Genesee & Wyoming Inc. Annual Report 2004

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FY2004 Annual Report · Genesee & Wyoming Inc.

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Financial Strength
Geographic Diversity
Disciplined Growth
Service Excellence

Financial Highlights

Net Income by Geography
2004 Net Income = $37.6 million

(in thousands, except per share data)

Years Ended December 31

Income Statement Data

2004

2003

60% North America

Operating revenues

$303,784

$244,827

Operating income

$50,039

$36,305

Net income

$37,619

$28,719

Diluted earnings per common share $1.36

$1.03

2% South America

Weighted average number of shares

38% Australia

of common stock–diluted

27,402

26,768

2004 North American Freight Mix
by revenues

Balance Sheet Data as of Period End

19.9% Coal

Total assets

Total debt
Redeemable Convertible

Preferred Stock

$677,251

$627,173

$132,237

$158,022

$23,994

17.9% Paper

Stockholders’ equity

$341,700

$267,086

Intermodal 1.1%

Other 1.6%

Auto 2.8%

Chemicals-Plastics 7.2%

Farm & Food 7.2%

Minerals/Stone 9.9%

Metals 10.4%

11.2% Lumber & Forest

10.8% Petroleum

Genesee & Wyoming Inc. (GWI) is a leading owner
and operator of regional freight railroads in the
United States, Australia, Canada, Mexico and Bolivia.
In addition, we provide freight car switching and
rail-related services to industrial companies in the
United States. We have interests in more than
25 railroads and operate over 8,200 miles of owned,
jointly owned or leased track and more than 3,000
additional miles under track access arrangements.

36.6% Grain

Australian Railroad Group (ARG) is a Western Australia
based 50-percent owned subsidiary of GWI. ARG is
the second largest private rail operator in Australia
and spans the continent via the Interstate Lines.

2004 Australian Freight Mix
by revenues

Hook & Pull .6%

Gypsum 1.3%

Bauxite 4.6%

Alumina 7.1%

Other 12.6%

Iron Ore 16.3%

20.9% Other Ores & Minerals

2004 Genesee & Wyoming Inc. 1

To Our Shareholders

Genesee & Wyoming Inc. (GWI) achieved record
results for the ninth consecutive year since our
initial public offering in 1996. GWI’s net income
of $37.6 million for 2004, up 31 percent over the
$28.7 million reported in 2003, was the result of
significant internal growth of our core business
in North America and Australia. In addition:

(cid:1) Diluted earnings per share increased 32 per-
cent to a record $1.36, compared to $1.03
in 2003.

(cid:1) Our North American operations generated
a record $33.1 million of free cash flow in
2004, an increase of $7.1 million over 2003’s
$26 million. (We define free cash flow as
US GAAP Cash from Operating Activities of
$55 million less US GAAP Cash Flows used in
Investing Activities of $24.8 million, excluding
the cost of acquisitions of $2.9 million.)

(cid:1) On November 15, 2004, we completed

a $257 million debt refinancing that includes
a US$150 million revolving loan and a US$32
million Canadian term loan, under which
initial borrowings were priced at LIBOR plus
1 percentage point. That compares to LIBOR
plus 2 percentage points under our former
credit facility. At the same time, we completed
a US$75 million private placement of unsecured,
4.85 percent seven-year fixed rate senior
notes. This debt refinancing is an important
milestone in GWI’s growth. It reduces the cost
of our bank debt, adds a tranche of unsecured
long-term debt at an attractive fixed interest
rate and gives us significant capacity under
our revolver to execute our acquisition strategy.

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

To maximize and drive its growth, Genesee &
Wyoming has been guided by three objectives:

1. Maximize the core value of our existing

railroad operating regions through revenue
growth and operating efficiency;

2. Increase the value of our regions through

add-on acquisitions; and

3. Enter strategic new markets by acquisition.

Our 2004 results are notable because they
were principally driven by the first objective,
maximize the core value of our existing railroad
operating regions through revenue growth and
operating efficiency. Our North American revenue
growth continued to be balanced and uniformly
better than our expectations. Same railroad
revenue growth was 12.8 percent. Some specifics
from the New York/Pennsylvania region are
exemplary:

(cid:1) Steel-related traffic on the South Buffalo

Railway benefited from a strong steel market
nationwide, with shipments from two of the
railroad’s primary customers up more than
33 percent to almost 20,000 carloads, helping
to drive an overall increase in traffic on the
South Buffalo of more than 20 percent.

(cid:1) One of our largest customers in New York,
American Rock Salt (ARS), continued to
grow in 2004, with shipments up almost
10 percent. Cold winter weather in 2003-04,
the creation of additional stockpiles, and
the expansion of the car fleet by about
400 cars, drove this growth.

2004 Genesee & Wyoming Inc. 3

Operating efficiency in North America also

improved. Our operating ratio in 2004 was
83.5 percent versus 85.2 percent in 2003. This
improvement was especially significant because
it was achieved despite high fuel prices and
property damage expenses related to Hurricane
Ivan and two tunnel collapses.

One example of our investment to improve
our efficiency was put in use this year. In late
2002 we began a US$6 million locomotive
upgrade program designed to significantly
improve fuel efficiency in our Canada Region.
We rebuilt seven sets consisting of a lead loco-
motive unit, or “mother,” equipped with a typical
diesel engine, generator and traction motors
operating in tandem with a “slug” unit outfitted
with only traction motors to power the locomo-
tive wheels. The combined set provides the
tractive effort of two diesel units at reduced
fuel cost. The saving occurs because a diesel
engine generates a surplus of electricity at
lower track speeds. Thus the surplus from the
“mother” can be used by the “slug” to increase
pulling power. The sets were introduced in the
Canada Region where higher fuel costs and
operating characteristics suited to “mother-slug”
sets were projected to produce the greatest
benefits. In December 2004, we completed
tests on two of our Canadian lines. There the
locomotive sets proved their worth with fuel
savings averaging over 30 percent, amply
justifying the investment, particularly at today’s
high fuel prices.

Investing in New Customers
In 2004 we invested to develop new customers
and protect existing revenue in our operating
regions:

(cid:1) A nearly $9 million project to rehabilitate 16

miles of track that has been out of service for
more than 12 years gives us rail access to a
coal-fired power plant in Homer City, Penn-
sylvania. Shipments are scheduled to begin

in July 2005, and we expect to move about
a million tons of coal to the plant annually.
Notably the project was funded in part
by a $6.3 million grant from the State of
Pennsylvania to provide rail access in order
to reduce highway maintenance costs due
to heavy truck traffic.

(cid:1) In December 2004, GWI entered into a five-

year renewable lease for a rotary coal dumper
and more than 25 acres of adjacent coal stor-
age property in Buffalo, New York, on our
South Buffalo Railway. The dumper will allow
for lower-cost handling of existing coal busi-
ness and will open up promising new markets.
The dumper previously existed to serve the
adjacent Bethlehem Steel coke ovens, and
handled a million tons of coal per year. It was
idled in late 2001 with the shutdown of the
coke facility and Bethlehem’s sale of the South
Buffalo to GWI. Future business prospects
utilizing the dumper include unloading and
blending low sulphur western coal and handling
fertilizer for customers in western New York.

(cid:1) We succeeded in renewing a contract at a

coal unloading facility serving a power plant
at Kincaid, Illinois. The contract was to expire
at the end of 2004. The long-term renewal
protects our revenue from this unloading facility
through the end of 2012. In a typical year,
the facility handles four million tons of coal.

Growing our Regions by Acquisition
The value of our Rail Link operating region was
increased in 2004 with the acquisition of three
railroads from Georgia-Pacific Corp. on December
31, 2003, exemplifying our second objective:
to increase the value of our regions through
add-on acquisitions. In the first quarter of 2004,
our Rail Link management team successfully
integrated Georgia-Pacific’s Chattahoochee
Industrial Railroad in southwest Georgia as well
as the Fordyce & Princeton and the Arkansas
Louisiana & Mississippi, which are contiguous

2004 Genesee & Wyoming Inc. 5

railroads located in Arkansas and Louisiana.
All three contributed to GWI’s growth throughout
the year, as strong demand for paper and forest
products generated revenue exceeding our
expectations.

During the course of 2004, GWI continued
to invest in add-on opportunities to increase
the value of our regions:

(cid:1) Our Rail Link subsidiary began providing rail

switching and track maintenance services for
Eastman Chemical’s Kingsport, Tennessee,
plant on July 1, 2004, replacing a competitor.
This plant is accessed by both Norfolk
Southern and CSX Transportation.

(cid:1) Rail Link also submitted the winning bid for a
small branch line offered for sale in Savannah,
Georgia, by CSX Transportation. Rail Link
crews began operating the Savannah Wharf
line on August 30, 2004. The six-mile line
connects with CSX in Savannah and handles
traffic that has linehaul movement on both
CSX and Norfolk Southern. Rail Link has
improved service for the benefit of all con-
cerned.

(cid:1) On November 1, 2004, our newly-formed

Tazewell & Peoria Railroad (T&P) entered into
a 20-year lease of the assets of the Peoria
& Pekin Union Railway, a terminal switching
railroad owned by Canadian National, Norfolk
Southern and Union Pacific railroads. T&P,
based in Creve Coeur, Illinois, connects with
our Illinois & Midland Railroad at Pekin, Illinois,
south of Peoria. T&P switches 100,000 cars
annually for its 30 customers and multiple
connecting railroads.

Each of these transactions incurred start-up
and integration expenses in 2004 that are behind
us as we look forward to 2005. Economic activity
continues to look positive in each of our North
American operating regions, and our carloadings
continue to be strong as we begin 2005.

In our operating regions, an important focus

in 2005 will be to recover the increased cost
of fuel through price increases on freight rates
where we have contracts with customers and
through escalation provisions where we are
paid switch fees by connecting railroads.

We will also benefit from U.S. tax legislation
passed in November 2004, which provides a
tax credit to Class II and III railroads for certain
expenditures related to track maintenance
and repair incurred in 2005 through 2007.
This credit will benefit us by providing funding
to consider accelerating track improvements to
improve our efficiency and safety. For example,
the Oregon Region will replace twelve miles of
75 pound jointed rail with heavier welded rail in
2005. In 2004 the Oregon Region experienced
an unacceptable number of broken rails on
this track, including some breaks that caused
derailments. The heavier welded rail will reduce
risk and improve customer service.

The company will also benefit from U.S.
legislation last year that repealed the 4.3 cents
per gallon fuel tax paid by railroads. The fuel
tax will be eliminated in three stages: one cent
on January 1 and one cent on July 1, 2005;
the remaining 2.3 cents on January 1, 2007.

Australian Railroad Group Achieves
Record Results
In Australia, record revenues at Australian
Railroad Group (ARG), our 50-percent owned
joint venture with Wesfarmers Limited, led to
record net income for 2004. Income from opera-
tions, carloadings and return on capital were
also performance bests for ARG. Net income
increased 37.3 percent over 2003. As was the
case in North America, ARG’s internal growth
was strong, including a 68 percent increase in
carloads of grain and a 12 percent increase
in carloads of iron ore.

(cid:1) The ARG team did an excellent job supplying
train crews and train sets of locomotives and
wagons to meet the demands of a record
grain harvest.

2004 Genesee & Wyoming Inc. 7

(cid:1) ARG’s investment in and development of

contracts in late 2003 for two important new
customers, Australia’s largest flour miller in
New South Wales and an iron ore producer
in Western Australia, contributed to revenue
growth in 2004.

(cid:1) ARG completed installation of a state-of-the-art
RAIL Bearing Acoustic Monitoring System
in Western Australia to address derailment
expense caused by frozen or burned-out
journal bearings. The system listens to each
freight car bearing on each passing train from
five different wayside locations. Sonic bearing
patterns are recorded in computer memory
and are associated with specific wagon num-
bers through transponder chips applied to
each wagon. Problematic bearings can be
identified and changed before failure. ARG had
three costly derailments due to bearing failure
in 2003 and another in January 2004, just
before completion of the RAIL BAM system.
The system will significantly reduce the risk
of this type of derailment, which has been an
industry-wide problem for Australian railroads.

While ARG’s revenue met our expectations
in 2004, net income did not because of high
fuel costs and the need for higher cost locomo-
tive contract drivers. These issues are being
addressed in 2005.

(cid:1) Increased fuel costs are being mitigated as
escalation clauses are triggered in our long-
term contracts.

(cid:1) The strength of the Australian economy has
led to a skilled labor shortage, particularly of
locomotive drivers. In 2004 ARG was forced
to fill the shortage with higher cost contract
drivers. ARG began reducing its reliance on
contractors in the third quarter of 2004 by
recruiting some experienced drivers from the
contractor ranks with the assurance of full-time

employment, by attracting experienced drivers
from New Zealand and by training new hires.
The number of contract drivers on the prop-
erty declined from an average of 100 in the
third quarter to 75 in December, and ARG
projects reducing that number further
throughout 2005.

ARG will be investing heavily in locomotive
overhauls and wagon acquisitions in 2005 to
support customer growth plans, including iron
ore expansion in Western Australia, an expanded
freight task at a steel mill in South Australia, and
alumina plant expansions in Western Australia.
We expect to benefit from this traffic growth
beginning in late 2005 and into 2006. In addi-
tion, we continue to explore entering new mar-
kets in Australia as we did in New South Wales
in December 2003.

To handle traffic growth in the West Australian

bauxite and alumina industry, as well as other
minerals traffic, ARG invested US$26 million
in the concrete resleepering of the Southwest
Mainline between Kwinana and Pinjarra, Western
Australia, in 2004 and early 2005. This line seg-
ment has the greatest density on ARG’s system.
In 2005, ARG will proceed with phase two of
concrete resleepering between Brunswick and
Pinjarra in Western Australia and with the overhaul
of 31 locomotives. When this work is completed
in 2005, ARG will be in excellent condition to han-
dle traffic growth in the strong West Australian
economy.

Following the 2003-04 record grain harvest

of 14.7 million tons in Western Australia, this
year’s (2004-05) crop which has been harvested
is measured at 10.6 million tons, putting less
demand on equipment and personnel than dur-
ing the previous harvest. Despite the projected
loss of grain tonnage, ARG expects its overall
revenue in 2005 to be only slightly reduced
from 2004 record levels due to the strength
and growth of its non-grain business, particu-
larly iron ore destined for Asian markets.

2004 Genesee & Wyoming Inc. 9

Sarbanes-Oxley
In addition to the business challenges in North
America and Australia, GWI also met the chal-
lenges of Section 404 of Sarbanes-Oxley. Pursuant
to Section 404, we are pleased to report that
we maintained effective internal control over
financial reporting, and PricewaterhouseCoopers
LLP has attested to this conclusion as well.
This has been a demanding and expensive
process for a company of Genesee & Wyoming’s
relatively small size and wide geographic reach.
It has involved extra effort by many of our people.
I am proud of their commitment and the quality
of their work.

Safety Focus Continues
to Produce Benefits
Safety is a major focus for us at Genesee &
Wyoming and we are very proud of what we
have accomplished. In North America in 2004
our injury frequency rate per 200,000 man-hours
was 2.01. These results place us at the Class I
railroad average and significantly better than the
3.13 average of our peer group.

In Australia, the index covers all industry
and is based on a one million man-hour scale.
In 2002, ARG’s injury rate was 19.1. By 2003,
the rate dropped to 5.34, and for 2004 it was
0.96, among the very best in all Australian indus-
try. In recognition of its safety success, ARG
was honored with the Australasian Railway
Association Award for Improvement and
Innovation in Safety.

Building on Our Strategic Plan
Throughout the years our strategic objectives
have remained constant and our performance
reflects our sharp focus on them. We have
continued to strengthen the company through
geographic, commodity and customer diversifi-
cation. We have continued to manage our growth
with discipline, creating value and strength-
ening GWI’s financial foundation. Genesee
& Wyoming has grown to become a different
company than it was in 1996 – in numbers of
employees and operating regions and in finan-
cial scale – and that success has increased
our capacity to make acquisitions and enlarged
our role in the transportation marketplace. I am
proud and grateful to all GWI employees who
are working to meet these challenges and con-
tributing to our success. As we strive to create
superior returns for our shareholders, I thank
you for your support and continued interest
in Genesee & Wyoming.

Mortimer B. Fuller III
Chairman and Chief Executive Officer
March 18, 2005

2004 Genesee & Wyoming Inc. 11

UNITED STATES 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, 2004

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission File No. 0-20847

Genesee & Wyoming Inc.

(Exact name of registrant as speciÑed in its charter)

Delaware

06-0984624

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer IdentiÑcation No.)

66 Field Point Road, Greenwich, Connecticut

(Address of principal executive oÇces)

06830

(Zip Code)

(203) 629-3722
(Telephone No.)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on Which Registered

Class A Common Stock, $0.01 par value

NYSE

Securities registered pursuant to Section 12(g) of the Act:

None
(Title of Class)

Indicate by check mark whether the Registrant (1) has Ñled all reports required to be Ñled 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 Ñle such reports),
and (2) has been subject to such Ñling requirements for the past 90 days. YES ¥

NO n

Indicate by check mark if disclosure of delinquent Ñlers pursuant to Item 405 of the Regulations S-K is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in deÑnitive proxy or information statements incorporated by reference in
Part III of this form 10-K or any amendment to this Form 10-K. ¥

Indicate by check mark whether the Registrant is an accelerated Ñler (as deÑned in Exchange Act Rule 12b-2) Yes ¥

No n

Aggregate market value of Class A Common Stock held by non-aÇliates based on closing price on June 30, 2004, as reported by the
New York Stock Exchange on the last business day of Registrant's most recently completed second Ñscal quarter: $222,658,016. Shares
of Class A Common Stock held by each executive oÇcer, director and holder of 5% or more of the outstanding Class A Common Stock
have been excluded in that such persons may be deemed to be aÇliates. The determination of aÇliate status is not necessarily a
conclusive determinant for other purposes.

Shares of common stock outstanding as of the close of business on March 1, 2005:

Class

Class A Common Stock
Class B Common Stock

Number of Shares Outstanding

24,389,689
2,650,122

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

Document Incorporated by Reference

Part III, Items 10, 11, 12, 13 and 14

Portion of the Registrant's proxy statement to be Ñled in
connection with the Annual Meeting of the Stockholders
of the Registrant to be held on May 18, 2005.

Genesee & Wyoming Inc.
FORM 10-K
For The Fiscal Year Ended December 31, 2004
INDEX

Part I

ITEM 1.

ITEM 2.

ITEM 3.

ITEM 4.

Part II

ITEM 5.

ITEM 6.

ITEM 7.

Business ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Properties ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Legal Proceedings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Submission of Matters to a Vote of Security Holders ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Market for Registrant's Common Equity and Related Stockholder Matters ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Selected Financial Data ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Management's Discussion and Analysis of Financial Condition and Results of Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

ITEM 7A.

Quantitative and Qualitative Disclosures About Market Risk ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

ITEM 8.

ITEM 9.

Financial Statements and Supplementary Data ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

ITEM 9A.

Controls and Procedures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Part III

ITEM 10.

Directors and Executive OÇcers of the Registrant ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

ITEM 11.

Executive CompensationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

ITEM 12.

Security Ownership of Certain BeneÑcial Owners and Management and Related Stockholder Matters ÏÏÏÏÏÏÏ

ITEM 13.

Certain Relationships and Related Transactions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

ITEM 14.

Principal Accounting Fees and Services ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Part IV

ITEM 15.

Exhibits, Financial Statement Schedules and Reports ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Signatures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Index to Exhibits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Index to Financial Statements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Report of Independent Registered Public Accounting FirmÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Genesee & Wyoming Inc. and Subsidiaries Consolidated Balance Sheets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Genesee & Wyoming Inc. and Subsidiaries Consolidated Statements of Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Genesee & Wyoming Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity and

Comprehensive IncomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Genesee & Wyoming Inc. and Subsidiaries Consolidated Statements of Cash Flows ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Genesee & Wyoming Inc. and Subsidiaries Notes to Consolidated Financial Statements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Report of the Independent Registered Public Accounting Firm ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Australian Railroad Group Pty Ltd and Subsidiaries Consolidated Balance Sheets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Australian Railroad Group Pty Ltd and Subsidiaries Consolidated Statements of Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Australian Railroad Group Pty Ltd and Subsidiaries Consolidated Statements of Stockholders' Equity and

Comprehensive
Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Australian Railroad Group Pty Ltd and Subsidiaries Consolidated Statements of Cash Flows ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Australian Railroad Group Pty Ltd and Subsidiaries Notes to Consolidated Financial Statements ÏÏÏÏÏÏÏÏÏÏÏ

Page

108

109

110

111

112

113

Unless the context otherwise requires, when used in this Annual Report on Form 10-K, the terms
""Genesee & Wyoming,'' ""we,'' ""our,'' and ""us'' refer to Genesee & Wyoming Inc. and its subsidiaries and
aÇliates, and when we use the term ARG we are referring to the Australian Railroad Group Pty Ltd and its
subsidiaries. ARG is our 50%-owned aÇliate based in Perth, Western Australia. All references to currency
amounts included in this Annual Report on Form 10-K, including the Ñnancial statements, are in U.S. dollars
unless speciÑcally noted otherwise.

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

We make available free of charge, on or through our Internet web site, our 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 Ñled with or furnished to the Securities and
Exchange Commission (SEC). Our Internet address is https:(cid:1)(cid:1)www.gwrr.com. Our website also contains
hyperlinks to charters for each of the committees of our Board of Directors, our corporate governance
guidelines and our Code of Ethics.

ITEM 1. BUSINESS

OVERVIEW

PART I

We are a leading owner and operator of short line and regional freight railroads in the United States,
Canada, Mexico, Australia and Bolivia. In addition, we provide freight car switching and rail-related services
to industrial companies in the United States. Genesee & Wyoming 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 Genesee & Wyoming Railroad Company and became its Chief Executive OÇcer, we
have completed 25 acquisitions and now operate over 8,200 miles of owned, jointly owned or leased track, with
access to more than 3,000 additional miles under track access arrangements. Based on track miles, we believe
that:

‚ we are the second largest operator of regional railroads in North America; and

‚ the Australian Railroad Group (ARG), which is 50% owned by Genesee & Wyoming and 50% owned
by Wesfarmers Limited (Wesfarmers), owns and operates the second largest privately-owned rail
system in Australia.

We intend to increase our earnings and cash Öow through the execution of our disciplined acquisition
strategy for both domestic and international opportunities. When acquiring railroads in our existing regions, we
target contiguous or nearby rail properties where our local management teams are best able to identify
opportunities to reduce operating costs and increase equipment utilization. In new regions, we target rail
properties that have adequate size to establish a presence in the region, provide a platform for growth in the
region and attract qualiÑed management. To help ensure accountability for the projected Ñnancial results of
our potential acquisitions, we typically include the regional manager who would be operating the rail property
after the acquisition as part of our due diligence team.

We derive our acquisition, investment and long-term lease opportunities from the following four sources:

‚ rail lines of industrial companies, such as Bethlehem Steel Corporation, Mueller Industries, Inc. and

Georgia-PaciÑc Corporation (GP);

‚ branch lines of Class I railroads, such as Burlington Northern Santa Fe Corporation (BNSF) and

CSX Corporation (CSX);

‚ other regional railroads or short line railroads, such as Emons Transportation Group, Inc.

(Emons); and

‚ foreign government-owned railroads, such as Westrail in Western Australia, that have been privatized.

From 1977 to 1997, we acquired and integrated ten acquisitions in the United States. From 1997 to 2000,
we 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, we have made six
acquisitions in the United States and Canada, including South BuÅalo Railway Company (South BuÅalo)
(2001), Emons (2002), Utah Railway Company (2002), a rail line leased from BNSF in Oregon (2002),
Arkansas Louisiana & Mississippi Railroad Company, Chattahoochee Industrial Railroad and Fordyce and
Princeton R.R. Co., acquired from GP (December 2003), and most recently, our new subsidiary, Tazewell
and Peoria Railroad, Inc., commenced operations under a 20-year agreement to lease the assets of the Peoria
and Pekin Union Railway (PPU) (November 2004).

We believe that acquisition opportunities in the United States exist among the over 500 short line and
regional railroads operating approximately 42,000 miles of track, as well as additional lines expected to be sold
or leased by Class I railroads. Internationally, we believe that there are additional acquisition candidates in
Australia, Canada, South America and other markets. As a result, we believe that we are well-positioned to
capitalize on additional acquisition opportunities.

Our strategy of building regional rail systems through acquisitions is best illustrated by our original

U.S. region, the New York-Pennsylvania region, and our Australian operations, ARG.

‚ New York-Pennsylvania Region. Starting with our original rail line, the Genesee & Wyoming, we
have completed seven contiguous acquisitions since 1985, creating a regional railroad linking Western
New York with Western Pennsylvania. Our recent acquisitions in this region include the South
BuÅalo, which we acquired from Bethlehem Steel Corporation in 2001, and the contiguous 17-mile rail
line reaching a power plant in Homer City, Pennsylvania, which we acquired from CSX in 2004. From
the year ended December 31, 1987 to the year ended December 31, 2004, we increased the annual
revenues generated by our New York-Pennsylvania region from $8.0 million to $54.0 million. The
region has a diverse commodity base including coal, petroleum, auto parts, chemicals, pulp and paper,
salt and steel.

‚ Australian Railroad Group. Over the past several years, we have been sequentially building a rail
business that operates across the Australian continent. In Australia, we: (1) entered the market
through the acquisition of the previously government-owned rail system of South Australia in 1997;
(2) secured a contract to operate iron ore supply rail-lines and in-plant rail operations for a steel mill in
Whyalla, South Australia in 1999; (3) combined our South Australian railroad business with
previously government-owned rail assets of Western Australia, which we acquired with Wesfarmers for
$334.0 million in December 2000; (4) acquired an equity interest (2.1% at December 31, 2004) 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; and (5) added a signiÑcant new customer contract in
New South Wales on the east coast of Australia in November 2003. For the year ended December 31,
2004, ARG generated $333.6 million in revenues. ARG's principal commodities are grain and various
ores and minerals that are destined for export markets, particularly Asia.

OPERATING STRATEGY

We intend to increase our earnings and cash Öow through the execution of our operating strategy for both
our domestic and international operations. Our railroads operate under strong local management, with
centralized administrative support and oversight. Our operations are conducted in nine regions. These regions
are, in the United States: Illinois; New York-Pennsylvania; Oregon; Rail Link (which includes industrial
switching and port operations in various geographic locations); and Utah, and outside the United States:
Australia (50% owned); Bolivia (22.9% owned); Canada; and Mexico. In all of our regions, we seek to
encourage the entrepreneurial drive, local knowledge and customer service that we view as prerequisites for us

to achieve our Ñnancial goals. At the regional level, our operating strategy consists of the following four
principal elements:

‚ Focused Regional Marketing. We build each regional rail system on a base of large industrial
customers, grow that business through marketing eÅorts, and pursue additional revenues by attracting
new customers and providing ancillary rail services. These ancillary rail services include railcar
switching, repair, storage, cleaning, weighing and blocking, and bulk transfer, which enable shippers
and Class I carriers to move freight more easily and cost-eÅectively.

‚ Lower Operating Costs. We constantly focus on lowering operating costs and have historically been
able to operate acquired rail lines more eÇciently than the companies and governments from whom we
acquired these properties. We typically achieve eÇciencies by lowering administrative overhead,
consolidating equipment and track maintenance contracts, reducing transportation costs and selling
surplus assets.

‚ EÇcient Use of Capital. We invest in track and rolling stock to ensure that we operate safe railroads
that meet the demands of our customers. At the same time, we seek to maximize our return on
invested capital by focusing on cost eÅective capital programs. For example, we often rebuild older
locomotives rather than purchase new locomotives, and our track investment on light density lines is at
appropriate levels. In addition, in some instances, we are able to obtain state and/or federal grants to
rehabilitate track because of the importance of certain of our shippers and railroads to the regional
economies where they are located. Typically, we seek government funds to support investments that
would not be Ñnancially viable for us to make on a stand-alone basis.

‚ Continuous Safety Improvement. We believe that a safe work environment is essential for our
employees and customers and the long-term success of our business. Each year we establish stringent
safety targets. Through the execution of our safety program, we have reduced our injury frequency rate
from 5.89 injuries per 200,000 man-hours worked in 1998 to 2.01 in 2004.

FINANCIAL STRATEGY

We require that each potential acquisition strictly adhere to our return on capital targets. A signiÑcant
portion of our management performance bonuses, at both the corporate and regional levels, is tied by formula
to achieving these Ñnancial targets. Starting with bonuses for 2002 performance, our board of directors
adopted a new incentive compensation program, the Genesee Value Added Bonus Program, which is designed
to create objective standards against which performance can be measured to determine whether we are
operating in a manner that generates increased stockholder value. By focusing our corporate and regional
management teams on improving our return on invested capital, we intend to continue to increase earnings and
cash Öow.

INDUSTRY

According to the Association of American Railroads (AAR), there are 549 railroads in the United States
operating over 140,939 miles of track. The AAR segments U.S. railroads into one of three categories based on
the amount of revenues and track miles. Class I railroads, those with over $277.7 million in revenues, represent
over 90% of total rail revenues. Regional and local railroads operate approximately 42,000 miles of track in the
United States. The primary function of these smaller railroads is to provide feeder traÇc to the Class I
carriers. In terms of revenues, regional and local railroads combined account for approximately 8% of total rail
revenues.

The following table shows the breakdown of railroads by classiÑcation.

ClassiÑcation of Railroads

Number

Class I ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Regional ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

7
32

Aggregate
Miles
Operated

98,944
15,648

Local ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

510

26,347

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

549

140,939

Revenues and Miles Operated

Over $277.7 million
$40.0 to $277.7 million and/or
350 or more miles operated
Less than $40.0 million and
less than 350 miles operated

Source: Association of American Railroads, Railroad Facts, 2004 Edition.

The railroad industry in the United States has undergone signiÑcant 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 took steps to improve proÑtability 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-
eÇcient 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 traÇc density, improve operating eÇciency, and avoid traÇc losses associated with rail line
abandonment.

Although the acquisition market is competitive, we believe that we will continue to Ñnd opportunities to
acquire rail properties in the United States and Canada from Class I railroads, industrial companies, and
independent local and regional railroads. We also believe that we will continue to Ñnd additional acquisition
opportunities in international markets.

MANAGEMENT

Our Chief Executive OÇcer, Chief Operating OÇcer and Chief Financial OÇcer have responsibility for
overall strategic and Ñnancial planning, including acquisitions. The Chief Executive OÇcer is responsible for
our global operations, including our equity investments in Australia and South America, while the Chief
Operating OÇcer manages operations in North America. We believe that through our decentralized
management structure, we have developed a culture that encourages employees to take initiative and
responsibility, which is rewarded through performance-based bonus programs.

NORTH AMERICAN OPERATIONS

North American Customers

Our North American operations served over 910 customers in 2004 compared with approximately 850
customers in 2003. The ten largest North American customers accounted for approximately 27% of our North
American revenues in 2004, 2003 and 2002. In 2004, our largest North American customer was a company in
the paper and forest products industry, which accounted for approximately 8% of our North American
revenues. In 2003 and 2002, our largest North American customer was a coal-Ñred electricity generating plant,
which accounted for approximately 5% of our North American revenues. We typically handle freight pursuant
to transportation contracts among us, our connecting carriers and the shipper. These contracts are in
accordance with industry norms and vary in duration, with terms of up to 20 years. These contracts establish
price but do not typically obligate the shipper to move any particular volume.

North American Commodities

Our North American railroads transport a wide variety of commodities. Some of our railroads have a
diversiÑed commodity mix while others transport one or two principal commodities. In 2004, coal, coke and
ores, and pulp and paper products were the two largest commodity groups, constituting 19.9% and 17.9%,
respectively, of total North American freight revenues, and 30.2% and 14.9%, 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, 2004 and 2003:

North American Freight Revenues and Carloads Comparison by Commodity Group
Years Ended December 31, 2004 and 2003

Commodity Group

2004

% of
Total

Coal, Coke & Ores
Pulp & Paper ÏÏÏÏÏ
Lumber & Forest

Products ÏÏÏÏÏÏÏ
Petroleum Products
Metals ÏÏÏÏÏÏÏÏÏÏÏ
Minerals & StoneÏÏ
Chemicals-Plastics
Farm & Food

Products ÏÏÏÏÏÏÏ
Autos & Auto Parts
Intermodal ÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏ

$ 45,126
40,486

25,295
24,465
23,464
22,294
16,270

16,203
6,362
2,409
3,891

Freight Revenues

Carloads

% of
Total

2003
2004
(Dollars in thousands, except average per carload)
30.2% 167,363
14.9% 74,662

20.7% 191,038
16.9% 94,340

2003

19.9% $ 37,881
17.9% 30,939

Average
Freight
Revenues per
Carload

2004

2003

% of
Total

31.2% $236
14.1% 429

$226
414

11.2% 17,093
10.8% 24,455
10.4% 17,445
9.9% 21,983
7.2% 11,067

9.4% 76,055
13.4% 32,401
9.6% 73,412
12.0% 59,197
6.1% 31,262

12.0% 53,793
5.1% 31,798
11.6% 59,502
9.3% 56,484
4.9% 23,517

7.2% 12,133
5,775
2.8%
1,574
1.1%
2,222
1.6%

6.6% 40,520
3.2% 14,665
0.9% 6,425
1.2% 14,034

6.4% 32,589
2.3% 14,235
1.0% 5,518
2.3% 10,292

10.2% 333
6.0% 755
11.2% 320
10.7% 377
4.5% 520

6.2% 400
2.8% 434
1.1% 375
2.0% 277

318
769
293
389
471

372
406
285
216

345

Total ÏÏÏÏÏÏÏÏÏÏÏÏ

$226,265

100.0% $182,567

100.0% 633,349

100.0% 529,753

100.0% 357

Coal, coke and ores consists primarily of shipments of coal to power plants and industrial customers.

Pulp and paper consists primarily of inbound shipments of pulp and outbound shipments of kraft and

Ñnished papers and container board.

Lumber and forest products consists primarily of Ñnished lumber, plywood and particleboard used in

construction and furniture manufacturing, and wood chips and pulpwood used in paper manufacturing.

Petroleum products consists primarily of fuel oil and crude oil.

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

Minerals and stone consists primarily of cement, gravel and stone used in construction, and salt used in

highway ice control.

Chemicals-plastics consists primarily of various chemicals used in manufacturing, particularly in the

paper industry.

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

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

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

North American Non-Freight Revenues

The primary components of our North American non-freight revenues are railcar switching revenues, car
hire and rental services, demurrage and storage, car repair services, management fees and other operating
income. Railcar switching revenues primarily consist of intra-plant switching revenues, which are revenues
earned by providing services dedicated to the movement of railcars within industrial plants, and intra-terminal
switching revenues, which are revenues earned for the movement of customer railcars from one track to
another track on the same railroad. Car hire and rental revenues primarily include charges paid by other
railroads for use of our railcars for moving freight. Demurrage and storage are charges to customers for holding
or storing railcars. Car repair services are charges for repairing freight cars owned by others, either under
contract or in accordance with AAR rules. Management fees are charges for managing rail-related facilities.
Other operating income primarily consists of the following: trackage rights fees, which are charges to other
railroads for running over our railroads; terminal services, which are freight transfer and trucking services; and
scrap metal sales. In 2004 and 2003, non-freight revenues constituted 25.5% and 25.4%, respectively, of our
total North American operating revenues with railcar switching representing 51.0% and 53.6%, respectively, of
total North American non-freight revenues. The following table compares North American non-freight
revenues for the years ended December 31, 2004 and 2003:

North American
Non-Freight Revenues Comparison
Years Ended December 31, 2004 and 2003

2004

% of
Total

2003

% of
Total

Railcar switching ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Car hire and rental income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Demurrage and storage ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Car repair services ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Management fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other operating incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$39,539
11,858
7,533
5,460
3,257
9,872

(Dollars in thousands)
51.0% $33,371
7,054
15.3%
6,127
9.7%
4,447
7.0%
2,686
4.2%
8,575
12.8%

53.6%
11.3%
9.9%
7.1%
4.3%
13.8%

Total non-freight revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$77,519

100.0% $62,260

100.0%

The following table compares total North American revenues by geographic area for the years ended

December 31, 2004 and 2003:

North American
Revenues Comparison by Geographic Area
Years Ended December 31, 2004 and 2003

2004

% of
Total

2003

% of
Total

(Dollars in thousands)

Revenues:
United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Canada ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mexico ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$226,521
44,008
33,255

74.6% $175,650
37,538
14.5%
31,639
10.9%

71.8%
15.3%
12.9%

Total operating revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$303,784

100.0% $244,827

100.0%

For additional Ñnancial information with respect to each of our geographic areas, see Note 17 to our

Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K.

Seasonality of Operations

Typically, we experience relatively lower revenues in the Ñrst and fourth quarters of each year as the
holiday season and colder weather tend to reduce shipments of certain products such as construction materials.
In addition, due to adverse winter weather conditions, we also tend to incur higher operating costs during the
Ñrst and fourth quarters. We typically initiate capital projects in the second and third quarters when weather
conditions are more favorable. However, certain of our traÇc, such as coal for electricity generating facilities
and salt for road de-icing, often beneÑts from particularly cold weather.

North American Employees

As of December 31, 2004, our North American railroads and industrial switching locations had
2,045 full-time employees. Of this total, 912 railroad employees are members of national labor organizations.
Our North American railroads have 33 contracts with these national labor organizations which have expiration
dates ranging to 2009, and 6 of these contracts are currently in negotiations. The Railway Labor Act
(RLA) governs the labor relations of employers and employees engaged in the railroad industry. Comprehen-
sive provisions are set forth in the RLA establishing the right of railroad employees to organize and bargain
collectively along craft or class lines and imposing a duty upon carriers and their employees to exert every
reasonable eÅort to make and maintain collective bargaining agreements. The RLA also contains detailed
procedures that must be exhausted before a lawful work stoppage may occur. We have also entered into
employee bargaining agreements with an additional 67 employees who represent themselves, which have
renewal dates ranging to 2007. We believe that our relationship with our employees is good.

AUSTRALIA OPERATIONS (Equity Accounting)

ARG, which is 50% owned by Genesee & Wyoming and 50% owned by Wesfarmers, is reÖected in our
statement of income using the equity method of accounting. In the years ended December 31, 2004 and 2003,
ARG contributed $14.2 million, or 37.8%, and $10.4 million, or 36.1%, respectively, of our total net income.

ARG is composed of three principal subsidiaries, Australia Southern Railroad Pty Ltd (ASR), Australia
Western Railroad Pty Ltd (AWR), and WestNet Rail Pty Ltd (WestNet). Both AWR and ASR operate
locomotives and rail cars to provide rail freight service to customers in the states of Western Australia and
South Australia, respectively. WestNet is the owner and maintainer of most of the standard gauge and narrow
gauge track infrastructure in Western Australia and charges track access fees to rail operators that use its track
infrastructure, including AWR. ARG is also accredited to operate in all the mainland states of Australia,
thereby providing ARG with the ability to provide rail freight service across the Australian continent. In
November 2003, ARG added a new customer in the State of New South Wales.

Under the terms of the ARG shareholders' agreement, neither shareholder has any capital commitment
obligation, any obligation to fund ARG's operations or any obligation to purchase the shares of the other
shareholder, but there are transfer restrictions that limit the ability of a shareholder to sell their shares in ARG
to a third party. ARG Ñnances its operations through internally generated cash and a stand-alone Australian
dollar debt which has no recourse to either shareholder. At this time, there are no plans for ARG to pay cash
dividends, although in July 2004 ARG did repay the remaining outstanding balance on subordinated notes to
the shareholders of $5.4 million each. According to the terms of the shareholders' agreement, each
shareholder has the right to appoint certain oÇcers of ARG and half of the number of directors of ARG.
Further, certain material and signiÑcant decisions require the unanimous consent of the board of ARG or both
shareholders.

Australian Customers

ARG currently serves over 75 customers. A signiÑcant portion of ARG's revenues is attributable to
customers operating in the grain, ores, minerals and alumina industries. ARG's ten largest customers
accounted for approximately 74%, 70% and 69% of its revenues for the years ended December 31, 2004, 2003
and 2002, respectively. ARG's largest customer, AWB Limited (a major marketer and exporter of Australian
wheat), accounted for 25%, 20% and 22% of its revenues for the years ended December 31, 2004, 2003, and

2002. ARG typically ships freight under transportation contracts which vary from customer to customer
including terms which range from one to up to Ñfteen years, subject to certain review and extension provisions.

Australian Commodities

The following table provides ARG's freight revenues, carloads and average freight revenues per carload

for the years ended December 31, 2004 and 2003:

Australian Railroad Group
Freight Revenues and Carloads Comparison by Commodity Group
Years ended December 31, 2004 and 2003

Freight Revenues

Carloads

Commodity Group

2004

% of
Total

2003

2004
(U.S. dollars in thousands, except average per carload)

2003

Average
Freight
Revenues per
Carload

2004

2003

% of
Total

$101,983

36.6% $ 61,125

29.5% 265,712

27.0% 158,462

18.7% $384

$386

Grain ÏÏÏÏÏÏÏÏÏÏÏÏ
Other Ores and

Minerals ÏÏÏÏÏÏÏ
Iron Ore ÏÏÏÏÏÏÏÏÏ
Alumina ÏÏÏÏÏÏÏÏÏ
Bauxite ÏÏÏÏÏÏÏÏÏÏ
Hook and Pull

(Haulage) ÏÏÏÏÏÏ
GypsumÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏ

58,384
45,534
19,666
12,732

1,713
3,662
35,265

20.9% 48,782
16.3% 36,238
7.1% 16,459
4.6% 11,363

23.6% 109,418
17.5% 201,612
8.0% 157,168
5.5% 125,793

11.1% 107,257
20.5% 179,711
16.0% 153,685
12.8% 126,865

12.7% 534
21.2% 226
18.1% 125
15.0% 101

0.6%
1.3%

5,498
2,915
12.6% 24,543

2.7% 7,414
1.4% 50,394
11.8% 67,810

0.8% 13,337
5.1% 45,548
6.7% 62,865

1.6% 231
5.4% 73
7.3% 520

455
202
107
90

412
64
390

244

Total ÏÏÏÏÏÏÏÏÏÏÏÏ

$278,939

100.0% $206,923

100.0% 985,321

100.0% 847,730

100.0% 283

Grain consists primarily of wheat, barley, lupins, canola and oats, all of which are destined for export

markets.

Other Ores and Minerals consists primarily of shipments of coal to power plants and reÑneries, nickel and

minerals sands destined for export markets, and lime used in the resources industry.

Iron Ores consists primarily of lump and Ñne ores destined for export markets and used in the domestic

production of steel.

Alumina is a reÑned product destined for export markets.

Bauxite is a raw material used in the production of alumina.

Hook & Pull service consists of various commodities shipped in containers on Öat cars.

Gypsum is a raw material destined for export markets and used in the domestic production of

plasterboard.

Other commodities consist primarily of caustic chemicals used in the production of alumina, various

commodities in containers on Öat cars and fuel.

Australian Non-Freight Revenues

ARG's non-freight revenues consist of rail services such as track access fees charged to other railroads,
services related to construction and operation of the Alice Springs to Darwin rail line, including operations

management, diesel fuel sales to other railroads and other ancillary revenues. The following table compares
ARG's non-freight revenues for the years ended December 31, 2004 and 2003:

Australian Railroad Group
Non-Freight Revenues Comparison
Years Ended December 31, 2004 and 2003

2004

% of
Total

2003

% of
Total

(U.S. dollars in thousands)

Third party track access fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Alice Springs to Darwin LineÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other operating incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$21,208
6,557
26,943

38.8% $18,042
12.0% 12,103
49.2% 12,503

42.3%
28.4%
29.3%

Total non-freight revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$54,708

100.0% $42,648

100.0%

Australian Employees

As of December 31, 2004, ARG had 1,048 full-time employees. Of this total, approximately 65% are
employed under collective bargaining agreements. In each of Western Australia and New South Wales, ARG
has a collective enterprise bargaining agreement covering the majority of employees. During 2004, ARG
completed a re-negotiation of the Western Australia and New South Wales collective enterprise bargaining
agreements, each of which has a term of approximately three years. In South Australia, ARG has one
collective bargaining agreement that expired in September 2004. This agreement is currently being renegoti-
ated and is expected to be completed in April 2005. ARG believes that its relationship with its employees is
good.

NORTH AMERICAN SAFETY

Our 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 oÇcer
responsible for day-to-day program administration. We maintain a corporate-wide safety program facilitated
by the Vice President Safety & Environment. A Compliance OÇcer and a Director of Risk Management
report to the Vice President Safety & Environment. Operating personnel are trained and certiÑed in train
operations, the transportation of hazardous materials, safety and operating rules, and governmental rules and
regulations.

NORTH AMERICAN INSURANCE

We maintain 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 $200,000 to $500,000 per occurrence. In addition, we maintain excess liability policies which
provide supplemental coverage for losses in excess of primary policy limits. With respect to the transportation
of hazardous commodities, our liability policy covers sudden releases of hazardous materials, including
expenses related to evacuation. Personal injuries associated with grade crossing accidents are also covered
under our liability policies. We maintain property damage coverage, subject to a standard pollution sub-limit
and self-insured retentions ranging from $100,000 to $500,000.

Employees of our 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. FELA-related claims are covered under our liability insurance policies. Employees of our industrial
switching business are covered under workers' compensation policies.

We believe our insurance coverage is adequate in light of our experience and the experience of the rail

industry.

NORTH AMERICAN COMPETITION

Each of our railroads is typically the only rail carrier directly serving our customers; however, our
railroads compete directly with other modes of transportation, principally motor carriers, and, on some routes,
ship, barge and pipeline operators. Competition is based primarily upon the rate charged and the transit time
required, as well as the quality and reliability of the service provided. Most of the freight we handle is
transferred either to or from other railroads prior to reaching its Ñnal destination. As a result, to the extent
other rail carriers are involved in transporting a shipment, we cannot necessarily control the cost and quality of
such service. To the extent that highway competition is involved, the eÅectiveness of that competition is
aÅected by government policy with respect to fuel and other taxes, highway tolls, and permissible truck sizes
and weights.

To a lesser degree, we also face 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 speciÑc plant served by one of our railroads depending on the relative
competitiveness of that plant versus paper plants in other locations. In some instances, we face ""product
competition,'' where commodities we transport are exposed to competition from substitutes. For example, our
fuel oil traÇc in Mexico is used to generate electricity for a power grid where competition from natural gas
generation is substantial.

In acquiring rail properties, we generally compete with other short line and regional railroad operators as
well as private equity Ñrms operating in conjunction with short line rail operators. Competition for rail
properties is based primarily upon price and the seller's assessment of the buyer's railroad operating expertise
and Ñnancing capability. We believe our established reputation as a successful acquiror and operator of short
line rail properties, combined with our managerial and Ñnancial resources, eÅectively positions us to take
advantage of acquisition opportunities.

REGULATION

United States

Our U.S. railroads are subject to regulation by:

‚ the Surface Transportation Board (STB),

‚ the Federal Railroad Administration,

‚ state departments of transportation, and

‚ some state and local regulatory agencies.

The STB is the successor to certain regulatory functions previously administered by the Interstate
Commerce Commission (ICC). Established by the ICC Termination Act of 1995, the STB has jurisdiction
over, among other things, freight rates (where there is no eÅective 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, the STB may condition its approval of an acquisition upon the acquiror of a
railroad agreeing to provide severance beneÑts to certain subsequently terminated 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 Quebec and Ontario, respectively.

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, Ñnancial transactions of railway companies, all aspects of
rates, tariÅs 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 CertiÑcate of
Fitness delivered by a provincial authority. In the Province of Quebec, the Fitness CertiÑcate 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 the states in which it operates. In addition, with respect to access to rail
infrastructure, ARG's Australian assets are subject to state-based access regimes and 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:

‚ policies and programs related to the railroad system,

‚ the granting of concessions;

‚ the regulation of the concessions and resolution of any issues regarding amendments or terminations to

the concessions;

‚ the regulation of tariÅ application; and

‚ the imposition of 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, such as
our Mexican railroad, by foreign entities while the Law of Economic Competition is an antitrust statute.

ENVIRONMENTAL MATTERS

Our 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 Department 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 at the federal level and by environmental protection agencies at the
state level. There are no material environmental claims currently pending or, to our knowledge, threatened
against us or any of our railroads. In addition, we believe that the operations of our railroads are in material
compliance with current laws and regulations. We estimate that any expenses incurred in maintaining
compliance with current laws and regulations will not have a material eÅect on our earnings or capital
expenditures.

In Mexico, our wholly-owned subsidiary, Compa¿nπ a de Ferrocarriles Chiapas-Mayab, S.A. de C.V., was
awarded a 30-year concession to operate certain railways owned by the government-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 meet
existing South Australian environmental standards which reÖect the purpose for which the land was used at
the date of the Sale and Purchase Agreement.

RISK FACTORS

Our operations and Ñnancial condition are subject to certain risks that could cause actual operating and
Ñnancial results to diÅer materially from those expressed or forecast in our forward-looking statements. For a
complete description of our general risk factors including risk factors of foreign operations, see Item 7
Management's Discussion and Analysis elsewhere in this Annual Report on Form 10-K.

FORWARD-LOOKING STATEMENTS

The information contained in this Annual Report on Form 10-K, including Management's Discussion
and Analysis Item 7 contains forward-looking statements within 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,'' ""expects'', ""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 diÇcult to forecast.
Actual results may diÅer materially from those expressed or forecast in these forward-looking statements.
These risks and uncertainties include those noted under the caption ""Risk Factors'' in Item 7, as well as those
noted in documents that we Ñle from time to time with the Securities and Exchange Commission, which
contain additional important factors that could cause actual results to diÅer from current expectations and
from the forward-looking statements contained herein.

ITEM 2. PROPERTIES.

Genesee & Wyoming, through our subsidiaries and unconsolidated aÇliates, currently has interests in
thirty-three railroads of which twenty-Ñve 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 our holdings of
such property are not material. Similarly, the seller typically retains mineral rights and rights to grant Ñber
optic and other easements in the properties acquired by our railroads. Several of our railroads are operated
under leases or operating licenses in which we do not assume ownership of the track and the underlying land.

Our railroads operate over approximately 8,200 miles of track that is owned, jointly-owned or leased by us
or our aÇliates. We or our aÇliates' railroads also operate, through various trackage rights agreements, over
more than 3,000 miles of track that is owned or leased by others. The track miles listed below exclude sidings
and yard tracks consisting of 444 miles in the U.S., 85 miles in Canada and 76 miles in Mexico.

The following table sets forth certain information as of December 31, 2004 with respect to our railroads:

Railroad and Location

UNITED STATES:
Allegheny & Eastern Railroad, Inc.

(ALY) Pennsylvania

Bradford Industrial Rail, Inc.

(BR) Pennsylvania

BuÅalo & Pittsburgh Railroad, Inc.

(BPRR) New York, Pennsylvania

The Dansville & Mount Morris

Railroad Company
(DMM) New York

Genesee and Wyoming Railroad

Company
(GNWR) New York

Pittsburg & Shawmut Railroad, Inc.

(PS) Pennsylvania

Rochester & Southern Railroad, Inc.

(RSR) New York

Illinois & Midland Railroad, Inc.

(IMR) Illinois

Portland & Western Railroad, Inc.

(PNWR) Oregon

Willamette & PaciÑc Railroad, Inc.

(WPRR) Oregon

Louisiana & Delta Railroad, Inc.

(LDRR) Louisiana

Commonwealth Railway, Inc.

(CWRY) Virginia

Talleyrand Terminal Railroad

Company, Inc.
(TTR) Florida

Corpus Christi Terminal Railroad, Inc.

(CCPN) Texas

Golden Isles Terminal Railroad, Inc.

(GITM) Georgia

Savannah Port Terminal Railroad, Inc.

(SAPT) Georgia
South BuÅalo Railway
(SB) New York

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

Track
Miles

Notes

Structure

Connecting Carriers(1)

134

(2)

Owned

BPRR, NS, CSX

(3)

Owned

BPRR

320

(4)

Owned/Leased ALY, BLE, BR, CN, CP,

CSX, NS, PS, RSR,
AVR

Owned

GNWR

(5)

Owned

CP, DMM, RSR, NS,
CSX

181

(6)

Owned

BPRR, NS

(7)

Owned

(8)

Owned

287

(9)

Owned/Leased

BPRR, CP, GNWR,
CSX

BNSF, IAIS, IC, NS,
TZPR, TPW, UP

BNSF, UP, WPRR,
POTB

185

(10)

Leased

UP, PNWR, HLSC

(11)

Owned/Leased UP, BNSF

(12)

Owned/Leased NS

(13)

Leased

NS, CSX

(14)

Leased

UP, BNSF, TM

(15)

Leased

CSX, NS

(16)

Leased

CSX, NS

Owned

BPRR, CSX, NS CP,
CN

165

(17)

Owned

GRS, SLQ

Railroad and Location

York Railway Company
(YRC) Pennsylvania
Utah Railway Company

(URC) Utah

Salt Lake City Southern Railroad

Company
(SLCS) Utah

Chattahoochee Industrial Railroad

(CIRR) Georgia

Arkansas Louisiana and Mississippi

Railroad Company
(ALM) Arkansas, Louisiana
Fordyce & Princeton Railroad

Company
(F&P) Arkansas

Tazewell & Peoria Railroad, Inc.

(TZPR) Illinois

CANADA:
St. Lawrence & Atlantic Railroad

(Quebec) Inc.
(SLQ) Canada

Huron Central Railway Inc.

(HCR) Canada

Quebec Gatineau Railway Inc.

(QGRY) Canada

MEXICO:
Compania de Ferrocarriles Chiapas-

Mayab, S.A. de C.V.
(FCCM)

AUSTRALIA (equity accounting):
Australian Railroad Group Pty Ltd

(ARG)

BOLIVIA (equity accounting):
Ferroviaria Oriental, S.A.

(Oriental)

Track
Miles

Notes

Structure

Connecting Carriers(1)

(17)

Owned

CSX, NS

(18)

Owned

UP, BNSF

(19)

Owned

UP, BNSF

(20)

Owned

CSX, NS

(20)

Owned

UP, KCS

(20)

Owned

UP, KCS

(21)

Leased

CN, UP, NS, BNSF,
TPW, IAIS, IMRR,
PRRR

(17)

Owned

CP, CN, MMA

179

293

(22)

Leased

CP, CN

(23)

Owned/Leased

CP, CN

960

(24)

Leased

FSRR

4,186

(25)

Leased

Open Access

600

(26)

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. ALY merged with BPRR on

January 1, 2004.

(3) In addition, BR operates by trackage rights over 14 miles of BPRR. BR merged with BPRR on

January 1, 2004.

(4) Includes 92 miles under perpetual leases and 41 miles and 9 miles under leases expiring in 2027 and
2090, respectively. In addition, BPRR operates by trackage rights over 14 miles of CSX under an
agreement expiring in 2018, and 44 miles of NS under an agreement expiring in 2027. We are seeking to
sell or abandon approximately 25 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. PS merged with BPRR on
January 1, 2004. We are seeking to sell or abandon approximately 30 miles of owned track that
duplicates service provided by BPRR.

(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 TZPR 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 purchased in July 1997 and 76 miles under lease expiring in 2017. If the
leases terminate, the lessor is obligated to reimburse us for leasehold improvements based upon
stipulations in the agreements. 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. If the lease
terminates, the lessor is obligated to reimburse us for leasehold improvements based upon stipulations in
the agreement. 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. If the lease terminates, the lessor is obligated to
reimburse us for leasehold improvements based upon stipulations in the agreement. In addition, LDRR
operates by trackage rights over 91 miles of UP under an agreement terminable by either party and has a
haulage contract with M.A. Patout & Sons over 4 miles of track.

(12) Includes 12.5 miles under lease expiring in 2009.

(13) All under lease expiring in 2005.

(14) All under lease expiring in 2007. If the lease terminates, the lessor is obligated to reimburse us for

leasehold improvements based upon stipulations in the agreement.

(15) Includes 6.5 miles which are owned and 19.5 miles which are under lease expiring in 2006. If the lease
terminates, the lessor is obligated to reimburse us for leasehold improvements based upon stipulations in
the agreement.

(16) All under lease expiring in 2006. If the lease terminates, the lessor is obligated to reimburse us for

leasehold improvements based upon stipulations in the agreement.

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

(18) URC was acquired August 28, 2002. In addition, URC operates by trackage rights over 326 miles of

UP.

(19) Subsidiary of Utah Railway Company, acquired August 28, 2002. In addition, SLCS operates by

trackage rights over 21 miles of UP.

(20) All acquired on December 31, 2003.

(21) All under lease expiring in 2024.

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

(23) 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, QGRY operates by trackage rights over 27 miles of
CP.

(24) All under a 30-year concession agreement expiring in 2029 operating on track structure which is owned
by a government company. In addition, FCCM operates by trackage rights over 210 miles on Ferrosur
(another privatized rail concession) and a government-owned line.

(25) ARG is composed of three principal subsidiaries, Australia Southern Railroad Pty Ltd (ASR),
Australia Western Railroad Pty Ltd (AWR), and WestNet Rail Pty Ltd (WestNet). ARG leases track
infrastructure from the State of Western Australia for 49 years expiring in 2049 and from the State of
South Australia for 50 years expiring in 2047. In Western Australia, ARG's operations are composed of
AWR, which operates locomotives and rail cars to provide rail freight service to its customers, and

WestNet, which owns the track infrastructure over which rail operations, including AWR, operate.
ARG is also accredited to operate in all of the mainland states of Australia thereby providing ARG with
the ability to provide rail freight service across the Australian continent without having to interchange
with other railroads.

(26) All under a 40-year concession agreement expiring in 2036 operating on track structure which is owned

by the state-owned rail company Red Ferroviario Oriental.

LEGEND OF CONNECTING CARRIERS
Allegheny Valley Railroad
Bessemer and Lake Erie Railroad Company
Burlington Northern Santa Fe Railway Company
Canadian National
Canadian PaciÑc Railway
CSX Transportation, Inc.
Ferrocarriles del Sureste
Guilford Rail System

AVR
BLE
BNSF
CN
CP
CSX
FSRR
GRS
HLSC Hampton Railway
IAIS
IC
KCS
NS
POTB
TM
TPW
UP

Iowa Interstate Railroad, Ltd.
Illinois Central Railroad Company
Kansas City Southern
Norfolk Southern Corp.
Port of Tillamook Bay Railroad
The Texas Mexican Railway Company
Toledo, Peoria & Western Railway Corp.
Union PaciÑc Railroad Company

EQUIPMENT

As of December 31, 2004, rolling stock of our North American operations consisted of 365 locomotives of
which 251 were owned and 114 were leased, and 9,105 freight cars, of which 728 were owned and 8,377 were
leased.

ITEM 3. LEGAL PROCEEDINGS.

On March 31, 2004, Messrs. Chambers and Wheeler Ñled a complaint against Genesee & Wyoming Inc.
in the Chancery Court of Delaware. The complaint relates to the sale by the plaintiÅs in April of 1999 to us of
their ownership interests in certain of our Canadian operations. Under the terms of the purchase agreement,
among other things, the plaintiÅs were granted options to purchase up to 270,000 shares of our Class A
Common Stock at an exercise price of $2.56 per share if certain of our Canadian operations had achieved
certain Ñnancial performance targets in any annual period between 1999 and 2003. The complaint alleges that
these Ñnancial performance targets have been met, and the plaintiÅs are seeking, among other things, a
declaratory judgment that the options granted under the purchase agreement have vested and are exercisable.
On January 5, 2005, after conducting discovery, PlaintiÅs Ñled a motion for summary judgment. We have
determined that the Canadian operations at issue failed to achieve these Ñnancial performance targets in any
of the required years. Consequently, we believe the claim is without merit, and we intend to vigorously defend
this lawsuit.

In addition, we are a defendant in certain lawsuits resulting from our operations. Management believes
that we have adequate provisions in the Ñnancial statements for any expected liabilities which may result from
disposition 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 our operating results, Ñnancial condition or liquidity.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Ì NONE

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

ITEM 5(a). Stock Market Results.

Our Class A Common Stock publicly trades on the New York

Stock Exchange under the trading symbol GWR. On February 11, 2004, we announced a
three-for-two common stock split in the form of a 50% stock dividend. All share, per share
and par value amounts presented herein have been restated to reÖect the retroactive eÅect
of this stock split.

The tables below show the range of high and low actual trade prices for our Class A Common Stock

during each quarterly period of 2004 and 2003.

Year Ended December 31, 2004

High

Low

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

$29.85
$25.36
$26.10
$25.22

$24.28
$21.50
$21.11
$21.37

Year Ended December 31, 2003

High

Low

$23.13
$17.15
$14.29
$14.07

$15.67
$13.60
$10.26
$ 8.47

Our Class B Common Stock is not publicly traded.

Dividends. We did not pay cash dividends in 2004 and 2003. We do not intend to pay cash dividends for
the foreseeable future and intends to retain earnings, if any, for future operation and expansion of our business.
Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will be
dependent upon our results of operations, Ñnancial condition, contractual restrictions and other factors deemed
relevant by the Board of Directors.

Number of Holders. On March 2, 2005 there were 170 Class A Common Stock record holders and 10

Class B Common Stock record holders.

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

Recent Sales of Unregistered Securities.

We sold or issued shares of our Common Stock during the past three years in private transactions that

were not registered with the Securities and Exchange Commission as follows:

2004

2003

2002

336,499 shares

495,195 shares

498,825 shares

These shares were sold or issued in transactions that were exempt from registration requirements because
they were private placements under Section 4(2) of the Securities Act of 1933, as amended. All of the shares
issued in 2004, 2003 and 2002 were issued to various directors, oÇcers and other executives of Genesee &
Wyoming pursuant to compensation plans. The consideration we received for these shares was determined to
be at least equal to the market value of the shares at the time of the transactions.

ITEM 5(c).

ISSUER PURCHASES OF EQUITY SECURITIES

(a)
Total Number
of Shares
(or Units)
Purchased

(b)
Average Price
Paid per Share
(or Unit)

2004

October 1 to October 31 ÏÏ
November 1 to

November 30 ÏÏÏÏÏÏÏÏÏ

December 1 to

December 31 ÏÏÏÏÏÏÏÏÏ

135

$27.60

(d)
Maximum Number
(or Approximate Dollar Value)
of Shares (or Units)
that May Yet be
Purchased Under
the Plans of Program

1,000,000

On November 2, 2004, we announced that our Board has authorized the repurchase of up to
1,000,000 shares of our common stock. We intend to use the repurchased stock to oÅset dilution caused by the
issuance of shares in connection with employee and director stock plans that may occur over time. Purchases
may be made in the open market or in privately negotiated transactions from time to time at management's
discretion.

ITEM 6. SELECTED FINANCIAL DATA.

The following selected consolidated income statement data and selected consolidated balance sheet data
of Genesee & Wyoming as of and for the years ended December 31, 2004, 2003, 2002, 2001, and 2000, have
been derived from our consolidated Ñnancial statements. All of the information should be read in conjunction
with the consolidated Ñnancial statements and related notes included elsewhere in this Annual Report on
Form 10-K. See also Item 7.

2004

Year Ended December 31,
2002
(In thousands, except per share amounts)

2001

2003

2000

INCOME STATEMENT DATA(1):
Operating revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gain on sale of 50% equity in Australian

operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other (expense) income, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income before income taxes and equity

earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equity earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Preferred stock dividends and cost accretion ÏÏ
Net income available to common stockholders
Basic earnings per common share:
Net income available to common stockholders
Weighted average number of shares of

$303,784
253,745
50,039
(11,142)

$244,827
208,522
36,305
(8,646)

$209,540
177,533
32,007
(8,139)

$173,576
150,622
22,954
(10,049)

$206,530
182,818
23,712
(11,233)

Ì
(131)

Ì
986

Ì
726

2,985
497

10,062
1,549

38,766
16,059
14,912
37,619
479
$ 37,140

28,645
10,567
10,641
28,719
1,270
$ 27,449

24,594
8,761
9,774
25,607
1,172
$ 24,435

16,387
6,166
8,863
19,084
957
$ 18,127

24,090
10,569
411
13,932
52
$ 13,880

1.54

1.16

1.06

1.08

0.94

common stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

24,138

23,659

23,016

16,724

14,748

Diluted earnings per common share:

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

1.36

1.03

0.93

0.94

0.92

Weighted average number of shares of

common stock and equivalents ÏÏÏÏÏÏÏÏÏÏÏ

27,402

26,768

26,377

19,374

15,139

BALANCE SHEET DATA AT YEAR

END(1):

Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mandatorily Redeemable Convertible

Preferred Stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$677,251
132,237

$627,173
158,022

$514,859
125,417

$402,519
60,591

$338,383
104,801

Ì
341,700

23,994
267,086

23,980
209,621

23,808
185,663

18,849
94,732

(1) We have completed a number of recent acquisitions. Because of variations in the structure, timing and
size of these acquisitions, our results of operations in any reporting period may not be directly comparable
to our results of operations in other reporting periods. See Note 3 of the Notes to Consolidated Financial
Statements for a complete description of recent acquisitions.

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 on Form 10-K.

General

We are a leading owner and operator of short line and regional freight railroads in the United States,
Canada, Mexico, Australia and Bolivia. We also provide freight car switching and related services to United
States industrial companies with railroad facilities within their complexes. We generate revenues primarily
from the movement of freight over track owned or operated by our railroads. We also generate non-freight
revenues primarily by providing rail car switching, car hire associated with our railcars and other ancillary rail
services.

Our operating expenses include wages and beneÑts, equipment rents (including car hire associated with
other railroads' railcars), 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 our results of operations from one reporting period to another, you should consider the
fact that we have historically experienced Öuctuations in revenues and expenses due to one-time freight
moves, customer plant expansions and shut-downs, sales of land and equipment, accidents and derailments. In
periods when these events occur, results of operations are not easily comparable to other periods. Also, we
have completed a number of recent acquisitions. Because of variations in the structure, timing and size of
these acquisitions our operating results in any reporting period may not be directly comparable to our
operating results in other reporting periods.

Certain of our commodity shipments are sensitive to general economic conditions in North America,
including 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 aÅected by economic conditions and
are more closely aÅected by the weather.

Expansion of Operations

United States

Pawnee Transloading Company Inc.: On December 31, 2004, our newly formed subsidiary, Pawnee
Transloading Company Inc. (Pawnee) acquired the assets of a coal and slag unloading facility in Kincaid,
Illinois from LeGere Investors, Inc. The facility serves one of our freight customers in our Illinois Region. The
purchase price of the unloading facilities and related assets was $785,000, net of cash received, all of which
was allocated to the assets of the facility. Pawnee commenced operations on January 1, 2005.

Tazewell & Peoria Railroad, Inc.: On November 1, 2004, our newly formed subsidiary, the Tazewell &
Peoria Railroad, Inc. (TZPR) commenced operations under a 20-year agreement to lease the assets of the
Peoria and Pekin Union Railway (PPU) located in Peoria, Illinois. Rent is payable annually in advance and
the Ñrst year's rent was $3.0 million. Future lease payments are subject to adjustment based on certain
economic indicators and customer operations stipulated in the agreement. The owners of the PPU include NS,
UP and Illinois Central Railroad Company. The TZPR is operated by our Illinois Region and is contiguous to
that region's existing railroad operations.

Savannah Wharf Branch: On August 30, 2004, we completed the purchase from CSX of the Savannah
Wharf Branch rail line located in Savannah, Georgia for approximately $1.6 million. The transaction included
the acquisition of 6.5 miles of track and related assets and a twenty year lease of the related real estate along
the line. The $1.6 million purchase price was allocated to the track and related assets. The Savannah Wharf

Branch is operated by our Rail Link Region and is contiguous to one of two existing Rail Link operations in
the Savannah area.

Homer City Branch: On January 27, 2004, we completed the purchase from CSX of the Homer City
Branch rail line located in Homer City, Pennsylvania for approximately $600,000. The transaction included
the acquisition of 16 miles of track and related assets including land and property rights. Operations of the
Homer City Branch are expected to begin in the second quarter of 2005 upon completion of track
rehabilitation, a portion of which will be funded through government grants. The Homer City Branch rail line
will be operated by our New York-Pennsylvania Region and is contiguous to that existing railroad operation.

Georgia PaciÑc Railroads: On December 31, 2003, we completed the purchase from Georgia-PaciÑc
Corporation (GP) of all of the issued and outstanding shares of common stock of the GP Railroads for
approximately $54.9 million in cash. The purchase price was allocated to current assets ($2.7 million),
property and equipment ($37.6 million), and intangible assets ($27.1 million), less current liabilities assumed
($12.5 million). As contemplated with the acquisition, we implemented a severance program. The aggregate
cost of the severance program was considered a liability assumed in the acquisition, and as such, was included
in the purchase price. In conjunction with the acquisition, we entered into two Transportation Services
Agreements (TSAs) which are 20-year agreements for the GP Railroads to provide rail transportation service
to GP. One of the TSAs has been determined to be an intangible asset and approximately $27.1 million of the
purchase price has been allocated to this asset. This TSA asset is being amortized on a straight-line basis over
a 30-year life, which is the expected life of the plant being served, beginning January 1, 2004. No value was
assigned to the other TSA.

Oregon Lease: On December 30, 2002, we expanded our Oregon region by commencing railroad
operations over a 76-mile rail line between Salem and Eugene, Oregon previously operated by BNSF. The rail
line is contiguous to our existing Oregon railroad operations and increased that region's annual carloads and
enhanced operations through more eÇcient routing of existing traÇc. We are operating the rail line under a
15-year lease agreement with BNSF. Under the lease, no payments to the lessor are required as long as certain
operating conditions are met. Through December 31, 2004, no payments were required under this lease.

Utah Railway Company: On August 28, 2002, we 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, we implemented a severance program. The aggregate cost of these
restructuring activities was considered a liability assumed in the acquisition, and as such, was included in the
purchase price.

Emons: On February 22, 2002, We acquired Emons Transportation Group, Inc. (Emons) for approxi-
mately $29.4 million in cash, including transaction costs and net of cash received in the acquisition. We
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 assumed current liabilities
($4.5 million) and assumed long-term liabilities ($3.8 million). As contemplated with the acquisition, we
implemented a severance program. The aggregate cost of these restructuring activities was considered a
liability assumed in the acquisition, and as such, was included in the purchase price. The majority of these
costs were paid in the three months ended March 31, 2002.

Australia

ARG is also accredited to operate in all the mainland states of Australia, thereby providing ARG with the
ability to provide rail freight service across the Australian continent. In November 2003, ARG added a new
customer in the State of New South Wales. We account for our 50% ownership in ARG under the equity
method of accounting.

Results of Operations

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

North American Operating Revenues

Overview

North American operating revenues (which exclude revenues from our equity investments) were
$303.8 million in the year ended December 31, 2004 compared to $244.8 million in the year ended
December 31, 2003, an increase of $59.0 million or 24.1%. The $59.0 million increase in operating revenues
consisted of $27.6 million in revenues from the new GP railroads, TZPR and Savannah Wharf operations and
an increase of $31.4 million, or 12.8%, in revenues on existing North American operations. The following table
sets forth North American operating revenues by acquisitions and existing operations for the years ended
December 31, 2004 and 2003 (dollars in thousands):

Total
Operations
$

Freight revenues ÏÏÏÏÏ
Non-freight revenues

$226,265
77,519

Total operating

2004
New
Operations
$

$19,903
7,737

Existing
Operations
$

2003
Total
Operations
$

2004-2003 Variance Information

Increase in Total
Operations
$

Increase in Existing
Operations
$

$206,362
69,782

$182,567
62,260

$43,698
15,259

23.9% $23,795
7,522
24.5%

13.0%
12.1%

revenues ÏÏÏÏÏÏÏÏÏ

$303,784

$27,640

$276,144

$244,827

$58,957

24.1% $31,317

12.8%

The $43.7 million increase in freight revenues consisted of $18.9 million and $1.0 million in freight
revenues from the new GP railroads and TZPR operations, respectively, and $23.8 million in freight revenues
on existing North American operations. The $15.3 million increase in non-freight revenues consisted of
$6.1 million, $909,000 and $721,000 in non-freight revenues from the new GP railroads, TZPR and Savannah
Wharf operations, respectively, and $7.6 million in non-freight revenues on existing North American
operations. The following table compares North American freight revenues, carloads and average freight
revenues per carload for the years ended December 31, 2004 and 2003:

Freight Revenues

North American Freight Revenues and Carloads Comparison by Commodity Group
Years Ended December 31, 2004 and 2003

Commodity Group

2004

Freight Revenues
% of
Total

% of
Total

Carloads

% of
Total

2003

2004
(Dollars in thousands, except average per carload)

2003

Average Freight
Revenues per
Carload

2004

2003

% of
Total

$ 45,126
40,486

19.9% $ 37,881
30,939
17.9%

20.7% 191,038
16.9% 94,340

30.2% 167,363
14.9% 74,662

31.2% $236
14.1% 429

$226
414

Coal, Coke & Ores
Pulp & Paper ÏÏÏÏÏÏ
Lumber & Forest

ProductsÏÏÏÏÏÏÏÏÏ

Petroleum Products
Metals ÏÏÏÏÏÏÏÏÏÏÏÏ
Minerals & Stone ÏÏÏ
Chemicals-Plastics ÏÏ
Farm & Food

ProductsÏÏÏÏÏÏÏÏÏ

Autos & Auto Parts
IntermodalÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏ

25,295
24,465
23,464
22,294
16,270

16,203
6,362
2,409
3,891

11.2%
10.8%
10.4%
9.9%
7.2%

7.2%
2.8%
1.1%
1.6%

17,093
24,455
17,445
21,983
11,067

12,133
5,775
1,574
2,222

9.4% 76,055
13.4% 32,401
9.6% 73,412
12.0% 59,197
6.1% 31,262

6.6% 40,520
3.2% 14,665
6,425
0.9%
1.2% 14,034

12.0% 53,793
5.1% 31,798
11.6% 59,502
9.3% 56,484
4.9% 23,517

6.4% 32,589
2.3% 14,235
5,518
1.0%
2.3% 10,292

10.2% 333
6.0% 755
11.2% 320
10.7% 377
4.5% 520

6.2% 400
2.8% 434
1.1% 375
2.0% 277

318
769
293
389
471

372
406
285
216

345

TotalsÏÏÏÏÏÏÏÏÏÏÏÏÏ

$226,265

100.0% $182,567

100.0% 633,349

100.0% 529,753

100.0% 357

Coal, Coke and Ores revenues increased by $7.2 million, or 19.1%, due to an increase of $1.1 million from
the new GP Railroads and TZPR, and an increase of $6.1 million from hauling carloads of coal on existing
operations, primarily for electricity generating facilities.

Pulp and Paper revenues increased by $9.5 million, or 30.9%, due to an increase of $7.2 million from
hauling carloads of Pulp and Paper from the new GP Railroads, and an increase of $2.3 million from existing
North American railroad operations serving pulp and paper customers located in our Canada Region.

Lumber and Forest Products revenues increased by $8.2 million, or 48.0%, due to an increase of
$5.5 million from the new GP Railroads, and an increase of $2.7 million on existing operations in our Oregon,
New York-Pennsylvania and Canada Regions.

Metals revenues increased by $6.0 million, or 34.5%, due to an increase of $738,000 from the new GP
Railroads and TZPR, and an increase of $5.3 million on existing operations, primarily in our Oregon, New
York-Pennsylvania and Canada Regions.

Chemicals-Plastics revenues increased by $5.2 million, or 47.0%, due to an increase of $3.1 million from

the new GP Railroads and TZPR, and an increase of $2.1 million on existing operations.

Farm and Food Products revenues increased by $4.1 million, or 33.5%, due to an increase of $596,000
from the new GP Railroads and TZPR, and an increase of $3.5 million on existing operations, primarily due to
existing customers in our Canada Region and new customers in our Mexico Region.

Freight revenues from all remaining commodities increased by $3.4 million, or 6.1%, due to an increase of
$1.6 million from the new GP Railroads and TZPR, and an increase of $1.8 million on existing operations.

Total North American carloads were 633,349 in the year ended December 31, 2004 compared to 529,753
in the year ended December 31, 2003, an increase of 103,596 carloads or 19.6%. The increase consisted of
54,552 carloads from the new GP Railroads and TZPR, and an increase of 49,044 carloads, or 9.3%, on
existing operations.

The overall average revenues per carload increased 3.5% to $357 in the year ended December 31, 2004,

compared to $345 per carload in the year ended December 31, 2003.

Non-Freight Revenues

North American non-freight revenues were $77.5 million in the year ended December 31, 2004,
compared to $62.3 million in the year ended December 31, 2003, an increase of $15.3 million, or 24.5%. The
$15.3 million increase in non-freight revenues consisted of $6.1 million, $909,000 and $721,000 in non-freight
revenues from the new GP Railroads, TZPR and Savannah Wharf operations, respectively, and $7.6 million in
non-freight revenues on existing North American operations. The following table compares North American
non-freight revenues for the years ended December 31, 2004 and 2003:

North American
Non-Freight Revenues Comparison
Years Ended December 31, 2004 and 2003

2004

% of
Total

2003

%of
Total

$39,539
11,858
7,533
5,460
3,257
9,872

(Dollars in thousands)
51.0% $33,371
7,054
15.3%
6,127
9.7%
4,447
7.0%
2,686
4.2%
8,575
12.8%

53.6%
11.3%
9.9%
7.1%
4.3%
13.8%

Total non-freight revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$77,519

100.0% $62,260

100.0%

Railcar switching revenues increased $6.2 million, or 18.4%, due to an increase of $950,000 from the new
GP Railroads, TZPR and Savannah Wharf operations, and an increase of $5.2 million on existing North
American operations of which $4.1 million was in our Rail Link Region. The $4.1 million increase in our Rail
Link Region was attributable to a $2.0 million increase in industrial switching, of which $1.0 million was from
new customers, and $2.1 million in railroad switching, primarily from growth of Rail Link's port operations.

Car hire and rental income increased $4.8 million, or 68.1%, due to an increase of $3.8 million from the
new GP Railroads and TZPR operations, and an increase of $1.0 million on existing North American
operations.

Demurrage and storage revenues increased $1.4 million, or 22.9%, due to an increase of $1.4 million from

the new GP Railroads, TZPR and Savannah Wharf operations.

Car repair revenues increased $1.0 million, or 22.8%, due to an increase of $356,000 from the new GP

Railroads, and an increase of $657,000 on existing North American operations.

Management fee revenues increased $571,000, or 21.3%, due to an increase on existing North American

operations primarily attributable to our management of a coal unloading facility in our Illinois region.

Other operating income increased $1.3 million, or 15.1%, due to an increase of $1.1 million from the new

GP Railroads and TZPR, and an increase of $232,000 on existing North American operations.

North American Operating Expenses

Overview

North American operating expenses were $253.7 million in the year ended December 31, 2004, compared
to $208.5 million in the year ended December 31, 2003, an increase of $45.2 million, or 21.7%. The increase
was attributable to increases of $15.1 million, $2.0 million and $357,000 from the new GP Railroads, TZPR
and Savannah Wharf operations, respectively, and an increase of $27.7 million on existing North American
operations.

Operating Ratios

Our operating ratio, deÑned as total operating expenses divided by total operating revenues, improved to

83.5% in the year ended December 31, 2004 from 85.2% in the year ended December 31, 2003.

Operating Expenses

The following table sets forth a comparison of our North American operating expenses in the years ended

December 31, 2004 and 2003:

North American
Operating Expense Comparison
Years Ended December 31, 2004 and 2003

2004

2003

Labor and beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equipment rentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchased services ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Depreciation and amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diesel fuel ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Casualties and insuranceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
MaterialsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net gain on sale and impairment of assetsÏÏÏÏÏÏÏ
Other expensesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$105,079
27,692
18,358
19,243
25,432
15,710
15,336
(13)
26,908

Percent of
Operating
Revenues
(Dollars in thousands)

Percent of
Operating
Revenues

34.6%
9.1%
6.0%
6.3%
8.4%
5.2%
5.0%
0.0%
8.9%

$ 87,315
18,409
17,766
15,471
18,325
13,831
15,189
(87)
22,303

35.7%
7.5%
7.3%
6.3%
7.5%
5.6%
6.2%
0.0%
9.1%

85.2%

Total operating expensesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$253,745

83.5%

$208,522

Labor and beneÑts expense increased $17.8 million, or 20.3%, due to an increase of $5.8 million from the
new GP Railroads, TZPR and Savannah Wharf operations and an increase of $12.0 million on existing
operations. The $12.0 million increase on existing operations consisted of $8.0 million in labor expense and
$4.0 million in beneÑts expense. The labor increase was primarily attributable to $5.0 million of labor expense
related to ninety-Ñve new hires and increased work hours for all employees resulting from higher shipment
levels on existing operations and $3.0 million from regular wage increases for all employees. The $4.0 million
increase in beneÑts expense consisted of $3.0 million in beneÑts expense related to the new hires and increased
work hours on existing operations for all employees and $1.0 million of increased health and welfare beneÑts
for all employees. As a percentage of total revenues, labor and beneÑts decreased by 1.1% to 34.6% in 2004
from 35.7% in 2003.

Equipment rent expense increased $9.3 million, or 50.4%, due to an increase of $4.4 million from the new
GP Railroads and TZPR, and an increase of $4.9 million on existing operations. The $4.9 million increase on
existing operations was primarily attributable to an increase of $2.2 million in car hire and an increase of
$2.7 million in freight car, locomotive and other equipment rental expense, primarily due to a 9.3% increase in

carloads in 2004. As a percentage of total revenues, equipment rents increased to 9.1% in 2004 from 7.5% in
2003, due principally to freight car lease expense on the new GP Railroads.

Depreciation and amortization expense increased $3.8 million, or 24.4%, due to an increase of
$2.3 million from the new GP Railroads and TZPR, and an increase of $1.5 million on existing operations. As
a percentage of total revenues, depreciation and amortization remained constant at 6.3%.

Diesel fuel expense increased $7.1 million, or 38.8%, due to an increase of $600,000 from the new GP
Railroads and TZPR, and an increase of $6.5 million on existing operations. The $6.5 million increase on
existing operations was primarily attributable to a $5.0 million increase resulting from higher fuel prices in
2004 as the average price per gallon of fuel increased 27.4%, and secondarily attributable to a $1.5 million
increase resulting from a 6.7% increase in fuel consumption due to higher traÇc levels. As a percentage of
total revenues, diesel fuel increased to 8.4% in 2004 from 7.5% in 2003.

Casualties and insurance increased $1.9 million, or 13.6%, due to an increase of $297,000 from the new
GP Railroads and TZPR, and an increase of $1.6 million on existing operations. The $1.6 million increase on
existing operations was primarily attributable to an increase in derailment expense in our Oregon Region. As a
percentage of total revenues, casualties and insurance decreased to 5.2% in 2004 from 5.6% in 2003.

All other expenses combined (purchased services, materials, gain on asset sales and other expenses)
increased $5.4 million, or 9.8%, due to an increase of $4.1 from the new GP Railroads, TZPR and Savannah
Wharf operations and an increase of $1.3 million on existing operations. As a percentage of total revenues, all
other expenses combined decreased to 19.9% in 2004 from 22.6% in 2003.

Interest Expense

Interest expense in the year ended December 31, 2004, was $11.1 million compared to $8.6 million in the
year ended December 31, 2003, an increase of $2.5 million, or 28.9%. The $2.5 million increase was primarily
due to a non-cash $1.6 million write-oÅ related to unamortized deferred Ñnancing costs of the reÑnanced debt
(see Note 9 to Consolidated Financial Statements), a cash expense of $257,000 for the termination of interest
rate swaps related to the former debt, and a slightly higher average outstanding debt balance resulting from the
GP Railroads acquisition in December 2003.

Other (Expense) Income, Net

Other expense, net, was $131,000 in the year ended December 31, 2004, compared to Other income of
$986,000 in the year ended December 31, 2003, a decrease of $1.1 million. Other (expense) income, net, in
the years ended December 31, 2004 and 2003 consisted primarily of currency gains and losses on Australian
dollar denominated cash and receivable balances, and interest income.

Income Taxes

Our eÅective income tax rate in the years ended December 31, 2004 and 2003 was 41.4% and 36.9%,
respectively. The increase in 2004 was primarily due to the tax rate used to compute our U.S. income taxes
being stepped up to the highest corporate bracket of 35% based on our current and projected level of
proÑtability. As a result, we increased our fourth quarter tax accrual by $1.0 million, of which $257,000 related
to the Ñrst three quarters of 2004 and $785,000 related to a revaluation of our pre-2004 net U.S. deferred tax
liabilities.

Equity in Net Income of Unconsolidated International AÇliates

Equity earnings of unconsolidated international aÇliates in the year ended December 31, 2004 were
$14.9 million compared to $10.6 million in the year ended December 31, 2003, an increase of $4.3 million, or
40.1%. Equity earnings in the year ended December 31, 2004, consisted of $14.2 million from ARG and
$677,000 from South American aÇliates. Equity earnings in the year ended December 31, 2003, consisted of
$10.4 million from ARG and $270,000 from South American aÇliates.

Net Income and Earnings Per Share

Net income for the year ended December 31, 2004 was $37.6 million compared to net income in the year
ended December 31, 2003 of $28.7 million, an increase of $8.9 million, or 31.0%. The increase in net income
was the result of an increase from North American operations of $4.6 million and an increase in equity
earnings of unconsolidated aÇliates of $4.3 million.

Basic Earnings Per Share increased by $0.38, or 32.8%, to $1.54 in the year ended December 31, 2004
from $1.16 in the year ended December 31, 2003. Diluted Earnings Per Share increased by $0.33, or 32.0%, to
$1.36 in the year ended December 31, 2004 from $1.03 in the year ended December 31, 2003. Weighted
average shares for basic and diluted were 24.1 million and 27.4 million, respectively, in the year ended
December 31, 2004, compared to 23.7 million and 26.8 million, respectively, in the year ended December 31,
2003. As a result of the retroactive restatement of earnings per share due to the adoption of EITF 03-06, basic
and diluted earning per share were reduced by $.05 and $.04, respectively, for the year ended December 31,
2003.

Supplemental Information Ì Australian Railroad Group

ARG is 50% owned by Genesee & Wyoming and 50% owned by Wesfarmers, a public corporation based
in Perth, Western Australia. We account for our 50% ownership in ARG under the equity method of
accounting. As a result of the strengthening of the Australian dollar in 2004, the average currency translation
rate for the year ended December 31, 2004 was 11.3% more favorable than the rate for the year ended
December 31, 2003, 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, 2004 and 2003, we recorded $14.2 million and $10.4 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 AÇliates Ì Australia. The following table
provides ARG's freight revenues, carloads and average freight revenues per carload for the years ended
December 31, 2004 and 2003.

Freight Revenues

Australian Railroad Group Freight Revenues and Carloads by Commodity Group
Years ended December 31, 2004 and 2003

Commodity Group

2004

Freight Revenues
% of
Total

% of
Total

Carloads

% of
Total

2003
2003
2004
(U.S. dollars in thousands, except average per carload)

Average Freight
Revenues per
Carload

2004

2003

% of
Total

$101,983

36.6% $ 61,125

29.5% 265,712

27.0% 158,462

18.7% $384

$386

Grain ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Ores and

Minerals ÏÏÏÏÏÏÏÏ
Iron Ore ÏÏÏÏÏÏÏÏÏÏ
AluminaÏÏÏÏÏÏÏÏÏÏÏ
Bauxite ÏÏÏÏÏÏÏÏÏÏÏ
Hook and

Pull(Haulage) ÏÏÏ
Gypsum ÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏ

58,384
45,534
19,666
12,732

1,713
3,662
35,265

20.9%
16.3%
7.1%
4.6%

0.6%
1.3%
12.6%

48,782
36,238
16,459
11,363

5,498
2,915
24,543

23.6% 109,418
17.5% 201,612
8.0% 157,168
5.5% 125,793

11.1% 107,257
20.5% 179,711
16.0% 153,685
12.8% 126,865

12.7% 534
21.2% 226
18.1% 125
15.0% 101

7,414
2.7%
1.4% 50,394
11.8% 67,810

0.8% 13,337
5.1% 45,548
6.7% 62,865

1.6% 231
5.4%
73
7.3% 520

455
202
107
90

412
64
390

244

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏ

$278,939

100.0% $206,923

100.0% 985,321

100.0% 847,730

100.0% 283

ARG's freight revenues were $278.9 million in the year ended December 31, 2004, compared to
$206.9 million in the year ended December 31, 2003, an increase of $72.0 million or 34.8%. In local currency,

freight revenues increased 21.1% in the year ended December 31, 2004, compared to the year ended
December 31, 2003.

Total ARG carloads were 985,321 in the year ended December 31, 2004 compared to 847,730 in the year
ended December 31, 2003, a net increase of 137,591 carloads, or 16.2%. The net increase resulted primarily
from an increase in grain of 107,250 carloads due to a record grain harvest in Western Australia and a new
customer in New South Wales, an increase in other ores and minerals of 2,161 carloads due to stronger
shipments of sulphuric acid and nickel in Western Australia, an increase in iron ore of 21,901 carloads due to a
new customer and additional production from existing customers, an increase in alumina of 3,483 carloads due
to higher production in Western Australia and an increase in gypsum of 4,846 carloads. These gains were
partially oÅset by a decrease in hook and pull (haulage traÇc) of 5,923 carloads due to certain non-recurring
shipments in the preceding year. All other commodities combined increased by a net 3,873 carloads.

The average revenues per carload increased to $283 in the year ended December 31, 2004, compared to
$244 per carload in the year ended December 31, 2003, an increase of 16.0%, primarily due to the strength of
the Australian dollar relative to the U.S. dollar in 2004 versus 2003. In local currency, the average revenue per
carload increased 4.2% in the year ended December 31, 2004, compared to the year ended December 31, 2003.

Non-Freight Revenues

ARG's non-freight revenues were $54.7 million in the year ended December 31, 2004 compared to
$42.6 million in the year ended December 31, 2003, an increase of $12.1 million, or 28.3%. In local currency,
non-freight revenues increased 15.5% in the year ended December 31, 2004, compared to the year ended
December 31, 2003.

The following table compares ARG's non-freight revenues for the years ended December 31, 2004 and

2003:

Australian Railroad Group
Non-Freight Revenues Comparison
Years Ended December 31, 2004 and 2003

2004

% of
Total

2003

% of
Total

(U.S. dollars in thousands)

$21,208
6,557
26,943

38.8% $18,042
12.0% 12,103
49.2% 12,503

42.3%
28.4%
29.3%

Total non-freight revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$54,708

100.0% $42,648

100.0%

The $12.1 million increase in non-freight revenues was primarily attributable to an increase in diesel fuel
sold to third parties, which more than oÅset a $5.5 million decline in revenues from the Alice Springs to
Darwin Line due to the completion of construction in the fourth quarter of 2003. ARG's role in the project in
2004 was as the contract operator and as lessor of rail equipment.

ARG Operating Expenses

ARG's operating expenses were $265.7 million in the year ended December 31, 2004, compared to
$194.4 million in the year ended December 31, 2003, an increase of $71.3 million, or 36.7%. The following
table sets forth a comparison of ARG's operating expenses in the years ended December 31, 2004 and 2003:

Australian Railroad Group
Operating Expense Comparison
Years Ended December 31, 2004 and 2003

2004

2003

% of
Operating
Revenues

Labor and beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equipment rents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchased services ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diesel fuel used in operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diesel fuel for sales to third parties ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Casualties and insurance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Materials ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net gain on sale and impairment of assets ÏÏÏÏÏÏÏ
Other expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 59,566
2,519
78,775
27,346
26,671
19,944
9,570
13,726
(336)
27,921

(U.S. dollars in thousands)
$ 47,337
1,733
60,096
23,443
15,900
6,756
8,568
11,635
(2,081)
20,969

17.8%
0.7%
23.6%
8.2%
8.0%
6.0%
2.9%
4.1%
(0.1)%
8.4%

Total operating expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$265,702

79.6%

$194,356

19.0%
0.7%
24.1%
9.4%
6.4%
2.7%
3.4%
4.6%
(0.8%)
8.4%

77.9%

Labor and beneÑts as a percentage of revenues were 17.8% in the year ended December 21, 2004
compared to 19.0% in the year ended December 31, 2003. In local currency, labor and beneÑts increased
13.0%. The increase was due to new employee hires and longer hours worked by existing employees as a result
of strong freight volumes, particularly the grain movements and the new business in New South Wales.

Purchased services decreased to 23.6% of revenues in the year ended December 31, 2004, compared to
24.1% of revenues in the year ended December 31, 2003. In local currency, purchased services increased
18.0%. The increase was primarily due to the use of contract locomotive engineers, private road carriers and
the use of a rail loading facility in Western Australia. Due to a locomotive engineer shortage in Australia, the
average number of contract engineers was 94 in 2004 compared to 51 in 2003.

Depreciation and amortization expense as a percentage of revenues decreased to 8.2% in the year ended
December 31, 2004, compared to 9.4% in the year ended December 31, 2003. In local currency, depreciation
and amortization expense increased 4.7%. The increase was due to higher depreciation related to an increase in
depreciable assets due to capital expenditures.

Diesel fuel used in operations increased to 8.0% of revenues in the year ended December 31, 2004,
compared to 6.4% of revenues in the year ended December 31, 2003. In local currency, the cost of fuel used in
operations increased 50.8%. The increase was due to a 20.5% increase in fuel consumed in operations related
to higher freight volumes on existing lines, a full year of business in New South Wales, and a 25.2% increase in
fuel prices.

Diesel fuel sold to third parties increased to 6.0% of revenues in the year ended December 31, 2004,
compared to 2.7% in the year ended December 31, 2003. In local currency, diesel fuel sold to third parties
increased 165.3%. The increase was due to a 126.7% increase in the volume of fuel sold to other railroads
caused by a new customer in South Australia and the Northern Territory and signiÑcantly higher purchases by
an existing customer in Western Australia, and a 35.5% increase in fuel prices. The percentage increase in the

price of fuel sold to third parties is greater than the percentage increase in the price of fuel consumed in
operations due to higher fuel and related transportation costs incurred in remote geographic locations, where
more of the fuel sales occurred.

Casualties and insurance as a percentage of revenues decreased to 2.9% in the year ended December 31,
2004, compared to 3.4% in the year ended December 31, 2003. In local currency, casualties and insurance
expense declined 1.1%. The decrease was due to an improved safety performance.

Materials expense as a percentage of revenues decreased to 4.1% in the year ended December 31, 2004,
compared to 4.6% in the year ended December 31, 2003. In local currency, materials expense increased 6.3%.
The increase was due to higher rolling stock maintenance costs associated with the higher freight volumes.

Net gain on sale and impairment of assets decreased to 0.1% in the year ended December 31, 2004,

compared to 0.8% in the year ended December 31, 2003, due to a decrease in asset sales.

Other expenses as a percentage of revenues remained at 8.4% in the year ended December 31, 2004,
compared to the year ended December 31, 2003. In local currency, other expenses increased 19.8%. The
increase was primarily due to track access fees and various other increases in administrative costs related to
the new business in New South Wales.

Income Taxes

ARG's eÅective income tax rate in the years ended December 31, 2004 and 2003 was 30.1% and 15.7%,
respectively. The 2004 eÅective tax rate is approximately equal to the statutory rate of 30%. The increase from
2003 was attributable to Ñnalizing, during 2003, the tax base of assets acquired in December 2000 from the
government. The net assets acquired were from a government tax exempt entity, and the determination of the
tax base involved the application of complex legislation. During 2003, all matters were favorably resolved with
the Australian Taxation OÇce, resulting in a reduction in income tax expense due to an overprovision of tax
expense in prior periods.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

North American Operating Revenues

Overview

North American operating revenues (which exclude revenues from the Company's equity investments)
were $244.8 million in the year ended December 31, 2003 compared to $209.5 million in the year ended
December 31, 2002, an increase of $35.3 million or 16.8%. The $35.3 million increase in operating revenues
consisted of $23.0 million in revenues from new Oregon, URC and Emons operations and an increase of
$12.3 million, or 5.9%, in revenues on existing North American operations. The following table sets forth
North American operating revenues by acquisitions and existing operations for the years ended December 31,
2003 and 2002 (dollars in thousands):

Total
Operations
$

Freight revenuesÏÏÏÏÏÏ
Non-freight revenues ÏÏ

$182,567
62,260

Total operating

2003
New
Operations
$

$16,673
6,290

Existing
Operations
$

2002
Total
Operations
$

2003-2002 Variance Information

Increase in Total
Operations
$

Increase in Existing
Operations
$

$165,894
55,970

$157,289
52,251

$25,278
10,009

16.1% $ 8,605
3,719
19.2%

5.5%
7.1%

revenues ÏÏÏÏÏÏÏÏÏÏ

$244,827

$22,963

$221,864

$209,540

$35,287

16.8% $12,324

5.9%

Coal, Coke & Ores
Pulp & Paper ÏÏÏÏÏÏ
Petroleum Products
Minerals & Stone ÏÏÏ
Lumber & Forest

ProductsÏÏÏÏÏÏÏÏÏ
Metals ÏÏÏÏÏÏÏÏÏÏÏÏ
Farm & Food

ProductsÏÏÏÏÏÏÏÏÏ
Chemicals-Plastics ÏÏ
Autos & Auto Parts
IntermodalÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏ

The $25.3 million increase in freight revenues consisted of $3.5 million, $8.7 million and $4.4 million in
freight revenues from new Oregon, URC and Emons operations, respectively, and $8.7 million in freight
revenues on existing North American railroad operations. The $10.0 million net increase in non-freight
revenues consisted of $5.7 million and $566,000 in non-freight revenues from a full year of operations of URC
and Emons, respectively, and $3.7 million in non-freight revenues on existing North American operations. The
following table compares North American freight revenues, carloads and average freight revenues per carload
for the years ended December 31, 2003 and 2002:

Freight Revenues

North American Freight Revenues and Carloads Comparison by Commodity Group
Years Ended December 31, 2003 and 2002

Commodity Group

2003

Freight Revenues
% of
Total

% of
Total

Carloads

% of
Total

2002

2003
(Dollars in thousands, except average per carload)

2002

Average Freight
Revenues per
Carload

2003

2002

% of
Total

$ 37,881
30,939
24,455
21,983

20.7% $ 28,685
25,711
16.9%
20,655
13.4%
21,236
12.0%

18.2% 167,363
16.3% 74,662
13.1% 31,798
13.5% 56,484

31.2% 136,044
14.1% 64,494
6.0% 29,479
10.7% 50,844

29.6% $226
14.0% 414
6.4% 769
11.0% 389

$211
399
701
418

17,093
17,445

12,133
11,067
5,775
1,574
2,222

9.4%
9.6%

6.6%
6.1%
3.2%
0.9%
1.2%

12,828
15,993

10,158
9,523
6,996
1,302
4,202

8.2% 53,793
10.2% 59,502

10.2% 36,265
11.2% 57,846

7.9% 318
12.6% 293

6.5% 32,589
6.1% 23,517
4.4% 14,235
5,518
0.8%
2.7% 10,292

6.2% 27,378
4.5% 19,949
2.8% 17,130
5,387
1.1%
2.0% 15,527

5.9% 372
4.3% 471
3.7% 406
1.2% 285
3.4% 216

354
276

371
477
408
242
271

342

TotalsÏÏÏÏÏÏÏÏÏÏÏÏÏ

$182,567

100.0% $157,289

100.0% 529,753

100.0% 460,343

100.0% 345

Coal, Coke and Ores revenues increased by $9.2 million, or 32.1%, due to an increase of $8.1 million in
freight revenues from the acquisition of URC and an increase in revenues of $1.1 million from hauling
carloads of Coal on existing operations for power generating facilities.

Pulp and Paper revenues increased by $5.2 million, or 20.3%, due to an increase of $483,000 in freight
revenues from hauling carloads of Pulp and Paper on the new Oregon line, and an increase of $4.7 million in
revenues from existing North American railroad operations serving Pulp and Paper customers located in our
Oregon, New York-Pennsylvania and Canada Regions.

Petroleum Products revenues increased by $3.8 million, or 18.4%, primarily due to an increase of
$2.9 million in freight revenues in our Mexico Region, primarily due to longer hauls for an existing customer
and a hurricane that temporarily halted shipments in 2002, and an increase of $949,000 in revenues in the our
other Regions.

Lumber and Forest Products revenues increased by $4.3 million, or 33.2%, due to an increase of
$2.0 million in revenues from the new Oregon line, and an increase in freight revenues of $2.3 million on
existing operations in our Oregon and Canada Regions.

Freight revenues from all remaining commodities reÖected a net increase of $2.8 million.

Total North American carloads were 529,753 in the year ended December 31, 2003 compared to 460,343
in the year ended December 31, 2002, an increase of 69,410 carloads or 15.1%. The increase of 69,410

carloads, consisted of 19,790, 29,329 and 3,504 carloads, from new Oregon, URC and Emons operations,
respectively, and a net increase of 16,787 carloads on existing operations.

The average revenues per carload increased to $345 in the year ended December 31, 2003, compared to

$342 per carload in the year ended December 31, 2002.

Non-Freight Revenues

North American non-freight revenues were $62.3 million in the year ended December 31, 2003,
compared to $52.3 million in the year ended December 31, 2002, an increase of $10.0 million, or 19.2%. The
$10.0 million increase consisted of $5.6 million and $602,000 in non-freight revenues from a full year of
operations of URC and Emons, respectively, and $3.8 million in non-freight revenues on existing North
American operations. The following table compares North American non-freight revenues for the years ended
December 31, 2003 and 2002:

North American
Non-Freight Revenues Comparison
Years Ended December 31, 2003 and 2002

2003

% of
Total

2002

% of
Total

$33,371
7,054
6,127
4,447
2,686
8,575

(Dollars in thousands)
53.6% $28,426
7,503
11.3%
5,352
9.9%
3,563
7.1%
2,263
4.3%
5,144
13.8%

54.4%
14.4%
10.2%
6.8%
4.3%
9.9%

Total non-freight revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$62,260

100.0% $52,251

100.0%

The increase of $4.9 million in railcar switching revenues was primarily attributable to the addition of

URC railroad operations.

The net increase of $3.4 million in other operating income was primarily attributable to increases on
existing operations of $810,000 in trackage rights and haulage revenues and approximately $2.6 million in
other operating income including a major one-time shipment for the U.S. government.

North American Operating Expenses

Overview

North American operating expenses were $208.5 million in the year ended December 31, 2003, compared
to $177.5 million in the year ended December 31, 2002, an increase of $31.0 million, or 17.5%. The increase
was attributable to an $18.2 million increase on existing North American operations, including additional costs
from the new contiguous rail line in our Oregon Region, and $11.0 million and $1.8 million from a full year of
operations of URC and Emons, respectively.

Operating Ratios

Our operating ratio, deÑned as total operating expenses divided by total operating revenues, increased to
85.2% in the year ended December 31, 2003 from 84.7% in the year ended December 31, 2002. The year
ended December 31, 2002 included a favorable 1.5% impact from net gains on sale of assets.

Operating Expenses

The following table sets forth a comparison of our North American operating expenses in the years ended

December 31, 2003 and 2002:

North American
Operating Expense Comparison
Years Ended December 31, 2003 and 2002

2003

2002

Dollars

$ 87,315
18,409
17,766
15,471
18,325
13,831
15,189
(87)
22,303

Percent of
Operating
Revenues
Dollars
(Dollars in thousands)

Percent of
Operating
Revenues

35.7%
7.5%
7.3%
6.3%
7.5%
5.6%
6.2%
0.0%
9.1%

$ 77,778
17,776
15,471
13,569
13,368
10,592
13,047
(3,140)
19,072

37.1%
8.5%
7.4%
6.5%
6.4%
5.1%
6.2%
(1.5)%
9.0%

Total operating expensesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$208,522

85.2%

$177,533

84.7%

Labor and beneÑts expense increased $9.5 million, or 12.3%, of which $4.1 million was an increase on
existing North American operations and $4.7 million and $700,000 was from a full year of operations of URC
and Emons, respectively. The $4.1 million increase on existing operations was primarily attributable to
approximately $1.4 million from the new rail line in our Oregon Region, $400,000 from hires in new legal, tax
and safety management positions and $2.3 million from regular wage increases and increased labor expense
related to higher shipment levels on existing operations. As a percentage of total revenues, labor and beneÑts
decreased by 1.4% to 35.7% in 2003 from 37.1% in 2002.

Diesel fuel expense increased $4.9 million, or 37.1%, of which $3.4 million was an increase on existing
North American operations and $1.3 million and $180,000 was from a full year of operations of URC and
Emons, respectively. The $3.4 million increase on existing operations was primarily attributable to increased
fuel prices in 2003 as the average price per gallon of fuel increased 20.5%. As a percentage of total revenues,
diesel fuel increased to 7.5% in 2003 from 6.4% in 2002.

Casualties and insurance increased $3.2 million, or 30.6%, of which $2.8 million was an increase on
existing North American operations and $350,000 and $67,000 was from a full year of operations of URC and
Emons, respectively. The $2.8 million increase on existing operations was primarily attributable to an increase
in derailment expense of $1.6 million, insurance expense of $1.0 million, and claims expense of $170,000. As a
percentage of total revenues, casualties and insurance increased to 5.6% in 2003 from 5.1% in 2002.

Net gain on sale and impairment of assets decreased $3.1 million primarily due to a non-recurring gain of
$2.8 million from an asset sale in our New York-Pennsylvania Region in the year ended December 31, 2002.

Other expenses increased $3.2 million, or 16.9%, of which $2.1 million was an increase on existing North
American operations and $1.0 million and $107,000 was from a full year of operations of URC and Emons,
respectively. The $2.1 million increase on existing operations was primarily due to increases of $350,000 in
accounting and legal fees, $295,000 in information technology costs, $231,000 in trackage rights, $133,000 in
acquisition costs, and approximately $1.1 million in all other costs. As a percentage of total revenues, other
expenses increased to 9.1% in 2003 from 9.0% in 2002.

Interest Expense

Interest expense in the year ended December 31, 2003, was $8.6 million compared to $8.1 million in the
year ended December 31, 2002, an increase of $507,000, or 6.2% primarily due to higher average outstanding
debt resulting from the URC acquisition. It should be noted that interest expense for the year ended
December 31, 2002 includes a $597,000 non-cash charge for the write oÅ of unamortized deferred Ñnance fees
as a result of a reÑnancing in 2002.

Other Income, Net

Other income, net, in the year ended December 31, 2003, was $986,000 compared to $726,000 in the year
ended December 31, 2002, an increase of $260,000, or 35.8%. Other income, net, in the years ended
December 31, 2003 and 2002 consisted primarily of interest income and currency gains and losses on
Australian dollar denominated cash and receivable balances.

Income Taxes

Our eÅective income tax rate in the years ended December 31, 2003 and 2002 was 36.9% and 35.6%,
respectively. The increase in 2003 was partially attributable to a higher eÅective rate on foreign earnings
partially oÅset by a decrease in U.S. state eÅective tax rates.

Equity in Net Income of Unconsolidated International AÇliates

Equity earnings of unconsolidated international aÇliates in the year ended December 31, 2003 were
$10.6 million compared to $9.8 million in the year ended December 31, 2002, an increase of $867,000. Equity
earnings in the year ended December 31, 2003, consisted of $10.4 million from ARG and $270,000 from
South American aÇliates. Equity earnings in the year ended December 31, 2002, consisted of $8.5 million
from ARG and $1.3 million from South American aÇliates.

Net Income and Earnings Per Share

Net income for the year ended December 31, 2003, was $28.7 million compared to net income in the year
ended December 31, 2002, of $25.6 million, an increase of $3.1 million, or 12.2%. The increase in net income
was the result of an increase from North American operations of $2.2 million and an increase in equity
earnings of unconsolidated aÇliates of $867,000.

Basic Earnings Per Share in the year ended December 31, 2003 increased by $0.10, or 9.4%, to $1.16
from $1.06 in the year ended December 31, 2002. Diluted Earnings Per Share in the year ended December 31,
2003 increased by $0.10, or 10.8%, to $1.03 from $0.93 in the year ended December 31, 2002. Weighted
average shares for basic and diluted were 23.7 million and 26.8 million, respectively, in the year ended
December 31, 2003, compared to 23.0 million and 26.4 million, respectively, in the year ended December 31,
2002.

Supplemental Information Ì Australian Railroad Group

ARG is 50% owned by Genesee & Wyoming and 50% owned by Wesfarmers Limited, a public
corporation based in Perth, Western Australia. We account for our 50% ownership in ARG under the equity
method of accounting. As a result of the strengthening of the Australian dollar in 2003, the average currency
translation rate for the year ended December 31, 2003 was 21.5% more favorable than the rate for the year
ended December 31, 2002, 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, 2003 and 2002, we recorded $10.4 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 AÇliates Ì Australia. The following table
provides ARG's freight revenues, carloads and average freight revenues per carload for the years ended
December 31, 2003 and 2002.

Freight Revenues

Australian Railroad Group Freight Revenues and Carloads by Commodity Group
Years ended December 31, 2003 and 2002

Commodity Group

2003

Freight Revenues
% of
Total

% of
Total

Carloads

% of
Total

2002
2003
2002
(U.S. dollars in thousands, except average per carload)

Average Freight
Revenues per
Carload

2003

2002

% of
Total

$ 61,125

29.5% $ 53,590

30.5% 158,462

18.7% 177,651

20.5% $386

$302

Grain ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Ores and

Minerals ÏÏÏÏÏÏÏÏ
Iron Ore ÏÏÏÏÏÏÏÏÏÏ
AluminaÏÏÏÏÏÏÏÏÏÏÏ
Bauxite ÏÏÏÏÏÏÏÏÏÏÏ
Hook and

Pull(Haulage) ÏÏÏ
Gypsum ÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏ

48,782
36,238
16,459
11,363

5,498
2,915
24,543

23.6%
17.5%
8.0%
5.5%

2.7%
1.4%
11.8%

38,075
27,038
13,828
10,125

8,343
2,327
22,114

21.7% 107,257
15.4% 179,711
7.9% 153,685
5.8% 126,865

12.7% 99,816
21.2% 177,619
18.1% 151,756
15.0% 127,892

11.5% 455
20.5% 202
17.5% 107
90
14.8%

4.8% 13,337
1.3% 45,548
12.6% 62,865

1.6% 24,628
5.4% 42,389
7.3% 63,724

2.9% 412
4.9%
64
7.4% 390

381
152
91
79

339
55
347

203

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏ

$206,923

100.0% $175,440

100.0% 847,730

100.0% 865,475

100.0% 244

ARG's freight revenues were $206.9 million in the year ended December 31, 2003, compared to
$175.4 million in the year ended December 31, 2002, an increase of $31.5 million or 17.9%. In local currency,
freight revenues decreased 2.9% in the year ended December 31, 2003, compared to the year ended
December 31, 2002.

Total ARG carloads were 847,730 in the year ended December 31, 2003 compared to 865,475 in the year
ended December 31, 2002, a net decrease of 17,745 carloads or 2.1%. The net decrease of 17,745 carloads
resulted primarily from decreases in grain of 19,189 carloads due to a drought and hook and pull (haulage
traÇc) of 11,291 carloads due to the loss of a customer in April 2002, oÅset by a net increase of 12,735
carloads in all other commodities combined. The average revenues per carload increased to $244 in the year
ended December 31, 2003, compared to $203 per carload in the year ended December 31, 2002, an increase of
20.2%, due to the strength of the Australian dollar relative to the U.S. dollar in 2003 versus 2002.

Non-Freight Revenues

ARG's non-freight revenues were $42.6 million in the year ended December 31, 2003 compared to
$35.6 million in the year ended December 31, 2002, an increase of $7.0 million or 19.7%. In local currency,
non-freight revenues decreased 1.4% in the year ended December 31, 2003, compared to the year ended
December 31, 2002.

The following table compares ARG's non-freight revenues for the years ended December 31, 2003 and

2002:

Australian Railroad Group
Non-Freight Revenues Comparison
Years Ended December 31, 2003 and 2002

2003

% of
Total

2002

% of
Total

(U.S. dollars in thousands)

$18,042
12,103
12,503

42.3% $13,744
28.4% 13,421
8,462
29.3%

38.6%
37.7%
23.7%

Total non-freight revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$42,648

100.0% $35,627

100.0%

Construction of the Alice Springs to Darwin rail line was completed in the fourth quarter of 2003. ARG's

role in the project will continue as a contracted operator and lessor of rail equipment.

ARG Operating Expenses

ARG's operating expenses were $194.4 million in the year ended December 31, 2003, compared to
$164.6 million in the year ended December 31, 2002, an increase of $29.8 million or 18.1%. The following
table sets forth a comparison of ARG's operating expenses in the years ended December 31, 2003 and 2002:

Australian Railroad Group
Operating Expense Comparison
Years Ended December 31, 2003 and 2002

Labor and beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equipment rents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchased services ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diesel fuel ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Casualties and insurance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Materials ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net gain on sale and impairment of assets ÏÏÏÏÏÏÏ
Other expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2003

2002

% of
Operating
Revenues

$ 47,337
1,733
60,096
23,443
22,656
8,568
11,635
(2,081)
20,969

(U.S. dollars in thousands)
$ 39,320
1,118
49,386
17,191
17,530
10,541
7,530
(314)
22,294

19.0%
0.7%
24.1%
9.4%
9.1%
3.4%
4.6%
(0.8)%
8.4%

18.6%
0.5%
23.4%
8.1%
8.3%
5.0%
3.6%
(0.1)%
10.6%

Total operating expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$194,356

77.9%

$164,596

78.0%

Labor and beneÑts as a percentage of revenues were 19.0% in the year ended December 21, 2003
compared to 18.6% in the year ended December 31, 2002. An increase in labor expense resulting from the
hiring of additional locomotive drivers in anticipation of increased grain shipments due to the strong grain
harvest in Western Australia and for a new customer contract in New South Wales, as well as an increase in
labor expense for safety and performance related bonuses, were oÅset by a decrease in labor costs following a
workforce restructuring in 2002. In local currency, labor and beneÑts expense declined 0.9%.

Purchased services, primarily for track and locomotive maintenance contractors, were 24.1% of revenues
in the year ended December 21, 2003 compared to 23.4% of revenues in the year ended December 31, 2002. In
local currency, purchased services expense increased 0.2%.

Depreciation and amortization expense as a percentage of revenues increased to 9.4% in the year ended
December 31, 2003, compared to 8.1% in the year ended December 31, 2002. The higher depreciation expense
resulted from an increase in depreciable assets due to track capital expenditures. In local currency,
depreciation and amortization expense increased 12.3%.

Diesel fuel expense as a percentage of revenues increased to 9.1% in the year ended December 31, 2003,
compared to 8.3% in the year ended December 31, 2002, primarily due to an increase in fuel sales to third
parties and an increase in fuel prices. In local currency, diesel fuel expense increased 6.4%.

Casualties and insurance as a percentage of revenues decreased to 3.4% in the year ended December 31,
2003, compared to 5.0% in the year ended December 31, 2002, due to improved safety performance and fewer
derailments. In local currency, casualties and insurance expense declined 33.1%.

Materials expense as a percentage of revenues increased to 4.6% in the year ended December 31, 2003,
compared to 3.6% in the year ended December 31, 2002, due to increases in track and rolling stock repairs. In
local currency, materials expense increased 27.2%.

Net gain on sale and impairment of assets increased to 0.8% in the year ended December 31, 2003,

compared to 0.1% in the year ended December 31, 2002, due to the sale of real estate and railcars.

Other expenses decreased to 8.4% of revenues in the year ended December 31, 2003, compared to 10.6%
in the year ended December 31, 2002. The decrease in 2003 was primarily the result of lower track access fees
in South Australia, lower grain transfer costs due to the drought, lower general and administrative costs, as
well as the non-recurrence of $867,000 in costs related to the unsuccessful bid for the privatization of an
Australian railroad in 2002. In local currency, other expenses decreased 22.6%.

Income Taxes

ARG's eÅective income tax rate in the years ended December 31, 2003 and 2002 was 15.7% and 24.6%,
respectively. The decrease in 2003 was attributable to Ñnalizing the tax base of assets acquired from the
government in December 2000. The net assets acquired were from a government tax exempt entity, and the
determination of the tax base involved the application of complex legislation. During 2003, all matters were
favorably resolved with the Australian Taxation OÇce, resulting in a reduction in income tax expense due to
an overprovision of tax expense in prior periods.

North American Liquidity and Capital Resources

During 2004, 2003 and 2002, we generated $55.0 million, $46.9 million and $27.6 million, respectively, of
cash from operations. The 2004 increase over 2003 was primarily due to the following items: increased net
income of $8.9 million, increased depreciation and amortization of $3.8 million, an increase from the non-cash
write oÅ of deferred Ñnance fees of $1.6 million, partially oÅset by $4.3 million in greater non-cash equity
earnings, decreased deferred taxes of $1.8 million, and a net decrease in all other elements of working capital
of $140,000. The 2003 increase over 2002 was primarily due to the following items: increased net income of
$3.1 million, increased depreciation and amortization of $1.9 million, increased deferred taxes of $3.2 million,
partially oÅset by a decrease in non-cash gains on asset sales and impairments of $3.1 million, and a net
decrease in all other elements of working capital of $8.0 million.

During 2004, 2003 and 2002, our cash Öow used in investing activities was $24.8, $75.9 million and
$103.0 million, respectively. For 2004, primary drivers of the investing activities were capital expenditures of
$28.1 million and the purchase of Homer City and Savannah Wharf rail properties and Pawnee Transloading
Company Inc., for $2.9 million, oÅset by $5.8 million in net cash received from unconsolidated international
aÇliates and $448,000 in proceeds from the sale of assets. Capital expenditures consisted of $19.1 million for
track improvements net of funds received from governmental grants and $9.0 million for equipment and rolling
stock. For 2003, primary drivers of investing activities were the acquisition of the GP Railroads for
$54.9 million and capital expenditures of $23.0 million. Capital expenditures consisted of $14.7 million for
track improvements net of funds received from governmental grants, and $8.3 million for equipment and
rolling stock which included $4.1 million for a locomotive upgrade project. For 2002, primary drivers of

investing activities were the acquisitions of the Utah Railway Company and Emons Transportation Group for
a total of $85.1 million and capital expenditures of $22.3 million. Capital expenditures consisted of
$14.4 million for track improvements net of funds received from governmental grants and $7.9 million for
equipment and rolling stock which included $2.0 million for a locomotive upgrade project.

During 2004, our cash Öow used in Ñnancing activities was $27.5 million. During 2003 and 2002, our cash
Öow provided by Ñnancing activities was $28.4 million and $59.1 million, respectively. For 2004, primary
drivers of the Ñnancing activities were a net decrease in outstanding debt of $28.8 million, debt issuance cost of
$1.4 million and dividends paid on the Convertible Preferred of $411,000, oÅset by net proceeds of
$3.0 million from the exercise of stock options by employees and directors and stock purchases by employees.
For 2003, primary drivers of the Ñnancing activities were a net increase in outstanding debt of $26.9 million
and cash proceeds of $2.9 million from exercise of stock options by employees and directors and stock
purchases by employees, oÅset by dividends paid on the Convertible Preferred of $1.0 million. For 2002,
primary drivers of the Ñnancing activities were a net increase in outstanding debt of $61.6 million and net
proceeds from the exercise of stock options by employees and directors and stock purchases by employees of
$3.1 million, oÅset by debt issuance costs of $4.6 million and dividends paid on the Convertible Preferred of
$1.0 million.

At December 31, 2004, we had long-term debt, including current portion, totaling $132.2 million, which
comprised 27.9% of our total capitalization. At December 31, 2003, we had long-term debt, including current
portion, totaling $158.0 million, which comprised 35.2% of our total capitalization including the Convertible
Preferred.

U.S. and Canadian Credit Facilities

On November 15, 2004, we entered into amended and restated Ñve-year, $182.0 million unsecured senior
credit facilities. We used the proceeds from the Ñnancing to repay $35.0 million of approximately $110.0 mil-
lion of debt outstanding at our U.S. and Canadian subsidiaries. Approximately $8.1 million of the borrowing
capacity is reserved for letters of credit for two of our subsidiaries. The remaining unused borrowing capacity is
available for general corporate purposes, including acquisitions.

The amended and restated credit facilities are composed of a $150.0 million revolving loan and a
$32.0 million (C$38.5 million) Canadian term loan, both of which are due in 2009. Interest rates for
borrowings are based on U.S. or Canadian LIBOR plus a margin, which varies from 0.75% to 1.50%
depending on leverage. Initial borrowings were priced at LIBOR plus 1.0%. The credit facilities are unsecured,
but the revolving loan is guaranteed by substantially all of our U.S. subsidiaries and the Canadian term loan is
guaranteed by substantially all of our U.S. and Canadian subsidiaries. Financial covenants, which are
measured on a trailing twelve month basis and reported quarterly, include (a) maximum leverage of 3.5 times
(measured as Funded Debt (indebtedness plus guarantees including Letters of Credit, plus the present value
of operating leases)) to EBITDAR (earnings before interest, taxes, depreciation, amortization and rental
payments on operating leases), (b) minimum interest coverage of 3.5 times (measured as EBITDA divided
by interest expense), (c) required net worth equal to 80% of net worth as of September 30, 2004 plus 50% of
net income for each quarter ending after September 30, 2004, and (d) maximum annual capital expenditures
(excluding acquisitions) of $42.0 million. Fifty percent of unutilized permitted capital expenditures may be
utilized in the succeeding year. The credit facilities contain a number of covenants restricting our ability to
incur additional indebtedness, make certain investments, sell assets, issue subsidiary stock, restrict distribu-
tions from subsidiaries, create certain liens, enter into certain consolidations or mergers, enter into certain
transactions with aÇliates, and pay dividends or make distributions. The credit facilities allow us to pay
dividends and make distributions provided that Funded Debt to EBITDAR, including any borrowings made to
fund the dividend or distribution, is less than 3.0 to 1. We were in compliance with the provisions of these
covenants as of December 31, 2004.

In conjunction with the reÑnancing, we recorded a non-cash pre-tax write-oÅ of $1.6 million related to
unamortized deferred Ñnancing costs of the reÑnanced debt and a cash expense of $257,000 for the
termination of interest rate swaps related to the former debt.

Senior Notes

On November 15, 2004, we completed a seven-year, $75.0 million private placement of unsecured 4.85%
Ñxed rate Senior Notes. The Senior Notes were priced at a spread of 1.15% over the 7-year U.S. Treasury and
are due in 2011. We used the proceeds from the $75.0 million Ñnancing to repay $75.0 million of
approximately $110.0 million of debt outstanding at our U.S. and Canadian subsidiaries. The Senior Notes are
unsecured, but are guaranteed by substantially all of our U.S. subsidiaries. The Senior Notes contain a number
of covenants limiting our ability to incur additional indebtedness, sell assets, create certain liens, enter into
certain consolidations or mergers and enter into certain transactions with aÇliates. Financial covenants, which
are reported quarterly, include (a) maximum debt to capitalization of 65% and (b) minimum Ñxed charge
coverage ratio of 1.75 times (measured as EBITDAR for the preceding twelve months divided by interest
expense plus operating lease payments for the preceding twelve months). We were in compliance with the
provisions of these covenants as of December 31, 2004.

Mexican Financings

On December 7, 2000, one of our subsidiaries in Mexico, Servicios, entered into three promissory notes
payable (Notes) totaling $27.5 million with variable interest rates based on LIBOR plus 3.5 percentage points
with the International Finance Corporation (IFC) as the primary lender. Two of the Notes, aggregating
$17.0 million, have an 8-year term with combined semi-annual principal payments of $1.4 million which
began March 15, 2003, and continue through the maturity date of September 15, 2008. The third Note, in the
amount of $10.5 million, has a 9-year term with semi-annual principal payments of $750,000 which began
March 15, 2003, and continue through the maturity date of September 15, 2009.

The Notes are secured by essentially all the assets of Servicios and its subsidiary, Compania de
Ferrocarriles Chiapas-Mayab, S.A. de C.V., (FCCM), and a pledge of Genesee & Wyoming's shares of
Servicios and FCCM. We are obligated to provide up to $8.0 million of funding to our Mexican subsidiaries, if
necessary, to meet their investment or Ñnancial obligations prior to completing the investment phase of the
project funded by the Notes (Physical Completion), consisting of several obligations related to capital
investments, operating performance and management systems and controls. In addition, we are obligated to
provide $7.5 million in funding to Servicios to meet its debt service obligations prior to completing the
Ñnancial phase of the project (Financial Completion), consisting of several Ñnancial performance thresholds.
At present, FCCM has yet to achieve Physical Completion or Financial Completion. To date, we have
advanced $2.5 million of this obligation, and based on current circumstances, it is probable that we will have to
fund additional payments in order to meet the future principal repayment obligations of the Notes. We have
entered into discussions with the IFC to restructure the terms of the Notes to reduce our need to fund portions
of future principal repayment obligations of the Notes. The Notes contain certain Ñnancial and other
covenants with which Servicios and FCCM are in compliance as of December 31, 2004.

In conjunction with the Notes, the IFC invested $1.9 million of equity in Servicios for a 12.7% indirect
interest in FCCM. Along with its equity investment, IFC received a put option exercisable in 2005 to sell its
equity stake back to Genesee & Wyoming. The put price will be based on a multiple of earnings before
interest, taxes, depreciation and amortization. If the value of the put option exceeds the minority interest
liability, additional minority interest expense would be recorded. Exercise of this put option by the IFC would
result in a future cash outÖow for us.

Mexican Fuel Tax Credits

In 2003, FCCM could apply diesel fuel tax credits that it generated to reduce payroll taxes and value
added taxes, and it utilized approximately $3.3 million in such fuel tax credits. During 2004, tax authorities
issued a ruling that limited the application of diesel fuel tax credits to income tax related obligations only,
excluding payroll taxes and value added taxes. EÅective January 2005, as a result of new fuel tax legislation,
FCCM will again be permitted to apply diesel fuel tax credits that it generates to reduce a variety of its federal
tax obligations, including income taxes, payroll taxes and value added taxes. While the new legislation is a
favorable development, under the fuel tax formula at current high diesel fuel prices, FCCM is paying no fuel

taxes and therefore is not currently generating diesel fuel tax credits. FCCM is in discussions with the
Mexican tax authorities concerning its ability to utilize $1.0 million of previously generated fuel tax credits. If
permitted, FCCM would expect to utilize these fuel tax credits in 2005 and subsequent years. If FCCM is
unable to utilize the $1.0 million of fuel tax credits that it generated in 2004 and/or is unable to generate
future fuel tax credits due to the current formula, it will be more diÇcult for FCCM and Servicios to satisfy
their debt obligations thereby increasing the expected amount of support we will have to provide to FCCM
and Servicios.

South America

We have a 22.89% indirect ownership interest in Ferroviaria Oriental, S.A. (Oriental) which is located in
eastern Bolivia. We hold our equity interest in Oriental through a number of intermediate holding companies,
and we account for our interest in Oriental under the equity method of accounting. We indirectly hold a
12.52% equity interest in Oriental through an interest in Genesee & Wyoming Chile (GWC), and we hold our
remaining 10.37% equity interest in Oriental through other companies. GWC is an obligor of non-recourse
debt of $12.0 million, which has an adjustable interest rate dependent on operating results of Oriental. This
non-recourse debt is secured by a lien over GWC's 12.52% indirect equity interest in Oriental.

This debt became due and payable on November 2, 2003. Due to the political and economic unrest and
uncertainties in Bolivia, it has become diÇcult for GWC to reÑnance this debt and we have chosen not to
repay the non-recourse obligation. GWC entered into discussions with its creditors on plans to restructure the
debt, and as a result of those discussions, GWC obtained a written waiver of principal repayment from the
creditors which expired on January 31, 2004. However, negotiations with the creditors continue, and currently,
none of GWC's creditors have commenced court proceedings to (i) collect on the debt or (ii) exercise their
rights pursuant to the lien.

If we were to lose our 12.52% equity stake in Oriental due to creditors exercising their lien on GWC's
indirect equity interest in Oriental, we would write-oÅ our investment in Oriental held through GWC, which
on December 31, 2004 amounted to $380,000. A default, acceleration or eÅort to foreclose on the lien under
the non-recourse debt will have no impact on our remaining 10.37% equity interest in Oriental because that
equity interest is held indirectly through holding companies outside of GWC's ownership in Oriental. As a
result of the uncertainty surrounding the $12.0 million debt, we discontinued equity accounting for our 12.52%
equity interest in Oriental held through our interest in GWC.

Oriental has no obligations associated with the $12.0 million debt. In addition, a default, acceleration or
eÅort to foreclose on the lien under the non-recourse debt would not result in a breach of a representation,
warranty, covenant, cross-default or acceleration under our Senior Credit Facility.

Equipment Leases

We are party to several cancelable leases which have automatic renewal provisions. If we choose not to
renew these leases, we would be obligated to return the underlying rolling stock and pay aggregate fees of up to
approximately $7.8 million. In addition, we have the option, at various dates, to terminate the leases by
purchasing the rolling stock. The maximum aggregate purchase price, at the next available buyout date for
each qualifying lease, is approximately $21.3 million. Management anticipates the future market value of the
leased rolling stock will equal or exceed the payments necessary to purchase the rolling stock.

As noted previously, in November 2004, TZPR entered into a 20-year lease agreement for the assets of
the PPU (see Note 3 to Consolidated Financial Statements). Future lease payments of $3.0 million annually
are subject to adjustment based on certain economic indicators and customer operations stipulated in the
agreement.

Government Grants

Some of our railroads have entered into a number of rehabilitation or construction grants with state and
federal agencies. We use the grant funds as a supplement to our 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. We believe that the levels of service and maintenance required under the
grants are not materially diÅerent from those that would be required without the grant obligation. In addition
to government grants, customers occasionally provide Ñxed funding of certain track rehabilitation or
construction projects to facilitate our service over that track. We record any excess in the Ñxed funding
compared to the actual cost of rehabilitation and construction as gains in the current period. We received
government grants totaling $5.6 million, $2.0 million and $8.8 million in 2004, 2003 and 2002, respectively.
However, we can oÅer no assurance that government grants will continue to be available or that even if
available, our railroads will be able to obtain them.

2005 Budgeted Capital Expenditures

We have budgeted approximately $29.5 million in capital expenditures in 2005, of which $23.7 million is
for track rehabilitation, including the completion of the Homer City Branch, and $5.8 million is for equipment.

We have 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
Ñnance acquisitions and investments in unconsolidated aÇliates. We believe that our cash Öow from
operations together with amounts available under the credit facilities will enable us to meet our liquidity and
capital expenditure requirements relating to ongoing operations for at least the duration of the credit facilities.

Contractual Obligations and Commercial Commitments

The following table represents our obligations and commitments for future cash payments under various

agreements as of December 31, 2004:

Contractual Obligations

Total

Less than
1 Year

1-3
Years

3-5
Years

More than
5 Years

Payments Due by Period

Long-Term Debt Obligations(a) ÏÏÏÏÏÏ
Capital Lease Obligations ÏÏÏÏÏÏÏÏÏÏÏÏ
Operating Lease Obligations ÏÏÏÏÏÏÏÏÏÏ
Purchase Obligations(b) ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest Rate Swaps(c) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$131,742
496
96,049
14,690
3,533

$ 6,341
15
15,670
935
1,299

(Dollars in thousands)
$13,248
$12,393
35
33
12,446
23,745
7,331
6,424
Ì
2,234

$ 99,760
413
44,188
Ì
Ì

TotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$246,510

$24,260

$44,829

$33,060

$144,361

(a) Excludes capital lease obligations of $496,000.

(b) Purchase obligations include a $1.4 million locomotive maintenance contract and $13.3 million end of

term purchase price for locomotives and freight cars under operating leases.

Impact of Foreign Currencies on Operating Revenues

As of December 31, 2004, foreign currency translation had a net positive impact on consolidated North
America revenues as the strengthening of the Canadian dollar more than oÅset a weakening Mexican Peso.
The following table sets forth the impact of foreign currency translation on reported operating revenues:

Operating Revenues

Years Ended December 31, 2004

As
Reported

Currency
Translation Impact

Revenues Excluding
Currency Impact

U.S. Operating Revenues ÏÏÏÏÏÏÏÏ
Canada Operating Revenues ÏÏÏÏÏÏ
Mexico Operating Revenues ÏÏÏÏÏÏ

$226,521
44,008
33,255

(Dollars in thousands)
n/a
$ 3,312
(1,562)

$226,521
40,696
34,817

Total Operating RevenuesÏÏÏÏÏÏÏÏ

$303,784

$ 1,750

$302,034

2003
As
Reported

$175,650
37,538
31,639

$244,827

OÅ-Balance Sheet Arrangements

We have no oÅ-balance sheet arrangements as required to be disclosed pursuant to Item 303(a)(4) of

regulation S-K.

Supplemental Information Ì Australian Railroad Group

Credit Facilities

In December 2003, ARG reÑnanced all of its senior debt outstanding through new senior credit facilities
(""the new Credit Facilities'') of $398.0 million. The new Credit Facilities are denominated in Australian
dollars. By drawing down approximately $368.0 million under the new Credit Facilities and using previously
restricted cash, ARG repaid $439.3 million of senior debt. The new Credit Facilities are composed of a
$150.2 million revolving loan maturing in 2008, a $90.1 million term loan maturing in 2008, a $150.2 million
term loan expiring in 2010, and a $7.5 million working capital facility. The credit facilities accrue interest at
rates based on various indices plus an applicable margin, which varies from 0.70 to 1.25 percentage points
based on the bank bill bid rate, as deÑned in the credit agreements. ARG pays a commitment fee on all
unused portions of the credit facilities which varies from 0.3 to 0.4 percentage points. The credit facilities
include limited negative pledge covenants but permit prepayment. The credit facilities require the mainte-
nance of certain covenant ratios or amounts, including, but not limited to, interest expense to EBITDA, and
total debt to total assets, all as deÑned in the credit agreements. (Dollar amounts noted above apply the year-
end 2003 exchange rate of 0.75 U.S. dollars per Australian dollar.)

Impact of Foreign Currency on ARG's Operating Revenues and Net Income

As of December 31, 2004, foreign currency translation had a positive impact on ARG's operating
revenues and net income due to the strengthening of the Australian dollar. The following table sets forth the
impact of foreign currency translation on reported operating revenues and net income:

ARG Operating Revenues and Net Income

Years Ended December 31, 2004

As
Reported

Currency
Translation Impact

Excluding
Currency Impact

Operating Revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$333,647

(U.S. dollars in thousands)
$13,226

$320,421

2003
As
Reported

$249,571

Net Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 28,470

$ 1,128

$ 27,342

$ 20,743

Critical Accounting Policies and Use of Estimates

The preparation of Ñnancial statements in conformity with generally accepted accounting principles
requires management to use judgment and to make estimates and assumptions that aÅect reported assets,
liabilities, revenues and expenses; actual results may diÅer from such estimates. The diversity of our services,
customers, geographic operations, sources of supply and markets reduces the risk that any one event could
have a severe impact on our operating results. Those areas requiring the greatest degree of management
judgment or deemed most critical to our Ñnancial 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 our
disclosure relating to us 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 goodwill and intangible assets acquired in business combinations requires management
to use judgment and make estimates. We 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.

For intangible assets the impairment test compares the fair value of an intangible asset with its carrying
amount. If the carrying amount of an intangible assets exceeds its fair value, an impairment loss shall be
recognized in an amount equal to that excess.

We test impairment of goodwill and intangible assets on an annual basis or when triggering events occur.

Recoverability and Realization of Tangible Assets

We continually evaluate whether events and circumstances have occurred that indicate that our long-
lived tangible assets may not be recoverable. When factors indicate that assets should be evaluated for possible
impairment, we use an estimate of the related undiscounted future cash Öows over the remaining lives of assets
in measuring whether or not impairment has occurred. If impairment were identiÑed, 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. We closely monitor our assets in foreign operations
where Öuctuating currencies and unsettled economic conditions can create greater uncertainty. We adopted
SFAS No. 144 ""Accounting for the Impairment or Disposal of Long-lived Assets'' eÅective January 1, 2002.

Derailment and Property Damages, Personal Injuries and Third Party Claims

We maintain insurance, with varying deductibles up to $500,000 per incident for liability and up to
$500,000 per incident for property damage, for claims resulting from train derailments and other accidents
related to our railroad and industrial switching operations. Accruals for FELA claims by our railroad
employees and third party personal injury or other claims, limited when appropriate to the applicable
deductible, are recorded when such claims are determined to be probable and estimates are updated as
information develops.

Pensions and Other Post-Retirement BeneÑts

We administer two noncontributory deÑned beneÑt plans for union and non-union employees of two
U.S. subsidiaries. BeneÑts are determined based on a Ñxed amount per year of credited service. Our funding
policy is to make contributions for pension beneÑts based on actuarial computations which reÖect the long-

term nature of the plans. We have met the minimum funding requirements according to the Employee
Retirement Income Security Act.

We provide health care and life insurance beneÑts for certain union employees of South BuÅalo. As of
December 31, 2004, thirty-nine employees were participating and Ñfty current employees may become eligible
for these beneÑts upon retirement if certain combinations of age and years of service are met. We fund the
plan on a pay-as-you-go basis.

We provided health care and life insurance beneÑts to certain nonunion retired employees who had
reached the age of 55 with 30 or more years of service. In October 2004, we terminated the health care and life
insurance beneÑts eÅective January 2005.

We evaluated the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Act) on
our postretirement plan and the Act did not impact our consolidated Ñnancial position, results of operations, or
disclosure requirements.

Income Taxes

We Ñle consolidated U.S. federal income tax returns which include all of our U.S. subsidiaries. Each of
our foreign subsidiaries Ñles 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 fully utilize those earnings in the operations of 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 our controlled foreign subsidiaries as of December 31, 2004 was
$79.6 million. It is not practicable to determine the amount of U.S. income and foreign withholding taxes that
could be payable if a distribution of earnings were to occur.

Deferred income taxes reÖect the net income tax eÅects of temporary diÅerences between the carrying
amounts of assets and liabilities for Ñnancial reporting purposes and the amounts used for income tax purposes
as well as available income tax credits. In our consolidated balance sheets, these deferred beneÑts and deferred
obligations are classiÑed as current or non-current based on the classiÑcation of the related asset or liability for
Ñnancial reporting. A deferred tax obligation or beneÑt that is not related to an asset or liability for Ñnancial
reporting, including deferred tax assets related to carry-forwards, are classiÑed according to the expected
reversal date of the temporary diÅerence as of the end of the year.

We had net operating loss carry-forwards from our Mexican operations in 2004 and 2003 of $16.6 million
and $19.8 million, respectively. The Mexican losses, for income tax purposes, relate to the immediate
deduction of a portion of the purchase price paid for the FCCM operations and interest expense incurred in
the holding company, Servicios. These loss carry-forwards will expire between 2009 and 2014. We had net
operating loss carry-forwards from our Canadian operations as of December 31, 2004 and 2003 of $0.2 million
and $0.8 million, respectively. The Canadian losses represent losses generated prior to our gaining control of
those operations in April 1999. These loss carry-forwards will expire in 2005.

A signiÑcant portion of the deferred tax beneÑts relate to the Mexican net operating loss carryforwards.
We believe that a valuation allowance need not be recorded because we expect our Mexican business will
more likely than not generate suÇcient taxable income to utilize all of the deferred tax assets. FCCM is
currently proÑtable and at current levels we estimate it will generate suÇcient taxable income to utilize its net
operating loss carry-forwards prior to the date of expiration. In addition, management believes that a
contemplated restructuring of the Mexican business will more likely than not enable us to use the future
taxable income to oÅset the remaining net operating losses of Servicios prior to the date of expiration.

As of December 31, 2003, the deferred tax asset attributable to the Canadian net operating loss carry-
forward had been fully oÅset by a valuation allowance of $251,000. In 2004, the valuation allowance was
reduced to zero due to a combination of two Canadian companies, and in management's opinion the net
operating loss will more likely than not be utilized by the surviving company. The valuation allowance was
established in the acquisition of GRO, and accordingly, the reversal only aÅects balance sheet accounts.

On October 22, 2004, the American Jobs Creation Act of 2004 (the Act) was signed into law. The Act
contains two railroad-related tax provisions which will beneÑt our U.S. railroads beginning in 2005. The Act
created a track maintenance tax credit for Class II railroads, Class III railroads and certain other parties equal
to 50% of qualifying track maintenance expenditures but limited to $3,500 times the number of miles of
qualifying railroad track owned or leased at the end of each applicable year. The tax credit may only be earned
on maintenance work undertaken from January 1, 2005 through December 31, 2007. Although the IRS has
not yet issued implementing regulations related to this provision, we expect a reduction in our U.S. eÅective
tax rate over this three-year period. The Act also repeals the 4.3 cents per gallon excise tax on locomotive
diesel fuel which is to be phased-out between 2005 and 2007.

Management believes that full consideration has been given to all relevant circumstances that we may be
currently subject to, and the Ñnancial statements accurately reÖect management's best estimate of our results
of operations, Ñnancial condition and cash Öows for the years presented.

RISK FACTORS

Our operations and Ñnancial condition are subject to certain risks that could cause actual operating and
Ñnancial results to diÅer materially from those expressed or forecast in our forward-looking statements,
including the risks described below and the risks identiÑed in other documents which are Ñled or furnished
with the SEC.

GENERAL RISKS ASSOCIATED WITH GENESEE & WYOMING

If we are unable to consummate additional acquisitions or investments, we may not be able to
successfully implement our growth strategy.

Our growth strategy is based on us expanding through selective acquisitions of and investments in rail
properties, both in new regions and in regions in which we currently operate. The success of our growth
strategy will depend on, among other things:

‚ the availability of suitable candidates;

‚ the level of competition from other companies that may have greater Ñnancial resources;

‚ our ability to value acquisition and investment candidates accurately and negotiate acceptable terms for

those acquisitions and investments;

‚ our ability to identify and enter into mutually beneÑcial relationships with venture partners; and

‚ the availability of management resources to oversee the integration and operation of the acquired

businesses.

If we are not successful in implementing our growth strategy, the market price for our Class A Common

Stock may be adversely aÅected.

Our inability to integrate acquired businesses successfully or to realize the anticipated cost savings and
other beneÑts could have adverse consequences to our business.

We have experienced signiÑcant growth through acquisitions and we expect to continue to grow through
additional acquisitions. Acquisitions generally result in increased operating and administrative costs and, to the
extent Ñnanced with debt, additional interest costs. We may not be able to manage or integrate the acquired
companies or businesses successfully. The process of combining acquired businesses may be disruptive to our

business and may cause an interruption or reduction of our business as a result of the following factors, among
others:

‚ loss of key employees or customers;

‚ possible inconsistencies in or conÖicts between standards, controls, procedures and policies among the
combined companies and the need to implement company-wide Ñnancial, accounting, information
technology and other systems;

‚ failure to maintain the quality of services that the companies have historically provided;

‚ integrating employees of rail lines acquired from Class I railroads, governments or other entities into

the our regional railroad culture;

‚ failure to coordinate geographically diverse organizations; and

‚ the diversion of management's attention from our day-to-day business as a result of the need to manage

any disruptions and diÇculties and the need to add management resources to do so.

These disruptions and diÇculties, if they occur, may cause us to fail to realize the cost savings, revenue
enhancements and other beneÑts that we expect to result from integrating acquired companies, and may cause
material adverse short- and long-term eÅects on our operating results, Ñnancial condition and liquidity.

Even if we are able to integrate the operations of acquired businesses into our operations, we may not
realize the full beneÑts of the cost savings, revenue enhancements or other beneÑts that we may have expected
at the time of acquisition. The expected revenue enhancements and cost savings are based on analyses
completed by members of our management. These analyses necessarily involve assumptions as to future
events, including general business and industry conditions, operating costs and competitive factors, many of
which are beyond our control and may not materialize. While we believe these analyses and their underlying
assumptions to be reasonable, they are estimates which are necessarily speculative in nature. In addition, even
if we achieve the expected beneÑts, we may not be able to achieve them within the anticipated time frame.
Also, the cost savings and other synergies from these acquisitions may be oÅset by costs incurred in integrating
the companies, increases in other expenses, operating losses or problems in the business unrelated to these
acquisitions.

We may need additional capital to fund our acquisitions. If we are unable to obtain additional capital,
we may be required to forego potential acquisitions, which would harm our Ñnancial condition and
operating results.

Since 1996, we have acquired 24 railroads, the majority of which were for cash. We intend to continue to
review acquisition candidates and potential purchases of railroad assets, and to attempt to acquire companies
and assets that meet our investment criteria. We expect that, as in the past, we will pay cash for some or all of
the purchase price of any acquisitions or purchases that we make. Depending on the number of acquisitions or
purchases and the prices of the acquisitions, we may not generate enough cash from operations to pay for the
acquisitions or purchases. We may, therefore, need to raise substantial additional capital. To the extent that
we raise additional capital through the sale of equity or convertible debt securities, the issuance of such
securities could result in dilution of our existing stockholders. If we raise additional funds through the issuance
of debt securities, the terms of such debt could impose additional restrictions on our operations. Additional
capital, if required, may not be available on acceptable terms, or at all. If we are unable to obtain additional
capital, we may be required to forego potential acquisitions, which would harm our Ñnancial condition and
operating results.

Because we depend on Class I railroads and other connecting carriers for our North American
operations, our operating results, Ñnancial condition and liquidity may be adversely aÅected if our
relationships with these carriers deteriorate.

The railroad industry in the U.S. and Canada is dominated by 7 Class I carriers that have substantial
market control and negotiating leverage. Almost all of the traÇc on our U.S. and Canadian railroads is

interchanged with Class I carriers. A decision by any of these Class I carriers to use alternate modes of
transportation, such as motor carriers, could have a material adverse eÅect on our operating results, Ñnancial
condition and liquidity.

Our ability to provide rail service to customers in the U.S. and Canada depends in large part upon our
ability to maintain cooperative relationships with connecting carriers with respect to, among other matters,
freight rates, revenue divisions, car supply, reciprocal switching, interchange and trackage rights. A deteriora-
tion in the operations of, or service provided by, those connecting carriers, or in our relationship with those
connecting carriers, would adversely aÅect our operating results, Ñnancial condition and liquidity. In addition,
much of the freight transported by our U.S. and Canadian railroads moves on railcars supplied by Class I
carriers. If the number of railcars supplied by Class I carriers is insuÇcient, we might not be able to obtain
replacement railcars on favorable terms or at all and shippers may seek alternate forms of transportation.

Portions of our U.S. and Canadian rail properties are operated under leases, operating agreements or
trackage rights agreements with Class I carriers. Failure of our railroads to comply with the terms of these
leases and agreements in all material respects could result in the loss of operating rights with respect to those
rail properties, which would adversely aÅect our operating results, Ñnancial condition and liquidity. Class I
carriers also have traditionally been signiÑcant sources of business for us, as well as sources of potential
acquisition candidates as they divest branch lines to smaller rail operators. Because we depend on Class I
carriers for our U.S. and Canadian operations, our operating results, Ñnancial condition and liquidity may be
adversely aÅected if our relationships with those carriers deteriorate.

While the majority of our Mexican revenues originates and terminates on the our railroad, we are
dependent on our relationship with a connecting carrier for the remainder of our revenues. To the extent that
we experience service disruptions with that connecting carrier, our ability to serve existing customers and
expand our business will suÅer.

We face competition from numerous sources, including those relating to geography, substitutable
products, other types of transportation and other rail operators.

Each of our railroads is typically the only rail carrier directly serving our customers. Our railroads,
however, compete directly with other modes of transportation, principally motor carriers and, on some routes,
ship, barge and pipeline operators. We are also subject to geographic and product competition. For example, a
customer could shift production to a region where we do not have operations or could substitute one
commodity for another commodity that is not transported by rail. In either case, we would lose a source of
revenues, which could have a material adverse eÅect on our operating results, Ñnancial condition and liquidity.

The extent of this competition varies signiÑcantly among our railroads. Competition is based primarily
upon the rate charged, the relative costs of substitutable products and the transit time required. In addition,
competition is based on the quality and reliability of the service provided. Because a large majority of our
freight moves involve interchange with another carrier, we have only limited control over the price, transit
time or quality of such service. Any future improvements or expenditures materially increasing the quality of
these alternative modes of transportation in the locations in which we operate, or legislation granting
materially greater latitude for motor carriers with respect to size or weight limitations, could have a material
adverse eÅect on our operating results, Ñnancial condition and liquidity.

We are subject to signiÑcant governmental regulation of our railroad operations. The failure to comply
with governmental regulations could have a material adverse eÅect on our operating results, Ñnancial
condition and liquidity.

We are subject to governmental regulation in the U.S. by a signiÑcant number of federal, state and local
regulatory authorities, including the STB, the Federal Railroad Administration and state departments of
transportation, with respect to our railroad operations and a variety of health, safety, labor, environmental and
other matters. We are also subject to regulatory authorities in the other countries in which it operates. Our
failure to comply with applicable laws and regulations could have a material adverse eÅect on our operating
results, Ñnancial condition and liquidity. In addition, governments may change the regulatory framework

within which we operate without providing us with any recourse for any adverse eÅects that the change may
have on our operating results, Ñnancial condition and liquidity. Also, some of the regulations require us to
obtain and maintain various licenses, permits and other authorizations, and we may not continue to be able to
do so.

We could incur signiÑcant costs for violations of, or liabilities under, environmental laws and
regulations.

Our railroad operations and real estate ownership are subject to extensive foreign, federal, state and local
environmental laws and regulations concerning, among other things, emissions to the air, discharges to waters,
and the handling, storage, transportation and disposal of waste and other materials and cleanup of hazardous
material or petroleum releases. Environmental liability to us may arise from conditions or practices at
properties previously owned or operated by us, properties leased by us, and other properties owned by third
parties, (for example, properties at which hazardous substances or wastes for which we are responsible have
been treated, stored, spilled or disposed of), as well as at properties currently owned by us. Under some
environmental statutes, such liability may be without regard to whether we were at fault, and may also be
""joint and several,'' whereby we are responsible for all the liability at issue even though we (or the entity that
gives rise to our liability) was only one of a number of entities whose conduct contributed to the liability.

Environmental liabilities may arise from claims asserted by owners or occupants of aÅected properties or
other third parties aÅected by environmental conditions (for example, contractors and current or former
employees) seeking to recover in connection with alleged damages to their property or with personal injury or
death, as well as by governmental authorities seeking to remedy environmental conditions or to enforce
environmental obligations. Environmental requirements and liabilities could obligate us to incur signiÑcant
costs, including signiÑcant expenses to investigate and remediate environmental contamination, which could
have a material adverse eÅect on our operating results, Ñnancial condition and liquidity.

Some of our employees belong to labor unions, and strikes or work stoppages could adversely aÅect our
operating results, Ñnancial condition and liquidity.

We are a party to collective bargaining agreements with various labor unions in the United States,
Mexico, Australia, Canada and Bolivia. In North America, we are party to 33 contracts with national labor
organizations. We are currently engaged in negotiations with respect to 6 of those agreements. We have also
entered into employee bargaining agreements with an additional 67 employees who represent themselves. In
each of Western Australia and New South Wales, ARG has a collective enterprise bargaining agreement
covering the majority of employees. During 2004, ARG completed a re-negotiation of the Western Australia
and New South Wales collective enterprise bargaining agreements, each of which has a term of approximately
three years. In South Australia, ARG has one collective bargaining agreement that expired in September
2004. This agreement is currently being renegotiated and is expected to be completed in April 2005. Our
inability to negotiate acceptable contracts with these unions could result in, among other things, strikes, work
stoppages or other slowdowns by the aÅected workers. If the unionized workers were to engage in a strike,
work stoppage or other slowdown, or other employees were to become unionized or the terms and conditions in
future labor agreements were renegotiated, we could experience a signiÑcant disruption of our operations
and/or higher ongoing labor costs, which in either case could materially adversely aÅect our operating results,
Ñnancial condition and liquidity. We are also subject to the risk of the unionization of our non-unionized
employees which could result in higher employee compensation and restrictive working condition demands
that could increase our operating costs or constrain our operating Öexibility. In addition, work interruptions
may be threatened which could cause cessation of operations with a corresponding adverse Ñnancial impact.

If we are unable to employ a suÇcient number of skilled workers, our operating results, Ñnancial
condition and liquidity may be materially adversely aÅected.

We believe that our success depends upon our ability to employ and retain skilled workers that posses the
ability to operate and maintain our equipment and facilities. The operation and maintenance of our equipment
and facilities involve complex and specialized processes and often must be performed in harsh conditions. In

addition, our ability to expand our operations depends in part on our ability to increase our skilled labor force.
The demand for workers with these types of skills has recently become high, especially by Class I railroads
that can usually oÅer higher wages and better beneÑts, and the supply is limited. Moreover, a large portion of
our current skilled workers will become retirement eligible over the next few years. A signiÑcant increase in
the wages paid by competing employers could result in a reduction of our skilled labor force, increases in the
wage rates that we must pay or both. If either of these events were to occur, our cost structure could increase,
our margins could decrease and our growth potential could be impaired, each of which could have a material
adverse eÅect on our operating results, Ñnancial condition and liquidity.

The occurrence of losses or other liabilities which are not covered by insurance or which exceed our
insurance limits could materially adversely aÅect our operating results, Ñnancial condition and liquidity.

We have obtained for each of our railroads insurance coverage for losses arising from personal injury and
for property damage in the event of derailments or other accidents or occurrences. Unexpected or catastrophic
circumstances such as accidents involving passenger trains or spillage of hazardous materials could cause our
liability to exceed our insurance limits. Insurance is available from only a very limited number of insurers and
we may not be able to obtain insurance protection at our current levels or obtain it on terms acceptable to us.
In addition, subsequent adverse events directly and indirectly applicable to us may result in additional
increases in our insurance premiums and/or our self insured retentions and could result in limitations to the
coverage under our existing policies. The occurrence of losses or other liabilities which are not covered by
insurance or which exceed our insurance limits could materially adversely aÅect our operating results,
Ñnancial condition and liquidity.

Rising fuel costs could materially adversely aÅect our operating results, Ñnancial condition and liquidity.

Fuel costs constitute a signiÑcant portion of our total operating expenses. Fuel costs for fuel used in
operations were approximately 10.0% and 8.8% of our operating expenses for the years ended December 31,
2004 and 2003, respectively. Fuel costs for fuel used in operations were approximately 10.0% and 8.2% of
ARG's operating expenses for the years ended December 31, 2004 and 2003, respectively. Fuel prices and
supplies are inÖuenced signiÑcantly by factors beyond our and ARG's control, such as international political
and economic circumstances. If diesel fuel prices increase dramatically or if a fuel supply shortage were to
arise from production curtailments, a disruption of oil imports or otherwise, these events could have a material
adverse eÅect on our and ARG's operating results, Ñnancial condition and liquidity.

The loss of important customers or contracts may adversely aÅect our operating results, Ñnancial
condition and liquidity.

In North America, the ten largest customers accounted for approximately 27%, 27% and 29% of our
operating revenues in 2004, 2003 and 2002, respectively. In 2004, our largest North American customer was a
company in the paper and forest products industry which accounted for approximately 8% of our North
American revenues. In 2003 and 2002, our largest customer was a coal-Ñred electricity generating plant which
accounted for approximately 5% of our operating revenues. ARG's ten largest customers accounted for
approximately 74%, 70% and 69% of its operating revenues in 2004, 2003 and 2002, respectively. In 2004, 2003
and 2002, ARG's largest customer was AWB Limited which accounted for approximately 25%, 20% and 22%
respectively, of ARG's operating revenues. The loss of one or more of the our or ARG's largest customers or
the loss or material modiÑcation of one or more key contracts with such customers could have a material
adverse eÅect on our operating results, Ñnancial condition and liquidity.

Our results of operations are susceptible to downturns in the general economy as well as to severe
weather conditions.

In any given year, we, like other railroads, are susceptible to changes in the economic conditions of the
industries and geographic areas that produce and consume the freight we transport. In addition, many of the
goods and commodities carried by us experience cyclicality in their demand. Our results of operations can be
expected to reÖect this cyclicality because of the signiÑcant Ñxed costs inherent in railroad operations. Should

an economic slowdown or recession occur in North America or in the other countries in which we operate, the
volume of rail shipments carried by us is likely to be aÅected.

In addition to the inherent risks of the business cycle, we are occasionally susceptible to adverse weather

conditions. For example:

‚ ARG's grain revenues may be reduced by drought (drought conditions during the 2002 growing season

resulted in a signiÑcant reduction in ARG's grain shipments in 2003);

‚ our coal revenues may be reduced by cold summers and warm winters, which lessen electricity

demand; and

‚ our minerals and stone revenues, which includes salt, may be reduced by snow-free and ice-free winters

in the Northeastern United States, which lessens demand for road salt.

Bad weather and natural disasters, such as blizzards in eastern Canada and the Northeastern United
States and hurricanes in Mexico, could also cause a shutdown or substantial disruption of operations which, in
turn, could have a material adverse eÅect on our operating results, Ñnancial condition and liquidity. Material
adverse weather may not directly aÅect our operations but rather the operations of our customers or
connecting carriers. Such weather conditions could reduce or suspend their operations, which could have a
material adverse eÅect on our results, Ñnancial conditions and liquidity. Furthermore, our expenses could be
adversely impacted by weather, including as a result of higher track maintenance and overtime costs in the
winter in our New York, Pennsylvania and Canada Regions as well as by possible track washouts in Mexico
during the rainy season.

The development of some of our business could be hindered if we fail to maintain satisfactory working
relationships with partners.

Some of our operations are conducted through joint ventures, in which we own a signiÑcant, but less than
a controlling, ownership interest. In particular, we own a 50% interest in ARG and a 22.89% interest in our
Bolivian operations. In these operations, we do not have absolute control over the operations of the venture.
The particular corporate governance provisions aÅecting our interests vary from venture to venture, but in
general, we must obtain the cooperation of our partners in order to implement and expand upon our business
strategies. Any failure to maintain satisfactory working relationships with these partners or the need to expend
signiÑcant management resources and time to align our interests with the interests of these partners could
result in a material adverse eÅect on our operating results, Ñnancial condition and liquidity.

Acts of terrorism or anti-terrorism measures may adversely aÅect us.

Our rail lines, port operations and other facilities and equipment, including rail cars carrying hazardous
materials, which we are required to transport under federal law, could be direct targets or indirect casualties of
terrorist attacks. Any terrorist attack or other similar event could cause signiÑcant business interruption and
may adversely aÅect our operating results, Ñnancial condition, and liquidity. In addition, regulatory measures
designed to control terrorism could impose substantial costs upon us and could result in impairment to our
service, which could also adversely aÅect our operating results, Ñnancial condition, and liquidity.

ADDITIONAL RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS

We are subject to the risks of doing business in foreign countries.

Some of our signiÑcant subsidiaries transact business in foreign countries, namely in Canada, Mexico and
we have equity investments in Australia and Bolivia. In addition, we may consider acquisitions in other foreign
countries in the future. The risks of doing business in foreign countries include:

‚ adverse renegotiation or modiÑcation of existing agreements or arrangements with governmental

authorities,

‚ adverse changes or greater volatility in the economies of those countries,

‚ adverse eÅects of currency exchange controls,

‚ adverse currency movements that make goods produced in those countries which are destined for

export markets less competitive,

‚ adverse changes to the regulatory environment of those countries,

‚ adverse changes to the tax laws and regulations of those countries,

‚ restrictions on the withdrawal of foreign investment and earnings,

‚ the nationalization of the businesses that we operate,

‚ the actual or perceived failure by us to fulÑll commitments under concession agreements,

‚ the potential instability of foreign governments, including from domestic insurgency, and

‚ the challenge of managing a culturally and geographically diverse operation.

Because some of our signiÑcant subsidiaries and aÇliates transact business in foreign currencies, and
because a signiÑcant portion of our net income comes from the operations of our foreign subsidiaries,
future exchange rate Öuctuations may adversely aÅect us and may aÅect the comparability of our results
between Ñnancial periods.

Our operations in Mexico and Canada accounted for 10.9% and 14.5% of consolidated revenues,
respectively, and ARG accounted for 37.8% of consolidated net income for the year ended December 31,
2004. The results of operations of our foreign operations are reported in the local currency Ì the Australian
dollar, the Canadian dollar and the Mexican peso Ì and then translated into U.S. dollars at the applicable
exchange rates for inclusion in our consolidated Ñnancial statements. The functional currency of our Bolivian
operations is the U.S. dollar. The exchange rates between these currencies and the U.S. dollar have Öuctuated
signiÑcantly in recent years and may continue to do so in the future. We cannot assure that we will be able to
eÅectively manage our exchange rate risks and the volatility in currency exchange rates may have a material
adverse eÅect on our operating results, Ñnancial condition and liquidity. In addition, because our Ñnancial
statements are stated in U.S. dollars, such Öuctuations may aÅect our results of operations and Ñnancial
position and may aÅect the comparability of our results between Ñnancial periods.

Failure to meet concession commitments with respect to operations of our rail lines could result in the
loss of our investment and a related loss of revenues.

We have entered into long-term concession and/or lease agreements with governmental authorities in
Mexico, Bolivia, South Australia and Western Australia. These concession and lease agreements are subject
to a number of conditions, including those relating to the maintenance of certain standards with respect to
safety, service, price and the environment. These concession and lease agreements also typically carry with
them a commitment to maintain the condition of the railroad and to make a certain level of capital
expenditures. Our failure to meet these commitments under the long-term concession and lease agreements
could result in the loss of those concession or lease agreements. The loss of any concession or lease agreement
could result in the loss of our entire investment relating to that concession or lease agreement and the related
revenues and income.

Australia's open access regime could lead to additional competition for ARG's business and decreased
revenues and proÑt margins.

Australia's open access regime could lead to additional competition for ARG's business, which could
result in decreased revenues and proÑt 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 Australia 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 aÅected. In addition, if the federal government or respective state regulators were to alter a
regulatory regime or 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 aÅected.

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.
Either risk could aÅect ARG's operating results, Ñnancial condition and liquidity.

ARG may be adversely aÅected by unfavorable conditions in the Australian agricultural industry because
a substantial portion of ARG's railroad traÇc consists of agricultural commodities.

ARG derives a signiÑcant portion of its rail freight revenues from shipments of grain. For the years ended
December 31, 2004, 2003 and 2002, grain shipments generated approximately 30.6%, 24.5% and 25.4%,
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 adverse eÅect on ARG's operating results,
Ñnancial condition and liquidity. For example, drought conditions during the 2002 growing season resulted in a
signiÑcant reduction in ARG's grain shipments in 2003.

ARG may be subject to signiÑcant additional expenditures in order to comply with Commonwealth
and/or state regulations.

In addition to the open access requirements described above, other aspects of rail operation are regulated,
safety in particular, on both a Commonwealth and a state-by-state basis. ARG has received safety regulatory
approval to operate on Commonwealth-owned track, in the Northern Territory and in all states except
Queensland and Tasmania. Changes in safety regulations or other regulations or the imposition of new
regulations or conÖicts among state and/or Commonwealth regulations could require ARG to make
signiÑcant expenditures and to incur signiÑcant expenses in order to comply with these regulations.

RECENTLY ISSUED ACCOUNTING STANDARDS:

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

Financial Accounting Standards (SFAS):

SFAS 123(R) Ì Share-Based Payment, a revision of SFAS 123, Accounting for Stock-Based
Compensation

This statement requires a public entity to measure the cost of employee services received in exchange for
an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That
cost will be recognized over the period during which an employee is required to provide service in exchange for
the award-the requisite service period (usually the vesting period). This statement does not change the
accounting guidance for share-based payment transactions with parties other than employees and does not
address the accounting for employee share ownership plans. Statement 123, as originally issued, is eÅective
until the provisions of Statement 123(R) are fully adopted. Statement 123(R) is eÅective for public entities
as of the beginning of the Ñrst interim or annual reporting period that begins after June 15, 2005. We are in the
process of evaluating the impact on our consolidated Ñnancial statements.

FASB StaÅ Position No. FAS 109-2 Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004

The FASB StaÅ Position (FSP) provides accounting and disclosure guidance for the repatriation
provision of the American Jobs Creation Act of 2004 (signed into law on October 22, 2004). The Act provides
for a special one-time tax deduction of 85 percent of certain foreign earnings that are repatriated (as deÑned in
the Act) in either 2004 or 2005. We are in the process of evaluating the Act and plan to complete this
evaluation in 2005.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We actively monitor our exposure to interest rate and foreign currency exchange rate risks and use
derivative Ñnancial instruments to manage the impact of certain of these risks. We use derivatives only for
purposes of managing risk associated with underlying exposures. We do not trade or use instruments with the
objective of earning Ñnancial gains on the interest rate or exchange rate Öuctuations alone, nor do we use
instruments where there are not underlying cash exposures. Complex instruments involving leverage or
multipliers are not used. We manage our hedging positions and monitor the credit ratings of counterparties
and do not anticipate losses due to counterparty nonperformance. Management believes that our use of
derivative instruments to manage risk is in our best interest. However, our use of derivative Ñnancial
instruments may result in short-term gains or losses and increased earnings volatility.

Interest Rate Risk

Our interest rate risk results from issuing variable rate debt obligations, since an increase in interest rates
would result in lower earnings and increased cash outÖows. The table below provides amounts outstanding and
corresponding interest rates for our Ñxed and variable rate debt and our use of interest rate swaps to mitigate
increases in interest rates.

Principal Amount of Long-Term Debt and Interest Rate Swaps

Fixed Rate Debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average Fixed Interest Rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

December 31,
2004
(Dollars in
thousands)
$ 76,892

4.9%

Variable Rate Debt Swapped to Fixed Rate Debt(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average Fixed Interest Rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 32,708

6.8%

Unswapped Variable Rate Debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average Variable Interest Rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 16,281

3.9%

Total Long-Term Debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average Interest RateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$125,881

5.2%

(1) Future amounts of variable rate debt that we have swapped to Ñxed rate debt are as follows (as of year

ending December 31): $28.4 million in 2005; $20.8 million in 2006.

Table Assumptions

Variable Interest Rates: The table presents variable interest rates based on U.S. and Canadian LIBOR
rates (as of December 31, 2004) plus an average borrowing margin of approximately 1.7%. The borrowing
margin is composed of a weighted average of 1.0% for debt under our U.S. and Canadian credit facilities and
3.5% for debt related to our Mexican operations.

Interest Rate Swaps: The table presents dollar amounts outstanding under interest rate swaps as of
December 31, 2004, in which we have swapped a portion of our variable rate debt to Ñxed rate debt. The table
also presents the average Ñxed interest rate under these swaps which is equal to our Ñxed pay rates to
counterparties plus our borrowing margin.

Interest Rate Sensitivity

Based on the table above, assuming a one percentage point increase in market interest rates, annual

interest expense on our variable rate debt would increase by approximately $163,000.

Foreign Currency Risk

The functional currency of our Mexican operations is the Mexican Peso, while the debt obligations are
denominated in U.S. Dollars. As a result, we face exchange rate risk if the Mexican Peso were to depreciate
relative to the U.S. Dollar, thereby generating lower U.S. Dollar equivalent cash and earnings to pay the
principal and interest on the debt. Our risk management policy seeks to mitigate this risk by purchasing one-
year forward currency options on the U.S. Dollar Ì Mexican Peso exchange rate that approximate projected
U.S. Dollar principal and interest payments that will be funded by available Peso denominated cash, so as to
lessen the impact of a severe Peso depreciation.

Debt related to our Canadian and Australian operations is denominated in the respective local currencies.
Therefore, foreign currency risk related to debt service payments does not exist at our Canadian and
Australian operations.

U.S. Dollar Denominated Principal and Projected Interest Obligations
of Mexican Peso Denominated Operations

2005

2006

2007

2008

2009

Thereafter

Total

Principal Payments(1) ÏÏÏ
Interest Payments(2) ÏÏÏÏ

$4,333
1,115

$4,333
843

(Dollars in thousands)
$4,333
298

$1,498
71

$4,333
570

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$5,448

$5,176

$4,903

$4,631

$1,569

Ì
Ì

$18,830
2,897

$21,727

(1) Principal and interest payments are due on March 15 and September 15 of each year.

(2) Based on 6-month U.S. LIBOR as of December 31, 2004 plus a borrowing margin of 3.5%.

Foreign Currency Options

Settlement Date

Receive U.S. Dollar/Pay Mexican Pesos: Notional Amount
Average exchange rate in Mexican Pesos per U.S. Dollar ÏÏ

Sensitivity of Foreign Currency to Debt Service Payments

March 15,
2005

September 15,
2005
(Dollars in thousands, except exchange rates)
$2,100
$0
$2,100
Ì
Ì
13.33

Total

We expect our Mexican operations to fund approximately $2.1 million of the total $5.4 million of
U.S. dollar denominated principal and interest payments in 2005. Based on the cash Öow needs of the
Mexican operations, we have the expectation of making an approximate $3.3 million loan to our Mexican
operations. If the value of the Mexican Peso were to weaken ten percentage points relative to the U.S. Dollar
while Mexican Peso denominated earnings and cash Öows remained constant, then it would be equivalent to
the Mexican operations being required to support an additional $210,000 in debt service payments. Based on
an exchange rate of 11.19 Mexican Pesos per U.S. Dollar as of December 31, 2004, this exposure in 2005 is
capped at a maximum of $402,453 by the foreign currency options shown in the table.

Diesel Fuel Price Risk

We are exposed to Öuctuations in diesel fuel prices, since an increase in the price of diesel fuel would
result in lower earnings and cash outÖows. In the year ended December 31, 2004, fuel costs for fuel used in
operations represented 10.0% of our total expenses and 10.0% of total expenses at our 50%-owned Australian
operations. As of December 31, 2004, neither we nor our 50%-owned Australian operations had entered into
any hedging transactions to manage this diesel fuel risk.

Sensitivity to Diesel Fuel Prices

As of December 31, 2004, each one percentage point increase in the price of fuel would result in a
$300,000 increase in our annual fuel expense and a $300,000 increase in ARG's annual fuel expense consumed
in operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Ñnancial statements and supplementary Ñnancial data required by this item are listed at Part IV,

Item 15 and are Ñled herewith immediately following the signature page hereto.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE.

NONE

ITEM 9A. CONTROLS AND PROCEDURES.

We maintain disclosure controls and procedures that are designed to ensure that information required to
be disclosed in our report under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods speciÑed in the Securities and Exchange Commission's rules and forms, and
that such information is accumulated and communicated to our management, including our Chief Executive
OÇcer and Chief Financial OÇcer, as appropriate, to allow timely decisions regarding required disclosures.
Any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives. Our management, with the participation of our Chief
Executive OÇcer and Chief Financial OÇcer, has evaluated the eÅectiveness of the design and operation of
our disclosure controls and procedures as of December 31, 2004. Based upon that evaluation and subject to the
foregoing, our Chief Executive OÇcer and Chief Financial OÇcer concluded that the design and operation of
our disclosure controls and procedures provided reasonable assurance that the disclosure controls and
procedures are eÅective to accomplish their objectives.

REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Genesee & Wyoming Inc. is responsible for establishing and maintaining adequate
internal control over Ñnancial reporting as deÑned in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934. Our internal control over Ñnancial reporting is a process designed to provide reasonable
assurance regarding the reliability of Ñnancial reporting and the preparation of Ñnancial statements for external
purposes in accordance with accounting principles generally accepted in the United States of America.
Internal control over Ñnancial reporting includes those written policies and procedures that:

‚ pertain to the maintenance of records that, in reasonable detail, accurately and fairly reÖect the

transactions and dispositions of the assets of Genesee & Wyoming;

‚ provide reasonable assurance that transactions are recorded as necessary to permit preparation of
Ñnancial statements in accordance with accounting principles generally accepted in the United States
of America;

‚ provide reasonable assurance that our receipts and expenditures are being made only in accordance

with authorization of management and directors of Genesee & Wyoming Inc.; and

‚ provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of assets that could have a material eÅect on the consolidated Ñnancial statements.

Internal control over Ñnancial reporting includes the controls themselves, monitoring including internal

auditing practices, and actions taken to correct deÑciencies as identiÑed.

Because of its inherent limitations, internal control over Ñnancial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of eÅectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

Management assessed the eÅectiveness of our internal control over Ñnancial reporting as of December 31,
2004. Management based this assessment on criteria for eÅective internal control over Ñnancial reporting
described in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Management's assessment included an evaluation of the design of our internal
control over Ñnancial reporting and testing of the operating eÅectiveness of our internal control over Ñnancial
reporting. Management reviewed the results of our assessment with the Audit Committee of our Board of
Directors.

Based on this assessment, management determined that, as of December 31, 2004, we maintained

eÅective internal control over Ñnancial reporting.

PricewaterhouseCoopers LLP, the independent registered public accounting Ñrm who audited the
consolidated Ñnancial statements of Genesee & Wyoming Inc. included in this report, has audited manage-
ment's assessment of the eÅectiveness of our internal control over Ñnancial reporting as of December 31, 2004
and has issued an attestation report on management's assessment which attestation is included in their report
which appears herein.

February 21, 2005

ITEM 9B. OTHER INFORMATION

NONE

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required by this Item is incorporated herein by reference to our proxy statement to be
issued in connection with the Annual Meeting of the Stockholders of Genesee & Wyoming to be held on
May 18, 2005 under ""Election of Directors'' and ""Executive OÇcers'', which proxy statement will be Ñled
within 120 days after the end of our Ñscal year.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this Item is incorporated herein by reference to our proxy statement to be
issued in connection with the Annual Meeting of the Stockholders of Genesee & Wyoming to be held on
May 18, 2005 under ""Executive Compensation'', which proxy statement will be Ñled within 120 days after the
end of our Ñscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS.

EQUITY COMPENSATION PLAN INFORMATION AS OF DECEMBER 31, 2004

Number of Securities to be
Issued upon Exercise of
Outstanding Options
(a)

Weighted-Average
Exercise Price of
Outstanding Options
(b)

Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities ReÖected in
Column (a))
(c)

1,591,167

$14.31

1,430,763

Plan Category

Equity Compensation
Plans Approved by
Security Holders ÏÏÏÏ

Equity Compensation
Plans not Approved
by Security HoldersÏÏ

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

1,591,167

$14.31

1,430,763

The remaining information required by this Item is incorporated herein by reference to our proxy
statement to be issued in connection with the Annual Meeting of the Stockholders of Genesee & Wyoming to
be held on May 18, 2005 under ""Security Ownership of Certain BeneÑcial Owners and Management'', which
proxy statement will be Ñled within 120 days after the end of our Ñscal year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this Item is incorporated herein by reference to our proxy statement to be
issued in connection with the Annual Meeting of the Stockholders of Genesee & Wyoming to be held on
May 18, 2005 under ""Related Transactions'', which proxy statement will be Ñled within 120 days after the end
of our Ñscal year.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

May 18, 2005 under ""Principal Accounting Fees and Services'', which proxy statement will be Ñled within
120 days after the end of our Ñscal year.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) DOCUMENTS FILED AS PART OF THIS FORM 10-K

Genesee & Wyoming Inc. and Subsidiaries Financial Statements:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2004 and 2003

Consolidated Statements of Income for the Years ended December 31, 2004, 2003 and 2002

Consolidated Statements of Stockholders' Equity and Comprehensive Income for the Years Ended
December 31, 2004, 2003 and 2002

Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002

Notes to Consolidated Financial Statements

Separate Financial Statements of Subsidiaries Not Consolidated and 50 Percent Owned:

Australian Railroad Group Pty Ltd and Subsidiaries Financial Statements:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2004 and 2003

Consolidated Statements of Income for the Years ended December 31, 2004, 2003 and 2002

Consolidated Statements of Stockholders' Equity and Comprehensive Income for the Years Ended
December 31, 2004, 2003 and 2002

Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002

Notes to Consolidated Financial Statements

(B) REPORTS ON FORM 8-K

We Ñled the following Current Reports on Form 8-K during the quarter ended December 31, 2004:

‚ Current Report on Form 8-K dated November 2, 2004 included information relating to our third

quarter earnings results.

‚ Current Report on Form 8-K dated November 18, 2004 included information relating to our entry into
an amended and restated Ñve-year, $182.0 million unsecured senior credit facility and a seven-year
$75.0 million private placement of unsecured 4.85% Fixed Rate Senior Notes.

‚ Current Report on Form 8-K dated December 12, 2004, included information relating to our chief
executive oÇcer's entry into a Variable Prepaid Forward Transaction concerning our Class A common
stock

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

GENESEE & WYOMING INC.

By: /s/ Mortimer B. Fuller, III

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

Date March 10, 2005

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

Date

/s/ Mortimer B. Fuller, III
Mortimer B. Fuller, III

Chief Executive OÇcer and Director

March 10, 2005

John C. Hellmann

/s/
John C. Hellmann

James M. Andres

/s/
James M. Andres

/s/ Robert W. Anestis
Robert W. Anestis

/s/ Louis S. Fuller
Louis S. Fuller

/s/ T. Michael Long
T. Michael Long

/s/ Robert M. Melzer
Robert M. Melzer

/s/ Peter O. Scannell
Peter O. Scannell

/s/ Mark A. Scudder
Mark A. Scudder

/s/ Philip J. Ringo
Philip J. Ringo

/s/ M. Douglas Young
M. Douglas Young

Chief Financial OÇcer

March 10, 2005

Chief Accounting OÇcer

March 10, 2005

Director

INDEX TO EXHIBITS

Plan of acquisition, reorganization, arrangement, liquidation or succession

(2)
(3)(i) Articles of Incorporation

The Exhibit referenced under 4.1 hereof is incorporated herein by reference.

(ii) By-laws

3.1

(4)
4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

(9)

(10)

10.1

10.2

10.3

Amended Bylaws, eÅective as of August 19, 2004 is incorporated herein by reference to
Exhibit 2.1 to the Registrant's Report on Form 10-Q for the quarter ended September 30, 2004.
Instruments deÑning the rights of security holders, including indentures
Restated CertiÑcate of Incorporation is incorporated herein by reference to Exhibit I to the
Registrant's DeÑnitive Information Statement on Schedule 14C Ñled on February 23, 2004.
Specimen stock certiÑcate representing shares of Class A Common Stock is incorporated herein
by reference to Exhibit 4.1 to Amendment No. 2 to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-3972).
Form of Class B Stockholders' Agreement dated as of May 20, 1996, among the Registrant, its
executive oÇcers and its Class B stockholders is incorporated herein by reference to Exhibit 4.2
to Amendment No. 1 to the Registrant's Registration Statement on Form S-1 (Registration
No. 333-3972).
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 are incorporated herein by reference to Exhibit 9.1 to the Registrant's
Registration Statement on Form S-1 (Registration No. 333-3972).
Stock Purchase Agreement by and between Genesee & Wyoming Inc. and The 1818 Fund III,
L.P. dated October 19, 2000 is incorporated herein by reference to Exhibit 10.1 to the
Registrant's Report on Form 8-K dated December 7, 2000.
Registration Rights Agreement between Genesee & Wyoming Inc. and The 1818 Fund III, L.P.
dated December 12, 2000 is incorporated herein by reference to Exhibit 10.2 to the Registrant's
Report on Form 8-K dated December 7, 2000.
Letter Agreement between Genesee & Wyoming Inc., The 1818 Fund III, L.P. and Mortimer B.
Fuller, III dated December 12, 2000 is incorporated herein by reference to Exhibit 10.3 to the
Registrant's Report on Form 8-K dated December 7, 2000.
Form of Senior Debt Indenture is incorporated herein by reference to Exhibit j to Amendment
No. 1 to the Registrant's Registration Statement on Form S-3 (Registration No. 333-73026).
Form of Subordinated Debt Indenture in incorporated herein by reference to Exhibit k to
Amendment No. 1 to the Registrant's Registration Statement on Form S-3 (Registration
No. 333-73026).
Voting Trust Agreement
Not applicable
Material Contracts
The Exhibits referenced under (4.4) through (4.10) hereof are incorporated herein by reference
Promissory Note dated October 7, 1991 of BuÅalo & Pittsburgh Railroad, Inc. in favor of CSX
Transportation, Inc. is incorporated herein by reference to Exhibit 4.6 to the Registrant's
Registration Statement on Form S-1 (Registration No. 333-3972).
First Amendment to Promissory Note dated as of March 19, 1999 between BuÅalo & Pittsburgh
Railroad, Inc. and CSX Transportation, Inc. is incorporated herein by reference to Exhibit 4.1 to
the Registrant's Report on Form 10-K for the Ñscal year ended December 31, 1998. (SEC File
No. 0-20847)
Form of Genesee & Wyoming Inc. 1996 Stock Option Plan is incorporated herein by reference to
Exhibit 10.1 to Amendment No. 1 to the Registrant's Registration Statement on Form S-1
(Registration No. 333-3972).

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18

10.19

10.20

Form of Genesee & Wyoming Inc. Stock Option Plan for Outside Directors is incorporated
herein by reference to Exhibit 10.2 Amendment No. 1 to the Registrant's Registration Statement
on Form S-1 (Registration No. 333-3972).
Form of compensation agreement between the Registrant and each of its executive oÇcers is
incorporated herein by reference to Exhibit 10.3 to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-3972).
Form of Genesee & Wyoming Inc. Employee Stock Purchase Plan is incorporated herein by
reference to Exhibit 10.4 to Amendment No. 1 to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-3972).
Agreement dated February 6, 1996 between Illinois & Midland Railroad, Inc. and the United
Transportation Union is incorporated herein by reference to Exhibit 10.65 to the Registrant's
Registration Statement on Form S-1 (Registration No. 333-3972).
Amendment No. 1 to the Genesee & Wyoming Inc. 1996 Stock Option Plan is incorporated
herein by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter
ended June 30, 1997. (SEC File No. 0-20847)
Amendment No. 1 to Genesee & Wyoming Inc. Stock Option Plan for Outside Directors is
incorporated herein by reference to Exhibit 10.1 to the Registrant's Report on Form 10-K for the
Ñscal year ended December 31, 1997. (SEC File No. 0-20847)
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 is incorporated herein by reference to Exhibit 10.2 to
the Registrant's Report on Form 10-K for the Ñscal year ended December 31, 1997. (SEC File
No. 0-20847)
Amendment No. 2. to the Genesee & Wyoming Inc. 1996 Stock Option Plan is incorporated
herein by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter
ended June 30, 1998. (SEC File No. 0-20847)
Amendment No. 1. to the Genesee & Wyoming Inc. Employee Stock Purchase Plan is
incorporated herein by reference to Exhibit 10.2 to the Registrant's Report on Form 10-Q for the
quarter ended June 30, 1998. (SEC File No. 0-20847)
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 is incorporated herein by reference to Exhibit 10.1 to the Registrant's
Report on Form 10-Q for the quarter ended September 30, 1999.
Genesee & Wyoming Deferred Stock Plan for Non-Employee Directors is incorporated herein by
reference to Annex A to the Registrant's 1999 DeÑnitive Proxy Statement Ñled on April 19, 1999.
Amendment No. 3 to the Genesee & Wyoming Inc. 1996 Stock Option Plan is incorporated
herein by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter
ended March 31, 2000.
Amendment No. 4 to the Genesee & Wyoming Inc. 1996 Stock Option Plan is incorporated
herein by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter
ended June 30, 2000.
Amendment No. 5 to the Genesee & Wyoming Inc. 1996 Stock Option Plan is incorporated
herein by reference to Exhibit 10.2 to the Registrant's Report on Form 10-Q for the quarter
ended June 30, 2000.
Amendment No 2. to the Genesee & Wyoming Inc. Stock Option Plan for Outside Directors is
incorporated herein by reference to Exhibit 10.3 to the Registrant's Report on Form 10-Q for the
quarter ended June 30, 2000.
Amendment No. 6 to the Genesee & Wyoming Inc. 1996 Stock Option Plan is incorporated
herein by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter
ended September 30, 2000.
Genesee & Wyoming Australia Pty Ltd Executive Share Option Plan is incorporated herein by
reference to Exhibit 10.2 to the Registrant's Report on Form 10-Q for the quarter ended
September 30, 2000.

10.21

10.22

10.23

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

10.32

10.33

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 is incorporated herein by
reference to Exhibit 2.1 to the Registrant's Report on Form 8-K dated December 16, 2000.
Westrail Freight Bidding and Share Subscription Agreement dated October 25, 2000 among
Wesfarmers Railroad Holdings Pty Ltd, Wesfarmers Limited, GWI Holdings Pty Ltd, Gene-
see & Wyoming Inc., and Genesee & Wyoming Australia Pty Ltd is incorporated herein by
reference to Exhibit 99.1 to the Registrant's Report on Form 8-K dated December 16, 2000.
Shareholders Agreement, dated December 15, 2000 among Wesfarmers Holdings Pty Ltd, GWI
Holdings Pty Ltd, and Australian Railroad Group Pty Ltd is incorporated herein by reference to
Exhibit 99.2 to the Registrant's Report on Form 8-K dated December 16, 2000.
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 Narrow-
Gauge Pty Ltd, Australia Western Railroad Pty Ltd, and Australian Railroad Group Pty Ltd is
incorporated herein by reference to Exhibit 99.3 to the Registrant's Report on Form 8-K dated
December 16, 2000.
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 is incorporated herein by reference to Exhibit 99.4 to the Registrant's Report on Form 8-K
dated December 16, 2000.
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 is
incorporated herein by reference to Exhibit 10.1 to the Registrant's Report on Form 10-K for the
Ñscal year ended December 31, 2000.
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 is incorporated herein by reference to Exhibit 10.2 to the
Registrant's Report on Form 10-K for the Ñscal year ended December 31, 2000.
Subscription Agreement between GW Servicios S.A. de C.V. and International Finance Corpora-
tion dated December 5, 2000 is incorporated herein by reference to Exhibit 10.3 to the
Registrant's Report on Form 10-K for the Ñscal year ended December 31, 2000.
Amendment No. 3 to the Genesee & Wyoming Inc. Stock Option Plan for Outside Directors is
incorporated herein by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the
quarter ended June 30, 2001.
Amendment No. 4 to the Genesee & Wyoming Inc. Stock Option Plan for Outside Directors is
incorporated herein by reference to Exhibit 10.2 the Registrant's Report on Form 10-Q for the
quarter ended June 30, 2001.
Stock Purchase and Sale Agreement dated September 28, 2001 by and between Bethlehem Steel
Corporation and Genesee & Wyoming Inc. is incorporated herein by reference to Exhibit 2.1 to
the Registrant's Report on Form 8-K dated October 1, 2000.
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. is incorpo-
rated herein by reference to Exhibit 2.1 to the Registrant's Report on Form 8-K dated
December 3, 2001.
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 Rothchild
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 is incorporated herein
by reference to Exhibit 1.1 to the Registrant's Report on Form 8-K dated December 17, 2001.

10.34

10.35

10.36

10.37

10.38

10.39

10.40

10.41

10.42

10.43

10.44

10.45

10.46

10.47

10.48

10.49

Amendment No. 6 to the Genesee & Wyoming Inc. Stock Option Plan for Outside Directors is
incorporated herein by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the
quarter ended March 31, 2002.
Genesee & Wyoming Inc. Amended and Restated 1996 Stock Option Plan is incorporated herein
by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter ended
June 30, 2002.
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 is incorporated herein by reference to Exhibit 2.1 to the
Registrant's Report on Form 8-K dated August 28, 2002.
Employment Agreement dated as of March 4, 2002 by and between Genesee & Wyoming Inc.
and Robert Grossman is incorporated herein by reference to Registrant's Report of Form 10-K
for the year ended December 31, 2003.
Common Terms Deed dated as of December 3, 2003 between Australian Railroad Group Pty Ltd
(Borrower), the companies listed in Part I of Schedule 1 as original guarantors, the Ñnancial
institutions listed in Part II of Schedule 1 as original lenders and ANZ Capel Court Limited
(Security Trustee) is incorporated herein by reference to Registrant's Report of Form 10-K for
the year ended December 31, 2003.
Loan Agreement between Australian Railroad Group Pty Ltd (Borrower) and Australia and
New Zealand Banking Group Limited (Lender) dated December 5, 2003 is incorporated herein
by reference to Registrant's Report of Form 10-K for the year ended December 31, 2003.
Loan Agreement between Australian Railroad Group Pty Ltd (Borrower)and BNP Paribas
(Lender) dated December 5, 2003 is incorporated herein by reference to Registrant's Report of
Form 10-K for the year ended December 31, 2003.
Loan Agreement between Australian Railroad Group Pty Ltd (Borrower)and Mizuho Corporate
Bank, Ltd. (Lender) dated December 5, 2003 is incorporated herein by reference to Registrant's
Report of Form 10-K for the year ended December 31, 2003.
Loan Agreement between Australian Railroad Group Pty Ltd (Borrower)and National Australia
Bank Limited (Lender) dated December 5, 2003 is incorporated herein by reference to
Registrant's Report of Form 10-K for the year ended December 31, 2003.
Loan Agreement between Australian Railroad Group Pty Ltd (Borrower)and Sumitomo Mitsui
Finance Australia Limited (Lender) dated December 5, 2003 is incorporated herein by reference
to Registrant's Report of Form 10-K for the year ended December 31, 2003.
Security Trust Deed, as amended December 5, 2003 between Australian Railroad Group Pty Ltd
(Borrower) and ANZ Capel Court Limited (Security Trustee) is incorporated herein by
reference to Registrant's Report of Form 10-K for the year ended December 31, 2003.
Floating Charge, as amended December 5, 2003, between the Chargors listed in Schedule 1
(WestNet StandardGauge Pty Ltd and WestNet NarrowGauge Pty Ltd)and ANZ Capel Court
Limited (Chargee) is incorporated herein by reference to Registrant's Report of Form 10-K for
the year ended December 31, 2003.
Deed of Floating Charge, as amended December 5, 2003, between Australia Southern Railroad
Pty Limited (Chargor) and ANZ Capel Court Limited (Security Agent) is incorporated herein
by reference to Registrant's Report of Form 10-K for the year ended December 31, 2003.
ISDA Master Agreement dated as of December 3, 2003 between Australia and New Zealand
Banking Group Limited and Australian Railroad Group Pty Ltd is incorporated herein by
reference to Registrant's Report of Form 10-K for the year ended December 31, 2003.
ISDA Master Agreement dated as of December 3, 2003 between BNP Paribas and Australian
Railroad Group Pty Ltd is incorporated herein by reference to Registrant's Report of Form 10-K
for the year ended December 31, 2003.
ISDA Master Agreement dated as of December 3, 2003 between National Australia Bank
Limited and Australian Railroad Group Pty Ltd is incorporated herein by reference to Regis-
trant's Report of Form 10-K for the year ended December 31, 2003.

10.50

10.51

10.52

10.53

10.54

10.55

10.56

10.57

10.58

*10.59
*(11.1)
(12)

(13)

(16)

(18)

*(21.1)
(22)

*(23.1)
*(23.2)
(24)

Multi-Party Agreement among The Hon Murray Criddle MLC, The Western Australian
Government Railways Commission, The Hon Richard Fairfax Court, Treasurer, WestNet
StandardGauge Pty Ltd and WestNet NarrowGauge Pty Ltd, Australian Western Railroad Pty
Ltd, Australian Railroad Group Pty Ltd, and ANZ Capel Court Limited is incorporated herein
by reference to Registrant's Report of Form 10-K for the year ended December 31, 2003.
Tripartite Deed among the Minister for Transport and Urban Planning (Lessor), Australia
Southern Railroad Pty Limited (Lessee), and ANZ Capel Court Limited (Security Trustee) is
incorporated herein by reference to Registrant's Report of Form 10-K for the year ended
December 31, 2003.
Genesee & Wyoming Inc. 2004 Deferred Compensation Plan for highly compensated employees
and directors dated May 7, 2004 is incorporated herein by reference to Exhibit 10.1 to the
Registrant's Report on Form 10-Q for the quarter end June 30, 2004.
Genesee & Wyoming Inc. Award Notice for Employees for Options is incorporated herein by
reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter ended
September 30, 2004.
Genesee & Wyoming Inc. Award Notice for Employees for Restricted Stock Units is incorpo-
rated herein by reference to Exhibit 10.2 to the Registrant's Report on Form 10-Q for the quarter
ended September 30, 2004.
Genesee & Wyoming Inc. Award Notice for Directors for Restricted Stock is incorporated herein
by reference to Exhibit 10.3 to the Registrant's Report on Form 10-Q for the quarter ended
September 30, 2004.
Genesee & Wyoming Inc. Award Notice for Directors for Restricted Stock Units is incorporated
herein by reference to Exhibit 10.4 to the Registrant's Report on Form 10-Q for the quarter
ended September 30, 2004.
Amended and Restated Revolving Credit and Term Loan Agreement, dated as of November 12,
2004, among Genesee & Wyoming Inc., Quebec-Gatineau Railway Inc., certain subsidiaries of
Genesee & Wyoming Inc. as Guarantors, the lenders party thereto, Bank of America, N.A., as
Administrative Agent and JPMorgan Chase Bank as Syndication Agent is incorporated herein by
reference to Exhibit 10.1 to the Registrant's Report on Form 8-K as of November 18, 2004.
Note Purchase Agreement, dated as of November 12, 2004 among Genesee & Wyoming Inc.,
certain subsidiaries of Genesee & Wyoming Inc. as Guarantors and note purchasers party thereto
is incorporated herein by reference to Exhibit 10.2 to the Registrant's Report on Form 8-K as of
November 18, 2004.
Summary of Increases in base pay for executive oÇcers for 2005.
Statement re computation of per share earnings.
Statements re computation of ratios
Not applicable.
Annual report to security holders, Form 10-Q or quarterly report to security holders
Not applicable.
Letter re change in certifying accountant
Not applicable.
Letter re change in accounting principles
Not applicable.
Subsidiaries of the Registrant
Published report regarding matters submitted to vote of security holders
Not applicable.
Consent of PricewaterhouseCoopers LLP
Consent of Ernst & Young
Power of attorney
Not applicable.

*(31.1)
*(31.2)
*(32.1)
(99)

Rule 13a-14(a)/15d-14(a) CertiÑcation of Principal Executive OÇcer
Rule 13a-14(a)/15d-14(a) CertiÑcation of Principal Financial OÇcer
Section 1350 CertiÑcations
Additional Exhibits
Not applicable.

* Exhibit Ñled with this Report.

INDEX TO FINANCIAL STATEMENTS

Genesee & Wyoming Inc. and Subsidiaries Financial Statements:

Report of Independent Registered Public Accounting Firm ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Balance Sheets as of December 31, 2004 and 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Income for the Years Ended December 31, 2004, 2003 and

2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the Years
Ended December 31, 2004, 2003 and 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and
2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Notes to Consolidated Financial Statements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Separate Financial Statements of Subsidiaries Not Consolidated and 50 Percent Owned:
Australian Railroad Group Pty Ltd and Subsidiaries Financial Statements:

Page

69
71

75
76

108
109

110

111

112
113

Report of Independent Registered Public Accounting Firm

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

We have completed an integrated audit of Genesee & Wyoming Inc.'s 2004 consolidated Ñnancial
statements and of its internal control over Ñnancial reporting as of December 31, 2004 and audits of its 2003
and 2002 consolidated Ñnancial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated Ñnancial statements

In our opinion, based on our audits and the report of other auditors, the consolidated Ñnancial statements
listed in the index appearing under Item 9A present fairly, in all material respects, the Ñnancial position of
Genesee & Wyoming Inc. and its subsidiaries at December 31, 2004 and 2003, and the results of their
operations and their cash Öows for each of the three years in the period ended December 31, 2004 in
conformity with accounting principles generally accepted in the United States of America. These Ñnancial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
these Ñnancial statements based on our audits. We did not audit the Ñnancial statements of Australian
Railroad Group Pty. Ltd. (ARG), an equity method investment which represents 17.9% and 17.0% of the
Company's total assets as of December 31, 2004 and 2003, respectively, and 37.8%, 36.1% and 33.1% of the
Company's net income for the years ended December 31, 2004, 2003 and 2002, respectively. 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 audits of these statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the Ñnancial statements are free of material
misstatement. An audit of Ñnancial statements includes examining, on a test basis, evidence supporting the
amounts and disclosures in the Ñnancial statements, assessing the accounting principles used and signiÑcant
estimates made by management, and evaluating the overall Ñnancial statement presentation. We believe that
our audits and the report of other auditors provide a reasonable basis for our opinion.

As discussed in Note 2, the Company adopted Emerging Issues Task Force Issue No. 03-6, ""Participat-

ing Securities and the Two Ì Class Method under FASB Statement No. 128.''

Internal control over Ñnancial reporting

Also, in our opinion, management's assessment, included in Report of Management on Internal Control
Over Financial Reporting appearing under Item 15 (A), that the Company maintained eÅective internal
control over Ñnancial reporting as of December 31, 2004 based on criteria established in Internal Control Ì
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the
Company maintained, in all material respects, eÅective internal control over Ñnancial reporting as of
December 31, 2004, based on criteria established in Internal Control Ì Integrated Framework issued by the
COSO. The Company's management is responsible for maintaining eÅective internal control over Ñnancial
reporting and for its assessment of the eÅectiveness of internal control over Ñnancial reporting. Our
responsibility is to express opinions on management's assessment and on the eÅectiveness of the Company's
internal control over Ñnancial reporting based on our audit. We conducted our audit of internal control over
Ñnancial reporting in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether eÅective internal control over Ñnancial reporting was maintained in all material respects. An
audit of internal control over Ñnancial reporting includes obtaining an understanding of internal control over
Ñnancial reporting, evaluating management's assessment, testing and evaluating the design and operating
eÅectiveness of internal control, and performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company's internal control over Ñnancial reporting is a process designed to provide reasonable
assurance regarding the reliability of Ñnancial reporting and the preparation of Ñnancial statements for external
purposes in accordance with generally accepted accounting principles. A company's internal control over
Ñnancial reporting includes those policies and procedures that (i) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reÖect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of Ñnancial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material eÅect on the Ñnancial
statements.

New York, New York
February 21, 2005

PricewaterhouseCoopers LLP

GENESEE & WYOMING INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

CURRENTS ASSETS:

Cash and cash equivalentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts receivable, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Materials and supplies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Prepaid expenses and other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income tax assets, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PROPERTY AND EQUIPMENT, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
INVESTMENT IN UNCONSOLIDATED AFFILIATESÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
GOODWILL ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
INTANGIBLE ASSETS, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
OTHER ASSETS, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Current portion of long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total current liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
LONG-TERM DEBT, less current portion ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
DEFERRED INCOME TAX LIABILITIES, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
DEFERRED ITEMS Ì grants from governmental agencies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
DEFERRED GAIN Ì sale/leaseback ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
OTHER LONG-TERM LIABILITIES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
MINORITY INTERESTÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
COMMITMENTS AND CONTINGENCIES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
(converted June 2004 into 3,668,478 shares at $6.81 per share of Class A
Common Stock)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

STOCKHOLDERS' EQUITY:

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

90,000,000 shares authorized; 27,930,147 and 23,697,287 shares issued and
24,397,918 and 20,167,875 shares outstanding (net of 3,532,229 and
3,529,412 shares in treasury) on December 31, 2004 and 2003, respectively

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

15,000,000 shares authorized; 2,650,122 and 2,707,938 shares issued and
outstanding on December 31, 2004 and 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additional paid-in capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retained earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated other comprehensive income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less treasury stock, at cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less restricted stock, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total liabilities and stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

December 31,

2004

2003

(In thousands, except share
amounts)

$ 14,451
64,537
5,263
7,784
3,190
95,225
337,024
132,528
24,682
77,778
10,014
$677,251

6,356
63,794
21,598
91,748
125,881
50,517
46,229
3,495
14,122
3,559
Ì

$ 11,118
54,656
5,204
6,204
3,010
80,192
315,345
117,664
24,522
79,357
10,093
$627,173

6,589
57,472
13,902
77,963
151,433
41,840
42,667
3,982
14,843
3,365
Ì

23,994

279

238

27
161,361
168,054
25,228
(12,648)
(601)

341,700
$677,251

27
131,889
130,913
16,599
(12,580)
Ì
267,086
$627,173

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

GENESEE & WYOMING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

OPERATING REVENUESÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

OPERATING EXPENSES:

2004

Years Ended December 31,
2003
(In thousands, except per share
amounts)
$244,827

$303,784

2002

$209,540

Transportation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Maintenance of ways and structures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Maintenance of equipmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
General and administrative ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net gain on sale and impairment of assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

102,424
29,347
47,602
55,142
(13)
19,243

84,268
25,969
36,695
46,206
(87)
15,471

65,553
22,950
36,295
42,306
(3,140)
13,569

Total operating expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

253,745

208,522

177,533

INCOME FROM OPERATIONS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other (expense) income, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

50,039
(11,142)
(131)

INCOME BEFORE INCOME TAXES and EQUITY EARNINGS
Provision for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equity in Net Income of International AÇliates:

AustraliaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
South America ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

NET INCOME ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Preferred stock dividends and cost accretion ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

38,766
16,059

14,235
677

37,619
479

36,305
(8,646)
986

28,645
10,567

10,371
270

28,719
1,270

32,007
(8,139)
726

24,594
8,761

8,487
1,287

25,607
1,172

NET INCOME AVAILABLE TO COMMON STOCKHOLDERS

$ 37,140

$ 27,449

$ 24,435

BASIC EARNINGS PER SHARE:

Earnings per common share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

1.54

1.16

1.06

Weighted average shares ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

24,138

23,659

23,016

DILUTED EARNINGS PER SHARE:

Earnings per common share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

1.36

1.03

0.93

Weighted average shares and equivalentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

27,402

26,768

26,377

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

GENESEE & WYOMING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME

Class A
Class B
Common Common

Stock

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income
(Loss)

Restricted
Stock

Treasury
Stock

Total
Stockholders'
Equity

(Dollars in thousands)

BALANCE, December 31, 2001 ÏÏÏÏ

$231

$27

$123,508

$ 79,030

$(4,905)

$Ì

$(12,228)

$185,663

Comprehensive income, net of tax:

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Currency translation adjustments ÏÏ

Fair market value adjustments of

cash Öow hedges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Pension liability adjustment ÏÏÏÏÏÏÏ

Comprehensive incomeÏÏÏÏÏÏÏÏÏÏÏÏÏ

Proceeds from employee stock

purchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Tax beneÑt from exercise of stock

options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Accretion of fees on Redeemable

Convertible Preferred StockÏÏÏÏÏÏÏ

4% dividend paid on Redeemable

Convertible Preferred StockÏÏÏÏÏÏÏ

Treasury stock acquisitions,

2,484 shares ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

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 ÏÏÏÏ

$234

$27

$127,652

$103,465

$(9,493)

$Ì

$(12,264)

$209,621

Comprehensive income, net of tax:

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Currency translation adjustments ÏÏ

Fair market value adjustments of

cash Öow hedges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Pension liability adjustment ÏÏÏÏÏÏÏ

Comprehensive incomeÏÏÏÏÏÏÏÏÏÏÏÏÏ

Proceeds from employee stock

purchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Tax beneÑt from exercise of stock

options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Accretion on Redeemable Convertible
Preferred Stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Adjustment of Preferred Option value

4% dividend paid on Redeemable

Convertible Preferred StockÏÏÏÏÏÏÏ

Non-cash Treasury stock acquisitions,
21,638 shares ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2,858

1,123

256

28,719

(271)

(1,000)

23,498

2,666

(72)

28,719

23,498

2,666

(72)

54,811

2,862

1,123

(271)

256

(1,000)

(316)

BALANCE, December 31, 2003 ÏÏÏÏ

$238

$27

$131,889

$130,913

$16,599

$Ì

$(12,580)

$267,086

GENESEE & WYOMING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME Ì (Continued)

Class A
Class B
Common Common

Stock

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income
(Loss)

Restricted
Stock

Treasury
Stock

Total
Stockholders'
Equity

Comprehensive income, net of

tax:
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Currency translation

adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Fair market value adjustments

of cash Öow hedges ÏÏÏÏÏÏÏÏ
Pension liability adjustment ÏÏÏ

Comprehensive income ÏÏÏÏÏÏÏÏÏ
Proceeds from employee stock

purchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Conversion of Class B Common
Stock to Class A Common
StockÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Conversion of Preferred to

Class A Common Stock ÏÏÏÏÏÏ
Tax beneÑt from exercise of stock
options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Accretion on Redeemable

Convertible Preferred Stock ÏÏÏ
4% dividend paid on Redeemable
Convertible Preferred Stock ÏÏÏ
Restricted Stock awards ÏÏÏÏÏÏÏÏ
Amortization of Restricted Stock
Treasury stock acquisitions,

Ì
Ì

3,131

24,006

1,545

Ì
790

2,817 shares ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

BALANCE, December 31, 2004

$279

$27

(Dollars in thousands)

37,619

Ì
Ì

(67)

(411)
Ì

8,105

431
93

Ì
Ì

Ì
(790)
189

Ì
Ì

37,619

8,105

431
93

46,248

3,135

24,042

1,545

(67)

(411)
Ì
189

(68)

$161,361 $168,054

$25,228

$(601)

$(12,648)

$341,700

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

GENESEE & WYOMING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

2004

Years Ended December 31,
2003
(In thousands)

2002

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to reconcile net income to net cash provided by operating

activities Ì
Depreciation and amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of Restricted Stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net gain on sale and impairment of assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Write oÅ of deferred Ñnance fees from early extinguishment of debt ÏÏ
Equity earnings of unconsolidated aÇliates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Minority interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Tax beneÑt realized upon exercise of stock options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Valuation adjustment of split dollar life insurance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Changes in assets and liabilities, net of eÅect of acquisitions Ì

Accounts receivable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Materials and supplies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Prepaid expenses and other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts payable and accrued expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets and liabilities, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash provided by operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment, net of proceeds from government

grants ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Locomotive upgrade project ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase of Pawnee Transloading Company Inc. and Homer City and

Savannah Wharf rail propertiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase of Chattahoochee Industrial Railroad, Arkansas, Louisiana and
Mississippi Railroad and Fordyce & Princeton Railroad ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase of Utah Railway Company ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase of Emons Transportation Group, Inc., net of cash received ÏÏÏÏ
Cash received from unconsolidated international aÇliatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from disposition of property and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash used in investing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on long-term borrowingsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from issuance of long-term debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Payment of debt issuance costsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from employee stock purchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Dividends paid on Redeemable Convertible Preferred Stock ÏÏÏÏÏÏÏÏÏÏÏ
Net cash used in Ñnancing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CASH AND CASH EQUIVALENTS, end of yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

CASH PAID DURING YEAR FOR:

$ 37,619 $ 28,719 $ 25,607

19,243
189
7,856
(13)
1,611
(14,911)

194
1,545
(459)

(9,210)
9
(1,567)
12,846
35
54,987

15,471
Ì
9,659

(87)
Ì

(10,641)

243
1,123
(367)

3,267
325
999
(3,941)
2,147
46,917

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

(8,270)
241
(581)
(1,178)
2,176
27,568

(28,072)
Ì

(18,934)
(4,076)

(20,272)
(2,015)

(2,909)

Ì
Ì
Ì
5,757
448

(54,952)

Ì
Ì
132
1,941

Ì
(55,680)
(29,449)

263
4,113

(24,776)

(75,889) (103,040)

(283,579) (159,608) (214,438)
276,081
186,500
(4,578)
Ì
3,053
2,546
(1,000)
(1,000)
59,118
28,438

254,800
(1,396)
3,046
(411)
(27,540)

662
3,333
11,118

(1,350)
(17,704)
28,732
$ 14,451 $ 11,118 $ 11,028

624
90
11,028

InterestÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 10,631 $
5,790 $
$

8,691 $
1,034 $

7,825
2,679

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

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-three short line and
regional railroads through its various operating subsidiaries and unconsolidated aÇliates of which twenty-Ñve
are located in the United States, three are located in Canada, one is located in Mexico, three are located in
Australia, and one is located in Bolivia. From January 1, 2002 to December 31, 2004 the Company has
acquired ten railroads and sold two small railroads in the United States. The Company, through its leasing
subsidiary, also leases and manages railroad transportation equipment in the United States, Canada and
Mexico. The Company, through its industrial switching subsidiary, provides freight car switching and ancillary
rail services. See Note 3 for descriptions of the Company's expansion in recent years.

A large portion of the Company's operating revenue is attributable to industrial customers operating in
the electric utility, forest products, auto and auto parts and cement industries in North America. The largest
ten customers accounted for approximately 27% of the Company's operating revenues in 2004, 2003 and 2002.
In 2004, the Company's largest North American customer was a company in the paper and forest products
industry which accounted for approximately 8% of the Company's North American revenues. In 2003 and
2002, the Company's largest customer was a coal-Ñred electricity generating plant which accounted for
approximately 5% of the Company's operating revenues.

2. SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The consolidated Ñnancial statements include the accounts of the Company and its controlled subsidiar-
ies. The Company's investments in unconsolidated aÇliates are accounted for under the equity method. All
signiÑcant 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 diÅerent 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. Materials and supplies are removed from
inventory using the average cost method.

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 expense. Depreciation is provided on the straight-line method over the useful lives of the road
property (5-50 years) and equipment (3-20 years).

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

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 Öows over the
remaining lives of assets in measuring whether or not impairment has occurred. If impairment is identiÑed, 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.

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 funding of certain track
rehabilitation or construction projects to facilitate the Company's service over that track. These improvements
are not recorded in the Company's Ñnancial statements.

Goodwill and Intangible Asset Impairment

The valuation of goodwill and intangible assets acquired in business combinations requires management
to use judgment and make estimates that are critical to our Ñnancial reports. We 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. Step 2 measures the goodwill impairment
as the excess of recorded goodwill over its implied fair value.

We test impairment of goodwill and intangible assets on an annual basis or when triggering events occur.

Amortizable Intangible Assets

The Company has two amortizable intangible assets in the United States related to customer service
agreements and one amortizable intangible asset in Mexico related to a concession agreement with the
Mexican Communications and Transportation Department. The two intangible assets in the U.S. are
amortized on a straight-line basis over the estimated lives of the respective customer facilities they serve. The
intangible asset in Mexico is amortized on a straight-line basis over the life of the concession agreement. See
Note 6 for more detailed discussion of amortizable intangible assets.

Insurance

The Company maintains insurance, with varying deductibles up to $500,000 per incident for liability and
up to $500,000 per incident for property damage, for claims resulting from train derailments and other
accidents related to its 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.

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

Common Stock Splits

On February 11, 2004 and February 14, 2002, the Company announced three-for-two common stock
splits in the form of 50% stock dividends to be distributed on March 15, 2004 to stockholders of record as of
February 27, 2004, and on March 14, 2002 to stockholders of record as of February 28, 2002, respectively. All
share, per share and par value amounts presented herein have been restated to reÖect the retroactive eÅect of
these stock splits.

Earnings per Share

Common shares issuable under unexercised stock options, calculated under the treasury stock method,
and mandatorily redeemable convertible preferred stock (converted in June, 2004 see Note 11) 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
1,722,197, 1,788,456 and 1,401,432 for 2004, 2003 and 2002, respectively. Options to purchase 488,881
additional shares of stock were outstanding as of December 31, 2002, but were not included in the
computation of diluted earnings per share because the options' exercise prices were greater than the average
market price of the common shares. Also included in the diluted earnings per share calculation in 2003 and
2002 are 3,668,478 shares of common stock equivalents which represent the weighted average share impact of
the assumed conversion of mandatorily redeemable convertible preferred stock which was converted in June,
2004.

The following table sets forth the computation of basic and diluted earnings per share for the years ended

December 31, 2004, 2003 and 2002 (in thousands, except per share amounts)

Numerators:

2004

2003

2002

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Preferred Stock dividends and accretion ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income allocated to participating preferred stockholders ÏÏÏÏ

$37,619
479
Ì

$28,719
1,270
4,256

$25,607
1,171
3,895

Net income available to Class A Common stockholders Ì Basic

$37,140

$23,193

$20,541

Net income allocated to participating preferred stockholders ÏÏÏÏ

4,256

3,895

Net income available to Class A Common stockholders Ì

Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$37,140

$27,449

$24,436

Denominators:
Weighted average Class A Common Shares outstanding Ì Basic
Weighted average Mandatory Redeemable Convertible Preferred
Stock (converted to Class A Common Stock in the second
quarter of 2004) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Weighted average Class B Common Shares outstanding ÏÏÏÏÏÏÏÏ
Dilutive eÅect of employee stock optionsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

24,138

19,991

19,348

Ì
2,674
590

3,668
2,708
401

3,668
2,708
653

Weighted average shares Ì DilutiveÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

27,402

26,768

26,377

Income per common share:
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

1.54

1.36

1.16

1.03

1.06

0.93

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

Public OÅering of Class A Common Stock through Conversion of Class A Preferred Stock

On June 1, 2004, The 1818 Fund III, L.P., a private equity partnership managed by Brown Brothers
Harriman & Co., and holder of all of the 25,000 shares of the Company's then outstanding Series A Preferred
Stock, converted all of the Series A Preferred Stock into 3,668,478 shares of Company Class A Common
Stock and these shares were sold in a secondary public oÅering. Certain of the Company's management
stockholders also participated in this oÅering and sold 193,570 shares. The Company incurred $542,000 of
costs in the second quarter of 2004 related to this oÅering. The Company received no proceeds from the
secondary oÅering.

Emerging Issues Task Force (EITF):

Issue No. 03-6 Ì Participating Securities and the Two Ì Class Method Under FASB Statement No. 128,

Earnings Per Share

During the second quarter of 2004 the Company adopted EITF 03-6, ""Participating Securities and the
Two Ì Class Method under FASB Statement No. 128,'' that provides additional guidance related to the
calculation of earnings per share under SFAS No. 128, ""Earnings per Share,'' which includes application of
the ""two-class'' method in computing earnings per share, identiÑcation of participating securities, and
requirements for the allocation of undistributed earnings (and in some cases losses) to participating securities.

EITF 03-6 was eÅective for the quarter ending June 30, 2004 and required retroactive restatement for all
periods presented. The calculation for basic EPS now excludes the Company's Class B Common Stock from
the denominator and includes the share equivalents of the Series A Preferred Stock for periods prior to its
conversion. The diluted EPS calculation is now calculated on net income less preferred stock dividends and
accretion in the numerator. As a result of the retroactive restatement, the adoption of EITF 03-06 reduced
basic and diluted EPS by $.05 and $.04, respectively for the year ended December 31, 2003 and $.05 and $.04,
respectively for the year ended December 31, 2002.

Income Taxes

Pension and Other Postretirement BeneÑt Plans

The Company administers two noncontributory deÑned beneÑt plans for union and non-union employees
of two U.S. subsidiaries. BeneÑts are determined based on a Ñxed amount per year of credited service. The
Company's funding policy is to make contributions for pension beneÑts based on actuarial computations which
reÖect the long-term nature of the plans. The Company has met the minimum funding requirements
according to the Employee Retirement Income Security Act.

The Company provides health care and life insurance beneÑts for certain retired employees including
union employees of one of its U.S. subsidiaries. As of December 31, 2004, thirty-nine employees were
participating and Ñfty current employees may become eligible for these beneÑts upon retirement if certain
combinations of age and years of service are met. The Company funds the plan on a pay-as-you-go basis.

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

Stock-based Compensation Plans

In 1996, the Company established an incentive and nonqualiÑed stock option plan for key employees and
a nonqualiÑed stock option plan for non-employee directors (the Stock Option Plans). On May 12, 2004, the
Stockholders of the Company approved the adoption of the 2004 Omnibus Incentive Plan, which replaced the
Amended and Restated 1996 Stock Option Plan, Deferred Stock Plan for Non-Employee Directors and the
Stock Option Plan for Outside Directors. See Note 16 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. Had compensation cost for all options issued under these plans been determined
consistent with SFAS 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 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deduct: Total stock-based employee compensation expense

determined under fair value based methods for all awards, net
of related tax eÅects ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2004

2003

2002

$37,619

$28,719

$25,607

(2,079)

(1,380)

(980)

Pro Forma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$35,540

$27,339

$24,627

Basic EPS: As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pro Forma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted EPS: As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pro Forma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

1.54
1.45
1.36
1.28

1.16
1.10
1.03
0.97

1.06
1.02
0.93
0.89

Disclosures About Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of Ñnancial

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, amortization schedule and liquidity. The carrying amount of the
Company's Ñxed rate and variable rate debt approximates fair value.

Foreign Currency

The Ñnancial 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 an average rate for the statement of income items. Translation adjustments are
reÖected 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 loss
of $144,000 in 2004 and gains of $241,000 and $33,000 in 2003 and 2002, respectively. Additionally, foreign
currency transaction gains and losses, most notably, gains of $9,000, $504,000 and $172,000 in 2004, 2003 and
2002, respectively, related to an Australian dollar cash account are reported in Other income, net.

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

Management Estimates

The preparation of Ñnancial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that aÅect the reported amounts of assets, liabilities,
revenues and expenses during the reporting period. SigniÑcant estimates using management judgment are
made in the areas of recoverability and useful lives of assets, as well as liabilities for casualty claims and
income taxes. Actual results could diÅer from those estimates.

ReclassiÑcations

Certain prior year balances have been reclassiÑed to conform to the 2004 presentation.

3. EXPANSION OF OPERATIONS:

United States

Pawnee Transloading Company Inc.: On December 31, 2004, the Company's newly formed subsidiary,
Pawnee Transloading Company Inc. (Pawnee) acquired the assets of a coal and slag unloading facility in
Kincaid, Illinois from LeGere Investors, Inc. The facility serves one of the Company's freight customers in its
Illinois Region. The purchase price of the unloading facilities and related assets was $785,000, net of cash
received, all of which was allocated to the assets of the facility. Pawnee commenced operations on January 1,
2005.

Tazewell & Peoria Railroad, Inc.: On November 1, 2004, the Company's newly formed subsidiary, the
Tazewell & Peoria Railroad, Inc. (TZPR) commenced operations under a 20-year agreement to lease the
assets of the Peoria and Pekin Union Railway (PPU) located in Peoria, Illinois. Rent is payable annually in
advance and the Ñrst year's rent was $3.0 million. Future lease payments are subject to adjustment based on
certain economic indicators and customer operations stipulated in the agreement. The owners of the PPU
include Norfolk Southern Railway Company, Union PaciÑc Railroad Company and Illinois Central Railroad
Company. The TZPR is operated by the Company's Illinois Region and is contiguous to that region's existing
railroad operations.

Savannah Wharf Branch: On August 30, 2004, the Company completed the purchase from CSX
Transportation, Inc. of the Savannah Wharf Branch rail line located in Savannah, Georgia for approximately
$1.6 million. The transaction included the acquisition of 6.5 miles of track and related assets and a twenty year
lease of the related real estate along the line. The $1.6 million purchase price was allocated to the track and
related assets. The Savannah Wharf Branch is operated by the Company's Rail Link Region and is contiguous
to one of two existing Rail Link operations in the Savannah area.

Homer City Branch: On January 27, 2004, the Company completed the purchase from CSX Transpor-
tation, Inc. of the Homer City Branch rail line located in Homer City, Pennsylvania for approximately
$600,000. The transaction included the acquisition of 16 miles of track and related assets including land and
property rights. Operations of the Homer City Branch are expected to begin in the second quarter of 2005
upon completion of track rehabilitation, a portion of which will be funded through government grants. The
Homer City Branch rail line is operated by the Company's New York-Pennsylvania Region and is contiguous
to that existing railroad operation.

Georgia PaciÑc Railroads: On December 31, 2003, the Company completed the purchase from
Georgia-PaciÑc Corporation (GP) of all of the issued and outstanding shares of common stock of the
Chattahoochee Industrial Railroad (CIRR), the Arkansas Louisiana & Mississippi Railroad Company
(ALM), and the Fordyce and Princeton RR Co. (F&P, and collectively, the GP Railroads) for approximately
$54.9 million in cash. The purchase price was allocated to current assets ($2.7 million), property and
equipment ($37.6 million), and intangible assets ($27.1 million), less current liabilities assumed ($12.5 mil-

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

lion). As contemplated with the acquisition, the Company implemented a severance program which is
included in the table below. The aggregate cost of the severance program, $1.0 million at December 31, 2003,
is considered a liability assumed in the acquisition, and as such, was included in the purchase price. In
conjunction with the acquisition, the Company entered into two Transportation Services Agreements (TSAs)
which are 20-year agreements for the GP Railroads to provide rail transportation service to GP. One of the
TSAs has been determined to be an intangible asset and approximately $27.1 million of the purchase price has
been allocated to this asset. This TSA asset is being amortized on a straight-line basis over a 30-year life,
which is the expected life of the plant being served, beginning January 1, 2004. No value was assigned to the
other TSA. The Company funded the acquisition through its revolving line of credit held under its primary
credit agreement.

Oregon Lease: 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 increased that region's annual carloads and enhanced operations
through more eÇcient routing of existing traÇc. The Company is operating the rail line under a 15-year lease
agreement with BNSF. Under the lease, no payments to the lessor are required as long as certain operating
conditions are met. Through December 31, 2004, no payments were required under this lease.

Utah Railway Company: 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 which is included in the
table below. The aggregate cost of these restructuring activities is considered a liability assumed in the
acquisition, and as such, was included in the purchase price. The Company funded the acquisition through its
revolving line of credit held under its primary credit agreement.

Emons: 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 assumed current
liabilities ($4.5 million) and assumed long-term liabilities ($3.8 million). As contemplated with the
acquisition, the Company implemented a severance program which is included in the table below. The
aggregate cost of these restructuring activities is considered a liability assumed in the acquisition, and as such,
was included in 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.

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

The table below sets forth a roll-forward of the activity aÅecting the restructuring reserves established in

acquisitions including the number of employees and actual cash payments:

Schedule of Acquisition Restructuring Activity

Years Ended December 31,
2003

2002

2004

Number of Employees:
Beginning number of employees to be terminated during the

periodÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Number of planned terminations related to acquisitions during

the period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additions to planned terminations during the periodÏÏÏÏÏÏÏÏÏÏÏ
Actual number of employees terminated during the period ÏÏÏÏÏ

Ending number of employees to be terminated as of the end of

the period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Restructuring Reserves:
Liabilities established in purchase accounting for acquisitions ÏÏÏ
Additions to liability reserve during the periodÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash payments during the periodÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Ì
4
(14)

13
Ì
Ì

39
Ì
(39)

$1,002,000
228,000
1,054,000

$1,002,000
Ì
Ì

$ 1,382,000
Ì

(1,382,000)

Balance at end of period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 176,000

$1,002,000

For U.S. tax purposes, the Company has made elections under Internal Revenue Code Section 338 to

treat the CIRR, ALM, F&P, URC and Emons acquisitions each as a purchase of assets.

Pro Forma Financial Results (unaudited)

The following table summarizes the Company's unaudited pro forma operating results for the years ended
December 31, 2003 and 2002, as if the GP Railroads had been acquired as of January 1, 2003, and URC and
Emons had been acquired January 1, 2002. (in thousands, except per share amounts):

2003

2002

Operating revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic earnings per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted earnings per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$262,428
30,424
1.25
1.09

$228,140
27,892
1.18
1.01

The unaudited pro forma operating results include the acquisitions of the GP Railroads, URC, and
Emons adjusted, net of tax, for depreciation expense resulting from the step-up of the GP Railroads 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 GP Railroads, URC, and Emons acquisitions. 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 the acquired goodwill is reÖected in the unaudited
pro forma operating results.

The pro forma Ñnancial 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.

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

4. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS:

Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for
doubtful accounts is the Company's best estimate of the amount of probable credit losses on existing accounts
receivable. Management determines the allowance based on historical write-oÅ experience within each of the
Company's regions. Management reviews material past due balances over 90 days on a monthly basis.
Account balances are charged oÅ against the allowance when management determines it is probable that the
receivable will not be recovered. The Company does not have any oÅ-balance sheet credit exposure related to
customers.

Receivables consist of the following at December 31, 2004, 2003 and 2002 (amounts in thousands):

2004

2003

2002

Accounts Receivable Ì TradeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$65,988

$56,670

$56,268

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

2004

2003

2002

Balance, beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provisions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Established in acquisitions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 2,014
1,195
(1,758)

$1,741
878
(605)
Ì

$1,001
716
(402)
426

Balance, end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 1,451

$2,014

$1,741

5. PROPERTY AND EQUIPMENT:

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

2004

2003

Property:

Land & Land Improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Buildings & Leasehold Improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Bridges/Tunnels/Culverts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Track Property ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

25,600
16,631
41,820
271,180

$ 23,931
16,278
39,647
243,656

Total Property ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equipment:

355,231

323,512

Computer Equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Locomotives & Freight CarsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Vehicles & Mobile Equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Signals & Crossing EquipmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Track Equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Total Equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

3,036
50,502
12,962
6,155
3,582
7,578

83,815

4,171
46,573
12,279
5,609
2,950
7,051

78,633

Total Property and Equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less Accumulated DepreciationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

439,046
(102,022)

402,145
(86,800)

Property and Equipment, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 337,024

$315,345

Track property includes $496,000 of assets acquired under a capital lease (see Note 8).

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

INTANGIBLE AND OTHER ASSETS, NET AND GOODWILL:

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

INTANGIBLE ASSETS:
Amortizable intangible assets:
Chiapas-Mayab Operating License
Amended and Restated Service

Assurance Agreement ÏÏÏÏÏÏÏÏÏ
Transportation Services Agreement
Non-amortizable intangible assets:
Track Access AgreementsÏÏÏÏÏÏÏÏ

10,566
27,055

35,891

Total Intangible Assets ÏÏÏÏÏÏÏÏÏÏ

80,559

OTHER ASSETS:
Deferred Ñnancing costs ÏÏÏÏÏÏÏÏÏ
Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

6,584
7,030

Total Other AssetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

13,614

December 31, 2004

December 31, 2003

Gross
Carrying
Amount

Accumulated
Amortization

Net
Assets

Gross
Carrying
Amount

Accumulated
Amortization

Net
Assets

$ 7,047

$1,233

$ 5,814

$ 7,058

$ 999

$ 6,059

647
901

2,781

3,015
585

3,600

9,919
26,154

10,566
27,055

35,891

77,778

35,891

80,570

3,569
6,445

6,607
5,370

10,014

11,977

216
Ì

1,213

1,841
43

1,884

10,350
27,055

35,891

79,357

4,766
5,327

10,093

Total Intangible and Other Assets

$94,173

$6,381

$87,792

$92,547

$3,097

$89,450

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, 2004 was $233,000; estimated annual amortization for the next Ñve
years is $233,000 per year.

On July 23, 2003 as a result of a settlement agreement with Commonwealth Edison Company, the
Company amended and restated the Service Assurance Agreement (SAA) and began to amortize the
Amended and Restated Service Assurance Agreement (ARSAA). The estimate of the useful life of the
ARSAA asset is based on the Company's estimate of the useful life of the coal-Ñred electricity generation
plant to which the Company provides service, which the Company estimates will be in service through 2027.
Amortization expense for the ARSAA for the year ended December 31, 2004 was $431,000; estimated annual
amortization for the next Ñve years is $431,000 per year.

The Transportation Services Agreement, entered into in conjunction with the GP transaction (the TSA),
is a 20-year agreement to provide exclusive rail transportation service to GP facilities. The Company believes
that the customer's facilities have a 30-year economic life and that the Company will continue to be the
exclusive rail transportation service provider until the end of the plant's useful life. Therefore, the TSA is
being amortized on a straight-line basis over a 30-year life beginning January 1, 2004. Amortization expense
for the TSA for the year ended December 31, 2004 was $902,000; estimated annual amortization for the next
Ñve years is $902,000 per year.

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 indeÑnite
useful life and therefore are not subject to amortization.

Deferred Ñnancing costs for the Canadian term loan (see Note 9) are amortized over the term of the
related debt using the eÅective-interest method. Deferred Ñnancing costs for all other debt are amortized over

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

terms of the related debt using the straight-line method, which is not materially diÅerent from amortization
computed using the eÅective-interest method. Amortization expense for the year ended December 31, 2004
was approximately $1.2 million; estimated annual amortization for the next Ñve years is $765,000 per year. In
conjunction with a reÑnancing (see Note 9), the Company recorded a non-cash pre-tax write oÅ of
$1.6 million related to unamortized deferred Ñnancing costs of the reÑnanced debt.

Other assets primarily consist of executive split dollar life insurance, assets held for sale, and a minority
equity investment in an agricultural facility. Executive split dollar life insurance is the present value of life
insurance beneÑts which the Company funds but that are owned by executive oÇcers. The Company retains a
collateral interest in the policies' cash values and death beneÑts. Assets held for sale or future use primarily
represent excess track and locomotives.

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:

Year Ended
December 31,
2004

Year Ended
December 31,
2003

Goodwill:

Balance at beginning of period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill acquired during periodÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Currency translation and other adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Impairment lossesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$24,522
Ì
160
Ì

Balance at end of period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$24,682

$24,174
Ì
348
Ì

$24,522

7. EQUITY INVESTMENTS:

Australian Railroad Group

The following condensed Ñnancial 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, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
As of December 31, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
As of December 31, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average for the year ended December 31, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average for the year ended December 31, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average for the year ended December 31, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$.782
$.751
$.561
$.736
$.662
$.545

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

AUSTRALIAN RAILROAD GROUP

STATEMENTS OF INCOME

Operating revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

For the Years Ended December 31,
2002
2003
2004
(U.S. dollars, in thousands)
$249,571

$333,647

$211,067

Operating expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restructuring costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Bid costsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

265,702
Ì
Ì

194,089
267
Ì

161,146
2,583
867

Total operating expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

265,702

194,356

164,596

Income from operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

67,945
(28,438)
1,227

Income before income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

40,734
12,264

55,215
(33,877)
3,271

24,609
3,866

46,471
(24,859)
886

22,498
5,524

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 28,470

$ 20,743

$ 16,974

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

AUSTRALIAN RAILROAD GROUP

BALANCE SHEETS

As of
December 31,
2004

As of
December 31,
2003

(U.S. dollars, in thousands)

CURRENT ASSETS:

ASSETS

Cash and cash equivalentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts receivable, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Materials and supplies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Prepaid expenses and other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 21,217
49,085
11,580
3,055

Total current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

84,937

PROPERTY AND EQUIPMENT, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
DEFERRED INCOME TAX ASSETSÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
OTHER ASSETS, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

541,470
77,325
8,522

$ 26,618
47,764
10,033
3,069

87,484

478,808
80,193
5,476

Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$712,254

$651,961

CURRENT LIABILITIES:

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Current income tax liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 19,832
31,989
364

Total current liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

52,185

LONG-TERM DEBT, net of current portion ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
DEFERRED INCOME TAX LIABILITIES, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
OTHER LONG-TERM LIABILITIESÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
FAIR VALUE OF INTEREST RATE SWAPS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SUBORDINATED NOTES TO STOCKHOLDERS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Total non-current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
REDEEMABLE PREFERRED STOCK OF THE STOCKHOLDERS ÏÏÏÏÏ
TOTAL STOCKHOLDERS' EQUITY ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

383,425
21,207
2,177
9,788
Ì

416,597
16,897
226,575

7,199
35,111
Ì

42,310

367,892
14,271
2,031
9,133
11,562

404,889
16,212
188,550

Total liabilities and stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$712,254

$651,961

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

AUSTRALIAN RAILROAD GROUP

STATEMENTS OF CASH FLOWS

For the Years Ended
December 31,
2003
(U.S. dollars, in thousands)

2002

2004

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to reconcile net income to net cash provided by

operating activities-
Depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net gain on sale and impairment of assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Changes in assets and liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 28,470

20,743

$ 16,974

27,346
11,847
(336)
4,829

23,443
11,283
(2,081)
(8,095)

17,191
3,665
(314)
(7,743)

Net cash provided by operating activitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

72,156

45,293

29,773

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from disposition of property and equipment ÏÏÏÏÏÏÏÏÏÏ
Transfer from (to) restricted funds on deposit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(69,519)
2,570
Ì

(35,774)
6,924
69,978

(28,423)
1,752
(46,957)

Net cash provided by (used in) investing activities ÏÏÏÏÏÏÏÏ

(66,949)

41,128

(73,628)

CASH FLOWS FROM FINANCING ACTIVITIES:

Payments on borrowingsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Borrowings on debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Repayment of subordinated notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Ì
Ì
(10,710)

(430,385)
360,493
Ì

Net cash (used in) provided by Ñnancing activities ÏÏÏÏÏÏÏÏ

(10,710)

(69,892)

Ì
38,990
Ì

38,990

EFFECT OF EXCHANGE RATE DIFFERENCES ON CASH

AND CASH EQUIVALENTS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

102

4,207

839

INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CASH AND CASH EQUIVALENTS, beginning of yearÏÏÏÏÏÏÏÏÏÏ

(5,401)
26,618

20,736
5,882

(4,026)
9,908

CASH AND CASH EQUIVALENTS, end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 21,217

26,618

5,882

South America

The following condensed Ñnancial data for Ferroviaria Oriental, S.A. (Oriental) for the years ended
December 31, 2004, 2003 and 2002 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 which is located in eastern Bolivia.

Operating revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$31,851
7,011

$27,130
5,175

$30,658
7,239

Years Ended December 31,
2003

2004

2002

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

Condensed balance sheet information for Oriental as of December 31, 2004 and 2003:

2004

2003

Current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$15,702
58,365

$14,374
55,237

Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$74,067

$69,611

Current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Senior debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stockholders' equityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 7,306
6,042
892
59,827

$ 5,617
4,702
1,568
57,724

Total liabilities and stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$74,067

$69,611

The above data does not include non-recourse debt of $12.0 million held at an intermediate unconsoli-
dated aÇliate or any of the general and administrative, interest or income tax costs at various intermediate
unconsolidated aÇliates. The Company's share of costs from the intermediate unconsolidated aÇliates for the
years ended December 31, 2004, 2003 and 2002 were $906,090, $828,100 and $678,625, respectively.

As noted previously, the Company holds its equity interest in Oriental through a number of intermediate
holding companies, and the Company accounts for its interest in Oriental under the equity method of
accounting. The Company indirectly holds a 12.52% equity interest in Oriental through an interest in
Genesee & Wyoming Chile (GWC), and the Company holds its remaining 10.37% equity interest in Oriental
through other companies. GWC is an obligor of non-recourse debt of $12.0 million, which has an adjustable
interest rate dependent on operating results of Oriental. This non-recourse debt is secured by a lien over
GWC's 12.52% indirect equity interest in Oriental.

This debt became due and payable on November 2, 2003. Due to the political and economic unrest and
uncertainties in Bolivia, it has become diÇcult for GWC to reÑnance this debt and the Company has chosen
not to repay the non-recourse obligation. GWC entered into discussions with its creditors on plans to
restructure the debt, and as a result of those discussions, GWC obtained a written waiver of principal
repayment from the creditors which expired on January 31, 2004. However, negotiations with the creditors
continue, and currently, none of GWC's creditors have commenced court proceedings to (i) collect on the
debt or (ii) exercise their rights pursuant to the lien.

If the Company were to lose its 12.52% equity stake in Oriental due to creditors exercising their lien on
GWC's indirect equity interest in Oriental, the Company would write-oÅ its investment in Oriental held
through GWC, which on December 31, 2004 amounted to $380,000. A default, acceleration or eÅort to
foreclose on the lien under the non-recourse debt will have no impact on the Company's remaining 10.37%
equity interest in Oriental because that equity interest is held indirectly through holding companies outside of
GWC's ownership in Oriental. As a result of the uncertainty surrounding the $12.0 million debt, the Company
discontinued equity accounting for its 12.52% equity interest in Oriental held through its interest in GWC.

The Company's retained earnings at December 31, 2004 and 2003 include $48.6 million and $34.2 mil-

lion, respectively, of combined ARG and South America undistributed earnings.

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

8. LEASES:

The Company has entered into several operating leases for freight cars, locomotives and other equipment.
Related operating lease expense for the years ended December 31, 2004, 2003 and 2002 was approximately
$10.4 million, $9.5 million and $9.2 million, respectively. The Company leases certain real property which
resulted in additionally operating lease expense for the years ended December 31, 2004, 2003 and 2002 of
approximately $2.0 million, $1.6 million and $1.5 million, respectively.

The Company is party to several cancelable leases which have automatic renewal provisions. If the
Company chooses not to renew these leases, it would be obligated to return the underlying rolling stock and
pay aggregate fees of up to approximately $7.8 million. In addition, the Company has the option, at various
dates, to terminate the leases by purchasing the rolling stock. The maximum aggregate purchase price, at the
next available buyout date for each qualifying lease, is approximately $21.3 million. Management anticipates
the future market value of the leased rolling stock will equal or exceed the purchase price of the rolling stock.

The Company records pre-tax deferred gains from sale-leaseback transactions in Other Liabilities on the
accompanying Consolidated Balance Sheets. Where applicable, these gains are amortized as a non-cash oÅset
to rent expense over the life of the lease. The remaining balance of such gains (net of amortization) was
approximately $3.5 million and $4.0 million at December 31, 2004 and 2003, respectively.

In 2004, the Company acquired $496,000 of road property assets through a capital lease for which the
present value of the related lease payments was recorded as a liability. Amortization of capitalized leased
assets is computed on the straight-line method over the term of the lease.

The Company is party to several lease agreements with Class I carriers to operate over various rail lines in
North America. Two of these lease agreements have annual lease payments of $240,000 and $50,000,
respectively, which are included in the non-cancelable section of the schedule of future minimum lease
payments shown below. Under certain other of these leases, no payments to the lessors are required as long as
certain operating conditions are met. Through December 31, 2004, no payments were required under these
lease arrangements.

In November 2004, a subsidiary of the Company entered into a 20-year lease agreement for the assets of
the Peoria and Pekin Union Railway Company (see Note 3). Future lease payments of $3.0 million annually
are included in the non-cancelable section of the schedule of future minimum lease payments shown below.
These future lease payments are subject to adjustment based on certain economic indicators and customer
operations stipulated in the agreement.

The following is a summary of future minimum lease payments (without consideration of amortizing
deferred gains from sale/leasebacks) under capital leases, noncancelable operating leases and cancelable
operating leases (in thousands):

Year

Capital

Noncancelable
Operating

Cancelable
Operating

2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 15
16
17
17
18
413

Total minimum payments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$496

$11,240
8,021
6,864
5,974
4,186
44,188

$80,473

$ 4,430
4,430
4,430
1,595
691
0

Totals

$15,685
12,467
11,311
7,586
4,895
44,601

$15,576

$96,545

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

9. LONG-TERM DEBT:

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

Senior Credit Facilities with variable interest rates (weighted average of 3.62% and

3.27% before impact of interest rate swaps at December 31, 2004 and 2003,
respectively) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Senior Notes with Ñxed interest rate of 4.85% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Limited recourse U.S. dollar denominated promissory notes of Mexican subsidiary
with variable interest rates (5.56% and 4.68% before impact of interest rate
swaps at December 31, 2004 and 2003, respectively) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Other debt and capital leases with interest rates up to 5.33% and maturing at

2004

2003

$ 36,097
75,000

$132,417
Ì

18,831

23,163

various dates between 2005 and 2024 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2,309

2,442

Less-Current portion ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

132,237
6,356

158,022
6,589

Long-term debt, less current portion ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$125,881

$151,433

Credit Facilities

On November 15, 2004, the Company entered into amended and restated Ñve-year, $182.0 million
unsecured senior credit facilities. The Company used the proceeds from the Ñnancing to repay $35.0 million of
approximately $110.0 million of debt outstanding at its U.S. and Canadian subsidiaries. Approximately
$8.1 million of the borrowing capacity is reserved for letters of credit for two of the Company's subsidiaries.
The remaining unused borrowing capacity is available for general corporate purposes, including acquisitions.

The amended and restated credit facility is composed of a $150.0 million revolving loan and a
$32.0 million (C$38.5 million) Canadian term loan, both of which are due in 2009. Interest rates for
borrowings are based on U.S. or Canadian LIBOR plus a margin, which varies from 0.75% to 1.50%
depending on leverage. Initial borrowings were priced at LIBOR plus 1.0%. The credit facilities are unsecured,
but the revolving loan is guaranteed by substantially all of the Company's U.S. subsidiaries and the Canadian
term loan is guaranteed by substantially all of the Company's U.S. and Canadian subsidiaries. Financial
covenants, which are measured on a trailing twelve-month basis and reported quarterly, include (a) maximum
leverage of 3.5 times (measured as Funded Debt (indebtedness plus guarantees including Letters of Credit,
plus the present value of operating leases)) to EBITDAR (earnings before interest, taxes, depreciation,
amortization and rental payments on operating leases), (b) minimum interest coverage of 3.5 times
(measured as EBITDA divided by interest expense), (c) required net worth equal to 80% of net worth as of
September 30, 2004 plus 50% of net income for each quarter ending after September 30, 2004, and
(d) maximum annual capital expenditures (excluding acquisitions) of $42.0 million. Fifty percent of
unutilized permitted capital expenditures may be utilized in the succeeding year. The credit facilities contain a
number of covenants restricting the Company's ability to incur additional indebtedness, make certain
investments, sell assets, issue subsidiary stock, restrict distributions from subsidiaries, create certain liens,
enter into certain consolidations or mergers, enter into certain transactions with aÇliates, and pay dividends or
make distributions. The credit facilities allow the Company to pay dividends and make distributions provided
that Funded Debt to EBITDAR, including any borrowings made to fund the dividend or distribution, is less
than 3.0 to 1. The Company and its subsidiaries were in compliance with the provisions of these covenants as
of December 31, 2004.

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

In conjunction with the reÑnancing, the Company recorded a non-cash pre-tax write-oÅ of $1.6 million
related to unamortized deferred Ñnancing costs of the reÑnanced debt and a cash expense of $257,000 for the
termination of interest rate swaps related to the former debt.

Senior Notes

On November 15, 2004, the Company completed a seven-year, $75.0 million private placement of
unsecured 4.85% Ñxed rate Senior Notes. The Senior Notes were priced at a spread of 1.15% over the 7-year
U.S. Treasury rate and are due in 2011. The Company used the proceeds from the $75.0 million Ñnancing to
repay $75.0 million of approximately $110.0 million of debt outstanding at its U.S. and Canadian subsidiaries.
The Senior Notes are unsecured, but are guaranteed by substantially all of Company's U.S. subsidiaries. The
Senior Notes contain a number of covenants limiting the Company's ability to incur additional indebtedness,
sell assets, create certain liens, enter into certain consolidations or mergers and enter into certain transactions
with aÇliates. Financial covenants, which are reported quarterly, include (a) maximum debt to capitalization
of 65% and (b) minimum Ñxed charge coverage ratio of 1.75 times (measured as EBITDAR for the preceding
twelve months divided by interest expense plus operating lease payments for the preceding twelve months).
The Company and its subsidiaries were in compliance with the provisions of these covenants as of
December 31, 2004.

Limited Recourse Promissory Notes Ì Mexico

On December 7, 2000, one of the Company's subsidiaries in Mexico, Servicios, entered into three
promissory notes payable (Notes) totaling $27.5 million with variable interest rates based on LIBOR plus
3.5 percentage points. Two of the Notes, aggregating $17.0 million, have an 8-year term with combined semi-
annual principal payments of $1.4 million which began March 15, 2003, and continue through the maturity
date of September 15, 2008. The third Note, in the amount of $10.5 million, has a 9-year term with semi-
annual principal payments of $750,000 which began March 15, 2003, and continue through the maturity date
of September 15, 2009.

The Notes are secured by essentially all the assets of Servicios and its subsidiary, Compania de
Ferrocarriles Chiapas-Mayab, S.A. de C.V., (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 Ñnancial obligations prior to completing the investment phase of the
project funded by the Notes (Physical Completion), consisting of several obligations related to capital
investments, operating performance and management systems and controls. In addition, the Company is
obligated to provide $7.5 million in funding to Servicios to meet its debt service obligations prior to completing
the Ñnancial phase of the project (Financial Completion), consisting of several Ñnancial performance
thresholds. At present, FCCM has yet to achieve Physical Completion or Financial Completion. To date, the
Company has advanced $2.5 million of its $8.0 million obligation. Based on current circumstances, it is
probable that the Company will have to fund additional payments in order to meet the future principal
repayment obligations of the Notes. The Notes contain certain Ñnancial covenants with which Servicios is in
compliance as of December 31, 2004.

In conjunction with the reÑnancing of FCCM and Servicios, the International Finance Corporation
(IFC) (the primary lender to Servicios) invested $1.9 million of equity in Servicios for a 12.7% indirect
interest in FCCM. 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. If the value of the put option exceeds the minority interest liability, additional
minority interest expense would be recorded. Exercise of this put option by the IFC would result in a future
cash outÖow for the Company.

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

Schedule of Future Payments Excluding Capital Leases

The following is a summary of the maturities of long-term debt as of December 31, 2004 (in thousands):

2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

6,341
6,324
6,069
6,040
7,208
99,760

$131,742

See Note 8 for a schedule of capital lease payments.

10. FINANCIAL RISK MANAGEMENT:

The Company actively monitors its exposure to interest rate and foreign currency exchange rate risks and
uses derivative Ñnancial 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 Ñnancial gains on the interest rate or exchange rate
Öuctuations alone, nor does it use derivative 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
Ñnancial instruments may result in short-term gains or losses and increased earnings volatility.

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 eÅect of this transition adjustment
did not impact earnings and was not material to accumulated other comprehensive 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 Öows to be received or paid in the future related to a recognized asset or liability
(cash Öow hedge). The portion of the changes in the fair value of the derivative that is designated as a cash
Öow hedge that is oÅset by changes in the expected cash Öows related to a recognized asset or liability (the
eÅective 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 in the consolidated
statements of income on the same line as the hedged item. In addition, the portion of the changes in fair value
of derivatives used as cash Öow hedges that is not oÅset by changes in the expected cash Öows related to a
recognized asset or liability (the ineÅective 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 prepaid expenses and
other assets, net, accrued expenses or other long-term liabilities. This process includes matching the hedge
instrument to the underlying hedged item (assets, liabilities, Ñrm commitments or forecasted transactions). At
hedge inception and at least quarterly thereafter, the Company assesses whether the derivatives used to hedge
transactions are highly eÅective in oÅsetting changes in either the fair value or cash Öows of the hedged item.
When it is determined that a derivative ceases to be a highly eÅective hedge, the Company discontinues hedge

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

accounting, and any gains or losses on the derivative instrument are recognized in earnings during the period it
no longer qualiÑes as a hedge. Summarized below are the speciÑc 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 Öoating rate debt. Interest rate swap agreements are accounted for as cash Öow hedges. Gains or losses on
the swaps, representing interest rate diÅerentials 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. The eÅective
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 ineÅective 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 2004, 2003 and 2002, the Company determined there was no ineÅectiveness.

During 2003 and 2002, the Company entered into various interest rate swaps Ñxing its base interest rate
by exchanging its variable LIBOR interest rates on long-term debt for a Ñxed interest rate. Several interest
rate swaps were terminated in November 2004 in conjunction with the debt reÑnancing. The remaining swaps
expire at various dates through September 2007, and the Ñxed base rates range from 4.5% to 5.46%. At
December 31, 2004 and 2003, the notional amount under these agreements was $32.8 million and
$60.6 million, respectively and the fair value of these interest rate swaps was negative $1.1 million and
$2.2 million, respectively.

Foreign Currency Exchange Rate Risk

The Company uses purchased options to manage foreign currency exchange rate risk related to certain
projected cash Öows 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 Öows are recognized in the consolidated balance sheets as a component
of accumulated other comprehensive income in common stockholders' equity.

During 2004, 2003 and 2002, the Company entered into various exchange rate options that established
exchange rates for converting Mexican Pesos to U.S. Dollars. The option currently outstanding expires in
2005, and gives the Company the right to sell Mexican Pesos for U.S. Dollars at an exchange rate of 13.34
Mexican Pesos to the U.S. Dollar. At December 31, 2004 and 2003, the notional amount under exchange rate
options was $2.1 million and $5.3 million, respectively. The Company paid up-front premiums for certain of
these options in 2004 and 2003 totaling $28,000 and $115,000, respectively. At December 31, 2004 and 2003,
the fair value of these exchange rate currency options was $0 and $17,000, respectively.

11. CLASS A COMMON STOCK:

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

12. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS:

The Company provided health care and life insurance beneÑts to certain non-union retired employees
who had reached the age of 55 with 30 or more years of service. In October 2004, the Company terminated the
health care and life insurance beneÑts eÅective January 2005.

The Company evaluated the Medicare Prescription Drug, Improvement and Modernization Act of 2003
(Act) on its postretirement plan and the Act did not impact the Company's consolidated Ñnancial position,
results of operations, or disclosure requirements.

The following provides a reconciliation of beneÑt obligation, plan assets, and funded status of the plans

(in thousands):

Pension

Other
Retirement
BeneÑts

2004

2003

2004

2003

Change in beneÑt obligations:
BeneÑt obligation at beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Service costÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Actuarial (gain) loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustment due to curtailmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
BeneÑts paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$3,563
158
184
(273)
Ì
(80)

$3,067
180
188
217
Ì
(89)

$4,565
110
274
30
(281)
(187)

$3,483
100
278
874
Ì
(170)

BeneÑt obligation at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$3,552

$3,563

$4,511

$4,565

Change in plan assets:
Fair value of assets at beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Actual return (loss) on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Employer contributions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
BeneÑts paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$1,419
152
269
(80)

$ 953
214
341
(89)

$ Ì $ Ì
Ì
170
(170)

Ì
187
(187)

Fair value of assets at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$1,760

$1,419

$ Ì $ Ì

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

Pension

Other
Retirement
BeneÑts

2004

2003

2004

2003

Reconciliation of Funded Status:
Funded status ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrecognized transition liabilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrecognized net actuarial (gain) loss ÏÏÏÏÏÏÏÏÏÏÏÏÏ

$(1,793)

923
330

$(2,144)
1,065
635

$(4,511)
Ì
830

$(4,565)
Ì
1,164

Net amount recognized ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ (540)

$ (444)

$(3,681)

$(3,401)

Amounts recognized in the statement of Ñnancial

position consist of:

Prepaid beneÑt cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued beneÑt cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated other comprehensive incomeÏÏÏÏÏÏÏÏÏÏ

$ Ì $ Ì $ Ì $ Ì
(3,401)
(1,357)
Ì
817

(1,390)
946

(3,681)
Ì

Net amount recognized ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ (540)

$ (444)

$(3,681)

$(3,401)

Pension

2004

2003

Information for pension plans with an accumulated beneÑt obligation in

excess of plan assets.

Projected beneÑt obligationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated beneÑt obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fair Value of plan assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additional Information
Decrease in minimum liability included in other comprehensive income ÏÏÏÏÏÏ

$3,552
3,118
$1,760

$3,563
2,809
$1,419

$ 129

$ 549

Pension
2003

2004

2002

2004

Other
Retirement
BeneÑts
2003

Components of net periodic beneÑt cost:
Service costÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of transition liability ÏÏÏÏÏÏÏÏÏÏÏ
Amortization of prior service cost ÏÏÏÏÏÏÏÏÏÏÏ
Amortization of (gain) loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 158
186
(152)
142
Ì
31

$180
191
(90)
143
Ì
14

$ 169
210
(122)
143
23
Ì

Net periodic beneÑt cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 365

$438

$ 423

$110
275
Ì
Ì
Ì
83

$468

$100
278
Ì
Ì
Ì
19

$397

2002

$ 83
229
Ì
Ì
Ì
Ì

$312

Weighted-average assumptions used to
determine beneÑt obligations for
December 31

Discount rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Rate of compensation increase ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

5.75%
8.5%
3.5%

6.0%
8.5%
3.5%

6.0% 6.75%

6.75% 5.75%
8.5% N/A N/A N/A
3.5% N/A N/A N/A

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

Pension
2003

2004

2002

2004

Other
Retirement
BeneÑts
2003

2002

Weighted-average assumptions used to

determine net periodic beneÑt cost for
December 31

Discount rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Rate of compensation increase ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

6.0% 6.75%
8.5%
8.5%
3.5%
3.5%

7.25%
6.0% 6.75%
8.5% N/A N/A N/A
3.5% N/A N/A N/A

7.5%

For measurement purposes, a weighted average 5.8% annual rate of increase in the per capita cost of
covered health care beneÑts was assumed for 2004 and thereafter. The Company uses a December 31
measurement date for its plans.

Assumed health care cost trend rates
Health care cost trend rate assumed next yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Rate to which the cost trend is assumed to declineÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Year that the rate reaches the ultimate trend rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2004

2003

11.0% 11.5%
5.0% 5.0%
2010
2011

The health care cost trend rate assumption has an eÅect 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 beneÑt
cost and the end of the year accumulated postretirement beneÑt obligation as follows:

EÅect on total of service and interest cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
EÅect on postretirement beneÑt obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 47,750
$584,425

$ (41,214)
$(503,731)

1 Ì Percentage
Point Increase

1 Ì Percentage
Point Decrease

Plan Assets

The Company's pension plan weighted-average asset allocations at December 31, 2004, and 2003, by

asset category are as follows:

Asset Category

Plan Assets at
December 31,

2004

2003

Equity Securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Debt SecuritiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

60.80% 60.68%
37.10% 33.19%
6.13%
2.10%

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

100.00% 100.00%

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

Cash Flows

Contributions

The Company expects to contribute $212,000 to its pension plan in 2005.

Estimated Future BeneÑt Payments

The following beneÑt payments, which reÖect expected future service, as appropriate, are expected to be

paid (in thousands):

Other
Retirement
BeneÑts

Pension

2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Years 2010-2014 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$48
47
52
93
113
892

$129
136
159
168
174
959

The discount rate that the Company uses for determining future pension obligations is based on a review

of long-term bonds, including published indices. The discount rate determined on that basis was 6.0%.

For 2004, the Company assumed a long-term asset rate of return of 8.5%. The Company will also utilize
an 8.5% long-term asset rate of return assumption in 2005. In developing the 8.5% expected long-term rate of
return assumption, the Company reviewed the asset class return expectations and long-term inÖation
assumptions. The 8.5% long-term asset return assumption for 2004 is based on an asset allocation assumption
of 50%-75% with U.S. and international equity securities, 25%-45% with debt securities, and 0%-7% with other
securities (primarily cash equivalents). The Company believes that its long-term asset allocation, on average,
will approximate the targeted allocation. The Company regularly reviews its actual asset allocation and may
periodically rebalance the pension plans' investments to its targeted allocation when deemed appropriate. At
December 31, 2004, the Company's actual asset allocation was consistent with its asset allocation assumption.

Employee Bonus Programs

The Company has performance-based bonus programs which include a majority of non-union employees.
Total compensation of approximately $2.6 million, $2.5 million and $2.1 million was awarded under the
various bonus plans in 2004, 2003 and 2002, respectively.

401(k) Plans and ProÑt Sharing

The Company has two plans which 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 participants' contributions up to 1.5% of the participants'
salary. Under the second plan, the Company matches participants' contributions up to 5.0% of the
participants' salary. The Company's contributions to all plans in 2004, 2003, and 2002 were approximately
$462,000, $386,000 and $369,000, respectively. As of January 1, 2005, the Company merged the two 401(k)
plans. Under the merged plan, the Company match of participants' contributions is up to 4% of the
participants' salary.

As required by provisions within the Mexican Constitution and Mexican Labor Laws, the Company's
subsidiary, FCCM, provides a statutory proÑt sharing beneÑt to its employees. In accordance with these laws,

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

FCCM is required to pay to its employees a 10% share of its proÑts within 60 days of Ñling corporate income
tax returns. The proÑt sharing basis is computed under a section of the Mexican Income Tax Law which, in
general terms, diÅers from the income tax basis by excluding the inÖation adjustments on depreciation,
amortization, receivables and payables. Provisions for statutory proÑt sharing expense were $649,000, $477,000
and $388,000 for 2004, 2003 and 2002, respectively.

Additionally, the Company's Canadian subsidiaries administer two diÅerent retirement beneÑt 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 Ñrst plan, the Company matches 5% of gross salary up to a
maximum of $1,160 per year. Under the second plan, the Company matches 50% of the employee's
contribution up to a maximum of 2% of gross salary. Company contributions were approximately $169,000,
$161,000 and $122,000 for the years 2004, 2003 and 2002, respectively.

Postemployment BeneÑts

The Company does not provide any other signiÑcant postemployment beneÑts to its employees.

13.

INCOME TAXES:

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

2004

2003

2002

United StatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$31,945
6,821

$23,054
5,591

$20,369
4,225

$38,766

$28,645

$24,594

The Company Ñles consolidated U.S. federal income tax returns which include all of its U.S. subsidiaries.
Each of the Company's foreign subsidiaries Ñles 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 fully utilize those earnings in the operations of 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 December 31, 2004 was $79.6 million. It is not practicable to determine the amount of
U.S. income and foreign withholding taxes that could be payable if a distribution of earnings were to occur.

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

United States:
Current Ì

Federal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Foreign:

CurrentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2004

2003

2002

$ 4,994
598
8,190

13,782

1,286
991

2,277

154
27
8,976

9,157

626
784

1,410

$ 643
226
7,191

8,060

1,388
(687)

701

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$16,059

$10,567

$8,761

100

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

The provision for income taxes diÅers 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 eÅective tax rate
reconciliation:

2004

2003

2002

Tax provision at statutory rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
EÅect of foreign operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State income taxes, net of federal income tax beneÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
U.S. rate change on deferred taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

35.0% 34.0% 34.0%
(0.3)% (1.7)% (3.0)%
3.4% 3.3% 3.9%
2.0% 0.0% 0.0%
1.3% 1.3% 0.7%

EÅective income tax rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

41.4% 36.9% 35.6%

Deferred tax beneÑts-

Accruals and reserves not deducted for tax purposes until paid ÏÏÏÏÏÏÏÏ
Net operating lossesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest rate swaps ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Postretirement beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2004

2003

3,190
4,746
360
1,055
202

9,553

3,010
6,691
715
860
0

11,276

Deferred tax obligations Ì

Property and investment basis diÅerencesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Valuation allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(56,880)
Ì
Ì

(49,801)
(54)
(251)

Net deferred tax obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$(47,327)

$(38,830)

In the accompanying consolidated balance sheets, these deferred beneÑts and deferred obligations are
classiÑed as current or non-current based on the classiÑcation of the related asset or liability for Ñnancial
reporting. A deferred tax obligation or beneÑt that is not related to an asset or liability for Ñnancial reporting,
including deferred tax assets related to carry-forwards, are classiÑed according to the expected reversal date of
the temporary diÅerence as of the end of the year.

The Company had net operating loss carry-forwards from its Mexican operations in 2004 and 2003 of
$16.6 million and $19.8 million, respectively. The Mexican losses, for income tax purposes, relate to the
immediate deduction of a portion of the purchase price paid for the FCCM operations and interest expense
incurred in the holding company, Servicios. These loss carry-forwards will expire between 2009 and 2014. The
Company had net operating loss carry-forwards from its Canadian operations as of December 31, 2004 and
2003 of $0.2 million and $0.8 million, respectively. The Canadian losses represent losses generated prior to the
Company gaining control of those operations in April 1999. These loss carry-forwards will expire in 2005.

A signiÑcant portion of the deferred tax beneÑts relate to the Mexican net operating loss carryforwards.
We believe that a valuation allowance need not be recorded because we expect our Mexican business will
more likely than not generate suÇcient taxable income to utilize all of the deferred tax assets. FCCM is
currently proÑtable and at current levels we estimate it will more likely than not generate suÇcient taxable
income to utilize its net operating loss carry-forwards prior to the date of expiration. In addition, management

101

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

believes that a contemplated restructuring of the Mexican business will more likely than not enable us to use
the future taxable income to oÅset the remaining net operating losses of Servicios prior to the date of
expiration.

As of December 31, 2003, the deferred tax asset attributable to the Canadian net operating loss carry-
forward had been fully oÅset by a valuation allowance of $251,000. In 2004, the valuation allowance was
reduced to zero due to a combination of two Canadian companies and management's opinion the net operating
loss will more likely than not be utilized by the surviving company. The valuation allowance was established in
the acquisition of GRO, and accordingly, the reversal only aÅects balance sheet accounts.

14. GRANTS FROM GOVERNMENTAL AGENCIES:

The Company periodically receives grants from federal, state and local agencies in the U.S. and provinces
in Canada in which it operates for rehabilitation or construction of track. These grants typically reimburse the
Company for 75% to 100% of the total cost of speciÑc projects. Under such grant programs, the Company
received $5.6 million, $2.0 million and $8.8 million in 2004, 2003 and 2002, respectively.

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 speciÑed period of time or fails to maintain the rehabilitated
or new track to certain standards and to make certain minimum capital improvements, as deÑned 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 oÅset to depreciation
expense over the useful lives of the related assets and is not included as taxable income. During the years
ended December 31, 2004, 2003 and 2002, the Company recorded oÅsets to depreciation expense from grant
amortization of $2.2 million, $2.1 million and $1.8 million, respectively.

15. COMMITMENTS AND CONTINGENCIES:

102

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

In addition, 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 Ñnancial
statements for any expected liabilities which may result from disposition 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
Ñnancial position.

16. STOCK-BASED COMPENSATION PLANS:

In May 2004, the Company established the 2004 Omnibus Incentive Plan (the ""New Plan'')which
replaced the Company's Amended and Restated 1996 Stock Option Plan, Stock Option Plan for Directors and
Deferred Stock Plan for Non-Employee Directors (collectively, the ""Old Plans''). The Compensation and
Stock Option Committee has discretion to determine grantees, grant dates, amounts of grants, vesting and
expiration dates. Awards for the directors are also granted from the available Class A shares in the New Plan.
Under the New Plan, all directors were awarded an annual grant of restricted stock or restricted stock units
equal to approximately $40,000. The Company accounts for these plans under APB Opinion No. 25, under
which no compensation cost has been recognized. Had compensation cost for all options issued under these
plans been determined consistent with SFAS No. 123, the Company's net income and earnings per share
would have been reduced as follows (in thousands, except EPS):

2004

2003

2002

Net Income:

As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$37,619

$28,719

$25,607

Deduct:

Total stock-based employee compensation expense determined
under fair value based methods for all awards, net of related
tax eÅectsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(2,079)

(1,380)

(980)

Pro Forma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$35,540

$27,339

$24,627

Basic EPS:

As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pro Forma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Diluted EPS:

As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pro Forma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

1.54
1.45

1.36
1.28

1.16
1.10

1.02
.97

1.06
1.02

0.93
0.89

The amount of shares available for issuance under the New Plan was equal to 1,125,000 Class A shares
plus the number of shares that were remaining available for issuance under the Old Plans at the time of
adoption of the New Plan. In addition, shares of Class A Common Stock which become available upon the
lapse, expiration, termination or cancellation of outstanding awards under the Old Plans will be available for
awards under the New Plan, and any shares of Class A Common Stock related to awards under the New Plan
that terminate by expiration, forfeiture, cancellation or otherwise without the issuance of such shares, are
settled in cash in lieu of shares of Class A Common Stock, or are exchanged for awards not involving shares of
Class A Common Stock, will also become available again under the New Plan.

In 2004, the Company awarded 14,000 restricted stock shares and 2,000 restricted stock units valued at
$313,600 and $44,800, respectively, to the Company's Directors. In addition, the Company awarded 20,497
restricted stock shares and 7,725 restricted stock units valued at $477,600 and $179,993, respectively, to
employees. Amortization expense for the restricted stock shares was $189,000 in 2004. At December 31, 2004,
there were 1,430,763 Class A shares available for future issuance under the New Plan. These shares are

103

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

available for the grant of stock options, restricted stock, stock appreciation rights, restricted stock units, and
any other form of award established by the Committee which is consistent with the New Plan's purpose.

Under the New Plan, the exercise price for option grants must equal at least 100% of the stock's market

price on the date of grant. The following is a summary of stock option activity for years ended:

December 31, 2004

December 31, 2003

December 31, 2002

Outstanding at beginning of yearÏÏ
Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Forfeited ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

1,788,456
336,499
(466,531)
(67,257)

Wtd. Ave.
Exercise
Price

$10.51
23.45
6.42
13.67

1,890,246
495,195
(549,639)
(47,346)

Wtd. Ave.
Exercise
Price

$ 7.75
14.86
5.02
9.72

1,934,739
498,825
(523,530)
(19,788)

Outstanding at end of yearÏÏÏÏÏÏÏ

1,591,167

14.31

1,788,456

10.51

1,890,246

Exercisable at end of year ÏÏÏÏÏÏÏ

589,474

10.04

600,420

6.88

702,306

Weighted average fair value of

options granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 7.90

$ 8.17

Wtd. Ave.
Exercise
Price

$ 5.55
14.22
5.80
6.97

7.75

4.97

$ 8.02

The following table summarizes information about stock options outstanding at December 31, 2004:

Options Outstanding

Options Exercisable

Exercise Price

Number of
Options

Weighted Average
Remaining
Contractual Life

$ 2.81 - $ 5.61ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
8.42ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
5.62 -
8.43 - 11.22ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
11.23 - 14.03ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
14.04 - 16.84ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
22.45 - 25.25ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

107,273
276,381
47,812
42,750
781,310
335,641

1.2 Years
1.3 years
1.8 years
5.6 years
3.1 years
4.4 years

Weighted
Average
Exercise
Price

$ 4.58
6.98
9.65
13.60
14.64
23.45

Number of
Options

107,273
180,380
36,842
13,500
251,479
Ì

Weighted
Average
Exercise
Price

$ 4.58
6.89
9.59
13.58
14.49
Ì

2.81 - 25.25ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

1,591,167

3.0 Years

14.32

589,474

10.04

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:

2004

2003

2002

Risk-free interest rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected dividend yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected lives in years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected volatilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

3.15% 3.35% 4.46%
0.00% 0.00% 0.00%
5.00
3.00
44.99% 60.01% 61.51%

5.00

The Company has also reserved 843,750 shares of Class A common stock it may sell to its full-time
employees under its Employee Stock Purchase Plan (ESPP). At December 31, 2004, 2003 and 2002,
48,933 shares, 44,786 shares and 40,841 shares, respectively, had been purchased under this plan. On May 29,
2003, the Company amended and restated the ESPP so that the Company may sell its reserved shares of
Class A common stock to its full-time employees at 90% of the stock's market price at date of purchase. Prior
to amendment and restatement of the ESPP, the Company sold shares at 100% of the stock's market price at
date of purchase. In accordance with the Internal Revenue Code, no compensation cost exists for this plan.

104

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

17. BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION:

The Company historically reported two similar business segments: North American Railroad Operations,
which included operating short line and regional railroads, and Industrial Switching, which included providing
freight car switching and related services to industrial companies with railroad facilities within their complexes
in the United States. EÅective January 1, 2003, the Company changed its reporting to reÖect one reportable
business segment: North American Operations. This reporting change follows a change in internal structure
wherein the Chief Operating Decision Maker now views Industrial Switching as part of a signiÑcant operating
region comprised of multiple railroad operations. The Company has various operating regions which represent
its various railroad lines. However, each line has similar characteristics so they have been aggregated into one
segment.

Geographic Area Data

2004

For the Years Ended December 31,
2003

2002

Operating Revenues:
United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Canada ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mexico ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$226,521
44,008
33,255

74.6% $175,650
37,538
14.5%
31,639
10.9%

71.7% $148,570
32,150
15.3%
28,820
13.0%

70.9%
15.3%
13.8%

Total operating revenues ÏÏÏÏÏÏÏÏÏ

$303,784

100.0% $244,827

100.0% $209,540

100.0%

As of
December 31,
2004

As of
December 31,
2003

Long-lived assets located in:
United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Canada ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mexico ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$479,251
62,162
40,613

82.3% $453,089
55,746
10.7%
38,146
7.0%

82.8%
10.2%
7.0%

Total long-lived assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$582,026

100.0% $546,981

100.0%

105

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

18. QUARTERLY FINANCIAL DATA (Unaudited):

Quarterly Results

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

(In thousands, except per share data)

2004
Operating revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted earnings per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2003
Operating revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income from continuing operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted earnings per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$72,403
11,560
9,466
0.34

$58,862
7,987
5,534
0.20

$74,062
13,581
10,836
0.39

$62,937
10,862
7,695
0.28

$77,243
13,200
10,145
0.37

$61,499
9,205
7,618
0.27

$80,076
11,698
7,171
0.26

$61,529
8,251
7,871
0.28

The fourth quarter of 2004 included a $1.1 million non-cash after-tax charge related to the Company's

debt reÑnancing.

The fourth quarter of 2004 also included an additional tax accrual of $1.0 million, of which $257,000
related to the Ñrst three quarters of 2004 and $785,000 related to a revaluation of its pre-2004 net
U.S. deferred tax liabilities resulting from an increase in the Company's U.S. eÅective tax rate.

19. 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, 2004, 2003
and 2002 (in thousands):

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net change in unrealized losses on qualifying cash Öow hedges,

net of tax provision (beneÑt) of $424, $25 and ($406),
respectively ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net change in unrealized losses on qualifying cash Öow hedges of
Australian Railroad Group, net of tax provision (beneÑt) of
($99), $1,124 and ($2,493), respectivelyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Minimum pension liability adjustment, net of provision (beneÑt)
of $36, ($42) and ($306), respectively ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2004

2003

2002

$37,619

$28,719

$25,607

8,104

23,498

2,514

663

(732)

(230)

2,623

(5,818)

(72)

(552)

Comprehensive incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$46,249

$54,811

$21,019

106

GENESEE & WYOMING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

The following table sets forth the components of accumulated other comprehensive income (loss), net of

tax, included in the consolidated balance sheets as of December 31, 2004 and 2003 (in thousands):

Net foreign currency translation adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net unrealized minimum pension liability adjustment, net of beneÑt of $342
and $378 respectivelyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Net unrealized losses on qualifying cash Öow hedges, net of beneÑt of

2004

2003

$29,942

$21,839

(531)

(624)

$1,596 and $1,921, respectively ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(4,183)

(4,616)

Accumulated other comprehensive loss, net of beneÑt of $1,938 and $2,299,
respectively ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$25,228

$16,599

20. RECENTLY ISSUED ACCOUNTING STANDARDS:

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

Financial Accounting Standards (SFAS):

SFAS 123(R) Ì Share-Based Payment, a revision of SFAS 123, Accounting for
Stock-Based Compensation

This statement requires a public entity to measure the cost of employee services received in exchange for
an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That
cost will be recognized over the period during which an employee is required to provide service in exchange for
the award-the requisite service period (usually the vesting period). This statement does not change the
accounting guidance for share-based payment transactions with parties other than employees and does not
address the accounting for employee share ownership plans. Statement 123, as originally issued, is eÅective
until the provisions of Statement 123(R) are fully adopted. Statement 123(R) is eÅective for public entities
as of the beginning of the Ñrst interim or annual reporting period that begins after June 15, 2005. The
Company is in the process of evaluating the impact on its consolidated Ñnancial statements.

FASB StaÅ Position No. FAS 109-2 Ì Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004

The FASB StaÅ Position (FSP) provides accounting and disclosure guidance for the repatriation
provision of the American Jobs Creation Act of 2004 (signed into law on October 22, 2004). The Act provides
for a special one-time tax deduction of 85 percent of certain foreign earnings that are repatriated (as deÑned in
the Act) in either 2004 or 2005. The Company is in the process of evaluating the Act and plans to complete
this evaluation in 2005.

107

REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, 2004 and 2003 and the related consolidated statements of income,
stockholders' equity and comprehensive income and cash Öows for the three years ended December 31, 2004,
2003 and 2002. These Ñnancial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these Ñnancial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Ñnancial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the Ñnancial statements. An
audit also includes assessing the accounting principles used and signiÑcant estimates made by management, as
well as evaluating the overall Ñnancial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.

In our opinion, the Ñnancial statements referred to above present fairly, in all material respects, the
consolidated Ñnancial position of Australian Railroad Group Pty Ltd and subsidiaries at December 31, 2004
and 2003 and the consolidated results of their operations and their cash Öows for the three years ended
December 31, 2004, 2003 and 2002, in conformity with accounting principles generally accepted in the United
States.

Ernst & Young

Perth, Western Australia
February 21, 2005

Liability limited by the Accountants Scheme, approved
under the Professional Standards Act 1994 (NSW).

108

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 2004 and 2003

2004
$000 USD

2003
$000 USD

Current assets

ASSETS

Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts receivable, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Materials and supplies, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Prepaid expenses and otherÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 21,217
49,085
11,580
3,055

$ 26,618
47,764
10,033
3,069

Total current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

84,937

87,484

InvestmentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Property and equipment, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income tax assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

6,153
541,470
77,325
2,369

2,743
478,808
80,193
2,733

Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$712,254

$651,961

Current liabilities

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued expensesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for employee entitlements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Current income tax liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income tax liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 19,832
25,453
6,536
364
2,676

Total current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

54,861

Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other long-term liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income tax liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fair value of interest rate swaps ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Subordinated stockholders' loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Commitments and contingencies

383,425
2,177
18,531
9,788
Ì

7,199
30,177
4,934
Ì
2,536

44,846

367,892
2,031
11,735
9,133
11,562

Total non-current liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

413,921

402,353

Redeemable preferred stock of the stockholders ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

16,897

16,212

Stockholders' equity

Common stock, no par value, 92,000,002 issued and outstanding at

December 31, 2004 and 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retained earningsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated other comprehensive incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

79,029
93,871
53,675

79,029
65,401
44,120

Total stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

226,575

188,550

Total liabilities and stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$712,254

$651,961

The accompanying notes are an integral part of these Ñnancial statements.

109

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2004, 2003 and 2002

Operating Revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating Expenses

2004
$000 USD
$333,647

2003
$000 USD
$249,571

2002
$000 USD
$211,067

Transportation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Maintenance of ways and structures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Maintenance of equipmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
General and administrative ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gain on sale of assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Asset impairment write down ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Write-oÅ of unsuccessful bid costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

125,279
39,097
32,849
41,467

(914)
578
27,346
Ì

76,747
32,694
26,057
37,496
(2,081)
Ì
23,443
Ì

63,746
27,680
23,187
32,239
(1,647)
1,333
17,191
867

Total operating expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

265,702

194,356

164,596

Income from Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Income before Income Taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

67,945
1,227
(28,438)

40,734
(12,264)

55,215
3,271
(33,877)

24,609
(3,866)

46,471
886
(24,859)

22,498
(5,524)

Net Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 28,470

$ 20,743

$ 16,974

The accompanying notes are an integral part of these Ñnancial statements.

110

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY AND
COMPREHENSIVE INCOME

Balance, December 31, 2001ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Comprehensive income (loss), net of tax:
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Currency translation adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fair market value adjustments of cash Öow hedges

Comprehensive income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Balance, December 31, 2002ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Comprehensive income (loss), net of tax:
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Currency translation adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fair market value adjustments of cash Öow hedges

Comprehensive income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Balance, December 31, 2003ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Comprehensive income (loss), net of tax:
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Currency translation adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fair market value adjustments of cash Öow hedges

Comprehensive income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Common Stock

Retained
Earnings

Accumulated
Other
Comprehensive
Income
(Loss)

Total
Stockholders'
Equity

$79,029

$27,684

$(14,507)

$ 92,206

$000 USD

Ì
Ì
Ì

16,974
Ì
Ì

Ì
12,477
(4,868)

16,974
12,477
(4,868)

24,583

$79,029

$44,658

$ (6,898)

$116,789

Ì
Ì
Ì

20,743
Ì
Ì

Ì
45,776
5,242

20,743
45,776
5,242

71,761

$79,029

$65,401

$ 44,120

$188,550

Ì
Ì
Ì

28,470
Ì
Ì

Ì
10,014
(459)

28,470
10,014
(459)

38,025

Balance, December 31, 2004ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$79,029

$93,871

$ 53,675

$226,575

The accompanying notes are an integral part of these Ñnancial statements.

111

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2004, 2003 and 2002

Cash Flows from Operating Activities
Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to reconcile net income to net cash provided by

operating activities:
Depreciation and amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gain on sale of assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Asset impairment write down ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization and write oÅ of deferred Ñnance chargesÏÏÏÏÏÏÏÏÏÏÏÏ
Changes in assets and liabilities

Accounts receivable, prepaid expenses and otherÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Materials and suppliesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts payable, provisions, accrued expenses and other ÏÏÏÏÏÏÏ

2004
$000 USD

2003
$000 USD

2002
$000 USD

$28,470

20,743

$16,974

27,346

(914)
578
11,847
451

(2,310)
(1,057)
7,745

23,443
(2,081)
Ì
11,283
4,953

17,191
(1,647)
1,333
3,665
2,155

(9,008)
573
(4,613)

(379)
1,203
(10,722)

Net cash provided by operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

72,156

45,293

29,773

Cash Flows from Investing Activities
Purchase of property and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from sale of property and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Transfer from (to) restricted cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(69,519)
2,570
Ì

(35,774)
6,924
69,978

(28,423)
1,752
(46,957)

Net cash provided by (used in) investing activitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(66,949)

41,128

(73,628)

Cash Flows from Financing Activities
Repayment of subordinated stockholders' loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Repayments of debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(10,710)
Ì
Ì

Ì
360,493
(430,385)

Ì
38,990
Ì

Net cash (used in) provided by Ñnancing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(10,710)

(69,892)

38,990

EÅect of exchange rate changes on cash and cash equivalents ÏÏÏÏÏÏÏ

102

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

(5,401)
26,618

4,207

20,736
5,882

839

(4,026)
9,908

Cash and Cash Equivalents, end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$21,217

26,618

$ 5,882

Cash paid during year for:

Interest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$29,512
(4,275)

32,817
4,096

$22,704
1,647

The accompanying notes are an integral part of these Ñnancial statements.

112

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 signiÑcant change in the nature of these activities during this
period.

2 Summary of signiÑcant accounting policies

Basis of Preparation

The consolidated Ñnancial 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 Ñnancial statements include the accounts of Australian Railroad Group Pty Ltd and its

wholly owned subsidiaries. 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.

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 or market value, computed on a Ñrst-in-Ñrst-out basis.

Investments

Investments comprise the Company's interest in Asia PaciÑc Transport Consortium (APTC). This is a
joint venture and the Company accounts for its interest under the equity method of accounting. See Note 11
for additional information regarding this investment.

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 expenses 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 (20-40 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 Öows over the remaining lives of assets in
measuring whether or not impairment has occurred. If impairment is identiÑed, a loss would be reported to the

113

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

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.

Disclosures About Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of Ñnancial

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 characteris-
tics, including remaining maturities, interest rate, credit rating, collateral, amortization schedule and
liquidity. The carrying amount approximates fair value.

Derivative Instruments and Hedging Activities

SFAS No. 133 ""Accounting for Derivatives Instruments and Hedging Activities'' requires all contracts
that meet the deÑnition of a derivative to be recognized on the balance sheet as either assets or liabilities and
recorded at fair value. Gains or losses arising from remeasuring derivatives to fair value each period are to be
accounted for either in the income statement or in other comprehensive income, depending on the use of the
derivative and whether it qualiÑes for hedge accounting. The key criterion that must be met in order to qualify
for hedge accounting is that the derivative must be highly eÅective in oÅsetting the change in the fair value or
cash Öows of the hedged item. See footnote 6 to the consolidated Ñnancial statements for a full description of
ARG's hedging activities and related accounting policies.

Management Estimates

The preparation of Ñnancial statements in conformity with generally accepted accounting principles in the
United States of America requires management to make estimates and assumptions that aÅect the reported
amounts of assets, liabilities, revenues and expenses during the reporting period. SigniÑcant estimates using
management judgement are made in the areas of recoverability and useful lives of assets, as well as liabilities
for casualty claims and income taxes. Actual results could diÅer 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 reÖected in the statement of income.
Cumulative translation gains or losses arising from translating the Australian dollar denominated Ñnancial
statements into US dollars are reported in other comprehensive income as a component of stockholders'
equity.

Leased Assets

Leases are classiÑed at their inception as either operating or Ñnance leases on the economic substance of
the agreement so as to reÖect the risks and beneÑts of ownership. Operating leased assets are not capitalized
and rental payments are charged against operating proÑts in the period in which they are incurred.

114

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

3 Property and Equipment

Major classiÑcations of property and equipment are as follows:

Land and buildings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Track improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equipment and other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Lease premiumÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Less: Accumulated depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2004
$000 USD
29,655
$
213,033
234,650
165,405

2003
$000 USD
$ 28,532
153,545
209,025
160,166

642,743
(101,273)

551,268
(72,460)

$ 541,470

$478,808

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 classiÑcations of other assets are as follows:

Deferred Ñnance costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less: Accumulated amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2004
$000 USD
$2,913
(544)

2003
$000 USD
$2,756
(23)

$2,369

$2,733

Deferred Ñnancing costs are amortized over terms of the related debt using the straight-line method,

which approximates the eÅective interest method.

5 Long-Term Debt

Current Ì interest bearing ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-current Ì interest bearing ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2004
$000 USD
Ì
$383,425

2003
$000 USD
Ì
$367,892

Credit facilities

Total facility commenced in December 2003 and comprises a 5 year tranche of $93.9 million, a 5 year
revolver tranche of $156.5 million, a 7 year tranche of $156.5 million and a $7.8 million working capital
tranche. Unused facilities at December 31, 2004 amount to $31.3 million. The loans are non amortizing but
prepayable at the discretion of Australian Railroad Group Pty Ltd. The minimum future repayments are set
out in the schedule below. Loan covenants require the company to adhere to minimum interest cover and debt
ratios. All loan covenants have been complied with.

The interest rate is derived from the bank bill bid rate. The weighted average interest rate on secured
loans during 2004 was 6.48% (2003: 6.05%) and excludes any interest hedging adjustments. Including the
eÅect of the interest rate swaps the eÅective interest rate was 7.70% for 2004 and 7.80% for 2003.

115

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

Schedule of Future Minimum Payments

The following is a summary of the scheduled maturities of long-term debt:

2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2004
$000 USD
$

Ì $
Ì
Ì
226,925
Ì
156,500

2003
$000 USD
Ì
Ì
Ì
217,732
Ì
150,160

$383,425

$367,892

6 Financial Risk Management

(a) Interest rate risk

The Company uses derivative Ñnancial instruments principally to manage the risk that changes in interest
rates will aÅect 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 speciÑed Ñxed-rate of interest times a notional principal amount,
and to receive in return an amount equal to a speciÑed variable-rate of interest times the same notional
amount.

For interest rate swap contracts under which the Company agrees to pay Ñxed-rates of interest, these
contracts are considered to be a cash Öow hedge against changes in the amount of future cash Öows associated
with the Company's interest payments of variable-rate debt obligations. Accordingly, the interest rate swap
contracts are reÖected at fair value in the Company's consolidated 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 eÅective in oÅsetting the change in
the value of the interest payments being hedged, any changes in fair value relating to the ineÅective portion of
these contracts are immediately recognized as an interest expense in the income statement. The accounting for
hedge eÅectiveness 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 eÅect 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
Ñxed interest rates. Hedge ineÅectiveness for cash Öow hedges were not material for the years ended
December 31, 2004, 2003 and 2002.

The Company entered into rate swap agreements on its $226.9 million variable rate debt due
December 18, 2008 and its $156.5 million variable rate debt due December 18, 2010. These interest rate swap
contracts were entered for interest rate exposure management purposes and mature on December 18, 2007. At
December 31, 2004 and 2003, the Company had interest rate swap contracts to pay Ñxed-rates of interest
between 5.6% and 6.9% and receive variable-rates of interest of an average of 5.5% on $382.8 million notional
amount of indebtedness.

(b) Fair value

The carrying amounts of Ñnancial assets and Ñnancial liabilities at December 31, 2004, approximate the

aggregate fair value of the Ñnancial instruments.

116

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

The Company's maximum exposures to credit risk at December 31, 2004, in relation to each class of

recognized Ñnancial asset is the carrying amount of those assets as indicated in the balance sheet.

In relation to derivative Ñnancial 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, 2004.

Concentration of credit risk

For the year ending December 31, 2004, the Company's primary location of business was within Western
Australia, South Australia, the Northern Territory and New South Wales, which therefore represents the
location of the Company's credit risk. Trade payables/receivables are normally payable/collectable within
30 days.

Except for securities held to ensure the performance of contractor guarantees or warrantees, amounts due
from major receivables 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.

Income Taxes

The prima facie tax on income before income taxes diÅers from the income tax provided in the Ñnancial

statements as follows:

Prima facie tax at 30% on income before income taxes ÏÏÏÏÏÏ
Tax eÅect of permanent diÅerences:

2004
$000 USD
$12,220

2003
$000 USD
$ 7,383

2002
$000 USD
$ 6,749

Non-allowable items ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other items(a) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

17
27

14
(3,531)

Ì
(1,225)

Total income tax expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$12,264

$ 3,866

$ 5,524

(a) The other items in the 2003 and 2002 years arose primarily as a result of Ñnalizing the tax base of assets
acquired from Westrail. The net assets acquired were from a government tax exempt entity, and the
determination of the tax base involved the application of complex legislation. During 2003 all matters
were favourably resolved with the Australian Taxation OÇce, resulting in an overprovision of tax in the
prior periods.

The Company is governed by the taxation laws of the Commonwealth Government of Australia, which

has a statutory tax rate of 30%.

2004
$000 USD

2003
$000 USD

2002
$000 USD

Total income tax expense includes:

Current ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

342
11,922

$(2,527)
6,393

$12,264

$ 3,866

117

$2,005
3,519

$5,524

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

The deferred income tax balance comprises:

Non-current deferred income tax assets

Materials and supplies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income accruals ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expense accruals ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Employee leave provisions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Tax vs. book values of property and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income tax losses carried forward ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrealised losses on interest rate swaps ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Valuation allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2004
$000 USD

2003
$000 USD

118
1,265
1,173
2,253
59,285
10,295
2,936

(Ì)

65
307
1,260
1,746
61,259
12,816
2,740
(Ì)

$ 77,325

$ 80,193

Current deferred income tax liabilities:

Materials and supplies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Prepayments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income accruals ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ (1,301)
(410)
(965)

$ (1,465)
(462)
(609)

$ (2,676)

$ (2,536)

Non-current deferred income tax liability

Equity investment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Tax vs. book values of property and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$
(467)
(18,064)

$
Ì
(11,735)

$(18,531)

$(11,735)

Operating loss carry forward have no expiry date and the company expects to recover all operating losses.

Consequently, no valuation allowance is provided for the deferred tax assets for 2004 and 2003.

8 Preferred Stock

Redeemable preference shares are fully paid and earn a dividend at the declaration of the Directors from
time to time. The shares are redeemable at the option of the holders of the preferred shares who are GWI and
Wesfarmers. 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.

118

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

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 are as follows:

Net foreign currency translation adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrealised losses on interest rate swaps ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less Income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2004
$000 USD
$60,527

(9,788)
2,936

2003
$000 USD
$50,513

(9,133)
2,740

2002
$000 USD
4,737
$
(16,621)
4,986

Net unrealised losses on interest rate swaps ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(6,852)

(6,393)

(11,635)

Accumulated Other Comprehensive Income (Loss)ÏÏÏÏÏÏÏÏÏ

$53,675

$44,120

$ (6,898)

10 Expenditure Commitments

(a) Future minimum lease payments under all non-cancellable operating leases are as follows:

2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(b) Other capital expenditures:

Not later than one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Later than one year, but not later than Ñve yearsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Later than Ñve yearsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2004
2003
$000 USD
$000 USD
$ Ì $ 1,141
324
323
323
323
323

1,038
Ì
470
Ì
Ì

$ 1,508

$ 2,757

2004
$000 USD
$ 8,834
4,695
Ì

2003
$000 USD
$ Ì
13,727
Ì

$13,529

$13,727

Operating leases are entered into for motor vehicles and oÇce equipment. Rental payments are Ñxed 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 Ñnancing or other leasing activities.
Operating lease expense in 2004 was $1.2 million (2003: $1.1 million, 2002: $1.0 million).

Under the agreement for the acquisition of the Westrail Freight business, there was an obligation to
upgrade the Katanning to Nyabing, and Yilliminning to Bruce Rock lines by July 1, 2004. This obligation has
been extended until July 2008 and is subject to additional conditions which allow for renegotiation.

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 PaciÑc Transport Joint Venture,

119

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

severally in accordance with its participating interest, which is 0.94% (2003: 0.84%), amounting to
$3.7 million (2003: $3.6 million).

ARG Sell Down No1 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 PaciÑc Transport Joint
Venture, severally in accordance with its participating interest, which is 1.19% (2003: 0.72%), amounting to
$4.7 million (2003: $3.1 million).

WestNet Rail Pty Ltd (WestNet), a wholly owned subsidiary of the Company, has received a notice of
claim from a contractor for $12.4 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 and therefore no amount has been accrued for this claim.

12 Employee BeneÑt Plans

The following Employee BeneÑt Plans have been established:

Plan

BeneÑt Type

Australian Railroad Group Superannuation Plan ÏÏÏ Accumulated lump sum/deÑned contribution plan
Westscheme PlanÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Accumulated lump sum/deÑned contribution plan
West Super Plus Plan ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Accumulated lump sum/deÑned 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 notiÑed award and superannua-
tion guarantee levy obligations. The related expense for the year charged to the income statement was
$4.0 million (2003: $3.2 million, 2002: $1.5 million).

13 Economic Dependency

Approximately 25.0% (2003: 19.8%, 2002: 21.9%) 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

1. Interest free, unsecured loans amounting to $11.6 million at December 31, 2003, made equally by the
shareholders, Wesfarmers Ltd and Genesee & Wyoming Inc to the consolidated entity, were repaid during the
year.

2. Services to the group by Wesfarmers Ltd of $1.1 million (2003: $0.7 million) and Genesee &
Wyoming Inc of $0.8 million (2003: $0.4 million) are recovered at cost. At December 31, 2004 the balance
owing to Wesfarmers Ltd was $0.1 million (2003: $0.1 million) and to Genesee and Wyoming Inc
$0.1 million (2003: $0.1 million).

16 Restructuring Costs

On October 15, 2002 a further redundancy of 68 employees was approved by the Directors at a cost of
$2.6 million, which had been expensed in that year. At December 31, 2002 an accrual of $0.2 million

120

AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)

remained in respect of 5 employees still to be terminated. During 2003 the remaining employees were
terminated and the balance of the accrual was paid.

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-oÅ 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 2004, certain assets to the value of $0.6 million were written oÅ. There is no impairment loss in 2003.
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.

19 Recently Issued Accounting Standards

The Financial Accounting Standards Board (FASB) recently issued Statements of Financial Accounting

Standards (SFAS) were reviewed and none were noted to have applicability.

121

CORPORATE HEADQUARTERS

STOCK REGISTRAR AND TRANSFER AGENT

LaSalle Bank, N.A.
Trust and Asset Management
135 South LaSalle Street, Suite 1960
Chicago, Illinois 60603
312-904-2450
www.lasallebank.com

AUDITORS

PricewaterhouseCoopers LLP
300 Madison Avenue
New York, New York 10019
646-471-4000
www.pwc.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

The Company's Class A Common Stock pub-
licly trades on the New York Stock Exchange under
the trading symbol GWR. The Class B Common
Stock is not publicly traded.

The actual prices of Class A Common Stock
reÖected below have been adjusted for a three-for-
two stock split paid on March 15, 2004 to share-
holders of record on February 27, 2004:

YEAR ENDED DECEMBER 31, 2004:

HIGH

LOW

1st Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $25.22
2nd QuarterÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $26.10
3rd Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $25.36
4th Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $29.85

$21.37
$21.11
$21.50
$24.28

YEAR ENDED DECEMBER 31, 2003:

HIGH

LOW

1st Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $23.13
2nd QuarterÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $17.15
3rd Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $14.29
4th Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $14.07

$15.67
$13.60
$10.26
$ 8.47

As of March 2, 2005, there were 170 record
holders of Class A Common Stock and 10 holders
of Class B Common Stock.

Prior to its initial public oÅering, the Company
paid dividends on its common stock. However, since
its initial public oÅering the Company has not paid
dividends on its common stock and the Company
does not intend to pay cash dividends for the fore-
seeable future.

122

BOARD OF DIRECTORS

Robert W. Anestis
Former Chairman, President and Chief Executive OÇcer
Florida East Coast Industries
Chairman of Compensation Committee

Robert W. Anestis

Mortimer B. Fuller III

Mortimer B. Fuller III
Chairman and Chief Executive OÇcer

Louis S. Fuller
Retired, Courtright and Associates

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

Robert M. Melzer
Retired, former Chief Executive OÇcer,
Property Capital Trust
Chairman of Audit Committee

Philip J. Ringo
Chairman and CEO, RubberNetwork.com
Member of Audit Committee
Member of Governance Committee

Peter O. Scannell
Founder and Managing General Partner,
Rockwood Holdings LP
Member of Audit Committee
Member of Compensation Committee

Mark A. Scudder
President, Scudder Law Firm, P.C., L.L.O.
Member of Compensation Committee
Member of Governance Committee

Hon. M. Douglas Young, P.C.
Chairman, SUMMA Strategies Canada, Inc.
Chairman of Governance Committee

Louis S. Fuller

T. Michael Long

Robert M. Melzer

Philip J. Ringo

Peter O. Scannell

Mark A. Scudder

Hon. M. Douglas Young, P.C.

123

CORPORATE OFFICERS

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

Charles N. Marshall
President and
Chief Operating OÇcer

John C. Hellmann
Chief Financial OÇcer

Adam B. Frankel
Senior Vice President
General Counsel and Secretary

Robert Grossman
Executive Vice President
Government & Industry AÅairs

James M. Andres
Chief Accounting OÇcer
and Global Controller

SENIOR EXECUTIVES

Mark W. Hastings
Executive Vice President
Corporate Development

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 Region

James N. Davis
Senior Vice President
Utah Region

Shayne L. MagdoÅ
Senior Vice President
Administration and Human Resources

Larry Phipps
Senior Vice President
Oregon Region

Paul M. Victor
Senior Vice President
Mexico Region

Spencer D. White
Senior Vice President
Illinois Region

Mike Meyers
Vice President Ì Information Technology

Richard T. O'Donnell
Vice President Ì Taxes

David L. Powell
Vice President Ì Locomotives

Gerald A. Sattora
Vice President Ì Accounting and Controller

Jack Stolarczyk
Vice President Ì Safety & Environment

Matthew O. Walsh
Vice President Ì Finance and Acquisitions

Scott F. Ziegler
Vice President Ì Operational Finance

Corporate Headquarters
Genesee & Wyoming Inc.
66 Field Point Road
Greenwich, Connecticut 06830
203-629-3722

Administrative Headquarters

Genesee & Wyoming Railroad Services, Inc.
1200-C Scottsville Road, Suite 200
Rochester, New York 14624
585-328-8601

GWI North American Operations
Canada

Québec Gatineau Railway Inc.

/ Chemins de fer Québec-Gatineau inc.

6700, Avenue du Parc, Bureau 110
Montréal, Québec H2V 4H9
Canada
514-948-6999

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

St. Lawrence & Atlantic Railroad Company
415 Rodman Road
Auburn, Maine 04210
207-782-5680

St. Lawrence & Atlantic Railroad (Québec) Inc.
/ Chemin de fer St-Laurent & Atlantique
(Québec) inc.

6700, Avenue du Parc, Bureau 110
Montréal, Québec H2V 4H9
Canada
514-948-6999

Illinois

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

Tazewell & Peoria Railroad, Inc.
301 Wesley Road
Creve Coeur, Illinois 61610
309-694-8619

Mexico

Compañía de Ferrocarriles

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

Calle 43, 429C
Colonia Industrial
Mérida, Yucatán
México, C.P. 97000
+52-999-930-2500

New York/Pennsylvania

Buffalo & Pittsburgh Railroad, Inc.
1200-C Scottsville Road, Suite 200
Rochester, New York 14624
585-328-8601

Rochester & Southern Railroad, Inc.
1200-C Scottsville Road, Suite 200
Rochester, New York 14624
585-328-8601

South Buffalo Railway Co.
1200-C Scottsville Road, Suite 200
Rochester, New York 14624
585-328-8601

Oregon

Portland & Western Railroad, Inc.
Willamette & Pacific Railroad, Inc.
650 Hawthorne Avenue SE, Suite 220
Salem, Oregon 97301
503-365-7717

Rail Link

Rail Link, Inc.
4337 Pablo Oaks Court, Suite 200
Jacksonville, Florida 32224
904-223-1110

Arkansas Louisiana & Mississippi

Railroad Company

Fordyce & Princeton Railroad Company
P.O. Box 757
140 Plywood Mill Road
Crossett, Arkansas 71635
870-364-9004

Chattahoochee Industrial Railroad
P.O. Box 253
Georgia Highway 370
Cedar Springs, Georgia 39832
229-372-5804

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

York Railway Company
204 North George Street, Suite 220
York, Pennsylvania 17401
717-771-1700

Utah

Utah Railway Company
4692 North 300 West, Suite 220
Provo, Utah 84604
801-221-7460

South America
Bolivia

Empresa Ferroviaria Oriental S.A.
Av. Montes final s/n
Casilla 3569
Santa Cruz de la Sierra
Bolivia
+591-3-338-7000

Australia
Australian Railroad Group Pty Ltd
2-10 Adams Drive
Welshpool 6106
Perth
Western Australia
+61-8-9212-2500

New York Stock Exchange: GWR
Visit us on-line: www.gwrr.com