Genesee & Wyoming Inc. Annual Report 2005
Genesee & Wyoming Inc.
Oregon
Portland & Western
Railroad
Utah
Utah Railway
Company
Australian Railroad Group (ARG)
Darwin
Canada
Chemins de fer
Québec-Gatineau
Huron Central Railway
Chemin de fer St-Laurent
& Atlantique (Québec)
St. Lawrence
& Atlantic Railroad
TMK
New York/Pennsylvania
Illinois
Illinois & Midland Railroad
Tazewell & Peoria Railroad
Buffalo & Pittsburgh Railroad
Rochester & Southern Railroad
South Buffalo Railway
YR
CWRY
WKR
KWT
ETRY
ATW
LR&W
Wilmington, NC
Wilmington, NC
F&P
ALM
M&B
L&D
GC
RS
BAYL
CIRR
FC
VRY
AN
Panama City, FL
Panama City, FL
St. Joe, FL
St. Joe, FL
Savannah, GA
Savannah, GA
Brunswick, GA
Brunswick, GA
Fernandina, FL
Fernandina, FL
Jacksonville, FL
Jacksonville, FL
Rail Link
Galveston, TX
Galveston, TX
Baton Rouge, LA
Baton Rouge, LA
Corpus Christi, TX
Corpus Christi, TX
Mexico
Ferrocarriles
Chiapas-Mayab, S.A. de C.V.
North American Operations
North American Operations
Port Operations
Port Operations
Industrial Switching
Industrial Switching
Short Line Railroad
Short Line Railroad
Key to Abbreviations - See page 14
Dashed lines indicate trackage rights
Dashed lines indicate trackage rights
Australian Operations
Owned Track
ARG Operations in New South Wales
Asia Pacific Transport Consortium (APTC) Line
Open Access on Interstate lines
Brisbane
Perth
Adelaide
Sydney
Melbourne
Financial Highlights
Net Income by Geography
2005 Net Income = $50.1 million
North America 79.9%
1.2% South America
(in thousands, except per share data)
Years Ended December 31
2005
2004
Income Statement Data
Operating revenues
$385,389
$303,784
Operating income
Net income
$70,931
$50,135
Diluted earnings per common share
$1.20
Weighted average number of shares
$50,039
$37,619
$0.90
18.9% Australia
of common stock–diluted
41,712
41,103
2005 North American Freight Mix
by revenues
Other 1.8%
Intermodal .8%
Auto 2.3%
Farm & Food 6.3%
Chemicals-Plastics 7.6%
Petroleum 9.1%
Metals 10%
21% Paper
18.3% Coal
12.5% Lumber & Forest
10.3% Minerals-Stone
Gypsum 1.4%
Hook & Pull 2.3%
Bauxite 5.2%
Alumina 7.8%
2005 Australian Freight Mix
by revenues
Other 12.3%
28.8% Grain
21.7% Other Ores & Minerals
Iron Ore 20.5%
Balance Sheet Data as of Period End
Total assets
Total debt
$980,598
$677,251
$338,351
$132,237
Stockholders’ equity
$397,820
$341,700
Genesee & Wyoming Inc. 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 inter-
ests in 49 railroads and operate over 9,300 miles of
owned, jointly owned or leased track and more than
3,000 additional miles under track access arrangements.
Cover: After leaving Helper, Utah, a 91-car Utah Railway
train heads west towards the pass at Soldier Summit carry-
ing coal bound for a power plant generating electricity for
the Los Angeles power grid. Page 16: A domestic intermodal
train originating in Chicago departs Richmond, Québec, for
Auburn, Maine, to deliver consumer goods to New England.
2005 Genesee & Wyoming Inc. 1
Andrew, Illinois
To Our
Shareholders
Mortimer B. Fuller III
Chairman of the Board of Directors
and Chief Executive Officer
In 2005, for the tenth consecutive year since our 1996
initial public offering, net income for Genesee & Wyoming
Inc. (GWI) increased. In addition, two transactions
significantly changed the profile of GWI’s businesses in
North America and Australia. The first, the acquisition
of substantially all of the operations of Rail Management
Corporation (RMC), was completed in June 2005, and
the second, the sale of a majority of our Australian
assets, was announced in February 2006 (scheduled to
close in the second quarter of 2006). These accomplish-
ments have been achieved with the same disciplined
strategy that has created value to our shareholders over
the past decade.
(cid:1) Net income for 2005 was $50.1 million, a 33.3-
percent increase over $37.6 million of net income
in 2004. Diluted earnings per share increased
33.3 percent to $1.20 in 2005 (with 41.7 million
shares outstanding), compared to $0.90 in 2004
(with 41.1 million shares outstanding).
(cid:1) North American Free Cash Flow increased to
record levels in 2005. We generated $41 million in
2005, compared to $33.1 million during 2004, an
increase of 23.9 percent. Free Cash Flow is defined
as Cash from Operations of $68.1 million less Cash
used in Investing of $271.8 million, excluding Cash
used for Acquisitions of $244.7 million.
(cid:1) We acquired substantially all of the operations
of Rail Management Corporation (RMC) on June 1,
2005, for $238.2 million in cash and the assumption
of $1.7 million of noninterest-bearing debt. This
acquisition, GWI’s largest in North America, added
fourteen principal rail operations, hauling approxi-
mately 150,000 carloads annually over 789 miles
of track with 88 locomotives and 1,751 freight cars.
Originating in the Powder River Basin, these coal cars are
being delivered by the Illinois & Midland Railroad to one
of the four power generation facilities it serves in central
Illinois. The Illinois Region delivers more than 12 million
tons of Powder River Basin coal each year.
(cid:1) On July 26, 2005, we refinanced with long-term
notes the debt incurred with the RMC transaction.
The $125 million debt refinancing included a private
placement of $100 million fixed rate 10-year senior
notes priced at 5.36 percent and $25 million floating
rate 7-year senior notes priced at LIBOR plus 0.70
percent. Following our successful $75 million private
placement of senior notes in 2004, this financing
again demonstrated GWI’s ability to access the debt
market on favorable terms.
(cid:1) On February 13, 2006, we announced that we and
our 50-percent partner, Wesfarmers Limited (Wesfarmers),
had entered into an agreement to sell our Western
Australian operations and certain other assets of the
Australian Railroad Group (ARG) to Queensland Rail
(QR) and Babcock & Brown Limited (B&B) for $956
million. GWI simultaneously entered into an agreement
to purchase Wesfarmers’ 50-percent ownership of
the remaining ARG operations in South Australia and
the Northern Territory for $15 million. GWI expects to
receive approximately $205 million in cash after provi-
sions for U.S. and Australian taxes. Subject to certain
government approvals, the transaction is expected to
close in the second quarter of 2006. ARG has received
a deposit of $66 million.
This transaction is significant for several reasons:
(cid:1) This is the first material sale of any GWI operat-
ing property. The value of the business was greater
to others than the value we believed we could
create for our shareholders over the long term.
(cid:1) The sale proceeds will be used: (i) to acquire
Wesfarmers’ 50-percent interest in ARG’s remain-
ing rail operations for $15 million; (ii) to repay all
debt outstanding under our $225 million senior
revolving credit facility ($88 million as of year end
2005); and (iii) for general corporate purposes,
including acquisitions. This transaction provides
GWI the greatest capacity for future acquisitions
in its history, approximately $345 million.
(cid:1) The retained business will be named Genesee
& Wyoming Australia Pty Ltd. Headquartered in
Adelaide, this regional railroad is similar in size
to other GWI regions and allows us to maintain
our presence in the dynamic and changing
Australian rail market.
(cid:1) As a result of the strong momentum of our busi-
ness, our Board of Directors approved a three-for-two
stock split of our Class A and Class B common stock,
which took the form of a 50-percent common stock
dividend, payable March 14, 2006, to shareholders
of record as of February 28, 2006.
2005 Genesee & Wyoming Inc. 3
Growing by Acquisition in North America
Revenue for 2005 increased $81.6 million from 2004,
of which $55 million was from acquisitions: $40.3 million
from acquired RMC properties starting June 1, 2005;
$9.8 million from the Tazewell & Peoria Railroad acquisi-
tion of November 1, 2004; $3.3 million from First Coast
Railroad acquired from CSX on April 9, 2005; and
$1.6 million from the Savannah Wharf Branch acquired
from CSX on August 20, 2004.
The acquisition of RMC’s 14 railroads was our
largest-ever acquisition in North America. Thirteen of
the rail operations are primarily located in the Southeast
(Florida, Alabama, Mississippi, Georgia and Arkansas,
with smaller operations in Texas, North Carolina, Ten-
nessee and Kentucky). One property is in Wisconsin.
They fit well with our existing Rail Link Region both in
terms of geography and lines of business. Five of the
railroads are former industrial railroads serving the paper
and forest products industries. They complement three
former Georgia Pacific railroads GWI acquired in
2003 now operated by Rail Link; the First Coast Railroad,
acquired in 2005, whose two major customers are
paper companies; and switching operations at eight
paper mills across the Southeast. RMC’s two port
operations at Galveston, Texas, and Wilmington, North
The acquisition of Rail Management Corporation operations
in the Southeast (shown in green) is an excellent geographic
fit with GWI’s Rail Link Region (shown in orange): The new
properties complement Rail Link’s experience serving the
paper and forest products industry and major ports, and
have enabled increased efficiency and improved service
from synergies in track and equipment maintenance and
centralized customer service.
NS
BNSF
NS
S
C
K
Southeast Expansion
C S XT
CSXT
NS
N
S
CSXT
NS
CSXT
CSXT
NORTH
CAROLINA
MISSISSIPPI
B N S F
NS
NS
N
C
B
N
S
F
KCS
NS
K
C
S
NS
Meridian
NS
KCS
K
C
S
N
S
CSXT
Meridian & Bigbee
Railroad
NS
Montgomery
C
S
X
T
NS
GEORGIA
CSXT
NS
SOUTH
CAROLINA
C
S
X
T
NS
Wilmington, NC
Macon
NS
C
S
X
T
Georgia Central
Georgia Central
Railroad
Railroad
Savannah Port Terminal RR
Savannah Wharf Line
Golden Isles (CSXT) Intermodal
ALABAMA
N S
Abbeville
Hilton
N S
Grimes
Dothan
Chattahoochee
Industrial Railroad
CSXT
Riceboro
C S X T
Seals
N
S
Richmond Hill
Savannah, GA
Savannah, GA
Riceboro Spur
Saffold
Chattahoochee
Clyattville
AN Railway
Valdosta
Valdosta
Railway
Kingsland
Brunswick, GA
Fernandina, FL
NS
First Coast Railroad
S
N
K
C
S
CN
C S X T
CSXT
Bayline
Panama City, FL
Port St. Joe, FL
CSXT
Jacksonville, FL
C S X T
FLORIDA
C
S
X
T
Port Operations
Port Operations acquired
from Rail Management
Short Line Railroads
Short Line Railroads acquired
from Rail Management
4 Genesee & Wyoming Inc. 2005
Carolina, and RMC’s two railroads serving the Florida
ports of Panama City and Port St. Joe complement
Rail Link’s services to seven other ports (Corpus Christi,
Texas; Jacksonville, Florida; Fernandina, Florida; two
ports in Savannah, Georgia; Brunswick, Georgia; and
Baton Rouge, Louisiana).
Most importantly, the RMC acquisition brought
a complement of dedicated, professional and highly
capable railroaders to our Rail Link business unit.
Rail Industry Outlook
Economic growth, commodity demand and the impact
of high fuel prices are clearly driving increased demand
for rail services. Some rail industry analysts are referring
to a rail “renaissance.” While that statement may be
bold, for the first time since deregulation in 1980 gave
the rail industry the freedom to negotiate rates, the
industry actually has the pricing power to raise rates
and improve earnings. Fuel surcharges have helped
offset fuel cost increases. This ability to raise revenue
is apparent in the 2005 results of the U.S. and Canadian
Class I railroads. The industry is responding, investing
in growth by expanding capacity to ease congestion.
GWI is benefiting from price increases and fuel
surcharges implemented by the Class Is. As a short
haul carrier, we generally do not initiate rate increases
or fuel surcharges. Our participation in them varies
depending on the contractual relationship with the
Class I. Our total freight revenue from existing opera-
tions in 2005 increased $22.4 million, of which $13.5
million was due to freight rate increases and $6.4
million to fuel surcharges.
Our same-store railroad carload growth of 1.2 percent
was stronger than that percentage indicates as carload-
ings were affected by two one-time events: congestion
on originating railroads in the Powder River Basin (PRB)
and Hurricane Stan in Mexico. There were healthy
increases of lumber and forest products, primarily in
Oregon, and several regions had traffic increases in pulp
and paper and minerals. Coal carloadings grew signifi-
cantly in the New York/Pennsylvania Region, but total
same railroad coal carloadings were flat as shipments
of coal in the Illinois Region were unable to meet the
demand of the power plants we serve there due to
congestion in the PRB. In Mexico, Hurricane Stan hit
the State of Chiapas, making a 175-mile segment of our
Mexican railroad inoperable. As a result, we lost $2.3
million of freight revenue in the fourth quarter of 2005.
Port of Savannah, Georgia
James W. Benz
was named GWI's
Chief Operating
Officer in 2005.
He had been
President of the
Rail Link region
since GWI acquired
it in 1996. Jim
founded Rail Link
in 1987.
Southern Georgia and the area around the
Savannah Port Terminal Railroad (shown left)
is a good example of the synergies the acqui-
sition of RMC created. The Georgia Central,
acquired from RMC, stretches from Macon to
Savannah and (below left) serves a large paper
facility in Dublin. Rail Link crews provide shut-
tle service (below right) between the Garden
City terminal and a CSX Intermodal facility
in Savannah. At the Savannah Wharf a diverse
set of customers are served. Their commodi-
ties include chemicals, aggregates, wallboard
and clay (below far right).
En route to CSX Intermodal
Savannah Wharf, Georgia
Georgia Central Railway, Dublin, Georgia
A Buffalo & Pittsburgh Railroad (B&P) crew unloads coal with remote-
control locomotives in Homer City (center). Prior to the rehabilitation
of the Homer City Line, the plant received the coal by truck. The $10
million project was partially financed by a grant from the Commonwealth
of Pennsylvania, and officials joined GWI Chairman Mort Fuller at the
reopening celebration in Indiana, Pennsylvania, on July 21, 2005.
Participating in the ceremonial ribbon cutting are (top from left) State
Sen. Don White, State Rep. and Majority Leader Sam Smith, Gov. Edward
Rendell, and Fuller. Five new bridge decks (one shown lower right) and
16 miles of continuously welded rail were installed. In addition, the B&P
worked on a separate $477,000 project (lower left) to upgrade tracks and
other infrastructure at a coal loading facility in Brockway to serve the
growing demands for Western Pennsylvania coal.
Homer City Line ribbon cutting, Pennsylvania
Brockway, Pennsylvania
Pennsylvania Bridge Rehabilitation
We will not undertake the reconstruction of the rail line
in Mexico without some measure of government fund-
ing. Given that process and an estimated six-to-seven
month reconstruction period, we do not expect that
portion of our line to be restored before 2007.
Laying the Foundation
For Future Organic Growth
All of our regions are pursuing opportunities for future
growth. Some notable examples are:
New York/Pennsylvania Region
(cid:1) The resurgence of Western Pennsylvania coal
added significantly to the region’s shipments in
2005 and prospects are good for continued growth.
(cid:1) Completion of the rehabilitation of a long-
dormant 16-mile branch line to a power plant in
Homer City, Pennsylvania, was accomplished with a
$10 million, 70/30-percent public/private partnership
with the Commonwealth of Pennsylvania. Its signifi-
cance to the region was marked by the attendance
of Governor Edward Rendell at the July opening
ceremonies. We expect that approximately one
million tons of coal will move from trucks to rail
when work at this power plant is complete.
(cid:1) Reactivating a rotary coal dumper in Lackawanna,
New York, added 4,300 carloads of coal business
in 2005. Much of the coal was transferred to lake
vessels for delivery to a Canadian utility.
(cid:1) In the fall of 2005, we converted a 60-acre
former coal yard adjacent to Interstate 80 in DuBois,
Pennsylvania, to a transload center. We expect
to generate 1,000 carloads of business annually.
The lumber reload business, DuBois Distribution,
is sponsored by Canadian National Railway.
(cid:1) As a result of the success of the new rail
business it has created, the Buffalo & Pittsburgh
Railroad, the core of our New York/Pennsylvania
Region, was named Regional Railroad of the Year
on March 13, 2006, by Railway Age Magazine.
Rail Link
(cid:1) On January 28, 2006, our Meridian & Bigbee
Railroad (M&B) completed an agreement to provide
haulage service between CSX in Montgomery,
Alabama, and the Kansas City Southern Railway
in Meridian, Mississippi. Under this agreement, our
M&B crews expect to classify (i.e. group by destina-
tion) and transport in excess of 30,000 carloads
over this 162-mile strategic east-west route. In
anticipation of this new business, we invested over
$2.3 million in 2005 for two new passing sidings
and additional yard tracks. Over the next two years,
we plan to invest $4.5 million for improvements
to add capacity on this route.
Canada Region
(cid:1) The Québec Gatineau Railway secured new nickel
concentrates traffic (approximately 2,000 carloads
annually) and new aluminum ingot traffic (approxi-
mately 1,200 carloads annually).
(cid:1) The St. Lawrence & Atlantic Railroad (SLR) devel-
oped two new projects through public/private part-
nerships. The first was the construction of a 1.5-mile
rail spur and warehouse funded by SLR and the
City of Richmond, Québec. The 2006 phase will
add 2,000 feet of track and an intermodal reloading
facility for pulp, paper, polymers and construction
materials. In the second public/private partnership,
SLR, the Maine Department of Transportation and
the City of Auburn, Maine, funded the conversion
of 136 40-foot open-topped containers and brought
back into service 52 89-foot intermodal flat cars that
were stored on SLR’s lines, to handle bark mulch
for the biomass and landscape markets.
(cid:1) In March 2006, the SLR was notified its accom-
plishments would be acknowledged by a 2005
award for innovative and successful marketing
initiatives among Class II and III railroads from
the American Short Line and Regional Railroad
Association.
The Australian Railroad Group
Since entering Australia in 1997, we have focused on
building a rail freight business through a series of acqui-
sitions, both small and large, following the same strategy
we’ve executed successfully in the U.S. and Canada.
In 2000, we formed ARG, a 50/50 joint venture with
Wesfarmers, to acquire the freight rail assets privatized
by the state of Western Australia. Wesfarmers, a
Perth-based, diversified industrial company, is one of
Australia’s largest and best-managed companies. In
addition to the capital both parties contributed to the
transaction and to the railroad operating experience we
brought, Wesfarmers brought their proven corporate
infrastructure and management expertise.
Together, we built ARG into a successful private-sector
business, the second largest private freight railroad in
the country and the safest railroad in Australia. ARG
2005 Genesee & Wyoming Inc. 7
Genesee & Wyoming Australia Pty Ltd *
Darwin
Brisbane
Sydney
Adelaide
Melbourne
Perth
Pro Forma for ARG Sale and GWA Purchase.
*
handled close to one million carloads a year with some
of the most dedicated, capable people in the Australian
rail industry. We are proud of those accomplishments.
For 2005, our equity earnings from ARG were $9.5
million compared to $14.2 million in 2004. These results
were primarily due to lower grain revenues caused by
smaller grain harvests in Western and South Australia
as well as higher fuel expenses, a one-time land tax
accrual and a major derailment in early 2005. Partially
offsetting these trends were steady increases in our
iron ore, bauxite and alumina shipments.
ARG’s outlook for 2006 is very bright. An excellent
grain harvest in Western Australia and continuing
growth in iron ore, alumina and bauxite are expected
to drive significant revenue growth. However, it is clear
that a sale of the Western Australia operations and
related assets is in the best interest of our shareholders.
The value of this business is greater to the buyers than
we believe we could create over the long term. The
Australian railroad industry is expected to consolidate.
QR, already a force in Australia’s East Coast market,
is in a strong position to build a competitive national
intermodal business by combining with ARG.
From GWI’s point of view, the ARG sale also allows
us to maintain a position in the South Australia rail
freight market on attractive terms, with opportunities
to grow that rail business, particularly in the natural
resources sector. Our new Australian company,
Genesee & Wyoming Australia Pty Ltd, will also be
8 Genesee & Wyoming Inc. 2005
handling less grain than ARG did, thereby lessening
the impact of Australia’s volatile grain harvests on
our results.
The ARG sale, which is scheduled to close in the
second quarter of 2006, is subject to certain govern-
ment approvals. All of the dedicated people of ARG
must be acknowledged for the value created for their
shareholders. In particular, Murray Vitlich, the current
CEO and COO since 2000; John Cleland, the CFO;
and Mike Mohan, who served as CEO from 2003
to 2005, all deserve accolades for their leadership
and accomplishments.
Senior Management Changes at GWI
A number of senior management changes announced
in May 2005 have laid the groundwork for our succes-
sion plan and created a team that will enable GWI to
build on its past success:
John C. Hellmann was named President. Jack
joined the Company as our Chief Financial Officer in
January 2000. In June 2005 Jack moved to ARG’s
headquarters in Perth, Western Australia, and spent the
balance of the year there learning their operations and
working on the ARG sale. He returned full-time to the
United States in February 2006.
James W. Benz was named Chief Operating Officer.
Jim was President of GWI’s Rail Link Region for the
previous eight years. In 1987 he founded Rail Link,
which we acquired in 1996. Under Jim’s leadership,
Rail Link has grown into one of our largest and most
successful operating units.
GWI’s President and Chief Operating Officer for the
previous seven years, Charles N. Marshall, was named
Vice Chairman. Charlie continues to provide perspective,
advice and leadership on strategic rail industry issues
and on the operation of our rail businesses.
Timothy J. Gallagher was named Chief Financial
Officer, succeeding Jack Hellmann. T.J. was previously
Senior Vice President and Treasurer of Level 3 Com-
munications. Prior to that, he held a number of senior
financial positions during nearly five years at WilTel
Communications and eight years at BP Amoco.
Christopher F. Liucci was named Chief Accounting
Officer and Global Controller in March 2006. From 1997-
2006 Chris was Director of Global Financial Planning
and Reporting and Controller of Financial Reporting/
Internal Controls with Genencor International, Inc. Previ-
ously he was an Audit Manager with Coopers & Lybrand.
Port Adelaide, South Australia
John C. Hellmann
became GWI’s
President in May
2005. Jack joined
the Company as
our Chief Financial
Officer in January
2000.
Barossa Valley, South Australia
Whyalla, South Australia
The Australian Railroad Group
(ARG) handles a diverse set of
commodities — including grain,
iron ore, bauxite, alumina and
gypsum. In South Australia,
ARG provides logistical and
transportation services at this grain terminal
(top left) located in Port Adelaide. From a quarry
in the Barossa Valley more than 550,000 tons of
marble (right) are hauled to a plant in Adelaide.
ARG also provides rail services to this Whyalla
steel plant (left), where these empty hoppers,
having discharged the iron ore at the plant,
are headed to the mine to reload.
Fernandina, Florida
Rainier, Oregon
Timothy J. Gallagher
became GWI’s
Chief Financial
Officer in May 2005.
T.J. replaced Jack
Hellmann, who
became President.
DuBois, Pennsylvania
First Coast Railroad (above), acquired in April 2005,
operates from Yulee to Fernandina, Florida, and further
expands the Rail Link Region’s operations in the Southeast.
DuBois Distribution (left) unloads lumber at our new
60-acre, mixed-use transload terminal in Pennsylvania.
An example of new business converted from highway to
rail, logs destined for sawmills in southern Oregon are
loaded onto Portland & Western Railroad cars at a cus-
tomer’s facility in Rainier (top). The Oregon Region handles
nearly 9,000 carloads of logs annually in a market dominated
by trucks for the past 20 years.
In 2005, we asked Larry McCaffrey to assume
the responsibility of Executive Chairman of our Mexico
Region, because of the challenges that property has
faced and will face going forward. A seasoned leader in
the U.S. short line and regional rail industry, Larry turned
his interest to Latin America in the mid-nineties. We
have worked closely with him for many years. He has
managed our interests in Bolivia and built a strong man-
agement team there. He is also invested alongside us
in that transaction. He has made significant progress
and, given the added complications of managing that
property following Hurricane Stan, we are fortunate to
have his leadership.
On February 27, 2006, Raul Huerta joined our
Mexico Region as General Manager. Raul has a strong
background in logistics and operations at Ford Motor
Company, Kellogg and DHL Mexico.
Gerald T. Gates was named Vice President, Safety
and Compliance, on February 15, 2006. Gerry had been
Vice President, Atlantic Short Lines, in our Rail Link
Region since June 2005. Previously, he was President
of the Terminal Railroad of St. Louis, which received the
railroad industry’s prestigious E.H. Harriman Gold Award
for best safety performance for switching and terminal
railroads in 2002, 2003 and 2004.
We appointed two executives in 2005 to increase
our focus on more efficient companywide use of loco-
motive and freight car assets. David L. Powell was
named Vice President, Motive Power, in January and
James M. Tilley was named Vice President, Car Man-
agement, in August. The new positions report to Chief
Operating Officer James W. Benz.
In June 2005, Robert W. Anestis stepped down from
our Board of Directors. As a director, he provided counsel,
guidance and leadership. We thank him for his service.
David C. Hurley joined the GWI Board on July 15,
2005. David founded Flight Services Group (FSG) in
1983, building it into one of the world’s leading providers
of corporate jet aircraft management. Following the
acquisition of FSG by Switzerland-based PrivatAir
Holdings in 2000, David served as CEO. He is currently
Vice Chairman. David developed a culture of safety and
professionalism at PrivatAir Holdings. He also serves
on the Board of Directors of B/E Aerospace, Hexcel,
Ionatron, and the Smithsonian Institution’s National Air
and Space Museum.
Safety First
The Federal Railroad Administration reported that 2005
was the safest rail year ever for U.S. railroad employees.
GWI’s focus on safety is unrelenting. In North America,
GWI’s 2005 safety record of 1.99 injuries per 200,000
manhours ranked us well ahead of comparable rail-
roads’ average of 2.86. I just returned from presenting
our Annual Chairman’s Award for Safety to our region
with the best safety record. Rail Link won this year with
a record of 1.42. On that trip I met employees in seven
states with impressive safety records. A number of our
individual operations have been injury-free for years.
Their success is inspirational as we work toward our
goal to be injury-free companywide.
All Aboard
Last year and the first two months of 2006 have
brought enormous opportunities to GWI. We have
significantly increased the size and scope of our busi-
ness in the United States. We have unlocked tremen-
dous shareholder value in Australia while retaining an
operating base in a market we believe will continue
to provide opportunities. The cash to be received
from the sale will give us a greater acquisition capacity
than ever before.
These changes have created value for our share-
holders. Behind that value creation are dedicated
employees and a management team of exceptional
ability supported by a strong, independent Board of
Directors. As a shareholder, I thank them for their
dedication and focus. In turn I thank you, our share-
holders, for your support and continued interest in
Genesee & Wyoming Inc.
Mortimer B. Fuller III
Chairman and Chief Executive Officer
March 27, 2006
2005 Genesee & Wyoming Inc. 11
Australian
Operations
Australian Railroad Group (ARG)
ARG Lines in South Australia
ARG Operations in New South Wales (Access Agreement)
Interstate Lines With Open Access
Asia Pacific Transport Consortium (APTC) Line
North American
Operations
Oregon
Portland & Western Railroad
Portland
Tualatin
Albany
The Australian
operations are an
unconsolidated
investment.
Illinois
Illinois & Midland Railroad
Tazewell & Peoria Railroad
ARG Lines in Western Australia
Bolivian Operations
Ferroviaria Oriental S.A.
The Bolivian operations are an
unconsolidated investment.
Genesee & Wyoming Inc. (GWI)
has provided rail freight services
in the United States for over 100 years.
GWI’s common shares are
traded on the New York Stock
Exchange under the symbol GWR.
New York / Pennsylvania
Buffalo & Pittsburgh Railroad
Rochester & Southern Railroad
South Buffalo Railway
Canada
Chemins de fer Québec-Gatineau
Chemin de fer St-Laurent & Atlantique (Québec)
St. Lawrence & Atlantic Railroad (USA)
Huron Central Railway
Utah
Utah Railway Company
Mexico
Compañía de Ferrocarriles Chiapas-Mayab, S.A. de C.V.
Midvale
Martin/Helper
Terminal
Dashed lines indicate trackage rights
in North America
2005 Genesee & Wyoming Inc. 13
North American Operations
Rail Link
TMK
LR&W
F&P
ALM
L&D
YR
CWRY
ATW
Wilmington, NC
Savannah Port Terminal RR
Savannah Wharf Line
Golden Isles (CSXT) Intermodal
Savannah, GA
Brunswick, GA
Fernandina, FL
Jacksonville, FL
Headquarters
WKR
KWT
M&B
ETRY
GC
RS
BAYL
Panama
City, FL
CIRR
AN
FC
VRY
St. Joe, FL
Galveston, TX
Baton Rouge, LA
Corpus Christi, TX
Port Operations
Industrial Switching
Short Line Railroad
Key to Abbreviations
ALM Arkansas Louisiana & Mississippi Railroad
49
10
AN
AN Railway
ATW Atlantic & Western Railway
BAYL
CIRR
CWRY
ETRY
FC
F&P
GC
KWT
L&D
Bay Line Railroad
Chattahoochee Industrial Railroad
Commonwealth Railway
East Tennessee Railway
First Coast Railroad
Fordyce & Princeton Railroad
Georgia Central Railway
Kentucky West Tennessee Railway
Louisiana & Delta Railroad
LR&W Little Rock & Western Railway
M&B Meridian & Bigbee Railroad
Riceboro Southern Railroad
RS
Tomahawk Railway
TMK
Valdosta Railway
VRY
WKR Western Kentucky Railway
YR
York Railway Company
Louisiana & Delta Railroad
12
10
L&D
Rail Link Short Line Railroads
Mellen
C
N
WISCONSIN
C
N
KENTUCKY
Hardin
Kingsport
Prentice
smith
Bradley
Tomahawk
CN
Argonne
TMK
Murray
Fulton
Dresden
Henry
Kenton
KWT
Owen
Wausau
rg
C
N
S
McKenzie
T
X
S
Conaico
CSXT
Bruceton
CN
Junction City
Shawano
Humbold
TENNESSEE
Tomahawk Railway
ownsville
40
Jackson
Kentucky West
Tennessee Railway
TENNESSEE
TENNESSEE
Elizabethton
Bulls
Gap
NS
Johnson City
ETRY
C
S
X
T
Hot Springs
PENNSYLVANIA
Mount
Holly Springs
YRYR
Chambersburg
C S X T
Hanover
N S
York
295
Richmond
West Point
64
CSXT
Hopewell
Petersburg
Williamsburg
Spring Grove
N
S
Cape Charles
Hampton
Newport
News
Porters
Millers
East Tennessee Railway
MARYLAND
Durham
rg
rles
n
Lexington
Norwood
NORTH CAROLINA
Raleigh
Gulf
NS
Varina
Star
Sanford
ATW
CSXT
Fayetteville
CSXT
Atlantic & Western Railway
Hohen
S
F
VIRGINIA
S
York Railway
CWRY
VIRGINIA
VIRGINIA
Norfolk
Virginia Beach
Chesapeake
Emporia
Franklin
Suffolk
Baltimore
C S X T
NORTH
NORTH
CAROLINA
CAROLINA
Elizabeth
City
Commonwealth Railway
Clarksville
Russellville
40
Danville
Morrilton
UP
LR&W
MISSISSIPPI
K
C
S
Bal
Boligee
KCS
Tuscaloosa
20
59
NS
Childersburg
Syla
NS
Vulco
Wilton
Calera
ALABAMA
Clanton
Maplesville
65
Conway
Jacksonville
Beebe
P
U
Meridian
Demopolis
NS
Marion Jct.
Selma
M&BM&B
Kimbrough
Montgomery
T
X
S
C
ARKANSAS
ARKANSAS
Little Rock
K
C
S
Mountain Pine
Hot Springs
30
P
U
Glenwood
Malvern
Arkadelphia
Gurdon
P
U
Pine Bluff
Waynesboro
Fulton
Jackson
N S
Little Rock & Western Railway
Meridian & Bigbee Railroad
Milledgeville
Waynesboro
Hardwick
Sandersville
Lousiville
Tennille
NS
Midville
C
S
X
T
SOUTH
SOUTH
SOUTH
CAROLINA
CAROLINA
CAROLINA
Macon
Warner
Robins
Berry
75
Cordele
Dublin
Swainsboro
Ardmore
16
Statesboro
Eastman
Helena
GC
GEORGIA
Hazlehurst
N
S
Douglas
CSXT
Savannah
Richmond Hill
T
X
S
C
Hinesville
RS
Riceboro
95
Jesup
Beatrice
Gosher
Georgiana
Sylvester
65
Fitzgerald
Tifton
Andalusia
Op
Moultrie
Pearson
Waycross
Nahunta
C S X T
Georgia Central Railway
Riceboro Southern Railroad
Rison
Dumas
Troy
Goshen
GEORGIA
GEORGIA
Cuthbert
Ariton
Abbeville
Albany
Warren
DSRR
Monticello
McGehee
Andalusia
P
U
Eagle Mills
Camden
U
P
Smackover
El Dorado
Newell
O
U
C
H
Lillie
Banks
Hermitage
F&P
Dermott
Montrose
P
U
Parkdale
ALM
Sterlington
Collinston
D
S
R
R
Waterford
Grimes
Dothan
Geneva
N S
Arlington
Hilton
CIRR
Saffold
Bainbridge
CSXT
Thomasville
Chattahoochee
Crestview
10
De Funiak
Springs
BAYL
10
FLORIDA
FLORIDA
Greenville
Tallahassee
AN
Clyattville
Perry
Ruston
KCS
U
P
Rayville
Delhi
KCS
Tallulah
Panama City, FL
Port St. Joe, FL
75
Sylvester
Douglas
CSXT
Waycross
Moultrie
C S X T
Homerville
Coolidge
Valdosta
NS
Jesup
C S X T
Nahunta
Seals
GEORGIA
Kingsland
Mayday
VR
Clyattville
Brunswick
95
FC
Fernandina, FL
NS
Yulee
C
S
X
T
Jacksonville, FL
Rail Link Headquarters
295
Palm Valley
Middlebury
Starke
95
St. Augustine Beach
FLORIDA
Macclenny
Live Oak
10
CSXT
Lake
City
C S X T
75
Gainesville
Palatka
C
S
X
T
Palm Coast
Fordyce & Princeton Railroad
Arkansas Louisiana & Mississippi
Railroad
Bay Line Railroad
Chattahoochee Industrial Railroad
AN Railway
Valdosta Railway
First Coast Railroad
2005 Genesee & Wyoming Inc. 15
Richmond, Québec
U N I T E D S T A T E S S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N
W A S H I N G T O N , D . C . 2 0 5 4 9
F O R M 1 0 - K
Í Annual Report Pursuant to Section 1 3 o r 15(d) of the Securities Exchange
A c t o f 1 9 3 4 F o r th e F i s c a l Y e a r E n d e d De c e m b e r 3 1 , 2 0 0 5
o r
‘ T r a n s it io n Rep o r t P u r s u a n t t o S e c t io n 1 3 o r 1 5 ( d ) o f t h e Se c u r it ie s E x c h a n g e A c t o f 1 9 3 4
F o r th e t r a n s it io n p e r io d f r o m
t o
C o m m is s io n File N o . 0 - 2 0 8 4 7
G e n e s e e & Wy o m i n g I n c .
(Exact name of registrant as specified in its charter)
Delawar e
(State or other jurisdiction o f
i nc orp ora tion o r o rga nization)
66 Field Point Road, G reenwich, C onnecticut
(Address o f p rincipal executive offices)
0 6 - 0 9 8 4 6 2 4
( I . R . S . E m p l o y e r
Identification No.)
0 6 8 3 0
( Zip C ode)
( 2 0 3 ) 6 2 9 - 3 7 2 2
(Tele phone No.)
Securities registered pursuant to Section 12(b) of the Act:
Title o f E ach Class
N a m e o f E a c h E x c h a n g e o n W h i c h Re g i s t e r e d
C l a s s A C o m m o n St o c k , $ 0 . 0 1 p a r v a l u e
N Y S E
Securities registered pursuant to Section 12(g) of the Act:
C l a s s A C o m m o n St o c k , $ 0 . 0 1 p a r v a l u e
(T itle o f Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
‘ Yes Í No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
‘ Yes Í No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Secu-
rities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Í Yes ‘ No
Indicate by check mark if disclosure of delinquent filers to Item 405 of Regulations S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information state-
ments 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b of the Act). ‘ Yes Í No
Aggregate market value of Class A Common Stock held by non-affiliates based on closing price on June 30, 2005, as
reported by the New York Stock Exchange on the last business day of Registrant’s most recently completed second fiscal
quarter: $421,075,058. Shares of Class A Common Stock held by each executive officer, 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 affiliates. The
determination of affiliate status is not necessarily a conclusive determinant for other purposes.
Non-accelerated filer ‘
Accelerated filer Í
Shares of common stock outstanding as of the close of business on March 7, 2006:
Class
C la s s A C o m m o n St o c k
C la s s B C o m m o n St o c k
Number of Shares Outstanding
3 7 , 3 2 5 , 6 7 8
3 , 9 7 5 , 1 8 3
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed in connection with the Annual Meeting of the
Stockholders to be held on May 31, 2006 are incorporated in Part III hereof and made a part hereof.
2005 FORM 10K Genes ee & Wyoming Inc. 1
Job: 39566_003 Genesee & Wyoming Page: 1 Color; Composite
G e n e s e e & W y o m i n g I n c .
FORM 10-K
F o r T h e F i s c a l Y e a r E n d e d D e c e m b e r 3 1 , 2 0 0 5
I N D E X
Page No.
Part I
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1.
ITEM 1A.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3.
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4.
Part II
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 6.
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . .
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 8.
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . .
ITEM 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part III
ITEM 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors and Executive Officers of the Registrant
ITEM 10.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 11.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . .
ITEM 12.
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 13.
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 14.
Part IV
ITEM 15.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibits and Financial Statement Schedules
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certification of Principal Executive Officer Pursuant to Section 302 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certification of Principal Financial Officer Pursuant to Section 302 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 . . . . . . . .
4
14
22
22
25
26
27
28
29
53
55
55
55
57
57
57
57
57
57
58
F-1
A-1
A-2
A-6
A-7
A-8
2 Genes ee & W yoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 2 Color; Composite
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 affiliates, 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 affiliate based in Perth, Western Australia. All references to currency amounts included in this Annual
Report on Form 10-K, including the financial statements, are in U.S. dollars unless specifically noted otherwise.
C a u t i o n a r y S t a t e m e n t R e g a r d i n g F o r w a r d - L o o k i n g S t a t e m e n t s
The information contained in this Annual Report on Form 10-K (Annual Report),
including Management’s Dis-
cussion and Analysis of Financial Condition and Results of Operations in Item 7, contains forward-looking state-
ments 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,” varia-
tions 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 assump-
tions that are difficult to forecast. Actual results may differ materially from those expressed or forecast in these
forward-looking statements. These risks and uncertainties include those noted under the caption “Risk Factors”
in Item 1A, as well as those noted in documents that we file from time to time with the Securities and Exchange
important factors that could cause actual results to differ from
Commission (the SEC), which contain additional
current expectations and from the forward-looking statements contained herein. Examples of
forward-looking
in nature, including statements regarding:
statements include all statements that are not historical
(cid:1) our operations, competitive position, growth strategy and prospects;
(cid:1) industry conditions, including downturns in the general economy;
(cid:1) the effects of economic, political or social conditions and changes in foreign exchange policy or rates;
(cid:1) our ability to complete, integrate and benefit from acquisitions, joint ventures and strategic alliances;
(cid:1) the outcome of pending material transactions;
(cid:1) governmental policies affecting our railroad operations,
including laws and regulations regarding environ-
mental
liabilities;
(cid:1) our funding needs and financing sources; and
(cid:1) the outcome of pending legal proceedings.
In light of the risks, uncertainties and assumptions associated with forward-looking statements, you should not
place undue reliance on any forward-looking statements. Additional risks that we may currently deem immaterial
or
that are not presently known to us could also cause the forward-looking events discussed in this Annual
Report not to occur. Except as otherwise required by applicable securities laws, we undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of new information, future events,
changed circumstances or any other reason after the date of this Annual Report.
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements to
encourage companies to provide prospective information about their companies without fear of litigation. We are
taking advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act in connection with
the forward-looking statements included in this document.
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 and the discussion of risk factors in
Item 1A.
2005 FORM 10K Genes ee & Wyoming Inc. 3
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Item 1. Business
PART I
O V E R V I E W
freight railroads in the United States, Canada,
We are a leading owner and operator of short line and regional
Mexico, Australia and Bolivia. In addition, we provide freight car switching and rail-related services to industrial
companies in the United States. The company’s corporate predecessor was founded in 1899 as a 14-mile rail
line
serving a single salt mine in upstate New York. Since 1977, when Mortimer B. Fuller III purchased a controlling
interest in the Genesee and Wyoming Railroad Company and became its Chief Executive Officer, we have com-
including the June 2005 acquisition from Rail Management Corporation (RMC) of sub-
pleted 27 acquisitions,
stantially all of its railroad operations (collectively, Rail Partners). As of December 31, 2005, we owned, leased or
operated 49 short line and regional freight railroads with approximately 9,300 miles of track and have 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 short line and regional railroads in North America.
R E C E N T D E V E L O P M E N T S – A U S T R A L I A T R A N S A C T I O N S
On February 13, 2006, we announced that we and Wesfarmers Limited (Wesfarmers) had entered into a definitive
agreement
to sell our Western Australia operations and certain other assets of ARG to Queensland Rail and
Babcock & Brown Limited for approximately $956.0 million, plus certain closing adjustments estimated to be
approximately $18.0 million (ARG Sale). The ARG Sale is subject to customary closing conditions, including cer-
tain Australian government approvals, and is expected to close in the second quarter of 2006. The buyers have
made a deposit of approximately $66.0 million, which will be fully credited towards the purchase price. Simulta-
neous with the ARG Sale, we entered into an agreement to purchase Wesfarmers’ 50 percent-ownership of the
remaining ARG operations, which are principally located in South Australia and the Northern Territory for approx-
imately $15.0 million (GWA Purchase, collectively with the ARG Sale, the Australia Transactions). This business,
which will be based in Adelaide, will be renamed Genesee & Wyoming Australia Pty Ltd (GWA) and will be a 100
percent-owned subsidiary that
is reported on a consolidated basis in our financial statements. We anticipate
approximately $205 million in after-tax cash proceeds from the ARG Sale. We currently intend to use a portion of
fund the GWA Purchase and (ii) repay all debt outstanding under our $225 million senior
the proceeds to:
revolving credit facility, the balance of which was $88 million as of December 31, 2005. We currently intend to
use the remainder of the proceeds for general corporate purposes, including acquisitions.
(i)
All payment obligations related to the Australia Transactions are in Australian dollars, and have been converted to
U.S. dollar amounts based on the Australian dollar to U.S. dollar exchange rate as of February 13, 2006 of 0.735
U.S. dollars per Australian dollar.
G R O W T H S T R A T E G Y
We intend to increase our earnings and cash flow through the execution of our disciplined acquisition strategy for
both domestic and international opportunities. When acquiring railroads in our existing regions, we target con-
tiguous 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 quali-
fied management. To help ensure accountability for the projected financial 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:
(cid:1) rail
lines of
industrial companies, such as Bethlehem Steel Corporation, Mueller
Industries,
Inc. and
Georgia-Pacific Corporation (GP);
(cid:1) branch lines of Class I railroads, such as Burlington Northern Santa Fe Corporation (BNSF) and CSX Corpo-
ration (CSX);
(cid:1) other
regional
railroads or short
line railroads, such as RMC and Emons Transportation Group,
Inc.
(Emons); and
(cid:1) foreign government-owned railroads, such as those in Australia, that are being privatized or recently have
been privatized.
From 1977 to 1997, we completed and integrated ten acquisitions in the United States. From 1997 to 2000, we
acquired or made investments in seven railroads located outside the United States, including in South Australia
(1997), Canada (1997), Mexico (1999), Western Australia (2000) and Bolivia (2000). From 2001 to 2004, we made
including South Buffalo Railway Company (South Buffalo)
six acquisitions in the United States and Canada,
line leased from BNSF in Oregon (2002); Arkansas
(2001); Emons (2002); Utah Railway Company (2002); a rail
4 Genes ee & W yoming Inc. 2005 FORM 10K
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Louisiana & Mississippi Railroad Company, Chattahoochee Industrial Railroad and Fordyce and Princeton R.R.
Co. (collectively, the GP Railroads), acquired from GP (December 2003); and Tazewell and Peoria Railroad, Inc.
(TZPR), which commenced operations under a 20-year agreement to lease the assets of the Peoria and Pekin
Union Railway (PPU)
In 2005, we acquired Rail Partners, which included fourteen rail oper-
ations with locations in Florida, Alabama, Mississippi, Georgia, Arkansas, Texas, North Carolina, Tennessee,
Kentucky and Wisconsin (June 2005). In addition, our subsidiary, First Coast Railroad Inc. (FCRD), commenced
operations over a 31-mile rail
line between Seals, Georgia and Fernandina, Florida under a 20-year lease agree-
ment with CSX (April 2005).
(November 2004).
We believe that additional 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
there are additional acquisition candidates in Australia,
or
Europe, Canada, South America and other markets outside the United States. We believe that we are well-
positioned to capitalize on additional acquisition opportunities.
railroads. We also believe that
leased by Class I
Our strategy of building regional rail systems through acquisitions is best illustrated by our original U.S. region,
line, the Genesee & Wyoming, we have com-
the New York-Pennsylvania Region. Starting with our original rail
pleted 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 Buffalo, which we acquired from
Bethlehem Steel Corporation in 2001, and a 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, 2005, we increased the annual revenues generated by our New York-Pennsylvania Region from
$8.0 million to $61.3 million. The region has a diverse commodity base including coal, petroleum, auto parts,
chemicals, pulp and paper, salt and steel.
in Whyalla, South Australia in 1999;
In addition, the development of our Australia operations, ARG, as well as the recently announced agreement to
sell the majority of ARG, demonstrate our ability to build a business and create shareholder value. 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
(3) combined our South Australian railroad business with pre-
viously government-owned rail assets of Western Australia, which we acquired with Wesfarmers for $334.0 million
in December 2000; (4) acquired an equity interest (2.0% at December 31, 2005)
in a consortium that operates a
rail
line from Tarcoola in South Australia to Darwin in the Northern Territory of Australia in April 2001; and
(5) added a significant new customer contract in New South Wales, on the east coast of Australia, in November
2003. For
the year ended December 31, 2005, ARG generated $344.5 million in revenues. ARG’s principal
commodities are grain and various ores and minerals that are destined for export markets, particularly Asia.
Finally, on February 13, 2006, we announced the Australia Transactions.
O P E R A T I N G S T R A T E G Y
We intend to increase our earnings and cash flow 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 each 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 financial goals.
At the regional
level, our operating strategy consists of the following four principal elements:
(cid:1) Focused Regional Marketing. We build each regional rail system on a base of
large industrial customers,
grow that business through marketing efforts, 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-effectively.
(cid:1) Lower Operating Costs. We focus on lowering operating costs and have historically been able to operate
acquired rail
lines more efficiently than the companies and governments from whom we acquired these
properties. We typically achieve efficiencies by lowering administrative overhead, consolidating equipment
and track maintenance contracts, reducing transportation costs and selling surplus assets.
(cid:1) Efficient 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 effective capital programs. For example, we rebuild older
than
purchase new locomotives, and invest in track at levels appropriate for traffic type and density. In addition,
in some instances, we are able to obtain state and/or federal grants to rehabilitate track because of the
locomotives rather
2005 FORM 10K Genes ee & Wyoming Inc. 5
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importance of certain of our customers and railroads to the regional economies where the tracks are
located. Typically, we seek government funds to support investments that would not be economically viable
for us to make on a stand-alone basis.
(cid:1) 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, measured as
reportable injuries as defined by the Federal Railroad Administration (FRA), from 5.89 injuries per 200,000
man-hours worked in 1998 to 1.99 in 2005.
F I N A N C I A L S T R A T E G Y
A significant portion of our management performance bonuses, at both the corporate and regional
levels, is tied
by formula to achieving return on capital targets. Starting with bonuses for 2002 performance, our Board of Direc-
tors 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 man-
agement teams on improving our return on invested capital, we intend to continue to increase earnings and cash
flow. In addition, we require that each potential acquisition strictly adheres to our return on capital targets and
that existing operations improve year-over-year financial returns.
I N D U S T R Y
According to the Association of American Railroads (AAR), there are 556 railroads in the United States operating
over 140,246 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 $289.4 million in revenues, represent over 92% 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 traffic to the Class I carriers. Regional and
local railroads combined account for approximately 8% of total rail revenues.
The following table shows the breakdown of U.S. railroads by classification.
Classification of Railroads
Number
Class I (1)
Regional (2)
Local
Total
7
31
518
556
Aggregate
Miles
Operated
97,496
15,641
27,109
140,246
Revenues and Track Miles Operated
Over $289.4 million
$40.0 to $289.4 million and/or 350 or more miles operated
Less than $40.0 million and less than 350 miles operated
(1) Class 1 railroads include Canadian National Railway (CN), CSX, BNSF, Norfolk Southern (NS), Kansas City Southern Railway
Company (KCS), Union Pacific (UP) and Canadian Pacific Railway (CP)
(2) Includes groups of non-contiguous smaller railroads
Source: Association of American Railroads, Railroad Facts, 2005 Edition.
The railroad industry in the United States has undergone significant change since the passage of the Staggers
Rail Act of 1980, which deregulated the pricing and types of services provided by railroads. Following the pas-
sage of the Staggers Act, Class I railroads in the United States took steps to improve profitability and recapture
market share lost to other modes of transportation, primarily trucks. 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
the
lines to smaller and more cost-efficient rail operators willing to commit
needs of the customers located on these lines. Divestiture of branch lines enabled Class I carriers to minimize
incremental capital expenditures, concentrate traffic density,
improve operating efficiency, and avoid traffic
losses associated with rail
the resources necessary to meet
line abandonment.
Although the acquisition market is competitive in the railroad industry, we believe we will continue to find oppor-
tunities 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 we will continue to find additional acquisition oppor-
tunities in markets outside of the United States. For additional
information, see the discussion under “Item 1A.
Risk Factors.”
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N O R T H A M E R I C A N O P E R A T I O N S
As of December 31, 2005, we owned, leased or operated 45 short line and regional freight railroads with approx-
imately 4,300 miles of track in the United States, Mexico and Canada.
N o r t h A m e r i c a n C u s t o m e r s
Our North American operations served over 980 customers in 2005 compared with approximately 910 customers
in 2004. Freight revenue from our ten largest North American freight revenue customers accounted for approx-
imately 24%, 27% and 27% of our North American revenues in 2005, 2004 and 2003,
respectively. As of
December 31, 2005, four of our ten largest North American customers operated in the paper and forest products
industry. In 2005 and 2004, our largest North American freight revenue customer was a company in the paper
and forest products industry, freight revenue from which accounted for approximately 8% of our North American
revenues in these years. In 2003, our largest North American freight revenue customer was a coal-fired electricity
generating plant, freight revenue from 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 cus-
tomer. These contracts are in accordance with industry norms and vary in duration, with terms as long as
20 years. These contracts establish price but do not typically obligate the customer to move any particular vol-
ume and are not typically linked to the prices of the commodities being shipped.
N o r t h A m e r i c a n C o m m o d i t i e s
Our North American railroads transport a wide variety of commodities. Some of our railroads have a diversified
commodity mix while others transport one or two principal commodities. The following table compares North
American freight revenues, carloads and average freight revenues per carload for the years ended December 31,
2005 and 2004:
N o r t h A m e r i c a n F r e i g h t R e v e n u e s a n d C a r l o a d s C o m p a r i s o n b y C o m m o d i t y G r o u p
Y e a r s E n d e d D e c e m b e r 3 1 , 2 0 0 5 a n d 2 0 0 4
( d o l l a r s i n t h o u s a n d s , e x c e p t a v e r a g e p e r c a r l o a d )
Commodity Group
Pulp & Paper
Coal, Coke & Ores
Lumber & Forest Products
Minerals & Stone
Metals
Petroleum Products
Chemicals-Plastics
Farm & Food Products
Autos & Auto Parts
Intermodal
Other
2005
$ 59,401
51,803
35,336
29,050
28,432
25,717
21,481
17,842
6,584
2,151
5,094
Freight Revenues
Carloads
% of
Total
2004
% of
Total
2005
% of
Total
2004
% of
Total
Average
Freight
Revenue
Per Carload
2005
2004
21.0% $ 40,486
45,126
18.3%
25,295
12.5%
22,294
10.3%
23,464
10.0%
24,465
9.1%
16,270
7.6%
16,203
6.3%
6,362
2.3%
2,409
0.8%
3,891
1.8%
17.9% 129,807
19.9% 197,891
11.2% 98,087
9.9% 73,307
10.4% 78,221
10.8% 33,041
7.2% 40,434
7.2% 52,501
2.8% 13,600
1.1%
4,805
1.6% 16,328
17.6% 94,340
26.8% 191,038
13.3% 76,055
9.9% 59,197
10.6% 73,412
4.5% 32,401
5.5% 31,262
7.1% 40,520
1.8% 14,665
0.7%
6,425
2.2% 14,034
14.9% $458
30.2% 262
12.0% 360
9.3% 396
11.6% 363
5.1% 778
4.9% 531
6.4% 340
2.3% 484
1.0% 448
2.3% 312
$429
236
333
377
320
755
520
400
434
375
277
Totals
$282,891
100.0% $226,265
100.0% 738,022
100.0% 633,349
100.0% $383
$357
C o m m o d i t y G r o u p D e s c r i p t i o n
The Pulp and Paper commodity group consists primarily of inbound shipments of pulp and outbound shipments
of kraft and finished papers and container board.
The Coal, Coke and Ores commodity group consists primarily of shipments of coal to power plants and industrial
customers.
The Lumber and Forest Products commodity group consists primarily of
finished lumber, plywood, oriented
strand board and particle board used in construction and furniture manufacturing, and wood chips and pulpwood
used in paper manufacturing.
The Minerals and Stone commodity group consists primarily of cement, gravel and stone used in construction,
and salt used in highway ice control.
The Metals commodity group consists primarily of scrap metal, finished steel products and coated pipe.
2005 FORM 10K Genes ee & Wyoming Inc. 7
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The Petroleum Products commodity group consists primarily of fuel oil and crude oil.
The Chemicals-Plastics commodity group consists primarily of various chemicals used in manufacturing, partic-
ularly in the paper industry.
The Farm and Food Products commodity group consists primarily of sugar, molasses, rice and other grains and
fertilizer.
The Autos and Auto Parts commodity group consists primarily of finished automobiles and stamped auto parts.
The Intermodal commodity group consists of various commodities shipped in trailers or containers on flat cars.
The Other commodity group consists of all freight moved not included in the commodity groups set forth above.
N o r t h A m e r i c a n N o n - F r e i g h t R e v e n u e s
The primary components of our North American non-freight revenues are as follows:
(cid:1) Railcar switching revenues, which include:
(cid:1) intra-plant switching revenues – revenues earned by providing services dedicated to the movement of
railcars within industrial plants, and
(cid:1) intra-terminal switching revenues – revenues earned for the movement of customer railcars from one
track to another track on the same railroad.
(cid:1) Car hire and rental services – charges paid by other railroads for use of our railcars for moving freight.
(cid:1) Demurrage and storage – charges to customers for holding or storing railcars.
(cid:1) Car repair services – charges for repairing freight cars owned by others, either under contract or in accord-
ance with AAR rules.
(cid:1) Other operating income, which includes:
(cid:1) Haulage and trackage rights fees – charges to other railroads for running over our railroads;
(cid:1) terminal services – charges to customers for freight transfer and trucking services;
(cid:1) scrap metal sales; and
(cid:1) management fees – charges for managing railcars and rail-related facilities.
In 2005 and 2004, non-freight revenues constituted 26.6% and 25.5%, respectively, of our total North American
operating revenues with railcar switching representing 48.5% and 51.0%, respectively, of total North American
non-freight revenues. The following table compares North American non-freight revenues for the years ended
December 31, 2005 and 2004:
N o r t h A m e r i c a n N o n - F r e i g h t R e v e n u e s C o m p a r i s o n
Y e a r s E n d e d D e c e m b e r 3 1 , 2 0 0 5 a n d 2 0 0 4
( d o l l a r s i n t h o u s a n d s )
2005
$ 49,683
16,328
11,624
5,112
19,751
% of
Total
2004
% of
Total
48.5% $39,539
11,858
15.9%
7,533
11.3%
5,460
5.0%
13,129
19.3%
51.0%
15.3%
9.7%
7.0%
17.0%
$102,498
100.0% $77,519
100.0%
Railcar switching
Car hire and rental income
Demurrage and storage
Car repair services
Other operating income
Total non-freight revenues
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N o r t h A m e r i c a n R e v e n u e s B y G e o g r a p h i c A r e a
The following table compares total North American revenues by geographic area for
December 31, 2005 and 2004:
the years ended
N o r t h A m e r i c a n R e v e n u e s C o m p a r i s o n b y G e o g r a p h i c A r e a
Y e a r s E n d e d D e c e m b e r 3 1 , 2 0 0 5 a n d 2 0 0 4
( d o l l a r s i n t h o u s a n d s )
Revenues:
United States
Canada
Mexico
Total operating revenues
2005
% of
Total
2004
% of
Total
$299,440
50,960
34,989
77.7% $226,521
44,008
13.2%
33,255
9.1%
74.6%
14.5%
10.9%
$385,389
100.0% $303,784
100.0%
For additional
solidated Financial Statements set forth in Part IV, Item 15. of this Annual Report.
information with respect
financial
to each of our geographic areas, see Note 17 to our Con-
N o r t h A m e r i c a n T r a f f i c
lines can be categorized as interline, local or overhead traffic. Inter-
Rail traffic shipped on our North American rail
line and is interchanged with other
line traffic either originates or terminates with customers located along a rail
line and does not involve other carriers.
rail carriers. Local traffic both originates and terminates on the same rail
Overhead traffic passes over the line from one connecting rail carrier to another without the carload originating or
terminating on the line. Unlike overhead traffic, interline and local traffic provide us with a more stable source of
revenue, because this traffic represents shipments to or from customers located along our rail
lines and is less
susceptible to competition from other rail routes or other modes of transportation. In 2005, revenues generated
from overhead traffic constituted approximately 2.0% of our total North American revenues.
S e a s o n a l i t y o f O p e r a t i o n s
Typically, we experience relatively lower revenues in the first and fourth quarters of each year as the winter sea-
son and colder weather tend to reduce shipments of certain products, such as construction materials. In addi-
tion, due to adverse winter weather conditions, we also tend to incur higher operating costs during the first and
fourth quarters. We typically initiate capital projects in the second and third quarters when weather conditions
are more favorable. However, certain of our traffic, such as salt for road de-icing, often benefits from particularly
cold weather.
N o r t h A m e r i c a n E m p l o y e e s
As of December 31, 2005, our North American railroads and industrial switching locations had 2,332 full time
employees. Of this total, 1,073 railroad employees are members of national
labor organizations. Our North Ameri-
can railroads have 35 contracts with these national
labor organizations, seven of which are currently in negotia-
relations of employers and employees engaged in the
tions. The Railway Labor Act
railroad industry. The RLA establishes the right of railroad employees to organize and bargain collectively along
craft or class lines and imposes a duty upon carriers and their employees to exert every reasonable effort 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 collective employee bargaining
labor organization. We
agreements with an additional 70 employees who are not
believe our relationship with our employees is good.
represented by a national
(RLA) governs the labor
A U S T R A L I A O P E R A T I O N S ( E q u i t y A c c o u n t i n g )
ARG, which is 50% owned by Genesee & Wyoming and 50% owned by Wesfarmers, is reflected in our statement
of
income using the equity method of accounting. In the years ended December 31, 2005 and 2004, ARG con-
tributed $9.5 million, or 18.9%, and $14.2 million, or 37.8%, 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 infra-
structure in Western Australia and charges track access fees to rail operators that use its track infrastructure,
2005 FORM 10K Genes ee & Wyoming Inc. 9
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including AWR. ARG is also accredited to operate in all the mainland states of Australia, thereby providing ARG
freight service across the Australian continent. On February 13, 2006, we
with the ability to provide rail
announced the Australia Transactions. For additional
information on the Australia Transactions, please see
Item 1. Business – Recent Developments – Australia Transactions.
Under the terms of the ARG shareholders’ agreement, neither shareholder has any capital commitment obligation,
any obligation to fund ARG’s operations nor any obligation to purchase the shares of the other shareholder, but
there are transfer restrictions that limit the ability of a shareholder to sell
its shares in ARG to a third party. ARG
finances its operations through internally generated cash and stand-alone Australian dollar debt which has no
recourse to either shareholder. ARG has no plans 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 officers of ARG and
half of the number of directors of ARG. Further, certain material and significant decisions require the unanimous
consent of the board of ARG or both shareholders.
A u s t r a l i a n C u s t o m e r s
ARG currently serves over 100 customers. A significant 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 approx-
the years ended December 31, 2005, 2004 and 2003,
imately 72%, 74% and 70% of
respectively.
revenue customer was AWB Limited (AWB), a major
marketer and the sole exporter of Australian wheat, which accounted for 17%, 25% and 20% of ARG’s revenues
for the years ended December 31, 2005, 2004 and 2003. ARG typically ships freight under transportation con-
tracts which vary from customer to customer including terms that range from one to up to 15 years, subject to
certain review and extension provisions.
In 2005 and 2004, ARG’s largest
its revenues for
freight
A u s t r a l i a n C o m m o d i t i e s
The following table provides ARG’s freight revenues, carloads and average freight revenues per carload for the
years ended December 31, 2005 and 2004:
A u s t r a l i a n R a i l r o a d G r o u p F r e i g h t R e v e n u e s a n d C a r l o a d s C o m p a r i s o n b y C o m m o d i t y G r o u p
Y e a r s e n d e d D e c e m b e r 3 1 , 2 0 0 5 a n d 2 0 0 4
( U . S . d o l l a r s i n t h o u s a n d s , e x c e p t a v e r a g e p e r c a r l o a d )
Commodity Group
2005
Grain
Other Ores and Minerals
Iron Ore
Alumina
Bauxite
Hook and Pull (Haulage)
Gypsum
Other
$ 80,974
61,072
57,806
21,913
14,749
6,474
3,961
34,506
Freight Revenues
% of
Total
2004
Carloads
Average
Freight
Revenue
per Carload
% of
Total
2005
% of
Total
2004
% of
Total
2005
2004
28.8% $101,987
58,386
21.7%
45,536
20.5%
19,666
7.8%
12,733
5.2%
1,713
2.3%
1.4%
3,662
35,256
12.3%
36.6% 196,938
20.9% 104,067
16.3% 222,357
7.1% 159,689
4.6% 140,034
0.6%
9,753
1.3% 46,679
12.6% 76,194
20.6% 265,712
10.9% 109,418
23.3% 201,613
16.7% 157,168
14.7% 125,793
1.0%
7,332
4.9% 50,394
7.9% 67,891
27.0% $411
11.1% 587
20.5% 260
16.0% 137
12.8% 105
0.7% 664
5.1%
85
6.8% 453
$384
534
226
125
101
234
73
519
Total
$281,455
100.0% $278,939
100.0% 955,711
100% 985,321
100.0% 294
283
C o m m o d i t y G r o u p D e s c r i p t i o n
The Grain commodity group consists of wheat, barley, lupins, canola and oats, which are primarily destined for
export markets.
The Other Ores and Minerals commodity group consists primarily of shipments of coal to power plants and refin-
eries, nickel and minerals sands destined for export markets, and lime used in the resources industry.
The Iron Ore commodity group consists primarily of lump and fine ores destined for export markets and used in
the domestic production of steel.
Alumina is a refined product destined for export markets.
Bauxite is a raw material used in the production of alumina.
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Hook & Pull service consists of various commodities shipped in containers on flat cars.
Gypsum is a raw material used in the production of plasterboard.
Other commodities consist primarily of caustic chemicals used in the production of alumina and various commod-
ities in containers on flat cars.
A u s t r a l i a n N o n - F r e i g h t R e v e n u e s
ARG’s non-freight revenues consist of rail services such as track access fees charged to other railroads, services
related to operation management of the Tarcoola to Darwin rail
line, 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,
2005 and 2004:
A u s t r a l i a n R a i l r o a d G r o u p N o n - F r e i g h t R e v e n u e s C o m p a r i s o n
Y e a r s E n d e d D e c e m b e r 3 1 , 2 0 0 5 a n d 2 0 0 4
( U . S . d o l l a r s i n t h o u s a n d s )
Third party track access fees
Tarcoola to Darwin Line
Other operating income
Total non-freight revenues
A u s t r a l i a n E m p l o y e e s
2005
$20,104
6,888
36,099
% of
Total
2004
31.9% $21,208
10.9%
6,557
57.2% 26,943
% of
Total
38.8%
12.0%
49.2%
$63,091
100.0% $54,708
100.0%
As of December 31, 2005, ARG had 1,181 full-time employees. Of this total, approximately 66% 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 renegotiated the Western
Australia and New South Wales collective enterprise bargaining agreements, each of which has a term of approx-
imately three years. In South Australia, ARG has one collective bargaining agreement that was renegotiated and
became effective in April 2005. ARG believes its relationship with its employees is good.
N O R T H A M E R I C A N S A F E T Y
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 a safety representa-
tive responsible for day-to-day program administration. Operating personnel are trained and certified in train
operations, the transportation of hazardous materials, safety and operating rules, and governmental rules and
regulations. We also participate in committees of the AAR, governmental and industry sponsored safety programs
and the American Short Line and Regional Railroad Association Safety Committee. Our
reportable injury fre-
quency ratio, measured as reportable injuries as defined by the FRA, per 200,000 man hours worked, was 1.99
and 2.01 in 2005 and 2004, respectively.
N O R T H A M E R I C A N I N S U R A N C E
injury and for property damage in the event of
We maintain insurance coverage for losses arising from personal
derailments or other accidents or occurrences. The liability policies have self-insured retentions of up 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
liability policies. The property
injuries associated with grade crossing accidents are also covered under our
damage policies have self-insured retentions ranging from $100,000 to $500,000, depending on the category of
incident.
(FELA), a fault-
Employees of our United States railroads are covered by the Federal Employers’ Liability Act
based system under which injuries and deaths of
litigation.
FELA-related claims are covered under our liability insurance policies. Employees of our industrial switching busi-
ness are covered under workers’ compensation policies.
railroad employees are settled by negotiation or
We believe our insurance coverage is adequate in light of our experience and the experience of the rail
industry.
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N O R T H A M E R I C A N C O M P E T I T I O N
Each of our railroads is typically the only rail carrier directly serving our customers; however, our railroads com-
pete 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 final 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 high-
way competition is involved, the effectiveness of that competition is affected by government policy with respect
to fuel and other taxes, highway tolls, and permissible truck sizes and weights.
To a lesser degree, 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 specific 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 traffic 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 firms 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 financing capa-
bility. We believe our established reputation as a successful acquiror and operator of short line rail properties,
combined with our managerial and financial resources, effectively positions us to take advantage of acquisition
opportunities.
R E G U L A T I O N
U n i t e d S t a t e s
Our U.S. railroads are subject to regulation by:
(cid:1) the Surface Transportation Board (STB),
(cid:1) the FRA,
(cid:1) state departments of transportation, and
(cid:1) 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 effective competition), extension or abandonment of rail
lines, the acquis-
ition of rail
lines, and consolidation, merger or acquisition of control of rail common carriers. In limited circum-
stances, the STB may condition its approval of an acquisition upon the acquiror of a railroad agreeing to provide
severance benefits to certain subsequently terminated employees. The FRA has jurisdiction over safety, which
includes the regulation of equipment standards, track maintenance, handling of hazardous shipments, locomotive
and rail car inspection, repair requirements, operating practices and crew qualifications.
C a n a d a
St. Lawrence & Atlantic Railroad (Quebec)
is a federally regulated railroad and falls under the jurisdiction of the
Canada Transportation Agency (CTA) and Transport Canada (TC) and is subject to the Railway Safety Act. The
CTA regulates construction and operation of federally regulated railways, financial transactions of federally regu-
lated railway companies, all aspects of rates, tariffs and services, and the transferring and discontinuing of the
operation of railway lines. TC administers the Railway Safety Act which ensures that federally regulated railway
companies abide by all regulations with respect to engineering standards governing the construction or alteration
of railway works and the operation and maintenance standards of railway works and equipment.
Quebec Gatineau Railway and Huron Central Railway are subject to the jurisdiction of provincial governments of
Quebec and Ontario, respectively. Provincially regulated railways only operate within one province and hold a
Certificate of Fitness delivered by a provincial authority. In the Province of Quebec, the Fitness Certificate is deliv-
ered by the Transport Commission of Quebec, while in Ontario, under the Short Line Railways Act, a license must
be obtained from the Registrar of Short Line Railways. Construction, operation and discontinuance of operation
are regulated, as well as railway services.
to review under
Acquisitions of additional railroad operations in Canada, whether federally or provincially regulated, may be sub-
ject
(ICA), a federal statue which applies to the acquisition of a
Canadian business or establishment of a new Canadian business by a non-Canadian. In the case of an acquis-
ition that is subject to review, the non-Canadian investor must observe a statutory waiting period prior to com-
pletion and satisfy the Minister responsible for the administration of the ICA that the investment will be of net
benefit to Canada, considering certain evaluative factors set out in the legislation.
the Investment Canada Act
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Any contemplated acquisitions may also be subject to the provision of the Competition Act (Canada), which con-
tains provisions relating to pre-merger notification as well as substantive merger provisions.
A u s t r a l i a
In Australia, regulation of rail safety is generally governed by state legislation and administered by state regu-
legislation with state-based regimes
latory agencies. Regulation of access is governed by overriding federal
operating in compliance with that legislation. ARG’s assets are therefore subject to the regulatory regimes govern-
ing safety in each of the states in which it operates. In addition, with respect to rail
infrastructure access, 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),
(in New South Wales), Tarcoola (in South Australia) and Kalgoorlie (in
Adelaide (in South Australia), Broken Hill
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.
Assuming completion of the Australia Transactions, our ongoing interest in Australia will principally comprise the
current South Australian and Northern Territory interests of ARG, which will be named Genesee & Wyoming Aus-
tralia (GWA). GWA’s intrastate track (leased from the State of South Australia) will continue to be subject
to
South Australia’s access regime. GWA’s interstate access will continue in respect of the standard gauge tracks in
South Australia, connecting standard gauge tracks in Victoria, and the Northern Territory. GWA will continue to
be subject to the state rail safety legislation and regulatory agencies in those locations it does business.
M e x i c o
In Mexico, the Communications and Transport Department (SCT) has jurisdiction over, among other things:
(cid:1) policies and programs related to the railroad system;
(cid:1) the granting of concessions;
(cid:1) the regulation of the concessions and resolution of any issues regarding amendments or terminations to
the concessions;
(cid:1) the regulation of tariff application; and
(cid:1) the imposition of sanctions when operators have not complied with the terms of a concession.
Our Mexican operation, Compañía de Ferrocarriles Chiapas-Mayab, S.A. de C.V. (FCCM), 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.
E N V I R O N M E N T A L M A T T E R S
the environment.
these environmental
In the United States,
laws and regulations relating to the pro-
Our operations are subject to various federal, state, provincial and local
tection of
laws and regulations, which are
implemented principally by the Environmental Protection Agency and comparable state agencies, govern the
the discharge of pollutants into the air and into surface and underground
management of hazardous wastes,
waters, and the manufacture and disposal of certain substances. Similarly,
these functions are
level by Environment Canada and the Ministry of Transport and comparable agencies
administered at the federal
at the provincial
level by the Secretary of Environ-
ment, Natural Resources and Fisheries and the Attorney General
for Environmental Protection, and by com-
parable agencies at the state level. In Australia, these functions are administered primarily by the Department of
level and by environmental protection agencies at the state level. There are no material
Transport at the federal
In
environmental claims currently pending or, to our knowledge, threatened against us or any of our railroads.
laws and regulations.
addition, we believe our railroads operate in material compliance with current environmental
We estimate any expenses incurred in maintaining compliance with current environmental
laws and regulations
will not have a material effect on our earnings or capital expenditures.
level. In Mexico, these functions are administered at the federal
in Canada,
In Mexico, FCCM was awarded a 30-year concession (expiring in 2029) to operate certain railways owned by the
government-owned rail company. Under the terms of
the federal railway company
remains responsible for remediation of all contamination that occurred prior to the execution date of the con-
cession agreement.
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 contain contamination arising from activities associated
with previous operators. The Commonwealth has carried out certain remediation work to meet existing South
Australian environmental standards which reflect the purpose for which the land was used at the date of the sale
and purchase agreement.
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A V A I L A B L E I N F O R M A T I O N
We were incorporated in Delaware on September 1, 1977. We completed our initial public offering in June 1996
and since September 27, 2002, our shares have been listed on the New York Stock Exchange. Our principal
executive offices and corporate headquarters are located at 66 Field Point Road, Greenwich, Connecticut,
06830, and our telephone number is (203) 629-3722.
Our Internet address is www.gwrr.com. 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 amend-
ments to those reports as soon as reasonably practicable after those materials are electronically filed with or
furnished to the SEC. Also, filings made pursuant to Section 16 of the Exchange Act with the SEC by our execu-
tive officers, directors and other reporting persons with respect to our common shares are made available, free
of charge, through our website.
Our website also contains hyperlinks to charters for each of the committees of our Board of Directors, our corpo-
rate governance guidelines and our Code of Ethics.
The information regarding our website and its content is for your convenience only. The information contained on
or connected to our website is not deemed to be incorporated by reference in this Annual Report or filed with the
SEC.
In addition, you may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at
100 F Street, NE, Washington, D.C. 20549 and may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet website that contains reports, proxy
and information statements, and other
file electronically. The SEC website
address is www.sec.gov.
information regarding issuers that
Item 1A. Risk Factors
Our operations and financial condition are subject to certain risks that could cause actual operating and financial
results to differ materially from those expressed or forecast in our forward-looking statements, including the risks
described below and the risks identified in other documents which are filed or furnished with the SEC.
G E N E R A L R I S K S A S S O C I A T E D W I T H O U R B U S I N E S S
I f w e a r e u n a b l e t o c o n s u m m a t e a d d i t i o n a l a c q u i s i t i o n s o r i n v e s t m e n t s , w e m a y n o t b e a b l e t o
s u c c e s s f u l l y i m p l e m e n t o u r g r o w t h s t r a t e g y .
Our growth strategy is based on the selective acquisition, development and investment in rail properties, both in
new regions and in regions in which we currently operate. The success of this strategy will depend on, among
other things:
(cid:1) the availability of suitable opportunities;
(cid:1) the level of competition from other companies that may have greater financial resources;
(cid:1) our ability to value acquisition and investment candidates accurately and negotiate acceptable terms for
those acquisitions and investments;
(cid:1) our ability to identify and enter into mutually beneficial relationships with venture partners; and
(cid:1) the availability of management resources to oversee the integration and operation of the new businesses.
If we are not successful
may be adversely affected.
in implementing our growth strategy, the market price for our Class A Common Stock
O u r i n a b i l i t y t o i n t e g r a t e a c q u i r e d b u s i n e s s e s s u c c e s s f u l l y o r t o r e a l i z e t h e a n t i c i p a t e d c o s t s a v i n g s
a n d o t h e r b e n e f i t s c o u l d h a v e a d v e r s e c o n s e q u e n c e s t o o u r b u s i n e s s .
We have experienced significant growth through acquisitions and we expect to continue to grow through addi-
tional acquisitions. Acquisitions generally result in increased operating and administrative costs and, to the extent
interest costs. We may not be able to manage or integrate the acquired companies
financed with debt, additional
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:
(cid:1) loss of key employees or customers;
(cid:1) possible inconsistencies in or conflicts between standards, controls, procedures and policies among the
combined companies and the need to implement company-wide financial, accounting, information technol-
ogy and other systems;
(cid:1) failure to maintain the quality of services that have historically been provided;
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(cid:1) failure to integrate employees of rail
the our regional railroad culture;
lines acquired from Class I railroads, governments or other entities into
(cid:1) failure to coordinate geographically diverse organizations; and
(cid:1) the diversion of management’s attention from our day-to-day business as a result of the need to manage
any disruptions and difficulties and the need to add management resources to do so.
These disruptions and difficulties, if they occur, may cause us to fail to realize the cost savings, revenue enhance-
ments and other benefits that we expect to result from integrating acquired companies, and may cause material
adverse short- and long-term effects on our operating results, financial condition and liquidity.
Even if we are able to integrate the operations of acquired businesses into our operations, we may not realize the
full benefits of the cost savings, revenue enhancements or other benefits 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, the longevity of specific customer plants and factories served, operat-
ing 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 necessa-
rily speculative in nature. In addition, even if we achieve the expected benefits, 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 offset by costs incurred in integrating the companies, increases in other expenses, operating losses or prob-
lems in the business unrelated to these acquisitions.
Most of our recent and material acquisitions have involved the purchase of stock of existing companies. These
acquisitions, as well as acquisitions of substantially all of the assets of a company may expose us to liability for
actions by an acquired business and its management before the acquisition. The due diligence we conduct in
connection with an acquisition, and any contractual guarantees or indemnities that we receive from the sellers of
liabilities. For our two
acquired companies, may not be sufficient to protect us from, or compensate us for, actual
most recently completed material acquisitions, the GP Railroads and Rail Partners acquisition, other than certain
representations related to fundamental matters, such as ownership of capital stock, most of the representations
made by the sellers have expired in the case of GP or will expire on or before June 2008 in the case of Rail Part-
ners. A material
liability associated with an acquisition, especially where there is no right to indemnification, could
adversely affect our financial condition and operating results.
W e m a y n e e d a d d i t i o n a l c a p i t a l t o f u n d o u r a c q u i s i t i o n s . I f w e a r e u n a b l e t o o b t a i n a d d i t i o n a l
c a p i t a l , w e m a y b e r e q u i r e d t o f o r e g o p o t e n t i a l a c q u i s i t i o n s , w h i c h w o u l d i m p a i r t h e e x e c u t i o n o f o u r
g r o w t h s t r a t e g y .
Since 1996, we have acquired interests in 40 railroads, the majority of which were for cash. As of December 31,
2005, we had undrawn revolver capacity of approximately $135 million available for acquisitions or other activ-
ities. 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 the entire 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 fund our acquisitions. To the extent that we raise additional capital through the sale of equity or con-
vertible debt securities, the issuance of such securities could result in dilution of our existing stockholders. If we
funds through the issuance of debt securities, the terms of such debt could impose additional
raise additional
required, may not be available on acceptable
if
restrictions and costs on our operations. Additional capital,
terms, or at all. If we are unable to obtain additional capital, we may be required to forego potential acquisitions,
which could impair the execution of our growth strategy.
B e c a u s e w e d e p e n d o n C l a s s I r a i l r o a d s a n d o t h e r c o n n e c t i n g c a r r i e r s f o r o u r N o r t h A m e r i c a n
o p e r a t i o n s , o u r o p e r a t i n g r e s u l t s , f i n a n c i a l c o n d i t i o n a n d l i q u i d i t y m a y b e a d v e r s e l y a f f e c t e d i f o u r
r e l a t i o n s h i p s w i t h t h e s e c a r r i e r s d e t e r i o r a t e .
The railroad industry in the U.S. and Canada is dominated by seven Class I carriers that have substantial market
In 2005, more than 85% of our total carloads in North America were inter-
control and negotiating leverage.
trans-
changed with Class I carriers. A decision by any of
portation, such as motor carriers or cease certain freight movements, could have a material adverse effect on our
operating results, financial condition and liquidity. The quantitative impact of such a decision would depend on
which Class I carrier made such a decision and which of our routes were affected.
these Class I carriers to use alternate modes of
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. Deterioration in the oper-
ations of, or service provided by, those connecting carriers, or in our relationship with those connecting carriers,
would adversely affect our operating results, financial condition and liquidity.
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Class I carriers also have traditionally been significant sources of business for us, as well as sources of potential
acquisition candidates as they divest branch lines to smaller
railroads from
Class I carriers under long term lease arrangements, which collectively accounted for approximately 13% of our
2005 revenues. In addition, we own several railroads that also lease portions of the track or right of way upon
which they operate from Class I railroads. 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 proper-
ties, which would adversely affect our operating results, financial condition and liquidity. Because we depend on
Class I carriers for our U.S. and Canadian operations, our operating results, financial condition and liquidity may
be adversely affected if our relationships with those carriers deteriorate.
rail operators. We lease several
Approximately 63% of our Mexican revenues originate and terminate on FCCM’s railroad and FCCM is dependent
on its relationship with Ferrosur S.A. de C.V. (Ferrosur), the connecting carrier, for the remainder of its revenues.
To the extent that we experience service or other commercial disruptions with Ferrosur, our ability to serve exist-
ing customers and expand our business will suffer. In November 2005 Grupo Mexico, the majority owner of Ferro-
carril Mexicano S.A. de C.V. (Ferromex), which is one of the largest railroads in Mexico and principally operates
in the north and western parts of Mexico, announced that
intended to acquire Ferrosur. The transaction is
subject to review by the Mexican Commission on Competition, which rejected a similar transaction in 2002. In
addition, Kansas City Southern de Mexico, which operates between Ferromex and Ferrosur and in the north east-
ern part of Mexico, has commenced legal proceedings to prevent the transaction from closing. We are still evalu-
ating the potential commercial
impact of this transaction on FCCM, which may result in increased costs to FCCM
or limitations on FCCM’s ability to access traffic originating or terminating on KCS-Mexico’s network.
it
O u r N o r t h A m e r i c a n o p e r a t i o n s a r e d e p e n d e n t o n o u r a b i l i t y t o o b t a i n r a i l c a r s a n d l o c o m o t i v e s f r o m
o t h e r p r o v i d e r s .
Much of
the freight
transported by our U.S. and Canadian railroads moves on railcars supplied by other
In 2005, approximately 88% of our railcars were
independent providers pursuant
leased. If the number of railcars supplied by such other rail providers is insufficient, or if the cost of obtaining
these railcars increases, we might not be able to obtain replacement railcars on favorable terms or at all and
shippers may seek alternate forms of transportation. In addition, in some cases we use third-party locomotives to
provide transportation services to our customers. Without these third-party locomotives, we would need to invest
additional capital
to short-term arrangements.
in locomotives.
W e f a c e c o m p e t i t i o n f r o m n u m e r o u s s o u r c e s , i n c l u d i n g t h o s e r e l a t i n g t o g e o g r a p h y , s u b s t i t u t e
p r o d u c t s , o t h e r t y p e s o f t r a n s p o r t a t i o n a n d o t h e r r a i l o p e r a t o r s .
railroads is typically the only rail carrier directly serving our customers. Our
railroads, however,
Each of our
compete directly with other modes of transportation, principally motor carriers and, on some routes, ship, barge
and pipeline operators. Transportation providers such as motor carriers and barges utilize public rights-of-way
that are built and maintained by governmental entities while we must build and maintain our network. If the scope
and quality of these alternative methods of transportation are materially increased, or if legislation is passed pro-
viding materially greater opportunity for motor carriers with respect to size or weight restrictions, we could suffer
a material adverse effect on our operating results, financial condition and liquidity.
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
In either case, we would lose a source of revenues, which could have a material adverse
transported by rail.
effect on our operating results, financial condition and liquidity.
The extent of this competition varies significantly 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 approximately 86% of our carloads involve interchange
with another carrier, we have only limited control over the total 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
trans-
portation, could have a material adverse effect on our operating results, financial condition and liquidity.
legislation granting materially greater
latitude for other modes of
It is difficult to quantify the potential
each customer location and each product shipped from such location is subject to different types of competition.
impact of competition on our business, since not only each customer, but also
W e a r e s u b j e c t t o s i g n i f i c a n t g o v e r n m e n t a l r e g u l a t i o n o f o u r r a i l r o a d o p e r a t i o n s . T h e f a i l u r e t o
c o m p l y w i t h g o v e r n m e n t a l r e g u l a t i o n s c o u l d h a v e a m a t e r i a l a d v e r s e e f f e c t o n o u r o p e r a t i n g r e s u l t s ,
f i n a n c i a l c o n d i t i o n a n d l i q u i d i t y .
We are subject to governmental regulation in the U.S. by a significant number of
federal, state and local regu-
latory authorities, including the STB, the FRA and state departments of transportation, with respect to our rail-
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road 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 we operate. Our failure to comply with applicable laws and
regulations could have a material adverse effect on our operating results, financial condition and liquidity. In addi-
tion, governments may change the regulatory framework within which we operate without providing us with any
recourse for any adverse effects that the change may have on our operating results, financial condition or liquid-
ity. Also, some of the regulations require us to obtain and maintain various licenses, permits and other author-
izations, and we may not continue to be able to do so.
W e c o u l d i n c u r s i g n i f i c a n t c o s t s f o r v i o l a t i o n s o f , o r l i a b i l i t i e s u n d e r , e n v i r o n m e n t a l l a w s a n d
r e g u l a t i o n s .
Our railroad operations and real estate ownership are subject to extensive foreign, federal, state and local envi-
laws and regulations concerning, among other things, emissions to the air, discharges to waters, and
ronmental
transportation and disposal of waste and other materials and cleanup of hazardous
the handling, storage,
material or petroleum releases. We may incur environmental
liability 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), 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) may be 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 affected properties or other
third parties affected 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 obliga-
tions. Environmental requirements and liabilities could obligate us to incur significant costs, including significant
expenses to investigate and remediate environmental contamination, which could have a material adverse effect
on our operating results, financial condition and liquidity.
S o m e o f o u r e m p l o y e e s b e l o n g t o l a b o r u n i o n s , a n d s t r i k e s o r w o r k s t o p p a g e s c o u l d a d v e r s e l y a f f e c t
o u r o p e r a t i n g r e s u l t s , f i n a n c i a l c o n d i t i o n a n d l i q u i d i t y .
We are a party to collective bargaining agreements with various labor unions in the United States, Mexico, Austral-
ia, Canada and Bolivia. In North America, we are party to 35 contracts with national
labor organizations. We are
currently engaged in negotiations with respect
those agreements. We have also entered into
to seven of
employee bargaining agreements with an additional 70 employees who represent themselves. In each of Western
Australia, South Australia and New South Wales, ARG has a collective enterprise bargaining agreement covering
the majority of employees. Our
in,
among other things, strikes, work stoppages or other slowdowns by the affected workers. If the unionized work-
ers 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 significant dis-
ruption of our operations and/or higher ongoing labor costs, which in either case could materially adversely affect
our operating results, financial 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 flexibility.
In addition, work inter-
ruptions may be threatened which could cause customers to seek other transportation alternatives, with a corre-
sponding adverse financial
inability to negotiate acceptable contracts with these unions could result
impact.
I f w e a r e u n a b l e t o e m p l o y a s u f f i c i e n t n u m b e r o f s k i l l e d w o r k e r s , o u r o p e r a t i n g r e s u l t s , f i n a n c i a l
c o n d i t i o n a n d l i q u i d i t y m a y b e m a t e r i a l l y a d v e r s e l y a f f e c t e d .
We believe that our success depends upon our ability to employ and retain skilled workers that possess the abil-
ity 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, often
resulting in a high employee turnover rate when compared to many other industries.
In addition, our ability to
expand our operations depends in part on our ability to attract and retain skilled workers. Since 2003, our rev-
enue has increased 57.4%. Over the same period, our annual average number of North American employees has
increased 24% from 1,819 for 2003 to 2,260 for 2005. Within the next seven years, we estimate approximately
12% of the current workforce will become eligible for retirement. Approximately two-thirds of these workers hold
key operating positions, such as conductors, engineers, and mechanics. In addition, the demand for workers with
these types of skills has increased, especially from Class I railroads, which can usually offer higher wages and
better benefits. A significant increase in the wages paid by competing employers could result in a reduction of
our skilled labor force or an increase 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
financial condition and
impaired, each of which could have a material adverse effect on our operating results,
2005 FORM 10K Genes ee & Wyoming Inc. 17
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liquidity. For example, a $1.00 per hour increase in wage rates for the average number of U.S. hourly employees
during 2005 principally involved in operating activities would have increased annual
labor expenses by approx-
imately $3.2 million.
T h e o c c u r r e n c e o f l o s s e s o r o t h e r l i a b i l i t i e s w h i c h a r e n o t c o v e r e d b y i n s u r a n c e o r w h i c h e x c e e d o u r
i n s u r a n c e l i m i t s c o u l d m a t e r i a l l y a d v e r s e l y a f f e c t o u r o p e r a t i n g r e s u l t s , f i n a n c i a l c o n d i t i o n a n d
l i q u i d i t y .
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 cir-
trains or spillage of hazardous materials could cause our
cumstances such as accidents involving passenger
insurers and we
liability to exceed our insurance limits. Insurance is available from only a very limited number of
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
insured retentions and could result in limitations to the coverage under
our insurance premiums and/or our self
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 affect our operating results, financial condition and liquidity.
R i s i n g f u e l c o s t s c o u l d m a t e r i a l l y a d v e r s e l y a f f e c t o u r o p e r a t i n g r e s u l t s , f i n a n c i a l c o n d i t i o n a n d
l i q u i d i t y .
Fuel costs constitute a significant portion of our total operating expenses. Fuel costs for fuel used in operations
were approximately 12.2% and 10.0% of our operating expenses for the years ended December 31, 2005 and
2004, respectively. Fuel costs for fuel used in operations were approximately 11.8% and 10.0% of ARG’s operat-
ing expenses for the years ended December 31, 2005 and 2004, respectively. Fuel prices and supplies are influ-
enced significantly by factors beyond our and ARG’s control, such as international political and economic
through certain of our contractual relationships with certain
circumstances.
Class I railroads, we are partially compensated for increases in fuel costs through fuel surcharges. For instance,
for the year ended December 31, 2005, average fuel prices increased by approximately 36.4%. Through the use
of fuel surcharges in the U.S., we were able to pass through approximately 73% of this increase, excluding fuel
surcharges associated with acquisitions.
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 effect on our and ARG’s operat-
ing results, financial condition and liquidity.
If Class I railroads change their policies regarding fuel surcharges,
In the United States and Canada,
T h e l o s s o f i m p o r t a n t c u s t o m e r s o r c o n t r a c t s m a y a d v e r s e l y a f f e c t o u r o p e r a t i n g r e s u l t s , f i n a n c i a l
c o n d i t i o n a n d l i q u i d i t y .
In North America, the freight revenue from our ten largest North American freight revenue customers accounted
for approximately 24%, 27% and 27% of our operating revenues in 2005, 2004 and 2003, respectively. In 2005
and 2004, our largest North American freight revenue customer was a company in the paper and forest products
freight revenue from which accounted for approximately 8% of our North American revenues in these
industry,
years. In 2003, our largest North American freight revenue customer was a coal-fired electricity generating plant,
freight revenue from which accounted for approximately 5% of our North American revenues. ARG’s ten largest
customers accounted for approximately 72%, 74% and 70% of its operating revenues in 2005, 2004 and 2003,
respectively.
In 2005, 2004 and 2003, ARG’s largest customer was AWB, which accounted for approximately
17%, 25% and 20% respectively, of ARG’s operating revenues. The loss of one or more of our or ARG’s largest
customers or the loss or material modification of one or more key contracts with such customers could have a
material adverse effect on our operating results, financial condition and liquidity.
O u r r e s u l t s o f o p e r a t i o n s a r e s u s c e p t i b l e t o d o w n t u r n s i n t h e g e n e r a l e c o n o m y .
like other
the
In any given year, we,
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 reflect this cyclicality because of the significant fixed 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 vol-
ume of rail shipments carried by us is likely to be affected.
railroads, are susceptible to changes in the economic conditions of
O u r r e s u l t s o f o p e r a t i o n s a r e s u s c e p t i b l e t o s e v e r e w e a t h e r c o n d i t i o n s a n d o t h e r n a t u r a l
o c c u r r e n c e s .
We are susceptible to adverse weather conditions, including floods, fires, hurricanes, droughts, earthquakes and
other natural occurrences. For example:
(cid:1) Mexico’s revenues were reduced in 2005 as a result of the impact of Hurricane Stan;
18 Genes ee & Wyoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 18 Color; Composite
(cid:1) ARG’s revenues may be reduced as a result of droughts (drought conditions during the 2002 growing
season resulted in a significant reduction in ARG’s grain shipments in 2003) or as a result of flash floods,
which could damage our tracks and impact our operations;
(cid:1) Our minerals and stone revenues, which include 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 and the Southeastern United States could cause a shutdown or substantial disruption of
operations, which could have a material adverse effect on our operating results, financial condition and liquidity.
In addition, even if a material adverse weather or other condition does not directly affect our operations, it can
impact the operations of our customers or connecting carriers. Such weather conditions could cause our custom-
ers or connecting carriers to reduce or suspend their operations, which could have a material adverse effect on
our results, financial conditions and liquidity. Furthermore, our expenses could be adversely impacted by weath-
er,
in our New York-
Pennsylvania and Canada Regions or possible track repairs related to washouts in Mexico during the rainy
season.
track maintenance and overtime costs in the winter
for example, higher
including,
T h e d e v e l o p m e n t o f s o m e o f o u r b u s i n e s s c o u l d b e h i n d e r e d i f w e f a i l t o m a i n t a i n s a t i s f a c t o r y
w o r k i n g r e l a t i o n s h i p s w i t h o u r j o i n t v e n t u r e p a r t n e r s o r o t h e r i n v e s t o r s .
We conduct some of our operations through joint ventures in which we own a significant, but less than a control-
ling, ownership interest. In particular, we own a 50% interest in ARG and a 22.89% interest in our Bolivian oper-
ations. In these operations, we do not have control over the operations of the venture. The particular corporate
governance provisions affecting our interests vary from venture to venture, but in general, we must obtain the
cooperation of other investors in the venture in order to implement and expand upon our business strategies. Any
failure to maintain satisfactory working relationships with these other investors or the need to expend significant
in a
interests with the interests of
management
material adverse effect on our operating results, financial condition and liquidity.
resources and time to align our
these partners could result
C e r t a i n o f o u r c a p i t a l p r o j e c t s a n d f o r e i g n o p e r a t i o n s m a y b e i m p a c t e d b y o u r r e l a t i o n s h i p s w i t h
g o v e r n m e n t e n t i t i e s .
Certain of our existing capital projects are, and certain of our future capital projects may be, at least partially
dependent on our ability to obtain government
funding. Within the United States, during 2005, we previously
obtained funds for seven separate projects, which were funded by federal, state and municipal agencies. These
funds represented 11.6% of our capital expenditures in the United States. Government funding for our projects is
level or changing gov-
limited, and there is no guarantee that budget pressure at the federal, state and local
ernmental priorities will not eliminate future funding availability. In addition, competition for government funding
from other short line railroads, Class I railroads, infrastructure and other companies is significant and the receipt
of government funds is often contingent on the acceptance of contractual obligations that may not be strictly
profit maximizing. In certain jurisdictions, the acceptance of government funds may impose additional
legal obliga-
tions on our operations, such as compliance with prevailing wage requirements.
O u r c r e d i t f a c i l i t i e s c o n t a i n n u m e r o u s c o v e n a n t s t h a t i m p o s e c e r t a i n r e s t r i c t i o n s o n t h e w a y w e
o p e r a t e o u r b u s i n e s s .
Our credit facilities contain covenants imposing restrictions on our ability to, among other things:
(cid:1) incur additional debt;
(cid:1) create liens on our assets;
(cid:1) make certain types of investments;
(cid:1) repurchase shares or pay dividends;
(cid:1) make expenditures for capital projects;
(cid:1) merge or consolidate with others;
(cid:1) effect non-ordinary course asset acquisitions;
(cid:1) dispose of assets or use asset sale proceeds;
(cid:1) enter into sale and leaseback transactions; and
(cid:1) enter into transaction with affiliates;
Our credit facilities also contain financial covenants that require us to meet a number of financial ratios and tests.
Our failure to comply with the obligations in our credit facilities could result in events of default under the credit
facilities, which, if not cured or waived, could permit acceleration of our indebtedness, allowing our senior lend-
ers to foreclose on our assets.
2005 FORM 10K Genes ee & Wyoming Inc. 19
Job: 39566_003 Genesee & Wyoming Page: 19 Color; Composite
A c t s o f t e r r o r i s m o r a n t i - t e r r o r i s m m e a s u r e s m a y a d v e r s e l y a f f e c t u s .
lines, port operations and other facilities and equipment, including rail cars carrying hazardous materials,
Our rail
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 significant business interruption and may
adversely affect our operating results, financial 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 affect our operating results, financial condition, and liquidity.
A D D I T I O N A L R I S K S A S S O C I A T E D W I T H O U R F O R E I G N O P E R A T I O N S
G e n e r a l
W e a r e s u b j e c t t o t h e r i s k s o f d o i n g b u s i n e s s i n f o r e i g n c o u n t r i e s .
Some of our significant subsidiaries transact business in foreign countries, namely in Canada and Mexico, and we
have equity investments in Australia and Bolivia. In addition, we may consider acquisitions or other investments in
other foreign countries in the future. The risks of doing business in foreign countries include:
(cid:1) adverse renegotiation or modification of existing agreements or arrangements with governmental author-
ities,
(cid:1) adverse changes or greater volatility in the economies of those countries,
(cid:1) adverse effects of currency exchange controls,
(cid:1) adverse currency movements that make goods produced in those countries which are destined for export
markets less competitive,
(cid:1) adverse changes to the regulatory environment of those countries,
(cid:1) adverse changes to the tax laws and regulations of those countries,
(cid:1) restrictions on the withdrawal of foreign investment and earnings,
(cid:1) the nationalization of the businesses that we operate,
(cid:1) the actual or perceived failure by us to fulfill commitments under concession agreements,
(cid:1) the potential
(cid:1) the challenge of managing a culturally and geographically diverse operation.
instability of foreign governments, including from domestic insurgency, and
B e c a u s e s o m e o f o u r s i g n i f i c a n t s u b s i d i a r i e s a n d a f f i l i a t e s t r a n s a c t b u s i n e s s i n f o r e i g n c u r r e n c i e s ,
a n d b e c a u s e a s i g n i f i c a n t p o r t i o n o f o u r n e t i n c o m e c o m e s f r o m t h e o p e r a t i o n s o f o u r f o r e i g n
s u b s i d i a r i e s , f u t u r e e x c h a n g e r a t e f l u c t u a t i o n s m a y a d v e r s e l y a f f e c t u s a n d m a y a f f e c t t h e
c o m p a r a b i l i t y o f o u r r e s u l t s b e t w e e n f i n a n c i a l p e r i o d s .
Our operations in Mexico and Canada accounted for 9.1% and 13.2% of consolidated revenues, respectively, and
ARG accounted for 18.9% of consolidated net income for the year ended December 31, 2005. The results of
operations of our foreign operations are reported in the local currency – the Australian dollar, the Canadian dollar
and the Mexican peso – and then translated into U.S. dollars at the applicable exchange rates for inclusion in our
consolidated financial statements. As a result, any appreciation or depreciation of these currencies against the
U.S. dollar can impact our results. The exchange rates between these currencies and the U.S. dollar have fluc-
tuated significantly in recent years and may continue to do so in the future. For instance,
in the year ended
December 31, 2005, the Australian dollar, the Canadian dollar and the Mexican peso appreciated 3.5%, 9.9%
and 3.6%, respectively, relative to the U.S. dollar.
In addition, as a result of U.S. dollar denominated intercompany debt between our Mexican subsidiaries, we are
subject to increased non-cash expense when the Mexican peso appreciates. For the year ended December 31,
2005,
these non-cash expenses totaled $750,000. The functional currency of our Bolivian operations is the
U.S. dollar. We cannot assure that we will be able to effectively manage our exchange rate risks and the volatility
in currency exchange rates may have a material adverse effect on our operating results, financial condition and
liquidity. In addition, because our financial statements are stated in U.S. dollars, such fluctuations may affect our
results of operations and financial position and may affect the comparability of our results between financial peri-
ods.
F a i l u r e t o m e e t c o n c e s s i o n c o m m i t m e n t s w i t h r e s p e c t t o o p e r a t i o n s o f o u r r a i l l i n e s c o u l d r e s u l t i n
t h e l o s s o f o u r i n v e s t m e n t a n d a r e l a t e d l o s s o f r e v e n u e s .
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
including those relating to the maintenance of certain standards with respect to safety, service,
of conditions,
20 Genes ee & Wyoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 20 Color; Composite
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 con-
cession 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. Our operations
in Mexico accounted for 9.1% of consolidated revenues, and our interest in ARG and Bolivia accounted for 18.9%
and 1.2%, respectively of consolidated net income for the year ended December 31, 2005.
A R G - r e l a t e d R i s k s
A u s t r a l i a ’ s o p e n a c c e s s r e g i m e c o u l d l e a d t o a d d i t i o n a l c o m p e t i t i o n f o r A R G ’ s b u s i n e s s a n d
d e c r e a s e d r e v e n u e s a n d p r o f i t m a r g i n s .
Australia’s open access regime could lead to additional competition for ARG’s business, which could result in
decreased revenues and profit margins. The legislative and regulatory framework in Australia allows third party
rail operators to gain access to ARG’s railway infrastructure, and in turn governs ARG’s access to track owned
by others. 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 were increased, ARG’s operating margins could be negatively affected.
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 did not meet com-
petitive standards, then ARG’s income from those fees could be negatively affected.
the owners of
including Commonwealth-owned and State-owned
When ARG operates over track networks owned by others,
networks,
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 will not be adequately maintained. Either risk
could affect ARG’s operating results, financial condition and liquidity.
the network rather than the operators are responsible for scheduling the use of
A R G m a y b e a d v e r s e l y a f f e c t e d b y u n f a v o r a b l e c o n d i t i o n s i n t h e A u s t r a l i a n a g r i c u l t u r a l i n d u s t r y
b e c a u s e a s u b s t a n t i a l p o r t i o n o f A R G ’ s r a i l r o a d t r a f f i c c o n s i s t s o f a g r i c u l t u r a l c o m m o d i t i e s .
freight
its rail
revenues from shipments of grain. For
the years ended
ARG derives a significant portion of
December 31, 2005, 2004 and 2003, grain shipments generated 23.5%, 30.6% and 24.5%,
respectively, of
ARG’s operating revenues. A decrease in grain shipments as a result of adverse weather or other negative agricul-
tural conditions could have a material adverse effect on ARG’s operating results, financial condition and liquidity.
For example, drought conditions during the 2002 growing season resulted in a significant reduction in ARG’s
grain shipments in 2003. In addition, ARG’s largest freight customer, AWB, is the subject of a government inves-
tigation and may lose its exclusive exporter status. If AWB loses its sole exporter status, under certain circum-
stances, it has the right to re-negotiate the terms of the contracts with ARG, which could affect ARG’s operating
results, financial condition and liquidity.
A R G m a y b e s u b j e c t t o s i g n i f i c a n t a d d i t i o n a l e x p e n d i t u r e s i n o r d e r t o c o m p l y w i t h C o m m o n w e a l t h
a n d / o r s t a t e r e g u l a t i o n s .
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
in the Northern Territory and in all mainland states.
Changes in safety regulations or other regulations or the imposition of new regulations or conflicts among state
and/or Commonwealth regulations could require ARG to make significant expenditures and to incur significant
expenses in order to comply with these regulations.
to operate on Commonwealth-owned track,
A u s t r a l i a T r a n s a c t i o n s - R e l a t e d R i s k s
T h e c l o s i n g o f t h e A u s t r a l i a T r a n s a c t i o n s a r e s u b j e c t t o c e r t a i n r i s k s .
The ARG Sale and our GWA Purchase are subject to customary closing conditions, including certain approvals
the Foreign Investment Review Board,
from the States of Western Australia and South Australia, approval of
approval of the Australian Competition and Consumer Commission and approvals of the Rail Safety Regulators in
Western and South Australia. Accordingly, we cannot predict when these approvals will be obtained, or the timing
of the closing of these transactions. In addition, the purchasers in the ARG Sale transaction may not be able to
satisfy their obligations to complete the transaction within the deadlines specified in the relevant agreements,
although the purchasers would generally forfeit their right to the return of the deposit as a result. Due to these
uncertainties, we can offer no assurance that the transactions will be consummated as planned and any delays
associated with transactions could impose additional costs upon us, which could adversely affect our financial
condition and operating results and reduce the expected benefits associated with these transactions. Moreover,
2005 FORM 10K Genes ee & Wyoming Inc. 21
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failure to close the Australia Transactions, under certain circumstances, may lead to an adverse perception of
ARG by its employees, customers or suppliers, which could have a material adverse effect on ARG’s financial
condition, operating results and cash flow.
A s s u m i n g t h e c l o s i n g o f t h e A u s t r a l i a T r a n s a c t i o n s , G W A w i l l b e s u b j e c t t o s e v e r a l c o n t r a c t u a l
r e s t r i c t i o n s o n i t s a b i l i t y t o c o m p e t e .
The regulatory risks applicable to ARG under “ARG-related Risks” are generally applicable to GWA as well.
In
addition, as part of the ARG Sale, GWA will be subject to (a) a five-year non-compete in the State of Western
Australia, the Melbourne to Adelaide corridor and certain areas within the State of New South Wales currently
served by ARG; (b) a right of first refusal for the benefit of Queensland Rail on the sale of (i) GWA or a majority of
the ownership of GWA, (ii) a number of high horse-power locomotives and intermodal wagons owned or operated
by GWA and (iii) assets of GWA’s yard and facilities at Port Augusta; and (c) a restriction on hiring of ARG
employees who remain employed by ARG after the closing. These contractual restrictions may place limits on our
ability to grow GWA’s business, which could have a material adverse effect on GWA’s operating results, financial
condition and liquidity.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
Genesee & Wyoming, through our subsidiaries and unconsolidated affiliates, currently has interests in 49 short
line and regional
freight railroads, of which 41 are located in the United States, three are located in Canada,
three are located in Australia, one is located in Mexico and one is located in Bolivia. These rail properties typically
to the railroad rights-of-way is generally
consist of
retained by the seller, and our holdings of such property are not material. Similarly, the seller typically retains
mineral rights and rights to grant fiber optic and other easements in the properties acquired by 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.
the track and the underlying land. Real estate adjacent
Our railroads operate over approximately 9,300 miles of track that is owned, jointly-owned or leased by us or our
affiliates. We or our affiliates’ 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 747 miles of sidings
located in the U.S. (584 miles), in Canada (87 miles) and in Mexico (76 miles).
22 Genes ee & Wyoming Inc. 2005 FORM 10K
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The following table sets forth certain information as of December 31, 2005 with respect to our railroads:
Railroad and Location
Year
Acquired
Track
Miles
Notes
Structure
Connecting Carriers(1)
UNITED STATES:
Genesee and Wyoming Railroad Company (GNWR)
1899
New York
The Dansville & Mount Morris Railroad Company (DMM)
1985
New York
Rochester & Southern Railroad, Inc. (RSR) New York
Louisiana & Delta Railroad, Inc. (LDRR) Louisiana
Bradford Industrial Rail, Inc. (BR) Pennsylvania
Buffalo & Pittsburgh Railroad, Inc. (BPRR) New York,
Pennsylvania
Allegheny & Eastern Railroad, Inc. (ALY) Pennsylvania
Willamette & Pacific Railroad, Inc. (WPRR) Oregon
Portland & Western Railroad, Inc. (PNWR) Oregon
Pittsburg & Shawmut Railroad, Inc. (PS) Pennsylvania
Illinois & Midland Railroad, Inc. (IMR) Illinois
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 Buffalo Railway (SB) New York
St. Lawrence & Atlantic Railroad Company (SLR) Maine,
New Hampshire and Vermont
York Railway Company (YRC) Pennsylvania
Utah Railway Company (URC) Utah
Salt Lake City Southern Railroad Company (SLCS) Utah
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
First Coast Railroad Inc. (FCRD) Florida, Georgia
AN Railway, L.L.C. (AN) Florida
Atlantic & Western Railway, L.P. (ATW) North Carolina
Bay Line Railroad, L.L.C. (BAYL) Alabama, Florida
East Tennessee Railway, L.P. (ETRY) Tennessee
Evansville Belt Railroad, Inc. (EBLR) Indiana
Galveston Railroad, L.P. (GVSR) Texas
Georgia Central Railway, L.P. (GC) Georgia
KWT Railway, Inc. (KWT) Kentucky, Tennessee
Little Rock & Western Railway, L.P.(LRWN) Arkansas
Meridian & Bigbee Railroad, L.L.C. (MNBR) Alabama,
Mississippi
Riceboro Southern Railway, L.L.C. (RSOR) Georgia
Tomahawk Railway, L.P. (TR) Wisconsin
Valdosta Railway, L.P. (VR) Georgia
Western Kentucky Railway, L.L.C. (WKRL) Kentucky
Wilmington Terminal Railroad, L.L.C. (WTRY) North
Carolina
1986
1987
1988
1988
1992
1993
1995
1996
1996
1996
1996
1997
1998
1998
2001
2002
2002
2002
2002
2003
2003
2003
2004
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
26
8
50
86
4
338
130
184
287
160
97
17
2
23
20
18
54
168
42
47
2
15
52
57
24
31
96
11
111
10
6
38
171
75
79
147
18
6
10
20
17
(2) Owned
CP, DMM, RSR, NS, CSX
(2) Owned
GNWR
(3) Owned
(4) Owned/Leased
(5) Owned
(6) Owned/Leased
(7) Owned
(8)
Leased
(9) Owned/Leased
(10) Owned/Leased
(11) Owned
(12) Owned/Leased
Leased
(13)
BPRR, CP, GNWR, CSX
UP, BNSF
BPRR,
ALY, BR, CN, CP, CSX,
NS, PS, RSR, AVR
BPRR, NS, CSX
UP, PNWR, HLSC
BNSF, UP, WPRR, POTB
BPRR, NS
BNSF, IAIS, CN, NS,
TZPR, TPW, UP
NS
NS, CSX
(14)
Leased
(15) Owned/Leased
(16)
Leased
(17) Owned
(18) Owned
UP, BNSF, TM
CSX, NS
CSX, NS
BPRR, CSX, NS CP, CN
GRS, SLQ
(18) Owned
(19) Owned
(20) Owned
(21) Owned
(21) Owned
(21) Owned
Leased
(22)
Leased
(23)
Leased
(24)
(24) Owned
(24) Owned
(24) Owned/Leased
(24) Owned
Leased
(24)
(24) Owned/Leased
(24) Owned
(24) Owned
(24) Owned/Leased
CSX, NS
UP, BNSF
UP, BNSF
CSX, NS
UP, KCS
UP, KCS
CN, UP, NS, BNSF,
TPW, IAIS, IMRR
CSXT, SM
CSX
CSX, NS
CSX, CHAT
CSX, NS
BNSF, UP
CSX, NS
CSX
BNSF, UP
CSX, KCS, NS, AGR
(24)
Leased
(24) Owned
(24) Owned
(24) Owned
Leased
(24)
CSX
CN
CSX, NS
CSX
2005 FORM 10K Genes ee & Wyoming Inc. 23
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CANADA:
Huron Central Railway Inc. (HCR) Canada
Quebec Gatineau Railway Inc. (QGRY) Canada
St. Lawrence & Atlantic Railroad (Quebec) Inc. (SLQ) Canada
MEXICO:
Compañía 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)
1997
1997
2002
173
313
95
(25)
Leased
(26) Owned/Leased
(18) Owned
CP, CN
CP, CN
CP, CN, MMA
1999
989
(27)
Leased
FSRR
Various
4,186
(28)
Leased
Open Access
2000
773
(29)
Leased
General Belgrano,
Novoeste
(1) See Legend of Connecting Carriers following this table.
(2) The GNWR and DMM are now operated by RSR.
(3) In addition, RSR has a haulage contract over 52 miles of CP.
(4) Includes 14 miles under a lease with M.A. Patout & Sons 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.
(5) In addition, BR operates by trackage rights over 14 miles of BPRR. BR merged with BPRR on January 1, 2004.
(6) Includes 92 miles under perpetual
leases and 41 miles and 9 miles under leases with CSX 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.
(7) ALY operates by trackage rights over 3 miles of NS. ALY merged with BPRR on January 1, 2004.
(8) All under lease with UP 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.
(9) Includes 53 miles under lease with BNSF 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 pur-
chased in July 1997 and 76 miles under lease with UP 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) Includes 11 miles leased pursuant to an operating contract with Shannon Transport. PS merged with BPRR on January 1, 2004.
In 2005, we sold approximately 30 miles of owned track that duplicates service provided by BPRR.
(11) In addition, IMR operates by trackage rights over 15 miles of CN, 9 miles of TZPR and 5 miles of UP.
(12) Includes 13 miles under lease with NS expiring in 2009.
(13) All under lease with Jacksonville Port Authority expiring in 2006.
(14) All under lease with Port of Corpus Christi Authority of Nueces County Texas 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 13 miles which are under lease with Georgia Port Authority 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) SB was acquired October 1, 2001 from Bethlehem Steel.
(18) Subsidiary of Emons Transportation Group, Inc., acquired February 22, 2002.
(19) URC was acquired August 28, 2002. In addition, URC operates by trackage rights over 326 miles of UP.
(20) Subsidiary of Utah Railway Company, acquired August 28, 2002. In addition, SLCS operates by trackage rights over 21 miles of
UP.
(21) All acquired on December 31, 2003 from Georgia Pacific Corporation.
(22) All under lease with Peoria and Pekin Union Railway expiring in 2024.
(23) All under lease with CSX expiring in 2025.
(24) All acquired on June 1, 2005 from RMC. Includes certain lines under leases with CSX, Port of Galveston and the City of Wilming-
ton, NC. EBLR is currently non-operating and does not connect to any other carriers.
(25) All under lease with CP expiring in 2017, with renewal options subject to both parties’ consent.
(26) Consists of 295 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 37 miles of CP.
(27) 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 199 miles on Ferrosur (another privatized rail concession) and a
government-owned line.
24 Genes ee & Wyoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 24 Color; Composite
(28) ARG is composed of three principal subsidiaries, ASR, AWR, and 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.
(29) 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.
AGR
AVR
BNSF
CHAT
CN
CP
CSX
FSRR
GRS
HLSC
IAIS
KCS
MMA
NS
POTB
SM
TM
TPW
UP
Legend of Connecting Carriers
Alabama & Gulf Coast Railway LLC
Allegheny Valley Railroad
Burlington Northern Santa Fe Railway Company
The Chattahoochee & Gulf Railroad Co., Inc.
Canadian National
Canadian Pacific Railway
CSX Transportation, Inc.
Ferrocarriles del Sureste
Guilford Rail System
Hampton Railway
Iowa Interstate Railroad, Ltd.
Kansas City Southern
Montreal, Maine & Atlantic Railway, Ltd.
Norfolk Southern Corp.
Port of Tillamook Bay Railroad
St Mary’s Railroad
The Texas Mexican Railway Company
Toledo, Peoria & Western Railway Corp.
Union Pacific Railroad Company
As of December 31, 2005, rolling stock of our North American operations consisted of 431 locomotives of which
329 were owned and 102 were leased, and 9,999 freight cars, of which 1,159 were owned and 8,840 were
leased. A breakdown of the types of freight cars owned and leased is set forth in the table below.
E Q U I P M E N T
Rail Cars by Car Type:
Box
Hoppers
Flats
Gondolas
Covered Hoppers
Tank cars
Auto Racks
Item 3. Legal Proceedings
R a i l P a r t n e r s
Leased Owned Totals
6,214
1,020
1,049
159
277
116
5
599
258
194
108
—
—
—
6,813
1,278
1,243
267
277
116
5
8,840
1,159
9,999
On February 23, 2006, James Owens and the Board of Trustees of Galveston Wharves (the Port)
filed an
amended complaint in the County Court for Galveston County against Genesee & Wyoming Inc., Galveston Rail-
road, L.P. (Galveston Railroad) and certain other of our subsidiaries, and the general manager of the Galveston
Railroad and RMC, the former owner of the Galveston Railroad. The claims arise in connection with the Galveston
Railroad’s lease of
the
Port.
the Port’s facilities and the Galveston Railroad’s rail services undertaken on behalf of
Mr. Owens alleges that prior to 2003, the Galveston Railroad violated a confidentiality agreement with a company
he controls relating to the joint storage and switching of rail cars at the Port. Mr. Owens seeks $4.6 million in
damages plus an amount to be determined for punitive and similar damages.
2005 FORM 10K Genes ee & Wyoming Inc. 25
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The Port alleges that since 1987 the Galveston Railroad has improperly engaged in efforts to reduce revenues
shared with the Port. In addition, the Port alleges that in 1997, the general manager, in his prior position as an
employee of the Port, improperly induced the Port to enter into a 40 year extension of the lease without the Port
receiving adequate consideration. The Port seeks to have the right to unilaterally terminate the lease and has
requested an accounting for its share of revenues generated by Galveston Railroad.
We acquired the Galveston Railroad in June of 2005, and thus substantially all of the alleged improper conduct
occurred prior
to the securities purchase agreement
the Galveston Railroad. Pursuant
related to the purchase of the Galveston Railroad, these claims are subject to indemnification by RMC, and RMC
has acknowledged that it is obligated to indemnify us for these claims in accordance with the terms of the secu-
rities purchase agreement. We and RMC believe that these claims are without merit.
to our acquisition of
C a n a d a
In February 2002, Mr. Paquin, an individual
living adjacent to the Outremont rail yard, filed a motion for author-
ization of class certification in the Quebec Superior Court in Canada in connection with a claim against two of our
subsidiaries, Genesee Rail-One Inc. (now Genesee & Wyoming Canada Inc.) and Quebec-Gatineau Railway Inc.,
as well as CP. Mr. Paquin alleged that the noise emanating from the Outremont rail yard causes significant nui-
sance problems to the residents who live near the rail yard. The rail yard is owned by CP, part of which is leased
and operated by Quebec-Gatineau Railway Inc. The plaintiff described the proposed class as comprised of all
owners and tenants of dwellings who have lived within a defined section of the Outremont neighborhood in Mon-
treal, which surrounds the rail yard. Mr. Paquin requested the issuance of an injunction in order to limit the hours
when the rail yard may operate. The plaintiff has not alleged any specific monetary claim with respect
to the
damages of other members of the class, but is seeking to recover for his “trouble and inconvenience” as well as
for “potential devaluation of the value of his property.”
On May 27, 2004, the Quebec Superior Court dismissed the plaintiff’s request to institute the class action, and
the plaintiff
filed an appeal with Quebec Court of Appeal. On November 11, 2005, the Quebec Court of Appeal
overturned the Quebec Superior Court’s finding a class could not be certified, but noted the proposed class
could only include owners and tenants within the defined geographic area since 1999. This case was remanded
back to the same judge who previously dismissed the plaintiff’s request to institute a class action. On January 9,
2006, Genesee & Wyoming Canada Inc., Quebec-Gatineau Railway Inc. and CP filed applications for leave to the
Supreme Court of Canada with respect to the Quebec Court of Appeal’s decision to allow the class action to
proceed. The plaintiff has not yet commenced proceedings on the merits of the underlying claim. Management
considers the class action certification to be improper and will contest the appropriateness of the class certifi-
cation and the lawsuit on the merits.
In addition, we are a defendant in certain lawsuits resulting from our operations. Management believes we have
adequate provisions in the financial statements for any expected liabilities which may result from disposition of
such lawsuits. While it is possible some of the foregoing matters may be resolved at a cost greater than provided
for, it is the opinion of management the ultimate liability, if any, will not be material to our operating results, finan-
cial condition or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
None.
26 Genes ee & Wyoming Inc. 2005 FORM 10K
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Stock Market Results. Our Class A Common Stock publicly trades on the New York Stock Exchange under the
trading symbol GWR. On February 14, 2006, we announced a three-for-two common stock split in the form of a
50% stock dividend to be paid on March 14, 2006, to shareholders of record on February 28, 2006. All share,
per share and par value amounts presented herein have been restated to reflect
the retroactive effect of this
stock split as well as any previous stock splits.
The tables below show the range of high and low actual trade prices for our Class A Common Stock during each
quarterly period of 2005 and 2004.
Year Ended December 31, 2005
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
Year Ended December 31, 2004
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
High
Low
$25.03
$21.37
$19.97
$18.79
$19.59
$17.69
$15.35
$15.15
High
Low
$19.90
$16.91
$17.40
$16.81
$16.19
$14.33
$14.07
$14.24
Our Class B Common Stock is not publicly traded.
Number of Holders. On March 2, 2006, there were 192 Class A Common Stock record holders and 8 Class B
Common Stock record holders.
We did not pay cash dividends in 2005 and 2004. We do not intend to pay cash dividends for the foreseeable
future and intend 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, financial condition, contractual restrictions and other factors deemed relevant by the Board
of Directors. For more information on contractual restrictions on our ability to pay dividends, see Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources –
Senior U.S. and Canadian Credit Facilities in Item 7.
See Item 12 – Security Ownership of Certain Beneficial Owners and Management below for the equity compensa-
tion plan table required by this Item 5.
Recent Sales of Unregistered Securities.
None.
Issuer Purchases of Equity Securities
2005
October 1 to October 31
November 1 to November 30
December 1 to December 31
(a)
Total Number
of Shares
(or Units)
Purchased
(b)
Average
Price Paid
per Share
(or Unit)
—
—
—
—
—
—
(c)
Total Number of
Shares (or Units)
Purchased
as Part of
Publicly Announced
Plans or Programs
(d)
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans of Program
—
—
—
988,500
988,500
988,500
On November 2, 2004, we announced that our Board of Directors had authorized the repurchase of up to
1,000,000 shares of our Class A Common Stock. The Board granted management the authority to make pur-
chases in any amount and manner legally permissible which, in the aggregate, would offset 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.
2005 FORM 10K Genes ee & Wyoming Inc. 27
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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, 2005, 2004, 2003, 2002 and 2001, have been
derived from our consolidated financial statements. All of the information should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K and
Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.
(In thousands, except per share amounts)
Year Ended December 31,
2002
2003
2004
2005
2001
INCOME STATEMENT DATA:
Operating revenues
Operating expenses
Income from operations
Interest expense
Gain on sale of 50% equity in Australian operations
Other Income (expense)
Income before income taxes and equity earnings
Income taxes
Equity earnings
Net income
Preferred stock dividends and cost accretion
$385,389
314,458
$303,784
253,745
$244,827
208,522
$209,540
177,533
$173,576
150,622
70,931
(14,900)
—
(218)
55,813
15,756
10,078
50,135
—
50,039
(11,142)
—
(131)
38,766
16,059
14,912
37,619
479
36,305
(8,646)
—
986
28,645
10,567
10,641
28,719
1,270
32,007
(8,139)
—
726
24,594
8,761
9,774
25,607
1,172
22,954
(10,049)
2,985
497
16,387
6,166
8,863
19,084
957
Net income available to common stockholders
$ 50,135
$ 37,140
$ 27,449
$ 24,435
$ 18,127
Basic earnings per common share:
Net income available to common stockholders
Weighted average number of shares of common stock
$
1.36
36,907
$
1.03
36,207
$
0.77
35,489
$
0.71
34,524
$
0.72
25,086
Diluted earnings per common share:
Net income
Weighted average number of shares of common stock and
equivalents
BALANCE SHEET DATA AT YEAR END:
Total assets
Total debt
Mandatorily Redeemable Convertible Preferred Stock
Stockholders’ equity
$
1.20
$
0.90
$
0.68
$
0.62
$
0.63
41,712
41,103
40,152
39,566
29,061
$980,598
338,351
—
397,820
$677,251
132,237
—
341,700
$627,173
158,022
23,994
267,086
$514,859
125,417
23,980
209,621
$402,519
60,591
23,808
185,663
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
the Notes to Consolidated Financial Statements for a
of operations in other reporting periods. See Note 3 of
complete description of recent acquisitions.
28 Genes ee & Wyoming Inc. 2005 FORM 10K
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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.
O v e r v i e w
freight railroads in the United States, Canada,
We are a leading owner and operator of short line and regional
Mexico, Australia and Bolivia. In addition, we provide freight car switching and rail-related services to industrial
companies in the United States.
Successful execution of our operating and growth strategies in 2005 led to the tenth consecutive year of record
net income. Significant financial achievements for the year 2005 compared to the year 2004 included:
(cid:1) Revenue growth of 26.9% to $385.4 million
(cid:1) Net income growth of 33.3% to $50.1 million
R e v e n u e s
The $81.6 million increase in our 2005 revenues was derived from growth from existing operations as well as the
contribution from acquisitions.
On June 1, 2005, we completed our largest-ever acquisition in North America when we acquired Rail Partners
from RMC. The revenue contribution from the Rail Partners properties, as well as other properties acquired dur-
ing 2004 and 2005, provided $55.0 million, or 67.4%, of the year-over-year growth in revenues in 2005.
Same railroad growth is the change in our revenues year-over-year associated with our existing operations (i.e.,
excluding the impact of acquisitions). It is an important indicator of our performance as it is a measure of our
ability to increase revenues from our existing operations. Same railroad freight
revenues
increased 9.7% and 8.9%, respectively, in 2005. The increase in same railroad revenues was primarily due to an
improvement in the price environment, higher fuel surcharges, and favorable exchange rate movements. Growth
in same railroad revenues provided $26.6 million, or 32.6%, of the year-over-year growth in revenues in 2005.
revenues and total
N e t I n c o m e
North American net income increased 76.4% to $40.1 million in 2005 compared to $22.7 million in 2004. Of this
$17.4 million increase, $12.1 million came from an increase in pre-tax profit, with the remainder due to a reduc-
tion in the effective tax rate in North America from 41.4% to 28.2%. The reduction in effective tax rate was primar-
ily associated with U.S. tax legislation that created a track maintenance tax credit for short line railroads.
Equity income from international affiliates decreased $4.8 million to $10.1 million in 2005 compared to $14.9 mil-
lion in 2004, primarily due to a $4.8 million decrease in net income from ARG. ARG revenues were most sig-
nificantly impacted by lower freight revenues from grain traffic in 2005 compared to 2004, partially offset by
strong growth in freight revenues from iron ore traffic. Higher fuel expense, as well as the cost of hiring and train-
ing new locomotive drivers also impacted results.
I m p a c t o f H u r r i c a n e s
Our U.S. operations suffered modest damage as a result of Hurricanes Rita, Katrina, and Wilma. Higher fuel
prices in their aftermath were the most significant
impact. However, our Mexico operations were significantly
impacted by Hurricane Stan in the fourth quarter of 2005. We sustained damage to 50 bridges and lost approx-
imately 1.6 miles of track. The damaged line is expected to be out of service for the entire year in 2006.
O u t l o o k f o r 2 0 0 6
In 2006, we anticipate the positive impact of a full year of operation from the North American acquisitions made
during 2005 and a continuing favorable rail pricing environment in North America. With respect to the financial
impact of the Australia Transactions, we expect:
(cid:1) an increase in revenues due to the consolidation of
the results of GWA following our acquisition of
Wesfarmers’ interests in GWA;
(cid:1) a reduction in equity income due to the ARG Sale; and
(cid:1) a reduction in our interest expense due to repayment of borrowings under our U.S. credit facilities and an
increase in interest income due to higher cash balances, both related to the anticipated uses of the pro-
ceeds from the Australia Transactions.
C h a n g e s i n O p e r a t i o n s
U n i t e d S t a t e s
Rail Partners: On June 1, 2005, we acquired Rail Partners from RMC for $238.2 million in cash (net of $4.9 mil-
lion cash received), the assumption of $1.4 million of non-interest bearing debt and $1.8 million in acquisition
2005 FORM 10K Genes ee & Wyoming Inc. 29
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costs. The purchase price was allocated to current assets ($19.4 million, including $4.9 million in cash received),
property and equipment ($186.0 million), and intangible assets ($60.4 million), less current liabilities ($21.3 mil-
lion) and debt assumed ($1.4 million). The intangible assets consist of customer contracts and relationships with
a weighted average amortization period of 27 years. 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. For U.S. tax purposes, we will treat the Rail Part-
ners acquisition as a purchase of assets. We funded the purchase price through a combination of borrowings
under our $225.0 million senior revolving credit facility and from a private placement of $125.0 million 10-Year
Senior Floating Rate Notes (the Acquisition Notes). The acquired rail properties are operated by our Jacksonville-
based Rail Link Region and commenced operations on June 1, 2005.
First Coast Railroad Inc.: On April 8, 2005, our subsidiary, the First Coast Railroad Inc. (FCRD) signed a 20-year
agreement to lease 31 miles of rail
line between Seals, Georgia and Fernandina, Florida from CSX Transportation,
Inc. (CSX). The FCRD is operated by our Rail Link Region and commenced operations on April 9, 2005.
Homer City Branch: In July 2005, our Homer City Branch, which is located in Homer City, Pennsylvania, began
operations upon completion of track rehabilitation, a portion of which was funded through government grants.
The Homer City Branch rail
is
operated by our New York-Pennsylvania Region and is contiguous to that Region’s existing railroad operation.
line, which we acquired in January 2004 for approximately $600,000 from CSX,
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 Rail-
road, Inc. (TZPR) commenced operations under a 20-year agreement to lease the assets of the Peoria and Pekin
located in Peoria, Illinois. Rent is payable annually in advance and the first year’s rent was
Union Railway (PPU)
$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 Rail-
road Company. The TZPR is operated by our Illinois Region and is contiguous to that region’s existing railroad
operations.
the Savannah Wharf
Savannah Wharf Branch: On August 30, 2004, we completed the purchase from CSX of
Branch rail
line located in Savannah, Georgia for approximately $1.6 million. The transaction included the acquis-
ition 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 oper-
ated by our Rail Link Region and is contiguous to one of two existing Rail Link operations in the Savannah area.
Georgia Pacific Railroads: On December 31, 2003, we completed the purchase from Georgia-Pacific 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),
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 agree-
ments 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.
less current
A u s t r a l i a
On February 13, 2006, we announced that we and Wesfarmers had entered into a definitive agreement to sell our
Western Australia operations and certain other assets of ARG to Queensland Rail and Babcock & Brown Limited
for approximately $956.0 million, plus certain closing adjustments estimated to be approximately $18.0 million
including certain Australian government
(ARG Sale). The ARG Sale is subject to customary closing conditions,
approvals, and is expected to close in the second quarter of 2006. The buyers have made a deposit of approx-
imately $66.0 million, which will be fully credited towards the purchase price. Simultaneous with the ARG Sale,
we entered into an agreement to purchase Wesfarmers’ 50 percent-ownership of the remaining ARG operations,
which are principally located in South Australia and the Northern Territory for approximately $15.0 million (GWA
Purchase, collectively with the ARG Sale, the Australia Transactions). This business, which will be based in Ade-
laide, will be renamed Genesee & Wyoming Australia Pty Ltd (GWA) and will be a 100 percent-owned subsidiary
that is reported on a consolidated basis in our financial statements. We anticipate approximately $205 million in
after-tax cash proceeds from the ARG Sale. We currently intend to use a portion of the proceeds to: (i) fund the
30 Genes ee & Wyoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 30 Color; Composite
GWA Purchase and (ii) repay all debt outstanding under our $225 million senior revolving credit facility, the bal-
ance of which was $88 million as of December 31, 2005. We currently intend to use the remainder of the pro-
ceeds for general corporate purposes, including acquisitions.
On December 31, 2005, AWB publicly announced that
investigation
stemming from allegations that it participated in illegal transactions with the prior Iraqi regime in connection with
AWB’s participation in the United Nations Oil For Food Program. The government commission conducting the
investigation is scheduled to issue its report on March 31, 2006. In addition to criminal and civil sanctions, the
Australian government may revoke AWB’s legally sanctioned exclusive control over
the export of Australian
wheat. Pursuant to the terms of two separate contracts between ARG and AWB (one for Western Australia and
one for South Australia), if AWB loses its sole exporter status, under certain circumstances, it has the right to
re-negotiate the terms of the contracts with ARG. We are continuing to assess the impact of the investigation on
ARG’s demand for our services and the potential
impact of a renegotiation of the contracts.
to an Australian government
is subject
it
M e x i c o
During the first week of October 2005, Hurricane Stan impacted five states in Mexico,
including the State of
Chiapas, causing damage to portions of FCCM’s operations. The most severe impact to FCCM is concentrated in
Chiapas, between the town of Tonalá and the Guatemalan border, some 175 miles to the south. FCCM performed
a survey of the property and determined approximately 50 bridges on that section of track have been damaged
and at least 1.6 miles of track has been lost due to washouts. As a result, this 175 mile segment south of Tonalá
is inoperable. The remaining operations of FCCM’s 1,100-mile network are unaffected.
Due to the damage to the Chiapas line, FCCM lost approximately 3,300 carloads during the fourth quarter of
2005. The revenue impact of this loss of traffic in the fourth quarter of 2005 was approximately $2.3 million. In
addition to lost revenue, FCCM incurred additional operating costs in the fourth quarter related to the storm’s
impact covering matters such as car hire and additional security, a portion of which is covered by our insurance.
The after-tax impact of the storm in the fourth quarter of 2005 on net income was approximately $1.4 million, net
of anticipated recovery from insurance proceeds.
FCCM operates pursuant
to a concession agreement, meaning it does not own the track, bridges or related
materials damaged by the hurricane. Accordingly, FCCM believes it has no legal obligation to reconstruct the
damaged line and FCCM’s failure to reconstruct the damaged line is not cause for terminating the concession
agreement. However, to facilitate a rapid return of rail transportation to the Chiapas region, FCCM is working
with the Mexican government on a plan to reconstruct the line. This plan contemplates that reconstruction would
take five to seven months once an agreement on funding has been finalized with the government. Although it
does not own the track or bridges over which it operates in Mexico, FCCM did carry property insurance on the
track and bridges underlying its concession agreement. FCCM has offered to contribute the insurance proceeds
it may receive for the track and bridge damage towards the cost of the complete reconstruction. However, the
full cost of restoration will exceed the insurance proceeds available, and FCCM is seeking government funding for
the balance. We can provide you no assurance that the Mexican government will provide the remaining funding or
provide such funding in a timely manner. The book value of the assets associated with the damaged line is less
than $6.0 million. In light of these circumstances we will continue to review our long-lived assets in Mexico for
impairment.
Because of the uncertainty around the timing of the conclusion of the reconstruction discussions with the Mex-
ican authorities, we believe the damaged line in Chiapas will remain out of service for the remainder of 2006.
R e s u l t s o f O p e r a t i o n s
When comparing our results of operations from one reporting period to another, you should consider that we
have historically experienced fluctuations in revenues and expenses due to one-time freight moves, customer
plant expansions and shut-downs, sales of
In periods when
these events occur, results of operations are not easily comparable to other periods. Also, we have completed
and entered into a number of recent transactions which have changed and will change our operations. Because
of variations in the structure, timing and size of these transactions our operating results in any reporting period
may not be directly comparable to our operating results in other reporting periods.
land and equipment, accidents and derailments.
including
Certain of our commodity shipments are sensitive to general economic conditions in North America,
paper products in Canada, chemicals in the United States, and cement in Mexico. However, shipments of other
commodities are less affected by economic conditions and are more closely affected other
factors, such as
inventory levels maintained at a customer power plant (coal) and winter weather (salt).
2005 FORM 10K Genes ee & Wyoming Inc. 31
Job: 39566_003 Genesee & Wyoming Page: 31 Color; Composite
Y e a r E n d e d D e c e m b e r 3 1 , 2 0 0 5 C o m p a r e d t o Y e a r E n d e d D e c e m b e r 3 1 , 2 0 0 4
O p e r a t i n g R e v e n u e s
O v e r v i e w
Operating revenues (which exclude revenues from our equity investments) were $385.4 million in the year ended
December 31, 2005, compared to $303.8 million in the year ended December 31, 2004, an increase of $81.6 mil-
lion or 26.9%. The $81.6 million increase in operating revenues consisted of $40.3 million, $9.8 million, $3.3 mil-
lion and $1.6 million in revenues from Rail Partners, TZPR, FCRD and Savannah Wharf operations, respectively,
and an increase of $27.1 million, or 8.9%, in revenues on existing operations. The $27.1 million increase in rev-
enues on existing operations included approximately $22.5 million in increased freight revenues and $4.6 million
in increased non-freight revenues. The increase in revenues on existing operations included approximately $4.6
million in revenues from the 9.9% strengthening of the Canadian dollar relative to the U.S. dollar in 2005 com-
pared to 2004, and approximately $1.2 million in revenue from the 3.6% strengthening of the Mexican peso rela-
tive to the U.S. dollar in 2005 compared to 2004.
In addition, total revenue from fuel surcharges increased to
$11.2 million in 2005 from $2.1 million in 2004. The following table sets forth our operating revenues by acquis-
itions and existing operations for the years ended December 31, 2005 and 2004 (dollars in thousands):
2005
2004
2005-2004 Variance Information
Freight revenues
Non-freight revenues
Total
Operations
$
New
Operations
$
Existing
Operations
$
Total
Operations
$
$282,891
102,498
$34,172
20,375
$248,719
82,123
$226,265
77,519
Increase in
Total
Operations
%
$
$56,626
24,979
Increase in
Existing
Operations
%
9.9%
5.9%
$
25.0% $22,454
4,604
32.2%
Total operating revenues
$385,389
$54,547
$330,842
$303,784
$81,605
26.9% $27,058
8.9%
The $56.6 million increase in freight revenues consisted of $25.8 million, $5.6 million and $2.8 million in revenues
from Rail Partners, TZPR and FCRD operations, respectively, and an increase of $22.4 million in revenues on
existing operations. The $22.4 million increase in freight revenues on existing operations consisted of $13.5 mil-
lion attributable to rate increases, $6.4 million attributable to fuel surcharge increases, and $2.5 million attribut-
able to a 1.2% increase in carloads. The $25.0 million increase in non-freight revenues consisted of $14.5 million,
$3.8 million, $500,000 and $1.6 million in non-freight revenues from the Rail Partners, TZPR, FCRD and Sav-
annah Wharf operations, respectively, and $4.6 million in non-freight revenues on existing operations. The $4.6
million in non-freight revenues consisted of $2.7 million in switching revenues and $2.1 million in demurrage and
storage revenues, offset by a net decrease of $200,000 in all other non-freight revenues.
The following table compares freight revenues, carloads and average freight revenues per carload for the years
ended December 31, 2005 and 2004:
F r e i g h t R e v e n u e s
F r e i g h t R e v e n u e s a n d C a r l o a d s C o m p a r i s o n b y C o m m o d i t y G r o u p
Y e a r s E n d e d D e c e m b e r 3 1 , 2 0 0 5 a n d 2 0 0 4
( d o l l a r s i n t h o u s a n d s , e x c e p t a v e r a g e p e r c a r l o a d )
Commodity Group
Pulp & Paper
Coal, Coke & Ores
Lumber & Forest Products
Minerals & Stone
Metals
Petroleum Products
Chemicals-Plastics
Farm & Food Products
Autos & Auto Parts
Intermodal
Other
2005
$ 59,401
51,803
35,336
29,050
28,432
25,717
21,481
17,842
6,584
2,151
5,094
Freight Revenues
Carloads
% of
Total
2004
% of
Total
2005
% of
Total
2004
% of
Total
Average
Freight
Revenue
Per Carload
2005
2004
21.0% $ 40,486
45,126
18.3%
25,295
12.5%
22,294
10.3%
23,464
10.0%
24,465
9.1%
16,270
7.6%
16,203
6.3%
6,362
2.3%
2,409
0.8%
3,891
1.8%
17.9% 129,807
19.9% 197,891
11.2% 98,087
9.9% 73,307
10.4% 78,221
10.8% 33,041
7.2% 40,434
7.2% 52,501
2.8% 13,600
4,805
1.1%
1.6% 16,328
17.6% 94,340
26.8% 191,038
13.3% 76,055
9.9% 59,197
10.6% 73,412
4.5% 32,401
5.5% 31,262
7.1% 40,520
1.8% 14,665
6,425
0.7%
2.2% 14,034
14.9% $458
30.2% 262
12.0% 360
9.3% 396
11.6% 363
5.1% 778
4.9% 531
6.4% 340
2.3% 484
1.0% 448
2.3% 312
$429
236
333
377
320
755
520
400
434
375
277
Totals
$282,891
100.0% $226,265
100.0% 738,022
100.0% 633,349
100.0% $383
$357
32 Genes ee & Wyoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 32 Color; Composite
Total carloads were 738,022 in the year ended December 31, 2005, compared to 633,349 in the year ended
December 31, 2004, an increase of 104,673 carloads, or 16.5%. The increase consisted of 97,024 carloads from
Rail Partners, TZPR and FCRD, and an increase of 7,649 carloads, or 1.2%, on existing operations.
Average revenue per carload increased $26, or 7.3%, to $383 in the year ended December 31, 2005, compared
to $357 per carload in the year ended December 31, 2004. Of the $26 increase in average revenue per carload,
$15 was due to increased fuel surcharge and the remaining $11 was due to rate increases, changes in the mix of
commodities hauled, and the differences between the average revenue per carload of existing and acquired
operations.
The following table sets forth freight
December 31, 2005 and 2004 (dollars in thousands):
revenues by acquisitions and existing operations for
the years ended
Freight revenues
Pulp & Paper
Coal, Coke & Ores
Lumber & Forest Products
Minerals & Stone
Metals
Petroleum Products
Chemicals & Plastics
Farm & Food Products
Autos & Auto Parts
Intermodal
Other
2005
2004
2005-2004 Variance Information
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Increase in
Total
Operations
Increase in
Existing
Operations
$ 59,401
51,803
35,336
29,050
28,432
25,717
21,481
17,842
6,584
2,151
5,094
$11,971
2,524
5,347
3,178
2,588
913
3,218
3,702
40
—
691
$ 47,430
49,279
29,989
25,872
25,844
24,804
18,263
14,140
6,544
2,151
4,403
$ 40,486
45,126
25,295
22,294
23,464
24,465
16,270
16,203
6,362
2,409
3,891
$18,915
6,677
10,041
6,756
4,968
1,252
5,211
1,639
222
(258)
1,203
46.7% $ 6,944
14.8% 4,153
39.7% 4,694
30.3% 3,578
21.2% 2,380
339
32.0% 1,993
10.1% (2,063)
182
(258)
512
3.5%
(10.7)%
30.9%
5.1%
17.2%
9.2%
18.6%
16.0%
10.1%
1.4%
12.2%
(12.7)%
2.9%
(10.7)%
13.2%
Total freight revenues
$282,891
$34,172
$248,719
$226,265
$56,626
25.0% $22,454
9.9%
The following information discusses the material changes in commodity groups for freight revenues from existing
operations.
Pulp and Paper revenues increased by $6.9 million, or 17.2%, of which $2.3 million was from increased carloads
and $4.6 million was due to an increase in average revenue per carload.
Coal, Coke and Ores revenues increased by $4.2 million, or 9.2%, of which $700,000 was from increased car-
loads and $3.5 million was due to an increase in average revenue per carload primarily from increased fuel sur-
charges. Carloads of coal on existing operations are primarily destined for electricity generating facilities.
Lumber and Forest Products revenues increased by $4.7 million, or 18.6%, of which $2.3 million was from
increased carloads primarily in our Oregon Region, and $2.4 million was from an increase in average revenue per
carload.
Minerals and Stone revenues increased by $3.6 million, or 16.0%, of which $1.7 million was from increased car-
loads and $1.9 million was from an increase in average revenue per carload.
Metals revenues increased by a net $2.4 million, or 10.1%, resulting from a $3.4 million increase in average rev-
enue per carload, partially offset by a $1.0 million decrease due to a decrease in carloads.
Chemicals-Plastics revenues increased by $2.0 million, or 12.2%, of which $400,000 was from increased car-
loads and $1.6 million was from an increase in average revenue per carload.
Farm and Food Products revenues decreased by $2.1 million, or 12.7%, of which $1.9 million was from a
decrease in carloads, primarily in our Mexico and Rail Link Regions, and $200,000 was from a decrease in aver-
age revenue per carload due to the impact of lower average revenue per carload from acquired railroads.
Freight revenues from all remaining commodities increased by a net $775,000.
2005 FORM 10K Genes ee & Wyoming Inc. 33
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N o n - F r e i g h t R e v e n u e s
Non-freight revenues were $102.5 million in the year ended December 31, 2005, compared to $77.5 million in the
year ended December 31, 2004, an increase of $25.0 million, or 32.2%. The $25.0 million increase in non-freight
revenues consisted of $14.5 million, $3.8 million, $1.6 million and $500,000 in non-freight revenues from Rail
Partners, TZPR, Savannah Wharf and FCRD operations, respectively, and $4.6 million in non-freight revenues on
existing operations. The $4.6 million increase in non-freight revenues consisted of $2.7 million in switching rev-
enues and $2.1 million in demurrage and storage revenues, offset by a net decrease of $200,000 in all other
non-freight revenues. The following table compares non-freight revenues for the years ended December 31, 2005
and 2004:
N o n - F r e i g h t R e v e n u e s C o m p a r i s o n
Y e a r s E n d e d D e c e m b e r 3 1 , 2 0 0 5 a n d 2 0 0 4
( d o l l a r s i n t h o u s a n d s )
Railcar switching
Car hire and rental income
Demurrage and storage
Car repair services
Other operating income
Total non-freight revenues
2005
$ 49,683
16,328
11,624
5,112
19,751
% of
Total
2004
% of
Total
48.5% $39,539
11,858
15.9%
7,533
11.3%
5,460
5.0%
13,129
19.3%
51.0%
15.3%
9.7%
7.0%
17.0%
$102,498
100.0% $77,519
100.0%
The following table sets forth non-freight revenues by new acquisitions and existing operations for the years
ended December 31, 2005 and 2004 (in thousands):
2005
2004
2005-2004 Variance Information
Railcar switching
Car hire and rental income
Demurrage and storage
Car repair services
Other operating income
Total
Operations
$
$ 49,683
16,328
11,624
5,112
19,751
New
Acquisitions
$
$ 7,451
4,871
2,004
409
5,640
Existing
Operations
$
Total
Operations
$
$42,232
11,457
9,620
4,703
14,111
$39,539
11,858
7,533
5,460
13,129
Increase in
Total
Operations
%
$
$10,144
4,470
4,091
(348)
6,622
$
Increase in
Existing
Operations
%
6.8%
(3.4)%
27.7%
(13.9)%
7.5%
25.7% $2,693
(401)
37.7%
54.3% 2,087
(6.4)% (757)
982
50.4%
Total non-freight revenues
$102,498
$20,375
$82,123
$77,519
$24,979
32.2% $4,604
5.9%
The following information discusses the material changes in non-freight revenues from existing operations. Railcar
switching revenues increased $2.7 million, or 6.8%, primarily in our Rail Link Region due to new customers and
volume and rate increases at existing customers. Demurrage and storage revenues increased $2.1 million, or
revenues, net decreased by approximately
27.7%, due primarily to carload increases. All other non-freight
$200,000.
O p e r a t i n g E x p e n s e s
O v e r v i e w
Operating expenses were $314.5 million in the year ended December 31, 2005, compared to $253.7 million in
the year ended December 31, 2004, an increase of $60.7 million, or 23.9%. The increase was attributable to
increases of $36.3 million from the Rail Partners, TZPR, FCRD and Savannah Wharf operations, and an increase
fuel expense,
of $24.4 million on existing operations, primarily as a result of
$8.4 million in labor and benefits expense and $3.5 million in purchased services, partially offset by a $3.2 million
gain on the sale of assets. All other operating expenses combined increased $6.3 million.
increases of $9.4 million in diesel
O p e r a t i n g R a t i o s
Our operating ratio, defined as total operating expenses divided by total operating revenues, improved to 81.6%
in the year ended December 31, 2005 from 83.5 % in the year ended December 31, 2004.
34 Genes ee & Wyoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 34 Color; Composite
The following table sets forth a comparison of our operating expenses in the years ended December 31, 2005
and 2004:
O p e r a t i n g E x p e n s e C o m p a r i s o n
Y e a r s E n d e d D e c e m b e r 3 1 , 2 0 0 5 a n d 2 0 0 4
( d o l l a r s i n t h o u s a n d s )
Labor and benefits
Equipment rents
Purchased services
Depreciation and amortization
Diesel fuel
Casualties and insurance
Materials
Net gain on sale and impairment of assets
Other expenses
2005
Percentage
of Operating
Revenues
31.9%
8.9%
6.8%
6.4%
10.0%
4.6%
5.2%
(0.8)%
8.6%
$
$122,941
34,364
26,250
24,575
38,414
17,704
19,933
(3,207)
33,484
$
$105,079
27,692
18,358
19,243
25,432
15,710
15,336
(13)
26,908
Total operating expenses
$314,458
81.6%
$253,745
2004
Percentage
of Operating
Revenues
34.6%
9.1%
6.0%
6.3%
8.4%
5.2%
5.0%
0.0%
8.9%
83.5%
Labor and benefits expense increased $17.9 million, or 17.0%, due to $9.5 million from Rail Partners, TZPR,
FCRD, and Savannah Wharf operations, and an increase of $8.4 million, or 8.0%, on existing operations. The
$8.4 million increase on existing operations consisted of $5.4 million in labor expense and $3.0 million in benefits
expense. The labor increase was primarily attributable to $3.4 million of labor expense related to new hires and
increased work hours for existing employees, and $2.0 million from regular wage increases for all employees. The
$3.0 million increase in benefits expense consisted of $1.6 million in benefits expense related to the new hires
and a $1.4 million increase for existing employees.
Equipment rent expense increased $6.7 million, or 24.1%, due to $5.5 million from Rail Partners, TZPR, FCRD
and Savannah Wharf operations, and an increase of $1.2 million, or 4.3%, on existing operations. The $1.2 mil-
lion increase on existing operations was primarily attributable to an increase of $1.3 million in freight car, locomo-
tive and other equipment rental expense, primarily due to increased coal traffic from our New York-Pennsylvania
Region and increased paper traffic from our Rail Link Region, offset by a decrease of $100,000 in net car hire
expense from all other regions.
Purchased services expense increased $7.9 million, or 43.0%, due to $4.4 million from Rail Partners, TZPR,
FCRD and Savannah Wharf operations, and an increase of $3.5 million, or 18.8%, on existing operations. The
$3.5 million increase on existing operations was primarily attributable to an increase of $1.6 million in our Mexico
Region resulting from a full year of terminal services, $450,000 from our Illinois Region from a full year of trans-
loading services, $400,000 from our New York-Pennsylvania Region for new dispatching services which began in
2005, and $1.1 million from all remaining Regions primarily for higher track and locomotive maintenance services.
Depreciation and amortization expense increased $5.3 million, or 27.7%, due to $4.4 million from Rail Partners,
TZPR, FCRD, and Savannah Wharf operations, and an increase of $900,000, or 4.9%, on existing operations
related to capital spending in 2004 and 2005.
Diesel fuel expense increased $13.0 million, or 51.0%, due to $3.3 million from Rail Partners, TZPR, FCRD, and
Savannah Wharf operations, and an increase of $9.7 million, or 38.0%, on existing operations. The $9.7 million
increase on existing operations was primarily attributable to a $9.3 million increase resulting from higher fuel
prices in 2005 as the average price per gallon of fuel
increased 36.4%.
Casualties and insurance increased $2.0 million, or 12.7%, due to $1.8 million from Rail Partners, TZPR, FCRD
and Savannah Wharf operations, and an increase of $200,000, or 1.2%, on existing operations.
Materials increased $4.6 million, or 30.0%, due to $2.9 million from Rail Partners, TZPR, FCRD and Savannah
Wharf operations, and an increase of $1.7 million, or 10.8%, on existing operations due primarily to higher spend-
ing on track, freight car and locomotive repairs.
Net gain on sale and impairment of assets was $3.2 million, primarily due to the gain on sale of track property in
our New York-Pennsylvania Region.
Other expenses increased $6.6 million, or 24.4%, due to $4.4 million from Rail Partners, TZPR, FCRD and Sav-
annah Wharf operations, and an increase of $2.2 million, or 8.0%, on existing operations. The $2.2 million
2005 FORM 10K Genes ee & Wyoming Inc. 35
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increase on existing operations included increases in acquisition-related expenses of $900,000 and increases in
consulting, legal and accounting expenses of $600,000.
I n t e r e s t E x p e n s e
Interest expense in the year ended December 31, 2005 was $14.9 million compared to $11.1 million in the year
ended December 31, 2004, an increase of $3.8 million, or 33.7%. The $3.8 million increase was primarily due to
higher outstanding debt resulting from the June 1, 2005 acquisition of Rail Partners. The 2004 interest expense
of $11.1 million included a non-cash $1.6 million write-off related to unamortized deferred financing costs of
refinanced debt, and a cash expense of $250,000 associated with the termination of interest rate swaps related
to the former debt.
O t h e r E x p e n s e , N e t
Other expense, net, was $200,000 in the year ended December 31, 2005, compared to $100,000 in the year
ended December 31, 2004, an increase of $100,000. Other expense, net, increased primarily due to non-cash
translation losses on intercompany balances, partially offset by a decrease in minority interest expense.
I n c o m e T a x e s
Income tax expense was $15.8 million in the year ended December 31, 2005, compared to $16.1 million in the
year ended December 31, 2004, with an effective tax rate of 28.2% and 41.4%,
respectively. The 13.2%
decrease in the 2005 tax rate was primarily attributable to an income tax credit enacted as part of the American
Jobs Creation Act of 2004. The legislation provides for an annual credit against U.S. income taxes for track main-
tenance expenditures incurred during the three year period from January 1, 2005 through December 31,
to 50% of qualifying expenditures incurred during the year and is limited to
2007. The annual credit
$3,500 multiplied by the number of miles of U.S. railroad track we own or lease as of the year end. Also reflected
in the 2005 income tax provision is an increase of $300,000 as a result of enacted changes to provincial
income
tax rates in Quebec. The 2004 rate includes an increase in the tax rate used to compute our U.S. income taxes to
the highest corporate bracket of 35% based on our 2004 and projected level of profitability. As a result, we
increased our 2004 fourth quarter tax accrual by $1.0 million, of which approximately $250,000 related to 2004
and approximately $750,000 related to a revaluation of our pre-2004 net U.S. deferred tax liabilities.
is equal
E q u i t y i n N e t I n c o m e o f U n c o n s o l i d a t e d I n t e r n a t i o n a l A f f i l i a t e s
Equity earnings of unconsolidated international affiliates in the year ended December 31, 2005 were $10.1 million
compared to $14.9 million in the year ended December 31, 2004, a decrease of $4.8 million, or 32.4%. Equity
earnings in the year ended December 31, 2005, consisted of $9.5 million from ARG and $600,000 from South
American affiliates. Equity earnings in the year ended December 31, 2004, consisted of $14.2 million from ARG
and $700,000 from South American affiliates. See additional
information regarding ARG’s financial results and the
impact of exchange rate changes in Supplemental Information – Australian Railroad Group.
N e t I n c o m e a n d E a r n i n g s P e r S h a r e
Net income for the year ended December 31, 2005, was $50.1 million compared to net income in the year ended
December 31, 2004, of $37.6 million, an increase of $12.5 million, or 33.3%. The increase in net income was the
result of an increase from operations of $17.3 million, offset by a decrease in equity earnings of unconsolidated
affiliates of $4.8 million.
Basic earnings per share increased by $0.33, or 32.0%, to $1.36 in the year ended December 31, 2005, from
$1.03 in the year ended December 31, 2004. Diluted earnings per share increased by $0.30, or 33.3%, to $1.20
from $0.90 in the year ended December 31, 2004. Weighted average
in the year ended December 31, 2005,
shares for basic and diluted calculations were 36.9 million and 41.7 million,
in the year ended
December 31, 2005, compared to 36.2 million and 41.1 million, respectively,
in the year ended December 31,
2004, as adjusted for the stock split announced February 14, 2006.
respectively,
S u p p l e m e n t a l I n f o r m a t i o n – A u s t r a l i a n R a i l r o a d G r o u p
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 2005, the average currency translation rate for the year ended
December 31, 2005 was 3.5% more favorable than the rate for the year ended December 31, 2004, the impact of
which should be considered in the following discussions of equity earnings, freight and non-freight revenues, and
operating expenses. In addition, on February 13, 2006, we announced the Australia Transactions.
36 Genes ee & Wyoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 36 Color; Composite
In the years ended December 31, 2005 and 2004, we recorded $9.5 million and $14.2 million, respectively, of
equity earnings from ARG, which is reported in the accompanying consolidated statements of income under the
caption Equity in Net
International Affiliates – Australia. The following table provides ARG’s freight
revenues, carloads and average freight revenues per carload for the years ended December 31, 2005 and 2004.
Income of
F r e i g h t R e v e n u e s
A u s t r a l i a n R a i l r o a d G r o u p F r e i g h t R e v e n u e s a n d C a r l o a d s b y C o m m o d i t y G r o u p
Y e a r s e n d e d D e c e m b e r 3 1 , 2 0 0 5 a n d 2 0 0 4
( U . S . d o l l a r s i n t h o u s a n d s , e x c e p t a v e r a g e p e r c a r l o a d )
Commodity Group
2005
Grain
Other Ores and Minerals
Iron Ore
Alumina
Bauxite
Hook and Pull (Haulage)
Gypsum
Other
$ 80,974
61,072
57,806
21,913
14,749
6,474
3,961
34,506
Freight Revenues
% of
Total
2004
Carloads
Average
Freight
Revenue
Per Carload
% of
Total
2005
% of
Total
2004
% of
Total
2005
2004
28.8% $101,987
58,386
21.7%
45,536
20.5%
19,666
7.8%
12,733
5.2%
1,713
2.3%
1.4%
3,662
35,256
12.3%
36.6% 196,938
20.9% 104,067
16.3% 222,357
7.1% 159,689
4.6% 140,034
0.6%
9,753
1.3% 46,679
12.6% 76,194
20.6% 265,712
10.9% 109,418
23.3% 201,613
16.7% 157,168
14.7% 125,793
1.0%
7,332
4.9% 50,394
7.9% 67,891
27.0% $411
11.1% 587
20.5% 260
16.0% 137
12.8% 105
0.7% 664
5.1%
85
6.8% 453
$384
534
226
125
101
234
73
519
Total
$281,455
100.0% $278,939
100.0% 955,711
100.0% 985,321
100.0% 294
283
ARG’s freight revenues were $281.5 million in the year ended December 31, 2005, compared to $278.9 million in
the year ended December 31, 2004, an increase of $2.5 million or 0.9%.
freight revenues
decreased 2.5% in the year ended December 31, 2005, compared to the year ended December 31, 2004.
In local currency,
Total ARG carloads were 955,711 in the year ended December 31, 2005 compared to 985,321 in the year ended
December 31, 2004, a net decrease of 29,610 carloads, or 3.0%. The net decrease of 29,610 carloads resulted
primarily from a decrease in Grain of 68,774 carloads due to smaller grain harvests in Western Australia and
South Australia, a decrease in Other Ores and Minerals of 5,351 carloads due to reduced production and haulage
of coal, nickel, mineral sands and sulphur, and a decrease in Gypsum of 3,715 carloads due to lower customer
volume requirements. These declines were partially offset by an increase in Iron Ore of 20,744 carloads due to
increased customer production in Western Australia and an increase in Bauxite of 14,241 carloads. All other
commodities combined increased 13,245 carloads.
The average revenues per carload increased to $294 in the year ended December 31, 2005, compared to $283
per carload in the year ended December 31, 2004, an increase of 3.9%, primarily due to the strength of the Aus-
tralian dollar relative to the U.S. dollar in 2005 versus 2004. In local currency, the average revenue per carload
increased 0.5% in the year ended December 31, 2005, compared to the year ended December 31, 2004.
N o n - F r e i g h t R e v e n u e s
ARG’s non-freight revenues were $63.1 million in the year ended December 31, 2005, compared to $54.7 million
in the year ended December 31, 2004, an increase of $8.4 million, or 15.3%. In local currency, non-freight rev-
enues increased 11.0% in the year ended December 31, 2005, compared to the year ended December 31, 2004.
The increase in non-freight revenues was primarily attributable to an increase in diesel fuel sales to third parties
and a higher level of track and crossing work for third parties.
The following table compares ARG’s non-freight revenues for the years ended December 31, 2005 and 2004:
A u s t r a l i a n R a i l r o a d G r o u p N o n - F r e i g h t R e v e n u e s C o m p a r i s o n
Y e a r s E n d e d D e c e m b e r 3 1 , 2 0 0 5 a n d 2 0 0 4
( U . S . d o l l a r s i n t h o u s a n d s )
Third party track access fees
Tarcoola to Darwin Line
Other operating income
Total non-freight revenues
2005
$20,104
6,888
36,099
$63,091
Percentage of
Total
31.9%
10.9%
57.2%
2004
$18,085
6,557
30,066
Percentage of
Total
33.1%
12.0%
54.9%
100.0%
$54,708
100.0%
2005 FORM 10K Genes ee & Wyoming Inc. 37
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A R G O p e r a t i n g E x p e n s e s
ARG’s operating expenses were $288.5 million in the year ended December 31, 2005, compared to $265.7 mil-
lion in the year ended December 31, 2004, an increase of $22.8 million, or 8.6%. The following table sets forth a
comparison of ARG’s operating expenses in the years ended December 31, 2005 and 2004:
A u s t r a l i a n R a i l r o a d G r o u p O p e r a t i n g E x p e n s e C o m p a r i s o n
Y e a r s E n d e d D e c e m b e r 3 1 , 2 0 0 5 a n d 2 0 0 4
( U . S . d o l l a r s i n t h o u s a n d s )
Labor and benefits
Equipment rents
Purchased services
Depreciation and amortization
Diesel fuel used in operations
Diesel fuel for sales to third parties
Casualties and insurance
Materials
Net gain on sale and impairment of assets
Other expenses
Total operating expenses
2005
Percentage of
Operating
Revenues
2004
Percentage of
Operating
Revenues
$ 70,280
3,392
65,067
32,127
33,974
22,139
10,949
16,178
(229)
34,611
$288,488
20.4%
1.0%
18.9%
9.3%
9.9%
6.4%
3.2%
4.7%
(0.1%)
10.0%
83.7%
$ 59,566
2,519
78,775
27,346
26,671
19,944
9,570
13,726
(336)
27,921
$265,702
17.8%
0.7%
23.6%
8.2%
8.0%
6.0%
2.9%
4.1%
(0.1%)
8.4%
79.6%
revenues increased to 20.4% in the year ended December 21, 2005
Labor and benefits as a percentage of
compared to 17.8% in the year ended December 31, 2004.
labor and benefits increased
14.0%. The increase was primarily due to an increase in employee costs associated with a transition of locomo-
tive maintenance work from external contractors to in-house employees, an increase in employee wages, and the
hiring and training of new locomotive drivers.
In local currency,
Purchased services decreased to 18.9% of revenues in the year ended December 31, 2005, compared to 23.6%
of revenues in the year ended December 31, 2004. In local currency, purchased services decreased 20.5%. The
decrease was due to a transition of locomotive maintenance work from external contractors to in-house employ-
ees, a decrease in the average number of contract drivers by 55 individuals compared with 2004, and a reduction
in grain transfer costs.
Depreciation and amortization expense as a percentage of
revenues increased to 9.3% in the year ended
December 31, 2005, compared to 8.2% in the year ended December 31, 2004. In local currency, depreciation
and amortization expense increased 13.6%. The increase was due to higher depreciation related to an increase in
capital expenditures during 2004 and 2005.
Diesel fuel used in operations increased to 9.9% of revenues in the year ended December 31, 2005, compared to
8.0% of revenues in the year ended December 31, 2004. In local currency, the cost of
fuel used in operations
increased 23.0% in 2005 compared to 2004 due to a 30.5% increase in fuel prices partially offset by a 5.0%
reduction in fuel consumed due to lower freight traffic.
Diesel fuel sold to third parties increased to 6.4% of revenues in the year ended December 31, 2005, compared
to 6.0% in the year ended December 31, 2004.
fuel sold to third parties
increased 7.0% in 2005 compared to 2004 due to an increase in fuel prices.
In local currency, the cost of diesel
Casualties and insurance as a percentage of revenues increased to 3.2% in the year ended December 31, 2005,
compared to 2.9% in the year ended December 31, 2004. In local currency, casualties and insurance expense
increased 11.5% in 2005 compared to 2004. The increase was primarily due to two major derailments in Western
Australia near Kalgoorlie.
Materials expense as a percentage of revenues increased to 4.7% in the year ended December 31, 2005, com-
pared to 4.1% in the year ended December 31, 2004. In local currency, materials expense increased 13.8% in
2005 compared to 2004.
Net gain on sale and impairment of assets as a percentage of revenues remained unchanged at 0.1%
Other expenses as a percentage of revenues increased to 10.0% in the year ended December 31, 2005, com-
pared to 8.4% in the year ended December 31, 2004. In local currency, other expenses increased 19.9% in 2005
compared to 2004. The increase was due to a higher level of track and crossing work for third parties.
38 Genes ee & Wyoming Inc. 2005 FORM 10K
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I n c o m e T a x e s
ARG’s effective income tax rate in the year ended December 31, 2005 was 30.5%, compared to 30.1% in the
year ended December 31, 2004. The 2005 and 2004 effective tax rates were approximately equal to the statutory
rate of 30%.
Y e a r E n d e d D e c e m b e r 3 1 , 2 0 0 4 C o m p a r e d t o Y e a r E n d e d D e c e m b e r 3 1 , 2 0 0 3
O p e r a t i n g R e v e n u e s
O v e r v i e w
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 mil-
lion 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 operations. The following table sets forth operating revenues by new acquisitions and existing oper-
ations for the years ended December 31, 2004 and 2003 (dollars in thousands):
2004
Total
Operations
$
$226,265
77,519
New
Acquisitions
$
$19,903
7,737
Existing
Operations
$
$206,362
69,782
2003
Total
Operations
$
$182,567
62,260
Freight revenues
Non-freight revenues
2004-2003 Variance Information
Increase in
Increase in
Existing
Total
Operations
Operations
%
%
13.0%
12.1%
23.9% $23,795
7,522
24.5%
$
$43,698
15,259
$
Total operating revenues
$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 oper-
ations.
F r e i g h t R e v e n u e s
The following table compares freight revenues, carloads and average freight revenues per carload for the years
ended December 31, 2004 and 2003:
F r e i g h t R e v e n u e s a n d C a r l o a d s C o m p a r i s o n b y C o m m o d i t y G r o u p
Y e a r s E n d e d D e c e m b e r 3 1 , 2 0 0 4 a n d 2 0 0 3
( d o l l a r s i n t h o u s a n d s , e x c e p t a v e r a g e p e r c a r l o a d )
Commodity Group
2004
Freight Revenues
% of
Total
2003
Carloads
% of
Total
2004
% of
Total
2003
% of
Total
Average
Freight
Revenue Per
Carload
2004
2003
$ 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
Lumber & Forest
Products
Petroleum Products
Metals
Minerals & Stone
Chemicals-Plastics
Farm & Food Products
Autos & Auto Parts
Intermodal
Other
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
0.9%
6,425
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
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
Totals
$226,265
100.0% $182,567
100.0% 633,349
100.0% 529,753
100.0% 357
Total 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.
2005 FORM 10K Genes ee & Wyoming Inc. 39
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Average revenues per carload increased $12, or 3.5%, to $357 in the year ended December 31, 2004, compared
to $345 per carload in the year ended December 31, 2003. Of the $12 increase in average revenue per carload,
$3 was due to increased fuel surcharge and the remaining $9 was due to rate increases, changes in the mix of
commodities and the differences in average revenue per carload between existing and acquired operations.
The following table sets forth freight revenues by new acquisitions and existing operations for the years ended
December 31, 2004 and 2003 (dollars in thousands):
Freight revenues
Coal, Coke & Ores
Pulp & Paper
Lumber & Forest Products
Petroleum Products
Metals
Minerals & Stone
Chemicals Plastics
Farm & Food Products
Autos & Auto Parts
Intermodal
Other
Total Freight Revenues
2004
2003
Total
Operations
New
Acquisitions
Existing
Operations
Total
Operations
2004-2003 Variance Information
Increase in
Existing
Operations
Increase in
Total Operations
$ 45,126
40,486
25,295
24,465
23,464
22,294
16,270
16,203
6,362
2,409
3,891
$226,265
$ 1,060
7,246
5,550
378
203
738
3,092
596
2
669
369
$ 44,066
33,240
19,745
24,087
23,261
21,556
13,178
15,607
6,360
1,740
3,522
$ 37,881
30,939
17,093
24,455
17,445
21,983
11,067
12,133
5,775
1,574
2,222
$ 7,245
9,547
8,202
10
6,019
311
5,203
4,070
587
835
1,669
19.1% $ 6,185
2,301
30.9%
2,652
48.0%
(368)
0.0%
5,816
34.5%
(427)
1.4%
2,111
47.0%
3,474
33.5%
585
10.2%
166
53.0%
1,300
75.1%
16.3%
7.4%
15.5%
(1.5%)
33.3%
(1.9%)
19.1%
28.6%
10.1%
10.5%
58.5%
$19,903
$206,362
$182,567
$43,698
23.9% $23,795
13.0%
The following information discusses the material changes in commodity groups for freight revenues from existing
operations.
Coal, Coke and Ores revenues increased by $6.2 million, or 16.3%, of which $4.9 million was from increased
carloads and $1.3 million was due to an increase in revenue per carload. Carloads of coal on existing operations
were primarily destined for electricity generating facilities.
Pulp and Paper revenues increased by $2.3 million, or $7.4%, of which $2.6 million was due to an increase in
average revenue per carload, offset by $300,000 due to a decrease in carloads.
Lumber and Forest Products revenues increased $2.7 million, or 15.5%, of which $1.8 million was from increased
carloads and $900,000 was due to an increase in revenue per carload.
Metals revenues increased by $5.3 million, or 33.3%, of which $3.8 million was from increased carloads and $1.5
million was due to an increase in revenue per carload.
Chemicals-Plastics revenues increased by $2.1 million, or 19.1%, of which $1.0 million was from increased car-
loads and $1.1 million was due to an increase in revenue per carload.
Farm and Food Products revenues increased by $3.5 million, or 28.6%, of which $2.0 million was from increased
carloads and $1.5 million was due to an increase in revenue per carload.
Freight revenues from all remaining commodities increased by $1.8 million on existing operations.
N o n - F r e i g h t R e v e n u e s
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 approximately $6.1 million, $900,000 and $700,000 in non-freight revenues from the new
GP Railroads, TZPR and Savannah Wharf operations, respectively, and $7.5 million in non-freight revenues on
existing operations.
40 Genes ee & Wyoming Inc. 2005 FORM 10K
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The following table compares non-freight revenues for the years ended December 31, 2004 and 2003:
N o n - F r e i g h t R e v e n u e s C o m p a r i s o n
Y e a r s E n d e d D e c e m b e r 3 1 , 2 0 0 4 a n d 2 0 0 3
( d o l l a r s i n t h o u s a n d s )
Railcar switching
Car hire and rental income
Demurrage and storage
Car repair services
Other operating income
Total non-freight revenues
2004
$39,539
11,858
7,533
5,460
13,129
% of
Total
2003
% of
Total
51.0% $33,371
7,054
15.3%
6,127
9.7%
4,447
7.0%
11,261
17.0%
53.6%
11.3%
9.9%
7.1%
18.1%
$77,519
100.0% $62,260
100.0%
The following table sets forth non-freight revenues by new acquisitions and existing operations for the years
ended December 31, 2004 and 2003 (in thousands):
2004
2003
2004-2003 Variance Information
Total
Operations
$
$39,539
New
Acquisitions
$
$ 951
Existing
Operations
$
$38,588
Total
Operations
$
$33,371
11,858
7,533
5,460
13,129
3,966
1,383
356
1,080
7,892
6,150
5,104
12,049
7,054
6,127
4,447
11,261
Increase in
Total
Operations
$
$ 6,168
4,804
1,406
1,013
1,868
%
18.5%
68.1%
22.9%
22.8%
16.6%
Increase in
Existing
Operations
%
15.6%
$
$5,217
838
23
657
788
11.9%
0.4%
14.8%
7.0%
$77,519
$7,736
$69,783
$62,260
$15,259
24.5%
$7,523
12.1%
Railcar switching
Car hire and rental
income
Demurrage and storage
Car repair services
Other operating income
Total non-freight
revenues
The following information discusses the material changes in non-freight revenues on existing operations.
Railcar switching revenues increased $5.2 million, or 15.6%, of which $4.1 million was in our Rail Link Region
and $1.1 million was from all remaining Regions. The $4.1 million increase in our Rail Link Region was attribut-
able 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
Region and $400,000 was from all remaining Regions.
income increased $800,000, or 11.9%, of which approximately $400,000 was in our Mexico
Car repair revenues increased $650,000, or 14.8%, of which $525,000 was in our New York-Pennsylvania Region
due to an increase in contract repair services.
Other operating income increased approximately $800,000, or 7.0%, primarily due to revenues attributable to our
management of a coal unloading facility in our Illinois Region.
O p e r a t i n g E x p e n s e s
O v e r v i e w
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 operations.
O p e r a t i n g R a t i o s
Our operating ratio, defined 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.
2005 FORM 10K Genes ee & Wyoming Inc. 41
Job: 39566_003 Genesee & Wyoming Page: 41 Color; Composite
The following table sets forth a comparison of our operating expenses in the years ended December 31, 2004
and 2003:
O p e r a t i n g E x p e n s e C o m p a r i s o n
Y e a r s E n d e d D e c e m b e r 3 1 , 2 0 0 4 a n d 2 0 0 3
( d o l l a r s i n t h o u s a n d s )
2004
2003
Labor and benefits
Equipment rents
Purchased services
Depreciation and amortization
Diesel fuel
Casualties and insurance
Materials
Net gain on sale and impairment of assets
Other expenses
Total operating expenses
Percent of
Operating
Revenues
$
Percent of
Operating
Revenues
$
$105,079
27,692
18,358
19,243
25,432
15,710
15,336
(13)
26,908
34.6% $ 87,315
18,409
17,766
15,471
18,325
13,831
15,189
(87)
22,303
9.1%
6.0%
6.3%
8.4%
5.2%
5.0%
0.0%
8.9%
$253,745
83.5% $208,522
35.7%
7.5%
7.3%
6.3%
7.5%
5.6%
6.2%
0.0%
9.1%
85.2%
Labor and benefits 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 bene-
fits expense. The labor increase was primarily attributable to $5.0 million of labor expense related to ninety-five
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 benefits expense
consisted of $3.0 million in benefits expense related to the new hires and increased work hours on existing oper-
ations for all employees and $1.0 million of increased benefits expense for all employees.
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.
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.
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 oper-
ations 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 traffic levels.
Casualties and insurance expense 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 exist-
ing operations was primarily attributable to an increase in derailment expense in our Oregon Region.
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 million from the new GP Railroads, TZPR and Savannah Wharf
operations and an increase of $1.3 million on existing operations.
I n t e r e s t E x p e n s e
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-off related to unamortized deferred financing costs of the refinanced 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 Rail-
roads acquisition in December 2003.
O t h e r ( E x p e n s e ) I n c o m e , N e t
Other income 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.
42 Genes ee & Wyoming Inc. 2005 FORM 10K
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I n c o m e T a x e s
Our effective 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 profitability. As a
result, we increased our fourth quarter tax accrual by $1.0 million, of which approximately $250,000 related to
the first three quarters of 2004 and approximately $750,000 related to a revaluation of our pre-2004 net U.S.
deferred tax liabilities.
E q u i t y i n N e t I n c o m e o f U n c o n s o l i d a t e d I n t e r n a t i o n a l A f f i l i a t e s
Equity earnings of unconsolidated international affiliates in the year ended December 31, 2004, were $14.9 mil-
lion 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 affiliates. Equity earnings in the year ended December 31, 2003, consisted of $10.4 million from
ARG and $270,000 from South American affiliates.
N e t I n c o m e a n d E a r n i n g s P e r S h a r e
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 operations of $4.6 million and an increase in equity earnings of unconsolidated affili-
ates of $4.3 million.
Basic Earnings Per Share increased by $0.26, or 33.8%, to $1.03 in the year ended December 31, 2004, from
$0.77 in the year ended December 31, 2003. Diluted Earnings Per Share increased by $0.22, or 32.4%, to $0.90
from $0.68 in the year ended December 31, 2003. Weighted average
in the year ended December 31, 2004,
shares for basic and diluted were 36.2 million and 41.1 million, respectively,
in the year ended December 31,
2004, compared to 35.5 million and 40.2 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 earn-
ings per share were reduced by $.03 and $.03, respectively, for the year ended December 31, 2003.
S u p p l e m e n t a l I n f o r m a t i o n – A u s t r a l i a n R a i l r o a d G r o u p
As a result of the strengthening of the Australian dollar in 2004 relative to the U.S. dollar, 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 earn-
ings, freight and non-freight 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
International Affiliates – 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.
Income of
F r e i g h t R e v e n u e s
A u s t r a l i a n R a i l r o a d G r o u p F r e i g h t R e v e n u e s a n d C a r l o a d s b y C o m m o d i t y G r o u p
Y e a r s e n d e d D e c e m b e r 3 1 , 2 0 0 4 a n d 2 0 0 3
( U . S . d o l l a r s i n t h o u s a n d s , e x c e p t a v e r a g e p e r c a r l o a d )
Commodity Group
Grain
Other Ores and Minerals
Iron Ore
Alumina
Bauxite
Hook and Pull (Haulage)
Gypsum
Other
2004
$101,983
58,384
45,534
19,666
12,732
1,713
3,662
35,265
Freight Revenues
Carloads
% of
Total
2003
% of
Total
2004
% of
Total
2003
% of
Total
Average
Freight
Revenues
Per Carload
2004
2003
36.6% $ 61,125
20.9% 48,782
16.3% 36,238
7.1% 16,459
4.6% 11,363
5,498
0.6%
2,915
1.3%
12.6% 24,543
29.5% 265,712
23.6% 109,418
17.5% 201,612
8.0% 157,168
5.5% 125,793
7,414
2.7%
1.4% 50,394
11.8% 67,810
27.0% 158,462
11.1% 107,257
20.5% 179,711
16.0% 153,685
12.8% 126,865
0.8% 13,337
5.1% 45,548
6.7% 62,865
18.7% $384
12.7% 534
21.2% 226
18.1% 125
15.0% 101
1.6% 231
5.4%
73
7.3% 520
$386
455
202
107
90
412
64
390
Total
$278,939
100.0% $206,923
100.0% 985,321
100.0% 847,730
100.0% 283
244
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.
2005 FORM 10K Genes ee & Wyoming Inc. 43
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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 sulphu-
ric 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 offset by a
decrease in Hook and Pull
(haulage traffic) of 5,923 carloads due to certain non-recurring shipments in the pre-
ceding year. All other commodities combined increased by a net 3,873 carloads. The average revenues per car-
load 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.
N o n - F r e i g h t R e v e n u e s
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 rev-
enues increased 15.5% in the year ended December 31, 2004, compared to the year ended December 31, 2003.
The increase in non-freight revenues was primarily attributable to an increase in diesel fuel sold to third parties,
partially offset by a decline in revenues from Tarcoola 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 equip-
ment.
The following table compares ARG’s non-freight revenues for the years ended December 31, 2004 and 2003:
A u s t r a l i a n R a i l r o a d G r o u p N o n - F r e i g h t R e v e n u e s C o m p a r i s o n
Y e a r s E n d e d D e c e m b e r 3 1 , 2 0 0 4 a n d 2 0 0 3
( U . S . d o l l a r s i n t h o u s a n d s )
Third party track access fees
Tarcoola to Darwin Line
Other operating income
Total non-freight revenues
A R G O p e r a t i n g E x p e n s e s
2004
$18,085
6,557
30,066
% of
Total
2003
33.1% $14,619
12.0% 12,103
54.9% 15,926
% of
Total
34.3%
28.4%
37.3%
$54,708
100.0% $42,648
100.0%
ARG’s operating expenses were $265.7 million in the year ended December 31, 2004, compared to $194.4 mil-
lion 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:
A u s t r a l i a n R a i l r o a d G r o u p O p e r a t i n g E x p e n s e C o m p a r i s o n
Y e a r s E n d e d D e c e m b e r 3 1 , 2 0 0 4 a n d 2 0 0 3
( U . S . d o l l a r s i n t h o u s a n d s )
Labor and benefits
Equipment rents
Purchased services
Depreciation and amortization
Diesel fuel used in operations
Diesel fuel for sales to third parties
Casualties and insurance
Materials
Net gain on sale and impairment of assets
Other expenses
Total operating expenses
44 Genes ee & Wyoming Inc. 2005 FORM 10K
2004
2003
% of
Operating
Revenues
% of
Operating
Revenues
$
17.8% $ 47,337
1,733
60,096
23,443
15,900
6,756
8,568
11,635
(2,081)
20,969
0.7%
23.6%
8.2%
8.0%
6.0%
2.9%
4.1%
(0.1%)
8.4%
19.0%
0.7%
24.1%
9.4%
6.4%
2.7%
3.4%
4.6%
(0.8%)
8.4%
$
$ 59,566
2,519
78,775
27,346
26,671
19,944
9,570
13,726
(336)
27,921
$265,702
79.6% $194,356
77.9%
Job: 39566_003 Genesee & Wyoming Page: 44 Color; Composite
Labor and benefits 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.
labor and benefits 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.
In local currency,
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.
revenues decreased to 8.2% in the year ended
Depreciation and amortization expense as a percentage of
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
fuel used in operations
6.4% of revenues in the year ended December 31, 2003. In local currency, the cost of
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
fuel sold to third parties increased
to 2.7% in the year ended December 31, 2003.
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 significantly 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.
In local currency, diesel
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, com-
pared 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.
I n c o m e T a x e s
ARG’s effective income tax rate in the years ended December 31, 2004 and 2003, was 30.1% and 15.7%,
respectively. The 2004 effective tax rate is approximately equal to the statutory rate of 30%. The increase from
the tax base of assets acquired in December 2000 from the
2003 was attributable to finalizing, during 2003,
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 Office, resulting in a reduction in income tax expense due to an overprovision of tax expense
in prior periods.
L i q u i d i t y a n d C a p i t a l R e s o u r c e s
During 2005, 2004 and 2003, we generated $68.1 million, $55.4 million, and $46.9 million, respectively, of cash
from operations. The 2005 increase over 2004 was primarily due to the following items: increased net income of
$12.5 million, increased depreciation and amortization of $5.3 million, an increase from non-cash compensation
expense related to stock options of $1.8 million and a decrease of $4.8 million in non-cash equity earnings, parti-
ally offset by a net decrease in all other elements of working capital of $8.5 million. The 2004 increase over 2003
was primarily due to the following items: increased net income of $8.9 million, increased depreciation and amor-
tization of $3.8 million, an increase from the non-cash write off of deferred finance fees of $1.6 million, partially
offset 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.
During 2005, 2004 and 2003, our cash flow used in investing activities was $271.8 million, $25.2 million and
$75.9 million, respectively. For 2005, primary drivers of the investing activities were the purchase of Rail Partners
2005 FORM 10K Genes ee & Wyoming Inc. 45
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from RMC for $238.2 million, capital expenditures of $32.1 million and $6.5 million paid in connection with the
resolution of claims related to contingent purchase consideration for Genesee Rail-One, offset by $4.3 million in
proceeds from the sale of assets and cash received from unconsolidated international affiliates of $677,000. For
2004, primary drivers of the investing activities were capital expenditures of $28.1 million; the purchase of Homer
City and Savannah Wharf rail properties and Pawnee Transloading Company Inc., for $2.9 million; and $500,000
in valuation adjustments of split dollar insurance assets, offset by $5.8 million in net cash received from uncon-
solidated international affiliates and $450,000 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 Rail-
roads 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 government grants, and $8.3 million for equipment and rolling
stock which included $4.1 million for a locomotive upgrade project.
During 2005, our cash flow provided by financing activities was $206.4 million. During 2004, our cash flow used
in financing activities was $27.5 million, and during 2003, our cash flow provided by financing activities was
$28.4 million. For 2005, primary drivers of
increase in outstanding debt of
$203.8 million, cash proceeds of $3.8 million from exercise of stock options by employees and directors and
stock purchases by employees, and $750,000 from the excess tax benefit from share-based payment arrange-
ments, offset by debt issuance cost of $1.6 million and treasury stock purchases of $400,000. For 2004, primary
drivers of the financing 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 $400,000, offset 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 financing activities were a net increase in outstanding debt of $26.9 million and cash pro-
ceeds of $2.5 million from exercise of stock options by employees and directors and stock purchases by employ-
ees, offset by dividends paid on the Convertible Preferred of $1.0 million.
At December 31, 2005, we had long-term debt,
including current portion, totaling $338.4 million, which com-
prised 46.0% of our total capitalization. At December 31, 2004, we had long-term debt, including current portion,
totaling $132.2 million, which comprised 27.9% of our total capitalization.
the financing activities were a net
S e n i o r U . S . a n d C a n a d i a n C r e d i t F a c i l i t i e s
On May 25, 2005, in conjunction with the acquisition of Rail Partners, we entered into a Consent and First Amend-
ment to the Amended and Restated Revolving Credit and Term Loan Agreement, dated November 12, 2004. The
consent and amendment expanded the size of our senior revolving credit facility from $150.0 million to $225.0
million. It also extended the maturity date of the US obligations to June 1, 2010, and consented to the acquis-
ition of Rail Partners. Following the consent and amendment,
facilities are
composed of a $225.0 million revolving loan and a $32.0 million (C$38.5 million) Canadian term loan. The revolv-
ing loan is due in 2010 and the Canadian term loan is due in 2009. The acquisition of Rail Partners was partially
funded through a $118.0 million draw under
facility at an initial borrowing rate of
LIBOR plus 1.375%. Approximately $75,000 of the borrowing capacity is reserved for letters of credit for one of
our subsidiaries. The remaining unused borrowing capacity is available for general corporate purposes, including
acquisitions. 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. 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, are as follows:
the amended and restated credit
revolving credit
the senior
(a) Maximum leverage of 3.5 times (measured as Funded Debt (indebtedness plus guarantees including Let-
ters of Credit, plus the present value of operating leases) to EBITDAR (earnings before interest, taxes, depre-
ciation, amortization and rental payments on operating leases)) except during the period June 1, 2005,
through December 31, 2005, where the maximum leverage is 3.75.
(b) Minimum interest coverage of 3.5 times measured as EBITDA (earnings before interest, taxes, depreciation
and amortization) divided by interest expense.
(c) Consolidated tangible net worth equal to 80% of net worth as of March 31, 2005, having given pro forma
effect to the June 2005 acquisition plus, on a cumulative basis, 50% of net income for each quarter ending
after March 31, 2005.
(d) Maximum annual capital expenditures (excluding acquisitions) of $51.0 million. Fifty percent of unutilized
permitted capital expenditures may be utilized in the succeeding year.
In addition, in connection with our Australia Transactions, we entered into a Consent and Second Amendment to
the Amended and Restated Revolving Credit and Term Loan Agreement, dated February 13, 2006 (the Consent
and Second Amendment). The Consent and Second Amendment waives compliance with the restrictions on the
dispositions of assets and adjusts the consolidated tangible net worth calculation to permit our entry into the
the Consent and Second Amendment permits us to make restricted pay-
Australia Transactions.
ments, consisting of stock repurchases or cash dividends, with the proceeds from the Australia Transactions for
a period of eighteen months following the closing of the Australia Transactions as long as certain financial cove-
nants governing distributions are met.
In addition,
46 Genes ee & Wyoming Inc. 2005 FORM 10K
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indebtedness, make
The credit facilities contain a number of covenants restricting our ability to incur additional
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 affiliates, and pay divi-
dends 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. As of December 31, 2005, we were in compliance with the provisions of these covenants, but we were unable
to pay dividends or make distributions.
S e n i o r N o t e s
On November 15, 2004, we completed a $75.0 million private placement of the Series A senior notes. The Series
A senior notes bear interest at 4.85% and are due in 2011. We used the proceeds from the Series A senior notes
private placement to repay $75.0 million of approximately $110.0 million of debt then outstanding at our U.S. and
Canadian subsidiaries.
On July 26, 2005, we completed a private placement of $100 million of Series B senior notes and $25 million of
Series C senior notes. The Series B senior notes bear interest at 5.36% and are due 2015. The Series C senior
notes have a borrowing rate of LIBOR plus 0.70% and are due 2012. As of December 31, 2005, the Series C
senior notes had an interest rate of 4.91%. We used the proceeds of the senior notes to repay the $125.0 million
Acquisition Notes issued in connection with the Rail Partners transaction.
The senior notes are unsecured but are guaranteed by substantially all of our U.S. subsidiaries. The senior notes
indebtedness, sell assets, create certain
contain a number of covenants limiting our ability to incur additional
liens, enter into certain consolidations or mergers and enter into certain transactions with affiliates. Financial
covenants, which are reported quarterly,
to capitalization of 65% and (b) minimum
include (a) maximum debt
fixed 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). As of December 31, 2005, we
were in compliance with the provisions of these covenants, but we were unable to pay dividends or make dis-
tributions.
M e x i c a n F i n a n c i n g s
On April 1, 2005, we and our Mexican subsidiaries, GW Servicios S.A. (Servicios) and FCCM amended loan agree-
ments and related documents with the International Finance Corporation (IFC) and Nederlandse Financierings-
Maatschappij voor Ontwikkelingslanden N.V. (FMO) to revise certain terms of Servicios’ existing loans from IFC
and FMO as well as our existing support obligations related to such loans, effective March 15, 2005.
Under the amended terms, principal payments under Servicios’ promissory notes payable (Notes) were reduced
and maturity dates were extended by three years. In addition, amounts held in escrow for the benefit of IFC and
FMO (approximately $574,000) were released to prepay a portion of
the
aggregate amount outstanding on the Notes totaled $17.0 million, with variable interest rates based on LIBOR
plus 3.5 percentage points for the original term of the debt through 2007 and 2008 with an increase to LIBOR
plus 4.0 percentage points for the extended term of the debt. Two of the Notes, aggregating to $10.2 million,
remaining term with combined semi-annual principal payments of $784,000 which began
have a six year
March 15, 2005, and continue through the maturity date of September 15, 2011. The third Note, in the amount of
$6.8 million, has a seven year remaining term with semi-annual principal payments of $455,000 which began
March 15, 2005, and continues through the maturity date of September 15, 2012. As of December 31, 2005, the
aggregate amount outstanding on the Notes totaled $15.8 million.
the loans. As of June 30, 2005,
The Notes contain certain financial and other covenants applicable only to FCCM and Servicios, including man-
datory debt prepayments from excess free cash flow (as defined in the agreements) and restrictions on utilization
of
funds for capital expenditures, incurrence of debt, guarantees of obligations, sale of assets, lease of assets,
creation of certain liens, payment of dividends and distributions, transactions among FCCM and Servicios and
other affiliates of Genesee & Wyoming Inc., entering into certain mergers, and revising or terminating FCCM’s rail
concession with the government of Mexico. The Notes will continue to be secured by essentially all the assets of
Servicios and FCCM, and a pledge of the Servicios and FCCM shares held by us.
Under the original
loan agreements for $27.5 million of debt, we were obligated to provide up to $8.0 million of
funding to our Mexican subsidiaries, if necessary, to meet their investment or financial obligations prior to com-
pleting the investment phase of the project funded by the Notes. The investment phase consisted of achieving
several obligations related to capital
investments, operating performance and management systems and controls.
Thereafter, we were obligated to provide up to $7.5 million in funding to Servicios to meet its debt service obliga-
tions prior to completing the financial phase of the project, which consisted of achieving several financial perform-
ance thresholds. Prior to the amendment, we had advanced $2.5 million of our $8.0 million obligation and the
in the investment phase. The amended agreements eliminate our obligations to provide additional
project was still
funding under those terms and instead obligate us to provide up to $8.9 million to Servicios (in addition to the
$2.5 million previously advanced), if necessary, for Servicios to meet its debt payment obligations. To the extent
that FCCM’s annual capital expenditures exceed 60% of FCCM’s consolidated EBITDA, as defined in the
2005 FORM 10K Genes ee & Wyoming Inc. 47
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funds to FCCM
amended agreements as determined on an annual basis, we are obligated to provide additional
equal to the amount of such excess. Pursuant to this funding requirement, based on FCCM’s 2005 EBITDA and
capital expenditures, we will be obligated to advance $2.7 million, full payment of which is due in the first quarter
of 2006. Furthermore, due to the impact of Hurricane Stan on our Mexican operations, we currently expect our
Mexican operations will be able to fund only $1.9 million of
the total $3.7 million of U.S. dollar denominated
principal and interest payments due in 2006. We anticipate FCCM will use $1.8 million of the $2.7 million we are
obligated to advance to fund its debt service shortfall.
FCCM is not in default under the Note documents as a result of the damage associated with Hurricane Stan but
revenue and cash flow shortfalls, among other factors, may result in a default in the future.
In conjunction with the original financing, IFC invested $1.9 million of equity in Servicios for a 12.7% indirect inter-
its equity
est in FCCM. Along with its equity investment,
stake back to us. The amendments extended the term of
the put option from December 31, 2009 to
December 31, 2012. The value of
the Servicios equity owned by IFC will be based on a multiple of FCCM’s
EBITDA as defined in the agreements. Exercise of this put option by IFC would result in a future cash outflow for
us.
IFC received a put option exercisable in 2005 to sell
On March 3, 2006, we received notice that the IFC intends to exercise its put option to sell
its 12.7% indirect
equity stake in FCCM back to us. We are still determining the cash outflow that would result from the closing of
the exercise of the put option, but in no case will the cash outflow exceed $1.7 million.
M e x i c a n F u e l T a x C r e d i t s
In 2003, FCCM could apply diesel fuel tax credits that it generated to reduce payroll taxes and value added tax-
es, 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. Effective January 2005, as a result of new fuel tax legislation, FCCM was again 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 was a favorable development, under the fuel
tax formula at current high diesel fuel prices, FCCM is paying little or no fuel taxes and therefore is not generat-
ing any significant diesel fuel tax credits. FCCM has utilized all the fuel tax credits it generated in 2004 and the
small amount of fuel tax credits it generated in 2005.
S o u t h A m e r i c a
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
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
is
secured by a lien on GWC’s 12.52% indirect equity interest in Oriental.
rate dependent on operating results of Oriental. This non-recourse debt
through a number of
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 difficult for GWC to refinance 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 pur-
suant to the lien. GWC and the creditors have an informal standstill agreement until May 21, 2006. If there is no
agreement between GWC and the creditors by that date, the creditors may exercise their rights pursuant to the
lien.
in Oriental, we would write-off our
If we were to lose our 12.52% equity stake in Oriental due to creditors exercising their lien on GWC’s indirect
in Oriental held through GWC, which on
equity interest
December 31, 2005 amounted to $360,000. A default, acceleration or effort 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.
investment
Oriental has no obligations associated with the $12.0 million debt. In addition, a default, acceleration or effort 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.
E q u i p m e n t L e a s e s
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 approx-
imately $7.3 million. In addition, we have the option, at various dates, to terminate the leases by purchasing the
48 Genes ee & Wyoming Inc. 2005 FORM 10K
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rolling stock. The maximum aggregate purchase price, at the next available buyout date for each qualifying lease,
is approximately $16.3 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 $3.1 million annually are subject to
adjustment based on certain economic indicators and customer operations stipulated in the agreement.
G o v e r n m e n t G r a n t s
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 different
In addition to government grants, customers
occasionally provide fixed funding of certain track rehabilitation or construction projects to facilitate our service
over that track. We record any excess in the fixed funding compared to the actual cost of rehabilitation and con-
struction as gains in the current period. However, we can offer no assurance that government grants will continue
to be available or that even if available, our railroads will be able to obtain them. We received government grants
totaling $4.2 million, $5.6 million and $2.0 million in 2005, 2004 and 2003, respectively.
from those we would otherwise provide.
2 0 0 6 B u d g e t e d C a p i t a l E x p e n d i t u r e s
We have budgeted approximately $48.3 million ($36.4 million net of government grants) in capital expenditures in
2006, of which $39.4 million ($27.5 million net of government grants) is for track rehabilitation and $8.9 million is
for equipment. If we are unable to obtain the expected government grants, we will also reduce our net budgeted
capital expenditures. 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 issu-
ances to finance acquisitions and investments in unconsolidated affiliates. We believe that our cash flow from
operations together with amounts available under our credit facilities will enable us to meet our liquidity and capi-
tal expenditure requirements relating to ongoing operations for at least the duration of the credit facilities.
C o n t r a c t u a l O b l i g a t i o n s a n d C o m m e r c i a l C o m m i t m e n t s
As of December 31, 2005, we have contractual obligations and commercial commitments that may affect our
financial condition. However, based on our assessment of the underlying provisions and circumstances of our
material contractual obligations and commercial commitments, there is no known trend, demand, commitment,
event, or uncertainty that is reasonably likely to occur which would have a material adverse effect on our con-
solidated results of operations, financial condition, or liquidity.
The following table represents our obligations and commitments for future cash payments under various agree-
ments as of December 31, 2005 (dollars in thousands):
Contractual Obligations
Long-Term Debt Obligations(a)
Interest on Debt(b)
Capital Lease Obligations
Operating Lease Obligations
Purchase Obligations(c)
Interest Rate Swaps(d)
Total
Payments Due By Period
3-5
1-3
years
years
Less than 1
year
More than 5
years
$ 4,713
18,158
13
19,076
4,545
1,027
$ 9,079
35,447
29
30,596
10,277
598
$119,732
32,981
33
15,379
3,695
—
$204,414
10,597
338
46,520
—
—
Total
$337,938
97,183
413
111,571
18,517
1,625
$567,247
$47,532
$86,026
$171,820
$261,869
(a) Excludes capital lease obligations of $413,000.
(b) Interest on debt includes $5.2 million per year of interest based on the December 31, 2005 outstanding balance of $88.0 million
on our senior revolving credit facility which is due in 2010. However, we continually reduce our outstanding balance on the senior
revolving credit facility with cash generated from operations.
(c) Purchase obligations include a $500,000 locomotive maintenance contract, $13.3 million end of term purchase price for locomo-
tives and freight cars under operating leases, and $4.7 million of capital expenditures required under the terms of a rail line lease
agreement.
(d) Represents future cash payments for the fixed portion of interest rate swaps.
2005 FORM 10K Genes ee & Wyoming Inc. 49
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I m p a c t o f F o r e i g n C u r r e n c i e s o n O p e r a t i n g R e v e n u e s
As of December 31, 2005, foreign currency translation had a net positive impact on consolidated North American
revenues. The following table sets forth the impact of
foreign currency translation on reported operating rev-
enues:
O p e r a t i n g R e v e n u e s
( d o l l a r s i n t h o u s a n d s )
Years Ended December 31,
2005
Currency
Translation
Impact
n/a
4,598
1,209
Revenues
Excluding
Currency
Impact
$299,440
46,362
33,780
2004
As Reported
$226,521
44,008
33,255
$5,807
$379,582
$303,784
As Reported
$299,440
50,960
34,989
$385,389
U.S. Operating Revenues
Canada Operating Revenues
Mexico Operating Revenues
Total Operating Revenues
O f f - B a l a n c e S h e e t A r r a n g e m e n t s
We have no off-balance sheet arrangements as required to be disclosed pursuant to Item 303(a)(4) of regulation
S-K.
S u p p l e m e n t a l I n f o r m a t i o n – A u s t r a l i a n R a i l r o a d G r o u p
C r e d i t F a c i l i t i e s
In December 2003, ARG refinanced 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 defined
in the credit agreements. ARG pays a commitment fee on all unused portions of the credit facilities which varies
facilities include limited negative pledge covenants but permit
from 0.3 to 0.4 percentage points. The credit
prepayment. The credit facilities require the maintenance of certain covenant ratios or amounts,
including, but
not limited to, interest expense to EBITDA, and total debt to total assets, all as defined in the credit agreements.
(Dollar amounts noted above apply the year-end 2003 exchange rate of 0.75 U.S. dollars per Australian dollar.)
ARG was in compliance with the provisions of these covenants as of December 31, 2005.
I m p a c t o f F o r e i g n C u r r e n c y o n A R G ’ s O p e r a t i n g R e v e n u e s a n d N e t I n c o m e
As of December 31, 2005, 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:
A R G O p e r a t i n g R e v e n u e s a n d N e t I n c o m e
( U . S . d o l l a r s i n t h o u s a n d s )
Years Ended December 31,
2005
Currency
Translation
Impact
Excluding
Currency
Impact
2004
As
Reported
As
Reported
$344,546
$11,830
$332,716
$333,647
$ 18,936
$
633
$ 18,303
$ 28,470
Operating Revenues
Net Income
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C r i t i c a l A c c o u n t i n g P o l i c i e s a n d U s e o f E s t i m a t e s
The preparation of financial statements in conformity with United States generally accepted accounting principles
reported assets,
requires management
liabilities,
in making sig-
nificant estimates in the areas of recoverability and useful
life of assets, as well as liabilities for casualty claims
and income taxes. Actual results could differ from those estimates.
revenues and expenses during the reporting period. Management uses its judgment
to use judgment and to make estimates and assumptions that affect
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.
P r o p e r t y a n d E q u i p m e n t
We record property and equipment at historical cost, and we record acquired railroad property at the allocated
cost. We capitalize major renewals or betterments, but routine maintenance and repairs are charged to expense
when incurred. We credit or charge to operating expense gains or losses on sales or other dispositions. We
the road property
depreciate our property and equipment on the straight-line method over the useful
(5-50 years) and equipment (3-20 years).
lives of
The following table sets forth the estimated useful
lives of our major classes of property and equipment:
Property:
Buildings & Leasehold Improvements
Bridges/Tunnels/Culverts
Track Property
Estimated useful life
30 years or life of lease
30 – 50 years
5 – 50 years
Equipment:
Computer Equipment
Locomotives & Freight Cars
Vehicles & Mobile Equipment
Signals & Crossing Equipment
Track Equipment
Other Equipment
3 years
5 – 20 years
5 – 10 years
5 – 10 years
5 – 10 years
5 – 10 years
We continually evaluate whether events and circumstances have occurred that indicate that our long-lived tangi-
ble assets may not be recoverable. When factors indicate that an asset should be evaluated for possible impair-
ment, we use an estimate of the related undiscounted future cash flows over the remaining live of such asset in
measuring whether or not impairment has occurred. If we identify impairment on an asset, we would report a loss
to the extent that the carrying value of the related asset exceeds the fair value of such asset, as determined by
valuation techniques applicable in the circumstances. We closely monitor our assets in foreign operations where
fluctuating currencies and unsettled economic conditions can create greater uncertainty.
I n t a n g i b l e A s s e t s a n d G o o d w i l l A c q u i r e d i n B u s i n e s s C o m b i n a t i o n s
We account for our business acquisitions using the purchase method of accounting. We allocate the total cost of
an acquisition to the underlying net assets based on their respective estimated fair values. As part of this alloca-
tion process, we identify and attribute values and estimated lives to the intangible assets acquired. These
determinations involve significant estimates and assumptions, including those with respect to future cash flows,
discount rates, and asset lives and therefore require considerable judgment. These determinations will affect the
amount of amortization expense recognized in future periods.
We review the carrying values of identifiable intangible assets with indefinite lives and goodwill at least annually
to assess impairment, since these assets are not amortized. Additionally, we review the carrying value of any
intangible asset or goodwill whenever such events or changes in circumstances indicate that its carrying amount
may not be recoverable. We assess impairment by comparing the fair value of an intangible asset or goodwill with
its carrying value. The determination of
Impairments are
expensed when incurred. Specifically, we test for impairments in accordance with Statement of Financial Account-
impairment test on November 30 t h of each year
ing Standards No. 142 (SFAS No. 142). We perform our annual
and in 2005 no impairment was recognized.
fair value involves significant management
judgment.
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.
is used. We first compare the fair value of the reporting unit with its
For goodwill, a two-step impairment model
carrying amount, including goodwill. If the fair value of the reporting unit is less than the carrying amount, good-
will would be considered impaired and we would then record the goodwill
impairment as the excess of recorded
goodwill over its implied fair value.
2005 FORM 10K Genes ee & Wyoming Inc. 51
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D e r a i l m e n t a n d P r o p e r t y D a m a g e s , P e r s o n a l
I n j u r i e s a n d T h i r d P a r t y C l a i m s
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 rail-
road 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.
P e n s i o n s a n d O t h e r P o s t - R e t i r e m e n t B e n e f i t s
We use third-party actuaries to assist us in properly measuring the liabilities and expenses associated with provid-
ing pension and defined contribution medical and life insurance benefits (OPEB) for union and non-union employ-
ees of two U.S. subsidiaries. In order to apply actuarial methods to value the liabilities and expenses we must
make several assumptions. The critical assumptions used to measure pension obligations and expenses are the
discount rate applied to future liabilities and expected future rate of return on pension assets. For other post-
retirement benefits, the critical assumptions are the discount rate and healthcare cost trend rate.
We evaluate our critical assumptions annually and our assumptions are based on the following factors:
(cid:1) Discount
rate is based on a review of
long-term bonds,
including published indices. The discount rate
determined on that basis was 5.75%.
(cid:1) Expected return on plan assets is based on an assumed long-term asset rate of return of 8.5%.
(cid:1) Health care cost trend rate is based on historical rates of inflation and expected market conditions and is
assumed to be 11.0% in 2006 graded ratably to 5% over a seven year period.
S t o c k - B a s e d C o m p e n s a t i o n
We elected to adopt SFAS 123(R), in the third quarter of 2005 using the Modified Prospective Application. SFAS
123(R) requires us to measure compensation cost for stock awards at fair value and recognize compensation
over the service period for awards expected to vest. Prior to adoption we accounted for our stock-based compen-
sation plans under APB Opinion 25, under which no compensation cost had been recognized and disclosed the
pro forma expense for basic and diluted earnings per share as if stock-based compensation had been compiled
under SFAS 123.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes pricing model and
straight-line amortization of compensation expense over the requisite service period of the grant. Two assump-
tions in the Black-Scholes pricing model that require management judgment are the expected life and expected
volatility of stock. The expected life is based on historical experience and is estimated for each grant. The
expected volatility of stock is based on actual volatility and adjusted to reflect future expectations.
The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or
updated estimates differ from our current estimates, the cumulative effect on current and prior periods will be
recorded as compensation cost in the period of change. We consider many factors when estimating expected
forfeitures,
results, and future
changes in estimates, may differ substantially from our current estimates.
including types of awards, employee class, and historical experience. Actual
As of the adoption date, the impact of amortizing existing stock options in the year ended December 31, 2005
represented compensation cost of $1.8 million pre-tax, or $1.5 million after-tax, which reduced earnings by $.04
per share for the year ended December 31, 2005. The total compensation cost related to non-vested awards not
yet recognized of $4.9 million is expected to be recognized through June 30, 2008. Amortization expense for the
restricted stock shares was $664,000 for the year ended December 31, 2005. Total unrecognized compensation
cost for non-vested restricted stock shares and restricted stock units of $1.4 million is expected to be recog-
nized through June 30, 2008.
I n c o m e T a x e s
for
income taxes under
the provisions of SFAS No. 109, Accounting for
Income Taxes
We account
(SFAS No. 109). SFAS No. 109 requires a balance sheet approach for the financial accounting and reporting of
deferred income taxes. Deferred income taxes reflect the tax effect of temporary differences between the book
and tax basis of assets and liabilities, as well as available income tax credit and net operating loss carryforwards.
In our consolidated balance sheets, these deferred benefits and deferred obligations are classified as current or
non-current based on the classification of the related asset or liability for financial reporting. A deferred tax obliga-
tion or benefit
including deferred tax assets
related to carry-forwards, are classified according to the expected reversal date of the temporary difference as of
the end of the year.
is not related to an asset or liability for financial reporting,
that
52 Genes ee & Wyoming Inc. 2005 FORM 10K
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income taxes applicable to the undistributed earnings of controlled foreign
No provision is made for the U.S.
subsidiaries because it is the intention of management to fully utilize those earnings in the operations of foreign
subsidiaries.
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,
2005 was $89.0 million.
the earnings were to be distributed in the future,
those distributions may be subject
If
We had net operating loss carry-forwards from our Mexican operations in 2005 and 2004 of $19.4 million and
$16.6 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 com-
pany, Servicios. These loss carry-forwards will expire between 2009 and 2014.
A significant portion of
the deferred tax benefits relate to the Mexican net operating loss carry-forwards. We
believe a valuation allowance need not be recorded because we expect our Mexican Region will more likely than
not generate sufficient taxable income to utilize all of the deferred tax assets. We estimate FCCM will generate
sufficient taxable income to utilize its net operating loss carry-forwards prior to the date of expiration. In addition,
management believes, in conjunction with a contemplated restructuring of the Mexican Region, we will more likely
than not generate sufficient future taxable income to offset the remaining net operating losses of Servicios prior
to the date of expiration.
Management believes that full consideration has been given to all relevant circumstances that we may be cur-
rently subject to, and the financial statements accurately reflect management’s best estimate of our results of
operations, financial condition and cash flows for the years presented.
O t h e r U n c e r t a i n t i e s
Our operations and financial condition are subject to certain risks that could cause actual operating and financial
results to differ materially from those expressed or forecast in our forward-looking statements. For a complete
description of our general risk factors including risk factors of
foreign operations, see Item 1A. Risk Factors in
this Annual Report on Form 10-K.
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
financial
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 financial gains on the interest rate or exchange rate fluctuations 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 financial
instruments may result in short-term gains or losses
and increased earnings volatility.
I n t e r e s t R a t e R i s k
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 outflows. The table below provides amounts outstanding and corre-
rate swaps to mitigate
fixed and variable rate debt and our use of
sponding interest
increases in interest rates.
rates for our
interest
P r i n c i p a l A m o u n t o f L o n g - T e r m D e b t a n d I n t e r e s t R a t e S w a p s
( d o l l a r s i n t h o u s a n d s )
Fixed Rate Debt
Average Fixed Interest Rate
Variable Rate Debt Swapped to Fixed Rate Debt(1)
Average Fixed Interest Rate
Unswapped Variable Rate Debt
Average Variable Interest Rate
Total Long-Term Debt
Average Interest Rate
December 31,
2005
$177,614
5.1%
$ 29,055
6.7%
$126,995
5.8%
$333,664
5.5%
(1) Amount of variable rate debt that we have swapped to fixed rate debt in 2006 is $21.4 million.
2005 FORM 10K Genes ee & Wyoming Inc. 53
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T a b l e A s s u m p t i o n s
Variable Interest Rates: The table presents variable interest rates based on U.S. and Canadian LIBOR rates (as of
December 31, 2005) plus an average borrowing margin of approximately 1.4%. The borrowing margin is com-
posed of a weighted average of 1.375% for debt under our U.S. and Canadian credit facilities, 0.70% for our
Series C senior notes and 3.5% for debt related to our Mexican operations.
Interest Rate Swaps: The table presents dollar amounts outstanding under
rate swaps as of
December 31, 2005, in which we have swapped a portion of our variable rate debt to fixed rate debt. The table
also presents the average fixed interest rate under these swaps which is equal to our fixed pay rates to counter-
parties plus our borrowing margin.
interest
I n t e r e s t R a t e S e n s i t i v i t y
Based on the table above, assuming a one percentage point increase in market interest rates, annual
expense on our variable rate debt would increase by approximately $1.3 million.
interest
F o r e i g n C u r r e n c y R i s k
The functional currency of our Mexican operations is the Mexican peso, while the debt obligations are denomi-
nated 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 inter-
est on the debt. Our risk management policy seeks to mitigate this risk by purchasing one-year forward currency
options on the U.S. dollar – 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. There-
fore, foreign currency risk related to debt service payments does not exist at our Canadian and Australian oper-
ations.
U . S . D o l l a r D e n o m i n a t e d P r i n c i p a l a n d P r o j e c t e d I n t e r e s t O b l i g a t i o n s
o f M e x i c a n P e s o D e n o m i n a t e d O p e r a t i o n s
( d o l l a r s i n t h o u s a n d s )
Principal Payments(1)
Interest Payments(2)
Total
2006
2007
2008
2009
2010
Thereafter
Total
$2,479
1,243
$2,479
1,040
$2,479
850
$2,479
633
$2,479
457
$3,386
300
$15,779
4,553
$3,722
$3,518
$3,329
$3,142
$2,935
$3,687
$20,332
(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, 2005 plus a borrowing margin of 3.5% or 4.0%, as appropriate for the
period.
F o r e i g n C u r r e n c y O p t i o n s
( d o l l a r s i n t h o u s a n d s , e x c e p t e x c h a n g e r a t e s )
Receive U.S. dollar/Pay Mexican peso: Notional Amount
Average exchange rate in Mexican peso per U.S. dollar
S e n s i t i v i t y o f F o r e i g n C u r r e n c y t o D e b t S e r v i c e P a y m e n t s
Settlement Date
March 15,
2006
September 15,
2006
$1,800
12.52
$1,800
13.66
Total
$3,600
—
We expect our Mexican operations to fund approximately $1.9 million of
the total $3.7 million of U.S. dollar
denominated principal and interest payments in 2006. Based on the cash flow needs of the Mexican operations,
we have the expectation of making an approximate $1.8 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 flows remained constant, then it would be equivalent to the Mexican operations being required
to support an additional $190,000 in debt service payments. Based on an exchange rate of 10.78 Mexican peso
per U.S. dollar as of December 31, 2005, this exposure in 2006 is capped at a maximum of $320,000 by the for-
eign currency options shown in the table.
54 Genes ee & Wyoming Inc. 2005 FORM 10K
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S e n s i t i v i t y o f F o r e i g n C u r r e n c y T r a n s l a t i o n
GWI’s Mexican operations are held through two subsidiaries, Servicios and FCCM. Servicios is the obligor of the
loan agreements with the IFC and FMO, while FCCM is the operating company. FCCM is owned 96.5% by Servi-
cios and 3.5% by us. Servicios is owned 86.8% by us and 13.2% by the IFC. FCCM historically has made debt
service payments on behalf of Servicios. When FCCM makes a payment on Servicios’ behalf, Servicios provides
FCCM with a U.S. dollar denominated note for the amount of the payment. These notes bear interest at the same
spread over LIBOR as the underlying debt to the IFC and FMO, currently LIBOR + 3.50%. Since FCCM has the
Mexican peso as its functional currency, these notes are recorded on its balance sheet in Mexican pesos. When
the Mexican peso appreciates or depreciates relative to the U.S. dollar FCCM records a non-cash loss or gain,
respectively, on the note as it is revalued.
As of December 31, 2005, the total amount due to FCCM from Servicios was $19.6 million. A one percentage
point appreciation in the Mexican peso relative to the U.S. dollar from the December 31, 2005 exchange rate
would result in a pre-tax loss for FCCM in the amount of $0.2 million.
D i e s e l F u e l P r i c e R i s k
We are exposed to fluctuations in diesel fuel prices, since an increase in the price of diesel fuel would result in
lower earnings and cash outflows. In the year ended December 31, 2005, fuel costs for fuel used in operations
represented 12.2% of our total expenses and 11.8% of total expenses at our 50%-owned Australian operations.
As of December 31, 2005, neither we nor our 50%-owned Australian operations had entered into any hedging
transactions to manage this diesel fuel risk.
S e n s i t i v i t y t o D i e s e l F u e l P r i c e s
As of December 31, 2005, each one percentage point
$384,000 increase in our annual
consumed in operations.
fuel expense and a $340,000 increase in ARG’s annual diesel
increase in the price of diesel
fuel would result
in a
fuel expense
Item 8.
Financial Statements and Supplementary Data.
The financial statements and supplementary financial data required by this item are listed at Part IV, Item 15 and
are filed herewith immediately following the signature page hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures.
report under
We maintain disclosure controls and procedures that are designed to ensure that information required to be dis-
the Securities Exchange Act of 1934 is recorded, processed, summarized and
closed in our
reported within the time periods specified 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 Officer
and Chief Financial Officer, 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 Officer and Chief
Financial Officer, has evaluated the effectiveness of
the design and operation of our disclosure controls and
procedures as of December 31, 2005. Based upon that evaluation, our Chief Executive Officer and Chief Finan-
cial Officer concluded that the design and operation of our disclosure controls and procedures provided reason-
able assurance that the disclosure controls and procedures are effective to accomplish their objectives.
2005 FORM 10K Genes ee & Wyoming Inc. 55
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REPORT OF MANAGEMENT ON INTERNAL CO NTROL O VER FINANCIAL REPORTING
Management of Genesee & Wyoming Inc. is responsible for establishing and maintaining adequate internal control
over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the
financial statements for external purposes in accordance
reliability of
financial
with accounting principles generally accepted in the United States of America.
reporting includes those written policies and procedures that:
financial reporting and the preparation of
Internal control over
(cid:1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect
the trans-
actions and dispositions of the assets of Genesee & Wyoming Inc.;
(cid:1) provide reasonable assurance that transactions are recorded as necessary to permit preparation of finan-
cial statements in accordance with accounting principles generally accepted in the United States of Amer-
ica;
(cid:1) 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
(cid:1) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of assets that could have a material effect on the consolidated financial statements.
Internal control over financial reporting includes the controls themselves, monitoring including internal auditing
practices, and actions taken to correct deficiencies as identified.
Because of
its inherent limitations, internal control over financial reporting may not prevent or detect misstate-
ments. Also, projections of any evaluation of effectiveness 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 effectiveness of our internal control over financial reporting as of December 31, 2005.
Management based this assessment on criteria for effective internal control over financial 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 financial
reporting and testing of the operating effectiveness of our internal control over financial 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, 2005, we maintained effective
internal control over financial reporting.
PricewaterhouseCoopers LLP, the independent registered public accounting firm who audited the consolidated
financial statements of Genesee & Wyoming Inc. included in this report, has audited management’s assessment
of the effectiveness of our internal control over financial reporting as of December 31, 2005 and has issued an
attestation report on management’s assessment which attestation is included in their report which appears here-
in.
March 14, 2006
56 Genes ee & Wyoming Inc. 2005 FORM 10K
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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 31, 2006
under “Election of Directors” and “Executive Officers”, which proxy statement will be filed within 120 days after
the end of our fiscal 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 31, 2006
under “Executive Compensation”, which proxy statement will be filed within 120 days after the end of our fiscal
year.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
E Q U I T Y C O M P E N S A T I O N P L A N I N F O R M A T I O N A S O F D E C E M B E R 3 1 , 2 0 0 5
Plan Category
Equity Compensation Plans Approved by
Security Holders
Equity Compensation Plans not Approved by
Security Holders
Total
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
Reflected in Column (a))
(c)
2,339,673
—
2,339,673
$11.89
—
$11.89
1,482,953
—
1,482,953
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 31,
2006 under “Security Ownership of Certain Beneficial Owners and Management”, which proxy statement will be
filed within 120 days after the end of our fiscal 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 31, 2006
under “Related Transactions”, which proxy statement will be filed within 120 days after the end of our fiscal year.
Item 14. Principal Accounting Fees and Services.
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 31, 2006
under “Principal Accounting Fees and Services”, which proxy statement will be filed within 120 days after the end
of our fiscal year.
2005 FORM 10K Genes ee & Wyoming Inc. 57
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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, 2005 and 2004
Consolidated Statements of Income for the Years ended December 31, 2005, 2004 and 2003
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for
December 31, 2005, 2004 and 2003
the Years Ended
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003
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 the Independent Auditors
Consolidated Balance Sheets as of December 31, 2005 and 2004
Consolidated Statements of Income for the Years Ended December 31, 2005, 2004 and 2003
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for
December 31, 2005, 2004 and 2003
the Years Ended
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003
Notes to Consolidated Financial Statements
(b) EXHIBITS – SEE INDEX TO EXHIBITS
(c) NONE
58 Genes ee & Wyoming Inc. 2005 FORM 10K
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I N D E X T O F I N A N C I A L S T A T E M E N T S
Genesee & Wyoming Inc. and Subsidiaries Financial Statements:
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2005 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the Years Ended December 31, 2005, 2004 and 2003 . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Years Ended December 31, 2005,
2004 and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003 . . . . . . . . . . . . . . . . .
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 the Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2005 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the Years Ended December 31, 2005, 2004 and 2003 . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Years Ended December 31, 2005,
2004 and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003 . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
F-2
F-4
F-5
F-6
F-8
F-9
F-40
F-41
F-42
F-43
F-44
F-45
2005 FORM 10K Genes ee & Wyoming Inc.
F-1
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
T o t h e B o a r d o f D i r e c t o r s a n d S t o c k h o l d e r s o f
G e n e s e e & W y o m i n g I n c . :
We have completed integrated audits of Genesee & Wyoming Inc.’s 2005 and 2004 consolidated financial state-
ments and of its internal control over financial reporting as of December 31, 2005, and an audit of its 2003 con-
solidated financial statements in accordance with the standards of
the Public Company Accounting Oversight
Board (United States). Our opinions on Genesee & Wyoming Inc.’s 2005, 2004, and 2003 consolidated financial
statements and on its internal control over financial reporting as of December 31, 2005, based on our audits, are
presented below.
C o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s
their operations and their cash flows for each of
In our opinion, the financial statements listed in the index appearing under Item 15(a), present fairly, in all material
respects, the financial position of Genesee & Wyoming Inc. and its subsidiaries at December 31, 2005 and 2004,
and the results of
the three years in the period ended
December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit the financial statements of Austral-
ian Railroad Group Pty Ltd (ARG), an equity method investment which represents 12.8% and 17.9% of
the
Company’s total assets as of December 31, 2005 and 2004, respectively, and 18.9%, 37.8% and 36.1% of the
Company’s net income for the years ended December 31, 2005, 2004 and 2003, 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
financial state-
assurance about whether the financial statements are free of material misstatement. An audit of
ments includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, and evalu-
ating the overall
financial statement presentation. We believe that our audits and the report of other auditors
provide a reasonable basis for our opinion.
I n t e r n a l c o n t r o l o v e r f i n a n c i a l r e p o r t i n g
in our opinion, management’s assessment,
Also,
included in Report of Management on Internal Control Over
Financial Reporting appearing under Item 9 (A), that the Company maintained effective internal control over finan-
cial reporting as of December 31, 2005, based on criteria established in Internal Control – 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, effective internal control over financial reporting as of December 31, 2005, based on criteria estab-
lished in Internal Control – Integrated Framework issued by the COSO. The Company’s management is respon-
sible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment
and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We con-
ducted our audit of internal control over financial reporting in accordance with the standards of the Public Com-
pany Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. An audit of
internal control over financial reporting includes obtaining an understanding of
internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design
and operating effectiveness 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.
financial
A company’s internal control over
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reason-
able assurance that
financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company
transactions are recorded as necessary to permit preparation of
F-2 Genes ee & W yoming Inc. 2005 FORM 10K
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the company; and
are being made only in accordance with authorizations of management and directors of
(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 effect on the financial statements.
Because of
its inherent limitations, internal control over financial reporting may not prevent or detect misstate-
ments. Also, projections of any evaluation of effectiveness 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.
PricewaterhouseCoopers LLP
New York, New York
March 14, 2006
2005 FORM 10K Genes ee & Wyoming Inc.
F-3
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GENESEE & W YOMING I NC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
ASSETS
CURRENTS ASSETS:
Cash and cash equivalents
Accounts receivable, net
Materials and supplies
Prepaid expenses and other
Deferred income tax assets, net
Total current assets
PROPERTY AND EQUIPMENT, net
INVESTMENT IN UNCONSOLIDATED AFFILIATES
GOODWILL
INTANGIBLE ASSETS, net
OTHER ASSETS, net
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt
Accounts payable
Accrued expenses
Total current liabilities
LONG-TERM DEBT, less current portion
DEFERRED INCOME TAX LIABILITIES, net
DEFERRED ITEMS – grants from governmental agencies
DEFERRED GAIN – sale/leaseback
OTHER LONG-TERM LIABILITIES
MINORITY INTEREST
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Class A Common Stock, $0.01 par value, one vote per share; 90,000,000 shares authorized; 42,516,903
and 41,895,221 shares issued and 37,195,044 and 36,596,877 shares outstanding (net of 5,321,859
and 5,298,344 shares in treasury) on December 31, 2005 and 2004, respectively
Class B Common Stock, $0.01 par value, ten votes per share; 15,000,000 shares authorized; 3,975,183
shares issued and outstanding on December 31, 2005 and 2004
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Less treasury stock, at cost
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
F-4 Genes ee & W yoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 62 Color; Composite
December 31,
2005
2004
$ 18,669
91,134
6,765
8,298
4,230
$ 14,451
64,537
5,263
7,784
3,190
129,096
95,225
535,994
136,443
31,233
135,444
12,388
337,024
132,528
24,682
77,778
10,014
$980,598
$677,251
$
4,726
87,496
28,270
$
6,356
63,794
21,598
120,492
91,748
333,625
59,891
48,242
3,217
13,982
3,329
—
125,881
50,517
46,229
3,495
14,122
3,559
—
425
419
40
168,007
218,189
24,175
(13,016)
397,820
40
160,607
168,054
25,228
(12,648)
341,700
$980,598
$677,251
GENESEE & W YOMING I NC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS O F I NCOME
(in thousands, except per share amounts)
OPERATING REVENUES
OPERATING EXPENSES:
Transportation
Maintenance of ways and structures
Maintenance of equipment
General and administrative
Net gain on sale and impairment of assets
Depreciation and amortization
Total operating expenses
INCOME FROM OPERATIONS
Interest expense
Other (expense) income, net
INCOME BEFORE INCOME TAXES and EQUITY EARNINGS
Provision for income taxes
Equity in Net Income of International Affiliates:
Australia
South America
NET INCOME
Preferred stock dividends and cost accretion
Years Ended December 31,
2003
2004
2005
$385,389
$303,784
$244,827
133,001
34,360
57,321
68,408
(3,207)
24,575
102,424
29,347
47,602
55,142
(13)
19,243
84,268
25,969
36,695
46,206
(87)
15,471
314,458
253,745
208,522
70,931
(14,900)
(218)
55,813
15,756
9,468
610
50,135
—
50,039
(11,142)
(131)
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
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
$ 50,135
$ 37,140
$ 27,449
BASIC EARNINGS PER SHARE:
Earnings per common share
Weighted average shares
DILUTED EARNINGS PER SHARE:
Earnings per common share
Weighted average shares and equivalents
$
1.36
$
1.03
$
0.77
36,907
36,207
35,489
$
1.20
$
0.90
$
0.68
41,712
41,103
40,152
The accompanying notes are an integral part of these consolidated financial statements.
2005 FORM 10K Genes ee & Wyoming Inc.
F-5
Job: 39566_003 Genesee & Wyoming Page: 63 Color; Composite
GENESEE & W YOMING I NC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS O F STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
( d o l l a r s i n t h o u s a n d s )
Class A
Common
Stock
Class B
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Stockholders’
Equity
BALANCE, December 31, 2002
$351
$40
$127,522
$103,465
$ (9,493)
$(12,264)
$209,621
Comprehensive income, net of tax:
Net income
Currency translation adjustments
Fair market value adjustments of
cash flow hedges
Pension liability adjustment
Comprehensive income
Proceeds from employee stock
purchases
Tax benefit from exercise of stock
options
Accretion on Redeemable
Convertible Preferred Stock
Adjustment of Preferred Option value
4% dividend paid on Redeemable
Convertible Preferred Stock
Non-cash Treasury stock
acquisitions, 32,457 shares
—
—
—
6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,856
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)
(316)
BALANCE, December 31, 2003
$357
$40
$131,757
$130,913
$16,599
$(12,580)
$267,086
Comprehensive income, net of tax:
Net income
Currency translation adjustments
Fair market value adjustments of
cash flow hedges
Pension liability adjustment
Comprehensive income
Proceeds from employee stock
purchases
Conversion of Class B Common
Stock to Class A Common Stock
Conversion of Preferred to Class A
Common Stock
Tax benefit from exercise of stock
options
Accretion on Redeemable
Convertible Preferred Stock
4% dividend paid on Redeemable
Convertible Preferred Stock
Amortization of Restricted Stock
Treasury stock acquisitions, 4,226
shares
BALANCE, December 31, 2004
—
—
—
—
6
2
54
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$419
—
$40
—
—
—
—
3,129
(1)
23,988
1,545
—
—
189
—
37,619
—
—
—
—
—
—
—
(67)
(411)
—
—
8,105
431
93
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(68)
37,619
8,105
431
93
46,248
3,135
1
24,042
1,545
(67)
(411)
189
(68)
$160,607
$168,054
$25,228
$(12,648)
$341,700
The accompanying notes are an integral part of these consolidated financial statements.
F-6 Genes ee & W yoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 64 Color; Composite
GENESEE & W YOMING I NC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS O F STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
(conti nued) (doll ars i n thousand s)
Class A
Common
Stock
Class B
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Stockholders’
Equity
BALANCE, December 31, 2004
$419
$40
$160,607
$168,054
$25,228
$(12,648)
$341,700
Comprehensive income, net of tax:
Net income
Currency translation adjustments
Fair market value adjustments of
cash flow hedges
Pension liability adjustment
Comprehensive income
Proceeds from employee stock
purchases
Conversion of Class B Common
Stock to Class A Common Stock
Conversion of Preferred to Class A
Common Stock
Tax benefit from exercise of stock
options
Excess tax benefits from share
based payment arrangements
Compensation cost on stock options
Amortization of Restricted Stock
Treasury stock acquisitions, 23,516
shares
—
—
—
—
5
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,800
—
—
364
758
1,816
662
—
50,135
—
—
—
—
—
—
—
—
—
—
—
—
(3,552)
2,363
136
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
50,135
(3,552)
2,363
136
49,082
3,805
—
—
364
758
1,816
663
(368)
(368)
BALANCE, December 31, 2005
$425
$40
$168,007
$218,189
$24,175
$(13,016)
$397,820
The accompanying notes are an integral part of these consolidated financial statements.
2005 FORM 10K Genes ee & Wyoming Inc.
F-7
Job: 39566_003 Genesee & Wyoming Page: 65 Color; Composite
GENESEE & W YOMING I NC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS O F CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization
Amortization of Restricted Stock
Compensation cost related to stock options
Excess tax benefit from share-based payment arrangements
Deferred income taxes
Tax benefit realized upon exercise of stock options
Net gain on sale and impairment of assets
Write off of deferred finance fees from early extinguishment of debt
Equity earnings of unconsolidated international affiliates
Minority interest (income) expense
Changes in assets and liabilities, net of effect of acquisitions –
Accounts receivable
Materials and supplies
Prepaid expenses and other
Accounts payable and accrued expenses
Other assets and liabilities, net
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net of proceeds from government grants
Locomotive upgrade project
Purchase of rail properties from Rail Management Corporation, net of $4.9 million cash received
Additional purchase price for Genesee Rail-One
Purchase of Pawnee Transloading Company Inc. and Homer City and Savannah Wharf rail properties
Valuation adjustment of split dollar life insurance asset
Purchase of Chattahoochee Industrial Railroad, Arkansas, Louisiana and Mississippi Railroad and
Fordyce & Princeton Railroad
Cash received from unconsolidated international affiliates
Proceeds from disposition of property and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term borrowings
Proceeds from issuance of long-term debt
Payment of debt issuance costs
Proceeds from employee stock purchases
Treasury Stock purchases
Excess tax benefit from share-based payment arrangements
Dividends paid on Redeemable Convertible Preferred Stock
Net cash provided by (used in) financing activities
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of year
CASH AND CASH EQUIVALENTS, end of year
CASH PAID DURING YEAR FOR:
Interest
Income taxes
Years Ended December 31,
2003
2004
2005
$ 50,135 $ 37,619 $ 28,719
24,575
663
1,816
(758)
8,428
363
(3,207)
—
(10,077)
(31)
(13,039)
(245)
149
9,184
141
19,243
189
—
—
7,856
1,545
(13)
1,611
(14,911)
194
(9,210)
9
(1,567)
12,846
35
15,471
—
—
—
9,659
1,123
(87)
—
(10,641)
243
3,267
325
999
(3,941)
2,147
68,097
55,446
47,284
(32,098)
—
(238,204)
(6,500)
—
47
—
677
4,317
(28,072)
—
—
—
(2,909)
(459)
—
5,757
448
(18,934)
(4,076)
—
—
—
(367)
(54,952)
132
1,941
(271,761)
(25,235)
(76,256)
(213,975)
417,800
(1,629)
3,805
(368)
758
—
(283,579)
254,800
(1,396)
3,046
—
—
(411)
(159,608)
186,500
—
2,546
—
—
(1,000)
206,391
(27,540)
28,438
1,491
4,218
14,451
662
624
3,333
11,118
90
11,028
$ 18,669 $ 14,451 $ 11,118
$ 12,479 $ 10,631 $
7,127
5,790
8,691
1,034
The accompanying notes are an integral part of these consolidated financial statements.
F-8 Genes ee & W yoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 66 Color; Composite
GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 . B U S I N E S S A N D C U S T O M E R S :
Genesee & Wyoming Inc., through its subsidiaries and unconsolidated affiliates, currently has interests in 49 rail-
roads, of which 41 are located in the United States, three are located in Canada, three are located in Australia,
one is located in Mexico and one is located in Bolivia. From January 1, 2003 to December 31, 2005, the Com-
pany has acquired twenty railroads and sold one railroad in the United States. The Company, through its leasing
subsidiary, also leases and manages railroad transportation equipment in the United States, Canada and Mexico
and 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 elec-
tric utility, forest products, auto and auto parts and cement industries in North America. Freight revenue from our
ten largest North American freight revenue customers accounted for approximately 24%, 27% and 27% of the
In 2005 and 2004, the Company’s
Company’s North American revenues in 2005, 2004 and 2003 respectively.
largest North American freight
revenue customer was a company in the paper and forest products industry,
freight revenue from which accounted for approximately 8% of the Company’s North American revenues in these
years. In 2003, the Company’s largest North American freight revenue customer was a coal-fired electricity gen-
erating plant, freight revenue from which accounted for approximately 5% of the Company’s operating revenues
in 2003.
2 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S :
P r i n c i p l e s o f C o n s o l i d a t i o n
The consolidated financial statements presented herein include the accounts of Genesee & Wyoming Inc. and its
subsidiaries. The Company’s investments in unconsolidated affiliates are accounted for under the equity method.
All significant intercompany transactions and accounts have been eliminated in consolidation.
R e v e n u e R e c o g n i t i o n
Railroad revenues are estimated and recognized as shipments initially move onto our tracks, which, due to the
relatively short length of haul, is not materially different from the recognition of revenues as shipments progress.
Industrial switching and other service revenues are recognized as such services are provided.
C a s h E q u i v a l e n t s
The Company considers all highly liquid instruments with a maturity of three months or less when purchased to
be cash equivalents.
M a t e r i a l s a n d S u p p l i e s
Materials and supplies consist of purchased items for improvement and maintenance of road property and equip-
ment, and are stated at the lower of average cost or market. Materials and supplies are removed from inventory
using the average cost method.
P r o p e r t y a n d E q u i p m e n t
Property and equipment are carried at historical cost. Acquired railroad property is recorded at
cost. Major
expense when incurred. Gains or
expense. Depreciation is provided on the straight-line method over the useful
years) and equipment (3-20 years).
the allocated
renewals or betterments are capitalized, while routine maintenance and repairs are charged to
losses on sales or other dispositions are credited or charged to operating
lives of the road property (5-50
The following table sets forth the estimated useful
ment:
Property:
Estimated useful life
lives of the Company’s major classes of property and equip-
Buildings & Leasehold Improvements
Bridges/Tunnels/Culverts
Track Property
30 years or life of lease
30 – 50 years
5 – 50 years
Equipment:
Computer Equipment
Locomotives & Freight Cars
Vehicles & Mobile Equipment
Signals & Crossing Equipment
Track Equipment
Other Equipment
3 years
5 – 20 years
5 – 10 years
5 – 10 years
5 – 10 years
5 – 10 years
2005 FORM 10K Genes ee & Wyoming Inc.
F-9
Job: 39566_003 Genesee & Wyoming Page: 67 Color; Composite
GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
The Company reviews for impairment its long-lived tangible assets whenever events and circumstances indicate
that the carrying amounts of such assets may not be recoverable. When factors indicate that assets should be
evaluated for possible impairment, the Company uses an estimate of the related undiscounted future cash flows
over the remaining lives of assets in measuring whether or not impairment has occurred. If impairment is identi-
fied, 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 applicable in the circumstances.
The Company closely monitors its assets in foreign operations where fluctuating currencies and unsettled
economic conditions can create greater uncertainty.
G r a n t s
Grants received from governmental agencies are recorded as long-term liabilities when received and are amor-
tized 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 con-
struction projects to facilitate our service over that track. These improvements are not recorded in the Compa-
ny’s financial statements.
G o o d w i l l a n d I n t a n g i b l e A s s e t I m p a i r m e n t
The Company accounts for its business acquisitions using the purchase method of accounting and allocates the
total cost of an acquisition to the underlying net assets based on their respective estimated fair values. As part of
this allocation process, the Company identifies and attributes values and estimated lives to the intangible assets
acquired. These determinations involve significant estimates and assumptions,
including those with respect to
future cash flows, discount rates, and asset lives and therefore require considerable judgment.
The Company reviews the carrying values of goodwill and identifiable intangible assets with indefinite lives at
least annually to assess impairment since these assets are not amortized. Additionally, the Company reviews the
carrying value of any intangible asset or goodwill whenever such events or changes in circumstances indicate
that its carrying amount may not be recoverable. The Company assesses impairment by comparing the fair value
of an intangible asset or goodwill with its carrying value. The determination of
fair value involves significant
management judgment. Impairments are expensed when incurred. Specifically, the Company tests for impairment
in accordance with Statement of Financial Accounting Standards No. 142 (SFAS No. 142). The Company per-
forms its annual
impairment on November 30 of each year and no impairment was recognized.
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.
For goodwill, a two-step impairment model
is used. The first step 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,
impairment as the excess of
goodwill would be considered impaired. The second step measures the goodwill
recorded goodwill over the asset’s implied fair value.
A m o r t i z a b l e I n t a n g i b l e A s s e t s
The Company has amortizable intangible assets in the United States valued as customer relationships or con-
in Mexico related to a concession agreement with the Mexican
tracts and one amortizable intangible asset
Communications and Transportation Department. The intangible assets in the United States are amortized on a
straight-line basis over the expected economic longevity of the customer relationship, the facility served or the
length of the customer contract. The intangible asset in Mexico is amortized on a straight-line basis over the life
of the concession agreement. See Note 6 for a more detailed discussion of amortizable intangible assets.
I n s u r a n c e
incident
The Company maintains insurance, with varying deductibles up to $500,000 per incident for liability and up to
$500,000 per
for claims resulting from train derailments and other accidents
related to the Company’s railroad and industrial switching operations. Accruals for FELA claims by the Compa-
injury or other claims, limited when appropriate to the applicable
ny’s railroad employees and third party personal
deductible, are recorded when such claims are determined to be probable and estimates are updated as
information develops.
for property damage,
C o m m o n S t o c k S p l i t s
On February 14, 2006, and February 11, 2004, the Company announced three-for-two common stock splits in
the form of 50% stock dividends distributed on March 14, 2006, to stockholders of record as of February 28,
2006, and March 15, 2004, to stockholders of record as of February 27, 2004, respectively. All share, per share
and par value amounts presented herein have been restated to reflect the retroactive effect of these stock splits.
F-10 Genes ee & Wyoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 68 Color; Composite
GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
E a r n i n g s p e r S h a r e
the treasury stock method, and
Common shares issuable under unexercised stock options, calculated under
mandatorily redeemable convertible preferred stock (converted in June 2004 see Note 11) are the only reconciling
items between our basic and diluted weighted average shares outstanding. The total number of options and
restricted stock used to calculate weighted average share equivalents for diluted earnings per share is
2,430,297, 2,583,296 and 2,682,684 for 2005, 2004 and 2003, respectively. Also included in the diluted earnings
per share calculation in 2003 are 5,502,717 shares of common stock equivalents which represent the weighted
average share impact of the conversion of mandatorily redeemable convertible preferred stock converted in June
2004.
The following table sets forth the computation of basic and diluted earnings per share for
December 31, 2005, 2004 and 2003 (in thousands, except per share amounts)
the years ended
Numerators:
Net income
Preferred Stock dividends and accretion
Net income allocated to participating preferred stockholders
Net income available to Class A Common stockholders – Basic
Net income allocated to participating preferred stockholders
Net income available to Class A Common stockholders – Diluted
Denominators:
Weighted average Class A Common Shares outstanding – Basic
Weighted average Mandatory Redeemable Convertible Preferred Stock (converted to Class A
Common Stock in the second quarter of 2004)
Weighted average Class B Common Shares outstanding
Dilutive effect of employee stock options
Weighted average shares – Dilutive
Income per common share:
Basic
Diluted
I n c o m e T a x e s
2005
2004
2003
$50,135
—
—
$37,619
479
—
$28,719
1,270
4,256
$50,135
$37,140
$23,193
—
—
4,256
$50,135
$37,140
$27,449
36,907
36,207
29,987
—
3,975
830
—
4,011
885
5,502
4,062
601
41,712
41,103
40,152
$
$
1.36
1.20
$
$
1.03
.90
$
$
.77
.68
The Company files a consolidated U.S.
income tax return, which includes all of our U.S. subsidiaries.
Each of the Company’s foreign subsidiaries files appropriate income tax returns in their respective countries. No
provision is made for the U.S. income taxes applicable to the undistributed earnings of controlled foreign sub-
sidiaries as it
foreign sub-
sidiaries.
to fully utilize those earnings in the operations of
is the intention of management
federal
P e n s i o n a n d O t h e r P o s t r e t i r e m e n t B e n e f i t P l a n s
The Company uses third-party actuaries to assist it in properly measuring the liabilities and expenses associated
with providing pension and defined contribution medical and life insurance benefits (OPEB)
for union and
to use actuarial methods to value the liabilities and
non-union employees of
expenses,
rate and
the Company is required to make several critical assumptions including the discount
expected rate of return on pension assets. For other postretirement benefits, the critical assumptions are the
discount rate and healthcare cost trend rate.
two U.S. subsidiaries.
In order
The Company evaluates the critical assumptions annually and its assumptions are based on the following factors:
(cid:1) Discount
rate is based on a review of
long-term bonds,
including published indices. The discount rate
determined on that basis was 5.75%.
(cid:1) Expected return on plan assets is based on an assumed long-term asset rate of return of 8.5%.
(cid:1) Health care cost trend rate is based on historical rates of inflation and expected market conditions and is
assumed to be 11.0% graded ratably to 5% over a seven year period.
2005 F ORM 10K Genes ee & Wyoming Inc.
F-11
Job: 39566_003 Genesee & Wyoming Page: 69 Color; Composite
GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
S t o c k - b a s e d C o m p e n s a t i o n P l a n s
The Compensation and Stock Option Committee of the Company’s Board of Directors (Compensation Committee)
has discretion to determine grantees, grant dates, amounts of grants, vesting and expiration dates for grants to
employees through the 2004 Omnibus Incentive Plan (the Plan). The Plan allows for
the issuance of stock
options, restricted stock and restricted stock units, and under the terms of the awards, equity grants for employ-
ees vest over three years and equity grants for directors vest over their respective terms as directors.
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 123(R), Share-Based
Payments (SFAS 123R). This statement requires companies recognize compensation expense equal to the fair
value of share-based payments. SFAS 123R eliminates the use of the intrinsic method of accounting provided for
in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), under which
no compensation cost is recognized except for restricted stock.
The Company elected to adopt SFAS 123R in the third quarter of 2005 using the Modified Prospective Applica-
tion. Prior to adoption of SFAS 123R, it reported all tax benefits resulting from the exercise of stock options as
operating cash flows in the consolidated statements of cash flows. In accordance with SFAS 123R, for the period
beginning with the third quarter of 2005, the Company revised its statement of cash flows presentation to report
the excess tax benefits from the exercise of stock options as a cash outflow from operating activities and a cash
inflow from financing activities.
D i s c l o s u r e s A b o u t F a i r V a l u e o f F i n a n c i a l I n s t r u m e n t s
The following methods and assumptions were used to estimate the fair value of each class of financial
held by the Company:
instrument
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
fixed rate and variable rate debt approximates its fair value.
F o r e i g n C u r r e n c y
The financial statements of the Company’s foreign subsidiaries were prepared in the respective local currencies
of the subsidiary 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 reflected
as currency translation adjustments in Stockholders’ Equity and are included in accumulated other compre-
hensive income.
Revaluation of U.S. dollar denominated foreign loans into the appropriate local currency resulted in losses of
$661,000 and $144,000 in 2005 and 2004, respectively, and a gain of $241,000 in 2003. Additionally, foreign
currency transaction gains and losses, most notably, a loss of $2,000 and gains of $9,000 and $504,000 in
2005, 2004 and 2003, respectively, related to an Australian dollar cash account are reported in Other (expense)
income, net.
M a n a g e m e n t E s t i m a t e s
The preparation of financial statements in conformity with accounting principles generally accepted in the United
Sates of America requires management
to use judgment and to make estimates and assumptions that affect
reported assets, liabilities, revenues and expenses during the reporting period. Significant estimates using man-
agement judgment are made in the areas of recoverability and useful
life of assets, as well as liabilities for casu-
alty claims and income taxes. Actual results could differ from those estimates.
R e c l a s s i f i c a t i o n s
Certain prior year balances have been reclassified to conform to the 2005 presentation.
F-12 Genes ee & Wyoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 70 Color; Composite
GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
3 . E X P A N S I O N O F O P E R A T I O N S :
United States
($186.0 million), and intangible assets ($60.4 million),
Rail Partners: On June 1, 2005, the Company acquired from Rail Management Corporation (RMC) substantially all
of RMC’s rail operations (collectively, Rail Partners) for $238.2 million in cash (net of $4.9 million cash received),
the assumption of $1.4 million of non-interest bearing debt and $1.8 million in acquisition costs. The purchase
price was allocated to current assets ($19.4 million, including $4.9 million in cash received), property and equip-
ment
liabilities ($21.3 million) and debt
assumed ($1.4 million). The intangible assets consist of customer contracts and relationships with a weighted
the Company implemented a
average amortization period of 27 years. As contemplated with the acquisition,
severance program which is included in the table below. The aggregate cost of
the severance program of
$894,000 was considered a liability assumed in the acquisition, and as such, was included in the purchase price.
For U.S. tax purposes, the Company will treat the Rail Partners acquisition as a purchase of assets. The Com-
pany funded the purchase price through a combination of borrowings under its $225.0 million senior revolving
credit facility and from a private placement of $125.0 million 10-Year senior floating rate notes (the Acquisition
Notes). The acquired rail properties are operated by the Company’s Jacksonville-based Rail Link Region and
commenced operations on June 1, 2005.
less current
First Coast Railroad Inc.: On April 8, 2005, the Company’s subsidiary, the First Coast Railroad Inc. (FCRD) signed
a 20-year agreement
line between Seals, Georgia and Fernandina, Florida from CSX
Transportation, Inc. (CSX). The FCRD is operated by the Company’s Rail Link Region and commenced operations
on April 9, 2005.
to lease 31 miles of rail
Homer City Branch: In July 2005, the Company’s Homer City Branch, which is located in Homer City, Pennsylva-
nia, began operations upon completion of track rehabilitation, a portion of which was funded through government
grants. The Homer City Branch rail
line, which the Company acquired in January 2004 for approximately
is operated by the Company’s New York-Pennsylvania Region and is contiguous to that
$600,000 from CSX,
region’s existing railroad operation.
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 a freight customer located in the 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 first 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 Pacific 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.
the Savannah Wharf Branch rail
Savannah Wharf Branch: On August 30, 2004, the Company completed the purchase from CSX Transportation,
Inc. of
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.
Georgia Pacific Railroads: On December 31, 2003, the Company completed the purchase from Georgia-Pacific
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),
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,
In conjunction with the acquisition, the Company entered into two Trans-
was included in the purchase price.
portation Services Agreements (TSAs) which are 20-year agreements for the GP Railroads to provide rail trans-
portation 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-
liabilities assumed ($12.5 million). As contemplated with the acquisition,
less current
2005 F ORM 10K Genes ee & Wyoming Inc.
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GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
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.
The table below sets forth a roll-forward of the activity affecting the restructuring reserves established in acquis-
itions, including the number of employees and actual cash payments:
S c h e d u l e o f A c q u i s i t i o n R e s t r u c t u r i n g A c t i v i t y
Number of Employees:
Beginning number of employees to be terminated during the period
Number of planned terminations related to acquisitions during the period
Additions to planned terminations during the period
Actual number of employees terminated during the period
Ending number of employees to be terminated as of the end of the period
Restructuring Reserves:
Liabilities established in purchase accounting for acquisitions
Additions to liability reserve during the period
Cash payments during the period
Balance at end of period
P r o F o r m a F i n a n c i a l R e s u l t s ( u n a u d i t e d )
Years Ended December 31,
2003
2004
2005
3
—
16
(19)
—
13
—
4
(14)
3
—
13
—
—
13
$176,000
718,000
$1,002,000
228,000
$1,002,000
—
894,000
1,054,000
—
— $ 176,000
$1,002,000
The following table summarizes the Company’s unaudited pro forma operating results for
the years ended
December 31, 2005 and 2004, as if Rail Partners had been acquired as of January 1, 2004. (in thousands, except
per share amounts):
Operating revenues
Net income
Basic earnings per share
Diluted earnings per share
2005
2004
$411,139
49,793
1.35
1.19
$360,691
41,850
1.16
1.01
The unaudited pro forma operating results include the acquisition of Rail Partners adjusted, net of tax, for depreci-
the Rail Partners property and intangible assets
ation and amortization expense resulting from the step-up of
based on appraised values, capitalization of certain track repairs that were historically expensed, and the
inclusion of
interest expense related to borrowings used to fund the acquisition. The Rail Partners
results reflected in these pro forma operating results include certain senior management compensation and other
expenses that the Company does not believe will continue as ongoing expenses but do not qualify for elimination
under the treatment and presentation of pro forma financials.
incremental
The pro forma financial
information does not purport to be indicative of the results that actually would have been
obtained had all the transactions been completed as of the assumed dates and for the periods presented and are
not intended to be a projection of future results or trends.
F-14 Genes ee & Wyoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 72 Color; Composite
GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
4 . A C C O U N T S R E C E I V A B L E A N D A L L O W A N C E F O R D O U B T F U L A C C O U N T S :
Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful
accounts is our best estimate of the amount of probable credit losses on existing accounts receivable. Manage-
ment determines the allowance based on historical write-off experience within each of our regions. Management
reviews material past due balances over 90 days on a monthly basis. Account balances are charged off against
the allowance when management determines it is probable that the receivable will not be recovered. The Com-
pany does not have any off-balance sheet credit exposure related to customers.
Receivables consist of the following at December 31, 2005, 2004 and 2003 (amounts in thousands):
Accounts Receivable – Trade
2005
2004
2003
$93,024
$65,988
$56,670
Activity in the Company’s allowance for doubtful accounts was as follows (in thousands):
Balance, beginning of year
Provisions
Charges
Balance, end of year
5 . P R O P E R T Y A N D E Q U I P M E N T :
Major classifications of property and equipment are as follows (in thousands):
Property:
Land & Land Improvements
Buildings & Leasehold Improvements
Bridges/Tunnels/Culverts
Track Property
Total Property
Equipment:
Computer Equipment
Locomotives & Freight Cars
Vehicles & Mobile Equipment
Signals & Crossing Equipment
Track Equipment
Other Equipment
Total Equipment
Total Property and Equipment
Less Accumulated Depreciation
Property and Equipment, net
2005
2004
2003
$ 1,451
2,053
(1,614)
$ 2,014
1,195
(1,758)
$1,741
878
(605)
$ 1,890
$ 1,451
$2,014
2005
2004
$ 45,143
26,032
75,343
403,087
$ 25,600
16,631
41,820
271,180
549,605
355,231
3,709
71,251
16,071
7,625
4,189
8,610
111,455
3,036
50,502
12,962
6,155
3,582
7,578
83,815
661,060
439,046
(125,066)
(102,022)
$ 535,994
$ 337,024
Track property includes $496,000 of assets acquired under a capital
lease (see Note 8).
2005 F ORM 10K Genes ee & Wyoming Inc.
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GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
6 . I N T A N G I B L E A N D O T H E R A S S E T S , N E T A N D G O O D W I L L :
Acquired intangible and other assets are as follows (in thousands):
December 31, 2005
December 31, 2004
Gross
Carrying
Amount
Accumulated
Amortization
Net
Assets
Gross
Carrying
Amount
Accumulated
Amortization
Net
Assets
$
7,380
$1,537
$
5,843
$ 7,047
$1,233
$ 5,814
10,566
1,078
9,488
10,566
INTANGIBLE ASSETS:
Amortizable intangible assets:
Chiapas-Mayab Operating License (Mexico)
Amended and Restated Service Assurance
Agreement (Illinois & Midland Railroad)
Transportation Services Agreement (GP
Railroads)
27,055
1,803
25,252
27,055
Customer Contracts and Relationships (Rail
Partners)
Non-amortizable intangible assets:
60,406
1,436
58,970
—
Track Access Agreements (Utah Railway)
35,891
—
35,891
35,891
647
901
—
—
9,919
26,154
—
35,891
Total Intangible Assets
OTHER ASSETS:
Deferred financing costs
Other assets
Total Other Assets
$141,298
$5,854
$135,444
$80,559
$2,781
$77,778
$
5,933
7,832
13,765
$1,289
88
1,377
$
4,644
7,744
$ 6,584
7,030
12,388
13,614
$3,015
585
3,600
$ 3,569
6,445
10,014
Total Intangible and Other Assets
$155,063
$7,231
$147,832
$94,173
$6,381
$87,792
The Chiapas-Mayab Operating License is being amortized over 30 years, which is the original
life of the con-
cession agreement with the Mexican Communications and Transportation Department. The Chiapas-Mayab Oper-
ating License is subject to exchange rate changes resulting from conversion of Mexican pesos to U.S. dollars at
different periods. Amortization expense for the year ended December 31, 2005, was $304,000; estimated annual
amortization for the next five years is $304,000 per year, assuming constant U.S. dollar/Mexican peso exchange
rate.
On July 23, 2003, as a result of a settlement agreement with Commonwealth Edison Company, the Company
amended and restated the Service Assurance Agreement and began to amortize the Amended and Restated Serv-
ice Assurance Agreement (ARSAA). The estimate of the useful
life of the ARSAA asset is based on the Company’s
life of the coal-fired electricity generation plant, to which the Illinois and Midland Railroad
estimate that the useful
provides service, will be through 2027. Amortization expense for
the year ended December 31, 2005, was
$431,000; estimated annual amortization for the next five years is $431,000 per year.
The Transportation Services Agreement (the TSA), entered into in conjunction with the Georgia-Pacific Corpo-
ration (GP) transaction,
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 con-
life. Therefore, the
tinue to be the exclusive rail transportation service provider until the end of the plant’s useful
TSA is being amortized on a straight-line basis over a 30-year life which began January 1, 2004. Amortization
expense for the year ended December 31, 2005, was $902,000; estimated amortization for the next five years is
$902,000 per year.
The Company allocated $60.4 million of the purchase price for the Rail Partners acquisition to intangible assets.
These intangible assets were valued as customer relationships or contracts and, as of June 1, 2005, are amor-
tized on a straight
the facility
served or the length of the customer contract. The weighted average life of the intangible assets is 27 years.
Amortization expense for the year ended December 31, 2005, was $1.4 million; estimated amortization for the
next five years is $2.5 million per year.
the expected economic longevity of
line basis over
the customer
relationship,
The Track Access Agreements are perpetual trackage agreements assumed in the Company’s acquisition of Utah
Railway Company. Under SFAS No. 142 these assets have been determined to have an indefinite useful
life and
therefore are not subject to amortization.
F-16 Genes ee & Wyoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 74 Color; Composite
GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
Deferred financing costs are amortized over terms of the related debt using the effective-interest method for the
term debt and using the straight-line method for the revolving loan portion of debt. Amortization expense for the
year ended December 31, 2005, was $784,000; estimated amortization for the next five years is $847,000 per
year.
Other assets consist primarily of executive split dollar life insurance, assets held for sale or future use and a
facility located on one of our railroads. Executive split
minority equity investment of $500,000 in an agricultural
dollar life insurance is the present value of life insurance benefits which the Company funds but that are owned
by executive officers. The Company retains a collateral
interest in a portion of the policies’ cash value and death
benefits. Assets held for sale or future use primarily represent surplus track and locomotives.
Upon adoption of SFAS No. 142 amortization of goodwill was discontinued as of January 1, 2002. The changes
in the carrying amount of goodwill are as follows:
Goodwill:
Balance at beginning of period
Goodwill additions (see Note 17)
Currency translation adjustment
Balance at end of period
7 . E Q U I T Y I N V E S T M E N T S :
A u s t r a l i a n R a i l r o a d G r o u p
Twelve Months
Ended
December 31,
2005
Twelve Months
Ended
December 31,
2004
$24,682
6,500
51
$31,233
$24,522
—
160
$24,682
Australian Railroad Group (ARG)
is 50% owned by Genesee & Wyoming and 50% owned by Wes-
farmers, a public corporation based in Perth, Western Australia. The Company accounts for its 50% ownership in
ARG under the equity method of accounting. As a result of the strengthening of the Australian dollar in 2005, the
average currency translation rate for the year ended December 31, 2005, was 3.5% more favorable than the rate
for the year ended December 31, 2004.
(See Note 21)
In the years ended December 31, 2005, 2004 and 2003, the Company recorded $9.5 million, $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 Affiliates – Australia. The following
condensed financial data of ARG is based on accounting principles generally accepted in the United States and
converted into thousands of U.S. dollars based on the following Australian dollar to U.S. dollar exchange rates:
As of December 31, 2005
As of December 31, 2004
As of December 31, 2003
Average for the year ended December 31, 2005
Average for the year ended December 31, 2004
Average for the year ended December 31, 2003
$0.734
$0.783
$0.751
$0.762
$0.736
$0.662
2005 F ORM 10K Genes ee & Wyoming Inc.
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GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
A u s t r a l i a n R a i l r o a d G r o u p P t y . L t d .
C o n d e n s e d C o n s o l i d a t e d B a l a n c e S h e e t s
( i n t h o u s a n d s o f U . S . d o l l a r s )
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable, net
Materials and supplies
Prepaid expenses and other
Total current assets
PROPERTY AND EQUIPMENT, net
DEFERRED INCOME TAX ASSETS, net
OTHER ASSETS, net
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable
Accrued expenses
Current income tax liabilities
Total current liabilities
LONG-TERM BANK DEBT
DEFERRED INCOME TAX LIABILITIES, net
OTHER LONG-TERM LIABILITIES
FAIR VALUE OF INTEREST RATE SWAPS
Total non-current liabilities
REDEEMABLE PREFERRED STOCK OF STOCKHOLDERS
TOTAL STOCKHOLDERS’ EQUITY
December 31,
2005
December 31,
2004
$ 12,515
54,257
11,226
2,323
80,321
551,849
67,834
7,799
$ 21,217
49,085
11,580
3,055
84,937
541,470
77,325
8,522
$707,803
$712,254
$ 25,473
32,890
10
58,373
359,415
24,599
11,121
4,735
399,870
15,838
233,722
$ 19,832
31,989
364
52,185
383,425
21,207
2,177
9,788
416,597
16,897
226,575
Total liabilities and stockholders’ equity
$707,803
$712,254
F-18 Genes ee & Wyoming Inc. 2005 FORM 10K
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GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
A u s t r a l i a n R a i l r o a d G r o u p P t y . L t d .
C o n d e n s e d C o n s o l i d a t e d S t a t e m e n t s o f I n c o m e
( i n t h o u s a n d s o f U . S . d o l l a r s )
Operating revenues
Operating expenses
Income from operations
Interest expense
Other income, net
Income before income taxes
Provision for income taxes
Net income
Years Ended December 31,
2003
2004
2005
$344,546
288,488
$333,647
265,702
$249,571
194,356
56,058
(29,430)
600
27,228
8,292
67,945
(28,438)
1,227
40,734
12,264
55,215
(33,877)
3,271
24,609
3,866
$ 18,936
$ 28,470
$ 20,743
2005 F ORM 10K Genes ee & Wyoming Inc.
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GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
A u s t r a l i a n R a i l r o a d G r o u p P t y . L t d .
C o n d e n s e d C o n s o l i d a t e d S t a t e m e n t s o f C a s h F l o w s
( i n t h o u s a n d s o f U . S . d o l l a r s )
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization
Deferred income taxes
Net gain on sale and impairment of assets
Changes in assets and liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment
Proceeds from disposition of property and equipment
Transfer from restricted funds on deposit
Net cash (used in) provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on borrowings
Proceeds from borrowings
Payments on subordinated notes to stockholders
Years Ended December 31,
2003
2004
2005
$ 18,936
$ 28,470
$ 20,743
32,127
9,726
(229)
9,675
27,346
11,847
(336)
4,829
23,443
11,283
(2,081)
(8,095)
70,235
72,156
45,293
(80,038)
2,147
—
(69,519)
2,570
—
(35,774)
6,924
69,978
(77,891)
(66,949)
41,128
(7,424)
7,665
— (430,385)
— 360,493
—
— (10,710)
Net cash provided by (used in) financing activities
241
(10,710)
(69,892)
EFFECT OF EXCHANGE RATE DIFFERENCES ON CASH AND CASH EQUIVALENTS
(1,287)
102
4,207
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of period
CASH AND CASH EQUIVALENTS, end of period
(8,702)
21,217
(5,401)
26,618
20,736
5,882
$ 12,515
$ 21,217
$ 26,618
F-20 Genes ee & Wyoming Inc. 2005 FORM 10K
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GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
S o u t h A m e r i c a
The following condensed financial data for Ferroviaria Oriental, S.A. (Oriental) for the years ended December 31,
2005, 2004 and 2003 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.
Years Ended December 31,
2004
2005
2003
Operating revenues
Net income
$30,114
6,261
$31,851
7,011
$27,130
5,175
Condensed balance sheet information for Oriental as of December 31, 2005 and 2004:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Senior debt
Stockholders’ equity
Total liabilities and stockholders’ equity
2005
2004
$13,549
59,727
$73,276
$ 6,629
6,750
509
59,388
$73,276
$15,702
58,365
$74,067
$ 7,306
6,042
892
59,827
$74,067
The above data does not include non-recourse debt of $12.0 million held at an intermediate unconsolidated affili-
ate or any of the general and administrative, interest or income tax costs at various intermediate unconsolidated
affiliates. The Company’s share of costs from the intermediate unconsolidated affiliates for
the years ended
December 31, 2005, 2004 and 2003 was approximately $200,000, $750,000 and $825,000, 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 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 on GWC’s 12.52% indirect equity inter-
est
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 difficult for GWC to refinance 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.
GWC and the creditors have an informal standstill agreement until May 21, 2006.
between GWC and the creditors by that date, the creditors may exercise their rights pursuant to the lien.
there is no agreement
If
in Oriental,
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 held through GWC,
which on December 31, 2005, amounted to approximately $350,000. A default, acceleration or effort to foreclose
on the lien under the non-recourse debt will have no impact on the 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 in
the fourth quarter of 2004 for its 12.52% equity interest in Oriental held through the Company’s interest in GWC.
the Company would write-off
its investment
Oriental has no obligations associated with the $12.0 million debt. In addition, a default, acceleration or effort 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 the Company’s Senior Credit Facility.
The Company’s retained earnings at December 31, 2005 and 2004,
respectively, of combined ARG and South America undistributed earnings.
include $58.0 million and $48.6 million,
2005 F ORM 10K Genes ee & Wyoming Inc.
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GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
8 . L E A S E S :
The Company enters into operating leases for freight cars, locomotives and other equipment. Related operating
lease expense for the years ended December 31, 2005, 2004 and 2003, was approximately $15.8 million, $10.4
million and $9.5 million,
respectively. The Company leases certain real property, which resulted in additional
operating lease expense for the years ended December 31, 2005, 2004 and 2003, of approximately $2.3 million,
$2.0 million and $1.6 million, respectively.
The Company is a party to several cancelable leases which have automatic renewal provisions. If the Company
chose not to renew these leases, it would be obligated to return the underlying rolling stock and pay aggregate
fees of up to approximately $7.3 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 $16.3 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 accom-
panying Consolidated Balance Sheets. Where applicable, these gains are amortized as a non-cash offset to rent
expense over the life of the lease. The remaining balance of such gains (net of amortization) was approximately
$3.2 million and $3.5 million at December 31, 2005 and 2004, respectively.
In 2004, the Company acquired $496,000 of road property assets through a capital
value of
computed on the straight-line method over the term of the lease.
lease for which the present
the related lease payments was recorded as a liability. Amortization of capitalized leased assets is
lines in
The Company is a party to several
North America. A number of
lease payments, 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, 2005, no payments were required under these lease arrangements.
lease agreements with Class I carriers to operate over various rail
these lease agreements have annual
In November 2004, one of the Company’s subsidiaries 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 $3.1 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, non-cancelable operating leases and cancelable operating leases (in
thousands):
Capital
Non-cancelable
Operating
Cancelable
Operating
$ 13
14
15
16
17
338
$413
$ 14,646
12,920
11,651
8,396
6,292
46,520
$ 4,430
4,430
1,595
691
—
—
Totals
$ 19,089
17,364
13,261
9,103
6,309
46,858
$100,425
$11,146
$111,984
Year
2006
2007
2008
2009
2010
Thereafter
Total minimum payments
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GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
9 . L O N G - T E R M D E B T :
Long-term debt consists of the following (in thousands):
Senior Credit Facilities with variable interest rates (weighted average of 5.61% and 3.62% before impact of
interest rate swaps at December 31, 2005 and 2004, respectively)
Senior Notes Series A with fixed interest rate of 4.85% due 2011
Senior Notes Series B with fixed interest rate of 5.36% due 2015
Senior Notes Series C with variable interest rate (4.91% at December 31, 2005) due 2012
Limited recourse U.S. dollar denominated promissory notes of Mexican subsidiary with variable interest
rates (7.51% and 5.56% before impact of interest rate swaps at December 31, 2005 and 2004,
respectively)
Other debt and capital leases with interest rates up to 6.0% and maturing at various dates up to 2024
Long-term debt
Less- Current portion
Long-term debt, less current portion
S e n i o r U . S . a n d C a n a d i a n C r e d i t F a c i l i t i e s
As of December 31,
2005
2004
$119,400
75,000
100,000
25,000
$ 36,097
75,000
—
—
15,779
3,172
18,831
2,309
338,351
4,726
132,237
6,356
$333,625
$125,881
On May 25, 2005, in conjunction with the acquisition of Rail Partners, the Company entered into a Consent and
First Amendment to the Amended and Restated Revolving Credit and Term Loan Agreement, dated November 12,
2004. The consent and amendment expanded the size of our senior revolving credit facility from $150.0 million to
$225.0 million. It also extended the maturity date of the US obligations to June 1, 2010, and consented to the
acquisition of Rail Partners. Following the amendment and consent, the amended and restated credit facilities are
composed of a $225.0 million revolving loan and a $32.0 million (C$38.5 million) Canadian term loan. The revolv-
ing loan is due in 2010 and the Canadian term loan is due in 2009. The acquisition of Rail Partners was partially
funded through a $118.0 million draw under
facility at an initial borrowing rate of
LIBOR plus 1.375%. Approximately $75,000 of the borrowing capacity is reserved for letters of credit for one of
the Company’s subsidiaries. The remaining unused borrowing capacity is available for general corporate pur-
poses, including acquisitions. 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. 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 guaran-
teed by substantially all of the Company’s U.S. and Canadian subsidiaries.
revolving credit
the senior
Financial covenants, which are measured on a trailing twelve month basis and reported quarterly, are as follows:
(a) Maximum leverage of 3.5 times (measured as Funded Debt (indebtedness plus guarantees including Let-
ters of Credit, plus the present value of operating leases) to EBITDAR (earnings before interest, taxes, depre-
ciation, amortization and rental payments on operating leases)), except during the period June 1, 2005
through December 31, 2005, where the maximum leverage is 3.75.
(b) Minimum interest coverage of 3.5 times measured as EBITDA (earnings before interest, taxes, depreciation
and amortization) divided by interest expense.
(c) Consolidated tangible net worth equal to 80% of net worth as of March 31, 2005, having given pro forma
effect to the June 2005 acquisition plus, on a cumulative basis, 50% of net income for each quarter ending
after March 31, 2005.
(d) Maximum annual capital expenditures (excluding acquisitions) of $51.0 million. Fifty percent of unutilized
permitted capital expenditures may be utilized in the succeeding year.
In addition, in connection with our Australia Transactions, we entered into a Consent and Second Amendment to
the Amended and Restated Revolving Credit and Term Loan Agreement, dated February 13, 2006 (the Consent
and Second Amendment). The Consent and Second Amendment waives compliance with the restrictions on the
dispositions of assets and adjusts the consolidated tangible net worth calculation to permit the Company’s entry
into the Australia Transactions. In addition, the Consent and Second Amendment permits the Company to make
restricted payments, consisting of stock repurchases or cash dividends, with the proceeds from the Australia
Transactions for a period of eighteen months following the closing of the Australia Transactions as long as certain
financial covenants governing distributions are met.
2005 F ORM 10K Genes ee & Wyoming Inc.
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GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
indebtedness, make
The credit facilities contain a number of covenants restricting our ability to incur additional
issue subsidiary stock, restrict distributions from subsidiaries, create certain
certain investments, sell assets,
liens, enter into certain consolidations or mergers, enter into certain transactions with affiliates, and pay divi-
dends 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. The Company was in compliance with the provisions of these covenants as of December 31, 2005.
S e n i o r N o t e s
On July 26, 2005, the Company completed a private placement of $100 million of Series B senior notes and $25
million of Series C senior notes. The Series B senior notes bear interest at 5.36% and are due 2015. The Series C
senior notes have a borrowing rate of LIBOR plus 0.70% and are due 2012. As of December 31, 2005, the Series
C senior notes had an interest rate of 4.91%. The Company used the proceeds of the senior notes to repay the
$125.0 million Acquisition Notes issued in connection with the Rail Partners transaction.
On November 15, 2004, the Company completed a $75.0 million private placement of the Series A senior notes.
The Series A senior notes bear interest at 4.85% and are due in 2011. The Company used the proceeds from the
to repay $75.0 million of approximately $110.0 million of debt out-
Series A senior notes private placement
standing at its U.S. and Canadian subsidiaries.
The senior notes are unsecured but are guaranteed by substantially all of the 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
affiliates. Financial covenants, which are reported quarterly, include (a) maximum debt to capitalization of 65%
and (b) minimum fixed 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 Com-
pany was in compliance with the provisions of these covenants as of December 31, 2005.
L i m i t e d R e c o u r s e P r o m i s s o r y N o t e s – M e x i c o
In addition, amounts held in escrow for the benefit of
On April 1, 2005, the Company and its Mexican subsidiaries, GW Servicios S.A. (“Servicios”) and Compañía de
Ferrocarriles Chiapas-Mayab, S.A. de C.V. (“FCCM”) amended loan agreements and related documents with the
International Finance Corporation (“IFC”) and Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden
(“FMO”) to revise certain terms of Servicios’ existing loans from IFC and FMO as well as the Company’s
N.V.
existing support obligations related to such loans, effective March 15, 2005. Under the amended terms, principal
payments under Servicios’ promissory notes payable (“Notes”) were reduced and maturity dates were extended
by three years.
IFC and FMO (approximately $574,000)
were released to prepay a portion of the loans. As of June 30, 2005, the aggregate amount outstanding on the
Notes totaled $17.0 million, with variable interest rates based on LIBOR plus 3.5 percentage points for the origi-
nal
the
extended term of the debt. Two of the Notes, aggregating to $10.2 million, have a six year remaining term with
combined semi-annual principal payments of $784,000 which began March 15, 2005, and continue through the
maturity date of September 15, 2011. The third Note, in the amount of $6.8 million, has a seven year remaining
term with semi-annual principal payments of $455,000 which began March 15, 2005, and continues through the
maturity date of September 15, 2012. As of December 31, 2005, the aggregate amount outstanding on the Notes
totaled $15.8 million.
through 2007 and 2008 with an increase to LIBOR plus 4.0 percentage points for
the debt
term of
The Notes contain certain financial and other covenants applicable only to FCCM and Servicios, including man-
datory debt prepayments from excess free cash flow (as defined in the agreements) and restrictions on utilization
of
funds for capital expenditures, incurrence of debt, guarantees of obligations, sale of assets, lease of assets,
creation of certain liens, payment of dividends and distributions, transactions among FCCM and Servicios and
other affiliates of the Company, entering into certain mergers, and revising or terminating FCCM’s rail concession
with the government of Mexico. The Notes will continue to be secured by essentially all the assets of Servicios
and FCCM, and a pledge of the Servicios and FCCM shares held by the Company.
the original
loan agreements for $27.5 million of debt,
Under
the Company was obligated to provide up to
$8.0 million of funding to its Mexican subsidiaries, if necessary, to meet their investment or financial obligations
prior to completing the investment phase of the project funded by the Notes. The investment phase consisted of
achieving several obligations related to capital
investments, operating performance and management systems
and controls. Thereafter, the Company was obligated to provide up to $7.5 million in funding to Servicios to meet
its debt service obligations prior to completing the financial phase of the project, which consisted of achieving
several financial performance thresholds. Prior to the amendment, the Company had advanced $2.5 million of our
in the investment phase. The amended agreements eliminate the
$8.0 million obligation and the project was still
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GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
Company’s obligations to provide additional
funding under those terms and instead obligate the Company to
provide up to $8.9 million to Servicios (in addition to the $2.5 million previously advanced), if necessary, for Servi-
cios to meet its debt payment obligations. To the extent that FCCM’s annual capital expenditures exceed 60% of
FCCM’s consolidated earnings before interest, taxes, depreciation and amortization, as defined in the amended
agreements as determined on an annual basis, the Company is obligated to provide additional
funds to FCCM
equal to the amount of such excess. Pursuant to this funding requirement, based on FCCM’s 2005 EBITDA and
capital expenditures, the Company will be obligated to advance $2.7 million, full payment of which is due in the
first quarter of 2006. Furthermore, due to the impact of Hurricane Stan on the Company’s Mexican operations,
the Company currently expects its Mexican operations will be able to fund only $1.9 million of
the total
$3.7 million of U.S. dollar denominated principal and interest payments due in 2006. The Company anticipates
FCCM will use $1.8 million of the $2.7 million the Company is obligated to advance to fund its debt service short-
fall.
FCCM is not in default under the Note documents as a result of the damage associated with Hurricane Stan but
revenue and cash flow shortfalls, among other factors, may result in a default in the future.
In conjunction with the original financing, IFC invested $1.9 million of equity in Servicios for a 12.7% indirect inter-
est in FCCM. Along with its equity investment,
its equity
stake back to the Company. The amendments extended the term of the put option from December 31, 2009 to
December 31, 2012. The value of
the Servicios equity owned by IFC will be based on a multiple of FCCM’s
EBITDA as defined as the agreements. If the put option is exercised and the value of the Servicios equity owned
by IFC is determined to be greater than the minority interest liability, additional minority interest expense would
be recorded exercise of this put option by IFC would result in a future cash outflow for the Company.
IFC received a put option exercisable in 2005 to sell
On March 3, 2006, the Company received notice that the IFC intends to exercise its put option to sell
its 12.7%
indirect equity stake in FCCM back to the Company. The Company is still determining the cash outflow that
would result from the closing of the exercise of the put option, but in no case will the cash outflow exceed $1.7
million.
S c h e d u l e o f F u t u r e P a y m e n t s I n c l u d i n g C a p i t a l L e a s e s
The following is a summary of the maturities of long-term debt as of December 31, 2005 (in thousands):
2006
2007
2008
2009
2010
Thereafter
$
4,726
4,316
4,792
29,122
90,643
204,752
$338,351
See Note 8 for a schedule of capital
lease payments.
1 0 . F I N A N C I A L R I S K M A N A G E M E N T :
The Company actively monitors its exposure to interest rate and foreign currency exchange rate risks and uses
derivative financial
instruments to manage the impact of certain of these risks. The Company uses derivatives
only for purposes of managing risk associated with underlying exposures. The Company does not trade or use
instruments with the objective of earning financial gains on the interest rate or exchange rate fluctuations alone,
nor does it use 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
instruments may result in
short-term gains or losses and increased earnings volatility.
the Company’s use of derivative financial
interest. However,
The Company designates derivatives as a hedge of a forecasted transaction or of the variability of the cash flows
to be received or paid in the future related to a recognized asset or liability (cash flow hedge). The portion of the
changes in the fair value of the derivative that is designated as a cash flow hedge that is offset by changes in the
expected cash flows related to a recognized asset or liability (the effective portion)
is recorded in accumulated
other comprehensive income. When the hedged item is realized, the gain or loss included in accumulated other
income on the same line as the hedged
comprehensive income is reported in the consolidated statements of
item. In addition, the portion of the changes in fair value of derivatives used as cash flow hedges that is not off-
set by changes in the expected cash flows related to a recognized asset or liability (the ineffective portion)
is
immediately recognized.
2005 F ORM 10K Genes ee & Wyoming Inc.
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GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
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, firm commitments or forecasted transactions). At hedge inception and
at least quarterly thereafter, the Company assesses whether the derivatives used to hedge transactions are highly
effective in offsetting changes in either the fair value or cash flows of the hedged item. When it is determined that
a derivative ceases to be a highly effective hedge, the Company discontinues hedge accounting, and any gains or
losses on the derivative instrument are recognized in earnings during the period it no longer qualifies as a hedge.
Summarized below are the specific accounting policies by market risk category.
I n t e r e s t R a t e R i s k
The Company uses interest rate swap agreements to manage its exposure to changes in interest rates for its float-
ing rate debt. Interest rate swap agreements are accounted for as cash flow hedges. Interest rate differentials to
be received or paid on the swaps are recognized in the consolidated statements of
income as a reduction or
increase in interest expense, respectively. The effective portion of the change in the fair value of the derivative
is recorded in the consolidated balance sheets as a component of current assets or liabilities and
instrument
other comprehensive income. The ineffective portion of the change in the fair value of the derivative instrument,
along with the gain or loss on the hedged item, is recorded in earnings and reported in the consolidated state-
ments of income, on the same line as the hedged item. During 2005, 2004 and 2003, the Company determined
there was no ineffectiveness.
the Company entered into various interest rate swaps fixing its base interest rate by
During 2001 and 2004,
exchanging its variable LIBOR interest rates on long-term debt for a fixed interest rate. These swaps expire at
various dates through September 2007, and the fixed base rates range from 4.5% to 5.46%. At December 31,
2005 and 2004, the notional amount under these agreements was $29.1 million and $32.8 million, respectively
and the fair value of these interest rate swaps was negative $237,000 and negative $1.1 million, respectively.
F o r e i g n C u r r e n c y E x c h a n g e R a t e R i s k
The Company uses purchased options to manage foreign currency exchange rate risk related to certain projected
cash flows related to foreign operations. Under SFAS No. 133, the instruments are carried at fair value in the
consolidated balance sheets as a component of prepayments or other assets or accrued expenses or other
liabilities. Changes in the fair value of derivative instruments that are used to manage exchange rate risk in for-
eign currency denominated cash flows are recognized in the consolidated balance sheets as a component of
accumulated other comprehensive income in common stockholders’ equity.
During 2005 and 2004, the Company purchased exchange rate options that established exchange rates for con-
verting Mexican pesos to U.S. dollars. One of the options expired in March 2005, and another expired in Sep-
tember 2005. The remaining options, which expire March 2006 and September 2006, respectively, give us the
to sell Mexican pesos for U.S. dollars at exchange rates of 13.64 and 12.52 Mexican pesos to the
right
U.S. dollar,
these
respectively. The Company paid up-front premiums of $14,000 and $20,000 for each of
options in the quarters ended March 31, 2005 and September 30, 2005, respectively. At December 31, 2005 and
2004, the fair value of these exchange rate currency options was $5,000 and $0, respectively.
1 1 . C L A S S A C O M M O N S T O C K :
On November 2, 2004, the Company announced that our Board of Directors has authorized the repurchase of up
to 1,000,000 shares of our Class A Common Stock. The Board granted management the authority to make pur-
chases in any amount and manner legally permissible which, in the aggregate, would offset 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 dis-
cretion. As of December 31, 2005, 988,500 shares are available for repurchase under the plan.
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, con-
verted 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 offering. Certain of the Company’s management stockholders also partici-
pated in this offering and sold 193,570 shares. The Company incurred $542,000 of costs in the second quarter
of 2004 related to this offering. The Company received no proceeds from the secondary offering.
1 2 . P E N S I O N A N D O T H E R P O S T R E T I R E M E N T B E N E F I T P L A N S :
The Company administers two noncontributory defined benefit plans for union and non-union employees of two
U.S. subsidiaries. Benefits are determined based on a fixed amount per year of credited service. The Company’s
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GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
funding policy requires contributions for pension benefits based on actuarial computations which reflect the long-
term nature of the plans. The Company has met the minimum funding requirements according to the Employee
Retirement Income Security Act (ERISA).
The Company provides health care and life insurance benefits for certain retired employees,
including union
employees of one of the Company’s U.S. subsidiaries. As of December 31, 2005, twenty-seven employees were
participating and forty-four current employees may become eligible for these benefits 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.
The Company provides health care and life insurance benefits 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 these health
care and life insurance benefits effective January 2005. In January 2005, the Company made cash payments to
plan participants in exchange for their rights to receive specified postretirement benefits and recorded a settle-
ment gain of $76,000.
The following provides a reconciliation of benefit obligation, plan assets, and funded status of
thousands):
the plans (in
Change in benefit obligations:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Adjustment due to curtailment
Settlement (gain)
Settlement payments
Benefits paid
Benefit obligation at end of year
Change in plan assets:
Fair value of assets at beginning of year
Actual return (loss) on plan assets
Employer contributions
Benefits paid
Fair value of assets at end of year
Reconciliation of Funded Status:
Funded status
Unrecognized transition liability
Unrecognized net actuarial (gain) loss
Net amount recognized
Amounts recognized in the statement of financial position consist of:
Prepaid benefit cost
Accrued benefit cost
Accumulated other comprehensive income
Net amount recognized
Information for pension plans with an accumulated benefit obligation in excess of
plan assets:
Projected benefit obligation
Accumulated benefit obligation
Fair Value of plan assets
Additional Information
Decrease in minimum liability included in other comprehensive income
Pension
Other Retirement
Benefits
2005
2004
2005
2004
$ 3,552
152
194
(106)
—
—
—
(88)
$ 3,563
158
184
(273)
—
—
—
(80)
$ 4,511
112
231
206
—
(76)
(560)
(88)
$ 4,565
110
274
30
(281)
—
—
(187)
$ 3,704
$ 3,552
$ 4,336
$ 4,511
2005
2004
2005
2004
$
$ 1,760
104
159
(88)
$ 1,419
152
269
(80)
— $
—
88
(88)
—
—
187
(187)
$ 1,935
$ 1,760
$
— $
—
($1,768)
780
266
($1,793)
923
330
($4,336)
—
993
($4,511)
—
830
($722)
($540)
($3,343)
($3,681)
$
— $
— $
— $
(1,330)
608
(1,357)
817
(3,343)
—
—
(3,681)
—
($722)
($540)
($3,343)
($3,681)
$ 3,704
3,265
$ 1,935
$ 3,552
3,118
$ 1,760
$
209
$
129
2005 F ORM 10K Genes ee & Wyoming Inc.
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GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
Pension
2004
2003
2005
Other Retirement
Benefits
2004
2003
2005
Components of net periodic benefit cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of transition liability
Amortization of prior service cost
Amortization of (gain) loss
Net periodic benefit cost
Weighted-average assumptions used to determine benefit obligations for
December 31
Discount rate
Expected return on plan assets
Rate of compensation increase
Weighted-average assumptions used to determine net periodic benefit
cost for December 31
Discount rate
Expected return on plan assets
Rate of compensation increase
$ 152
194
(103)
112
—
(14)
$ 158
186
(152)
142
—
31
$ 180
191
(90)
143
—
14
$ 112
223
—
—
—
39
$ 110
275
—
—
—
83
$ 100
278
—
—
—
19
$ 341
$ 365
$ 438
$ 374
$ 468
$ 397
5.75% 5.75% 6.0% 5.75% 5.75% 6.0%
8.5% 8.5% 8.5% N/A
3.5% 3.5% 3.5% N/A
N/A
N/A
N/A
N/A
5.75% 6.0% 6.75% 5.75% 6.0% 6.75%
8.5% 8.5% 8.5% N/A
3.5% 3.5% 3.5% N/A
N/A
N/A
N/A
N/A
For measurement purposes, a weighted average 5.8% annual rate of increase in the per capita cost of covered
health care benefits was assumed for 2005 and thereafter. The Company uses a December 31 measurement date
for the plans.
Assumed health care cost trend rates
Health care cost trend rate assumed next year
Rate to which the cost trend is assumed to decline
Year that the rate reaches the ultimate trend rate
2005
2004
11.0% 11.0%
5.0% 5.0%
2012
2011
increasing
The health care cost
(decreasing)
in each year would increase
(decrease) the aggregate of the service and interest cost components of the net periodic postretirement benefit
cost and the end of the year accumulated postretirement benefit obligation as follows:
trend rate assumption has an effect on the amounts reported. To illustrate,
trend rates by one percentage point
the assumed health care cost
Effect on total of service and interest cost
Effect on postretirement benefit obligation
P l a n A s s e t s
1 Percentage
Point Increase
1 Percentage
Point Decrease
$ 74,533
$725,570
($59,044)
($593,185)
The Company pension plans’ weighted-average asset allocations at December 31, 2005, and 2004, by asset
category are as follows:
Asset Category
Equity Securities
Debt Securities
Other
Total
F-28 Genes ee & Wyoming Inc. 2005 FORM 10K
Plan Assets at December 31,
2005
2004
54.8%
37.3%
7.9%
60.8%
37.1%
2.1%
100.0%
100.0%
Job: 39566_003 Genesee & Wyoming Page: 86 Color; Composite
GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
C a s h F l o w s
C o n t r i b u t i o n s
The Company expects to contribute approximately $650,000 to its pension plans in 2006.
E s t i m a t e d F u t u r e B e n e f i t P a y m e n t s
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in
thousands):
2006
2007
2008
2009
2010
Years 2011-2015
Other
Retirement
Benefits
$ 83
92
101
103
105
610
Pension
$
76
76
110
132
144
1,012
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 5.75%.
For 2005, 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 2006.
In developing the 8.5% expected long-term rate of return
assumption, the Company reviewed the asset class return expectations and long-term inflation assumptions. The
8.5% long-term asset return assumption for 2005 is based on an asset allocation assumption of 50%-75% with
U.S. and international equity securities, 25%-45% with debt securities, and 0%-10% with other securities
(primarily cash equivalents). The Company believes that its long-term asset allocation, on average, will approx-
imate the targeted allocation. At December 31, 2005, the Company’s actual asset allocation was consistent with
its asset allocation assumption.
E m p l o y e e B o n u s P r o g r a m s
The Company has performance-based bonus programs which include a majority of non-union employees. Approx-
imately $6.3 million, $3.7 million and $2.5 million was awarded under the various performance-based bonus plans
in 2005, 2004 and 2003, respectively.
4 0 1 ( k ) P l a n s a n d P r o f i t S h a r i n g
The Company previously had two plans which qualified under Section 401(k) of the Internal Revenue Code as
salary reduction plans. On January 1, 2005, the Company merged these two 401(k) plans. Under the merged
plan, the Company matches participants’ contributions up to 4% of the participants’ salary on a before-tax basis.
The Company’s contributions to all plans in 2005, 2004, and 2003 were approximately $748,000, $462,000 and
$386,000, respectively.
in general terms,
Under provisions within the Mexican Laws (Article 16), the Company’s subsidiary, FCCM, had previously accrued
a 10% statutory profit sharing benefit to its employees for 2004 and 2003, $649,000 and $477,000, respectively.
For statutory filing purposes, FCCM elected to compute its profit sharing base under another section of the Mex-
ican Law (Article 10) which,
is similar to the income tax base, excluding the inflation adjust-
ments on depreciation, amortization, receivables and payables. Under the Article 10 base, FCCM did not have
any statutory profits and accordingly no amounts would be required to be paid to employees. During 2005 the
Mexican Supreme Court determined the Article 10 base was an acceptable base on which to compute the stat-
utory profit sharing. FCCM was not a party to the court proceedings, however the decision set a precedent for
other taxpayers to follow. Accordingly, FCCM reversed the 2004 and 2003 accruals in 2005. Distributions to
employees are typically paid 5 to 7 months after year end. FCCM did make in-lieu of payments of $69,000 and
$88,000 in 2004 and 2005, respectively, to its employees based on negotiations with the workers’ union even
though no statutory profit sharing was required.
In addition, the Company’s Canadian subsidiaries administer two different retirement benefit plans. Both plans
income tax law and are Registered Retirement Savings
qualify under Section 146 of the federal and provincial
their salary on a
to contribute a certain percentage of
Plans (RRSP). Under each plan employees may elect
2005 F ORM 10K Genes ee & Wyoming Inc.
F-29
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GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
pre-tax basis. Under the first plan, the Company matches 5% of gross salary up to a maximum of $1,240 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 $212,000, $169,000 and $161,000 for
the years
2005, 2004 and 2003, respectively.
P o s t e m p l o y m e n t B e n e f i t s
The Company does not provide any other significant postemployment benefits to its employees.
1 3 . I N C O M E T A X E S :
The components of income before income taxes and equity earnings are as follows (in thousands):
United States
Foreign
Total
2005
2004
2003
$51,118
4,695
$31,945
6,821
$23,054
5,591
$55,813
$38,766
$28,645
The Company files a consolidated U.S. federal
income tax return, which includes all of its U.S. subsidiaries. Each
of the Company’s foreign subsidiaries files appropriate income tax returns in their respective countries. No provi-
sion 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,
income taxes
(appropriately reduced by available foreign tax credits) and withholding taxes payable to various foreign coun-
tries. The amount of undistributed earnings of the Company’s controlled foreign subsidiaries as of December 31,
2005 was $89.0 million.
those distributions may be subject
to U.S.
The components of the provision for income taxes are as follows (in thousands):
United States:
Current
Federal
State
Deferred
Federal
State
Foreign:
Current
Deferred
Total
2005
2004
2003
$ 5,536
994
$ 4,678
914
$
154
27
5,438
2,029
7,160
1,030
13,997
13,782
1,661
98
1,759
1,286
991
2,277
7,742
1,234
9,157
626
784
1,410
$15,756
$16,059
$10,567
The provision for income taxes differs from that which would be computed by applying the statutory U.S. federal
income tax rate to income before taxes. The following is a summary of the effective tax rate reconciliation:
Tax provision at statutory rate
Effect of foreign operations
State income taxes, net of federal income tax benefit
U.S. rate change on deferred taxes
Benefit of track maintenance credit
Other, net
Effective income tax rate
F-30 Genes ee & Wyoming Inc. 2005 FORM 10K
2005
2004
2003
35.0%
0.2%
3.0%
—
(11.3%)
1.3%
35.0% 34.0%
(1.7%)
(0.3%)
3.3%
3.4%
—
2.0%
—
—
1.3%
1.3%
28.2%
41.4% 36.9%
Job: 39566_003 Genesee & Wyoming Page: 88 Color; Composite
GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
Deferred income taxes reflect the tax effect of temporary differences between the book and tax basis of assets
and liabilities, as well as available income tax credit and net operating loss carry forwards. The components of
net deferred income taxes are as follows (in thousands):
Deferred tax benefits-
Accruals and reserves not deducted for tax purposes until paid
Net operating losses
Interest rate swaps
Postretirement benefits
FAS 123R
Track maintenance credit
Other
Deferred tax obligations -
Property and investment basis differences
Valuation allowance
Net deferred tax obligations
2005
2004
$
$
5,832
5,927
39
1,156
340
6,713
243
20,250
3,190
4,746
360
1,055
—
—
202
9,553
(75,911)
—
(56,880)
—
($55,661)
($47,327)
In the accompanying consolidated balance sheets, these deferred benefits and deferred obligations are classified
the related asset or liability for financial reporting. A
as current or non-current based on the classification of
deferred tax obligation or benefit
including
deferred tax assets related to carry-forwards, are classified according to the expected reversal date of the tempo-
rary difference as of the end of the year.
related to an asset or
liability for
reporting,
financial
is not
that
The Company generated $10.0 million of state net operating loss carry-forwards from its U.S. operations in 2005.
It is anticipated that the Company will be able to fully utilize these losses prior to expiration. These state net
operating losses exist in different states and expire between 2010 and 2025. Additionally, as of December 31,
2005 and 2004, the Company had net operating loss carry-forwards from its Mexican operations of $19.4 million
relate to the immediate
and $16.6 million,
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, 2005 and 2004 of $200,000.
These loss carry-forwards will expire in 2015.
respectively. These Mexican losses,
income tax purposes,
for
A significant portion of
the deferred tax benefits relate to the Mexican net operating loss carry-forwards. The
Company believes a valuation allowance need not be recorded because the Company expects its Mexican busi-
ness will more likely than not generate sufficient taxable income to utilize all of the deferred tax assets. FCCM is
profitable and at current
taxable
In addition, management
income to utilize its net operating loss carry-forwards prior to the date of expiration.
believes,
it will more likely than not
generate sufficient future taxable income to offset the remaining net operating losses of Servicios prior to the
date of expiration.
levels the Company estimates it will more likely than not generate sufficient
in conjunction with a contemplated restructuring of the Mexican business,
1 4 . G R A N T S F R O M G O V E R N M E N T A G E N C I E S :
The Company periodically receives grants from federal, state and local agencies in the U.S. and provinces in
track. These grants typically reimburse the
Canada in which it operates for
Company for 75% to 100% of
the Company
received $4.2 million, $5.6 million and $2.0 million in 2005, 2004 and 2003, respectively.
the total cost of specific projects. Under such grant programs,
rehabilitation or construction of
the Company’s grants represent a future liability of
the Company unless the Company abandons the
None of
rehabilitated or new track structure within a specified period of time or fails to maintain the rehabilitated or new
track to certain standards and to make certain minimum capital
improvements, as defined in the respective
agreements. As the Company intends to comply with these agreements, the Company has recorded additions to
road property and has deferred the amount of the grants as the construction and rehabilitation expenditures have
been incurred. The amortization of deferred grants is a non-cash offset to depreciation expense over the useful
lives of the related assets and is not included as taxable income. During the years ended December 31, 2005,
2004 and 2003, the Company recorded offsets to depreciation expense from grant amortization of $2.2 million,
$2.2 million and $2.1 million, respectively.
2005 F ORM 10K Genes ee & Wyoming Inc.
F-31
Job: 39566_003 Genesee & Wyoming Page: 89 Color; Composite
GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
1 5 . C O M M I T M E N T S A N D C O N T I N G E N C I E S :
R a i l P a r t n e r s
On February 23, 2006, James Owens and the Board of Trustees of Galveston Wharves (the Port)
filed an
amended complaint in the County Court for Galveston County against Genesee & Wyoming Inc., Galveston Rail-
road, L.P. (Galveston Railroad) and certain other of our subsidiaries, and the general manager of the Galveston
Railroad and RMC, the former owner of the Galveston Railroad. The claims arise in connection with the Galveston
Railroad’s lease of
the
Port.
the Port’s facilities and the Galveston Railroad’s rail services undertaken on behalf of
Mr. Owens alleges that prior to 2003, the Galveston Railroad violated a confidentiality agreement with a company
he controls relating to the joint storage and switching of rail cars at the Port. Mr. Owens seeks $4.6 million in
damages plus an amount to be determined for punitive and similar damages.
The Port alleges that since 1987 the Galveston Railroad has improperly engaged in efforts to reduce revenues
shared with the Port. In addition, the Port alleges that in 1997, the general manager, in his prior position as an
employee of the Port, improperly induced the port to enter into a 40 year extension of the lease without the Port
receiving adequate consideration. The Port seeks to have the right to unilaterally terminate the lease and has
requested an accounting for its share of revenues generated by Galveston Railroad.
The Company acquired the Galveston Railroad in June of 2005, and thus substantially all of the alleged improper
conduct occurred prior to the acquisition of the Galveston Railroad. Pursuant to the securities purchase agree-
ment related to the purchase of the Galveston Railroad, these claims are subject to indemnification by RMC, and
RMC has acknowledged that it is obligated to indemnify the Company for these claims in accordance with the
terms of the securities purchase agreement. The Company and RMC believe that these claims are without merit.
C a n a d a
living adjacent to the Outremont rail yard, filed a motion for author-
In February 2002, Mr. Paquin, an individual
ization of class certification in the Quebec Superior Court in Canada in connection with a claim against two of the
Company’s subsidiaries, Genesee Rail-One Inc.
(now Genesee & Wyoming Canada Inc.) and Quebec-Gatineau
Railway Inc., as well as CP. Mr. Paquin alleged that the noise emanating from the Outremont rail yard causes
significant nuisance problems to the residents who live near the rail yard. The rail yard is owned by CP, part of
which is leased and operated by Quebec-Gatineau Railway Inc. The plaintiff described the proposed class as
comprised of all owners and tenants of dwellings who have lived within a defined section of the Outremont neigh-
borhood in Montreal, which surrounds the rail yard. Mr. Paquin requested the issuance of an injunction in order
to limit the hours when the rail yard may operate. The plaintiff has not alleged any specific monetary claim with
respect to the damages of other members of the class, but is seeking to recover for his trouble, inconvenience
and the potential devaluation of his property.
filed an appeal with Quebec Court of Appeal. On November 11, 2005,
On May 27, 2004, the Quebec Superior Court dismissed the plaintiff’s request to institute the class action, and the
plaintiff
in
Canada overturned the Quebec Superior Court’s finding a class could not be certified, but noted the proposed class
could only include owners and tenants within the defined geographic area since 1999. This case was remanded
back to the same judge who previously dismissed the plaintiff’s request to institute a class action. On January 9,
2006, Genesee & Wyoming Canada Inc., Quebec-Gatineau Railway Inc. and CP filed applications for leave to the
Supreme Court of Canada with respect to the Quebec Court of Appeal’s decision to allow the class action to pro-
ceed. The plaintiff has not yet commenced proceedings on the merits of the underlying claim. Management consid-
ers the class action certification to be improper and will contest the appropriateness of the class certification and
the lawsuit on the merits.
the Quebec Court of Appeal
In addition, the Company is a defendant in certain lawsuits resulting from our operations. Management believes it
has adequate provisions in the financial statements for any expected liabilities which may result from disposition
of such lawsuits. While it is possible some of the foregoing matters may be resolved at a cost greater than pro-
vided, it is the opinion of management the ultimate liability, if any, will not be material to our operating results,
financial condition or liquidity.
1 6 . S T O C K - B A S E D C O M P E N S A T I O N P L A N S :
The Compensation and Stock Option Committee of the Company’s Board of Directors (Compensation Committee)
has discretion to determine grantees, grant dates, amounts of grants, vesting and expiration dates for grants to
our employees through our 2004 Omnibus Incentive Plan (the Plan). The Plan includes stock options, restricted
stock and restricted stock units, and under the terms of the awards, equity grants for employees vest over three
years and equity grants for directors vest over their respective terms as directors.
F-32 Genes ee & Wyoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 90 Color; Composite
GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 123(R), Share-Based
Payments (SFAS 123R). This statement requires companies recognize compensation expense equal to the fair
value of share-based payments. SFAS 123R eliminates the use of the intrinsic method of accounting provided for
in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), under which
no compensation cost is recognized except for restricted stock.
The Company elected to adopt SFAS 123R in the third quarter of 2005 using the Modified Prospective Applica-
tion. Prior to adoption of SFAS 123R, the Company reported all tax benefits resulting from the exercise of stock
options as operating cash flows in its consolidated statements of cash flows. In accordance with SFAS 123R, for
the period beginning with the third quarter of 2005, the Company revised its statement of cash flows presentation
to report the excess tax benefits from the exercise of stock options as a cash outflow from operating activities
and a cash inflow from financing activities.
The fair value concepts were not changed significantly in SFAS 123R; however, in adopting the standard, compa-
nies must choose among alternative valuation models and amortization assumptions. After assessing alternative
valuation models and amortization assumptions,
the Company will continue using the Black-Scholes valuation
model and straight-line amortization of compensation expense over the requisite service period of the grant. In
addition, SFAS 123R requires that the Company estimates forfeitures when recognizing compensation expense
forfeitures be adjusted over the requisite service period based on the extent to which
and that this estimate of
actual forfeitures differ, or are expected to differ, from such estimates. Accordingly, the Company has estimated
forfeiture percentages for the unvested portion of previously granted awards that remain outstanding at the date
of adoption. The Company has previously disclosed forfeitures as they occurred in its expense calculation for pro
forma footnote disclosure.
As of the adoption date, the impact of amortizing existing stock options in the year ended December 31, 2005
represented compensation cost of $1.8 million pre-tax, or $1.5 million after-tax, which reduced earnings by $.04
per share for the year ended December 31, 2005. The total compensation cost related to non-vested awards not
yet recognized of $4.9 million is expected to be recognized through June 30, 2008.
Stock-based compensation for the six months ended June 30, 2005 and for the years ended December 31, 2004
and 2003, was determined using the intrinsic value method (note the pro forma expense for basic and diluted
earnings per share in 2005 is for the six months ended June 30, 2005).
The following table provides supplemental
had been compiled under SFAS 123 (in thousands, except EPS):
information for the periods indicated as if stock-based compensation
For the years ended
2004
2003
2005
Net Income Available to Common Stockholders – As reported:
Deduct: Total stock-based employee compensation expense determined under SFAS 123 had
compensation cost been recognized, net of related tax effects
Pro Forma
Basic EPS:
As reported
Pro Forma
Diluted EPS: As reported
Pro Forma
$50,135
$37,140
$27,449
(1,385)
(2,079)
(1,380)
$48,750
$35,061
$26,069
$
$
$
$
1.36
1.32
1.20
1.17
$
$
$
$
1.03
.97
.90
.85
$
$
$
$
.77
.73
.68
.67
The following is a summary of stock option activity for years ended:
December 31, 2005
December 31, 2004
December 31, 2003
Outstanding at beginning of year
Granted
Exercised
Expired
Forfeited
Outstanding at end of year
Exercisable at end of year
Wtd. Avg.
Exercise
Price
$ 9.54
16.62
6.45
7.29
12.68
Wtd. Avg.
Exercise
Price
$ 7.01
15.63
4.28
9.47
9.11
Shares
2,682,684
504,749
(699,797)
(705)
(100,180)
Shares
2,386,751
582,192
(519,611)
(20,250)
(89,409)
Shares
2,835,369
742,793
(824,459)
(5,744)
(65,275)
2,339,673
11.89
2,386,751
9.54
2,682,684
999,723
9.01
884,211
6.69
900,630
Weighted average fair value of options granted
$ 5.28
$ 5.27
Wtd. Avg.
Exercise
Price
$5.17
9.91
3.35
5.72
6.48
7.01
4.59
$5.45
2005 F ORM 10K Genes ee & Wyoming Inc.
F-33
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GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
The weighted-average grant date fair value of options granted during the years 2005, 2004, and 2003 was $5.28,
intrinsic value of options exercised during the years ended
$5.27 and $5.45,
December 31, 2005, 2004 and 2003, was $6.4 million, $8.1 million and $5.3 million, respectively.
respectively. The total
The following table summarizes information about stock options outstanding at December 31, 2005:
Exercise Price
$0 – $2.48
2.48 – 4.97
4.97 – 7.47
7.47 – 9.95
9.95 – 12.44
14.93 – 17.41
17.41 – 19.91
0 – 19.91
Options Outstanding
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
Number
of Options
Options Exercisable
Number
of Options
Weighted
Average
Exercise
Price
10,125
238,068
67,500
459,465
539,058
1,019,432
6,025
3.3 Years
0.5 years
0.9 years
1.6 years
2.7 years
3.9 years
4.4 years
$ 2.35
4.40
6.43
9.45
9.99
16.16
18.26
10,125
238,068
67,500
307,886
228,927
147,217
—
2,339,673
2.7 Years
11.89
999,723
$ 2.35
4.40
6.43
9.45
9.97
15.63
—
9.01
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions:
Risk-free interest rate
Expected dividend yield
Expected lives in years
Expected volatility
2005
2004
2003
3.67% 3.15% 3.35%
0.00% 0.00% 0.00%
3.00
3.00
41.0% 45.0% 60.0%
5.00
A summary of the status of the Company’s non-vested shares as of December 31, 2005, and changes during the
year ended December 31, 2005, is presented below:
Non-vested Shares
Non-vested at January 1, 2005
Granted
Vested
Forfeited
Expired
Non-vested at December 31, 2005
Weighted-
Average
Grant-Date
Fair Value
$5.05
$5.28
$4.37
$5.34
$5.29
$5.30
Shares
1,502,765
582,192
(635,348)
(89,409)
(20,250)
1,339,950
The following table summarizes our
December 31, 2005 and 2004:
restricted stock and restricted stock unit activity for
the years ended
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
For the years
ended
December 31,
2005
2004
66,333
81,000
(27,615)
(6,863)
—
66,333
—
—
112,855
66,333
In 2005, the Company awarded 19,464 restricted stock shares valued at $289,000 to its directors. In addition,
the Company awarded 48,529 restricted stock shares and 13,007 restricted stock units valued at $806,000 and
$216,000, respectively, to employees. In 2004, the Company awarded 21,000 restricted stock shares and 3,000
F-34 Genes ee & Wyoming Inc. 2005 FORM 10K
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GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
to employees. Amortization expense for
the restricted stock shares was $664,000 for
restricted stock units valued at $313,000 and $45,000, respectively, to its directors. In addition, the Company
awarded 30,746 restricted stock shares and 11,588 restricted stock units valued at $478,000 and $180,000,
respectively,
the year
ended December 31, 2005. Total unrecognized compensation cost for non-vested restricted stock shares and
restricted stock units of $1.4 million is expected to be recognized through June 30, 2008.
At December 31, 2005, there were 1,482,953 Class A shares available for future issuance under the Plan. These
shares are available for the grant of stock options, restricted stock, stock appreciation rights, restricted stock
units, and any other form of award established by the Compensation Committee, which is consistent with the
Plan’s purpose.
The Company has reserved 1,265,625 shares of Class A common stock that the Company may sell to its full-time
employees pursuant to its Employee Stock Purchase Plan (ESPP) at 90% of the stock’s market price at date of
In accordance with
purchase. As of December 31, 2005, 84,339 shares had been purchased under this plan.
SFAS 123R, the Company recorded compensation expense for the 10% purchase discount of $11,000 since the
adoption date.
1 7 . B U S I N E S S S E G M E N T A N D G E O G R A P H I C A R E A I N F O R M A T I O N :
The Company has various operating regions which manage its various railroad lines. However, each line has sim-
ilar characteristics so they have been aggregated into one segment. The following table summarizes the Compa-
ny’s operating revenues by geographic area for the years ended December 31, 2005, 2004 and 2003.
Operating Revenues:
United States
Canada
Mexico
Total operating revenues
Geographic Area Data
For the years ended December 31,
2004
2003
2005
$299,440
50,960
34,989
77.7% $226,521
44,008
13.2%
33,255
9.1%
74.6% $175,650
37,538
14.5%
31,639
10.9%
71.7%
15.3%
13.0%
$385,389
100.0% $303,784
100.0% $244,827
100.0%
The following table summarizes the Company’s long-lived assets by geographic area as of December 31, 2005
and 2004.
Long-lived assets located in:
United States
Canada
Mexico
Total long-lived assets
1 8 . Q U A R T E R L Y F I N A N C I A L D A T A ( U n a u d i t e d ) :
Quarterly Results
(in thousands, except per share data)
2005
Operating revenues
Income from continuing operations
Net income
Diluted earnings per share
2004
Operating revenues
Income from continuing operations
Net income
Diluted earnings per share
As of
December 31,
2005
As of
December 31,
2004
$734,636
71,726
45,140
86.3% $479,251
62,162
40,613
8.4%
5.3%
82.3%
10.7%
7.0%
$851,502
100.0% $582,026
100.0%
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$84,081
14,260
10,900
0.26
$
$92,742
16,020
11,365
0.27
$
$105,250
24,079
17,044
0.41
$
$103,316
16,573
10,826
0.26
$
$72,403
11,560
9,466
0.22
$
$74,062
13,581
10,836
0.26
$
$ 77,243
13,200
10,145
0.25
$
$ 80,076
11,698
7,171
0.17
$
2005 F ORM 10K Genes ee & Wyoming Inc.
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GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
The second quarter of 2005 included a $0.5 million after-tax non-cash foreign currency translation adjustment on
intercompany debt in Mexico.
The third quarter of 2005 included: (i) $0.7 million of after-tax expense for the cost of stock options due to the
early adoption of FAS123R, (ii) a one-time tax benefit of $0.7 million related to a change of tax law in Mexico, and
(iii) a $2.4 million after-tax gain from the sale of surplus rail.
The fourth quarter of 2005 included: (i) $0.7 million of after-tax expense for the cost of stock options due to the
early adoption of FAS123R,
land tax
liabilities at the Australian Railroad Group and (iii) $0.5 million of after-tax expense associated with the sale of
GWI’s Western Australian operations.
(ii) $0.9 million of after-tax expense related to an accrual
for historical
The fourth quarter of 2004 included a $1.1 million non-cash after-tax charge related to the Company’s debt
refinancing.
The fourth quarter of 2004 also included an additional tax accrual of $1.0 million, of which $257,000 related to
the first
its pre-2004 net U.S. deferred tax
three quarters of 2004 and $785,000 related to a revaluation of
liabilities resulting from an increase in the Company’s U.S. effective tax rate.
1 9 . C O M P R E H E N S I V E I N C O M E :
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, 2005, 2004 and 2003 (in
thousands):
Net income
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
Net change in unrealized losses on qualifying cash flow hedges, net of tax provision of $231, $424
and $25, respectively
2005
2004
2003
$50,135
$37,619
$28,719
(3,552)
8,105
23,498
595
661
43
Net change in unrealized losses on qualifying cash flow hedges of Australian Railroad Group, net of
tax provision (benefit) of $758, ($99) and $1,124, respectively
1,768
(230)
2,623
Minimum pension liability adjustment, net of tax provision (benefit) of $53, $36 and ($42),
respectively
Comprehensive income
136
93
(72)
$49,082
$46,249
$54,811
The following table sets forth the components of accumulated other comprehensive income (loss), net of
included in the consolidated balance sheets as of December 31, 2005 and 2004 (in thousands):
tax,
Net foreign currency translation adjustments
Net unrealized minimum pension liability adjustment, net of tax benefit of $289 and $342
respectively
Net unrealized losses on qualifying cash flow hedges, net of tax benefit of $607 and $1,596,
respectively
2005
2004
$26,389
$29,942
(396)
(531)
(1,818)
(4,183)
Accumulated other comprehensive loss, net of tax benefit of $896 and $1,938, respectively
$24,175
$25,228
2 0 . R E C E N T L Y I S S U E D A C C O U N T I N G S T A N D A R D S :
The Financial Accounting Standards Board (FASB) recently issued the following Statements of Financial Account-
ing Standards (SFAS):
issued FASB Interpretation No. 47 (FIN 47),
In March 2005, the Financial Accounting Standards Board (FASB)
Accounting for Conditional Asset Retirement Obligations – an interpretation of FASB Statement No. 143, is effec-
tive no later than the end of
fiscal years ending after December 15, 2005. This Interpretation clarifies that the
term conditional asset retirement obligation, as used in FASB Statement No. 143, refers to a legal obligation to
perform an asset retirement activity in which the timing or method of settlement, or both, are conditional on a
future event that may or may not be within the control of the entity. An entity is required to recognize a liability
for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably
estimated. The Company adopted FIN 47 as of December 31, 2005, and it did not have a material
impact on the
consolidated results of operations and financial condition.
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GENESEE & W YOMING I NC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCI AL STATEMENTS – (Continued)
In May 2005, the FASB issued Statement No. 154, Accounting Changes and Error Corrections (SFAS 154) which
supersedes APB Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim
Financial Statements. SFAS 154 changes the requirements for
the accounting for and reporting of voluntary
changes in accounting principle and changes required by an accounting pronouncement when the pronounce-
ment does not include specific transition provisions. This statement requires the retroactive application to prior
periods’ financial statements of changes in accounting principles, unless it is impracticable to determine either
the period specific effects or the cumulative effect of the change. SFAS 154 is effective for accounting changes
and correction of errors made in fiscal years beginning after December 15, 2005. The Company does not expect
the adoption of SFAS 154 to have a material
impact on the consolidated results of operations and financial con-
dition.
In October 2005, the FASB issued FASB Staff Position (FSP) No. FAS 123(R)-2, Practical Accommodation to the
Application of Grant Date as Defined in FASB Statement No. 123(R) was issued to address the notion of “mutual
understanding” in the definition of grant date of a share-based payment award. FSP FAS 123(R)-2 is effective for
reporting periods after October 18, 2005.
In November 2005, the FASB issued FASB Staff Position (FSP) No. FAS 123(R)-3, Transition Election Related to
the Tax Effects of Share-Based Payment Awards. The FSP provides an alternative transition
Accounting for
method for calculating the pool of excess tax benefits to absorb tax deficiencies recognized subsequent to the
adoption of FASB Statement No. 123(R). An entity may take up to one year from the initial adoption of Statement
123(R) or
this FSP to evaluate available transition methods. The
Company is in the process of evaluating the transition methods available for calculation of the pool of excess tax
benefits.
the effective date (November 10, 2005) of
2 1 . S U B S E Q U E N T E V E N T S :
A u s t r a l i a
On February 13, 2006, the Company announced that it and Wesfarmers had entered into a definitive agreement
to sell their Western Australia operations and certain other assets of ARG to Queensland Rail and Babcock &
Brown Limited for approximately $956.0 million, plus certain closing adjustments estimated to be approximately
$18.0 million (ARG Sale). The ARG Sale is subject to customary closing conditions, including certain Australian
government approvals, and is expected to close in the second quarter of 2006. The buyers have made a deposit
of approximately $66.0 million, which will be fully credited towards the purchase price. Simultaneous with the
ARG Sale, the Company entered into an agreement to purchase Wesfarmers’ 50 percent-ownership of the remain-
ing ARG operations, which are principally located in South Australia and the Northern Territory for approximately
$15.0 million (GWA Purchase, collectively with the ARG Sale, the Australia Transactions). This business, which
will be based in Adelaide, will be renamed Genesee & Wyoming Australia Pty Ltd (GWA) and will be a 100
percent-owned subsidiary that is reported on a consolidated basis in our financial statements.
All payment obligations related to the Australia Transactions are in Australian dollars, and have been converted to
U.S. dollar amounts based on the Australian dollar to U.S. dollar exchange rate as of February 13, 2006 of 0.735
U.S. dollars per Australian dollar.
M e x i c o
On March 3, 2006, the Company received notice that the IFC intends to exercise its put option to sell
its 12.7%
indirect equity stake in FCCM back to the Company (See Note 9 to these Consolidated Financial Statements).
The Company is still determining the cash outflow that would result from the closing of the exercise of the put
option, but in no case will the cash outflow exceed $1.7 million.
2005 F ORM 10K Genes ee & Wyoming Inc.
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Australian Railroad Group Pty Ltd
(Incorporated in Australia)
ABN 68 080 579 308
Annual Financial Statements
for the years ended December 31, 2005, 2004 and 2003
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I n d e x t o F i n a n c i a l S t a t e m e n t s
Australian Railroad Group Pty Ltd and Subsidiaries Financial Statements:
Report of the Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2005 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the Years Ended December 31, 2005, 2004 and 2003 . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Years Ended December 31,
2005, 2004, and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003 . . . . . . . . . . . . . . . . .
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
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F-39 Genes ee & Wyoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 98 Color; Composite
REPORT OF THE I NDEPENDENT AUDITORS
T o t h e B o a r d o f D i r e c t o r s a n d S t o c k h o l d e r s o f
A u s t r a l i a n R a i l r o a d G r o u p P t y L t d
We have audited the accompanying consolidated balance sheets of Australian Railroad Group Pty Ltd and sub-
sidiaries as of December 31, 2005 and 2004 and the related consolidated statements of
income, stockholders’
equity and comprehensive income and cash flows for the three years ended December 31, 2005, 2004 and 2003.
These financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an audit of
the Company’s
internal control over financial reporting. Our audits included consideration of internal control over financial report-
ing as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accord-
ingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Australian Railroad Group Pty Ltd and subsidiaries at December 31, 2005 and 2004 and the
consolidated results of their operations and their cash flows for the three years ended December 31, 2005, 2004
and 2003, in conformity with accounting principles generally accepted in the United States.
Ernst & Young
Perth, Western Australia
March 8, 2006
Liability limited by the Accountants Scheme, approved
under the Professional Standards Act 1994 (NSW).
2005 F ORM 10K Genes ee & Wyoming Inc.
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AUSTRALIAN RAILROAD G ROUP PTY LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 2005 and 2004
2005
2004
$000 USD $000 USD
$ 12,515
54,257
11,226
2,323
4,918
$ 21,217
49,085
11,580
3,055
4,809
85,239
89,746
5,768
551,849
62,916
2,031
6,153
541,470
72,516
2,369
$707,803
$712,254
$ 25,473
25,651
7,239
10
2,523
$ 19,832
25,453
6,536
364
2,676
60,896
54,861
359,415
11,121
22,076
4,735
—
383,425
2,177
18,531
9,788
—
397,347
413,921
15,838
16,897
79,029
112,807
41,886
79,029
93,871
53,675
233,722
226,575
$707,803
$712,254
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable, net
Materials and supplies
Prepaid expenses and other
Deferred income tax assets
Total current assets
Investments
Property and equipment, net
Deferred income tax assets
Other assets, net
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable
Accrued expenses
Provision for employee entitlements
Current income tax liabilities
Deferred income tax liabilities
Total current liabilities
Long-term debt
Other long-term liabilities
Deferred income tax liabilities
Fair value of interest rate swaps
Commitments and contingencies
Total non-current liabilities
Redeemable preferred stock of the stockholders, 11,704,462 shares authorized, issued and
outstanding at December 31, 2005 and 2004
Stockholders’ equity
Common stock, no par value, 92,000,002 shares authorized, issued and outstanding at December 31,
2005 and 2004
Retained earnings
Accumulated other comprehensive income
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these financial statements.
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AUSTRALIAN RAILROAD G ROUP PTY LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS O F I NCOME
YEARS ENDED DECEMBER 31, 2005, 2004 and 2003
2005
2004
$000 USD $000 USD $000 USD
2003
Operating Revenues
Operating Expenses
Transportation
Maintenance of ways and structures
Maintenance of equipment
General and administrative
Gain on sale of assets
Asset impairment write down
Depreciation and amortization
Total operating expenses
Income from Operations
Interest income
Interest expense
Income before Income Taxes
Provision for income taxes
Net Income
$344,546
$333,647
$249,571
136,002
41,230
29,312
50,046
(229)
—
32,127
125,279
39,097
32,849
41,467
(914)
578
27,346
76,747
32,694
26,057
37,496
(2,081)
—
23,443
288,488
265,702
194,356
56,058
600
(29,430)
27,228
(8,292)
67,945
1,227
(28,438)
40,734
(12,264)
55,215
3,271
(33,877)
24,609
(3,866)
$ 18,936
$ 28,470
$ 20,743
The accompanying notes are an integral part of these financial statements.
2005 F ORM 10K Genes ee & Wyoming Inc.
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AUSTRALIAN RAILROAD G ROUP PTY LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS O F STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
$000 USD
Balance, December 31, 2002
Comprehensive income (loss), net of tax:
Net income
Currency translation adjustment
Fair market value adjustments of cash flow hedges
Comprehensive income
Balance, December 31, 2003
Comprehensive income (loss), net of tax:
Net income
Currency translation adjustment
Fair market value adjustments of cash flow hedges
Comprehensive income
Balance, December 31, 2004
Comprehensive income (loss), net of tax:
Net income
Currency translation adjustment
Fair market value adjustments of cash flow hedges
Comprehensive income
Balance, December 31, 2005
Common
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
$79,029
$ 44,658
$ (6,898)
$116,789
—
—
—
20,743
—
—
—
45,776
5,242
20,743
45,776
5,242
71,761
$79,029
$ 65,401
$ 44,120
$188,550
—
—
—
28,470
—
—
—
10,014
(459)
28,470
10,014
(459)
38,025
$79,029
$ 93,871
$ 53,675
$226,575
—
—
—
18,936
—
—
—
(15,326)
3,537
18,936
(15,326)
3,537
7,147
$79,029
$112,807
$ 41,886
$233,722
The accompanying notes are an integral part of these financial statements.
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AUSTRALIAN RAILROAD G ROUP PTY LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS O F CASH FLOWS
YEARS ENDED DECEMBER 31, 2005, 2004 and 2003
2005
2004
$000 USD $000 USD $000 USD
2003
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Gain on sale of assets
Asset impairment write down
Deferred income taxes
Amortization and write off of deferred finance charges
Changes in assets and liabilities
Accounts receivable, prepaid expenses and other
Materials and supplies
Accounts payable, provisions, accrued expenses and other
Net cash provided by operating activities
Cash Flows from Investing Activities
Purchase of property and equipment
Proceeds from sale of property and equipment
Transfer from restricted cash
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities
Repayment of subordinated stockholders’ loans
Proceeds from debt
Repayments of debt
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, beginning of year
Cash and Cash Equivalents, end of year
Cash paid during year for:
Interest
Income taxes
$ 18,936
$ 28,470
$ 20,743
32,127
(229)
—
9,726
197
(8,004)
(386)
17,868
27,346
(914)
578
11,847
451
(2,310)
(1,057)
7,745
23,443
(2,081)
—
11,283
4,953
(9,008)
573
(4,613)
70,235
72,156
45,293
(80,038)
2,147
—
(69,519)
2,570
—
(35,774)
6,924
69,978
(77,891)
(66,949)
41,128
—
7,665
(7,424)
(10,710)
—
—
—
360,493
(430,385)
241
(10,710)
(69,892)
(1,287)
(8,702)
21,217
102
(5,401)
26,618
4,207
20,736
5,882
$ 12,515
$ 21,217
$ 26,618
$ 28,834
(2,315)
$ 29,512
(4,275)
$ 32,817
4,096
The accompanying notes are an integral part of these financial statements.
2005 F ORM 10K Genes ee & Wyoming Inc.
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AUSTRALIAN RAILROAD G ROUP PTY LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDAT ED FINANCIAL STATEMENTS
1 P R I N C I P A L A C T I V I T I E S
Australian Railroad Group Pty Ltd (the Company) is jointly owned by Genesee & Wyoming Inc. (GWI) and Wesfarm-
ers Ltd (Wesfarmers) with each partner holding a 50% interest.
The principal activity of the Company during the year was to provide rail freight transport and ancillary logistics
services to the mining and agricultural
industries and to the general freight market within Western Australia and
South Australia. There was no significant change in the nature of these activities during the three years ended
December 31, 2005.
2 S U M M A R Y O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S
B a s i s o f P r e p a r a t i o n
The consolidated financial statements of the Company have been prepared in accordance with accounting princi-
ples generally accepted in the United States of America.
P r i n c i p l e s o f C o n s o l i d a t i o n
The consolidated financial statements include the accounts of Australian Railroad Group Pty Ltd and its wholly
owned subsidiaries. All
intercompany transactions and accounts have been eliminated.
R e v e n u e R e c o g n i t i o n
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.
C a s h E q u i v a l e n t s
The Company considers all highly liquid instruments with maturity of three months or less when purchased to be
cash equivalents.
M a t e r i a l s a n d S u p p l i e s
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 first-in-first-out basis.
I n v e s t m e n t s
Investments comprise the Company’s interest in Asia Pacific 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.
P r o p e r t y a n d E q u i p m e n t
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 rail-
(3-20 years) and lease premium (49 years). The Company continually
road property (20-40 years), equipment
evaluates whether events and circumstances have occurred that indicate that its long-lived assets may not be
recoverable. When factors indicate that assets should be evaluated for possible impairment, the Company uses
an estimate of the related undiscounted future cash flows over the remaining lives of assets in measuring whether
or not impairment has occurred. If impairment is identified, a loss would be reported to the extent that the carry-
ing value of the related assets exceeds the fair value of those assets as determined by valuation techniques avail-
able in the circumstances.
D i s c l o s u r e s A b o u t F a i r V a l u e o f F i n a n c i a l I n s t r u m e n t s
The following methods and assumptions were used to estimate the fair value of each class of financial
held by the Company:
instrument
Current assets and current
these items.
liabilities: The carrying value approximates fair value due to the short maturity of
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AUSTRALIAN RAILROAD G ROUP PTY LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FI NANCIAL STATEMENTS – (Continued)
Long-term debt: The fair value of the Company’s long-term debt is based on secondary market indicators. Since
the Company’s debt is not quoted, estimates are based on each obligation’s characteristics, including remaining
maturities, interest rate, credit rating, collateral, amortization schedule and liquidity. The carrying amount approx-
imates fair value.
Interest rate swaps: The Company uses derivative financial
interest rate swaps to
hedge its risks associated with interest rate fluctuations. The carrying amount approximates fair value. The fair
value of the interest rate swap contracts is the estimated amount the Company would pay to terminate the swaps
at the balance sheet date, taking into account current interest rate and the creditworthiness of the swap counter-
parties.
instruments in the form of
I n c o m e T a x e s
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be
recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amounts are
those in effect at the balance sheet date.
Deferred income taxes reflect the net income tax effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In our
consolidated balance sheets,
these deferred benefits and deferred obligations are classified as current or
non-current based on the classification of the related asset or liability for financial reporting. A deferred tax obliga-
tion or benefit not related to an asset or liability for financial reporting, including deferred tax assets related to
carry-forwards, are classified according to the expected reversal date of the temporary difference as of the end
of the year.
E m p l o y e e B e n e f i t s
The Company provides for benefits accruing to employees in respect of wages and salaries, annual
long service leave when it is probable that payment will be required and the amounts can be reliably estimated.
leave and
Contributions to the defined contribution employee benefit plans are expensed when incurred.
D e r i v a t i v e I n s t r u m e n t s a n d H e d g i n g A c t i v i t i e s
SFAS No. 133 “Accounting for Derivatives Instruments and Hedging Activities” requires all contracts that meet
the definition 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 qualifies for hedge accounting. The key criterion that must be met in order to qualify for hedge account-
ing is that the derivative must be highly effective in offsetting the change in the fair value or cash flows of the
hedged item. See footnote 6 to the consolidated financial statements for a full description of ARG’s hedging activ-
ities and related accounting policies.
M a n a g e m e n t E s t i m a t e s
The preparation of financial statements in conformity with generally accepted accounting principles in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of
liabilities, revenues and expenses during the reporting period. Significant estimates using management
assets,
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 differ from those estimates.
F o r e i g n C u r r e n c y T r a n s l a t i o n
The functional currency of the Company is the Australian dollar. Foreign currency transactions are translated at
the applicable rates of exchange prevailing at the transaction dates. Monetary assets and liabilities denominated
in foreign currencies at the balance sheet date are translated at the applicable rates of exchange prevailing at
that date. All exchange gains and losses are reflected in the statement of income. Cumulative translation gains or
losses arising from translating the Australian dollar denominated financial statements into U.S. dollars are
reported in other comprehensive income as a component of stockholders’ equity.
L e a s e d A s s e t s
Leases are classified at their inception as either operating or capital
leases based on the economic substance of
the agreement so as to reflect the risks and benefits of ownership. Operating leased assets are not capitalized
and rental payments are charged against operating profits in the period in which they are incurred.
2005 F ORM 10K Genes ee & Wyoming Inc.
F-46
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AUSTRALIAN RAILROAD G ROUP PTY LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FI NANCIAL STATEMENTS – (Continued)
3 P R O P E R T Y A N D E Q U I P M E N T
Major classifications of property and equipment are as follows:
Land and buildings
Track improvements
Equipment and other
Lease premium
Less: Accumulated depreciation and amortization
2005
$000 USD
2004
$000 USD
$ 30,996
237,771
246,800
149,983
$ 29,655
213,033
234,650
165,405
665,550
(113,701)
642,743
(101,273)
$ 551,849
$ 541,470
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 O T H E R A S S E T S
Major classifications of other assets are as follows:
Loan receivable from joint venture entity
Deferred finance costs
Less: Accumulated amortization
$
296
2,731
(996)
$
—
2,913
(544)
$
2,031
$
2,369
Deferred financing costs are amortized over
approximates the effective interest method.
terms of
the related debt using the straight-line method, which
5 L O N G - T E R M D E B T
Current – interest bearing
Non-current – interest bearing
C r e d i t f a c i l i t i e s
—
$359,415
—
$383,425
facility commenced in December 2003 and comprises a 5 year tranche of $88.0 million, a 5 year revolver
Total
tranche of $146.7 million, a 7 year tranche of $146.7 million and a $7.3 million working capital tranche. Unused
facilities at December 31, 2005 amount to $29.3 million. The loans are non amortizing but prepayable at the dis-
cretion 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 dur-
ing 2005 was 6.61% (2004: 6.48%) and excludes any interest hedging adjustments. Including the effect of the
interest rate swaps the effective interest rate was 7.82% for 2005 and 7.70% for 2004.
S c h e d u l e o f F u t u r e M i n i m u m P a y m e n t s
The following is a summary of the scheduled maturities of long-term debt:
2006
2007
2008
2009
2010
Thereafter
F-47 Genes ee & Wyoming Inc. 2005 FORM 10K
2005
2004
$000 USD
—
$
—
212,715
—
146,700
—
$000 USD
—
$
—
226,925
—
156,500
—
$359,415
$383,425
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AUSTRALIAN RAILROAD G ROUP PTY LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FI NANCIAL STATEMENTS – (Continued)
6 F I N A N C I A L R I S K M A N A G E M E N T
( a ) I n t e r e s t r a t e r i s k
instruments principally to manage the risk that changes in interest rates
The Company uses derivative financial
will affect the amount of
Interest rate swap contracts are used to adjust the pro-
portion of total debt that is subject to variable interest rates. Under an interest rate swap contract, the Company
times a notional principal amount, and to
agrees to pay an amount equal to a specified fixed-rate of
receive in return an amount equal to a specified variable-rate of interest times the same notional amount.
its future interest payments.
interest
that any of
For interest rate swap contracts under which the Company agrees to pay fixed-rates of interest, these contracts
are considered to be a cash flow hedge against changes in the amount of future cash flows associated with the
Company’s interest payments of variable-rate debt obligations. Accordingly, the interest rate swap contracts are
fair value in the Company’s consolidated balance sheet and the related gains or losses on these
reflected at
contracts are deferred in stockholders’ equity (as a component of comprehensive income). However,
to the
extent
these contracts are not considered to be perfectly effective in offsetting the change in the
value of the interest payments being hedged, any changes in fair value relating to the ineffective portion of these
contracts are immediately recognized as an interest expense in the income statement. The accounting for hedge
effectiveness is measured at
least quarterly based on the relative change in fair value between the derivative
contract and the hedged item over time. The net effect of this accounting in the Company’s operating results is
that interest expense on the portion of variable-rate debt being hedged is recorded based on fixed interest rates.
Hedge ineffectiveness for cash flow hedges were not material for the years ended December 31, 2005, 2004 and
2003.
The Company entered into interest
rate swap agreements on its $212.7 million variable rate debt due
December 18, 2008 and its $146.7 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, 2005 and 2004,
interest
between 5.6% and 6.9% and receive variable-rates of interest of an average of 5.7% on $273.2 million notional
amount of indebtedness.
rate swap contracts to pay fixed-rates of
the Company had interest
( b ) F a i r v a l u e
The carrying amounts of
aggregate fair value of the financial
instruments.
financial assets and financial
liabilities at December 31, 2005, approximate the
( c ) C r e d i t r i s k e x p o s u r e s
The Company’s maximum exposures to credit risk at December 31, 2005, in relation to each class of recognized
financial asset is the carrying amount of those assets as indicated in the balance sheet.
In relation to derivative financial
instruments, credit risk arises from the potential failure of counterparties to meet
their obligations under the contract or arrangements. The Company’s maximum credit risk exposure in relation to
interest rate swap contracts is limited to the net amounts to be received on contracts that are favourable to the
Company, being none at December 31, 2005.
C o n c e n t r a t i o n o f c r e d i t r i s k
For the year ending December 31, 2005, the Company’s primary location of business was within the south west
corner of Western Australia, South Australia, the Northern Territory and New South Wales, which therefore repre-
sents the location of
risk. Trade payables/receivables are normally payable/collectable
within 30 days.
the Company’s credit
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 Guar-
antees, Personal (Directors) Guarantees or cash. The value of securities held is dependent on the nature, includ-
ing the complexity and risk of the contract.
2005 F ORM 10K Genes ee & Wyoming Inc.
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AUSTRALIAN RAILROAD G ROUP PTY LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FI NANCIAL STATEMENTS – (Continued)
7 I N C O M E T A X E S
2005
2004
$000 USD $000 USD $000 USD
2003
The prima facie tax on income before income taxes differs from the income tax provided in
the financial statements as follows:
Prima facie tax at 30% on income before income taxes
Tax effect of permanent differences:
Non-allowable items
Other items(a)
Total income tax expense
$8,168
$12,220
$ 7,383
80
44
17
27
14
(3,531)
$8,292
$12,264
$ 3,866
(a) The other items in the 2003 arose primarily as a result of finalizing 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 Office, 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 stat-
utory tax rate of 30%.
Total income tax expense includes:
Current
Deferred
The deferred income tax balance comprises:
Current deferred income tax assets
Materials and supplies
Income accruals
Expense accruals
Employee leave provisions
Non-current deferred income tax assets
Tax vs. book values of property and equipment
Income tax losses carried forward
Unrealised losses on interest rate swaps
Valuation allowance
Current deferred income tax liabilities:
Materials and supplies
Prepayments
Income accruals
Non-current deferred income tax liability
Equity investment
Tax vs. book values of property and equipment
$
$
$
11
8,281
$
342
11,922
8,292
$ 12,264
$
$
(2,527)
6,393
3,866
$
108
313
1,718
2,779
118
1,265
1,173
2,253
$
4,918
$
4,809
51,534
9,961
1,421
(—)
59,285
10,295
2,936
(—)
$ 62,916
$ 72,516
$
(840) $
(327)
(1,356)
(1,301)
(410)
(965)
$
(2,523) $
(2,676)
$
(568) $
(21,508)
(467)
(18,064)
$ (22,076) $ (18,531)
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 2005 and 2004.
F-49 Genes ee & Wyoming Inc. 2005 FORM 10K
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AUSTRALIAN RAILROAD G ROUP PTY LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FI NANCIAL STATEMENTS – (Continued)
8 P R E F E R R E D S T O C K
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 Directors of the Company. Upon redemption the share-
holder is entitled to receive the paid up amount of the preferred shares. In the event of the winding up of the
Company, the holders of redeemable preference shares are entitled in priority to the holders of any other classes
of shares to payment of the paid up amount of the shares and the amount of any declared but unpaid dividends
at that date, but shall not otherwise have any rights to participate in surplus assets. Preferred shares carry no
voting rights.
9 A C C U M U L A T E D O T H E R C O M P R E H E N S I V E I N C O M E ( L O S S )
2005
2004
$000 USD $000 USD $000 USD
2003
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
Unrealised losses on interest rate swaps
Less Income taxes
Net unrealised losses on interest rate swaps
Accumulated Other Comprehensive Income (Loss)
1 0 E X P E N D I T U R E C O M M I T M E N T S
(a) Future minimum lease payments under all non-cancellable operating leases are as
follows:
2005
2006
2007
2008
2009
Thereafter
(b) Other capital expenditures:
Not later than one year
Later than one year, but not later than five years
Later than five years
$45,201
(4,735)
1,420
$60,527
(9,788)
2,936
$50,513
(9,133)
2,740
(3,315)
(6,852)
(6,393)
$41,886
$53,675
$44,120
2005
$000 USD
2004
$000 USD
$
—
885
—
—
—
—
$ 1,038
—
470
—
—
—
$
885
$ 1,508
$23,104
4,401
—
$ 8,834
4,695
—
$27,505
$13,529
Operating leases are entered into for rollingstock and office equipment. Rental payments are fixed for the life of
the lease for all types of operating leases. Purchase options and renewal terms exist at the Company’s discretion
and no operating lease contains restrictions on financing or other leasing activities. Operating lease expense in
2005 was $1.2 million (2004: $1.2 million, 2003: $1.1 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.
1 1 C O N T I N G E N T L I A B I L I T I E S
GWA Northern Pty Ltd, a wholly owned subsidiary of the Company, unconditionally and irrevocably guarantees
the due and punctual payment of
the Asia Pacific Transport Joint Venture, severally in
accordance with its participating interest, which is 0.88% (2004: 0.94%), amounting to $3.5 million (2004: $3.7
million).
the secured debt of
2005 F ORM 10K Genes ee & Wyoming Inc.
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AUSTRALIAN RAILROAD G ROUP PTY LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FI NANCIAL STATEMENTS – (Continued)
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 Pacific Transport Joint Venture, sev-
erally in accordance with its participating interest, which is 1.11% (2004: 1.19%), amounting to $4.4 million
(2004: $4.7 million).
The Company and all of its subsidiaries have entered into a deed of cross guarantee pursuant to the Australian
Securities and Investment Commission Class Orders, whereby they covenant with a trustee for the benefit of
each creditor, that they guarantee to each creditor payment in full of any debt on the event of any entity, includ-
ing the Company, being wound up.
1 2 E M P L O Y E E B E N E F I T P L A N S
The following Employee Benefit Plans have been established:
Plan
Benefit Type
Australian Railroad Group Superannuation Plan
Westscheme Plan
West Super Plus Plan
Accumulated lump sum / defined contribution plan
Accumulated lump sum / defined contribution plan
Accumulated lump sum / defined contribution plan
Employees contribute to the funds at various percentages of their remuneration. The consolidated entity’s con-
tributions are not
legally enforceable other than those payable in terms of notified award and superannuation
guarantee levy obligations. The related expense for the year charged to the income statement was $4.9 million
(2004: $4.0 million, 2003: $3.2 million).
1 3 E C O N O M I C D E P E N D E N C Y
Approximately 17.2% (2004: 24.5%, 2003: 19.8%) of the Company’s revenue is generated from freight services
rendered to Australian Wheat Board Ltd.
1 4 S E G M E N T I N F O R M A T I O N
I n d u s t r y S e g m e n t
The group operates in only one industry, being rail transport.
1 5 R E L A T E D P A R T Y D I S C L O S U R E S
Services to the group by Wesfarmers Ltd of $1.4 million (2004: $1.1 million) and Genesee & Wyoming Inc. of $0.6
million (2004: $0.8 million) are recovered at cost. At December 31, 2005 the balance owing to Wesfarmers Ltd
was $0.4 million (2004: $0.1 million ) and to Genesee and Wyoming Inc. $0.1 million (2004: $0.1 million).
1 6 A S S E T I M P A I R M E N T
In 2004, certain assets to the value of $0.6 million were written off. There is no impairment loss in 2005 or 2003.
1 7 R E C E N T L Y I S S U E D A C C O U N T I N G S T A N D A R D S
The Financial Accounting Standards Board’s (FASB) recently issued Statements of Financial Accounting Stan-
dards (SFAS) were reviewed and none are applicable to Australian Railroad Group Pty Ltd.
1 8 S U B S E Q U E N T E V E N T S
The joint shareholders of the Company, Genesee & Wyoming Inc. (a company incorporated in the United States)
and Wesfarmers Limited, have announced finalisation of an agreement to sell their shareholding in the Company
to Babcock & Brown and Queensland Rail.
The sale will be made up of three parts as follows:
1 Queensland Rail will acquire the above rail operations in Western Australia, New South Wales, and some specific services in
South Australia and Victoria;
2 Babcock & Brown will acquire the below rail business and assume responsibility for the rail infrastructure leases in Western
Australia;
3 Genesee & Wyoming Inc. will acquire Wesfarmers’ share in the South Australian business.
The sale process is due to be completed prior to June 30, 2006.
F-51 Genes ee & Wyoming Inc. 2005 FORM 10K
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Pursuant
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
the Securities Exchange Act of 1934, as amended,
to the requirements of
the Registrant has duly
SIGNATURES
Date March 10, 2006
GENESEE & WYOMING INC.
BY: /S/ MORTIMER B. FULLER, III
Mortimer B. Fuller, III
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed
by the following persons in the capacities and on the date indicated below.
Signature
Title
Date
/S/ MORTIMER B. FULLER, III
Mortimer B. Fuller, III
/S/
JOHN C. HELLMANN
John C. Hellmann
/S/ TIMOTHY J. GALLAGHER
Timothy J. Gallagher
/S/ DAVID C. HURLEY
David C. Hurley
/S/ LOUIS S. FULLER
Louis S. Fuller
/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 Executive Officer and Director (Principal
March 10, 2006
Executive Officer)
President
March 10, 2006
Chief Financial Officer (Principal Financial Officer
March 10, 2006
and Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
March 10, 2006
March 10, 2006
March 10, 2006
March 10, 2006
March 10, 2006
March 10, 2006
March 10, 2006
2005 FORM 10K Genes ee & Wyoming Inc. A-1
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INDEX TO EXHIBITS
(2)
(3)
3.1
(4)
4.1
4.2
4.3
4.4
4.5
4.6
(9)
Plan of acquisition, reorganization, arrangement, liquidation or succession
Not applicable
(i) Articles of Incorporation
The Exhibit referenced under 4.1 hereof is incorporated herein by reference.
(ii) By-laws
Amended Bylaws, effective 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 defining the rights of security holders, including indentures
Restated Certificate of Incorporation is incorporated herein by reference to Exhibit I to the Registrant’s Definitive Information
Statement on Schedule 14C filed on February 23, 2004.
Specimen stock certificate 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 officers 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).
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
(10) Material Contracts
10.1
10.2
The Exhibits referenced under (4.3) through (4.6) hereof are incorporated herein by reference.
Form of compensation agreement between the Registrant and each of its executive officers 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).
10.3 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 fiscal year ended
December 31, 1997. (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,
Compañía 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.
10.5
10.4
10.6 Genesee & Wyoming Australia Pty Ltd Executive Share Option Plan is incorporated herein by reference to Exhibit 10.2 to
10.7
the Registrant’s Report on Form 10-Q for the quarter ended September 30, 2000.
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.
10.8 Westrail Freight Bidding and Share Subscription Agreement dated October 25, 2000 among Wesfarmers Railroad Holdings
10.9
10.10
Pty Ltd, Wesfarmers Limited, GWI Holdings Pty Ltd, Genesee & 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 NarrowGauge 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.
2005 FORM 10K Genes ee & Wyoming Inc. A-2
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10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
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.
Subscription Agreement between GW Servicios S.A. de C.V. and International Finance Corporation dated December 5,
2000 is incorporated herein by reference to Exhibit 10.3 to the Registrant’s Report on Form 10-K for the fiscal year ended
December 31, 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 incorporated 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.
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.
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 financial 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 Registrant’s Report of Form 10-K for the year ended December 31,
2003.
10.28 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.
10.29
A-3 Genes ee & W yoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 114 Color; Composite
10.30 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.
10.31 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.
10.32 Genesee & Wyoming Inc. Award Notice for Employees for Restricted Stock Units is incorporated herein by reference to
Exhibit 10.2 to the Registrant’s Report on Form 10-Q for the quarter ended September 30, 2004.
10.33 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.
10.34 Genesee & Wyoming Inc. Award Notice for Directors for Restricted Stock Units is incorporated herein by reference to
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
10.50
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 officers for 2005 is incorporated herein by reference to Exhibit 10.59 of the
Registrant’s Report on Form 10-K for the year ended December 31, 2004.
Amended and Restated Financial Support Agreement as of March 15, 2005 between GW Servicios, S.A. de C.V. and
Genesee & Wyoming, Inc. and Compan¯ ía de Ferrocarriles Chiapas-Mayab, S.A. de C.V. and Nederlandse Financierings-
Maatschappij Voor Ontwikkelingslanden N.V. and International Finance Corporation is incorporated herein by reference to
Exhibit 10.1 to the Registrant’s Report on Form 8-K as of April 6, 2005.
Amended and Restated Loan Agreement as of March 15, 2005 between GW Servicios, S.A. de C.V. and Compan¯ ía de
Ferrocarriles Chiapas-Mayab, S.A. de C.V. and International Finance Corporation is incorporated herein by reference to
Exhibit 10.2 to the Registrant’s Report on Form 8-K as of April 6, 2005.
Amended and Restated Loan Agreement as of March 15, 2005 between GW Servicios, S.A. de C.V. and Compan¯ ía de
Ferrocarriles Chiapas-Mayab, S.A. de C.V. and Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. is
incorporated herein by reference to Exhibit 10.3 to the Registrant’s Report on Form 8-K as of April 6, 2005.
Sponsor Guarantee Agreement as of March 15, 2005 among Genesee & Wyoming, Inc. and Nederlandse Financierings-
Maatschappij Voor Ontwikkelingslanden N.V. and International Finance Corporation is incorporated herein by reference to
Exhibit 10.4 to the Registrant’s Report on Form 8-K as of April 6, 2005.
Amendment No. 1 to Put Option Agreement as of March 15, 2005 among Genesee & Wyoming Inc., GW Servicios, S.A. de
C.V. and International Finance Corporation is incorporated herein by reference to Exhibit 10.5 to the Registrant’s Report on
Form 8-K as of April 6, 2005.
Securities Purchase Agreement dated as of May 25, 2005 by and among Rail Management Corporation, Durden 1991
Family Gift Trust, Durden 1991 Family Discretionary Trust, Durden 1991 Family Trust, K. Earl Durden 1991 Gift Trust,
Durden 1996 Family Gift Trust, RP Acquisition Company One, a subsidiary of Genesee & Wyoming Inc., and RP Acquisition
Company Two, a subsidiary of Genesee & Wyoming Inc. is incorporated herein by reference to Exhibit 99.1 to the
Registrant’s Report on Form 8-K as of June 1, 2005.
Consent and First Amendment to Amended and Restated Revolving Credit and Term Loan Agreement dated as of May 25,
2005 by and among Genesee & Wyoming Inc., Quebec-Gatineau Railway Inc., certain subsidiaries of Genesee & Wyoming
Inc. as Guarantors, the lenders party thereto and Bank of America, N.A., as Administrative Agent is incorporated herein by
reference to Exhibit 99.2 to the Registrant’s Report on Form 8-K as of June 1, 2005.
First Supplement to Note Purchase Agreement dated as of June 1, 2005 by and among Genesee & Wyoming Inc., certain
subsidiaries of Genesee & Wyoming Inc. as Guarantors and note purchasers party thereto is incorporated herein by
reference to Exhibit 99.3 to the Registrant’s Report on Form 8-K as of June 3, 2005.
Second Supplement to Note Purchase Agreement dated as of July 26, 2005 by and among Genesee & Wyoming Inc.,
certain subsidiaries of Genesee & Wyoming Inc. as Guarantors and note purchasers party thereto is incorporated herein by
reference to Exhibit 99.1 to the Registrant’s Report on Form 8-K as of August 1, 2005.
Letter Agreement and Release effective December 16, 2005 between Genesee & Wyoming Inc. and Mr. James Andres is
incorporated herein by reference to Exhibit 10.1 to the Registrant’s Report on Form 8-K as of December 16, 2005.
Share Sale Agreement dated February 14, 2006 by and among Genesee & Wyoming Inc., GWI Holdings Pty Ltd,
Wesfarmers Limited, Wesfarmers Railroad Holdings Pty Ltd, Babcock & Brown WA Rail Pty Ltd, QRNational West Pty Ltd,
Australia Southern Railroad Pty Ltd, Australia Western Railroad Pty Ltd, and Australian Railroad Group Pty Ltd is
incorporated herein by reference to Exhibit 99.1 to the Registrant’s Report on Form 8-K as of February 16, 2006.
Letter Agreement dated February 16, 2006 between Wesfarmers Railroad Holdings Pty Ltd and GWI Holdings Pty Ltd is
incorporated herein by reference to Exhibit 99.2 to the Registrant’s Report on Form 8-K as of February 16, 2006.
Escrow Agreement dated February 13, 2006 by and among Wesfarmers Railroad Holdings Pty Ltd, GWI Holdings Pty Ltd,
Babcock & Brown WA Rail Pty Ltd, QRNational West Pty Ltd and Mallesons Stephen Jaques is incorporated herein by
reference to Exhibit 99.3 to the Registrant’s Report on Form 8-K as of February 16, 2006.
2005 FORM 10K Genes ee & Wyoming Inc. A-4
Job: 39566_003 Genesee & Wyoming Page: 115 Color; Composite
10.51
*(11.1)
(12)
(13)
(16)
(18)
*(21.1)
(22)
*(23.1)
*(23.2)
(24)
*(31.1)
*(31.2)
*(32.1)
(99)
Consent and Second Amendment to the Amended and Restated Revolving Credit and Term Loan Agreement dated as of
February 13, 2006 by and among Genesee & Wyoming Inc., Quebec-Gatineau Railway Inc., certain subsidiaries of
Genesee & Wyoming Inc. as Guarantors, the lenders party thereto and Bank of America, N.A., as Administrative Agents
incorporated herein by reference to Exhibit 99.1 to the Registrant’s Report on Form 8-K as of February 16, 2006.
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.
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
Section 1350 Certifications
Additional Exhibits
Not applicable.
* Exhibit filed with this Report.
A-5 Genes ee & W yoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 116 Color; Composite
E x h i b i t 3 1 . 1
R u l e 1 3 a - 1 4 ( a ) / 1 5 d - 1 4 ( a ) C e r t i f i c a t i o n of Pr i n c i p a l E x e c u t i v e O f f i c e r
I, Mortimer B. Fuller, III, certify that:
1. I have reviewed this Annual Report on Form 10-K of Genesee & Wyoming Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material
information relating to the registrant, including our
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial report-
ing to be designed under our supervision, to provide reasonable assurance regarding the reliability of finan-
cial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluations; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most
in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
(the registrant’s fourth fiscal quarter
fiscal quarter
recent
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over finan-
the registrant’s ability to record, process,
cial
summarize and report financial
reporting which are reasonably likely to adversely affect
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: March 15, 2006
/S/ MORTIMER B. FULLER, III
Mortimer B. Fuller, III
Chairman and Chief Executive Officer
2005 FORM 10K Genes ee & Wyoming Inc. A-6
Job: 39566_003 Genesee & Wyoming Page: 117 Color; Composite
E x h i b i t 3 1 . 2
R u l e 1 3 a - 1 4 ( a ) / 1 5 d - 1 4 ( a ) C e r t i f ic a t i o n of Pr i n c i p a l F i n a n c i a l O f f i c e r
I, Timothy J. Gallagher, certify that:
1. I have reviewed this Annual Report on Form 10-K of Genesee & Wyoming Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material
information relating to the registrant, including our
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial report-
ing to be designed under our supervision, to provide reasonable assurance regarding the reliability of finan-
cial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluations; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most
in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
(the registrant’s fourth fiscal quarter
fiscal quarter
recent
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over finan-
the registrant’s ability to record, process,
cial
summarize and report financial
reporting which are reasonably likely to adversely affect
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: March 15, 2006
/S/ TIMOTHY J. GALLAGHER
Timothy J. Gallagher
Chief Financial Officer
A-7 Genes ee & W yoming Inc. 2005 FORM 10K
Job: 39566_003 Genesee & Wyoming Page: 118 Color; Composite
S e c t i o n 1 3 5 0 C e r t i f i c a t i o n
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(“Section 906”), Mortimer B. Fuller, III and Timothy J. Gallagher, Chairman and Chief Executive Officer and Chief
Financial Officer, respectively, of Genesee & Wyoming Inc., certify that (i) the Annual Report on Form 10-K for the
year ended December 31, 2005, fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and (ii) the information contained in such report fairly presents, in all material respects, the
financial condition and results of operations of Genesee & Wyoming Inc.
E x h i b i t 3 2 . 1
/S/ MORTIMER B. FULLER, III
Mortimer B. Fuller, III
Chairman and Chief Executive Officer
Date: March 15, 2006
/S/ TIMOTHY J. GALLAGHER
Timothy J. Gallagher
Chief Financial Officer
Date: March 15, 2006
2005 FORM 10K Genes ee & Wyoming Inc. A-8
Job: 39566_003 Genesee & Wyoming Page: 119 Color; Composite
[THIS PAGE INTENTIONALLY LEFT BLANK]
Job: 39566_003 Genesee & Wyoming Page: 120 Color; Composite
CORPORATE HEADQUARTERS
STOCK REGISTRAR AND TRANSFER AGENT
LaSalle Bank, N.A.
Trust and Asset Management
135 South LaSalle Street, Suite 1811
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
OTHER INFORMATION
The Company has included as Exhibit 31 to its Annual Report
on Form 10-K for the fiscal year ending December 31, 2005,
filed with the Securities and Exchange Commission certifi-
cates of the Chief Executive Officer and Chief Financial
Officer of the Company certifying the quality of the Compa-
ny’s public disclosure. The Company has submitted to the
New York Stock Exchange a certificate of the Chief Executive
Officer of the Company certifying that for the fiscal year end-
ing December 31, 2004, he was not aware of any violation by
the Company of New York Stock Exchange corporate gover-
nance listing standards.
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 publicly trades on the
New York Stock Exchange under the trading symbol GWR. The
Class B Common Stock is not publicly traded.
The tables below show the range of high and low actual trade
prices for our Class A Common Stock during each quarterly
period of 2005 and 2004.
YEAR ENDED DECEMBER 31, 2005:
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
YEAR ENDED DECEMBER 31, 2004:
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
HIGH
$ 25.03
$ 21.37
$ 19.97
$ 18.79
HIGH
$ 19.90
$ 16.91
$ 17.40
$ 16.81
LOW
$ 19.59
$ 17.69
$ 15.35
$ 15.15
LOW
$ 16.19
$ 14.33
$ 14.07
$ 14.24
On March 2, 2006, there were 192 Class A Common Stock
record holders and 8 Class B Common Stock record holders.
Prior to its initial public offering, the Company paid dividends on
its common stock. However, since its initial public offering 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.
Job: 39566_003 Genesee & Wyoming Page: 121 Color; Composite
BOARD OF DIRECTORS
Mortimer B. Fuller III
Chairman and Chief Executive Officer
Louis S. Fuller
Retired, Courtright and Associates
David C. Hurley
Vice Chairman, PrivatAir
Member of Compensation Committee
Robert M. Melzer
Retired, former Chief Executive Officer
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
Chairman of Compensation Committee
Member of Audit Committee
Mark A. Scudder
President, Scudder Law Firm, P.C., L.L.O.
Chairman of Governance Committee
Member of Compensation Committee
Hon. M. Douglas Young, P.C.
Chairman, SUMMA Strategies Canada, Inc.
Member of Governance Committee
Mortimer B. Fuller III
Louis S. Fuller
David C. Hurley
Robert M. Melzer
Philip J. Ringo
Peter O. Scannell
Mark A. Scudder
Hon. M. Douglas Young, P.C.
Job: 39566_003 Genesee & Wyoming Page: 122 Color; Composite
CORPORATE OFFICERS
Mortimer B. Fuller III
Chairman of the Board of Directors
and Chief Executive Officer
Charles N. Marshall
Vice Chairman
John C. Hellmann
President
Timothy J. Gallagher
Chief Financial Officer
James W. Benz
Chief Operating Officer
Adam B. Frankel
Senior Vice President
General Counsel and Secretary
Christopher F. Liucci
Chief Accounting Officer
and Global Controller
SENIOR EXECUTIVES
Mark W. Hastings
Executive Vice President
Corporate Development
Robert Grossman
Executive Vice President
Government and Industry Affairs
Mario Brault
Senior Vice President
Canada Region
A. Bruce Carswell
Senior Vice President
Oregon Region
David J. Collins
Senior Vice President
New York/Pennsylvania Region
James N. Davis
Senior Vice President
Utah Region
Billy C. Eason
Senior Vice President
Rail Link
Spencer D. White
Senior Vice President
Illinois Region
Shayne L. Magdoff
Senior Vice President
Administration and Human Resources
Gerald T. Gates
Vice President, Safety and Compliance
Mike Meyers
Vice President, Information Technology
Richard T. O’Donnell
Vice President, Tax
David L. Powell
Vice President, Motive Power
Gerald A. Sattora
Vice President, Accounting and Controller
James M. Tilley
Vice President, Car Management
Jerry E. Vest
Vice President, Government and Industry Affairs
Matthew O. Walsh
Vice President, Corporate Development and Treasurer
Job: 39566_003 Genesee & Wyoming Page: 123 Color; Composite
Corporate Headquarters
Genesee & Wyoming Inc.
66 Field Point Road
Greenwich, Connecticut 06830
203-629-3722
GWI North American Operations
Canada
Québec Gatineau Railway Inc.
/ Chemins de fer Québec-Gatineau inc.
6700, Av. 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, Av. 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
1200-C Scottsville Road, Suite 200
Rochester, New York 14624
585-328-8601
Administrative Headquarters
Genesee & Wyoming Railroad
Services, Inc.
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
AN Railway, L.L.C.
190 Railroad Shop Road
Port St. Joe, Florida 32456
850-747-4034
Arkansas Louisiana & Mississippi
Railroad Company
Fordyce & Princeton Railroad Company
P.O. Box 757
140 Plywood Mill Road
Crossett, Arkansas 71635
870-364-9004
Atlantic & Western Railway, L.P.
317 Chatham Street
Sanford, North Carolina 27331
919-776-7521
Bay Line Railroad, L.L.C.
2037 Industrial Drive
Panama City, Florida 32405
850-785-4609
Chattahoochee Industrial Railroad
P.O. Box 253
Georgia Highway 370
Cedar Springs, Georgia 39832
229-793-4546
Commonwealth Railway, Inc.
1136 Progress Road
Suffolk, Virginia 23434
757-538-1200
East Tennessee Railway, L.P.
132 Legion Street
Johnson City, Tennessee 37601
423-928-3721
First Coast Railroad Inc.
404 Gum Street
Fernandina, Florida 32035
904-261-0888
Georgia Central Railway, L.P.
186 Winge Road
Lyons, Georgia 30436
912-526-6165
E N T UCKY
E N T UCKY
K
K
W
W
E
E
ST TE N N E S
ST TE N N E S
E E
E E
S
S
Kentucky West Tennessee Railway, Inc.
908 Depot Street
Paris, Tennessee 38242
731-642-7942
New York Stock Exchange: GWR
Visit us on-line: www.gwrr.com
E R I DIA
E R I DIA
N
N
M
M
BIG B E E
BIG B E E
Y O RK
Y O RK
RA I LRA I L
Rail Link continued
Little Rock & Western Railway, L.P.
306 West Choctaw Avenue
Perry, Arkansas 72125
501-662-4878
Louisiana & Delta Railroad, Inc.
402 West Washington Street
New Iberia, Louisiana 70560
337-364-9625
Meridian & Bigbee Railroad, L.L.C.
119 22nd Avenue South
Meridian, Mississippi 39301
601-693-4351
Riceboro Southern Railway, L.L.C.
186 Winge Road
Lyons, Georgia 30436
912-884-2935
Tomahawk Railway, L.P.
301 Marinette Street
Tomahawk, Wisconsin 54487
715-453-2303
Valdosta Railway, L.P.
200 Madison Highway
Clyattville, Georgia 31601
229-559-7984
York Railway Company
2790 West Market Street
York, Pennsylvania 17404
717-771-1742
Utah
Utah Railway Company
4692 North 300 West, Suite 220
Provo, Utah 84604
801-221-7460
South America
Bolivia
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
Genesee & Wyoming Inc.
66 Field Point Road
Greenwich, Connecticut 06830
Phone: 203-629-3722
Fax: 203-661-4106
www.gwrr.com
NYSE: GWR