by either its parent or another subsidiary of that parent.

However, the guarantees described in (a)-(g) above are subject to the disclosure requirements of this Interpretation.

The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guaran-
tees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements in
this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The
interpretive guidance incorporated without change from Interpretation 34 continues to be required for financial statements for
fiscal years ending after June 15, 1981-the effective date of Interpretation 34.

FIN 46 — ‘‘Consolidation of Variable Interest Entities — an interpretation of ARB No. 51’’

This Interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements, addresses consolidation by
business enterprises of variable interest entities, which have one or both of the following characteristics:

1. The equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated
financial support from other parties, which is provided through other interests that will absorb some or all of the expected
losses of the entity.

2. The equity investors lack one or more of the following essential characteristics of a controlling financial interest:

a. The direct or indirect ability to make decisions about the entity’s activities through voting rights or similar rights

b. The obligation to absorb the expected losses of the entity if they occur, which makes it possible for the entity to

finance its activities

4 4 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

c. The right to receive the expected residual returns of the entity if they occur, which is the compensation for the risk of

absorbing the expected losses.

The following are exceptions to the scope of this Interpretation:

1. Not-for-profit organizations are not subject to this Interpretation unless they are used by business enterprises in an

attempt to circumvent the provisions of this Interpretation.

2. Employee benefit plans subject to specific accounting requirements in existing FASB Statements are not subject to this

Interpretation.

3. Registered investment companies are not required to consolidate a variable interest entity unless the variable interest

entity is a registered investment company.

4. Transferors to qualifying special-purpose entities and ‘‘grandfathered’’ qualifying special-purpose entities subject to the
reporting requirements of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, do not consolidate those entities.

5. No other enterprise consolidates a qualifying special-purpose entity or a ‘‘grandfathered’’ qualifying special-purpose
entity unless the enterprise has the unilateral ability to cause the entity to liquidate or to change the entity in such a way
that it no longer meets the requirements to be a qualifying special-purpose entity or ‘‘grandfathered’’ qualifying special-
purpose entity.

6. Separate accounts of life insurance enterprises as described in AICPA Auditing and Accounting Guide, Life and Health

Insurance Entities, are not subject to this Interpretation.

This Interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities
in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after
June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1,
2003. The Interpretation applies to public enterprises as of the beginning of the applicable interim or annual period, and it applies
to nonpublic enterprises as of the end of the applicable annual period.

Forward-Looking Statements

This discussion and analysis contains forward-looking statements with the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding future events and future
performance of Genesee & Wyoming Inc. Words such as ‘‘anticipates,’’ ‘‘intends,’’ ‘‘plans,’’ ‘‘believes,’’ ‘‘seeks,’’ ‘‘estimates,’’
variations of these words and similar expressions are intended to identify these forward-looking statements. These statements
are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to
forecast. Actual results may differ materially from those expressed or forecast in these forward-looking statements. These risks
and uncertainties include those noted above under the caption ‘‘Risk Factors of Foreign Operations’’, risks related to adverse
weather conditions, changes in environmental and other laws and regulations to which the Company is subject, difficulties
associated with the integration of acquired railroads, derailments, unpredictability of fuel costs and general economic and
business conditions, as well as those noted in 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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company actively monitors its exposure to interest rate and foreign currency exchange rate risks and uses derivative
financial instruments to manage the impact of certain of these risks. The Company uses derivatives only for purposes of
managing risk associated with underlying exposures. The Company does not trade or use instruments with the objective of
earning financial gains on the interest rate or exchange rate fluctuations alone, nor does it use instruments where there are not
underlying exposures. The Company’s use of derivative financial instruments may result in short-term gains or losses and
increased earnings volatility. Complex instruments involving leverage or multipliers are not used. Management believes that its
use of derivative instruments to manage risk is in the Company’s best interest.

Interest Rate Sensitivity

The tables below provide information about the Company’s derivative financial instruments and other financial instruments that
are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations, the table
presents principal payment cash flows and related weighted average interest rates by expected maturity dates, excluding the
effects of fixed-rate interest rate swaps. The variable interest rates presented below are based on implied forward rates in the
LIBOR yield curve at March 10, 2003 and include margins of approximately 2.3 percentage points in 2003 and 2.2 percentage
points thereafter. The margins represent the weighted average of 2.0 percentage points for borrowings under the Company’s
primary credit facilities and 3.5 percentage points for borrowings under promissory notes provided by the IFC and other banks.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

4 5

For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected (contrac-
tual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. There
are no margin requirements for the interest rate swaps. The information is presented in U.S. dollar equivalents, which is the
Company’s reporting currency. As of December 31, 2002, the Company’s overall effective interest rate, including the effect of
interest rate swaps, was 5.2%.

Average Effective Interest Rate, including the effect of Interest Rate Swaps

Year

Average Rate

Year

Liabilities

Expected Maturity Date

2003

2004

2005

2003

2004

2005

2006

2007

5.2% 5.4% 5.8% 6.1% 6.4%

2006
(dollars in thousands)

2007

There-
after

Total

Fair
Value

Principal Payments on Long-term Debt:

Fixed Rate Debt

Average ﬁxed interest rate

Variable Rate Debt

$ 437

$ 835

$ 403

$ 386

130

$ 894

3,085

4.2%

3.5%

3.7%

4.0%

4.1%

$5,679

$5,675

$93,796

$5,831

$122,331

Average variable interest rate(1)

3.9%

4.5%

5.5%

6.1%

6.8%

(1) Variable rates include margins of approximately 2.3 percentage points in 2003 and 2.2 percentage points in 2004 — 2007.

Interest Rate
Derivatives

Interest Rate Swaps:

Variable to Fixed

Average pay rate(1)

Average receive rate

2003

2004

2005

2006
(dollars in thousands)

2007

There-
after

Fair
Value

$58,458

$54,125

$49,791

$42,135

$22,500

($2,347)

4.4%

1.7%

4.3%

2.4%

4.2%

3.4%

4.1%

4.8%

(1) Average pay rates exclude margins of approximately 2.3 percentage points in 2003 and 2.2 percentage points in 2004 —

2007.

Exchange Rate Sensitivity

The table below summarizes information on instruments that are sensitive to foreign currency exchange rates, including the
Company’s debt facilities for its Mexican operations and the Company’s foreign currency financial instruments. For these debt
obligations, the table presents, in U.S. dollar equivalents, principal and interest cash flows and related weighted average interest
rates, excluding the effect of interest rate swaps, by expected maturity dates. For foreign currency options, the table presents the
notional amounts and weighted average exchange rates by expected maturity dates.

Functional Currency:

Liabilities

Long-Term Debt:

Variable rate debt principal

Variable rate debt interest

Total variable rate payments

Average interest rate(1)

Expected Maturity Date

2003

2004

2005

2006

2007

There-
after

Total

Fair
Value

(dollars in thousands)

$4,332

$5,840

$27,500

1,190

1,115

1,080

900

630

$5,522

$5,447

$5,412

$5,232

$4,962

4.7%

5.3%

6.5%

7.3%

7.9%

(1)

Including the margin of 3.5 percentage points and the effect of interest rate swaps in place, the average interest rate would
be approximately 9.0% in all periods.

4 6 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

Related Derivatives

Foreign Currency Options:

(Receive US$/Pay pesos):

Notional amount

Average exchange rate

Expected Maturity or Transaction Date

March 17,
2003

September 15,
2003

Total
(dollars in thousands)

Fair Value

$3,100

10.55

$3,300

11.97

$6,400

$127

—

Item 8. Financial Statements and Supplementary Data

The financial statements and supplementary financial data required by this item are listed at Part IV, Item 15 and are filed
herewith immediately following the signature page hereto.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Previously reported in Form 8-K filed with the Securities and Exchange Commission on April 11, 2002.

Item 10. Directors and Executive Officers of the Registrant

PART III

The information required by this Item is incorporated herein by reference to the Company’s proxy statement to be issued in
connection with the Annual Meeting of the Stockholders of the Company to be held on May 29, 2003 under ‘‘Election of
Directors’’ and ‘‘Executive Officers’’, which proxy statement will be filed within 120 days after the end of the Company’s fiscal
year.

Item 11. Executive Compensation

The information required by this Item is incorporated herein by reference to the Company’s proxy statement to be issued in
connection with the Annual Meeting of the Stockholders of the Company to be held on May 29, 2003 under ‘‘Executive
Compensation’’, which proxy statement will be filed within 120 days after the end of the Company’s fiscal year.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

EQUITY COMPENSATION PLAN INFORMATION

Plan Category

Equity Compensation plans approved by security holders

Equity Compensation plans not approved by security holders

Total

Number of
securities to be
used upon exercise
of outstanding
options
(a)

1,260,164

—

1,260,164

Weighted-average
exercise price of
outstanding options
(b)

$11.63

—

$11.63

Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reﬂected in
Column (a))
(c)

668,284

—

668,284

The remaining information required by this Item is incorporated herein by reference to the Company’s proxy statement to be
issued in connection with the Annual Meeting of the Stockholders of the Company to be held on May 29, 2003 under ‘‘Security
Ownership of Certain Beneficial Owners and Management’’, which proxy statement will be filed within 120 days after the end of
the Company’s fiscal year.

Item 13. Certain Relationships and Related Transactions

The information required by this Item is incorporated herein by reference to the Company’s proxy statement to be issued in
connection with the Annual Meeting of the Stockholders of the Company to be held on May 29, 2003 under ‘‘Related Transac-
tions’’, which proxy statement will be filed within 120 days after the end of the Company’s fiscal year.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

4 7

Item 14. Controls and Procedures

Within 90 days prior to the filing date of this report, the Company’s Chairman and Chief Executive Officer and Chief Financial
Officer evaluated the effectiveness of the design and operation of the Company’s ‘‘disclosure controls and procedures’’ (as
defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15(d)-14(c)). Based on that evaluation, the Company’s
Chairman and Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and
procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files and
submits under the Exchange Act is recorded, processed, summarized and reported as and when required, and are effective to
ensure that such information is accumulated and communicated to the Company’s management, including its Chairman and
Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There
have been no significant changes in the Company’s internal controls or in other factors which could significantly affect internal
controls subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.

4 8 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

PART IV

(A) Documents Filed as Part of This Form 10-K

Genesee & Wyoming Inc. and Subsidiaries Financial Statements:

Report of Independent Accountants

Consolidated Balance Sheets as of December 31, 2002 and 2001

Consolidated Statements of Income for the Years ended December 31, 2002, 2001 and 2000

Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Years Ended December 31, 2002, 2001 and 2000

Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000

Notes to Consolidated Financial Statements

Australian Railroad Group Pty Ltd and Subsidiaries Financial Statements:

Report of Independent Auditors

Consolidated Balance Sheets as of December 31, 2002 and 2001

Consolidated Statements of Income for the Years ended December 31, 2002 and 2001

Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Years Ended December 31, 2002 and 2001

Consolidated Statements of Cash Flows for the Years Ended December 31, 2002 and 2001

Notes to Consolidated Financial Statements

(B) Reports on Form 8-K

The following report on Form 8-K was ﬁled during the last quarter of the period covered by this report:

Report dated October 11, 2002 reporting on Item 5. Other Events and Item 7. Financial Statements, Pro Forma Information and Exhibits

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

4 9

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

Date March 31, 2003

GENESEE & WYOMING INC.

BY: /s/ MORTIMER B. FULLER, III

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

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following
persons in the capacities and on the date indicated below.

Signature

Title

Chief Executive Ofﬁcer and Director

Date

March 31, 2003

Chief Financial Ofﬁcer

March 31, 2003

Senior Vice President and Chief Accounting Ofﬁcer

March 31, 2003

Director

March 31, 2003

/s/ MORTIMER B. FULLER, III

Mortimer B. Fuller, III

/s/

JOHN C. HELLMANN

John C. Hellmann

/s/ ALAN R. HARRIS

Alan R. Harris

/s/ C. SEAN DAY

C. Sean Day

/s/

JAMES M. FULLER

James M. Fuller

/s/ LOUIS S. FULLER

Louis S. Fuller

/s/ T. MICHAEL LONG

T. Michael Long

/s/ ROBERT M. MELZER

Robert M. Melzer

/s/

JOHN M. RANDOLPH

John M. Randolph

/s/ PHILIP J. RINGO

Philip J. Ringo

/s/ M. DOUGLAS YOUNG

M. Douglas Young

5 0 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Mortimer B. Fuller, III, certify that:

1. I have reviewed this annual report on Form 10-K of Genesee & Wyoming Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this annual report;

3. Based on my knowledge, the ﬁnancial statements, and other ﬁnancial information included in this annual report, fairly present in all material
respects the ﬁnancial condition, results of operations and cash ﬂows of the registrant as of, and for, the periods presented in this annual
report;

4. The registrant’s other certifying ofﬁcers and I are responsible for establishing and maintaining disclosure controls and procedures (as deﬁned

in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being
prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the ﬁling date of this

annual report (the ‘‘Evaluation Date’’); and

c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our

evaluation as of the Evaluation Date;

5. The registrant’s other certifying ofﬁcers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit

committee of registrant’s board of directors (or persons performing the equivalent function):

a) All signiﬁcant deﬁciencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record,
process, summarize and report ﬁnancial data and have identiﬁed for the registrant’s auditors any material weaknesses in internal controls;
and

b) Any fraud, whether or not material, that involves management or other employees who have a signiﬁcant role in the registrant’s internal

controls; and

6. The registrant’s other certifying ofﬁcers and I have indicated in this annual report whether or not there were signiﬁcant changes in internal
controls or in other factors that could signiﬁcantly affect internal controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to signiﬁcant deﬁciencies and material weaknesses.

March 31, 2003

/s/ MORTIMER B. FULLER, III

Mortimer B. Fuller, III
Chairman and Chief Executive Ofﬁcer

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

5 1

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, John C. Hellmann, certify that:

1. I have reviewed this annual report on Form 10-K of Genesee & Wyoming Inc.;

4. The registrant’s other certifying ofﬁcers and I are responsible for establishing and maintaining disclosure controls and procedures (as deﬁned

in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the ﬁling date of this

annual report (the ‘‘Evaluation Date’’); and

c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our

evaluation as of the Evaluation Date;

5. The registrant’s other certifying ofﬁcers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit

committee of registrant’s board of directors (or persons performing the equivalent function):

b) Any fraud, whether or not material, that involves management or other employees who have a signiﬁcant role in the registrant’s internal

controls; and

March 31, 2003

/s/

JOHN C. HELLMANN

John C. Hellmann
Chief Financial Ofﬁcer

5 2 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

INDEX TO EXHIBITS

(2) Plan of acquisition, reorganization, arrangement, liquidation or succession

Not applicable.

(3)

(i) Articles of Incorporation
The Exhibits referenced under 4.1 through 4.4 hereof are incorporated herein by reference.

(ii) By-laws
The By-laws referenced under 4.5 hereof are incorporated herein by reference.

(4)

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

4.10

4.11

4.12

4.13

(9)

Instruments deﬁning the rights of security holders, including indentures
Restated Certiﬁcate of Incorporation (Exhibit 3.1)14
Certiﬁcate of Designation of 4.0% Senior Redeemable Convertible Preferred Stock, Series A (Exhibit 3.2)14
Certiﬁcation of Correction to the Restated Certiﬁcate of Incorporation (Exhibit 3.1)22
Certiﬁcation of Amendment to the Restated Certiﬁcate of Incorporation (Exhibit 3.1)22
By-laws (Exhibit 3.3)1
Specimen stock certiﬁcate representing shares of Class A Common Stock (Exhibit 4.1)3

Form of Class B Stockholders’ Agreement dated as of May 20,1996, among the Registrant, its executive ofﬁcers and its Class B
stockholders (Exhibit 4.2)2

Voting Agreement and Stock Purchase Option dated March 21, 1980 among Mortimer B. Fuller, III, Mortimer B. Fuller, Jr. and
Frances A. Fuller, and amendments thereto dated May 7, 1988 and March 29, 1996 (Exhibit 9.1)1

Stock Purchase Agreement by and between Genesee & Wyoming Inc. and The 1818 Fund III, L.P. dated October 19, 2000
(Exhibit 10.1)14

Registration Rights Agreement between Genesee & Wyoming Inc. and The 1818 Fund III, L.P. dated December 12, 2000
(Exhibit 10.2)14

Letter Agreement between Genesee & Wyoming Inc., The 1818 Fund III, L.P. and Mortimer B. Fuller, III dated December 12, 2000
(Exhibit 10.3)14
Form of Senior Debt Indenture (Exhibit j)19
Form of Subordinated Debt Indenture (Exhibit k)19

Voting Trust Agreement
Not applicable.

(10) Material Contracts

The Exhibits referenced under (4.7) through (4.13) hereof are incorporated herein by reference.
Promissory Note dated October 7, 1991 of Buffalo & Pittsburgh Railroad, Inc. in favor of CSX Transportation, Inc. (Exhibit 4.6)1

First Amendment to Promissory Note dated as of March 19, 1999 between Buffalo & Pittsburgh, Inc. and CSX Transportation, Inc.
(Exhibit 4.1)7
Form of Genesee & Wyoming Inc. 1996 Stock Option Plan (Exhibit 10.1)2
Form of Genesee & Wyoming Inc. Stock Option Plan for Outside Directors (Exhibit 10.2)2
Form of compensation agreement between the Registrant and each of its executive ofﬁcers (Exhibit 10.3)1
Form of Genesee & Wyoming Inc. Employee Stock Purchase Plan (Exhibit 10.4)2
Agreement dated February 6, 1996 between Illinois & Midland Railroad, Inc. and the United Transportation Union (Exhibit 10.65)1
Amendment No. 1 to the Genesee & Wyoming Inc. 1996 Stock Option Plan (Exhibit 10.1)4
Amendment No. 1 to Genesee & Wyoming Inc. Stock Option Plan for Outside Directors (Exhibit 10.1)5

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10 Memorandum of Lease between Minister for Transport and Urban Planning a Body Corporate Under the Administrative Arrangements

Act, the Lessor, and Australia Southern Railroad Pty Ltd., the Lessee, dated 7 November 1997 (Exhibit 10.2)5
Amendment No. 2. to the Genesee & Wyoming Inc. 1996 Stock Option Plan (Exhibit 10.1)6
Amendment No. 1. to the Genesee & Wyoming Inc. Employee Stock Purchase Plan (Exhibit 10.2)6
Promissory Note dated May 20, 1998 of Mortimer B. Fuller, III in favor of the Registrant (Exhibit 10.1)7
Assignment Letter between Charles W. Chabot and the Registrant, effective November 1, 1998 (Exhibit 10.2)7
Amendment No. 1 to Promissory Note dated May 28, 1999 of Mortimer B. Fuller, III in favor of the Registrant (Exhibit 10.1)8

Purchase and Sale Agreement dated August 17, 1999 between the Federal Government of United Mexican States, Compania de
Ferrocarriles Chiapas-Mayab, S.A. de C.V., and Ferrocarriles Nacionales de Mexico (Exhibit 10.1)9
Genesee & Wyoming Deferred Stock Plan for Non-Employee Directors10
Amendment No. 3 to the Genesee & Wyoming Inc. 1996 Stock Option Plan (Exhibit 10.1)11
Amendment No. 4 to the Genesee & Wyoming Inc. 1996 Stock Option Plan (Exhibit 10.1)12
Amendment No. 5 to the Genesee & Wyoming Inc. 1996 Stock Option Plan (Exhibit 10.2)12

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18

10.19

10.20

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

5 3

10.21

10.22

10.23

10.24

Amendment No 2 to the Genesee & Wyoming Inc. Stock Option Plan for Outside Directors (Exhibit 10.3)12
Amendment No. 6 to the Genesee & Wyoming Inc. 1996 Stock Option Plan (Exhibit 10.1)13
Genesee & Wyoming Australia Pty Ltd. Executive Share Option Plan (Exhibit 10.2)13

Agreement for Sale of Business dated December 16, 2000 among The Hon Murray Criddle MLC, The Western Australian Government
Railways Commission, The Hon Richard Fairfax Court MLA, Westrail Freight Employment Pty Ltd, AWR Holdings WA Pty Ltd,
Australian Western Railroad Pty Ltd, WestNet StandardGauge Pty Ltd, WestNet NarrowGauge Pty Ltd, AWR Lease Co. Pty Ltd, and
Australian Railroad Group Pty. Ltd. (Exhibit 2.1)15

10.25 Westrail Freight Bidding and Share Subscription Agreement dated October 25, 2000 among Wesfarmers Railroad Holdings Pty Ltd,

Wesfarmers Limited, GWI Holdings Pty Ltd, Genesee & Wyoming Inc., and Genesee & Wyoming Australia Pty Ltd. (Exhibit 99.1)15

10.26

10.27

10.28

10.29

10.30

10.31

10.32

10.33

10.34

10.35

10.36

10.37

10.38

10.39

10.40

10.41

Shareholders Agreement, dated December 15, 2000 among Wesfarmers Holdings Pty Ltd, GWI Holdings Pty Ltd, and Australian
Railroad Group Pty Ltd. (Exhibit 99.2)15

Rail Freight Corridor Land Use Agreement (NarrowGauge) and Railway Infrastructure Lease dated December 16, 2000 among The
Hon Murray Criddle MLC, The Western Australian Government Railways Commission, The Hon Richard Fairfax Court MLA, WestNet
NarrowGauge Pty Ltd, Australia Western Railroad Pty Ltd, and Australian Railroad Group Pty Ltd. (Exhibit 99.3)15

Rail Freight Corridor Land Use Agreement (StandardGauge) and Railway Infrastructure Lease dated December 16, 2000 among The
Hon Murray Criddle MLC, The Western Australian Government Railways Commission, The Hon Richard Fairfax Court MLA, WestNet
StandardGauge Pty Ltd, Australia Western Railroad Pty Ltd, and Australian Railroad Group Pty Ltd. (Exhibit 99.4)15

Loan Agreement between GW Servicios, S.A. de C.V., Compania de Ferrocarriles Chiapas-Mayab, S.A. de C.V. and International
Finance Corporation dated December 5, 2000. (Copies of omitted Annexes and Schedules will be provided upon written request.)
(Exhibit 10.1)16

Loan Agreement between GW Servicios, S.A. de C.V., Compania de Ferrocarriles Chiapas-Mayab, S.A. de C.V. and Nederlandse
Financierings-Maatschappij Voor Ontwikkelingsladen N.V. dated December 5, 2000. (Copies of omitted Annexes and Schedules will be
provided upon written request.) (Exhibit 10.2)16

Subscription Agreement between GW Servicios S.A. de C.V. and International Finance Corporation dated December 5, 2000.
(Exhibit 10.3)16
Amendment No. 3 to the Genesee & Wyoming Inc. Stock Option Plan for Outside Directors (Exhibit 10.1)17
Amendment No. 4 to the Genesee & Wyoming Inc. Stock Option Plan for Outside Directors (Exhibit 10.2)17

Stock Purchase and Sale Agreement dated September 28, 2001 by and between Bethlehem Steel Corporation and Genesee &
Wyoming Inc. (Exhibit 2.1)18

The Memorandum of Common Provisions between ARG Financing as Borrower, Australia and New Zealand Banking Group Limited (in
its capacity as agent, Agent), ANZ Capel Court Limited (Security Trustee), AWR Lease Co. & Pty Ltd, the Sponsors listed in part A of
schedule 1 thereto, the Subordinated Lenders listed in part B of schedule 1 thereto, the Hedge Counterparties listed in part E of
schedule 1 thereto and the Senior Working Capital Facility Provider listed in part F of schedule 1 thereto. (Exhibit 10.1)20

Agreement and Plan of Merger dated as of December 3, 2001 by and among Genesee & Wyoming Inc., ETR Acquisition Corporation
and Emons Transportation Group, Inc. (Exhibit 2.1)21

Underwriting Agreement dated as of December 17, 2001 by and among the Registrant, the selling stockholders named therein and
Credit Suisse First Boston Corporation, ABN AMRO Rothschild LLC, Bear, Stearns & Co. Inc., Morgan Keegan & Company, Inc. and
BB&T Capital Markets, a division of Scott & Stringfellow, Inc. as representatives of the underwriters (Exhibit 1.1.)22
Amendment No. 6 to the Genesee & Wyoming Inc. Stock Option Plan for Outside Directors (Exhibit 10.1)23
Genesee & Wyoming Inc. Amended and Restated 1996 Stock Option Plan (Exhibit 10.1)24

Stock Purchase Agreement by and among Mueller Industries, Inc., Arava Natural Resources Company, Inc. and Genesee & Wyoming
Inc. relating to the purchase and sale of Utah Railway Company, dated as August 19, 2002 (Exhibit 2.1)25

Fourth Amended and Restated Revolving Credit and Term Loan Agreement dated as of October 31, 2002 among Genesee &
Wyoming Inc., as US Borrower, Quebec Gatineau Railway, Inc., as Canadian Borrower, The Guarantors, The Lending Institutions
listed therein, as Lenders, Fleet National Bank, as Administrative Agent with Fleet Securities, Inc., as Arranger and JPMorgan Chase
Bank, LaSalle Bank National Association, Sovereign Bank, the Bank of Nova Scotia, Wachovia Bank, National Association, as
Syndication Agents (Exhibit 10.2)26

*(11.1) Statement re computation of per share earnings

(12) Statements re computation of ratios

Not applicable.

(13) Annual report to security holders, Form 10-Q or quarterly report to security holders

Not applicable.

(16)

(18)

Letter re change in certifying accountant
Not applicable.

Letter re change in accounting principles
Not applicable.

*(21.1) Subsidiaries of the Registrant

5 4 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

(22) Published report regarding matters submitted to vote of security holders

Not applicable.

*(23.1) Consent of PricewaterhouseCoopers LLP

*(23.2) Consent of Ernst & Young

(24) Power of attorney

Not applicable.

(99) Additional Exhibits

*(99.1) Chief Executive Ofﬁcer Certiﬁcation pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

*(99.2) Chief Financial Ofﬁcer Certiﬁcation pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

* Exhibit ﬁled with this Report.

1 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Registration Statement on Form S-1 (Registration No.

333-3972). The exhibit number contained in parenthesis refers to the exhibit number in such Registration Statement.

2 Exhibit previously ﬁled as part of, and incorporated herein by reference to, Amendment No. 1 to the Registrant’s Registration Statement on

Form S-1 (Registration No. 333-3972). The exhibit number contained in parenthesis refers to the exhibit number in such Amendment.

3 Exhibit previously ﬁled as part of, and incorporated herein by reference to, Amendment No. 2 to the Registrant’s Registration Statement on

Form S-1 (Registration No. 333-3972). The exhibit number contained in parenthesis refers to the exhibit number in such Amendment.

4 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 10-Q for the quarter ended June 30,

1997. (SEC File No. 0-20847) The exhibit number contained in parenthesis refers to the exhibit number in such Report.

5 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 10-K for the ﬁscal year ended

December 31, 1997. (SEC File No. 0-20847) The exhibit number contained in parenthesis refers to the exhibit number in such Report.

6 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 10-Q for the quarter ended June 30,

1998. The exhibit number contained in parenthesis refers to the exhibit number in such Report.

7 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 10-K for the ﬁscal year ended

December 31, 1998. The exhibit number contained in parenthesis refers to the exhibit number in such Report.

8 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 10-Q for the quarter ended June 30,

1999. The exhibit number contained in parenthesis refers to the exhibit number in such Report.

9 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 10-Q for the quarter ended

September 30, 1999. The exhibit number contained in parenthesis refers to the exhibit number in such Report.

10 Previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s 1999 Deﬁnitive Proxy Statement, which was ﬁled in

electronic format on April 19, 1999 as Annex A to the Proxy Statement.

11 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 10-Q for the quarter ended

March 31, 2000. The exhibit number contained in parenthesis refers to the exhibit number in such Report.

12 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 10-Q for the quarter ended June 30,

2000. The exhibit number contained in parenthesis refers to the exhibit number in such Report.

13 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 10-Q for the quarter ended

September 30, 2000. The exhibit number contained in parenthesis refers to the exhibit number in such Report.

14 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 8-K dated December 7, 2000. The

exhibit number contained in parenthesis refers to the exhibit number in such Report.

15 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 8-K dated December 16, 2000. The

exhibit number contained in parenthesis refers to the exhibit number in such Report.

16 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 10-K for the ﬁscal year ended

December 31, 2000. The exhibit number contained in parenthesis refers to the exhibit number in such Report.

17 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 10-Q for the quarter ended June 30,

2001. The exhibit number contained in parenthesis refers to the exhibit number in such Report.

18 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 8-K dated October 1, 2001. The

exhibit number contained in parenthesis refers to the exhibit number in such Registration Statement.

19 Exhibit previously ﬁled as part of, and incorporated herein by reference to, Amendment No. 1 to the Registrant’s Registration Statement on

Form S-3 (Registration No. 333-73026). The exhibit number contained in parenthesis refers to the exhibit number in such Report.

20 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 8-K dated November 13, 2001. The

exhibit number contained in parenthesis refers to the exhibit number in such Report.

21 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 8-K dated December 3, 2001. The

exhibit number contained in parenthesis refers to the exhibit number in such Report.

22 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 8-K dated December 17, 2001. The

exhibit number contained in parenthesis refers to the exhibit number in such Report.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

5 5

23 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 10-Q for the quarter ended

March 31, 2002. The exhibit number contained in parenthesis refers to the exhibit number in such Report.

24 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 10-Q for the quarter ended June 30,

2002. The exhibit number contained in parenthesis refers to the exhibit number in such Report.

25 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 8-K dated August 28, 2002. The

exhibit number contained in parenthesis refers to the exhibit number in such Report.

26 Exhibit previously ﬁled as part of, and incorporated herein by reference to, the Registrant’s Report on Form 10-Q for the quarter ended

September 30, 2002. The exhibit number contained in parenthesis refers to the exhibit number in such Report.

5 6 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

Genesee & Wyoming Inc. and Subsidiaries:

INDEX TO FINANCIAL STATEMENTS

Page

Report of Independent Accountants ************************************************************************************* 58-59
Consolidated Balance Sheets as of December 31, 2002 and 2001 **********************************************************
Consolidated Statements of Income for the Years Ended December 31, 2002, 2001 and 2000 **********************************

Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Years Ended December 31, 2002, 2001 and

2000 ************************************************************************************************************** 62-63

Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000 ******************************
Notes to Consolidated Financial Statements ******************************************************************************

Australian Railroad Group Pty Ltd and Subsidiaries Financial Statements:

Report of Independent Auditors *****************************************************************************************
Consolidated Balance Sheets as of December 31, 2002 and 2001 **********************************************************
Consolidated Statements of Income for the Years ended December 31, 2002 and 2001****************************************
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Years Ended December 31, 2002 and 2001 ***
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002 and 2001 ************************************
Notes to Consolidated Financial Statements ******************************************************************************

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

5 7

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, based on our audit and the report of other auditors, the accompanying consolidated balance sheet as of
December 31, 2002 and the related consolidated statements of income, common stockholders’ equity and comprehensive
income and cash flows present fairly, in all material respects, the financial position of Genesee & Wyoming Inc. and subsidiaries
as of December 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the
Company’s management; our responsibility is to express an opinion on these financial statements based on our audit. We did not
audit the financial statements of Australian Railroad Group Pty. Ltd. (ARG), an equity method investment which is reflected in the
accompanying financial statements, which reflects 13.7% of the Company’s total assets as of December 31, 2002 and the equity
in its net income represents 33.1% of the Company’s net income for the year ended December 31, 2002. Those statements were
audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates
to the amounts included for ARG, is based solely on the report of the other auditors. We conducted our audit of these statements
in accordance with auditing standards generally accepted in the United States of America, which require that we plan and
perform the audit 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, assess-
ing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audit and the report of other auditors provide a reasonable basis for our opinion. The financial
statements of the Company as of December 31, 2001 and for each of the two years in the period ended December 31, 2001,
prior to the revisions discussed in Notes 6 and 18, were audited by other independent accountants who have ceased operations.
Those independent accountants expressed an unqualified opinion on those financial statements in their report dated February 11,
2002.

As disclosed in Note 6, the Company changed the manner in which it accounts for goodwill and other intangible assets upon
adoption of the accounting guidance of Statement of Financial Accounting Standards No. 142 on January 1, 2002.

As discussed above, the financial statements of the Company as of December 31, 2001, and for each of the two years in the
period ended December 31, 2001, were audited by other independent accountants who have ceased operations. As described in
Note 6, these financial statements have been revised to include the transitional disclosures required by Statement of Financial
Accounting Standards No. 142, ‘‘Goodwill and Other Intangible Assets’’, which was adopted by the Company as of January 1,
2002. As discussed in Note 18, these financial statements have also been revised to reflect a change in the composition of the
Company’s reportable segments. We audited the transitional disclosures described in Note 6. We also audited the adjustments
to the segment information described in Note 18 that were applied to revise the 2001 and 2000 financial statements. In our
opinion, the transitional disclosures for 2001 and 2000 in Note 6 are appropriate and the adjustments to the 2001 and 2000
segment information described in Note 18 are appropriate and have been properly applied. However, we were not engaged to
audit, review, or apply any procedures to the 2001 or 2000 financial statements of the Company other than with respect to such
transitional disclosures and adjustments and, accordingly, we do not express an opinion or any other form of assurance on the
2001 or 2000 financial statements taken as a whole.

/s/ PricewaterhouseCoopers LLP
New York, New York
February 7, 2003

5 8 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

The following report is a copy of a report previously issued by Arthur Andersen LLP and has not been reissued by Arthur
Andersen LLP. In 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, ‘‘Goodwill
and Other Intangible Assets’’ (SFAS No. 142). As discussed in Note 6, the Company has presented the transitional disclosures for
2001 and 2000 required by SFAS No. 142. Additionally as discussed in Note 18, the Company changed the manner in which its
presents its segment information. The Arthur Andersen LLP report does not extend to these changes to the 2001 and 2000
consolidated financial statements. These adjustments to the 2001 and 2000 consolidated financial statements were reported on
by PricewaterhouseCoopers LLP as stated in their report appearing herein.

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 corporation) AND
SUBSIDIARIES as of December 31, 2001 and 2000*, 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, 2001. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of Australian Railroad Group Pty. Ltd. (ARG), the
investment in which is reflected in the accompanying financial statements using the equity method of accounting. The investment
in ARG represents 14.8 percent and 16.1 percent of the Company’s total assets as of December 31, 2001 and 2000, respec-
tively, and the equity in its net income represents 44.3 percent of the Company’s net income for the year ended December 31,
2001. Additionally, the summarized financial data for ARG contained in Note 7 is based on the financial statements of ARG, which
were audited by other auditors. Their report has been furnished to us, and our opinion, insofar as it relates to amounts included
in the Company’s financial statements for ARG, including 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 principles used and significant estimates made by management, as
well as evaluating the overall financial statement 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 position of Genesee & Wyoming Inc. and Subsidiaries as of December 31, 2001 and 2000*, and
the results of their operations and their cash flows for each of the three* years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Chicago, Illinois
February 11, 2002

* Pursuant to SEC rules and regulations, the Company’s consolidated balance sheet as of December 31, 2000 and the Com-
pany’s statements of income, stockholders’ equity and comprehensive income and cash flows for the year ended December 31,
1999 are not required to be included herein.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

5 9

GENESEE & WYOMING INC. AND SUBSIDIARIES

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

GOODWILL

INTANGIBLE ASSETS, 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

DEFERRED GAIN — sale/leaseback

OTHER LONG-TERM LIABILITIES

MINORITY INTEREST

MANDATORILY REDEEMABLE PREFERRED STOCK (Convertible at $10.22 per share of Class A Common Stock

on or before December 2008)

STOCKHOLDERS’ EQUITY:

Class A Common Stock, $0.01 par value, one vote per share; 30,000,000 shares authorized; 15,425,624 and

15,074,462 shares issued and 13,087,108 and 12,737,601 shares outstanding (net of 2,338,516 and
2,336,861 shares in treasury) on December 31, 2002 and 2001, respectively

Class B Common Stock, $0.01 par value, ten votes per share; 5,000,000 shares authorized; 1,805,292 shares

issued and outstanding on December 31, 2002 and 2001

Additional paid-in capital

Retained earnings

Accumulated other comprehensive loss

Less treasury stock, at cost

Total stockholders’ equity

Total liabilities and stockholders’ equity

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

6 0 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

December 31,

2002

2001

$ 11,028

$ 28,732

54,527

41,025

5,468

7,447

2,484

4,931

6,514

2,150

80,954

83,352

264,728

199,102

81,287

24,174

59,269

4,447

69,402

24,144

21,491

5,028

$514,859

$402,519

6,116

4,441

49,482

12,314

67,912

119,301

31,686

42,509

4,448

12,280

3,122

45,206

12,077

61,724

56,150

24,620

35,362

4,607

7,731

2,854

23,980

23,808

154

127,741

103,465

(9,493)

(12,264)

151

123,597

79,030

(4,905)

(12,228)

209,621

185,663

$514,859

$402,519

GENESEE & WYOMING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)

Years Ended December 31,
2001

2000

2002

OPERATING REVENUES

OPERATING EXPENSES:

Transportation

Maintenance of ways and structures

Maintenance of equipment

General and administrative

Net (gain) loss on sale and impairment of assets

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 loans

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

INCOME BEFORE EXTRAORDINARY ITEM

$209,540

$173,576

$206,530

65,553

22,950

36,295

42,306

(3,140)

13,569

—

56,573

19,271

31,231

31,605

(814)

12,756

—

69,132

22,225

40,378

33,047

13,980

4,015

177,533

150,622

182,818

32,007

(7,542)

22,954

23,712

(10,049)

(11,233)

—

693

2,985

10,062

(81)

578

(1,472)

3,021

25,191

8,983

16,387

6,166

24,090

10,569

8,487

1,287

8,451

412

261

150

25,982

19,084

13,932

Extraordinary item from early extinguishment of debt, net of related income tax beneﬁt of $222

(375)

—

NET INCOME

Preferred stock dividends and cost accretion

NET INCOME AVAILABLE TO COMMON STOCKHOLDERS

BASIC EARNINGS PER SHARE:

Net 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

25,607

1,172

19,084

13,932

957

$ 24,435

$ 18,127

$ 13,880

1.69

(0.03)

1.66

14,704

1.48

(0.02)

1.46

1.72

—

1.72

10,509

1.48

—

1.48

1.42

—

1.42

9,779

1.38

—

1.38

17,585

12,917

10,094

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

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

6 1

GENESEE & WYOMING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
(dollars in thousands)

Class A
Common
Stock

Class B
Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

Treasury
Stock

Total
Stockholders’
Equity

BALANCE, December 31, 1999

$102

$19

$ 47,004

$47,023

$(1,316)

$(11,003)

$ 81,829

Comprehensive income, net of tax:

Net income

Currency translation adjustments

Comprehensive income

Proceeds from employee stock

purchases

Impact of sale of putable equity in

Mexican operations

Tax beneﬁt from exercise of stock

options

Accretion of fees on Mandatorily

Redeemable Convertible Preferred
Stock

4% dividend paid on Mandatorily

Redeemable Convertible
Preferred Stock

Treasury stock acquisitions,

3,794 shares

—

BALANCE, December 31, 2000

104

Comprehensive income, net of tax:

Net income

Currency translation adjustments

Fair market value adjustments of

cash ﬂow hedges

Comprehensive income

Proceeds from Class A Common
Stock Offering, net of fees

Proceeds from employee stock

purchases

Conversion of Class B Common Stock

to Class A Common Stock

Tax beneﬁt from exercise of stock

options

Accretion of fees on Mandatorily

Redeemable Convertible
Preferred Stock

4% dividend paid on Mandatorily

Redeemable Convertible
Preferred Stock

Treasury stock acquisitions,

83,067 shares

—

(1)

—

2,217

(75)

496

—

13,932

—

(8)

(44)

—

(3,567)

—

(50)

13,932

(3,567)

10,365

2,219

(75)

496

(8)

(44)

(50)

49,642

60,903

(4,883)

(11,053)

94,732

—

66,495

6,254

—

1,206

—

19,084

—

(146)

(811)

—

708

(730)

—

19,084

708

(730)

19,062

66,533

6,262

—

1,206

(146)

(811)

(1,175)

BALANCE, December 31, 2001

$151

$18

$123,597

$79,030

$(4,905)

$(12,228)

$185,663

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

6 2 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME — (Continued)
(dollars in thousands)

Class A
Common
Stock

Class B
Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

Treasury
Stock

Total
Stockholders’
Equity

BALANCE, December 31, 2001

$151

$18

$123,597

$ 79,030

$(4,905)

$(12,228)

$185,663

Comprehensive income, net of tax:

Net income

Currency translation adjustments

Fair market value adjustments of

cash ﬂow hedges

Pension liability adjustment

Comprehensive income

Proceeds from employee stock

purchases

Tax beneﬁt from exercise of stock

options

Accretion of fees on Mandatorily

Redeemable Convertible
Preferred Stock

4% dividend paid on Mandatorily

Redeemable Convertible
Preferred Stock

Treasury stock acquisitions,

1,656 shares

—

3,086

1,058

—

25,607

—

(172)

(1,000)

—

2,514

(6,550)

(552)

—

25,607

2,514

(6,550)

(552)

21,019

3,089

1,058

(172)

(1,000)

(36)

BALANCE, December 31, 2002

$154

$18

$127,741

$103,465

$(9,493)

$(12,264)

$209,621

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

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

6 3

GENESEE & WYOMING INC. AND SUBSIDIARIES

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
Net (gain) loss on sale and impairment of assets
Extraordinary item from early extinguishment of debt
Gain on sale of 50% equity in Australian operations
Equity earnings of unconsolidated afﬁliates
Minority interest expense
Tax beneﬁt realized upon exercise of stock options
Valuation adjustment of split dollar life insurance
Valuation adjustment of U. S dollar denominated foreign loans
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, net of proceeds from government grants
Locomotive upgrade project
Purchase of Utah Railway Company
Purchase of Emons Transportation Group, Inc., net of cash received
Purchase of assets of South Buffalo Railway, net of cash received
Cash investments in unconsolidated afﬁliate — Australian Railroad Group, net
Cash investments in unconsolidated afﬁliates — South America
Cash received from unconsolidated international afﬁliates
Proceeds from sale of equity in subsidiaries
Proceeds from disposition of property and equipment

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term borrowings
Proceeds from issuance of long-term debt
Payment of debt issuance costs
Proceeds from issuance of Class A Common Stock, net
Proceeds from issuance of Mandatorily Redeemable Convertible Preferred Stock, net
Proceeds from employee stock purchases
Purchase of treasury stock
Dividends paid on Mandatorily Redeemable Convertible Preferred Stock

Net cash provided by 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

Years Ended December 31,
2001
2002

2000

$ 25,607

$ 19,084

$ 13,932

13,569
6,430
(3,140)
597
—
(9,774)
278
1,058
555
(33)

(8,270)
241
(581)
(1,178)
2,209

12,756
4,164
(814)
—
(2,985)
(8,863)
129
1,206
516
81

3,376
369
2,348
(77)
(2,730)

13,980
9,571
41
—
(10,062)
(411)
40
496
—
1,472

(3,744)
(517)
180
(327)
(1,160)

27,568

28,560

23,491

(20,272)
(2,015)
(55,680)
(29,449)
—
—
—
263
—
4,113

(103,040)

(214,438)
276,081
(4,578)
—
—
3,089
(36)
(1,000)

59,118

(1,350)

(17,704)
28,732

(16,551)
—
—
—
(33,117)
—
(246)
4,329
—
8,147

(37,438)

(200,033)
157,000
(287)
66,533
4,812
6,262
(1,175)
(855)

32,257

1,980

25,359
3,373

(29,273)
—
—
—
—
(21,738)
(7,635)
—
2,640
679

(55,327)

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

26,020

1,398

(4,418)
7,791

$ 11,028

$ 28,732

3,373

7,825
2,679

9,875
835

$ 10,395
1,291

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

6 4 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND CUSTOMERS:

Genesee & Wyoming Inc. and Subsidiaries (the Company) has interests in thirty short line and regional railroads through its
various operating subsidiaries and unconsolidated affiliates of which twenty-two are located in the United States, three are
located in Australia, one is located in Bolivia, one is located in Mexico, and three are located in Canada. The twenty-two US
railroads are wholly-owned by the Company through various acquisitions from 1985 to, most recently, the acquisition of Utah
Railway Company (URC) in August 2002 and Emons Transportation Group, Inc. (Emons) in February 2002. The URC acquisition
consisted of two wholly-owned railroad subsidiaries. The Emons acquisition consisted of four wholly-owned railroad subsidiaries,
three located in the United States and one located in Canada. One of the Emons US railroads was subsequently sold in June
2002. The other two Canadian railroads have been wholly-owned by the Company since its June 2000 acquisition of a 5%
minority holding. In April 1999, the Company increased its ownership in these Canadian roads from 47.5% to 95% and began
consolidating their results. The Mexican railroad, acquired in September 1999, was wholly-owned by the Company until Decem-
ber 2000, when the Company sold a 12.7% interest in the railroad. The Company wholly-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 a second Australian railroad. The Company now owns 50% of the venture and accounts for its investment under the
equity method of accounting. In July 2001, the Company increased its indirect equity interest in the Bolivian railroad by 0.34% to
22.89% with an additional investment of cash. Previously, through a majority owned subsidiary, the Company acquired an
indirect 21.87% interest in the Bolivian railroad in November 2000, and an indirect 0.68% interest in September 1999. This
investment is also accounted for under the equity method of accounting. See Note 3 for descriptions of the Company’s
expansion in recent years.

The Company, through its leasing subsidiary, also leases and manages railroad transportation equipment in the United States
and Canada. The Company, through its industrial switching subsidiary, provides freight car switching and ancillary rail services.

A large portion of the Company’s operating revenue is attributable to customers operating in the electric utility, forest products,
auto and auto parts and cement industries in North America, and prior to the December 16, 2000 deconsolidation of Australian
railroad operations, 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. In North America,
the customer base increased from approximately 680 customers in 2001 to approximately 800 customers in 2002. The largest
ten customers accounted for approximately 27%, 28% and 29% of the Company’s operating revenues in 2002, 2001 and 2000,
respectively. In 2002 and 2001, the Company’s largest customer was a coal-fired electricity generating plant which accounted for
approximately 5% and 7% respectively, of the Company’s operating revenues. In 2000, no single customer accounted for more
than 5% of the Company’s operating revenue. The Company regularly grants trade credit to most of its customers. In addition,
the Company grants trade credit to other railroads through the routine interchange of traffic. The Company’s accounts receivable
include a diverse number of customers and railroads and the collection of these receivables is substantially dependent upon their
financial condition. Most of its customers are either large industrial companies that require rail service or Class I railroads with
which it interchanges, and the Company believes it will be successful in the collection of these receivables and it is adequately
reserved for potential uncollectible accounts.

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 significant 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 service 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.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

6 5

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Property and Equipment

Property and equipment are carried at historical cost. Acquired railroad property is recorded at the allocated 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 operating income. Depreciation is provided on the straight-line
method over the useful lives of the road property (20-50 years) and equipment (3-20 years).

The Company continually evaluates whether events and circumstances have occurred that indicate that its long-lived tangible
assets may not be recoverable. When factors indicate that assets should be evaluated for possible impairment, the Company
uses an estimate of the related undiscounted future cash flows over the remaining lives of assets in measuring whether or not
impairment has occurred. If 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. (See Note 21
regarding adoption of SFAS No. 144 ‘‘Accounting for the Impairment or Disposal of Long-lived Assets’’ effective January 1,
2002.)

Grants

Grants received from governmental agencies are recorded as long-term liabilities when received and are amortized as a reduction
to expense over the same period which the underlying purchased assets are depreciated. In addition to government grants,
customers occasionally provide fixed funding of certain track rehabilitation or construction projects to facilitate the Company’s
service over that track.

Goodwill and Intangible Asset Impairment

The Company adopted Statement of Financial Accounting Standards No. 142 (SFAS No. 142) as of January 1, 2002 (See Note
21). Under this pronouncement, a two-step goodwill impairment model is used. Step 1 compares the fair value of the reporting
unit with its carrying amount, including goodwill. If the fair value of the reporting unit is less than the carrying amount, goodwill
would be considered impaired and Step 2 measures the goodwill impairment as the excess of recorded goodwill over its implied
fair value. The Company tests impairment on an annual basis or when specific triggering events occur.

Insurance

The Company maintains insurance, with varying deductibles up to $500,000 per incident for liability and up to $250,000 per
incident for property damage, for claims resulting from train derailments and other accidents related to its railroad and industrial
switching operations. Additionally, the Company is self-insured for general employee health and medical claims up to a stop-loss
of $75,000 per insured individual. Accruals for claims, limited when appropriate to the applicable deductible, are estimated and
recorded in the period when such claims are incurred.

Service Assurance Agreement

The service assurance agreement represents a commitment from a significant customer of a U.S. railroad that the Company
acquired in 1996 (see Note 16), which grants the Company the exclusive right to serve indefinitely three specific facilities. The
Company adopted Statement of Financial Accounting Standards No. 142 (SFAS No. 142) as of January 1, 2002. Upon adoption
of SFAS No. 142, the Service Assurance Agreement (SAA) was determined to have an indefinite useful life and therefore is no
longer subject to amortization. Previously, the service assurance agreement was being amortized on a straight-line basis over the
same period as the related track structure, which is 20 years, and accumulated amortization was $4.4 million and $3.6 million as
of December 31, 2001 and 2000, respectively.

Common Stock Splits

On February 14, 2002 and May 1, 2001 the Company announced three-for-two common stock splits in the form of 50% stock
dividends distributed on March 14, 2002 to shareholders of record as of February 28, 2002, and on June 15, 2001 to sharehold-
ers of record as of May 31, 2001, respectively. All share, per share and par value amounts presented herein have been restated
to reflect the retroactive effect of both of the stock splits.

Earnings per Share

Common shares issuable under unexercised stock options, calculated under the treasury stock method, and mandatorily re-
deemable convertible preferred stock (see Note 12) are the only reconciling items between the Company’s basic and diluted
weighted average shares outstanding. The total number of options used to calculate weighted average share equivalents for
diluted earnings per share is 934,288, 1,289,826 and 1,649,177 for 2002, 2001 and 2000, respectively. Options to purchase
325,875 and 70,875 additional shares of stock were outstanding as of December 31, 2002 and 2000, respectively, but were not
included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average

6 6 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

market price of the common shares. Also included in the diluted earnings per share calculation in 2002, 2001 and 2000 are
2,445,654 shares, 1,983,324 shares and 107,207 shares, respectively, of common stock equivalents which represent the
weighted average share impact of the assumed conversion of the Mandatorily Redeemable Convertible Preferred Stock.

The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2002,
2001 and 2000 (in thousands, except per share amounts):

Numerators:

Net income (used in diluted EPS)

Dividends and fees on Preferred Stock

Net income available to common stockholders (used in basic EPS)

Denominators:

Basic — weighted average common shares outstanding

Dilutive effect of employee stock options

Dilutive effect of Convertible Preferred Stock

2002

2001

2000

$25,607

$19,084

$13,932

(1,172)

(957)

(52)

$24,435

$18,127

$13,880

14,704

10,509

9,779

435

2,446

425

1,983

208

107

Diluted — weighted average common shares and share equivalents outstanding

17,585

12,917

10,094

Income per common share:

Basic

Diluted

Stock-based Compensation Plans

$ 1.66

$ 1.72

$ 1.42

$ 1.46

$ 1.48

$ 1.38

In 1996, the Company established an incentive and nonqualified stock option plan for key employees and a nonqualified stock
option plan for non-employee directors (the Stock Option Plans). (See Note 17 for additional information regarding the Stock
Options Plans). The Company accounts for these plans under APB Opinion No. 25, under which no compensation cost has been
recognized, except for $200,000 of compensation expense related to the immediate repurchase of shares issued upon exercise
of certain stock options in 2001. Had compensation cost for all options issued under these plans been determined consistent
with FASB Statement No. 123, the Company’s net income and earnings per share would have been reduced as follows (in
thousands, except EPS):

2002

2001

2000

Net Income: As reported

Deduct: Total stock-based employee compensation expense determined under fair value based

methods for all awards, net of related tax effects

Pro Forma

Basic EPS: As reported

Pro Forma

Diluted EPS: As reported

Pro Forma

$25,607

$19,084

$13,932

(980)

(777)

(1,007)

24,627

18,307

12,925

$ 1.66

$ 1.72

$ 1.42

1.60

1.65

1.32

$ 1.46

$ 1.48

$ 1.38

1.40

1.42

1.28

Disclosures About Fair Value of Financial Instruments

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

Current assets and current liabilities: The carrying value approximates fair value due to the short maturity 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, collateral,
amortization schedule and liquidity. The carrying amount approximates fair value due to the variable nature of the Company’s interest on
debt.

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6 7

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Foreign Currency

The financial statements of the Company’s foreign subsidiaries were prepared in their respective local currencies and translated
into U.S. dollars based on the current exchange rate at the end of the period for balance sheet items and a monthly weighted-
average rate for the statement of income items. Translation adjustments are reflected as currency translation adjustments in
Stockholders’ Equity and are included in accumulated other comprehensive income.

Revaluation of U. S. dollar denominated foreign loans into the appropriate local currency resulted in a gain of $33,000 in 2002,
and losses of $81,000 and $1.5 million in 2001 and 2000, respectively. Additionally, foreign currency exchange transaction gains
and losses, most notably, a $172,000 gain in 2002 related to an Australian dollar cash account, and a $508,000 loss in 2001
from the partial settlement of an Australian dollar denominated receivable are reported in Other Income, net.

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, revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Reclassifications

Certain prior year balances have been reclassified to conform with the 2002 presentation.

3. EXPANSION OF OPERATIONS:

United States

On August 28, 2002, the Company acquired all of the issued and outstanding shares of common stock of Utah Railway Company
(URC) for approximately $55.7 million in cash, including transaction costs. The purchase price was allocated to current assets
($4.3 million), property and equipment ($18.1 million), and intangible assets ($35.9 million), less current liabilities assumed ($2.6
million). As contemplated with the acquisition, the Company implemented a severance program under which certain URC
employees were terminated in the third quarter of 2002. The aggregate $336,000 cost of these restructuring activities is
considered a liability assumed in the acquisition, and as such, was allocated to the purchase price. The majority of these costs
were paid in the three months ended September 30, 2002. The Company funded the acquisition through its revolving line of
credit held under its primary credit agreement. URC (either directly or through its wholly-owned subsidiary, Salt Lake City
Southern Railroad Company, Inc.) operates over 46 miles of owned track and 374 miles of track under track access agreements.
The tracks over which URC operates run from Ogden, Utah to Grand Junction, Colorado. In addition, URC serves industrial
customers in and around Salt Lake City, Utah through trackage rights from the Utah Transit Authority.

On February 22, 2002, the Company acquired Emons Transportation Group, Inc. (Emons) for approximately $29.4 million in cash,
including transaction costs and net of cash received in the acquisition. The Company purchased all of the outstanding shares of
Emons at $2.50 per share. The purchase price was allocated to current assets ($4.0 million) and property and equipment ($33.7
million), less current liabilities assumed ($4.5 million) and long-term liabilities assumed ($3.8 million). As contemplated with the
acquisition, the Company implemented early retirement and severance programs under which certain Emons employees were
terminated in the first quarter of 2002. The aggregate $804,000 cost of these restructuring activities is considered a liability
assumed in the acquisition and as such, was allocated to the purchase price. The majority of these costs were paid in the three
months ended March 31, 2002. The Company funded the acquisition through its revolving line of credit held under its primary
credit agreement. Emons is a short line railroad holding company with operations over 340 miles of owned track in Maine,
Vermont, New Hampshire, Quebec and Pennsylvania.

On October 1, 2001, the Company acquired all of the issued and outstanding shares of common stock of South Buffalo Railway
(South Buffalo) from Bethlehem Steel Corp. (Bethlehem) for $33.1 million in cash, including transaction costs and the assumption
of certain liabilities of $5.6 million. At the closing, the Company acquired beneficial ownership of the shares and, having received
the necessary approvals from The Surface Transportation Board on November 21, 2001, assumed actual ownership on Decem-
ber 6, 2001. The purchase price was allocated to current assets ($2.3 million), property and equipment ($17.6 million) and
goodwill ($18.8 million), less current liabilities assumed ($2.4 million) and long-term liabilities assumed ($3.2 million). South
Buffalo operates over 52 miles of owned track in Buffalo, New York. The purchase price was reduced by a $669,000 adjustment
pursuant to the final determination of the net assets of South Buffalo on the sale date. This amount, together with another
$728,000 related to pre-acquisition liabilities paid by the Company on Bethlehem’s behalf, was paid to the Company in Decem-

6 8 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

ber 2002. Although Bethlehem filed for voluntary protection under U.S. bankruptcy laws on October 5, 2001, these payments
were funded from a $3.0 million escrow account held by an independent trustee to settle amounts due to the Company pursuant
to the South Buffalo acquisition.

For U.S. tax purposes, the Company has made elections under Internal Revenue Code Section 338 to treat the URC, Emons and
South Buffalo acquisitions each as a purchase of assets.

Australia

On December 16, 2000, the Company, through its 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 (this amount and all
other dollar amounts in this report being U.S. dollars) 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.

To complete the acquisition, the Company contributed its formerly wholly-owned subsidiary, Australia Southern Railroad (ASR),
to ARG along with the Company’s 2.6% 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 (partially funded by a $20.0 million private placement of the Convertible Preferred with
the Fund) while Wesfarmers contributed $64.2 million in cash, including $8.2 million which represents a long-term Australian
dollar denominated non-interest bearing note to match a similar note due to the Company from ASR at the date of the
transaction. ARG funded the remaining purchase price with proceeds from its Australian bank credit facility.

On April 20, 2001, APTC completed the arrangement of debt and equity capital to finance a project to build, own and operate the
Alice Springs to Darwin railway line in the Northern Territory of Australia. As previously arranged, upon APTC reaching financial
closure, Wesfarmers contributed an additional $7.4 million into ARG and accordingly, the Company recorded an additional first
quarter gain of $3.7 million related to the December, 2000 issuance of ARG stock to Wesfarmers. A related deferred income tax
expense of $1.1 million was also recorded. In the second quarter of 2001, ARG paid the $7.4 million to its two shareholders, in
equal amounts of $3.7 million each, as partial payment of each shareholder’s Australian dollar denominated non-interest bearing
note which resulted in a $508,000 currency transaction loss.

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. Prior to its deconsolidation, ASR accounted for $37.6 million
of operating revenue and $0.0 of income from operations (including the $4.0 option buyout charge) for 2000.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

6 9

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Pro Forma Financial Results

The following table summarizes the Company’s unaudited pro forma operating results for the years ended December 31, 2002,
2001 and 2000, as if URC and Emons had been acquired as of January 1, 2001, and South Buffalo had been acquired and ARG
had been formed and acquired Westrail Freight as of January 1, 2000 (in thousands, except per share amounts):

Operating revenues

Net income

Basic earnings per share

Diluted earnings per share

2002

2001

2000

$228,140

$233,466

$187,122

27,892

25,025

21,128

1.82

1.59

2.27

1.88

2.16

1.71

The pro forma operating results include the acquisitions of URC and Emons adjusted, net of tax, for depreciation expense
resulting from the step-up of South Buffalo property based on appraised values, depreciation expense reduction resulting from
the allocation of negative goodwill to the asset values of URC and Emons, URC contractual intercompany management fees, and
incremental interest expense related to borrowings used to fund the URC, Emons and South Buffalo acquisitions. The pro forma
operating results also include the deconsolidation of ASR, incremental interest expense (with related tax benefit) related to
borrowings used to fund the ASR stock option buyout, and incremental preferred stock impacts related to the initial issuance of
$20 million in Convertible Preferred for the ARG transactions and the subsequent issuance of $5 million triggered by the South
Buffalo acquisition. In accordance with the Company’s adoption of the Financial Accounting Standards Board’s Statement
No. 142, ‘‘Goodwill and Other Intangible Assets’’, no amortization of goodwill is reflected in the pro forma operating results.

These results exclude the gain on sale of 50% of equity in Australian operations but include the pro forma equity earnings
attributable to the investment in ARG based on ARG’s pro forma net income of $17.9 million for 2000. These pro forma net
income results give effect to ARG’s acquisition of Westrail Freight and the related purchase accounting adjustments, primarily for
incremental depreciation and amortization expense, elimination of access fees charged by the government, impacts of the new
debt financing and related 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

On December 7, 2000, in conjunction with the refinancing of the Company’s then wholly-owned subsidiary, Compa ˜n´ıa de
Ferrocarriles Chiapas-Mayab, S.A. de C.V. (FCCM), and its parent company, GW Servicios, S.A. de C.V. (Servicios) (see Note 9),
the International Finance Corporation (IFC) invested $1.9 million of equity for a 12.7% indirect interest in FCCM, through
Servicios. The Company contributed an additional $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 amended credit facility, with the remaining
investment funded by the conversion of intercompany advances into permanent 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, depreciation 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 in 2000.

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% from its original indirect 0.68% interest acquired in September 1999. On July 24, 2001,
the Company increased its indirect equity interest in Oriental to 22.89% with an additional investment of $246,000. Oriental is a
railroad serving eastern Bolivia and connecting to railroads in Argentina and Brazil. The Company’s ownership interest is largely
through a 90% owned holding company 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 $6.9 million in cash, the assumption (via an
unconsolidated subsidiary) of non-recourse debt of $10.8 million (90% of $12.0 million) at an adjustable interest rate dependent
on operating results of Oriental, and a non-interest bearing contingent payment of $450,000 due in 2003 if certain financial
results are achieved. The Company does not expect this financial target to be achieved. The cash used by the Company to fund
such investment was obtained from its revolving credit facility. Additionally, the Company received the right to collect dividends
from Oriental related to its full year 2000 earnings. Dividends received were $263,000 and $617,000 in 2002 and 2001,
respectively. The non-recourse debt ($12.0 million as of December 31, 2002) bears interest, based on the availability of dividends
received from Oriental, between a floor of 4% and a ceiling of 7.67%. The debt bore interest at an effective rate of 4.0% and
6.12% in 2002 and 2001, respectively, and is due in annual payments. Such payments are primarily funded by dividends received

7 0 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

from Oriental, with any shortages to be funded by the Company and its partner. The debt is due and payable on December 2,
2003. The Company accounts for its indirect interest in Oriental under the equity method of accounting.

4. ALLOWANCE FOR DOUBTFUL ACCOUNTS:

Activity in the Company’s allowance for doubtful accounts was as follows (in thousands):

Balance, beginning of year

Provisions

Charges

Established in acquisitions

Balance, end of year

5. PROPERTY AND EQUIPMENT:

Major classifications of property and equipment are as follows (in thousands):

Road properties

Equipment and other

Less- Accumulated depreciation and amortization

6. INTANGIBLE AND OTHER ASSETS, NET AND GOODWILL:

Acquired intangible assets and other assets are as follows (in thousands):

2002

2001

2000

$1,001

$1,308

$1,264

716

(402)

426

468

(775)

—

389

(345)

—

$1,741

$1,001

$1,308

2002

2001

$266,769

$198,117

70,410

60,074

337,179

258,191

(72,451)

(59,089)

$264,728

$199,102

Amortizable intangible assets:

Chiapas-Mayab Operating License

Other amortizable assets

Non-amortizable intangible assets:

Service Assurance Agreement

Track Access Agreements

Deferred ﬁnancing costs

Other assets

Total

December 31, 2002

December 31, 2001

Gross
Carrying
Amount

Gross

Accumulated Carrying
Amount
Amortization

Accumulated
Amortization

$ 7,629

$ 826

$ 8,651

$ 762

274

10,566

35,891

7,515

4,447

—

1,750

—

557

10,566

—

3,642

5,028

—

1,140

—

$66,322

$2,606

$28,444

$1,925

The Chiapas-Mayab Operating License is being amortized over 30 years which is the life of the concession agreement with the
Mexican Communications and Transportation Department. Amortization expense for the year ended December 31, 2002 was
approximately $250,000; estimated annual amortization for the next five years is $250,000 per year.

Upon adoption of SFAS No. 142, the Service Assurance Agreement (SAA) was determined to have an indefinite useful life and
therefore is no longer subject to amortization.

The Track Access Agreements are perpetual trackage agreements assumed in the Company’s acquisition of Utah Railway
Company. Under SFAS No. 142 these assets have been determined to have an indefinite useful life and therefore are not subject
to amortization.

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. Amortization expense for the year ended December 31,
2002 was approximately $604,000; estimated annual amortization for the next five years is $1.0 million per year.

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7 1

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other assets primarily consist of executive split dollar life insurance, assets held for sale, and notes receivable due from
executives. Executive split dollar life insurance is the present value of life insurance benefits which the Company funds but that
are owned by executive officers. The Company retains a collateral interest in the policies’ cash values and death benefits. Assets
held for sale or future use primarily represent excess track and locomotives. Notes receivable due from Company executives,
which bear interest at 5.69% and are due in annual installments through 2003, are $486,000 and $536,000, respectively, as of
December 31, 2002 and 2001.

Goodwill for all acquisitions made prior to July 2001 was amortized on a straight-line basis over lives of 15-20 years through
December 31, 2001, and in accordance with the adoption of SFAS No. 142, amortization of goodwill was discontinued as of
January 1, 2002. The changes in the carrying amount of goodwill are as follows:

Goodwill:

Balance at beginning of period

Goodwill acquired during period

Amortization

Currency translation and other adjustments

Impairment losses

Balance at end of period

The Company’s adjusted net income and per share amounts are as follows:

Reported net income

Addback:

Goodwill amortization, net of tax

SAA amortization, net of tax

Adjusted net income

Reported basic earnings per share

Addback:

Goodwill amortization, net of tax

SAA amortization, net of tax

Adjusted basic earnings per share

Reported diluted earnings per share

Addback:

Goodwill amortization, net of tax

SAA amortization, net of tax

Adjusted diluted earnings per share

7 2 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

Years Ended
December 31,
2001
2002

$24,144

$ 5,295

—

19,116

(360)

—

$24,174

$24,144

Years Ended December 31,
2000
2001
2002

$25,607

$19,084

$13,932

—

236

488

236

488

$25,607

$19,808

$14,656

Years Ended
December 31,
2001

2002

2000

$1.66

$1.72

$1.42

—

0.02

0.05

0.02

0.05

$1.66

$1.79

$1.49

Years Ended
December 31,
2001

2002

2000

$1.46

$1.48

$1.38

—

0.02

0.04

0.02

0.05

$1.46

$1.54

$1.45

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7. EQUITY INVESTMENTS:

Australian Railroad Group

The following condensed financial data of ARG is based on accounting principles generally accepted in the United States and
converted into thousands of U.S. dollars based on the following Australian dollar to U.S. dollar exchange rates:

As of December 31, 2002

As of December 31, 2001

Average for the year ended December 31, 2002

Average for the year ended December 31, 2001

STATEMENT OF INCOME

(U.S. dollars, in thousands)

Operating revenues

Operating expenses

Restructuring costs

Bid costs

Total operating expenses

Income from operations

Interest expense

Other income, net

Income before income taxes

Provision for income taxes

Net income

$.561

$.510

$.545

$.518

Years Ended
December 31,

2002

2001

$206,431

$181,843

156,550

132,558

2,583

827

—

1,739

159,960

134,297

46,471

47,546

(24,859)

(22,505)

886

445

22,498

5,524

25,486

8,584

$ 16,974

$ 16,902

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

7 3

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

BALANCE SHEETS

(U.S. dollars, in thousands)

Years Ended
December 31,

2002

2001

5,882

9,908

30,315

25,983

7,985

2,061

8,390

3,109

46,243

47,390

402,286

355,818

8,094

53,380

4,224

9,469

6,260

5,862

$514,227

$424,799

$133,285

—

20,574

8,789

1,672

7,949

30,273

309

164,320

38,531

195,017

262,876

1,032

16,622

993

9,667

137,236

112,732

$514,227

$424,799

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

Accounts receivable, net

Materials and supplies

Prepaid expenses and other

Total current assets

PROPERTY AND EQUIPMENT, net

DEFERRED INCOME TAX ASSETS

RESTRICTED CASH

OTHER ASSETS, net

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Current portion of long-term debt

Accounts payable

Accrued expenses

Current income tax liabilities

Total current liabilities

LONG-TERM DEBT, net of current portion

OTHER LONG-TERM LIABILITIES

FAIR VALUE OF INTEREST RATE SWAPS

TOTAL STOCKHOLDERS’ EQUITY AND ADVANCES

Total liabilities and stockholders’ equity

7 4 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

STATEMENT OF CASH FLOWS

(U.S. 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

Gain on disposition of property

Changes in assets and liabilities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment

Proceeds from disposition of property and equipment

Transfer to restricted funds on deposit

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Payments on short-term borrowings

Borrowings on debt

Proceeds from issuance of shares

Repayment of subordinated loans

Refund of goods and services tax received from acquisition of Westrail Freight

Net cash provided by ﬁnancing activities

EFFECT OF EXCHANGE RATE DIFFERENCES ON CASH AND CASH

EQUIVALENTS

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, beginning of year

For the Years Ended
December 31,

2002

2001

$ 16,974

$ 16,902

17,191

1,920

(314)

(8,152)

27,619

(26,268)

1,752

(46,957)

(73,628)

—

38,990

—

38,990

838

(4,026)

9,908

13,392

7,252

(152)

4,004

41,398

(54,358)

152

(6,351)

(60,557)

(16,360)

20,452

7,685

(7,685)

16,457

20,549

(553)

837

9,071

CASH AND CASH EQUIVALENTS, end of year

$ 5,882

$ 9,908

South America

The following unaudited condensed results of operations for Empresa Ferroviaria Oriental, S.A. (Oriental) for the years ended
December 31, 2002 and 2001 have a U.S. dollar functional currency and are based on accounting principles generally accepted
in the United States (in thousands). The Company has a 22.89% indirect ownership interest in Oriental.

Operating revenues

Net income

Years Ended
December 31,
2001
2002

$30,658

$27,440

7,239

5,979

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

7 5

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed balance sheet information for Oriental as of December 31, 2002 and 2001:

Current assets

Non-current assets

Total assets

Current liabilities

Non-current liabilities

Senior debt

Shareholders’ equity

Total liabilities and shareholders’ equity

December 31,
2001
2002

$15,153

$10,201

54,537

54,533

$69,690

$64,734

$ 5,823

$ 5,483

3,853

1,350

2,446

1,526

58,664

55,279

$69,690

$64,734

The above data does not include non-recourse debt of $12.0 million held at an intermediate unconsolidated affiliate or any of the
general and administrative, interest or income tax costs at various intermediate unconsolidated affiliates. The various costs from
the intermediate unconsolidated affiliates for the years ended December 31, 2002 and 2001 is $678,625 and $954,647,
respectively.

The Company’s retained earnings at December 31, 2002 include $24.8 million of combined ARG and South America undistrib-
uted earnings.

8. LEASES:

The Company has entered into several leases for freight cars, locomotives and other equipment. Related operating lease expense
for the years ended December 31, 2002, 2001 and 2000 was approximately $9.2 million, $8.1 million and $7.6 million, respec-
tively. Additionally, the Company leases certain real property which resulted in lease expense for the years ended December 31,
2002, 2001 and 2000 of approximately $1.5 million, $1.2 million, and $1.1 million, respectively.

On March 30, 2001, the Company completed the sale of certain rolling stock to a financial institution for a net sale price of
$6.5 million. The proceeds were used to reduce borrowings under the Company’s revolving credit facilities. Simultaneously, the
Company entered into an agreement with this financial institution to lease this rolling stock for a period of eight years including
renewals. The sale/leaseback transaction resulted in an aggregate deferred gain of $1.8 million. Due to certain contingent
payments at lease end, the Company is not amortizing this gain as a non-cash offset to rent expense.

The following is a summary of future minimum lease payments (without consideration of $4.4 million of amortizing deferred gains
from sale/leasebacks) under noncancelable leases and expected automatic renewals (in thousands):

2003

2004

2005

2006

2007

Thereafter

Total minimum payments

Noncancelable

Automatic
Renewals

Totals

$ 4,992

$ 4,441

$ 9,433

4,077

3,075

2,480

1,815

2,629

4,441

2,292

8,518

7,516

6,921

6,256

4,921

$19,068

$24,497

$43,565

The Company is party to certain lease agreements with Class I carriers to operate over various rail lines in North America. Under
the leases, no payments to the lessor are required as long as certain operating conditions are met. Through December 31, 2002,
no payments were required under these lease arrangements.

7 6 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. LONG-TERM DEBT:

Long-term debt consists of the following (in thousands):

Credit facilities with variable interest rates (weighted average of 3.81% and 4.47% at December 31, 2002 and

2001, respectively, prior to impact of interest rate swaps)

2002

2001

$ 94,831

$24,997

Non-recourse U.S. dollar denominated promissory notes of Mexican subsidiary with variable interest rates

(5.33% and 6.59% on December 31, 2002 and 2001, respectively, prior to impact of interest rate swaps)

27,500

Promissory note payable to CSX Transportation, Inc. (8% interest)

Other debt with interest rates up to 5.33% and maturing at various dates between 2003 and 2006

Less- Current portion

Long-term debt, less current portion

Credit Facilities

—

3,086

6,814

1,280

125,417

60,591

6,116

4,441

$119,301

$56,150

On October 31, 2002, the Company amended and restated its senior secured credit facilities thereby increasing the facilities to
$250.0 million. The facilities are composed of a $223.0 million revolving loan and a US$27.0 million Canadian term loan, each
maturing in 2007. The Canadian term loan was funded in Canadian dollars and principal and interest payments on the term loan
will be made in Canadian dollars. Under the terms of the financing, the Company may expand the size of the facilities to
$350.0 million if certain criteria are met in the future. A portion of the new $250.0 million facilities were used to refinance
approximately $100.0 million of existing debt at the Company’s U.S. and Canadian subsidiaries. The remaining $150.0 million of
unused borrowing capacity are available for general corporate purposes including acquisitions. In conjunction with the refinanc-
ing, the Company recorded a non-cash after tax extraordinary charge of $375,000 related to the write off of unamortized deferred
financing costs of the refinanced debt.

The Canadian term loan is due in quarterly installments beginning March 31, 2003, and matures, along with the revolving credit
facilities, on September 30, 2007. The credit facilities accrue interest at rates based on various indices plus an applicable margin,
which varies from 1.75 to 2.5 percentage points depending upon the ratio of the Company’s funded debt to Earnings Before
Interest, Taxes, Depreciation, Amortization and Operating Leases (EBITDAR), as defined in the credit agreement. 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
depending on the Company’s funded debt to EBITDAR ratio. The credit agreement requires mandatory prepayments from the
issuance of new equity or debt and from the proceeds of asset sales that are not reinvested in capital assets in certain periods of
time, as defined in the agreement. The credit facilities are collateralized 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, interest coverage, minimum net worth, and maximum capital expenditures, all as defined in
the agreement. The Company and its subsidiaries were in compliance with the provisions of these covenants as of December 31,
2002.

Non-Recourse Promissory Notes

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

7 7

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

obligations related to capital investments, operating performance and management systems and controls, as defined in the loan
agreements. After Physical Completion, the Company is obligated to provide up to $7.5 million of funding, if necessary, to
Servicios to meet its debt service obligations prior to completing the financial phase of the project (‘‘Financial Completion’’),
consisting of several financial performance thresholds, as defined in the loan agreements. The Company has not been required to
provide funds to its Mexican subsidiaries pursuant to either of these obligations as of December 31, 2002. The promissory notes
contain certain financial covenants which Servicios is in compliance with as of December 31, 2002.

Promissory Note

On October 31, 2002, in conjunction with the refinancing of its senior secured credit facilities, the Company paid the balance of
$6.8 million on its promissory note to CSX Transportation, Inc. Previously, in October 2000, the Company had amended and
restated its promissory note after making a $1.0 million discretionary principal payment, by refinancing $7.9 million at 8% with
interest due quarterly 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 amendment and restatement, the promissory note payable provided for annual
principal payments of $1.2 million provided 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, 2002 (in thousands):

2003

2004

2005

2006

2007

Thereafter

6,116

6,510

6,078

6,061

93,926

6,726

$125,417

10. FINANCIAL RISK MANAGEMENT:

On January 1, 2001, the Company adopted SFAS No. 133, ‘‘Accounting for Derivative Instruments and Hedging Activities,’’ as
amended by SFAS No. 137 and SFAS No. 138. In accordance with the provisions of SFAS No. 133, the Company recorded a
transition adjustment upon adoption of the standard to recognize its derivative instruments at the then fair value of a liability of
$388,000. The effect of this transition adjustment did not impact earnings and was not material to accumulated other compre-
hensive income.

Initially, upon adoption of the new derivative accounting standard, and prospectively as of the date new derivatives are entered
into, the Company designates the derivatives as a hedge of a forecasted transaction or of the variability of the cash flows to be
received or paid in the future related to a recognized asset or liability (cash flow hedge). The portion of the changes in the fair
value of the derivative that is designated as a cash flow hedge that is offset by changes in the expected cash flows related to a
recognized asset or liability (the effective portion) is recorded in accumulated other comprehensive income. When the hedged
item is realized, the gain or loss included in accumulated other comprehensive income is reported on the same line in the
consolidated statements of income, as the hedged item. In addition, the portion of the changes in fair value of derivatives used
as cash flow hedges that is not offset by changes in the expected cash flows related to a recognized asset or liability (the
ineffective portion) is immediately recognized.

The Company formally documents its hedge relationships, including identifying the hedge instruments and hedged items, as well
as its risk management objectives and strategies for entering into the hedge transaction. Derivatives are recorded in the
consolidated balance sheets at fair value in prepayments or other assets and accrued expenses or other liabilities. This process
includes matching the hedge instrument to the underlying hedged item (assets, liabilities, firm commitments or forecasted
transactions). At hedge inception and at least quarterly thereafter, the Company assesses whether the derivatives used to hedge
transactions are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. When it is

7 8 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

determined that a derivative ceases to be a highly effective hedge, the Company discontinues hedge accounting, and any gains
or losses on the derivative instrument are recognized in earnings during the period it no longer qualifies as a hedge. Summarized
below are the specific accounting policies by market risk category.

Interest Rate Risk

The Company uses interest rate swap agreements to manage its exposure to changes in interest rates for its floating rate debt.
Interest rate swap agreements are accounted for as cash flow hedges. Gains or losses on the swaps, representing interest rate
differentials to be received or paid on the swaps, are recognized in the consolidated statements of income as a reduction or
increase in interest expense, respectively. In accordance with the new derivative accounting requirements, the effective portion of
the change in the fair value of the derivative instrument is recorded in the consolidated balance sheets as a component of current
assets or liabilities and other comprehensive income. The ineffective portion of the change in the fair value of the derivative
instrument, along with the gain or loss on the hedged item, is recorded in earnings and reported in the consolidated statements
of income, on the same line as the hedged item.

During 2002, 2001 and 2000, 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 interest rate. One of these swaps expired at December 31, 2002. The
remaining swaps expire at various dates through September 2007 and the fixed base rates range from 3.59% to 5.46%. At
December 31, 2002 and 2001, the notional amount under these agreements was $50.6 million and $30.6 million, respectively and
the fair value of these interest rate swaps was a negative $2.3 million and $1.1 million, respectively.

Foreign Currency Exchange Rate Risk

The Company uses purchased options to manage foreign currency exchange rate risk related to certain projected cash flows
related to foreign operations. Under SFAS No. 133, the instruments are carried at fair value in the consolidated balance sheets as
a component of prepayments or other assets or accrued expenses or other liabilities. Changes in the fair value of derivative
instruments that are used to manage exchange rate risk in foreign currency denominated cash flows are recognized in the
consolidated balance sheets as a component of accumulated other comprehensive income in common shareholders’ equity.

During 2002, 2001 and 2000, the Company entered into various exchange rate options that established exchange rates for
converting Mexican Pesos to U.S. Dollars, several of which expired in 2002 and 2001. The remaining options expire in March
2003 and September 2003, and give the Company the right to sell Mexican Pesos for U.S. Dollars at an exchange rate of 10.55
Mexican Pesos to the U.S. Dollar and 11.97 Mexican Pesos to the U.S. Dollar. At December 31, 2002 and 2001, the notional
amount under exchange rate options was $6.4 million and $2.2 million, respectively. The Company paid up-front premiums for
certain of these options in 2002 totaling $140,000. At December 31, 2002 and 2001, the fair value of exchange rate currency
options was $127,000 and $17,000, respectively.

11. CLASS A COMMON STOCK:

In November 2001, the Company completed a universal shelf registration of up to $200 million of various debt and equity
securities. The form and terms of such securities shall be determined when and if these securities are issued. On December 21,
2001, as an initial draw on the shelf registration, the Company sold 3.9 million shares of Class A Common Stock in a public
offering at a price of $18.50 per share for net proceeds of $66.5 million. The proceeds were used to pay off all revolving debt
under the Company’s primary credit agreement and for general corporate purposes.

Additionally, certain shareholders (after exercising options and converting shares of Class B Common Stock into 64,641 shares of
Class A Common Stock) sold 450,000 shares in this offering. While the Company paid all issuance costs (except for the related
underwriter’s fee), the Company did not receive any proceeds from the sale of shareholder shares.

12. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:

In December 2000, to fund its cash investment in ARG, the Company completed a private placement of its Series A Mandatorily
Redeemable Convertible Preferred Stock (the Convertible Preferred), with The 1818 Fund III, LP, a private equity partnership
managed by Brown Brothers Harriman & Co. (the Fund). 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 completed future acquisitions with an aggregate purchase price greater
than $25.0 million. In December 2001, upon final approval by the Surface Transportation Board of the Company’s acquisition of
South Buffalo Railway, the Fund exercised its option and purchased an additional $5.0 million. Dividends on the Convertible
Preferred are cumulative and payable in cash quarterly in arrears in an annual amount equal to 4% of the issue price. Each share
of the Convertible Preferred is convertible at any time into shares of Class A Common Stock of the Company at a conversion
price of $10.22 per share of Class A Common Stock (2,445,654 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, 2002, 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.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

7 9

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

13. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS:

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

Pension

2002

2001

Other Retirement
Beneﬁts

2002

2001

$ 1,513

$ 1,323

$ 2,984

$ 624

1,351

169

210

255

(415)

(16)

—

155

(6)

—

(50)

—

229

327

—

(140)

2,085

104

210

—

(50)

$ 3,067

$ 1,513

$ 3,483

$ 2,984

$ 1,142

$ 1,105

$ —

(173)

—

(16)

(119)

206

(50)

—

140

(140)

—

(50)

953

$ 1,142

$ —

$(2,114)

$ (371)

$(3,483)

$(2,984)

1,208

559

—

(1,495)

—

182

—

309

—

(17)

—

$(1,842)

$ (181)

$(3,174)

$(3,001)

Change in beneﬁt obligations:

Beneﬁt obligation at beginning of year

Adjustment for plan assumed in acquisition

Service cost

Interest cost

Actuarial (gain) loss

Adjustment due to curtailment

Beneﬁts paid

Beneﬁt obligation at end of year

Change in plan assets:

Fair value of assets at beginning of year

Actual return (loss) on plan assets

Employer contributions

Beneﬁts paid

Fair value of assets at end of year

Reconciliation of Funded Status:

Funded status

Unrecognized transition liability

Unrecognized net actuarial (gain) loss

Unrecognized prior service cost

Recognition of minimum liability

Total accrued beneﬁt obligation

8 0 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Pension
2001

2002

2000

Other Retirement
Beneﬁts
2001

2002

2000

Components of net periodic beneﬁt cost:

Service cost

Interest cost

Expected return on plan assets

Amortization of transition liability

Amortization of prior service cost

Amortization of (gain) loss

Net periodic beneﬁt cost

Weighted-average assumptions:

Discount rate

Expected return on plan assets

Rate of compensation increase

$169

210

(122)

143

—

$155

$210

(96)

—

(12)

(88)

—

$ 83

229

$104

210

—

$ 3

—

$422

$161

$240

$312

$314

$51

6.75% 7.75% 7.75% 6.75%

7.5%

8.5% 8.5%

8.5% N/A

3.5% 3.5%

4.5% N/A

N/A

For measurement purposes, a weighted average 5.8% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 2003 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:

Effect on total of service and interest cost components

Effect on postretirement beneﬁt obligation

Employee Bonus Programs

1-Percentage
Point
Increase

1-Percentage
Point
Decrease

$ 35,776

$332,706

$ (31,011)

$(287,328)

The Company has performance-based bonus programs which include a majority of non-union employees. Total compensation of
approximately $2.1 million, $2.3 million and $2.1 million was awarded under the various bonus plans in 2002, 2001 and 2000,
respectively.

Profit Sharing

In February 2001, the Company merged two of its three 401(k) plans covering certain U.S. union and non-union employees. The
two 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 one of these plans, the Company matches partici-
pants’ contributions up to 1.5% of the participants’ salary. Under the second plan, the Company matches participants’ contribu-
tions up to 5.0% of the participants’ salary. The Company’s contributions to all plans in 2002, 2001 and 2000 were
approximately $369,000, $307,000 and $299,000, respectively.

On August 28, 2002, in conjunction with the Company’s acquisition of Utah Railway Company (URC), the Company took control
of URC’s 401(k) plan which it immediately froze. The Company plans to merge this frozen plan with one of its active plans during
2003. While there are currently no contributions being made to the frozen plan, loan repayments have continued as scheduled.

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 general terms, differs from the taxable income by excluding the inflation adjustment on
depreciation, amortization, receivables and payables. Provisions for statutory profit sharing expense were $388,000, $298,000
and $766,000 for 2002, 2001 and 2000, respectively.

Additionally, the Company’s Canadian subsidiaries administer two different retirement benefit plans. Both plans qualify under
Section 146 of the federal and provincial income tax law and are Registered Retirement Savings Plans (RRSP). Under each plan
employees may elect to contribute a certain percentage of their salary on a pre-tax basis. Under the first plan, the Company
matches 5% of gross salary up to a maximum of $1,200 per year. Under the second plan, the Company matches 50% of the

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

8 1

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

employee’s contribution up to a maximum of 2% of gross salary. Company contributions were approximately $122,000 and $80,000 for the years
2002 and 2001 respectively.

Postemployment Benefits

The Company does not provide any other significant postemployment benefits to its employees.

14. INCOME TAXES:

The components of income before income taxes, equity earnings and extraordinary item are as follows (in thousands):

United States

Foreign (U.S.$)

2002

2001

2000

$20,918

$ 7,615

$ 9,199

4,273

8,772

14,891

$25,191

$16,387

$24,090

The components of the provision for income taxes are as follows (in thousands):

United States:

Current—

Federal

State

Deferred

Foreign (U.S.$):

Current

Deferred

Total

2002

2001

2000

$ 747

$ 681

254

7,264

2,228

8,265

2,994

1,405

(687)

1,236

1,936

718

3,172

495

339

2,594

3,428

164

6,977

7,141

$8,983

$6,166

$10,569

The provision for income taxes differs from that which would be computed by applying the statutory U.S. federal 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

State income taxes, net of federal income tax beneﬁt

Change in valuation allowance

Other, net

Effective income tax rate

8 2 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

2002

2001

2000

34.0% 34.0%

(2.9)%

3.9%

3.2%

1.9%

(0.0)% (2.0)%

0.7%

0.5%

34.0%

12.2%

1.8%

(3.6)%

(0.5)%

35.7% 37.6%

43.9%

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Deferred tax beneﬁts —

Accruals and reserves not deducted for tax purposes until paid

Alternative minimum tax credits

Net operating losses

Interest rate swaps

Other

Deferred tax obligations —

Property and investment basis differences

Valuation allowance

Net deferred tax obligations

2002

2001

$ 2,184

$ 2,150

270

7,432

641

262

841

6,776

376

507

10,789

10,650

(39,541)

(32,670)

(450)

$(29,202)

$(22,470)

In the accompanying consolidated balance sheets, these deferred benefits and deferred obligations are classified as current or
non-current based on the classification 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.

15. GRANTS FROM GOVERNMENTAL AGENCIES:

The Company periodically receives grants from states and provinces in which it operates for rehabilitation or construction of
track. The states and provinces typically reimburse the Company for 75% to 100% of the total cost of specific projects. Under
three such grant programs, the Company received $1.5 million, $278,000 and $6.0 million in 2002, 2001 and 2000, respectively,
from the State of New York, $4.3 million, $3.2 million and $2.2 million in 2002, 2001 and 2000, respectively, from the State of
Pennsylvania, and $2.4 million in 2002 from the State of Oregon. In addition, the Company received $113,000, $86,000 and
$341,000 of grants in 2002, 2001 and 2000, respectively, from other states, and $544,000, $388,000 and $315,000 in 2002,
2001 and 2000, respectively, from a province in Canada.

None of the Company’s grants represent a future liability 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 to
make certain minimum 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 expenditures have been incurred. The amortization of deferred grants is a non-cash offset to

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

8 3

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

depreciation expense over the useful lives of the related assets and is not included as taxable income. During the years ended December 31, 2002,
2001 and 2000, the Company recorded offsets to depreciation expense from grant amortization of $1.8 million, $1.4 million and $1.1 million,
respectively.

16. COMMITMENTS AND CONTINGENCIES:

The Company is a defendant in certain lawsuits resulting from railroad and industrial switching operations, one of which had
included the commencement of a criminal investigation that was resolved in 2001 with no charges arising. Management believes
that the Company has adequate provisions in the financial statements for any expected liabilities which may result from disposi-
tion of such lawsuits. While it is possible that some of the foregoing matters 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 Company (ComEd) in the Circuit Court of Cook County, Illinois. The suit alleges that IMRR breached
certain 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 previously
owned Powerton Plant. The suit seeks up to $19.0 million in compensatory damages for alleged past rate overcharges. The
Company believes the suit is without merit and intends to vigorously defend against the suit. However, an adverse outcome of
this lawsuit could have a material adverse effect on the Company’s financial condition.

17. STOCK-BASED COMPENSATION PLANS:

In 1996, the Company established an incentive and nonqualified stock option plan for key employees and a nonqualified 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, except for $200,000 of compensation expense related to the
immediate repurchase of shares issued upon exercise of certain stock options in 2001. Had compensation cost for all options
issued under these plans been determined consistent with FASB Statement No. 123, the Company’s net income and earnings per
share would have been reduced as follows (in thousands, except EPS):

Net Income: As reported

Deduct: Total stock-based employee compensation expense determined under fair value based

methods for all awards, net of related tax effects

Pro Forma

Basic EPS: As reported

Pro Forma

Diluted EPS: As reported

Pro Forma

2002

2001

2000

$25,607

$19,084

$13,932

(980)

(777)

(1,007)

$24,627

$18,307

$12,925

$ 1.66

$ 1.72

$ 1.42

1.60

1.65

1.32

$ 1.46

$ 1.48

$ 1.38

1.40

1.42

1.28

The Company has reserved 3,315,000 Class A shares for option grants 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. Some awards under the director’s plan are automatic during the first two years
after joining the Board of Directors, and the Board of Directors may make other awards under this plan. Under both Plans, the

8 4 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 2002, 2001 and 2000:

Year Ended
December 31, 2002

Year Ended
December 31, 2001

Year Ended
December 31, 2000

Outstanding at beginning of year

Granted

Exercised

Forfeited

Outstanding at end of year

Wtd. Ave.
Exercise
Price

$8.32

21.34

8.70

10.45

11.63

1,289,826

332,550

(349,020)

(13,192)

1,260,164

1,720,052

339,977

(741,428)

(28,775)

1,289,826

Exercisable at end of year

468,204

7.46

466,977

Weighted average fair value of options granted

12.03

Wtd. Ave.
Exercise
Price

$7.72

11.45

8.39

7.28

8.32

7.77

6.28

1,715,064

$7.88

336,488

(287,625)

(43,875)

1,720,052

950,220

6.70

7.59

6.42

7.72

8.38

3.47

The following table summarizes information about stock options outstanding at December 31, 2002:

Exercise Price

$ 2.35 — 4.69

4.70 — 7.04

7.05 — 9.39

9.40 — 11.74

11.75 — 14.09

14.10 — 16.44

16.45 — 18.79

18.80 — 21.14

21.15 — 23.49

3.72 — 23.49

Options Outstanding
Weighted
Average
Remaining
Contractual Life

Weighted
Average
Exercise
Price

Options Exercisable

Number of
Options

Weighted
Average
Exercise
Price

Number of
Options

160,971

237,760

104,696

361,111

9,000

51,751

6,750

2,250

325,875

1.3 Years

2.7 years

3.3 years

2.3 years

6.4 years

3.7 years

8.9 years

9.0 years

4.4 years

1,260,164

3.0 Years

$3.79

6.38

7.79

10.29

12.50

14.68

17.13

19.97

21.38

11.63

100,880

114,361

76,899

161,252

6,000

7,312

1,500

—

$3.77

6.31

7.74

9.84

12.58

14.77

17.35

—

468,204

7.46

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:

Risk-free interest rate

Expected dividend yield

Expected lives in years

Expected volatility

2002

2001

2000

4.46%

0.00%

3.00

4.50%

0.00%

4.91

6.20%

0.00%

5.45

61.51%

58.11%

47.80%

In addition to the Stock Option Plans, the Company has reserved 562,500 shares of Class A common stock it may sell to its full-
time employees under its Stock Purchase Plan. At December 31, 2002, 2001 and 2000, 27,227 shares, 25,202 shares, and
22,388 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 compensation cost exists for this plan.

18. BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION:

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

8 5

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Corporate overhead expenses, including acquisition expenses, are reported in North American Railroad Operations. The Com-
pany’s December 31, 2002 and 2001, 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. Certain prior year amounts have
been reclassified for comparative purposes. 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 geographic area for 2002, 2001 and 2000 are shown in the following tables (in thousands):

2002
Operating revenues

Income from operations

Depreciation and amortization

Assets

Goodwill, net

Capital expenditures, net of government grants

2001

Operating revenues

Income from operations

Depreciation and amortization

Goodwill, net

Assets

Capital expenditures, net of government grants

2000

Operating revenues

Income (loss) from operations

Depreciation and amortization

Goodwill, net

Assets

Capital expenditures, net of government grants

North American

Railroad
Operations

Industrial
Switching

Total

Australian
Railroad
Operations

Consolidated
Total

$194,384

$15,156

$209,540

31,420

13,071

587

498

32,007

13,569

508,948

5,911

514,859

23,666

21,884

508

403

24,174

22,287

$161,445

$12,131

$173,576

22,467

12,139

23,636

394,746

16,307

487

617

508

7,773

244

22,954

12,756

24,144

402,519

16,551

—

$209,540

32,007

13,569

514,859

24,174

22,287

$173,576

22,954

12,756

24,144

402,519

16,551

$158,318

$10,573

$168,891

$37,639

$206,530

23,504

11,068

4,752

330,358

22,581

238

658

543

8,025

404

23,742

11,726

5,295

338,383

22,985

(30)

2,254

—

6,288

23,712

13,980

5,295

338,383

29,273

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

8 6 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

19. QUARTERLY FINANCIAL DATA (Unaudited):

Quarterly Results

First

Fourth
Quarter Quarter Quarter Quarter

Second

Third

(in thousands, except per share data)
2002

Operating revenues

Income from continuing operations

Net income

Diluted earnings per share

2001

Operating revenues

Income from continuing operations

Net income

Diluted earnings per share

2000

Operating revenues

Income from continuing operations

Net income

Diluted earnings per share

$48,297

$52,075

$53,001

$56,167

6,540

5,388

0.31

8,364

7,435

0.42

7,322

7,025

0.40

9,781

5,759

0.33

$42,871

$44,243

$42,050

$44,412

5,184

6,578

0.53

5,985

5,087

0.40

5,064

4,531

0.35

6,721

2,888

0.21

$55,411

$52,354

$50,095

$48,670

8,269

4,412

0.44

7,904

2,278

0.23

6,651

3,192

0.32

888

4,050

0.38

The fourth quarter of 2002 includes a $2.8 million pre-tax gain on the sale of rail assets and a $375,000 after-tax extraordinary
charge (see Note 9) resulting from the early extinguishment of debt.

The fourth quarter of 2001 includes a $728,000 pre-tax decrease to the previously recorded gain of $3.7 million to reflect the
lower than estimated reimbursed amount for acquisition-related costs (see Note 3).

The first quarter of 2001 includes an additional pre-tax gain of $3.7 million related to the December, 2000 issuance of ARG stock
to Wesfarmers (see Note 3).

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 million deferred tax expense resulting from
the deconsolidation of ASR (see Note 3).

20. COMPREHENSIVE INCOME:

Comprehensive income is the total of net income and all other non-owner changes in equity. The following table sets forth the
Company’s comprehensive income for the years ended December 31, 2002, 2001 and 2000 (in thousands):

Net income

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments, net of tax provision (beneﬁt) of $1,396, $426 and ($2,791),

respectively

Transition adjustment related to change in accounting for derivative instruments and hedging

activities, net of beneﬁt of ($153)

Net change in unrealized losses on qualifying cash ﬂow hedges, net of beneﬁt of ($406) and ($286),

respectively

Net change in unrealized losses on qualifying cash ﬂow hedges of Australian Railroad Group, net of

beneﬁt of ($2,493)

Minimum pension liability adjustment, net of beneﬁt of ($306)

Comprehensive income

2002

2001

2000

$25,607

$19,084

$13,932

2,514

708

(3,567)

—

(255)

(732)

(475)

(5,818)

(552)

—

$21,019

$19,062

$10,365

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

8 7

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table sets forth the components of accumulated other comprehensive loss, net of tax, included in the consolidated
balance sheets as of December 31, 2002 and 2001 (in thousands):

Net foreign currency translation adjustments, net of beneﬁt of ($922) and ($2,516), respectively

Net unrealized minimum pension liability adjustment, net of beneﬁt of ($306)

Net unrealized losses on qualifying cash ﬂow hedges, net of beneﬁt of ($3,045) and ($439), respectively

Accumulated other comprehensive loss, net of beneﬁt of ($4,273) and ($2,955), respectively

2002

2001

$(1,660)

$(4,175)

(552)

(7,281)

—

(730)

$(9,493)

$(4,905)

21. RECENTLY ISSUED ACCOUNTING STANDARDS:

The Financial Accounting Standards Board (FASB) recently issued the following Statements of Financial Accounting Standards
(SFAS):

FASB 141 — ‘‘Business Combinations’’

FASB 142 — ‘‘Goodwill and Other Intangible Assets’’

FASB 143 — ‘‘Accounting for Asset Retirement Obligations’’

FASB 144 — ‘‘Accounting for the Impairment or Disposal of Long-Lived Assets’’

FASB 145 — ‘‘Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections’’

8 8 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

corrections, clarify meanings, or describe their applicability under changed conditions. SFAS No. 145 was issued in April 2002 and the provisions of
this Statement related to the rescission of Statement 4 shall be effective for the ﬁscal years beginning after May 15, 2002. All other provisions of this
Statement shall be effective for ﬁnancial statements issued on or after May 15, 2002 with early adoption permitted. The Company is in the process
of evaluating what impact, if any, this standard will have on the Company’s Consolidated Financial Statements. The most signiﬁcant change will
impact the reporting of losses associated with the write-off of deferred ﬁnancing costs which are currently reported as extraordinary. The Company
has elected not to adopt this pronouncement early.

FASB 146 — ‘‘Accounting for Costs Associated with Exit or Disposal Activities’’

Under SFAS No. 146, costs associated with exit or disposal activities are required to be recorded at their fair values only once a
liability exists. Under previous guidance, certain exit costs were accrued when management committed to an exit plan, which
may have been before an actual liability arose. Liabilities recognized prior to the initial application of FAS 146 should continue to
be accounted for in accordance with EITF 94-3 or other applicable pre-existing guidance. SFAS No. 146 was issued in June 2002
and is effective for fiscal years beginning January 1, 2003 (with earlier application encouraged). The Company is in the process of
evaluating what impact, if any, this standard will have on the Company’s Consolidated Financial Statements.

FASB 148 — ‘‘Accounting for Stock-Based Compensation’’

FIN 45 — ‘‘Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others — an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB
Interpretation No. 34’’

This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about
its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. This Interpretation does
not prescribe a specific approach for subsequently measuring the guarantor 1/2s recognized liability over the term of the related
guarantee. This Interpretation also incorporates, without change, the guidance in FASB Interpretation No. 34 Disclosure of
Indirect Guarantees of Indebtedness of Others, which is being superseded.

a. Product warranties

b. Guarantees that are accounted for as derivatives

c. Guarantees that represent contingent consideration in a business combination

d. Guarantees for which the guarantor’s obligations would be reported as an equity item (rather than a liability)

e. An original lessee’s guarantee of lease payments when that lessee remains secondarily liable in conjunction with being

relieved from being the primary obligor (that is, the principal debtor) under a lease restructuring

f. Guarantees issued between either parents and their subsidiaries or corporations under common control

g. A parent’s guarantee of a subsidiary’s debt to a third party, and a subsidiary’s guarantee of the debt owed to a third party

by either its parent or another subsidiary of that parent.

h. However, the guarantees described in (a)-(g) above are subject to the disclosure requirements of this Interpretation.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

8 9

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

this Interpretation are effective for ﬁnancial statements of interim or annual periods ending after December 15, 2002. The interpretive guidance
incorporated without change from Interpretation 34 continues to be required for ﬁnancial statements for ﬁscal years ending after June 15, 1981-the
effective date of Interpretation 34. The Company is in the process of evaluating what impact, if any, this interpretation will have on the Company’s
Consolidated Financial Statements.

FIN 46 — ‘‘Consolidation of Variable Interest Entities — an interpretation of ARB No. 51’’

2. The equity investors lack one or more of the following essential characteristics of a controlling financial interest:

a. The direct or indirect ability to make decisions about the entity’s activities through voting rights or similar rights

b. The obligation to absorb the expected losses of the entity if they occur, which makes it possible for the entity to

finance its activities

c. The right to receive the expected residual returns of the entity if they occur, which is the compensation for the risk of

absorbing the expected losses.

The following are exceptions to the scope of this Interpretation:

1. Not-for-profit organizations are not subject to this Interpretation unless they are used by business enterprises in an

attempt to circumvent the provisions of this Interpretation.

2. Employee benefit plans subject to specific accounting requirements in existing FASB Statements are not subject to this

Interpretation.

3. Registered investment companies are not required to consolidate a variable interest entity unless the variable interest

entity is a registered investment company.

6. Separate accounts of life insurance enterprises as described in AICPA Auditing and Accounting Guide, Life and Health

Insurance Entities, are not subject to this Interpretation.

This Interpretation may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or
by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning
of the first year restated. The Company is in the process of evaluating what impact, if any, this interpretation will have on the
Company’s Consolidated Financial Statements.

9 0 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

REPORT OF THE INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Australian Railroad Group Pty Ltd

We have audited the accompanying consolidated balance sheets of Australian Railroad Group Pty Ltd and subsidiaries as of
December 31, 2002 and 2001 and the related consolidated statements of income, stockholders’ equity and comprehensive
income and cash flows for the two years ended December 31, 2002 and 2001. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require
that we plan and perform the audit 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 principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of Australian Railroad Group Pty Ltd and subsidiaries at December 31, 2002 and 2001 and the consolidated results of their
operations and their cash flows for the two years ended December 31, 2002 and 2001, in conformity with accounting principles
generally accepted in the United States.

ERNST & YOUNG

Perth, Western Australia
7 February 2003

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

9 1

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

at December 31, 2002 and 2001

ASSETS

CURRENT ASSETS

Cash and cash equivalents

Accounts receivable

Materials and supplies

Prepaid expenses and other

Total current assets

PROPERTY AND EQUIPMENT, net

RESTRICTED CASH

DEFERRED INCOME TAX ASSETS

OTHER ASSETS, net

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

Interest bearing liabilities

Accounts payable

Accrued expenses

Provision for employee entitlements

Current income tax liabilities

Deferred income tax liabilities

Total current liabilities

LONG-TERM DEBT

OTHER LONG-TERM LIABILITIES

DEFERRED INCOME TAX LIABILITIES

FAIR VALUE OF INTEREST RATE SWAPS

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY

2002

2001

$000 USD

5,882

9,908

30,315

25,983

7,985

2,061

8,390

3,109

46,243

47,390

402,286

355,818

53,380

10,592

4,224

6,260

9,469

5,862

$516,725

$424,799

$133,263

—

8,784

16,418

4,161

1,672

7,949

23,837

5,488

948

309

164,369

38,531

195,039

262,876

1,031

2,427

16,621

993

—

9,667

Common stock, no par value, 90,000,002 issued and outstanding at December 31, 2002 and 2001

79,029

Preferred stock, no par value, 11,704,462 issued and outstanding at December 31, 2002 and 2001,

no ﬁxed dividend, redeemable at the option of the Company

Subordinated stockholders’ loans

Retained earnings

Accumulated other comprehensive income

Total stockholders’ equity

Total liabilities and stockholders’ equity

11,807

8,719

44,658

11,807

8,719

27,684

(6,975)

(14,507)

137,238

112,732

$516,725

$424,799

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

9 2 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2002 and 2001

OPERATING REVENUES

OPERATING EXPENSES

Transportation

Maintenance of ways and structures

Maintenance of equipment

General and administrative

Net gain on sale and impairment of assets

Depreciation and amortization

Write-off of unsuccessful bid costs

Total operating expenses

INCOME FROM OPERATIONS

Interest income

Interest expense

INCOME BEFORE INCOME TAXES

Provision for income taxes

NET INCOME

2002

2001

$000 USD

$206,431

$181,714

59,110

27,680

23,187

32,239

(314)

17,191

867

53,552

23,622

20,301

21,852

(152)

13,392

1,752

159,960

134,319

46,471

47,395

886

596

(24,859)

(22,505)

22,498

(5,524)

25,486

(8,584)

$ 16,974

$ 16,902

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

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

9 3

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME

$000 USD

Common
Stock

Preferred
Stock

Subordinated
Stockholders’
loans

Retained
Earnings

Accumulated
Other
Comprehensive
Income/(Loss)

Total
Stockholders’
Equity

BALANCE, December 31, 2000

$71,344

$11,807

$16,404

$10,782

$ 2,234

$112,571

Comprehensive income/(loss)

Net income

Currency translation adjustment

Transition adjustment related to the

change in accounting for derivative
instruments

Impact of cash ﬂow hedges on other

comprehensive income

Fair market value adjustments of cash ﬂow

hedges

Repayment of loans

Issuance of 18,000,000 common stock

TOTAL COMPREHENSIVE INCOME

—

7,685

—

(7,685)

—

16,902

—

(9,974)

(3,587)

(5,622)

2,442

—

16,902

(16,741)

16,902

(9,974)

(3,587)

(5,622)

2,442

(7,685)

7,685

161

BALANCE, December 31, 2001

$79,029

$11,807

$ 8,719

$27,684

$(14,507)

$112,732

Comprehensive income/(loss)

Net income

Currency translation adjustment

Impact of cash ﬂow hedges on other

comprehensive income

Fair market value adjustments of cash ﬂow

hedges

TOTAL COMPREHENSIVE INCOME

—

16,974

—

16,974

—

12,407

16,974

12,407

(8,479)

3,604

7,532

3,604

24,506

BALANCE, December 31, 2002

$79,029

$11,807

$ 8,719

$44,658

$ (6,975)

$137,238

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

9 4 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2002 and 2001

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation

Amortization

Gain on sale and impairment of assets

Deferred income taxes

Amortization of deferred ﬁnance charges

Changes in assets and liabilities Accounts receivable, prepaid expenses and other

Materials and supplies

Accounts payable, provisions, accrued expenses and other

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property and equipment

Proceeds from sale of property and equipment

Transfer to restricted cash

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issue of shares

Repayment of subordinated stockholders’ loans

Refund of goods and services tax

Proceeds from long-term debt

Repayments of short-term debt

Net cash (used in)/provided by ﬁnancing activities

Effect of exchange rate changes on cash and cash equivalents

(Decrease)/Increase 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

2002

2001

$000 USD

$16,974

$16,902

13,769

10,139

3,422

(314)

3,665

2,155

3,253

(152)

7,252

1,860

(379)

(14,164)

1,203

(197)

(10,722)

16,505

29,773

41,398

(28,423)

(54,358)

1,752

152

(46,957)

(6,351)

(73,628)

(60,557)

—

38,990

7,685

(7,685)

16,457

20,452

— (16,360)

38,990

20,549

839

(553)

(4,026)

9,908

837

9,071

$ 5,882

$ 9,908

$22,704

$20,645

1,647

—

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

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

9 5

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2002 and 2001

1. PRINCIPAL ACTIVITIES

Australian Railroad Group Pty Ltd (the Company) is jointly owned by Genesee & Wyoming Inc (GWI) and Wesfarmers Ltd
(Wesfarmers) with each partner holding a 50% interest.

The principal activity of the Company during the year was to provide rail freight transport and ancillary logistics services to the
mining and agricultural industries and to the general freight market within Western Australia and South Australia. There was no
significant change in the nature of these activities during this period.

On April 20, 2001, Asia Pacific Transport Consortium Pty Ltd (APTC) completed the arrangement of debt and equity capital to
finance a project to build, own and operate the Alice Springs to Darwin railway line in the Northern Territory of Australia. As
previously arranged, upon APTC reaching financial closure, Wesfarmers contributed an additional $7.7 million into the Company.
In the second quarter of 2001, the Company paid the $7.7 million to its two shareholders, in equal amounts of $3.9 million each,
as partial payment of each shareholder’s Australian dollar denominated non-interest bearing note.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally
accepted in the United States of America.

Principles of Consolidation

The consolidated financial statements include the accounts of Australian Railroad Group Pty Ltd and its wholly owned subsidiar-
ies. All intercompany transactions and accounts have been eliminated.

Revenue Recognition

Due to the relatively short length of haul, revenues are estimated and recognized as shipments initially move onto the tracks.
Other service revenues are recognized as such services are provided.

Cash Equivalents

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

Restricted Cash

The restricted cash on deposit is interest bearing and is restricted to be used on capital expenditure as approved by the lenders.
The amount remaining at December 18, 2003, may either be applied to bank debt or carried forward for future capital
expenditure.

Materials and Supplies

Materials and supplies consist of purchased items for improvement and maintenance of railroad property and equipment, and are
stated at the lower of cost on a first-in-first-out basis or net realisable value.

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 operating expenses upon disposition. Depreciation is provided on
the straight-line method over the useful lives of the railroad property (20-30 years), equipment (3-20 years) and lease premium
(49 years). The Company continually evaluates whether events and circumstances have occurred that indicate that its 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 related undiscounted future cash flows over the remaining lives of assets in measuring whether or not
impairment has occurred. If 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.

9 6 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Disclosures About Fair Value of Financial Instruments

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

Current assets and current liabilities: The carrying value approximates fair value due to the short maturity 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, collateral, amortization schedule and liquidity. The carrying amount approximates fair value.

Derivative Instruments and Hedging Activities

All derivative financial instruments that qualify for hedge accounting, such as interest rate swap contracts, are recognized at fair
value regardless of the purpose or intent for holding them. Changes in the fair value of derivative financial instruments are either
recognized periodically in income or stockholders’ equity (as a component of comprehensive income), depending on whether the
derivative is being used to hedge changes in fair values or cash flows.

Management Estimates

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

Foreign Currency Translation

The functional currency of the Company is the Australian dollar. Foreign currency transactions are translated at the applicable
rates of exchange prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the
balance sheet date are translated at the applicable rates of exchange prevailing at that date. All exchange gains and losses are
reflected in the statement of income. Cumulative translation gains or losses arising from translating the Australian dollar denomi-
nated financial statements into US dollars are reported in other comprehensive income as a component of stockholders’ equity.

3. PROPERTY AND EQUIPMENT

Major classifications of property and equipment are as follows:

Land and buildings

Track improvements

Equipment and other

Lease premium

Less: Accumulated depreciation and amortisation

2002

2001

$000 USD

$ 22,335

$ 20,319

101,425

61,620

143,165

130,911

172,891

157,240

439,816

370,090

(37,530)

(14,272)

$402,286

$355,818

The lease premium represents the cost paid to the Government of Western Australia as part of the purchase price for Westrail
Freight, for access to the track infrastructure network for a period of 49 years.

4. OTHER ASSETS

Major classiﬁcations of other assets are as follows:

Deferred ﬁnance costs

Less: Accumulated amortization

8,747

7,956

(4,523)

(2,094)

4,224

5,862

Deferred financing costs are amortized over terms of the related debt using the straight-line method, which approximates the
effective interest method.

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

9 7

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. LONG-TERM DEBT

Current
Non-current

Credit facilities

2002

2001

$000 USD

$133,263
$195,039

$
—
$262,876

Long-term debt represents project financing, with the lenders taking security over all assets of the Company. The debt consists
of a 3 year fully drawn facility of $133.3 million due December 18, 2003, a 5 year fully drawn facility of $133.3 million due
December 18, 2005, and a 5-year facility of $61.7 million for capital expenditure due December 18, 2005. Loan repayments are
based upon available cash flows. The minimum future repayments are set out in the schedule below. All loan covenants have
been complied with.

The interest rate on the three facilities is derived from the bank bill bid rate. The interest rate on secured loans during 2002 was
6.09% (2001 : 6.56%) and excludes any interest hedging adjustments. Including the effect of interest rate swaps, the effective
interest rate was 7.84% for 2002 and 7.91% for 2001.

In addition, the Company has a secured operating overdraft facility of $8.4 million, on which $1.1 million was drawn at Decem-
ber 31, 2002.

Schedule of Future Minimum Payments

The following is a summary of the scheduled maturities of long-term debt:

2002
2003
2004
2005

6. FINANCIAL RISK MANAGEMENT

(a) Interest rate risk

—
133,263
—
195,039

—
121,200
—
141,676

$328,302

$262,876

The Company uses derivative financial instruments principally to manage the risk that changes in interest rates will affect the
amount of its future interest payments. Interest rate swap contracts are used to adjust the proportion of total debt that is subject
to variable interest rates. Under an interest rate swap contract, the Company agrees to pay an amount equal to a specified fixed-
rate of interest times a notional principal amount, and to receive in return an amount equal to a specified variable-rate of interest
times the same notional amount.

For interest rate swap contracts under which the Company agrees to pay fixed-rates of interest, these contracts are considered
to be a cash flow hedge against changes in the amount of future cash flows associated with the Company’s interest payments of
variable-rate debt obligations. Accordingly, the interest rate swap contracts are reflected at fair value in the Company’s consoli-
dated balance sheet and the related gains or losses on these contracts are deferred in stockholders’ equity (as a component of
comprehensive income). However, to the extent that any of these contracts are not considered to be perfectly effective in
offsetting the change in the value of the interest payments being hedged, any changes in fair value relating to the ineffective
portion of these contracts are immediately recognized in income. The accounting for hedge effectiveness is measured at least
quarterly based on the relative change in fair value between the derivative contract and the hedged item over time. The net effect
of this accounting in the Company’s operating results is that interest expense on the portion of variable-rate debt being hedged
is recorded based on fixed interest rates.

The Company entered into rate swap agreements on its $133.3 million variable rate debt due December 18, 2003, its $133.3 mil-
lion variable rate debt due December 18, 2005, and its $61.7 million variable rate debt due December 18, 2005. These interest
rate swap contracts were entered for interest rate exposure management purposes and mature on December 18, 2007. As a
result of FAS133, the Company recorded a cumulative transition adjustment of $3.6 million net of income taxes, to accumulated
other comprehensive income. The transition adjustment is being amortized over the future life of the underlying debt obligations.
At December 31, 2001 and 2002, the Company had interest rate swap contracts to pay fixed-rates of interest between 5.6% and
6.9% and receive variable-rates of interest of an average of 6.1% on $274.6 million notional amount of indebtedness.

(b) Net fair values

The carrying amounts of financial assets and financial liabilities at December 31, 2002, approximate their aggregate net fair
values.

9 8 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company’s maximum exposures to credit risk at December 31, 2002, in relation to each class of recognized financial asset is
the carrying amount of those assets as indicated in the balance sheet.

In relation to derivative financial instruments, credit risk arises from the potential failure of counterparties to meet their obligations
under the contract or arrangements. The Company’s maximum credit risk exposure in relation to interest rate swap contracts is
limited to the net amounts to be received on contracts that are favourable to the Company, being none at December 31, 2002.

Concentration of credit risk

For the year ending December 31, 2002, the Company’s primary location of business was within South Australia and Western
Australia, which therefore represents the location of the Company’s credit risk. Trade payables /receivables are normally paya-
ble/collectable within 30 days.

Except for securities held to ensure the performance of contractor guarantees or warrantees, amounts due from major receiv-
ables are not normally secured by collateral, however the creditworthiness of receivables is regularly monitored. Securities held
to ensure the performance of contractor guarantees or warrantees include Bank Guarantees, Personal (Directors) Guarantees or
cash. The value of securities held is dependent on the nature, including the complexity and risk of the contract.

7. INCOME TAXES

The prima facie tax on income before income taxes differs from the income tax provided in the financial statements as follows:

Prima facie tax at 30% on income before income taxes

Tax effect of permanent differences:

Amortization of lease premium

Non-allowable items

Other items

Total income tax expense

2002

2001

$000 USD

$ 6,749

$ 7,646

—

(1,225)

976

(59)

$ 5,524

$ 8,584

The Company is governed by the taxation laws of the Commonwealth Government of Australia, which has a statutory tax rate
of 30%.

Total income tax expense includes:

Current

Deferred

The deferred income tax balance comprises:

Non-current deferred income tax assets Employee leave provisions

Tax vs. book values of property and equipment

Income tax losses carried forward

Unrealised losses on interest rate swaps

Current deferred income tax liabilities:

Employee leave provisions

Expense accruals

Materials and supplies

Prepayments

Income accruals

Non-current deferred income tax liability tax vs. book values of property and equipment

$ 2,005

166

3,519

8,418

$ 5,524

$ 8,584

— $

216

—

5,613

4,979

1,673

4,680

2,900

$10,592

$ 9,469

$ 1,373

$ 1,194

321

234

(1,084)

(1,445)

(192)

(489)

(71)

$ (2,427)

(292)

—

(309)

—

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

9 9

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Income tax losses have no expiry date and the Company expects to recover all income tax losses, consequently, there is no
valuation allowance.

8. PREFERRED STOCK

Redeemable preference shares are fully paid (1 at A$4,544,564; 5,852,231 at A$1.46; 5,524,000 at A$1; and 328,230 at A$9.14)
and earn a dividend at the declaration of the Directors from time to time. The shares are redeemable at the option of the Directors
of Australian Railroad Group Pty Ltd. Upon redemption the shareholder is entitled to receive the paid up amount of the preferred
shares. In the event of the winding up of the Company, the holders of redeemable preference shares are entitled in priority to the
holders of any other classes of shares to payment of the paid up amount of the shares and the amount of any declared but
unpaid dividends at that date, but shall not otherwise have any rights to participate in surplus assets. Preferred shares carry no
voting rights.

9. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

The components of other comprehensive income/(loss), net of income tax, included in the consolidated balance sheet as of
December 31, 2002 are as follows:

Net foreign currency translation adjustments

Unrealised losses on interest rate swaps

Less Income taxes

Net unrealised losses on interest rate swaps

Accumulated other comprehensive income (loss)

10. EXPENDITURE COMMITMENTS

(a) Non-cancellable future minimum lease payments, payable as follows:

2003

2004

2005

2006

2007

Thereafter

(b) Other capital expenditures:

Later than one year, but not later than ﬁve years

Later than ﬁve years

2002

2001

$000 USD

$ 4,667

$ (7,740)

(16,621)

(9,667)

4,979

2,900

(11,642)

(6,767)

$ (6,975)

$(14,507)

584

595

—

$24,570

$24,600

—

587

$24,570

$25,187

Operating leases are entered into for motor vehicles and office equipment. Rental payments are fixed for the life of the lease for
all types of operating leases. Purchase options and renewal terms exist at the Company’s discretion and no operating lease
contains restrictions on financing or other leasing activities. Operating lease expense in 2002 was $1.0 million (2001:
$2.0 million).

Under the agreement for the acquisition of SA Rail Pty Ltd, a wholly owned subsidiary of the Company, the Company was
committed to incur approximately $29.3 million (2001: $26.7 million) of capital expenditure between the date of acquisition and
December 31, 2002, either directly or through its subsidiaries. The Commonwealth Government of Australia has confirmed this
commitment has been met.

Under the agreement for the acquisition of the Westrail Freight business, there is an obligation to complete the Katanning to
Nyabing and Toodyay to Miling lines by June 30, 2004. At the date of this report the costs are estimated to be $5.9 million and
$6.1 million, respectively.

1 0 0 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Commitments relating to various communications projects are estimated to be $11.3 million. The balance of capital commitments
have been approved and committed to infrastructure expenditure.

11. CONTINGENT LIABILITIES

GWA Northern Pty Ltd, a wholly owned subsidiary of the Company, unconditionally and irrevocably guarantees the due and
punctual payment of the secured debt of the Asia Pacific Transport Joint Venture, severally in accordance with its participating
interest, which is 1.45%, amounting to $2.1 million.

ARG Sell Down No 1 Pty Limited, a wholly owned subsidiary of the Company, unconditionally and irrevocably guarantees the due
and punctual payment of the secured debt of the Asia Pacific Transport Joint Venture, severally in accordance with its participat-
ing interest, which is 1.14%, amounting to $1.7 million.

WestNet Rail Pty Ltd (WestNet), a wholly owned subsidiary of the Company, has received a notice of claim from a contractor for
$8.9 million for cost variations in the construction of an asset. Under the contract they have formally lodged the claim and
WestNet has formally rejected it. The company considers it has a strong case to refute the claim.

Australia Southern Railroad Pty Ltd (ASR), a wholly owned subsidiary of the Company, has been joined as a third party in legal
proceedings by one of its customers. The claims relate to derailments during the period 1999-2000 and total $1.9 million
excluding interest and costs. Legal opinion indicates that ASR has a reasonable basis for defending this claim. Australia Western
Railroad Pty Ltd, a wholly owned subsidiary of the Company, has agreements with some customers which oblige it to make
refunds to these customers in certain circumstances. These circumstances depend on determinations by the Independent Rail
Access Regulator (the Regulator), under the WA Rail Access Regime, with regard to access fees charged by WestNet Rail Pty
Ltd, including those charged to Australia Western Railroad Pty Ltd. As yet the Regulator has not issued his determination on
these rates and the amount of any refund, if any, cannot be calculated.

12. EMPLOYEE BENEFIT PLANS

The following Employee Benefit Plans have been established:

Plan

Beneﬁt Type

Australian Railroad Group Superannuation Plan

Accumulated lump sum/deﬁned contribution plan

Westscheme Plan

West Super Plus Plan

Accumulated lump sum/deﬁned contribution plan

Employees contribute to the funds at various percentages of their remuneration. The consolidated entity’s contributions are not
legally enforceable other than those payable in terms of notified award and superannuation guarantee levy obligations. The
related expense for the year charged to the income statement was $1.5 million (2001 : $2.4 million).

13. ECONOMIC DEPENDENCY

Approximately 21.8% (2001: 21.5%) of the Company’s revenue is generated from freight services rendered to Australian Wheat
Board Ltd.

14. SEGMENT INFORMATION

Industry Segment

The group operates in only one industry, being rail freight transport.

15. RELATED PARTY DISCLOSURES

Interest free, unsecured loans amounting to $8.7 million, made equally by the shareholders, Wesfarmers Ltd and Genesee
& Wyoming Inc. to the consolidated entity.

2. Services to the group by Wesfarmers Ltd of $0.5 million (2001: $0.2 million) and Genesee & Wyoming Inc of $1.0 million

(2001: $1.9 million) are recovered at cost. There were no amounts outstanding at December 31, 2002.

16. RESTRUCTURING COSTS

On October 15, 2002 a further redundancy of 68 employees was approved by the Directors at a cost of $2.4 million, which has
been expensed in the current year. At December 31, 2002 an accrual of $0.2 million remained in respect of 5 employees still to
be terminated.

On October 11, 2001, the Company announced that it was restructuring the operations of the formerly state-owned assets of
Westrail Freight and expected a work force reduction of 80 employees by the end of March 2002. The estimated restructuring

2 0 0 2 F O R M 1 0 K G e n e s e e & W y o m i n g I n c .

1 0 1

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

costs of $4.1 million have been accounted for as an adjustment to the purchase price of Westrail Freight. At December 21, 2001,
the services of 42 employees had been terminated at a total cost of $2.6 million. The remaining 38 employees were terminated,
and the remaining restructuring costs of $1.5 million were paid in 2002.

17. UNSUCCESSFUL BID COSTS

In January 2002, the Company announced that its bid for the acquisition of the National Rail/Freightcorp operations in Australia
was unsuccessful. This announcement resulted in a write-off of all costs incurred through December 31, 2001, amounting to
$1.8 million, associated with the unsuccessful bid. An amount of $0.9 million additional costs of the unsuccessful bid were
expensed in 2002.

18. ASSET IMPAIRMENT

In 2002 certain under utilised plant and equipment was written down to its recoverable amount. The recoverable amount of these
assets was determined based on current resale values. The impairment write down amounted to $1.0 million. (2001 : Nil)

19. RECENTLY ISSUED ACCOUNTING STANDARDS

The Financial Accounting Standards Board (FASB) recently issued the following Statements of Financial Accounting Standards
(SFAS):

FASB 142 — ‘‘Goodwill and Other Intangible Assets’’

FASB 143 — ‘‘Accounting for Asset Retirement Obligations’’

FASB 145 — ‘‘Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections’’

Under SFAS No. 145, FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of
that Statement, and FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements are rescinded.
This Statement also rescinds FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement amends
FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-
leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed conditions. SFAS No. 145 was issued in April 2002
and is effective for fiscal years beginning after January 1, 2003 with early adoption permitted. The Company is in the process of
evaluating what impact, if any, this standard will have on the Company’s Consolidated Financial Statements.

FASB 146 — ‘‘Accounting for Costs Associated with Exit or Disposal Activities’’

1 0 2 G e n e s e e & W y o m i n g I n c . 2 0 0 2 F O R M 1 0 K

CORPORATE HEADQUARTERS

STOCK REGISTRAR AND TRANSFER AGENT

LaSalle Bank, N.A.
Trust and Asset Management
135 South LaSalle Street
Suite 1960
Chicago, IL 60603
312-904-2450
www.lasallebank.com

LEGAL COUNSEL

Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
212-455-2000
www.stblaw.com

Harter, Secrest & Emery LLP
1600 Bausch & Lomb Place
Rochester, New York 14604-2711
585-232-6500
www.hselaw.com

AUDITORS

PricewaterhouseCoopers LLP
1301 Avenue of the Americas
New York, New York 10019
646-471-4000
www.pwcglobal.com

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

COMMON STOCK

On June 24, 1996, the Company’s Class A Common Stock
began publicly trading and was quoted on the Nasdaq Na-
tional Market until September 26, 2002, under the trading
symbol GNWR. On September 27, 2002, the Company’s
Class A Common Stock began publicly trading on the New
York Stock Exchange under the trading symbol GWR. The
Class B Common Stock is not publicly traded.

The actual trade prices of Class A Common Stock reflected
below have been adjusted for a three-for-two stock split paid
on March 14, 2002 to shareholders of record on February 28,
2002; and for a three-for-two stock split paid on June 15,
2001 to shareholders of record on May 31, 2001:

YEAR ENDED DECEMBER 31, 2002:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter

YEAR ENDED DECEMBER 31, 2001:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter

HIGH
$ 23.770
$ 26.300
$ 24.170
$ 23.200

HIGH
$ 13.055
$ 14.600
$ 17.966
$ 22.066

LOW
$19.200
$19.760
$15.700
$18.000

LOW
$ 9.000
$ 9.028
$12.340
$15.000

As of March 3, 2003, there were 154 record holders of Class A
Common Stock and 9 holders of Class B Common Stock. The
Company believes that there are approximately 3,500 benefi-
cial owners of Class A Common Stock. Prior to its initial public
offering, the Company historically paid dividends on its com-
mon stock. However, since its initial public offering the Com-
pany has not paid dividends on its common stock and the
Company does not intend to pay cash dividends for the fore-
seeable future.

2 0 0 2 G e n e s e e & W y o m i n g I n c .

1 0 3

BOARD OF DIRECTORS

CORPORATE OFFICERS

C. Sean Day
Chairman, Teekay
Shipping Corporation
Chariman of Compensation Committee

Member of Governance Committee

James M. Fuller
Retired, Harvey Salt Co.
Member of Compensation Committee

Louis S. Fuller
Retired, Courtright
and Associates
Member of Executive Committee

Mortimer B. Fuller III
Chairman and
Chief Executive Officer
Chairman of Executive Committee

T. Michael Long
Partner, Brown Brothers
Harriman & Co.
Member of Audit Committee

Robert M. Melzer
Retired, former Chief Executive Officer,
Property Capital Trust
Chariman of Audit Committee

John M. Randolph
Financial Consultant and
Private Investor
Member of Audit Committee

Member of Executive Committee

Philip J. Ringo
Chairman and CEO,
RubberNetwork.com
Member of Audit Committee

Member of Governance Committee

Hon. M. Douglas Young, P.C.
Chairman, SUMMA Strategies Canada, Inc.
Chairman of Governance Committee

Member of Compensation Committee

Member of Executive Committee

G E N E S E E & W YO M I N G I N C . | 20 02

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

Charles N. Marshall
President and Chief Operating Officer

Charles W. Chabot
President - Marketing & Development

Robert Grossman
Executive Vice President
Government & Industry Affairs

Mark W. Hastings
Executive Vice President
Corporate Development and Secretary

John C. Hellmann
Chief Financial Officer

Alan R. Harris
Senior Vice President
Chief Accounting Officer and Assistant Secretary

Thomas P. Loftus
Senior Vice President
Finance and Treasurer

SENIOR EXECUTIVES

James W. Benz
Senior Vice President
GWI Rail Switching Services

Mario Brault
Senior Vice President
Canada Region

David J. Collins
Senior Vice President
New York/Pennsylvania

Shayne L. Magdoff
Senior Vice President
Administration and Human Resources

Larry Phipps
Senior Vice President
Oregon Region

Paul M. Victor
Senior Vice President
Mexico

Spencer D. White
Senior Vice President
Illinois

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

New York/Pennsylvania

Buffalo & Pittsburgh Railroad, Inc.
1200-C Scottsville Road
Suite 200
Rochester, NY 14624
585-328-8601

Allegheny & Eastern Railroad, Inc.
1200-C Scottsville Road
Suite 200
Rochester, NY 14624
585-328-8601

Pittsburg & Shawmut Railroad, Inc.
1200-C Scottsville Road
Suite 200
Rochester, NY 14624
585-328-8601

Rochester & Southern Railroad, Inc.
1200-C Scottsville Road
Suite 200
Rochester, NY 14624
585-328-8601

South Buffalo Railway Co.
1200-C Scottsville Road
Suite 200
Rochester, NY 14624
585-328-8601

Illinois

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

Oregon

Portland & Western Railroad, Inc.
Willamette & Pacific Railroad, Inc.
650 Hawthorne Ave. SE
Suite 220
Salem, Oregon 97301
503-365-7717

Rail Link

Rail Link, Inc.
4337 Pablo Oaks Court
Suite 104
Jacksonville, Florida 32224
904-223-1110

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

York Railway Company
204 North George St.
Suite 220
York, PA 17401
717-771-1700

Utah

Utah Railway Company
340 Hardscrabble Road
Helper, Utah 84526
435-472-3430

A H RAILW

U T

COMPA N Y

Canada

Québec Gatineau Railway Inc.
6650 Durocher St.
Building 1
Outremont (Québec) H2V 3Z3
Canada
514-273-5739

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

St. Lawrence & Atlantic
415 Rodman Road
Auburn, ME 04210
207-782-5680

St-Laurent & Atlantique (Québec)
6650 Durocher St.
Building 1
Outremont (Québec) H2V 3Z3
Canada
514-273-5739

Mexico

Ferrocarriles Chiapas-Mayab, S.A. de C.V.
Calle 43 429-C
Col Industrial
Mérida, Yucatan
México, CP 97000
+52-999-930-2500

Australia

Australian Railroad Group
2-10 Adams Drive
Welshpool 6106
Perth
Western Australia
+61-8-9212-2500

Bolivia

Empresa Ferroviaria Oriental S.A.
Av. Montes Final s/n
Santa Cruz
Bolivia
+591-33-463-900

R R OCARRIL

F E

HIAPAS - M A Y

A B

S T R ALIA

ROAD G R

U P

R R OVIA

F E

RIE N T A

New York Stock Exchange: GWR
Visit us on-line: www.gwrr.com

G E N E S E E & W YO M I N G I N C . | 20 02