Genesee & Wyoming Inc. Annual Report 2006
Cover: The Bay Line
Railroad assembles and
moves unit trains of
coated pipe from the
Port of Panama City,
Florida, to Dothan,
Alabama, where Class I
partners take it to natural
gas pipeline projects in
the West. The Bay Line
received the award
from CSX for the greatest
absolute growth in car-
load business handled
in conjunction with
CSX in 2006.
Below: Switching corn
starch cars at a pulp
and paper mill near
Pennington, Alabama,
served by the rapidly
growing Meridian
& Bigbee Railroad.
Portland & Western Railroad
Oregon Region
Contract Coal Loading
Rocky Mountain
Region
Utah Railway Company
Genesee & Wyoming Inc. (GWI)
has provided rail freight services
in the United States for more than
100 years.
GWI’s common shares are
traded on the New York Stock
Exchange under the symbol GWR.
Whyalla
San Jose ´
Roboré
Bolivia
Australia Region
Ferroviaria Oriental S.A.
GWA Genesee & Wyoming Australia Pty Ltd
The Bolivian operations are an
unconsolidated investment.
Canada Region
Chemins de fer
Québec-Gatineau
Huron Central Railway
Chemin de fer St-Laurent
& Atlantique (Québec)
St. Lawrence & Atlantic Railroad
Tomahawk
Railway
Illinois Region
Tazewell & Peoria Railroad
Illinois & Midland Railroad
New York/Pennsylvania Region
Rochester & Southern Railroad
South Buffalo Railway
Buffalo & Pittsburgh Railroad
YR
Portsmouth, VA
Portsmouth, VA
CWRY
WKR
KWT
LR&W
F&P
ALM
M&B
ETRY
ATW
CHAT
CIRR
BAYL
GC
RS
FC
VRY
Wilmington, NC
Wilmington, NC
Savannah, GA
Savannah, GA
Brunswick, GA
Brunswick, GA
Fernandina, FL
Fernandina, FL
Jacksonville, FL
Jacksonville, FL
L&D
AN
Rail Link Region
CWRY Commonwealth Railway
FC First Coast Railroad
GC Georgia Central Railway
RS Riceboro Southern Railway
YR York Railway Company
Industrial Switching Operations
Port Operations
Panama City, FL
Panama City, FL
St. Joe, FL
St. Joe, FL
Galveston, TX
Galveston, TX
Baton Rouge, LA
Baton Rouge, LA
Corpus Christi, TX
Corpus Christi, TX
Mexico Region
Ferrocarriles
Chiapas-Mayab, S.A. de C.V.
Southern Region
ALM Arkansas Louisiana
& Mississippi Railroad
AN AN Railway
ATW Atlantic & Western Railway
BAYL The Bay Line Railroad
CHAT Chattahoochee Bay Railroad
CIRR Chattahoochee Industrial Railroad
ETRY East Tennessee Railway
F&P Fordyce & Princeton Railroad
KWT Kentucky West Tennessee Railway
LR&W Little Rock & Western Railway
L&D Louisiana & Delta Railroad
M&B Meridian & Bigbee Railroad
VRY Valdosta Railway
WKR Western Kentucky Railway
For detailed regional operations maps,
see pages 12-15.
Financial Highlights
2006 Freight Mix
by Revenue
(in thousands, except per share data)
Years Ended December 31
20.7% Pulp & Paper
2006
2005
17.7% Coal,Coke & Ores
Income Statement Data
Other 3.8%
Intermodal 0.5%
Auto & Auto Parts 2.1%
Petroleum
Products 6.8%
Chemicals
& Plastics 7.4%
10.9% Metals
Farm & Food Products 8.9%
10.8% Minerals & Stone
10.4% Lumber & Forest Products
Earnings Per Share
$3.16
Net Income
$ in Millions
$134.0
$1.40 ( A )
$1.20
$0.90
$0.68
$0.62
$59.3 ( A )
$50.1
$37.1
$24.4 $27.4
2002 2003 2004 2005 2006
2002 2003 2004 2005 2006
( A ) Net income in the year ended December 31, 2006, was $134.0 million and
diluted earnings per share was $3.16. Excluding the net gain and related
effects from the Australian Transactions of $196.9 million ($114.5 million
after-tax, or $2.70 per share) and the non-cash impairments in Mexico and
Bolivia, which totaled $39.0 million ($39.8 million after-tax, or $0.94 per
share), GWI’s net income would have been $59.3 million and diluted earn-
ings per share would have been $1.40.
Operating revenues
$478,846
$385,389
Operating income
Net income
Diluted earnings
per common share
Weighted average number
of shares of common
stock–diluted
$43,413
$70,931
$134,003 $50,135
$3.16
$1.20
42,417
41,712
Balance Sheet Data as of Period End
Total assets
Total debt
$1,141,064
$980,598
$245,685
$338,351
Stockholders’ equity
$520,187
$397,820
Genesee & Wyoming Inc. is a leading operator of short
line and regional freight railroads in the United States,
Canada, Mexico, Australia and Bolivia. Operations cur-
rently include 48 railroads organized in 10 regions, as
well as service at 12 U.S. ports, contract coal loading
and industrial switching. We operate more than 6,800
miles of owned and leased track and approximately
3,700 additional miles under track access arrangements.
2006 Genesee & Wyoming Inc. 1
Illinois & Midland
locomotives cross the
Illinois River at Peoria
on the line of their
sister railroad, the
Tazewell & Peoria.
The T&P is a terminal
switching road serving
the greater Peoria and
Pekin area with con-
nections to four Class I
railroads, as well as
several regional and
short lines.
To Our Shareholders
After 30 years as Chief Executive Officer of Genesee & Wyoming, I am stepping back
from day-to-day operations to become Executive Chairman. While I’m not retiring and
will continue to be a significant shareholder, this is my last letter to you as CEO. Where
to begin? There is so much to highlight from 30 years in the job, from 10 full years as a
public company, from this past year – and for the future.
First and foremost, 2006 was a year of outstanding financial accomplishment for GWI:
(cid:1) The year’s net income of $134 million was our eleventh consecutive year
of record net income since our 1996 initial public offering.
(cid:1) Our gain on the sale of our 50-percent interest in certain assets of the
Australian Railroad Group (ARG), for which we received $207.1 million of after-
tax cash proceeds, was the largest in GWI history.
(cid:1) Excluding the ARG sale and the write-down of our Mexican and Bolivian
investments discussed later, our earnings per share increased 17 percent from
$1.20 in 2005 to $1.40 in 2006.( A )
As I look back since acquiring a controlling interest in GWI in 1977, I am extraordi-
narily proud of the value it has created for you. When my great grandfather founded the
Genesee & Wyoming Railroad Company in 1899, it was 14 miles of track serving his
new salt mining enterprise in Upstate New York.
Although the salt business, its ownership and markets had changed significantly by
1977, the GWRR was much the same as it had been at the turn of the 20th century: a
14-mile railroad dependent on one customer and one commodity, the demand for which
was volatile and weather-dependent. Total revenues were $4.4 million, net income was
$839,000, and the equity value was approximately $2.5 million. The little GWRR was
jokingly referred to as the “Gee Whiz” railroad. But GWRR had good free cash flow for
its size and was a solid platform on which to build.
Building a business in the rail industry, which in the late ‘70s and early ‘80s was
struggling for survival, was a slow and arduous process. However, by 1996, our rev-
enues had grown through 10 acquisitions to $77.8 million, net income to $5.9 million,
and our market cap was $82.4 million at our initial public offering in June. Yet we were
just getting started.
( A ) See footnote on page 1.
Mortimer B. Fuller III
Chairman of the Board of Directors
and Chief Executive Officer
2006 Genesee & Wyoming Inc. 3
We’ve completed
many important
deals, not because
we were the high
bidder, but because
we were the
preferred bidder.
Through an unrelenting
focus on safety, our
reportable injury rate has
been reduced to well
below those of our short
line and regional railroad
peer groups.
4 Genesee & Wyoming Inc. 2006
For 2006, revenues were $478.8 million, and our market capitalization at December
31 was $1.1 billion. A dollar invested in GWI at our IPO was worth $7.81 at the close
of 2006.
As I consider the strength and diversity of today’s GWI platform and our tremendous
opportunities going forward, I am both proud of the Company’s transformation and
excited by the growth trajectory that shows no signs of slowing.
2006 Performance
As shareholders, I also hope you will appreciate that there is no better indicator of a well
run and financially strong railroad than its safety performance. At GWI, our goal is to be
injury-free, and three of our eight operating regions finished 2006 without a single
reportable injury – Oregon, Utah and Australia. We have reduced our Federal Railroad
Administration reportable injury rate per 200,000 man hours from 5.89 in 1998 to 1.95
in 2006 – short of the year’s target of 1.75 but better than 2005 and well ahead of our
short line and regional railroad peer group.
Financially, the year 2006 marked two significant “firsts” for GWI: the first time we
sold major assets (in Australia) and the first time we wrote down investments (in Mexico
and Bolivia).
In the ARG sale, we recognized greater value than we believed we could create
over the long term in Western Australia. In addition, by retaining a business in South
Australia, we remain well positioned to participate in the future growth and evolution of
the Australian rail market.
In the second quarter, we recorded a non-cash impairment of $5.9 million on our
investment in Bolivia due to heightened political uncertainty from the newly elected
government’s announced intent to nationalize Bolivia’s privatized companies, includ-
ing the railroad, Ferroviaria Oriental. Then in the third quarter, we recorded a non-
cash charge of $34.1 million after-tax reflecting the write-down of non-current assets
and related charges of our Mexican operations when we learned of uncertainty about
when or how the Mexican government would rebuild bridges and repair damage to the
Chiapas rail line caused by Hurricane Stan in October 2005.
Because of its small size, the Bolivian operation has never had a material impact
on GWI’s financial statements, and we have discontinued equity accounting for our
remaining $3 million investment there. Thus far, there’s been no follow-up action taken
by the government since the announcement. The most unfortunate aspect of the polit-
ical change in Bolivia is that our operating team, one of our most able, faces such an
uncertain future.
In Mexico, we are fully engaged in a number of actions to seek resolution of the
situation. We’ve reported that, until resolved, the business will cost us $.025 per share
per quarter. We’ve met with the new Calderon administration and hope to have clarity
on the manner of resolution by the second quarter of 2007.
Beyond Bolivia and Mexico, other challenges affected our business in 2006. We
experienced declining carload volumes in some commodity groups (on a same-
railroad basis) due to mild weather, power plant maintenance downtime, the housing
market decline and pricing actions by Class I railroads. Overall, we have offset much
of the volume decline through better margins due to increased prices and by effective
cost control.
We’ve seen the stock market’s attention to the challenges we face as opportunity.
On February 13, 2007, we announced a two-million-share repurchase program because
we believe the market does not reflect the full value of GWI’s existing franchise. Neither
I nor our management team take a short-term view of our business.
Retaining our 50-
percent interest in
Genesee & Wyoming
Australia and acquiring
our partner’s 50-percent
interest keeps us well
positioned to serve South
Australia’s newly devel-
oping mining projects.
A Portland & Western
train on the BNSF main-
line from Vancouver,
Washington, crosses
the Columbia Slough
headed for Albany,
Oregon, where it will
be distributed to P&W
customers all over the
Willamette Valley.
6 Genesee & Wyoming Inc. 2006
Growth Opportunities
We continue to see significant growth opportunities. Not only do we see domestic and
international acquisition targets, but we also have more same-railroad growth invest-
ments in our existing regions than ever before. Some examples:
(cid:1) In the Australia Region, the opportunities to serve newly developing mining
projects are significant. Also, Genesee & Wyoming Australia (GWA) along with
the Commonwealth of Australia, the State of South Australia and grain grow-
ers will continue funding a $23 million upgrade of GWA’s track on the Eyre
Peninsula in 2007. This project will keep the transport of grain to Port Lincoln
competitive, provide rail infrastructure support to prospective mining develop-
ment opportunities and reduce wear and tear of roads by truck transport.
(cid:1) In the Oregon Region, construction of a new ethanol plant has commenced
on the Portland & Western Railroad (P&W). When the plant opens in the first
quarter of 2008, P&W expects to handle 10,000 carloads of inbound corn
annually and have the opportunity to compete for outbound byproducts busi-
ness and local ethanol movements.
On November 15, 2006, we entered into an agreement with BNSF to move
our interchange location from Albany, OR, to BNSF’s yard in Vancouver, WA.
This provides a more efficient interchange between BNSF and P&W, which
now receives and handles rail traffic in Vancouver that it had been receiving 90
miles further south in Albany.
(cid:1) In our Rail Link Region, the Commonwealth Railroad (CWRY) exercised its
option to purchase 12.5 miles of rail line running through Portsmouth,
Chesapeake and Suffolk, Virginia, previously leased from Norfolk Southern. In
public/private partnership with the Commonwealth of Virginia, CWRY intends
to upgrade the line to serve a major new container terminal being construct-
ed at Portsmouth by APM Terminals North America Inc., a company in the A.P.
Moller-Maersk Group. Planned for completion in July 2007, it will be one of the
largest private ports in the United States. This is a prime example of GWI bring-
ing its rail operations expertise to development projects with other much larger
industrial and/or financial participants.
In 2006, The Rail Link Region invested $1.2 million to expand capacity for
grain and automotive exports via its Golden Isles Terminal Railroad operating
at the Georgia Ports Authority’s Brunswick terminal.
In 2007, Rail Link also will complete its $2 million commitment to a public/
private partnership to expand a distribution facility in Pennsylvania.
(cid:1) In our newly created Southern Region, we invested $2.7 million to upgrade
147 miles of the Meridian & Bigbee to handle overhead haulage trains for Kansas
City Southern and CSX that commenced in 2005. That business added more
than 41,000 carloads in 2006 and, with the completion of track improvements,
should continue to grow.
We also acquired the assets of the contiguous Chattahoochee & Gulf
Railroad Co., Inc., (CHAT) and the H&S Railroad Company, Inc., on August 30,
2006, for $6 million. The CHAT strategically connects our Bay Line Railroad to
our Chattahoochee Industrial Railroad and interchanges rail traffic with both
CSX and Norfolk Southern.
(cid:1) GWI also invested $4 million to exercise options to acquire 26 locomotives
under lease transactions in 2006, on financially attractive terms. We intend to
invest $9 million in 2007 to acquire three locomotives and 1,416 freight cars
in similar transactions.
Of course, the most dynamic component of our performance – and the one that’s
driven much of our growth – is acquisitions. We’ve completed 29 so far, and they’ve
created important diversification by commodity, by customer, and by geography. In
the early years, we were dependent on rock salt. In the early post-IPO years, it was
coal in Illinois. Today, diversification has reduced our vulnerability to mild winters,
plant shut-downs, drought in Australia and hurricanes in Mexico and the Southeast
United States.
Today, while the growing interest in the rail sector by infrastructure and private
equity investors may make the acquisition climate more competitive, the number of
good acquisition opportunities, both domestic and international, is consistent with the
prospects we’ve seen over the past decade. As always at GWI, our acquisition success
will be a function of two processes: 1) a disciplined approach to the analysis, valuation
and structuring of the acquisition; and 2) managing the new business to meet or exceed
the financial model on which the acquisition was based.
The foundation supporting these processes is the reputation GWI has built over
the years as a company that always strives to meet or exceed the expectations of its
Switching at a Cedar
Springs, Georgia, con-
tainer board plant served
by the Chattahoochee
Industrial Railroad.
White Oak
Goshen
Troy
C
S
X
T
Ariton
ALABAMA
Waterford
Abbeville
Cuthbert
GEORGIA
CHAT
Arlington
N S
Grimes
Dothan
Geneva
CSXT
Hilton
CIRR
Saffold
Bainbridge
Chattahoochee
10
BAYL
FLORIDA
De Funiak
Springs
Panama City, FL
AN
Port St. Joe, FL
Bay Line Railroad
Chattahoochee & Gulf
Railroad Co., Inc.
Chattahoochee Industrial
Railroad
AN Railway, L.L.C.
2006 Genesee & Wyoming Inc. 7
Right: Destined for a Utah
power plant, Utah Railway
MK5000 engines pull coal
up Price Canyon towards
Soldiers Summit (elev.
7,500 feet).
Below: Loading Powder
River Basin coal near
Decker, Montana. Genesee
& Wyoming handles more
than 90 percent of Powder
River Basin coal.
The successes of
the past 30 years
have not been my
accomplishments
but the accom-
plishments of our
extraordinary team.
8 Genesee & Wyoming Inc. 2006
constituencies: shareholders, customers, business partners and communities where
we provide the rail service to support the local economy. It is our core purpose to be
the safest and most respected rail service provider in the world.
Ten years ago, our senior management put in writing certain values that we felt were
essential to preserve our newly public company’s culture. Our goals change and evolve,
but our core values remain the same:
Focus… for disciplined growth.
Integrity… to earn the trust of others.
Respect… for all people with whom we deal.
Excellence… in all we do.
Our corporate reputation depends on working and living by these values. Indeed,
we’ve completed many important deals, not because we were the high bidder, but
because we were the preferred bidder. In transactions with both governments and
private companies, we’ve been chosen because of our reputation to execute, to
meet customers’ needs and to treat the seller’s employees with respect.
The GWI Team
We have the culture, the processes and the opportunities to continue GWI’s growth.
Most importantly, we have the team of people. The successes of the past 30 years have
not been my accomplishments but the accomplishments of our extraordinary team.
Some on the team have been with us from our days as a 14-mile railroad: Mark
Occhioni, Business Systems Manager, and Jerry Sattora, Vice President of Accounting
and Controller, both celebrated 30 years of service with GWI in 2006. Mark Hastings
came on board in 1978 as Chief Financial Officer and now directs our acquisitions as
Executive Vice President, Corporate Development. Dave Collins joined just out of college
in 1979 and now heads the NY/PA Region as Senior Vice President. They have grown
with the Company, expanded their skills and made major contributions to our success.
Many of our key managers played major roles in the rail businesses we acquired:
Jim Benz, now our Chief Operating Officer, founded Rail Link; Robert Grossman, our for-
mer Executive Vice President of Government and Industry Affairs, was CEO of Emons
Transportation from 1979 until we acquired it in 2002; Bert Easthope, General Manager
of our Australia Region, came from ARG; Spencer White, Senior Vice President of the
Illinois Region, from CSX via the Buffalo & Pittsburgh; Garland Horton, Vice President of
A St-Laurent & Atlantique
train loads containerized
paper at Richmond,
Québec, bound for U.S.
and Canadian Maritimes
markets.
Marketing and Sales for the Southern Region, from Rail Management (RMC); and
Raquel Swan, former Executive Vice President of the Illinois Region, from the Chicago
& Illinois Midland.
Others came to GWI from outside the industry, bringing an important fresh perspec-
tive to our business: Jack Hellmann, our President and my successor, and Matt Walsh,
our Vice President of Corporate Development and Treasurer, joined us from investment
banking; T.J. Gallagher, our Chief Financial Officer, from global energy and telecommu-
nications. As our Company and our transactions have become more complex, their
financial and analytical discipline has been invaluable to our success.
Throughout 2006, we continued to strengthen the caliber of our corporate staff with
several key appointments. Chris Liucci was hired in March as Chief Accounting Officer
and Global Controller. Chris brings a wealth of domestic and international financial
reporting expertise to GWI.
On October 30th, Allison Fergus was appointed General Counsel and Secretary.
Allison was previously our Senior Counsel and has stepped into the General Counsel
role with distinction.
On November 13th, Mike Williams joined us as Director of Corporate Communica-
tions. Mike’s branding and communications management experience includes nine years
in the chemical industry, most recently at BASF, and will be important to promoting the
GWI brand across multiple geographies.
Most recently, on March 1, 2007, GWI announced the appointment of Matt Brush
as Chief Human Resource Officer. Matt has a proven track record of HR leadership and
vision, most recently at Corning Inc. Creation of this new position reflects our belief that
great people are a critical competitive advantage of GWI.
Succession Planning
An important focus of the past few years was ensuring that we have the right people
in every key position to facilitate the next phase of GWI’s growth. On June 1, 2007, I
pass the mantle of CEO to Jack Hellmann. Jack joined us as CFO in 2000 and became
President in 2005. He has been an integral part of the accelerating growth we’ve expe-
rienced since that time. Jack’s leadership in combination with the numerous other man-
agement promotions made in 2005 and 2006 ensure that GWI will continue to pursue
growth opportunities with the same energy, focus and discipline that have been such a
successful formula over the past three decades.
Jack Hellmann, President
2006 Genesee & Wyoming Inc. 9
Working in partnership with Jack is our Chief Operating Officer, Jim Benz. Jim was
previously President of GWI’s Rail Link Region for eight years and successfully built the
business into one of our largest operating units. He assumed the COO position in 2005,
when then President and Chief Operating Officer Charlie Marshall moved to the position
of Vice Chairman to facilitate our succession plan. Charlie retired in 2006 after serving
GWI with distinction for eight years.
Stepping into Jim’s position as Senior Vice President of the Rail Link Region was Billy
Eason. With the addition of the 14 RMC railroads acquired in June 2005, Rail Link
became by far our largest and most geographically diverse region. Under Billy’s lead-
ership, RMC was smoothly integrated into GWI in 2006 and comfortably achieved its
targeted returns.
Late in 2006, Billy recommended that the Rail Link Region be reconfigured to main-
tain optimal responsiveness to customers and business opportunities in each operating
unit. On December 20th, we announced a realignment in which a reorganized Rail Link
Region is now headed by Bill Jasper, and a new Southern Region, GWI’s largest, consists
of 14 railroads headed by Billy Eason.
In addition, a newly named Rocky Mountain Region incorporates the predominantly
coal-hauling Utah Railway as well as our extensive contract coal loading operations in
Wyoming’s Powder River Basin and in Colorado, Illinois and Ohio. These coal operations
were previously managed as part of Rail Link’s Industrial Switching and Port Operations.
Finally, the Tomahawk Railway in Wisconsin moved from the Rail Link Region to the
Illinois Region due to closer geographic proximity.
On January 5, 2007, Jerry Vest, Vice President of Government and Industry Affairs,
succeeded Robert Grossman. Robert has done an outstanding job at GWI and will con-
tinue in a part-time capacity as Vice President of Government and Industry Affairs for
our Oregon Region. This succession was planned when Jerry joined us in 2005, bring-
ing more than 20 years of freight rail experience.
Our logo, with its two arrows pointing in opposite directions, symbolizes an organization
that acknowledges and builds on its past while always looking ahead. As I look to the
past, what I’m most proud of is this remarkable team of people we’ve attracted to build
GWI. As I look ahead to my role as Executive Chairman supporting the GWI organiza-
tion, I am confident in the future of both the company and my investment in it.
GWI is financially in the strongest position in its history, with an outlook for growth
that’s never been brighter. Above all, the very best people are ready to take us to the
next level. What better way to bring my 30 years as CEO to a close? My satisfaction for
the significant value we’ve created and all we’ve accomplished together is exceeded
only by my gratitude for the support of each of my coworkers, our board of directors,
business partners, friends and shareholders.
Thank you,
GWI is financially
in the strongest
position in its
history, with an
outlook for growth
that’s never been
brighter. Above all,
the very best people
are ready to take
us to the next level.
Mortimer B. Fuller III
Chairman and Chief Executive Officer
March 8, 2007
10 Genesee & Wyoming Inc. 2006
The Garden City
Terminal, just north of
Savannah, Georgia, is one
of 12 U.S. ports served
by Rail Link Region
operations.
Genesee & Wyoming Operations
Oregon Region
Portland & Western Railroad
New York / Pennsylvania Region
Rochester & Southern Railroad
South Buffalo Railway
Buffalo & Pittsburgh Railroad
Vancouver
Portland
Tualatin
Canby
Albany
Allison Park
Illinois Region
Illinois & Midland Railroad
Tazewell & Peoria Railroad
Tomahawk Railway
Rocky Mountain Region
Utah Railway Company
Contract Coal Loading
Midvale
Martin/Helper
Terminal
M O N TA N A
W Y O M I N G
I L L I N O I S
O H I O
ILLINOIS
U TA H
C O L O R A D O
12 Genesee & Wyoming Inc. 2006
Canada Region
Huron Central Railway
Chemins de fer Québec-Gatineau
Chemin de fer St-Laurent & Atlantique (Québec)/
St. Lawrence & Atlantic Railroad (USA)
Darwin
Australia
Gatineau
Mexico Region
Ferrocarriles Chiapas-Mayab, S.A. de C.V.
Australia Region
Genesee & Wyoming Australia Pty Ltd
Interstate Lines With Open Access
Asia Pacific Transport Consortium (APTC) Line
Bolivia
Ferroviaria Oriental S.A.
The Bolivian operations are
an unconsolidated investment.
San Jose ´
Roboré
Dashed lines indicate trackage rights
Out of Service
2006 Genesee & Wyoming Inc. 13
Rail Link Region
Short Line Railroads
Industrial Switching
Port Operations
C A L I F O R N I A
M I C H I G A N
Hardwick
Sandersville
Lousiville
Macon
NS
Tennille
Midville
C
S
X
T
SOUTH
SOUTH
SOUTH
SOUTH
SOUTH
CAROLINA
CAROLINA
CAROLINA
CAROLINA
CAROLINA
Warner
Robins
Berry
Dublin
Swainsboro
Statesboro
Ardmore
Eastman
GC
Helena
GEORGIA
GEORGIA
Richmond Hill
Cordele
Hazlehurst
N
S
Fitzgerald
C
S
X
T
GC Georgia Central Railway
RS Riceboro Southern Railroad
Riceboro
Hinesville
RS
X
S
C
Jesup
C S X T
Nahunta
N
PENNSYLVANIA
VANIA
N S
Harrisburg
YR
York
Hanover
Spring Grove
Porters
Keymar
CSXT
Perryville
MARYLAND
Savannah, GA
n
T
YR York Railway
Brunswick, GA
GEORGIA
GEORGIA
95
Seals
FC
Kingsland
NS
Yulee
C
S
X
T
Macclenny
FLORIDA
FLORIDA
295
Middlebury
Starke
Fernandina, FL
Jacksonville, FL
Palm Valley
95
St.
Augustine Beach
295
CSXT
64
West Point
Hopewell
Williamsburg
Cape Charles
Hampton
Newport
News
VIRGINIA
VIRGINIA
CWRY
Virginia Beach
Portsmouth
ia
C S X T
Franklin
Suffolk
NORTH
NORTH
CAROLINA
CAROLINA
Elizabeth
City
14 Genesee & Wyoming Inc. 2006
FC First Coast Railroad
CWRY Commonwealth Railway
Southern Region
MISSISSIPPI
MISSISSIPPI
MISSISSIPPI
MISSISSIPPI
K
C
S
20
59
NS
Boligee
ALABAMA
ALABAMA
Clanton
Maplesville
65
Meridian
Demopolis
NS
M&B
Marion
Jct.
Selma
Montgomery
85
a
w
40
Russellville
Bald Knob
Danville
Morrilton
Conway
Beebe
Jacksonville
ARKANSAS
Mountain Pine
LR&W
Little Rock
U P
30
Hot Springs
40
Stuttgart
LR&W Little Rock & Western Railway
Rison
Warren
Monticello
P
U
Eagle Mills
Camden
Banks
Hermitage
F&P
McGehee
Dermott
Smackover
El Dorado
Newell
Lillie
Montrose
P
U
Parkdale
ALM
Sterlington
Mer Rouge
Collinston
Ruston
KCS
Delhi
Rayville
Tallulah
F&P Fordyce & Princeton Railroad
ALM Arkansas, Louisiana & Mississippi Railroad
Goshen
Troy
C
S
X
T
Ariton
ALABAMA
Waterford
Abbeville
Cuthbert
Albany
CHAT
Arlington
N S
Grimes
Dothan
Geneva
BAYL
Hilton
CIRR
Saffold
GEORGIA
Bainbridge
K
C
S
Waynesboro
Kimbrough
Fulton
Beatrice
Jackson
M&B Meridian & Bigbee Railroad
T
X
S
C
CSXT
De Funiak
Springs
Gosher
Panama City, FL
Georgiana
65
Chattahoochee
10
FLORIDA
FLORIDAD
Greenville
AN
ILLINOIS
Port St. Joe, FL
INDIANA
Opelousas
Baton Rouge
n
De Koven
WKR
Blackford
TENNESSEE
TENNESSEE
Elizabethton
Lake Charles
BNSF
Lafayette
Breaux Bridge
L A F A Y E T T E
Elks
BR Jct.
Port of Lake Charles RR
S T. M A R T I N
Cajun Sugar
I B E R V I L L E
U
P
10
Abbeville
ARA
Davids
New Iberia
Providence
ILLINOIS
KENTUCKY
KENTUCKY
KENTUCKY
Madisonville
Princeton
Dawson
Springs
h
24
NS
Johnson City
ETRY
C
S
X
T
Hot Springs
New Orleans
MISSOURI
L&D
Pesson
Emma
Cypremort
Port of West St.Mary
Bayou Sale
Patoutville
Baldwin
A S S U M P T I O N
Avondale
Schriever
L A F O U R C H E
MISSOURI
Raceland Jct.
BAYL Bay Line Railroad
CHAT Chattahoochee
Bay Railroad
CIRR Chattahoochee
Industrial Railroad
AN AN Railway
D
NORTH CAROLINA
Star
Gulf
NS
Sanford
ATW
CSXT
North Bend
S T. M A R Y
Morgan
City
Houma
Branch
L&D Louisiana & Delta Railroad
Dashed lines indicate trackage rights
Maps are scaled proportionaly +/- 20%
WKR Western
Kentucky Railway
ETRY East Tennessee
Railway
ATW Atlantic & Western
Railway
Raceland
Lockport
Jay
Murray
Fulton
TENNESSEE
TENNESSEE
Dresden
Henry
KWT
GEORGIA
GEORGIA
C S X T
Valdosta
Mayday
NS
VRY
McKenzie
T
X
S
C
Conaico
CSXT
Clyattville
Bruceton
FLORIDA
FLORIDA
Humbold
KWT Kentucky West
Tennessee Railway
VRY Valdosta Railway
2006 Genesee & Wyoming Inc. 15
A St-Laurent & Atlantique
manifest train travels
Eastbound along the
frozen Riviere St.
Francois enroute to
Island Pond, Vermont,
and a delivery of
dimensional lumber.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Í ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2006
or
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File No. 0-20847
Genesee & Wyoming Inc.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
Delaware
06-0984624
66 Field Point Road, Greenwich, Connecticut
(Address of principal executive offices)
06830
(Zip Code)
(203) 629-3722
(Telephone No.)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Class A Common Stock, $0.01 par value
NYSE
Securities registered pursuant to Section 12(g) of the Act:
None.
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
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing requirements for the past 90 days. 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 statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether the registrant is 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):
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
Large accelerated filer Í
Non-accelerated filer ‘
Aggregate market value of Class A Common Stock held by non-affiliates based on closing price on June 30, 2006, as
reported by the New York Stock Exchange on the last business day of Registrant’s most recently completed second fiscal
quarter: $848,066,028. 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.
Shares of common stock outstanding as of the close of business on February 23, 2007:
Class
Number of Shares Outstanding
Class A Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,450,674
3,975,180
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year are incorporated by reference in Part III hereof and made a part hereof.
Job: 87365_022 Genesee & Wyoming Inc Page: 1 Color; Composite
GENESEE & WYOMING INC.
FORM 10-K
For The Fiscal Year Ended December 31, 2006
INDEX
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page No.
5
14
24
24
28
30
30
32
32
61
63
63
63
65
65
65
65
65
65
66
2
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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. Up until June 1, 2006, ARG was 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.
Cautionary Statement Regarding Forward-Looking Statements
The information contained in this Annual Report on Form 10-K (Annual Report), including Management’s
Discussion and Analysis of Financial Condition and Results of Operations in Item 7, contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, regarding future events and future performance of Genesee &
Wyoming Inc. Words such as “anticipates,” “intends,” “plans,” “believes,” “seeks,” “expects,” “estimates,”
variations of these words and similar expressions are intended to identify these forward-looking statements.
These statements are not guarantees of future performance and are subject to certain risks, uncertainties and
assumptions that are difficult to forecast. Actual results may differ materially from those expressed or forecast in
these forward-looking statements. Examples of forward-looking statements include all statements that are not
historical in nature, including statements regarding:
•
•
•
•
•
•
•
our operations, competitive position, growth strategy and prospects;
industry conditions, including downturns in the general economy;
the effects of economic, political or social conditions and changes in foreign exchange policy or rates;
our ability to complete, integrate and benefit from acquisitions, joint ventures and strategic alliances;
governmental policies affecting our railroad operations, including laws and regulations regarding
environmental liabilities;
our funding needs and financing sources; and
the outcome of pending legal proceedings.
These statements are not guarantees of future performance and are subject to certain risks, uncertainties and
assumptions that are difficult to forecast. Forward-looking statements may be influenced by risks which exist in
the following areas, among others:
•
•
•
•
•
•
•
•
•
our ability to fund, consummate and integrate acquisitions and investments;
our relationships with Class I railroads and other connecting carriers for our operations;
our ability to obtain railcars and locomotives from other providers on which we are currently
dependent;
competition from numerous sources, including those relating to geography, substitute products, other
types of transportation and other rail operators;
legislative and regulatory developments, including a recent ruling by the Surface Transportation Board
(STB);
strikes or work stoppages by our employees and our ability to attract and employ a sufficient number of
skilled employees;
our transportation of hazardous materials by rail as a common carrier;
the occurrence of losses or other liabilities which are not covered by insurance or which exceed our
insurance limits;
rising fuel costs;
3
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•
•
•
•
•
•
•
•
the variability of our tax rate as a result, in part, of the expiration of the short line tax credit on
January 1, 2008
customer retention and contract continuation;
our susceptibility to downturns in the general economy;
our susceptibility to severe weather conditions and other natural occurrences;
the imposition of operational restrictions as the result of covenants in our credit facilities;
acts of terrorism and anti-terrorism measures;
our susceptibility to various legal claims and lawsuits; and
our susceptibility to risks associated with doing business in foreign countries.
The areas in which there is risk and uncertainty are further described under the caption “Risk Factors” in
Item 1A, as well as in documents that we file from time to time with the Securities and Exchange Commission
(the SEC), which contain additional important factors that could cause actual results to differ from current
expectations and from the forward-looking statements contained herein. Readers of this document are cautioned
that our forward-looking statements are not guarantees of future performance and the actual results or
developments may differ materially from the expectations expressed in the forward-looking statements. 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
Condition and Results of Operations in Item 7 and the discussion of risk factors in Item 1A.
4
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Item 1.
Business
PART I
OVERVIEW
We are a leading owner and operator of short line and regional freight railroads in the United States,
Australia, Canada, and Mexico and own a minority interest in a railroad in Bolivia. In addition, we provide
freight car switching and rail-related services to industrial companies in the United States and Australia. 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 completed 29 acquisitions,
including the June 2006 acquisition of substantially all of ARG’s railroad operations in South Australia, which
we renamed Genesee & Wyoming Australia Pty Ltd (GWA). Simultaneous with the purchase of GWA, we and
our 50% partner, Wesfarmers Limited (Wesfarmers), completed the sale of the Western Australia operations and
certain other assets of ARG to Queensland Rail and Babcock & Brown Limited (ARG Sale).
By focusing our corporate and regional management teams on improving our return on invested capital, we
intend to continue to increase earnings and cash flow. In addition, we expect that each potential acquisition will
adhere to our return on capital targets and that existing operations strive to improve year-over-year financial
returns.
As of December 31, 2006, we operate more than 6,800 miles of owned and leased track and approximately
3,700 additional miles under track access arrangements. We operate in 26 U.S. states, five Australian states, two
Canadian provinces, and six Mexican states, and serve 12 U.S. ports, five Australian ports and one Mexican port.
Based on track miles, we believe that we are the second largest operator of short line and regional freight
railroads in North America.
GROWTH STRATEGY
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 contiguous or nearby rail properties where our local management teams are best able to identify
opportunities to reduce operating costs and increase equipment utilization. In new regions, we target rail
properties that have adequate size to establish a presence in the region, provide a platform for growth in the
region and attract qualified management. To help ensure accountability for the projected financial results of our
potential acquisitions, we typically include the regional manager who would operate 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 five sources:
rail lines of industrial companies, such as Bethlehem Steel Corporation, Mueller Industries, Inc. and
•
Georgia-Pacific Corporation (GP);
branch lines of Class I railroads, such as Burlington Northern Santa Fe Corporation (BNSF) and CSX
Corporation (CSX);
other regional railroads or short line railroads, such as Rail Management Corporation (RMC) and
Emons Transportation Group, Inc. (Emons);
foreign government-owned railroads, such as those in Australia, that have been privatized; and
new rail and infrastructure and/or equipment associated with greenfield industrial and mineral
development, such as potential new mining projects in South Australia.
•
•
•
We believe that additional acquisition opportunities in the United States exist among the more than 500
short line and regional railroads operating approximately 44,500 miles of track, as well as additional lines
expected to be sold or leased by Class I railroads. We also believe that there are additional acquisition candidates
in Australia, Europe, Canada, South America and other markets outside the United States. We believe that we are
well-positioned to capitalize on additional acquisition opportunities.
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OPERATING STRATEGY
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. During 2006, our operations were organized in nine regional businesses,
which we refer to as regions. In the United States, these regions were Illinois, New York/Pennsylvania, Oregon,
Rail Link (which includes industrial switching and port operations in various geographic locations) and Utah.
Outside the United States, these regions were Australia, Canada (which includes certain adjacent properties
located in the United States), Mexico and Bolivia. Effective January 1, 2007, we reconfigured our regions,
resulting in the addition of a tenth, the Southern region, principally consisting of railroads in the southern part of
the United States. We also created the Rocky Mountain region, which includes the former Utah region. 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:
• Focused Regional Marketing. We build each regional rail system on a base of large industrial
customers, seek to 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.
•
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.
• Efficient Use of Capital. We invest in track and rolling stock to ensure that we operate safe railroads to
meet the needs 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 locomotives rather than
purchase new ones and invest in track at levels appropriate for traffic type and density. In addition,
because of the importance of certain of our customers and railroads to the regional economies, we are
able, in some instances, to obtain state and/or federal grants to rehabilitate track. Typically, we seek
government funds to support investments that would not otherwise be economically viable for us to
fund on a stand alone basis.
• Continuous Safety Improvement. We believe that a safe work environment is essential for our
employees and customers and the long-term success of our business. Each year we establish stringent
safety targets as part of our safety program. Through the execution of our safety program, we have
reduced our injury frequency rate from 5.89 injuries per 200,000 man-hours worked in 1998 to 1.95 in
2006.
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INDUSTRY
According to the Association of American Railroads (AAR), there are 560 railroads in the United States
operating over 140,000 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 $319.3 million in revenues, represent
approximately 93% of total rail revenues. Regional and local railroads operate approximately 44,500 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 7% of total rail revenues. We
operate one regional and 41 local (short-line) railroads in the U.S.
The following table shows the breakdown of U.S. railroads by classification.
Classification of Railroads
Number
Class I(1) . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Regional
Local . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . .
7
30
523
560
Aggregate
Miles
Operated
Revenues and Miles Operated
95,664 Over $319.3 million
15,388
29,197 Less than $40.0 million and less than 350 miles operated
$40.0 to $319.3 million and /or 350 or more miles operated
140,249
(1)
Includes CSX Transportation (CSXT), BNSF Railway Co. (BNSF), Norfolk Southern (NS), Kansas City
Southern Railway Company (KCS), and Union Pacific (UP)
Source: Association of American Railroads, Railroad Facts, 2006 Edition.
The railroad industry in the United States has undergone significant change since the passage of the
Staggers Rail Act of 1980 (Staggers Act), which deregulated the pricing and types of services provided by
railroads. Following the passage of the Staggers Act, Class I railroads in the United States took steps to improve
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 core long-haul systems, and
some of them sold branch lines to smaller and more cost-efficient rail operators willing to commit the resources
necessary to meet the needs of the 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 line abandonment.
Although the acquisition market is competitive in the railroad industry, we believe we will continue to find
opportunities to acquire rail properties in the United States and Canada from Class I railroads, industrial
companies and independent local and regional railroads. We also believe we will continue to find additional
acquisition opportunities in markets outside of the United States. For additional information, see the discussion
under “Item 1A. Risk Factors.”
OPERATIONS
As of December 31, 2006, we owned, leased or operated 48 short line and regional freight railroads with
approximately 6,800 miles of track in the United States, Australia, Mexico, Canada and Bolivia. We principally
generate revenues from the haulage of freight by rail over relatively short distances. Freight revenues represented
70.1%, 74.2% and 74.5% of our total revenues in 2006, 2005 and 2004, respectively.
Customers
Our operations served more than 920 customers in 2006. Freight revenue from our 10 largest freight revenue
customers accounted for approximately 24%, 24% and 27% of our revenues in 2006, 2005 and 2004,
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respectively. As of December 31, 2006, four of our ten largest customers operated in the paper and forest
products industry. In 2006, 2005 and 2004, our largest freight revenue customer was a company in the paper and
forest products industry, freight revenue from which accounted for approximately 7% of our revenues in 2006
and 8% of our revenues in both 2005 and 2004. We typically handle freight pursuant to transportation contracts
between us, our connecting carriers and the customer. These contracts are in accordance with industry norms and
vary in duration, with terms ranging from less than one year to 20 years. These contracts establish a price or, in
the case of longer term contracts, a methodology for determining price, but do not typically obligate the customer
to move any particular volume and are not typically linked to the prices of the commodities being shipped.
Commodities
Our railroads transport a wide variety of commodities. Some of our railroads have a diversified commodity
mix while others transport one or two principal commodities. For a comparison of freight revenues, carloads and
average freight revenue per carload by commodity group for the years ended December 31, 2006, 2005 and 2004,
see the discussion under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
Commodity Group Descriptions
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 Metals commodity group consists primarily of scrap metal, finished steel products, coated pipe, slab
and ingots.
The Minerals and Stone commodity group consists primarily of cement, gypsum, gravel and stone used in
construction and salt used in highway ice control.
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 Farm and Food Products commodity group consists primarily of wheat, barley, corn and other grains.
The Chemicals-Plastics commodity group consists primarily of chemicals used in manufacturing,
particularly in the paper industry.
The Petroleum Products commodity group consists primarily of fuel oil.
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.
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Non-Freight Revenues
We generate non-freight revenues primarily through the following activities:
• Railcar switching, which includes:
•
•
intra-plant switching—revenues earned by providing services dedicated to the movement of
railcars within industrial plants and
intra-terminal switching—revenues earned for the movement of customer railcars from one track
to another track on the same railroad.
•
Fuel sales to third parties—revenues earned by GWA in South Australia from the sale of diesel fuel to
other rail operators.
• Car hire and rental services—charges paid by other railroads for use of our railcars.
• Demurrage and storage—charges to customers for holding or storing railcars.
• Car repair services—charges for repairing freight cars owned by others, either under contract or in
accordance with AAR rules.
In 2006, 2005 and 2004, non-freight revenues constituted 29.9%, 25.8% and 25.5%, respectively, of our total
operating revenues with railcar switching representing 46.0%, 50.0% and 51.0% respectively, of total non-freight
revenues. For a comparison of non-freight revenues for the years ended December 31, 2006, 2005 and 2004, see
discussion under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
Reportable Segments
As of and for the year ended December 31, 2006, we reported financial information for two reportable
segments (Railroad Operations Excluding Mexico and Mexico Operations). For financial information with
respect to each of our reportable segments, see Note 17 to our Consolidated Financial Statements set forth in Part
IV, Item 15. of this Annual Report.
Geographic Information
For financial information with respect to each of our geographic areas, see Note 17 to our Consolidated
Financial Statements set forth in Part IV, Item 15. of this Annual Report.
Traffic
Rail traffic shipped on our rail lines can be categorized as interline, local or overhead traffic. Interline traffic
either originates or terminates with customers located along a rail line and is interchanged with other rail carriers.
Local traffic both originates and terminates on the same rail line and does not involve other carriers. 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 and/or from customers located along our rail lines and is less
susceptible to competition from other rail routes or other modes of transportation. In 2006, revenues generated
from interline and local traffic constituted approximately 95% of our freight revenues.
Seasonality of Operations
Typically, we experience relatively lower revenues in the first and fourth quarters of each year as the winter
season and colder weather in North America tend to reduce shipments of certain products such as construction
materials. In addition, due to adverse winter weather conditions, we also tend to incur higher operating costs
during the 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 and inclement weather.
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Employees
As of December 31, 2006, our railroads and industrial switching locations had 2,677 full time employees.
Of this total, 1,154 railroad employees are members of national labor organizations. Our railroads have 37
contracts with these national labor organizations, five of which are currently in negotiations. The Railway Labor
Act (RLA) governs the labor relations of employers and employees engaged in the railroad industry in the United
States. 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. Le Code Canadien du Travail, the Federal Workplace Relations Act
and Junta Federal de Conciliación y Arbitraje govern the labor relations of employers and employees engaged in
the railroad industry in Canada, Australia and Mexico, respectively. The RLA and foreign labor regulations
contain detailed procedures that must be exhausted before a lawful work stoppage may occur. We have also
entered into collective employee bargaining agreements with an additional 71 employees who are not represented
by a national labor organization. We believe our relationship with our employees is good.
SAFETY
Our safety program involves all employees and focuses on the prevention of accidents and injuries.
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 safety committees of the
AAR, governmental and industry sponsored safety programs and the American Short Line and Regional Railroad
Association Safety Committee. Our reportable injury frequency ratio, measured as reportable injuries as defined
by the Federal Railroad Administration (FRA), per 200,000 man hours worked, was 1.95 and 1.99 in 2006 and
2005, respectively.
INSURANCE
We maintain insurance coverage for losses arising from personal injury and for property damage in the
event of derailments or other accidents or occurrences. The liability policies have self-insured retentions of up to
$0.5 million per occurrence. In addition, we maintain excess liability policies that provide supplemental coverage
for losses in excess of primary policy limits. With respect to the transportation of hazardous commodities, our
liability policy covers sudden releases of hazardous materials, including expenses related to evacuation. Personal
injuries associated with grade crossing accidents are also covered under our liability policies. The property
damage policies have self-insured retentions ranging from $0.1 million to $1.0 million, depending on the
category of incident.
Employees of our United States railroads are covered by the Federal Employers’ Liability Act (FELA), a
fault-based system under which claims resulting from injuries and deaths of railroad employees are settled by
negotiation or litigation. FELA-related claims are covered under our liability insurance policies. Employees of
our industrial switching business are covered under workers’ compensation policies.
We believe our insurance coverage is adequate in light of our experience and the experience of the rail
industry.
COMPETITION
Each of our railroads is typically the only rail carrier directly serving our customers; however, our railroads
compete directly with other modes of transportation, principally highway competition from 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 interchanged with 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 highway competition is involved, the effectiveness of that competition is affected by
government policy with respect to fuel and other taxes, highway tolls and permissible truck sizes and weights.
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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, and
more recently with 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 capability. We believe our established reputation as a successful acquirer and operator of
short line rail properties, combined with our managerial and financial resources, effectively positions us to take
advantage of acquisition opportunities.
REGULATION
United States
In addition to environmental laws, securities laws and other regulations generally applicable to many
businesses, our U.S. railroads are subject to regulation by:
•
•
•
•
•
the STB;
the FRA;
federal agencies, including the Department of Homeland Security and Department of Transportation;
state departments of transportation; and
some state and local regulatory agencies.
The STB is the successor to certain regulatory functions previously administered by the Interstate
Commerce Commission (ICC). Established by the ICC Termination Act of 1995, the STB has jurisdiction over,
among other things, certain freight rates (where there is no effective competition), extension or abandonment of
rail lines, the acquisition of rail lines and consolidation, merger or acquisition of control of rail common carriers.
In limited circumstances, the STB may condition its approval of an acquisition upon the acquirer 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.
Canada
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 regulated 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
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province and hold a Certificate of Fitness delivered by a provincial authority. In the Province of Quebec, the
Fitness Certificate is delivered by the Ministère des Transports du 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.
Acquisitions of additional railroad operations in Canada, whether federally or provincially regulated, may
be subject to review under the Investment Canada Act (ICA), a federal statute that applies to the acquisition of a
Canadian business or establishment of a new Canadian business by a non-Canadian. In the case of an acquisition
that is subject to review, a non-Canadian investor must observe a statutory waiting period prior to completion 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.
Any contemplated acquisitions may also be subject to the Competition Act (Canada), which contains
provisions relating to pre-merger notification as well as substantive merger provisions.
Australia
In Australia, regulation of rail safety is generally governed by state legislation and administered by state
regulatory agencies. GWA’s assets are subject to the regulatory regimes governing safety in each of the states in
which it operates. Regulation of track access is governed by overriding federal legislation with state-based
regimes operating in compliance with the federal legislation. As a result, with respect to rail infrastructure access,
GWA’s Australian assets are also subject to state-based access regimes and Part IIIA of the Trade Practices Act
1974.
GWA’s interstate access includes the standard gauge tracks in South Australia, as well as connecting
standard gauge tracks in Victoria and the Northern Territory. 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. Certain parts of this larger standard gauge network that are
not covered by the interstate network are governed by the various state access regimes and the national access
regime.
Mexico
In Mexico, the Secretaria de Comunicaciones y Transporte (SCT) has jurisdiction over, among other things:
•
•
•
•
•
policies and programs related to the railroad system;
the granting of concessions;
the regulation of the concessions and resolution of any issues regarding amendments or terminations to
the concessions;
the regulation of tariff application; and
the imposition of sanctions when operators have not complied with the terms of a concession.
Our Mexican railroad operation, Compañía de Ferrocarriles Chiapas-Mayab, S.A. de C.V. (FCCM), is also
subject to the Mexican Foreign Investments Law, the Federal Law of Economic Competition and the Law of
Railway Services. The Foreign Investments Law governs the ownership of Mexican railroads by foreign entities
while the Law of Economic Competition is an antitrust statute. The Law of Railway Services regulates the
construction and maintenance of rail lines and rights of way and related operations, interconnection services and
auxiliary services.
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ENVIRONMENTAL MATTERS
Our operations are subject to various federal, state, provincial and local laws and regulations relating to the
protection of the environment. In the United States, these environmental laws and regulations, which are
implemented principally by the Environmental Protection Agency and comparable state agencies, govern the
management of hazardous wastes, the discharge of pollutants into the air and into surface and underground
waters and the manufacture and disposal of certain substances. Similarly, in Canada, these functions are
administered at the federal level by Environment Canada and the Ministry of Transport and comparable agencies
at the provincial level. In Mexico, these functions are administered at the federal level by the Secretary of
Environment, Natural Resources and Fisheries and the Attorney General for Environmental Protection and by
comparable agencies at the state level. In Australia, these functions are administered primarily by the Department
of Transport at the federal level and by environmental protection agencies at the state level.
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 concession agreement, the federal railway
company remains responsible for remediation of all contamination that occurred prior to the execution date of the
concession agreement.
The Commonwealth of Australia has acknowledged that certain portions of the leasehold and freehold land
acquired from them contain contamination arising from activities associated with previous operators. The
Commonwealth has carried out certain remediation work to meet existing South Australian environmental
standards.
There are no material environmental claims currently pending or, to our knowledge, threatened against us or
any of our railroads. In addition, we believe our railroads operate in material compliance with current
environmental laws and regulations. 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.
AVAILABLE INFORMATION
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
website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all
amendments to those reports as soon as reasonably practicable after those materials are electronically filed with
or furnished to the SEC. Also, filings made pursuant to Section 16 of the Exchange Act with the SEC by our
executive 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 corporate governance guidelines and our Code of Ethics. Our Code of Ethics
applies to all directors, officers and employees, including our chief executive officer, our chief financial officer,
our principal accounting officer and our controller. We will post any amendments to the Code of Ethics, and any
waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange, Inc.
(NYSE), on our Internet website.
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 information regarding issuers that file electronically. The
SEC website address is www.sec.gov.
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.
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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 that are filed or furnished with the
SEC.
GENERAL RISKS ASSOCIATED WITH OUR BUSINESS
If we are unable to consummate additional acquisitions or investments, we may not be able to implement our
growth strategy successfully.
Our growth strategy is based to a large extent 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:
•
•
•
•
•
the availability of suitable opportunities;
the level of competition from other companies that may have greater financial resources;
our ability to value acquisition and investment candidates accurately and negotiate acceptable terms for
those acquisitions and investments;
our ability to identify and enter into mutually beneficial relationships with venture partners; and
the availability of management resources to oversee the integration and operation of the new
businesses.
If we are not successful in implementing our growth strategy, the market price for our Class A Common
Stock may be adversely affected.
We may need additional capital to fund our acquisitions. If we are unable to obtain additional capital, we may
be required to forego potential acquisitions, which would impair the execution of our growth strategy.
Since 1996, we have acquired interests in 42 railroads, the majority of which were for cash. As of
December 31, 2006, we had undrawn revolver capacity of $224.8 million and $154.2 million of cash and cash
equivalents available for acquisitions or other activities, net of approximately $86.0 million of taxes payable to
the Australian government in 2007 related to the ARG Sale. We intend to continue to review acquisition
candidates and potential purchases of railroad assets and to attempt to acquire companies and assets that meet our
investment criteria. We expect that, as in the past, we will pay cash for some or all of the purchase price of any
acquisitions or purchases that we make. Depending on the number of acquisitions or purchases and the prices
thereof, 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 convertible debt securities, the issuance of such securities could
result in dilution of our existing stockholders. If we raise additional funds through the issuance of debt securities,
the terms of such debt could impose additional restrictions and costs on our operations. Additional capital, if
required, may not be available on acceptable terms or at all. If we are unable to obtain additional capital, we may
be required to forego potential acquisitions, which could impair the execution of our growth strategy.
Our inability to integrate acquired businesses successfully or to realize the anticipated cost savings and other
benefits could have adverse consequences to our business.
We have experienced significant growth through acquisitions and we expect to continue to grow through
additional acquisitions. Acquisitions generally result in increased operating and administrative costs and, to the
extent financed with debt, additional interest costs. We may not be able to manage or integrate the acquired
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companies or businesses successfully. The process of combining acquired businesses may be disruptive to our
business and may cause an interruption or reduction of our business as a result of the following factors, among
others:
•
•
•
•
•
•
loss of key employees or customers;
possible inconsistencies in or conflicts between standards, controls, procedures and policies among the
combined companies and the need to implement company-wide financial, accounting, information
technology and other systems;
failure to maintain the quality of services that have historically been provided;
integrating employees of rail lines acquired from Class I railroads, governments or other entities into
our regional railroad culture;
failure to coordinate geographically diverse organizations; and
the diversion of management’s attention from our day-to-day business as a result of the need to manage
any disruptions and 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
enhancements 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, operating
costs and competitive factors, many of which are beyond our control and may not materialize. While we believe
these analyses and their underlying assumptions to be reasonable, they are estimates that are necessarily
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 or problems in the business
unrelated to these acquisitions.
Many of our recent 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 taken 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 acquired companies may not be sufficient to protect us from or compensate us for, actual liabilities. In
connection with our GP Railroads and Rail Partners acquisitions, most of the representations made by the sellers,
other than certain representations related to fundamental matters, such as ownership of capital stock, have
expired, in the case of GP, or will expire on or before June 2008, in the case of Rail Partners. A material liability
associated with an acquisition, especially where there is no right to indemnification, could adversely affect our
financial condition and operating results.
Because we depend on Class I railroads and other connecting carriers for a majority of our operations, our
operating results, financial condition and liquidity may be adversely affected if our relationships with these
carriers deteriorate.
The railroad industry in the U.S. and Canada is dominated by seven Class I carriers that have substantial
market control and negotiating leverage. In 2006, approximately 82% of our total carloads were interchanged
with Class I carriers. A decision by any of these Class I carriers to use alternate modes of transportation, such as
motor carriers, or to cease certain freight movements, could have a material adverse effect on our operating
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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 and freight movements were affected.
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, fuel surcharges, car supply, reciprocal switching, interchange and trackage rights.
Deterioration in the operations 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.
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 rail operators. We lease several railroads
from Class I carriers under long-term lease arrangements, which collectively accounted for approximately 10%
of our 2006 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
properties, 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.
Of our 2006 Mexican revenues, approximately 60% originated and terminated on FCCM’s railroad, while
the remaining approximately 40% of revenue depended on FCCM’s relationship with Ferrosur S.A. de C.V.
(Ferrosur), the connecting carrier. To the extent that we experience service or other commercial disruptions with
Ferrosur, our ability to serve existing customers and expand our business will suffer. In November 2005, Grupo
Mexico, the majority owner of Ferrocarril Mexicano S.A. de C.V. (Ferromex), which is one of the largest
railroads in Mexico and principally operates in the northern and western parts of Mexico, announced that it
intended to acquire Ferrosur. The transaction is facing a legal challenge 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 eastern part of Mexico, has commenced legal
proceedings to prevent the transaction from closing. We are still evaluating 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. For additional information on our Mexico
Operations, see the discussion under “Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Overview—Mexico.”
On January 26, 2007, the STB issued a final rule on fuel surcharges that may adversely affect our revenues.
On January 26, 2007, the STB issued final rules governing fuel surcharges that require freight railroads to
change the methodologies used to impose fuel surcharges on shippers. The final rule provides that computing
fuel surcharges as a percentage of the base rate for transportation is an unreasonable practice because it does not
account for factors (such as mileage and weight) that correlate more closely with the amount of fuel actually
consumed. In addition, the final rule prohibits railroads from applying to the same movement both a fuel
surcharge and a rate increase based on a cost index that includes a fuel cost component. The new rule does not
apply to exempt traffic or traffic moving under contract. Freight railroads have until April 26, 2007, to modify
their fuel surcharge practices accordingly. In the United States and Canada, through our contractual relationships
with certain Class I railroads, we are partially compensated for increases in fuel costs through fuel surcharges.
The new rule may reduce the fuel surcharges shared with us by Class I railroads, which could have a material
adverse effect on our operating results, financial condition and liquidity.
Our operations are dependent on our ability to obtain railcars and locomotives from other providers.
In 2006, approximately 66% of our railcars were leased. If the number of available railcars 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 in locomotives.
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We face competition from numerous sources, including those relating to geography, substitute products, other
types of transportation and other rail operators.
Each of our railroads is typically the only rail carrier directly serving our customers. Our railroads, however,
compete directly with other modes of transportation, principally motor carriers and, on some routes, ship, barge
and pipeline operators. 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
providing 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
transported by rail. In either case, we would lose a source of revenues, which could have a material adverse 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 82% 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 legislation granting materially greater latitude for
other modes of transportation could have a material adverse effect on our operating results, financial condition
and liquidity.
It is difficult to quantify the potential impact of competition on our business, since not only each customer,
but also each customer location and each product shipped from such location is subject to different types of
competition.
We are subject to significant governmental regulation of our railroad operations. The failure to comply with
governmental regulations could have a material adverse effect on our operating results, financial condition
and liquidity.
We are subject to governmental regulation with respect to our railroad operations and a variety of health,
safety, security, labor, environmental and other matters by a significant number of federal, state and local
regulatory authorities. In the U.S., these agencies include the STB, the FRA, federal agencies (including the
Department of Homeland Security and the Department of Transportation) and state departments of
transportation. In Australia, we are subject to both Commonwealth and state regulations. Our failure to comply
with applicable laws and regulations could have a material adverse effect on our operating results, financial
condition and liquidity. In addition, 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 liquidity. Also, some of the regulations require us to obtain and maintain various licenses,
permits and other authorizations, and we may not continue to be able to do so.
We could incur significant costs for violations of or liabilities under, environmental laws and regulations.
Our railroad operations and real estate ownership are subject to extensive foreign, federal, state and local
environmental laws and regulations concerning, among other things, emissions to the air, discharges to waters,
the handling, storage, transportation and disposal of waste and other materials and cleanup of hazardous 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,
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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 obligations. 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.
Some of our employees belong to labor unions, and strikes or work stoppages could adversely affect our
operating results, financial condition and liquidity.
We are a party to collective bargaining agreements with various labor unions in the United States, Mexico,
Australia, Canada and Bolivia. We are party to 37 contracts with national labor organizations. We are currently
engaged in negotiations with respect to five of those agreements. We have also entered into employee bargaining
agreements with an additional 71 employees who represent themselves. GWA has a collective enterprise
bargaining agreement covering the majority of its employees. Our inability to negotiate acceptable contracts with
these unions could result in, among other things, strikes, work stoppages or other slowdowns by the affected
workers. If the unionized workers were to engage in a strike, work stoppage or other slowdown or other
employees were to become unionized or the terms and conditions in future labor agreements were renegotiated,
we could experience a significant disruption 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 interruptions may be threatened, which could cause customers to seek
other transportation alternatives, with a corresponding adverse financial impact.
If we are unable to employ a sufficient number of skilled workers, our operating results, financial condition
and liquidity may be materially adversely affected.
We believe that our success depends upon our ability to employ and retain skilled workers that possess the
ability to operate and maintain our equipment and facilities. The operation and maintenance of our equipment
and facilities involve complex and specialized processes and often must be performed in harsh conditions,
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 2004, our annual
average number of employees has increased 28.4% from 2,038 to 2,617 for 2006. Within the next five years, we
estimate approximately 12% of the current workforce will become eligible for retirement. Approximately three-
fourths 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 impaired, each of which could have a material adverse effect on our operating results, financial
condition and liquidity.
As a common carrier by rail, we are required to transport hazardous materials, regardless of risk.
Transportation of certain hazardous materials could create catastrophic losses in terms of personal injury
and property damage costs and compromise critical parts of our railroads. Legislation introduced in Congress in
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early 2005 would give federal regulators increased authority to conduct investigations and levy substantial fines
and penalties in connection with railroad accidents. Federal regulators also would be required to prescribe new
regulations governing railroads’ transportation of hazardous materials. If enacted, such legislation and
regulations could impose significant additional costs on railroads. Additionally, regulations adopted by the
Department of Transportation and the Department of Homeland Security could significantly increase the costs
associated with moving hazardous materials on our railroads. Further, certain local governments have sought to
enact ordinances banning hazardous materials moving by rail within their borders. Some legislators have
contemplated pre-notification requirements for hazardous materials shipments. If promulgated, such ordinances
could require the re-routing of hazardous materials shipments, with the potential for significant additional costs.
Increases in our costs could materially adversely affect our operating results, financial condition and liquidity.
The occurrence of losses or other liabilities that are not covered by insurance or that exceed our insurance
limits could materially adversely affect our operating results, financial condition and liquidity.
We have obtained for each of our railroads insurance coverage for losses arising from personal injury and
for property damage in the event of derailments or other accidents or occurrences. On certain of the rail lines
over which we operate, freight trains are commingled with passenger trains. Unexpected or catastrophic
circumstances such as accidents involving passenger trains or spillage of hazardous materials could cause our
liability to exceed our insurance limits. Insurance is available from only a very limited number of insurers, and
we may not be able to obtain insurance protection at our current levels or obtain it on terms acceptable to us. In
addition, subsequent adverse events directly and indirectly applicable to us may result in additional increases in
our insurance premiums and/or our self insured retentions and could result in limitations to the coverage under
our existing policies. The occurrence of losses or other liabilities that are not covered by insurance or that exceed
our insurance limits could materially adversely affect our operating results, financial condition and liquidity.
Rising fuel costs could materially adversely affect our operating results, financial condition and liquidity.
Fuel costs constitute a significant portion of our total operating expenses. Fuel costs for fuel used in
operations were 10.4% and 12.2% of our operating expenses for the years ended December 31, 2006 and 2005,
respectively. Fuel prices and supplies are influenced by factors beyond our control, such as international political
and economic circumstances. In the United States and Canada, through certain of our contractual relationships
with certain Class I railroads, we are partially compensated for increases in fuel costs through fuel surcharges. If
Class I railroads change their policies regarding fuel surcharges, 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 materially adversely affect our operating results, financial condition and liquidity.
The expiration of the short line tax credit on January 1, 2008, could materially adversely affect our effective
tax rate.
On October 22, 2004, the American Jobs Creation Act (P. L. 108-357) was signed into law. The Act
provides a tax credit for Class II and Class III railroads against their federal income tax based on qualified
railroad track maintenance expenditures (the “Short Line Tax Credit”). Qualified expenditures include amounts
incurred for maintaining track, including roadbed, bridges, and related track structures owned or leased by a
Class II or III railroad. The credit is equal to 50% of the qualified expenditures, subject to an annual limitation of
$3,500 multiplied by the number of miles of railroad track owned or leased by the Class II or Class III railroad as
of the end of their tax year. The Short Line Tax Credit is applicable to tax years beginning after December 31,
2004, and before January 1, 2008, which includes calendar years 2005, 2006 and 2007. In 2006 and 2005, the
Short Line Tax Credit lowered our effective tax rate by 4.8% and 9.0%, respectively. If the Short Line Tax Credit
is not extended and expires, the loss of the credit could have a material adverse effect on our effective tax rate
and our reported earnings per share.
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The loss of important customers or contracts may adversely affect our operating results, financial condition
and liquidity.
Our operations served more than 920 customers in 2006. Freight revenue from our 10 largest freight revenue
customers accounted for approximately 24% of our revenues in 2006. As of December 31, 2006, four of our 10
largest customers operated in the paper and forest products industry. In 2006, our largest freight revenue
customer was a company in the paper and forest products industry, freight revenue from which accounted for
approximately 7% of our revenues in 2006. We typically handle freight pursuant to transportation contracts
between us, our connecting carriers and the customer. These contracts are in accordance with industry norms and
vary in duration. These contracts establish price or, in the case of longer term contracts, a methodology for
determining price, but do not typically obligate the customer to move any particular volume and are not typically
linked to the prices of the commodities being shipped. In addition, GWA’s largest freight customer, AWB
Limited (AWB), is the subject of a government investigation and may lose its exclusive exporter status. If AWB
loses its sole exporter status, under certain circumstances, it has the right to re-negotiate the terms of the
contracts with GWA, which could affect our operating results, financial condition and liquidity. Substantial
reduction in business with or loss of important customers or contracts could materially adversely affect our
operating results, financial condition and liquidity.
Our results of operations are susceptible to downturns in the general economy.
In any given year, we, like other railroads, are susceptible to changes in the economic conditions of the
industries and geographic areas that produce and consume the freight we transport. In addition, many of the
goods and commodities carried by us experience cyclicality in their demand. Our results of operations can be
expected to reflect this cyclicality, and because of the significant fixed costs inherent in railroad operations the
impact could be material. Should an economic slowdown or recession occur in the countries in which we operate,
the volume of rail shipments carried by us is likely to be affected.
Our results of operations are susceptible to severe weather conditions and other natural occurrences.
We are susceptible to adverse weather conditions, including floods, fires, hurricanes, droughts, earthquakes
and other natural occurrences. For example:
• Mexico’s revenues were reduced in 2006 and 2005 as a result of the impact of Hurricane Stan.
• Our minerals and stone revenues, which include salt, may be reduced by mild winters in the
northeastern United States, which lessens demand for road salt.
• Our coal, coke and ores revenue may be reduced by mild winters in the United States, which lessens
demand for coal.
• GWA’s revenues are expected to be reduced in 2007 as a result of the impact of drought conditions on
the South Australia grain harvest in 2006.
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, GWA derives a significant portion of its rail freight revenues from shipments of grain. For the year
ended December 31, 2006, grain shipments generated approximately 24% of GWA’s operating revenues. A
decrease in grain shipments as a result of adverse weather or other negative agricultural conditions could have a
material adverse effect on GWA’s operating results, financial condition and liquidity.
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 customers or
connecting carriers to reduce or suspend their operations, which could have a material adverse effect on our
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results of operations, financial condition and liquidity. Furthermore, our expenses could be adversely impacted
by weather, including, for example, higher track maintenance and overtime costs in the winter in our New York/
Pennsylvania and Canada Regions or possible track repairs related to washouts in Mexico during its rainy season.
Certain of our capital projects may be impacted by our relationships with government entities.
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 2006, we obtained funds
for 27 separate projects, which were partially funded by federal, state and municipal agencies. These funds
represented approximately 9% of our total capital expenditures during 2006. Government funding for our
projects is limited, and there is no guarantee that budget pressure at the federal, state and local level or changing
governmental priorities will not eliminate future funding availability. In addition, competition for government
funding from other short line railroads, Class I railroads 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 obligations
on our operations, such as compliance with prevailing wage requirements.
Our credit facilities contain numerous covenants that impose certain restrictions on the way we operate our
business.
Our credit facilities contain numerous covenants that impose restrictions on our ability to, among other
things:
•
•
incur additional debt;
create liens on our assets;
• make certain types of investments;
•
repurchase shares or pay dividends;
• make expenditures for capital projects;
• merge or consolidate with others;
• make asset acquisitions other than in the ordinary course of business;
•
•
•
dispose of assets or use asset sale proceeds;
enter into sale and leaseback transactions; and
enter into transactions 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
lenders to foreclose on our assets.
Acts of terrorism or anti-terrorism measures may adversely affect us.
Our rail lines, port operations and other facilities and equipment, including rail cars carrying hazardous
materials that we are required to transport under federal law as a common carrier, 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.
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We may be subject to various claims and lawsuits that could result in significant expenditures.
The nature of our business exposes us to the potential for various claims and litigation related to labor and
employment, personal injury, freight loss and other property damage and other matters. For example, U.S.
job-related personal injury and occupational claims are subject to the Federal Employers’ Liability Act (FELA),
which is applicable only to railroads. FELA’s fault-based tort system produces results that are unpredictable and
inconsistent as compared with a no-fault worker’s compensation system. The variability inherent in this system
could result in actual costs being very different from the liability recorded.
Any material changes to current litigation trends or a catastrophic rail accident involving any or all of
freight loss or property damage, personal injury and environmental liability could have a material adverse effect
on our operating results, financial condition and liquidity to the extent not covered by insurance. We have
obtained commercial insurance for potential losses for third-party liability and first-party property
damages. Specified levels of risk are retained by us. Insurance is available from a limited number of insurers and
may not continue to be available or, if available, may not be obtainable on terms acceptable to us.
ADDITIONAL RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS
We are subject to the risks of doing business in foreign countries.
Some of our significant subsidiaries transact business in foreign countries, namely in Australia, Canada and
Mexico, and we have an equity investment in 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:
•
•
•
•
•
•
•
•
•
•
•
adverse renegotiation or modification of existing agreements or arrangements with governmental
authorities;
adverse changes or greater volatility in the economies of those countries;
adverse effects of currency exchange controls;
adverse currency movements that make goods produced in those countries that are destined for export
markets less competitive;
adverse changes to the regulatory environment of those countries;
adverse changes to the tax laws and regulations of those countries;
restrictions on the withdrawal of foreign investment and earnings;
the nationalization of the businesses that we operate, such as threatened nationalization in Bolivia;
the actual or perceived failure by us to fulfill commitments under concession agreements;
the potential instability of foreign governments, including from domestic insurgency; and
the challenge of managing a culturally and geographically diverse operation.
We may incur additional losses associated with the damage to our Mexican railroad caused by Hurricane
Stan.
In October 2005, our Mexican railroad operation, FCCM was struck by Hurricane Stan with the most severe
impact concentrated in the State of Chiapas between the town of Tonalá and the Guatemalan border.
Approximately 70 bridges were damaged or destroyed, and various segments of track were washed out, rendering
portions of the rail line inoperable absent reconstruction. As of September 30, 2006, the government had not
committed adequate resources to fund the reconstruction project, and we did not intend to fund the project
ourselves. Accordingly, we recorded a non-cash charge of $33.1 million pre-tax ($34.1 million after-tax) in the
third quarter of 2006, reflecting the write-down of non-current assets and related effects of FCCM. As of
December 31, 2006, FCCM’s remaining $19.6 million of assets consisted of approximately $6.7 million of non-
current assets,
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primarily locomotives and freight cars, and approximately $12.8 million of current assets, primarily receivables
and inventory. We are uncertain as to whether sufficient funds will be available from the Mexican government to
fund the reconstruction of the damaged rail line. In addition, we are obligated under a guarantee arrangement of
$7.0 million in the event that our Mexican subsidiary, GW Servicios S.A., is unable to fund future debt payments
and its lenders accelerate the outstanding debt, $13.3 million as of December 31, 2006, and demand immediate
payment under the guarantee. We expect to continue to incur operating losses from the Mexican business and
may record additional charges going forward, which could affect our operating results, financial condition and
liquidity.
For additional information on our Mexican operations, see the discussion under “Management’s Discussion
and Analysis of Financial Condition and Results of Operations—Overview—Mexico.”
Because some of our significant subsidiaries and affiliates transact business in foreign currencies and
because a significant portion of our net income comes from the operations of our foreign subsidiaries, future
exchange rate fluctuations may adversely affect us and may affect the comparability of our results between
financial periods.
Our operations in Australia, Canada and Mexico accounted for 9.7%, 11.6% and 5.9% of consolidated
operating revenues, respectively, for the year ended December 31, 2006. The results of operations of our foreign
entities 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 of operations. The exchange rates between these currencies and the U.S. dollar have fluctuated
significantly in recent years and may continue to do so in the future. For instance, in the year ended
December 31, 2006, the Canadian dollar appreciated 6.8% relative to 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
periods.
Failure to meet concession commitments with respect to operations of our rail lines could result in the loss of
our investment and a related loss of revenues.
We have entered into long-term concession and/or lease agreements with governmental authorities in
Mexico, Bolivia and South Australia. These concession and lease agreements are subject to a number of
conditions, including those relating to the maintenance of certain standards with respect to safety, service, price
and the environment. These concession and lease agreements also typically carry with them a commitment to
maintain the condition of the railroad and to make a certain level of capital expenditures. Our failure to meet
these commitments under the long-term concession and lease agreements could result in the loss of those
concession or lease agreements. The loss of any concession or lease agreement could result in the loss of our
entire investment relating to that concession or lease agreement and the related revenues and income.
Australia’s open access regime could lead to additional competition for GWA’s business and decreased
revenues and profit margins.
Australia’s open access regime could lead to additional competition for GWA’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 GWA’s railway infrastructure and in turn governs GWA’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 GWA
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pays access fees to others, if those fees were increased, GWA’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 GWA did not meet
competitive standards, then GWA’s income from those fees could be negatively affected.
When GWA operates over track networks owned by others, including Commonwealth-owned and State-
owned networks, the owners of the network rather than the operators are responsible for scheduling the use of the
tracks as well as for determining the amount and timing of the expenditures necessary to maintain the network in
satisfactory condition. Therefore, in areas where GWA 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 GWA.
GWA is subject to several contractual restrictions on its ability to compete.
GWA is 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 historically 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 affiliate in Bolivia, currently has
interests in 48 short line and regional freight railroads, of which 42 are located in the United States, three are
located in Canada, one is located in Australia, one is located in Mexico and one is located in Bolivia. These rail
properties typically consist of the track and the underlying land. Real estate adjacent to the railroad rights-of-way
is generally retained by the sellers, and our holdings of such real estate are not material. Similarly, the seller
typically retains mineral rights and rights to grant fiber optic and other easements in the properties acquired by
us. Several of our railroads are operated under leases or operating licenses in which we do not assume ownership
of the track and the underlying land.
Our railroads operate over approximately 6,800 miles of track that is owned, jointly-owned or leased by us
or our affiliate. We also operate, through various trackage rights agreements, over more than 3,700 miles of track
that is owned or leased by others. The track miles listed below exclude 855 miles of sidings and yards located in
the U.S. (626 miles), Canada (87 miles), Mexico (77 miles) and Australia (65 miles).
The following table sets forth certain information as of December 31, 2006, with respect to our and our
affiliate’s railroads:
Railroad and Location
UNITED STATES:
Genesee and Wyoming Railroad Company
(GNWR) New York
The Dansville & Mount Morris Railroad Company
(DMM) New York
Rochester & Southern Railroad, Inc.
(RSR) New York
Year
Acquired
Track
Miles Notes
Structure
Connecting Carriers(1)
(2)
Owned
CP, DMM, RSR, NS, CSX
(2)
Owned
GNWR
(3)
Owned
BPRR, CP, GNWR, CSX
1899
1985
1986
27
8
50
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Railroad and Location
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
Year
Acquired
Track
Miles Notes
Structure
Connecting Carriers(1)
1987
1988
86
4
(4)
Owned/Leased UP, BNSF
(5)
Owned
BPRR
1988
331
(6)
Owned/Leased ALY, BR, CN, CP, CSX, NS,
PS, RSR, AVR, SB
1992
128
(7)
Owned
BPRR, NS, CSX
1993
184
(8)
Leased
UP, PNWR, HLSC
1995
287
(9)
Owned/Leased BNSF, UP, WPRR, POTB
1996
160
(10)
Owned/Leased BPRR, NS
1996
97
(11)
Owned
BNSF, IAIS, CN, NS, TZPR,
TPW, UP
1996
17
(12)
Owned/Leased NS
Talleyrand Terminal Railroad Company, Inc.
(TTR) Florida
1996
2
(13)
Leased
NS, CSX
Corpus Christi Terminal Railroad, Inc.
(CCPN) Texas
Golden Isles Terminal Railroad, Inc.
(GITM) Georgia
Savannah Port Terminal Railroad, Inc.
(SAPT) Georgia
South Buffalo Railway Company
(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
1997
1998
1998
2001
23
20
18
54
(14)
Leased
UP, BNSF, TM
(15)
Owned/Leased CSX, NS
(16)
Leased
CSX, NS
(17)
Owned
BPRR, CSX, NS CP, CN
2002
168
(18)
Owned/Leased GRS, SLQ
2002
42
(18)
Owned
CSX, NS
2002
47
(19)
Owned
UP, BNSF
2002
2
(20)
Owned
UP, BNSF
2003
15
(21)
Owned
CSX, NS, CHAT
Arkansas Louisiana and Mississippi Railroad Company
(ALM) Arkansas, Louisiana
2003
53
(21)
Owned
UP, KCS, F&P
Fordyce and Princeton R.R. Co.
(F&P) Arkansas
Tazewell & Peoria Railroad, Inc.
(TZPR) Illinois
First Coast Railroad Inc.
(FCRD) Florida, Georgia
AN Railway, L.L.C.
(AN) Florida
(21)
Owned
UP, KCS, ALM
(22)
Leased
CN, UP, NS, BNSF, TPW,
IAIS, IMRR
(23)
Leased
CSXT, SM
(24)
Leased
CSX
2003
2004
2005
2005
57
24
32
96
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Railroad and Location
Atlantic & Western Railway, L.P.
(ATW) North Carolina
The 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
Chattahoochee Bay Railroad, Inc.
(CHAT) Georgia
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:
Genesee & Wyoming Australia Pty Ltd
(GWA)
BOLIVIA (Minority Investment):
Ferroviaria Oriental, S.A.
(Oriental)
Year
Acquired
Track
Miles Notes
Structure
Connecting Carriers(1)
2005
11
(24)
Owned
CSX, NS
2005
108
(24)
Owned
CSX, CHAT
2005
14
(24)
Owned/Leased CSX, NS
2005
6
(24)
Owned
2005
38
(24)
Leased
BNSF, UP
2005
171
(24)
Owned/Leased CSX, NS
2005
69
(24)
Owned
CSX
2005
79
(24)
Owned
BNSF, UP
2005
148
(24)
Owned/Leased CSX, KCS, NS, AGR
2005
18
(24)
Leased
CSX
2005
6
(24)
Owned
CN
2005
10
(24)
Owned
CSX, NS
2005
21
(24)
Owned
CSX
2005
17
(24)
Leased
CSX
2006
26
(25)
Owned
BAYL, NS, CIRR
1997
173
(26)
Leased
CP, CN
1997
313
(27)
Owned/Leased CP, CN
2002
95
(18)
Owned
CP, CN, MMA, SLR
1999
998
(28)
Leased
FSRR
2006
791
(29)
Leased
2000
773
(30)
Leased
General Belgrano, Novoeste
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(1) See Legend of Connecting Carriers following this table.
(2) The GNWR and DMM are now operated by RSR.
(3)
(4)
In addition, RSR has a haulage contract over 52 miles of CP.
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.
In addition, BR operates by trackage rights over 14 miles of BPRR. BR merged with BPRR on January 1, 2004.
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.
(5)
(6)
(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
(9)
(10)
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.
Includes 59 miles under lease with UP expiring in 2015 with a 10-year renewal unless terminated by either party, 56 miles formerly
under lease which was purchased in November 1997 and is operated under a rail service easement, 92 miles purchased in July 1997 and
76 miles under lease 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.
In addition, PS operates over 11 miles pursuant to an operating contract. PS merged with BPRR on January 1, 2004. In 2005, we sold
approximately 30 miles of owned track that duplicates service provided by BPRR.
In addition, IMR operates by trackage rights over 15 miles of CN, 9 miles of TZPR and 6 miles of UP.
(11)
(12) Exercised an option to purchase 12.5 miles of previously leased rail line from Norfolk Southern Corp. on August 25, 2006.
(13) All under lease with Jacksonville Port Authority expiring in 2007.
(14) All under lease with Port of Corpus Christi Authority of Nueces County Texas expiring in 2007. If the lease terminates, the lessor is
(15)
obligated to reimburse us for leasehold improvements based upon stipulations in the agreement.
Includes 13 miles which are under lease with Georgia Port Authority expiring in 2010. 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 2010. 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 349 miles of UP.
(20) Subsidiary of Utah Railway Company, acquired August 28, 2002. In addition, SLCS operates by trackage rights over 34 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 Wilmington,
NC.
(25) CHAT purchased the Chattahoochee & Gulf Railroad Co., Inc. and the H&S Railroad Company, Inc. on August 25, 2006 from Gulf &
Ohio Railways.
(26) All under lease with CP expiring in 2017, with renewal options subject to both parties’ consent.
(27) Consists of 295 miles which are owned and 18 miles which are under lease expiring in 2017, with renewal options subject to both
parties’ consent. In addition, QGRY operates by trackage rights over 27 miles of CP.
(28) 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.
(29) Acquired a 50-year lease from South Australia, which expires in 2047.
(30) All under a 40-year concession agreement expiring in 2036 operating on track structure which is owned by the state-owned rail
company Red Ferroviario Oriental.
Legend of Connecting Carriers
AVR Allegheny Valley Railroad
BNSF Burlington Northern Santa Fe Railway Company
Canadian National
CN
CP
Canadian Pacific Railway
CSX CSX Transportation, Inc.
FSRR Ferrocarriles del Sureste
GRS Guilford Rail System
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HLSC Hampton Railway
IAIS Iowa Interstate Railroad, Ltd.
KCS Kansas City Southern
Norfolk Southern Corp.
NS
POTB Port of Tillamook Bay Railroad
SM St Mary’s Railroad
TM The Texas Mexican Railway Company
TPW Toledo, Peoria & Western Railway Corp.
UP
Union Pacific Railroad Company
MMA Montreal, Maine & Atlantic Railway, Ltd.
AGR Alabama & Gulf Coast Railway LLC
EQUIPMENT
As of December 31, 2006, the rolling stock of our operations consisted of 519 locomotives, of which 453
were owned and 66 were leased, and 8,464 freight cars, of which 2,846 were owned and 5,618 were leased. A
breakdown of the types of freight cars owned and leased is set forth in the table below.
Rail Cars by Car Type:
Box . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hoppers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Flats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gondolas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covered Hoppers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tank Cars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auto Racks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Owned
Leased
882
507
443
579
390
32
13
2,846
2,708
1,512
595
342
163
285
13
5,618
Totals
3,590
2,019
1,038
921
553
317
26
8,464
Item 3.
Legal Proceedings
Rail Partners. As previously disclosed, on February 23, 2006, James Owens d/b/a International Trade and
Transport, Ltd. (Owens) and the Board of Trustees of the Port of Galveston (the Port) filed the second amended
complaint in the County Court for Galveston County (County Court) in Texas against Genesee & Wyoming Inc.
(the Company), Galveston Railroad, L.P. (Galveston Railroad), Rail Link Inc. (Rail Link), the general manager
of the Galveston Railroad and Rail Management Corporation (RMC), the former owner of the Galveston
Railroad (collectively, the Defendants). Owens’ claims arose in connection with a rail car switching agreement
with the Galveston Railroad, and the Port’s claims arose in connection with the Galveston Railroad’s lease of the
Port’s facilities.
On August 11, 2006, the Defendants entered into a Settlement Agreement (the Settlement Agreement) with
the Port. Without admitting any liability, the Defendants agreed to settle the Port’s pending claims against the
Defendants in the County Court. In connection with the Agreement, we agreed to pay $0.8 million to the Port,
which was reflected as an expense in the statement of operations for the year ended December 31, 2006. Our
subsidiary, Galveston Railroad, has also entered into a new lease with the Port, which lease has a twenty
(20) year term.
Owens is not a party to the Settlement Agreement, and Owens’ claims against the Defendants remain
unchanged. Owens alleges that Galveston Railroad violated the confidentiality agreement relating to the joint
storage and switching of rail cars at the Port and thereby caused the failure of his business. Owens seeks damages
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for breach of contract and commercial tort claims, plus an amount to be determined for punitive and similar
damages. On March 8, 2006, Owens filed a Motion for Partial Summary Judgment with respect to claims that
Galveston Railroad and RMC breached a contractual obligation of confidentiality in November 2002. On
April 20, 2006, the County Court held a hearing in connection with Owens’ Motion, and on April 27, 2006, the
County Court issued an order granting Owens’ Motion, finding that there was a breach of the contractual
obligation of confidentiality by Galveston Railroad and RMC. Issues related to whether this breach was the
proximate cause of any damages and the amount of such damages, if any, remain the subject of further litigation.
We acquired the Galveston Railroad in June of 2005 as part of our acquisition of Rail Partners and all of the
improper conduct alleged by Owens occurred prior to our acquisition of the Galveston Railroad. Pursuant to the
securities purchase agreement related to our purchase of the Galveston Railroad, damages associated with
Owens’ claims are subject to indemnification by RMC and the securities purchase agreement requires RMC to
maintain certain funds in escrow, which we believe will cover our actual damages, if any. RMC has
acknowledged that it is obligated to indemnify us in accordance with and subject to the terms and limits as set
forth in the securities purchase agreement.
Canada. On February 2002, Mr. Paquin, an individual living adjacent to the Outremont rail yard, filed a
motion for authorization 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 Canadian Pacific Railways (CP). Mr. Paquin alleged that the noise emanating
from the Outremont rail yard causes significant nuisance problems to the residents living 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 Montreal, which is adjacent to 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.
On May 18, 2006, the Supreme Court of Canada rendered its decision, rejected the application for leave and
remanded the matter back to the Quebec Superior Court, where the class action will be heard in accordance with
the ruling of the Quebec Court of Appeal. The plaintiff published notices of the class action in local newspapers
on June 7, 2006. On June 26, 2006, the plaintiff filed a Bill of Costs before the Quebec Court of Appeal and was
awarded immaterial costs. The plaintiff has not yet commenced proceedings on the merits of the underlying
claim and has requested a settlement conference be held prior to any proceedings being instituted. The settlement
conference is expected to take place in mid-2007. Management considers the impending class action to be
without merit and intends to defend the lawsuit vigorously.
Bolivia. We indirectly hold a 12.52% equity interest in Ferroviaria Oriental S.A. (Oriental) through an
interest in Genesee & Wyoming Chile S.A. (GWC). GWC is an obligor of non-recourse debt of $12.0 million,
which debt is secured by a lien on GWC’s 12.52% indirect equity interest in Oriental held through GWC’s
subsidiary, Inversiones Ferroviarias Bolivianas Ltda. (IFB). This debt became due and payable on November 2,
2003. On April 21, 2006, due to the heightened political and economic unrest and uncertainties in Bolivia, we
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advised the creditors of GWC that we were ceasing our efforts to restructure the $12.0 million debt obligation.
On October 27, 2006, Banco de Crédito e Inversiones (one of GWC’s creditors) commenced court proceedings
before the 9th Civil Tribunal of Santiago to (i) collect on its share of the debt (approximately 24% of the $12.0
million) and (ii) exercise their rights pursuant to the lien. Notice of this proceeding was given to GWC and IFB
on November 6, 2006. On October 26, 2006, Banco de Chile (another of GWC’s creditors that holds
approximately 15% of the $12.0 million debt) commenced separate court proceedings before the 4th
Civil Tribunal of Santiago with the same objectives. Notice of this proceeding was given to GWC and IFB on
November 20, 2006. We do not expect these proceedings to have a material effect on our financial statements.
We also hold a 10.37% equity interest in Oriental through other companies. We do not expect the
commencement of court proceedings to have any impact on this remaining 10.37% equity interest. Please refer to
Note 3 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional
information regarding our investment in Oriental.
Other. In addition to the lawsuits set forth above, from time to time we are a defendant in certain lawsuits
resulting from our operations. Management believes that we have adequate provisions in the financial statements
for any expected liabilities that may result from disposition of pending lawsuits. Nevertheless, litigation is
subject to inherent uncertainties, and unfavorable rulings could occur. Were an unfavorable ruling to occur, there
exists the possibility of a material adverse impact to our results of operations, financial position or liquidity as of
and for the period in which the ruling occurs.
Item 4.
Submission of Matters to a Vote of Security Holders.
None.
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 distributed on March 14, 2006, to shareholders of record on February 28, 2006. All
share and per share 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 2006 and 2005.
Year Ended December 31, 2006
4th Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31, 2005
4th Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our Class B Common Stock is not publicly traded.
High
$29.00
$35.69
$36.75
$32.57
High
$25.03
$21.37
$19.97
$18.79
Low
$22.32
$21.00
$26.36
$24.17
Low
$19.59
$17.69
$15.35
$15.13
Number of Holders. On February 23, 2007, there were 189 Class A Common Stock record holders and 8
Class B Common Stock record holders.
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Dividends. We did not pay cash dividends in 2006 and 2005. 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
compensation plan table required by this Item 5.
Recent Sales of Unregistered Securities.
None.
Issuer Purchases of Equity Securities
2006
(a) Total Number
of Shares
(or Units)
Purchased
(b) Average
Price Paid
per Share
(c) Total Number of
Shares (or Units)
Purchased as Part
of Publicly
announced Plans or
Programs
(d) Maximum Number
of Shares (or Units)
that May Yet Be
Purchased Under the
Plans of Program
October 1 to October 31 . . . . . . . . . . . . . .
November 1 to November 30 . . . . . . . . . .
December 1 to December 31 . . . . . . . . . .
—
—
—
—
—
—
—
—
—
538,500
538,500
538,500
On November 2, 2004, we announced that our Board had authorized the repurchase of up to 1,000,000
shares of our Class A Common Stock. We intend to use the repurchased stock to 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. During the three months ended December 31, 2006, we did not repurchase any shares of our common
stock. As of December 31, 2006, 461,500 shares of our common stock had been repurchased under this plan.
On February 13, 2007, we announced that our Board of Directors authorized the repurchase of up to
2,000,000 additional shares of our Class A Common Stock. The repurchases may occur from time to time in the
open market or in privately negotiated transactions. The timing and amount of any repurchase of shares will be
determined by our management based on its evaluation of market conditions and other factors.
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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, 2006, 2005, 2004, 2003 and 2002, 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,
2006
2005
2004
2003
2002
Income Statement Data:
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of equity investment in ARG . . . . . . . .
Investment loss—Bolivia . . . . . . . . . . . . . . . . . . . . .
Equity (loss) income of unconsolidated international
affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends and cost accretion . . . . . .
$ 478,846
435,433
$385,389
314,458
$303,784
253,745
$244,827
208,522
$209,540
177,533
43,413
218,845
(5,878)
(10,752)
7,837
(17,476)
2,381
238,370
104,367
134,003
—
70,931
—
—
50,039
—
—
14,224
343
(14,900)
(561)
70,037
19,902
50,135
—
21,044
209
(11,142)
(340)
59,810
22,191
37,619
479
36,305
—
—
12,574
326
(8,646)
660
41,219
12,500
28,719
1,270
32,007
—
—
12,536
668
(8,139)
58
37,130
11,523
25,607
1,172
Net income available to common stockholders . . . .
$ 134,003
$ 50,135
$ 37,140
$ 27,449
$ 24,435
Basic earnings per common share:
Earnings per common share . . . . . . . . . . . . . . .
Weighted average shares . . . . . . . . . . . . . . . . . .
Diluted earnings per common share:
Earnings per common share . . . . . . . . . . . . . . .
Weighted average shares . . . . . . . . . . . . . . . . . .
Balance Sheet Data at Year End:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mandatorily redeemable convertible preferred
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
3.56
37,609
3.16
42,417
$
$
1.36
36,907
1.20
41,712
$
$
1.03
36,207
0.90
41,103
$
$
0.77
35,489
0.68
40,152
$
$
0.71
34,524
0.62
39,566
$1,141,064
245,685
$980,598
338,351
$677,251
132,237
$627,173
158,022
$514,859
125,417
—
520,187
—
397,820
—
341,700
23,994
267,086
23,980
209,621
We have completed a number of acquisitions and a disposition during the periods reported. Because of
variations in the structure, timing and size of these acquisitions and disposition, our results of operations in any
reporting period may not be directly comparable to our results of operations in other reporting periods. See Note
3 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report for a complete
description of our most recent acquisitions and disposition.
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. In addition to disclosing results for the
years ended December 31, 2006 and 2005 that are determined in accordance with accounting principles generally
32
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accepted in the United States (GAAP), the Company also discloses a non-GAAP financial measure that excludes
the effects of the Australian Transactions and the non-cash impairments in Mexico and Bolivia recorded in the
2006 period on net income. We are presenting a non-GAAP financial measure excluding the effects of the
Australian Transactions and the non-cash impairments in Mexico and Bolivia because we believe it is useful for
investors to be able to assess our financial results compared with the same period in the prior year. Within the
text, in connection with the non-GAAP financial measure presented, we have presented the most directly
comparable financial measure calculated in accordance with GAAP and have provided a reconciliation of the
differences between the non-GAAP financial measure with its most directly comparable financial measure
calculated and presented in accordance with GAAP.
Overview
We are a leading owner and operator of short line and regional freight railroads in the United States,
Canada, Mexico and Australia and own a minority interest in a railroad in Bolivia. In addition, we provide freight
car switching and rail-related services to industrial companies in the United States and Australia.
In the first quarter of 2006, there was a three-for-two split of our common stock in the form of a 50% stock
dividend. All share and per share amounts in this Form 10-K reflect this stock split.
During 2006, we experienced several individually significant transactions. During the second and third
quarters, we completed the ARG Sale and recognized a net gain totaling $218.8 million ($129.8 million after-tax)
and received approximately $307.0 million in net cash proceeds. We used some of this cash to reduce our
outstanding debt obligations under our Revolving Credit Facility. In 2007, we expect to remit approximately
$100 million in U.S. and Australian taxes related to this transaction. Even after the payment of these taxes we
believe we have the strongest balance sheet in our history to pursue our growth and operating strategies.
We also recognized non-cash charges during the second and third quarters of 2006. Our 50% share of asset
impairment losses recorded by ARG in connection with the GWA Purchase resulted in a charge of $16.2 million
($11.3 million after-tax), and our assessment of the effects of political unrest in Bolivia on our investment in
Oriental resulted in a charge of $5.9 million ($5.9 million after-tax) during the second quarter of 2006. In the
third quarter of 2006, as a result of the uncertainty of the reconstruction of our hurricane-damaged rail line in
Chiapas, Mexico, we recorded a charge of $33.1 million ($34.1 million after-tax), reflecting the non-cash write-
down of all of our Mexican non-current assets, other than rolling stock and other readily transferable assets, and
related effects. We are continuing efforts to resolve the situation in Mexico.
From the standpoint of executing on our growth strategy in 2006, we completed the GWA Purchase for
$15.1 million and the acquisition of the Chattahoochee Bay Railroad for $6.1 million. Combined, these
operations provided $47.1 million in revenues and $6.5 million in operating income to our consolidated income
statement in 2006. In addition, we commenced a $14.0 million infrastructure improvement project (including
approximately $6.0 million in government grants) to meet the projected capacity needs of a customer’s new
container terminal in Portsmouth, VA, which is expected to be complete in July 2007.
Our revenues increased $93.5 million in 2006 as a result of growth from existing operations (same railroad
growth) as well as the contribution from acquisitions. Same railroad growth is an important indicator of our
performance as it is a measure of our ability to increase revenues from our existing operations. Same railroad
revenues and total revenues increased 3.4% and 24.3%, respectively, in 2006 when compared with 2005. The
increase in same railroad revenues was primarily due to higher average freight rates, higher fuel surcharges and
favorable exchange rate movements. Growth in same railroad revenues provided $13.0 million or 13.9% of the
year-over-year growth in revenues in 2006.
Despite a favorable rate environment in 2006, our results were negatively impacted by a number of industry
and other factors. Lumber and forest products carloads decreased 17.3% from 2005 to 2006, primarily the result
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of the weaker housing market in the United States. Our pulp and paper products carloads were negatively
impacted by Class I railroad rate increases, which caused certain shippers to move traffic from rail to other
modes of transportation, principally truck. Our minerals and stone products carloads were negatively impacted by
reduced shipments of rock salt for ice control resulting from a relatively mild 2005-2006 winter season in the
Northeast United States. Our coal carloads were also negatively impacted as a result of a relatively mild 2005-
2006 winter season.
Overall, our 2006 net income was $134.0 million, an increase of $83.9 million over 2005. Total revenues in
2006 were $478.8 million, an increase of 24.3% over 2005. Our operations produced net cash flow of $83.3
million in 2006, and we invested $63.0 million in property and equipment, net of proceeds from government
grants. We expect to receive $7.1 million in funding from third parties in 2007 related to 2006 capital
expenditures.
Outlook for 2007
In 2007, we expect the favorable rail pricing environment in the United States and Canada will continue, but
that the rate increases may moderate from levels experienced in 2006. Aggregate carload volumes in North
America are anticipated to be in line with 2006 levels.
We will recognize the positive impact of a full year of operation of GWA in 2007, versus only seven months
in 2006, offset by reduced grain traffic in South Australia due to drought conditions. We will also experience
continued operating losses in Mexico in 2007 due to the line closure in Chiapas caused by Hurricane Stan.
Although the ARG Sale occurred in 2006, the payment of taxes to the Australian government related to the
transaction totaling approximately $86 million is not required until 2007. Accordingly, we anticipate a
corresponding reduction in our cash balances in 2007 as a result of making timely payment of these taxes. To the
extent we repurchase shares of our common stock in 2007, our cash balances will further decline.
Australia
Effective June 1, 2006, we and our 50% partner, Wesfarmers Limited (Wesfarmers), completed the sale of
the Western Australia operations and certain other assets of ARG to Queensland Rail and Babcock & Brown
Limited (ARG Sale). As a result of the sale, we recognized a $218.8 million net gain, including a $22.8 million
gain from the cumulative translation of the foreign currency investment and related equity earnings in ARG into
U.S. dollars since 2000. In connection with the ARG Sale, we also incurred $6.4 million of net transaction-
related expenses, of which $5.8 million related to management bonuses and stock option awards.
Simultaneous with the ARG Sale, we purchased Wesfarmers’ 50% ownership of the remaining ARG
operations, which are principally located in South Australia, for approximately $15.1 million (GWA Purchase)
(collectively, Australian Transactions). This business, which is based in Adelaide, South Australia, was renamed
Genesee & Wyoming Australia Pty Ltd (GWA) and is a 100% owned subsidiary. The GWA Purchase was
accounted for under the purchase method of accounting. However, because we previously held a 50% share of
these assets through our ownership interest in ARG, we applied a step-method to the allocation of value among
the assets and liabilities of GWA. Because the $15.1 million purchase price for Wesfarmers’ 50% share was
lower than 50% of the book value ARG had historically recorded on these assets, we recorded a non-cash loss of
$16.2 million ($11.3 million, net of tax), representing our 50% share of the impairment loss recorded by ARG,
which was included in equity income of international affiliates in the consolidated statement of operations in the
year ended December 31, 2006. GWA commenced operations on June 1, 2006. Accordingly, 100% of the value
of GWA’s net assets ($30.1 million) was included in our consolidated balance sheet since June 1, 2006.
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While we expect to complete our allocation of the value of GWA among respective assets and liabilities
during the second quarter of 2007, the following table sets forth our preliminary allocation (dollars in thousands):
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,441
12,902
24,886
3,799
43,028
10,888
2,036
12,924
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30,104
South America
On April 21, 2006, due to the heightened political and economic unrest and uncertainties in Bolivia, we
advised the creditors of Genesee & Wyoming Chile S.A. (GWC), which indirectly owns a 12.52% interest in
Oriental, that we were ceasing our efforts to restructure the $12.0 million non-recourse debt obligation of GWC,
through which we maintain a partial equity interest in Ferroviaria Oriental S.A. (Oriental).
In May 2006, the Bolivian government issued a Presidential decree ordering the nationalization of Bolivia’s
oil and gas industry. In June 2006, the government announced that it intended to nationalize, take a partial
ownership stake in or restructure the operations of other local companies, including Oriental. As a result of the
government’s stated intentions, we believed it was likely that Oriental’s results of operations, financial condition
and liquidity will be adversely affected.
Accordingly, we determined during the second quarter of 2006 that our $8.9 million equity investment in
Oriental (which represents a 22.89% indirect interest in Oriental), including the portion held though GWC, had
suffered an other than temporary decline in value. Based on our assessment of fair value, the investment was
written down by $5.9 million with a corresponding charge to earnings in the year ended December 31, 2006.
As of June 1, 2006, we discontinued equity accounting for the remaining $3.0 million investment in
Oriental. We will account for this investment under the cost method in future periods and will record income to
the extent that we receive cash dividends from Oriental. Historically Oriental’s results of operations have not had
a material impact on our results of operations. We will continue to monitor the political situation in Bolivia.
Mexico
In October 2005, our Mexican railroad operation, FCCM was struck by Hurricane Stan with the most severe
impact concentrated in the State of Chiapas between the town of Tonalá and the Guatemalan border.
Approximately 70 bridges were damaged or destroyed, and various segments of track were washed out. Since
then, FCCM has been working with the Secretaria de Comunicaciones y Transporte (SCT) and other Mexican
government agencies to develop a reconstruction plan for the damaged portion of the railroad. In July 2006,
FCCM received a letter from the SCT indicating that the SCT intended to fund 75% of the $20.0 million
expected cost to rebuild the damaged rail line subject to certain conditions.
After July 2006, FCCM began negotiating a formal agreement with the SCT and undertook project design
work. However, actions taken by the Mexican National Water Commission (CNA) and other Mexican
government agencies in the storm-damaged area significantly increased the cost of the rail line reconstruction
project and made the timetable to completion uncertain. As of September 30, 2006, the government had not
committed adequate resources to fund the project, and we did not intend to fund the additional costs.
Accordingly, we recorded a non-cash charge of $33.1 million pre-tax ($34.1 million after-tax) in the third quarter
of 2006, reflecting the write-down of non-current assets and related effects of FCCM. FCCM’s remaining $19.6
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million of assets as of December 31, 2006, consisted of approximately $6.7 million of non-current assets,
primarily locomotives and freight cars, and approximately $12.8 million of current assets, primarily receivables
and inventory.
As a result of the impairment charges and expected further operating losses, absent a clear change from the
current expectations, future capital expenditures in Mexico, if any, will be expensed as incurred. The exception
would be capital expenditures for investments in rolling stock or other readily transferable assets.
On September 15, 2006, our Mexican subsidiary, GW Servicios S.A. (Servicios) was unable to fund its
principal and interest payment of $1.9 million due under its loan agreements. In November 2006, we made this
payment on Servicios’ behalf under a corresponding guarantee arrangement, which in turn reduced our guarantee
by the same amount. In the event Servicios is unable to fund future payments, the lenders to the Mexican
operations will have the right to accelerate the outstanding debt and commence actions to (i) collect on the entire
outstanding balance under the loan agreements (approximately $13.3 million) or (ii) exercise their rights to the
collateral pledged under the loan agreements, including FCCM’s rolling stock and our shares in FCCM and
Servicios. If the lenders accelerate the outstanding debt, they may demand immediate payment of $7.0 million
from us pursuant to a guarantee. Neither payment defaults by Servicios, nor any action taken by the lenders to
collect under the loan agreements, will result in a default under our other outstanding debt obligations. We
anticipate Servicios will not be able to meet its debt service obligations in 2007. If the lenders demand from us
the amount of the debt service due in 2007, or any amount up to the $7.0 million, we will be obligated to fund the
amount demanded.
We are engaged in a number of actions seeking resolution of the situation in Mexico. However, we expect to
continue to incur operating losses from the Mexican business and may record additional charges going forward.
In addition, despite any previous agreements with the SCT and other government agencies, we are uncertain as to
whether sufficient funds will be available from the Mexican government to fund the reconstruction of the
damaged rail line. In Mexico, we have initiated a dialogue with the representatives for the new Calderon
administration to resolve the issues concerning our Mexican railroads. Because the administration assumed office
in December 2006, it is too early to determine the outcome of these discussions. As a result of the changing
economic circumstances of our Mexican operations as compared to our other businesses, we have presented our
Mexican business as a separate segment in accordance with SFAS No. 131, “Disclosures about Segments of an
Enterprise and Related Information,” beginning July 1, 2006. See Note 17 of the Notes to Consolidated Financial
Statements included elsewhere in this Annual Report for additional information.
United States
Chattahoochee Bay Railroad, Inc.: On August 25, 2006, our newly formed subsidiary, the Chattahoochee
Bay Railroad, Inc. (CHAT), acquired the assets of the Chattahoochee & Gulf Railroad Co., Inc. and the H&S
Railroad Company, Inc. for $6.1 million in cash. The preliminary purchase price was allocated between property
and equipment ($5.1 million) and intangible assets ($1.0 million). The rail assets acquired by CHAT are
contiguous and connect our Bay Line Railroad to our Chattahoochee Industrial Railroad.
Portsmouth Terminal: On August 25, 2006, we exercised an option to purchase 12.5 miles of previously
leased rail line from Norfolk Southern Corp. (NS) for $3.6 million. The 12.5 mile rail line runs through
Portsmouth, Chesapeake and Suffolk, VA. Our subsidiary, the Commonwealth Railway (CWRY), will own and
continue to operate the line upon receipt of customary regulatory approvals. We have commenced a $14.0
million improvement project (including approximately $6.0 million in government grants) to meet the projected
capacity needs of a customer’s new container terminal in Portsmouth, which is expected to be complete in July
2007.
Homer City Branch: In July 2005, our Homer City Branch, which is located in Homer City, Pennsylvania,
began operations to a coal-fired power plant upon completion of track rehabilitation, a portion of which was
funded through government grants. The Homer City Branch, which was acquired in January of 2004 from CSX,
is contiguous to our existing railroad operations.
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Rail Partners: On June 1, 2005, we acquired from Rail Management Corporation (RMC) substantially all of
its 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. During the three
months ended June 30, 2006, we completed our allocation of the purchase price from this acquisition, including
an adjustment of $6.6 million to reduce our preliminary estimate of the value of acquired intangible assets with a
corresponding increase in goodwill. In the final allocation, the purchase price was allocated to current assets
($19.4 million, including $4.9 million in cash received), property and equipment ($186.0 million), intangible
assets ($53.8 million) and goodwill ($6.6 million), less current liabilities ($21.3 million) and debt assumed ($1.4
million). The intangible assets consist of customer contracts and relationships with a weighted average
amortization period of 27 years.
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). FCRD commenced operations on April 9, 2005.
Results of Operations
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, weather
related impacts such as hurricanes, floods, drought or snow, customer plant expansions and shut-downs, sales of
land and equipment, accidents and derailments. In periods when these events occur, results of operations are not
easily comparable to other periods. Recent transactions (including acquisitions in the U.S. and Australia, the
divestiture of our 50% equity investment in Australia and the write-down of non-current assets in our Mexico
Operations) have changed 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.
Certain of our railroads have commodity shipments that are sensitive to general economic conditions in the
countries in which we operate, including paper products in Canada, chemicals in the United States, cement in
Mexico and grain in Australia. However, shipments of other commodities are less affected by economic
conditions and are more closely affected by other factors, such as inventory levels maintained at a customer
power plant (coal) and winter weather (salt).
Year Ended December 31, 2006, Compared with Year Ended December 31, 2005
Operating Revenues
Overview
Operating revenues were $478.8 million in the year ended December 31, 2006, compared with $385.4
million in the year ended December 31, 2005, an increase of approximately $93.5 million or 24.3%. The $93.5
million increase in operating revenues consisted of approximately $80.5 million in revenues from new operations
and an increase of approximately $13.0 million, or 3.4%, in revenues on existing operations. New operations
consist of current year results of operations from recent acquisitions that did not exist in our financial results for a
comparable period in the prior year. The $13.0 million increase in revenues on existing operations included
approximately $9.2 million in freight revenues and $3.8 million in non-freight revenues. The following table
breaks down our operating revenues into new operations and existing operations for the years ended
December 31, 2006 and 2005 (dollars in thousands):
2006
2005
2006-2005 Variance Information
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Increase in
Total
Operations
Increase in
Existing
Operations
Freight revenues . . . . . . . . . . . . .
Non-freight revenues . . . . . . . . .
$335,847
142,999
Total operating revenues . . . . . . .
$478,846
$40,611
39,859
$80,470
$295,236
103,140
$398,376
$285,999
99,390
$49,848
43,609
17.4% $ 9,237
3,750
43.9%
$385,389
$93,457
24.3% $12,987
3.2%
3.8%
3.4%
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The $49.8 million increase in freight revenues in 2006 compared with 2005 consisted of $40.6 million in
freight revenues from new operations, and $9.2 million in freight revenues from existing operations. Fuel
surcharge revenue included within freight revenues increased to $21.6 million in 2006 from $11.2 million in
2005. The $43.6 million increase in non-freight revenues in 2006 compared with 2005 consisted of $39.9 million
in non-freight revenues from new operations, and $3.8 million in non-freight revenues on existing operations.
Freight Revenues
The following table compares freight revenues, carloads and average freight revenue per carload for the
years ended December 31, 2006 and 2005 (in thousands, except average revenue per carload):
Freight Revenues and Carloads Comparison by Commodity Group
Years Ended December 31, 2006 and 2005
Freight Revenues
Carloads
Average
Freight
Revenue Per
Carload
Commodity Group
Pulp & Paper . . . . . . . . . . . . . . . . . . . . . . .
Coal, Coke & Ores . . . . . . . . . . . . . . . . . . .
Metals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minerals and Stone . . . . . . . . . . . . . . . . . .
Lumber & Forest Products . . . . . . . . . . . . .
Farm & Food Products . . . . . . . . . . . . . . . .
Chemicals-Plastics . . . . . . . . . . . . . . . . . . .
Petroleum Products . . . . . . . . . . . . . . . . . .
Autos & Auto Parts . . . . . . . . . . . . . . . . . .
Intermodal
. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
2006
$ 69,486
59,367
36,663
36,236
34,929
30,048
24,849
22,707
7,033
1,651
12,878
% of
Total
2005
% of
Total
2006
% of
Total
2005
% of
Total
2006
2005
20.7% $ 59,401
17.7% 51,803
10.9% 28,432
10.8% 29,050
10.4% 35,336
8.9% 17,842
7.4% 21,481
6.8% 25,717
6,584
2.1%
2,151
0.5%
8,202
3.8%
20.8% 136,649
18.1% 198,075
9.9% 84,556
10.2% 110,454
12.4% 91,085
6.2% 79,385
7.5% 42,934
9.0% 30,982
2.3% 13,387
0.7% 3,936
2.9% 59,213
16.1% 129,807
23.3% 197,891
9.9% 78,221
13.0% 73,307
10.7% 98,087
9.3% 52,501
5.0% 40,434
3.6% 33,041
1.6% 13,600
0.5% 4,805
7.0% 31,579
17.2% $508
26.3% 300
10.4% 434
9.7% 328
13.0% 383
7.0% 379
5.4% 579
4.4% 733
1.8% 525
0.6% 419
4.2% 217
$458
262
363
396
360
340
531
778
484
448
260
Total freight revenues . . . . . . . . . . . . . . . .
$335,847
100.0% $285,999
100.0% 850,656
100.0% 753,273
100.0% 395
380
Total carloads increased by 97,383 carloads or 12.9%. The increase consisted of 126,833 carloads from new
operations, partially offset by a decrease of 29,450 carloads or 3.9% from existing operations.
The overall average revenues per carload increased 4.0%. The increase was attributable to an increase in
revenues per carload of 7.4% to $408 on existing operations, partially offset by $320 per carload from new
operations.
The following table sets forth freight revenues by new operations and existing operations for the years
ended December 31, 2006 and 2005 (dollars in thousands):
2006
2005
2006-2005 Variance Information
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Freight revenues
Pulp & Paper . . . . . . . . . . . . . . . . . . . . . . . .
Coal, Coke & Ores . . . . . . . . . . . . . . . . . . .
Metals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minerals and Stone . . . . . . . . . . . . . . . . . . .
Lumber & Forest Products . . . . . . . . . . . . .
Farm & Food Products . . . . . . . . . . . . . . . .
Chemicals-Plastics . . . . . . . . . . . . . . . . . . .
Petroleum Products . . . . . . . . . . . . . . . . . . .
Autos & Auto Parts . . . . . . . . . . . . . . . . . . .
Intermodal . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 69,486
59,367
36,663
36,236
34,929
30,048
24,849
22,707
7,033
1,651
12,878
$ 7,735
1,191
3,170
6,518
3,577
12,318
2,357
388
180
—
3,177
$40,611
38
$ 61,751
58,176
33,493
29,718
31,352
17,730
22,492
22,319
6,853
1,651
9,701
$ 59,401
51,803
28,432
29,050
35,336
17,842
21,481
25,717
6,584
2,151
8,202
Increase in
Total
Operations
Increase in
Existing
Operations
$10,085
7,564
8,231
7,186
(407)
12,206
3,368
(3,010)
449
(500)
4,676
17.0% $ 2,350
14.6% 6,373
28.9% 5,061
24.7%
668
-1.2% (3,984)
(112)
68.4%
15.7% 1,011
-11.7% (3,398)
269
-23.2% (500)
57.0% 1,499
6.8%
4.0%
12.3%
17.8%
2.3%
-11.3%
-0.6%
4.7%
-13.2%
4.1%
-23.2%
18.3%
Total freight revenues . . . . . . . . . . . . . . . . .
$335,847
$295,236
$285,999
$49,848
17.4% $ 9,237
3.2%
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The following information discusses the significant changes in freight revenues by commodity group from
existing operations. With the exception of petroleum products, which had a decrease in average revenue per
carload in 2006 compared with 2005, primarily due to a change in mix of business, the increases in average
revenue per carload in 2006 compared with 2005 for each commodity are primarily driven by a combination of
rate and fuel surcharge increases and secondarily impacted by a change in the mix of business.
Pulp and paper revenues increased by $2.4 million or 4.0%. The increase consisted of approximately $7.4
million due to a 12.5% increase in average revenue per car, partially offset by approximately $5.0 million due to
a carload decrease of 9,807 or 7.6%. The carload decrease was primarily due to the impact of Class I railroad rate
increases, which caused certain shippers to move traffic from rail to other modes of transportation, principally
truck.
Coal, coke and ores revenues increased by $6.4 million or 12.3%. The increase consisted of approximately
$7.0 million due to a 13.5% increase in average revenue per car, partially offset by approximately $0.6 million
due to a carload decrease of 2,052 or 1.0%. The carload decrease was primarily due to planned maintenance at a
power plant served by us in November and December of 2006.
Metals revenue increased by $5.1 million or 17.8%. The increase consisted of approximately $4.5 million
due to a 15.8% increase in average revenue per car and approximately $0.6 million due to a carload increase of
1,359 or 1.7%. The carload increase was primarily due to increased customer shipments of pipe and scrap metal.
Minerals and stone revenues increased by $0.7 million or 2.3%. The increase consisted of approximately
$2.6 million due to a 9.1% increase in average revenue per car, partially offset by approximately $2.0 million due
to a carload decrease of 4,568 or 6.2%. The carload decrease was primarily due to decreased customer shipments
of rock salt for ice control resulting from a relatively mild 2005-2006 winter season in the Northeast United
States.
Lumber and forest products revenues decreased by $4.0 million or 11.3%. The decrease consisted of
approximately $6.6 million due to a carload decrease of 16,971 or 17.3%, partially offset by approximately $2.6
million due to a 7.3% increase in average revenue per carload. The carload decrease was primarily due to weaker
product demand attributable to a decline in the housing market in the United States and customer shipments
moving by truck.
Chemicals-Plastics revenues increased by $1.0 million or 4.7%. The increase consisted of approximately
$1.6 million due to a 7.6% increase in average revenue per carload, partially offset by approximately $0.6 million
due to a carload decrease of 1,093 or 2.7%.
Petroleum products revenue decreased by $3.4 million or 13.2%. The decrease consisted of approximately
$1.4 million due to a 5.6% decrease in average revenue per car and approximately $2.0 million due to a carload
decrease of 2,658 or 8.0%. The decrease of 5.6% in average revenue per carload was primarily driven by a
change in the geographic mix of traffic. Both the carload and rate decreases were primarily due to a reduction in
our Mexico region due to the closure of a portion of the Chiapas line.
All remaining commodities combined increased by a net $1.2 million or 3.3%.
Non-Freight Revenues
Non-freight revenues were $143.0 million in the year ended December 31, 2006, compared with $99.4
million in the year ended December 31, 2005, an increase of $43.6 million or 43.9%. The $43.6 million increase
in non-freight revenues consisted of $39.9 million in revenues from new operations and an increase of
approximately $3.7 million or 3.8% in revenues from existing operations.
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The following table compares non-freight revenues for the years ended December 31, 2006 and 2005
(dollars in thousands):
Non-Freight Revenues Comparison
Years Ended December 31, 2006 and 2005
2006
% of Total
2005
% of Total
Railcar switching . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Car hire and rental income . . . . . . . . . . . . . . . . . . . . .
Fuel sales to third parties . . . . . . . . . . . . . . . . . . . . . .
Demurrage and storage . . . . . . . . . . . . . . . . . . . . . . .
Car repair services . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating income . . . . . . . . . . . . . . . . . . . . . . .
$ 65,714
22,515
13,831
12,414
5,800
22,725
46.0% $49,683
16,328
15.7%
—
9.7%
11,624
8.7%
5,112
4.1%
16,643
15.8%
50.0%
16.4%
—
11.7%
5.1%
16.8%
Total non-freight revenues . . . . . . . . . . . . . . . . . . . . .
$142,999
100.0% $99,390
100.0%
The following table sets forth non-freight revenues by new operations and existing operations for the years
ended December 31, 2006 and 2005 (dollars in thousands):
2006
2005
2006-2005 Variance Information
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Non-freight revenues
Railcar switching . . . . . . . . . . .
Car hire and rental income . . .
Fuel sales to third parties . . . . .
Demurrage and storage . . . . . .
Car repair services . . . . . . . . . .
Other operating income . . . . . .
$ 65,714
22,515
13,831
12,414
5,800
22,725
Total non-freight revenues . . .
$142,999
$10,042
7,533
13,831
946
337
7,170
$39,859
$ 55,672
14,982
—
11,468
5,463
15,555
$103,140
$49,683
16,328
—
11,624
5,112
16,643
$99,390
Increase in
Total
Operations
Increase in
Existing
Operations
$16,031
6,187
13,831
790
688
6,082
32.3% $ 5,989
37.9% (1,346)
—
100.0%
(156)
6.8%
13.5%
351
36.5% (1,088)
12.1%
-8.2%
0.0%
-1.3%
6.9%
-6.5%
$43,609
43.9% $ 3,750
3.8%
The following information discusses the significant changes in non-freight revenues from existing
operations.
Railcar switching revenues increased $6.0 million or 12.1%, of which $3.3 million was due to an increase
from intra-plant switching due to new customers and rate increases, and $2.7 million was due to an increase from
intra-terminal switching.
Car hire and rental income decreased $1.3 million or 8.2%, primarily due to the termination of a railcar
lease from which we earned off-line car hire and a net deduction of off-line time for owned and leased railcars.
All other non-freight revenues decreased $0.9 million or 2.7%, primarily due to decreased terminal services
in our Mexico Region due to the closure of a portion of the Chiapas line.
Operating Expenses
Overview
Operating expenses were $435.4 million in the year ended December 31, 2006, compared with $314.5
million in the year ended December 31, 2005, an increase of $121.0 million or 38.5%. The increase was
attributable to $64.1 million from new operations and an increase of $56.9 million on existing operations, which
included charges of $33.1 million related to the write-down of non-current assets and related effects from our
Mexico operations. See Note 3 in Item 8 of this report for additional information regarding the write-down of
non-current assets and related effects from our Mexico operations.
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Operating Ratio
Our operating ratio, defined as total operating expenses divided by total operating revenues, increased to
90.9% in the year ended December 31, 2006, from 81.6 % in the year ended December 31, 2005, primarily as a
result of the $33.1 million write-down in Mexico.
The following table sets forth a comparison of our operating expenses in the years ended December 31,
2006 and 2005 (dollars in thousands):
Operating Expense Comparison
Years Ended December 31, 2006 and 2005
2006
2005
Labor and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment rents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diesel fuel
Diesel fuel sold to third parties . . . . . . . . . . . . . . . . . . . . .
Casualties and insurance . . . . . . . . . . . . . . . . . . . . . . . . . .
Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss (gain) on sale and impairment of assets . . . . . . . .
Gain on insurance recovery . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$158,506
40,126
37,873
29,846
45,171
12,493
17,472
23,960
33,102
(1,937)
38,821
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
$435,433
Percentage
of Operating
Revenues
33.1%
8.4%
7.9%
6.2%
9.4%
2.6%
3.6%
5.0%
6.9%
-0.4%
8.2%
90.9%
$
$122,941
34,364
26,250
24,575
38,414
—
17,704
19,933
(3,207)
—
33,484
$314,458
Percentage
of Operating
Revenues
31.9%
8.9%
6.8%
6.4%
10.0%
0.0%
4.6%
5.2%
-0.8%
0.0%
8.6%
81.6%
Labor and benefits expense was $158.5 million in the year ended December 31, 2006, compared with
$122.9 million in the year ended December 31, 2005, an increase of $35.6 million or 28.9%. The increase was
attributable to $16.4 million in labor and benefits expense from new operations and an increase of $19.2 million
from existing operations. The increase from existing operations was primarily attributable to $5.8 million in
bonus and stock option expense related to the ARG Sale, $1.7 million in compensation expense due to the
adoption of SFAS No. 123R as of July 1, 2005, $1.2 million in non-cash compensation expense related to the
reassessment of accounting measurement dates for certain stock options in prior years and $12.8 million from
regular wage and benefit increases and the impact of approximately 90 new hires, partially offset by a $2.6
million credit due to a reduction in deferred profit sharing liability from our Mexico operations.
Equipment rents were $40.1 million in the year ended December 31, 2006, compared with $34.4 million in
the year ended December 31, 2005, an increase of $5.8 million or 16.8%. The increase was attributable to $4.5
million from new operations and an increase of $1.3 million from existing operations.
Purchased services expense was $37.9 million in the year ended December 31, 2006, compared with $26.3
million in the year ended December 31, 2005, an increase of $11.6 million or 44.3%. The increase was
attributable to $12.9 million from new operations primarily due to GWA’s outsourcing of track, freight car and
locomotive repairs, partially offset by a decrease of $1.3 million from existing operations. The decrease on
existing operations was primarily attributable to a reduction in terminal services in our Mexico Operations.
Depreciation and amortization expense was $29.8 million in the year ended December 31, 2006, compared
with $24.6 million in the year ended December 31, 2005, an increase of $5.3 million or 21.4%. The increase was
attributable to $4.4 million from new operations and an increase of $0.8 million from existing operations.
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Diesel fuel used in operations was $45.2 million in the year ended December 31, 2006, compared with $38.4
million in the year ended December 31, 2005, an increase of $6.8 million or 17.6%. The increase was attributable
to $4.2 million from new operations and an increase of $2.6 million or 6.8% on existing operations. The increase
on existing operations was due to a 13.1% increase in the average price per gallon, partially offset by a 5.7%
decrease in fuel consumption.
Diesel fuel sold to third parties was all due to GWA operations.
Casualties and insurance expense was $17.5 million in the year ended December 31, 2006, compared with
$17.7 million in the year ended December 31, 2005, a net decrease of $0.2 million or 1.3%. The net decrease was
primarily attributable to declines of $1.1 million in derailment expense and $0.4 million in all other casualties
and insurance expense on existing operations, partially offset by an increase of $1.3 million in casualties and
insurance expense from new operations. The $0.4 million decline in all other casualties and insurance expense on
existing operations was primarily due to a decline of approximately $1.2 million in claims expense, partially
offset by the $0.8 million Galveston litigation settlement.
Materials expense was $24.0 million in the year ended December 31, 2006, compared with $19.9 million in
the year ended December 31, 2005, an increase of $4.1 million or 20.2%. The increase was attributable to $2.2
million in materials expense from new operations and an increase of $1.8 million on existing operations
primarily due to increased track and equipment maintenance.
Net loss (gain) on sale and impairment of assets was a loss of $33.1 million in the year ended December 31,
2006, compared with a gain of $3.2 million in the year ended December 31, 2005, a decrease of $36.3 million.
The loss of $33.1 million in the year ended December 31, 2006, was primarily attributable to the impairment of
assets in our Mexico Region. The gain of $3.2 million in the year ended December 31, 2005, was attributable to
the sale of excess track property in our New York/Pennsylvania Region.
Gain on insurance recovery of $1.9 million in the year ended December 31, 2006, was attributable to
insurance proceeds for the replacement of a bridge destroyed by fire in our New York/Pennsylvania Region.
Other expenses were $38.8 million in the year ended December 31, 2006, compared with $33.5 million in
the year ended December 31, 2005, an increase of $5.3 million or 15.9%. The increase was attributable to $3.0
million from new operations and an increase of $2.3 million on existing operations primarily due to travel,
reporting and other expenses related to the Australia Transactions.
Other Income (Expense) Items
Gain On Sale of ARG
We recorded a pre-tax gain of $218.8 million in the year ended December 31, 2006, related to the ARG
Sale. See Note 3 in the Consolidated Financial Statements in Item 8 of this report for additional information on
the ARG Sale.
Investment Loss—Bolivia
We recorded an investment loss of $5.9 million in the year ended December 31, 2006, related to our South
America equity investment. See Note 3 in the Consolidated Financial Statements in Item 8 of this report.
Equity (loss) Income of Unconsolidated International Affiliates
Equity (loss) income of unconsolidated international affiliates was a loss of $10.8 million in the year ended
December 31, 2006, including a $16.2 million pre-tax impairment loss, representing our 50% share of the
42
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impairment loss recorded by ARG, compared with income of $14.2 million in the year ended December 31,
2005, primarily due to ARG. See Note 3 in the Consolidated Financial Statements in Item 8 of this report for
additional information regarding the impairment.
Interest Income
Interest income was $7.8 million in the year ended December 31, 2006, compared with $0.3 million in the
year ended December 31, 2005, an increase of $7.5 million. The increase in interest income was primarily due to
the investment of cash proceeds from the ARG Sale since June 2006.
Interest Expense
Interest expense was $17.5 million in the year ended December 31, 2006, compared with $14.9 million in
the year ended December 31, 2005, an increase of $2.6 million or 17.3%, primarily due to higher outstanding
debt resulting from the June 1, 2005, acquisition of Rail Partners, partially offset by the reduction of debt in June
2006 resulting from the use of a portion of the cash proceeds from the ARG Sale.
Other Income (Expense), Net
Other income (expense), net in the year ended December 31, 2006, was income of $2.4 million compared
with expense of $0.6 million in the year ended December 31, 2005, an increase of $2.9 million. The $2.9 million
increase was primarily due to a reduction of approximately $1.5 million in the minority interest liability related
to our Mexico operations and a non-cash foreign currency gain of approximately $0.7 million on U.S. dollar-
denominated intercompany debt in Mexico.
Provision for Income Taxes
Our effective income tax rate in the year ended December 31, 2006 was 43.8% compared with 28.4% in the
year ended December 31, 2005. The increase in 2006 was primarily attributable to the gain on the ARG Sale and
the recording of a full valuation allowance on the deferred income tax assets of our Mexican subsidiaries. During
the year ended December 31, 2006, we recorded a valuation allowance of $8.8 million against the deferred
income tax assets of our Mexican subsidiaries. We believe it is more likely than not that the benefits of the
deferred income tax assets in Mexico will not be realized due to continuing adverse business conditions since
Hurricane Stan washed out a portion of our Chiapas line in October 2005.
Net Income and Earnings Per Share
Net income in the year ended December 31, 2006, was $134.0 million compared with net income in the year
ended December 31, 2005, of $50.1 million, an increase of $83.9 million. Excluding the net gain and related
effects from the Australian Transactions of $196.9 million ($114.5 million after-tax) and the non-cash
impairments in Mexico and Bolivia, which totaled $39.0 million ($39.8 million after-tax), GWI’s net income
would have been $59.3 million.
Basic Earnings Per Share increased by $2.20 to $3.56 in the year ended December 31, 2006, from $1.36 in
the year ended December 31, 2005. Diluted earnings per share increased by $1.96 to $3.16 in the year ended
December 31, 2006, from $1.20 in the year ended December 31, 2005. Weighted average shares for basic and
diluted were 37.6 million and 42.4 million, respectively, in the year ended December 31, 2006, compared with
36.9 million and 41.7 million, respectively, in the year ended December 31, 2005, as adjusted for the stock split
announced February 14, 2006 and all previous stock splits.
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Year Ended December 31, 2005 Compared with Year Ended December 31, 2004
Operating Revenues
Overview
Operating revenues (which exclude revenues from our equity investments) were $385.4 million in the year
ended December 31, 2005, compared with $303.8 million in the year ended December 31, 2004, an increase of
$81.6 million or 26.9%. The $81.6 million increase consisted of $54.5 million in revenues from new operations
and an increase of $27.1 million or 8.9%, in revenues from existing operations. The $27.1 million increase in
revenues from existing operations included approximately $22.5 million in increased freight revenues and $4.6
million in increased non-freight revenues. The following table sets forth our operating revenues from new
operations and existing operations for the years ended December 31, 2005 and 2004 (dollars in thousands):
2005
2004
2005-2004 Variance Information
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Increase in
Total
Operations
Increase in
Existing
Operations
Freight revenues . . . . . . . . . . . . .
Non-freight revenues . . . . . . . . .
$285,999
$ 99,390
Total operating revenues . . . . . . .
$385,389
$37,280
17,267
$54,547
$248,719
82,123
$330,842
$226,265
77,519
$59,734
21,871
26.4% $22,454
4,604
28.2%
$303,784
$81,605
26.9% $27,058
9.9%
5.9%
8.9%
The $59.7 million increase in freight revenues in 2005 consisted of $37.3 million in freight revenues from
new operations and $22.5 million in freight revenues from existing operations. Fuel surcharge revenue included
within freight revenues increased to $11.2 million in 2005 from $2.1 million in 2004. The $21.9 million increase
in non-freight revenues in 2005 consisted of $17.3 million in non-freight revenues from new operations and $4.6
million in non-freight revenues from existing operations.
The following table compares freight revenues, carloads and average freight revenue per carload for the
years ended December 31, 2005 and 2004 (dollars in thousands, except average revenue per carload):
Freight Revenues
Freight Revenues and Carloads Comparison by Commodity Group
Years Ended December 31, 2005 and 2004
Carloads
Average
Freight
Revenue Per
Carload
Commodity Group
Pulp & Paper . . . . . . . . . . .
Coal, Coke & Ores . . . . . .
Lumber & Forest
Products . . . . . . . . . . . . .
Minerals and 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
8,202
Freight Revenues
% of
Total
2004
% of
Total
2005
% of
Total
2004
% of
Total
2005
20.8% $ 40,486
45,126
18.1%
17.9% 129,807
19.9% 197,891
17.2% 94,340
26.3% 191,038
14.9% $458
30.2% 262
12.4%
10.2%
9.9%
9.0%
7.5%
6.2%
2.3%
0.7%
2.9%
25,295
22,294
23,464
24,465
16,270
16,203
6,362
2,409
3,891
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% 31,579
13.0% 76,055
9.7% 59,197
10.4% 73,412
4.4% 32,401
5.4% 31,262
7.0% 40,520
1.8% 14,665
0.6%
6,425
4.2% 14,034
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% 260
2004
$429
236
333
377
320
755
520
400
434
375
277
357
Total freight revenues . . . .
$285,999
100.0% $226,265
100.0% 753,273
100.0% 633,349
100.0% 380
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Total carloads increased 119,924 carloads or 18.9%. The increase consisted of 112,275 carloads from new
operations and an increase of 7,649 carloads or 1.2% from existing operations.
The overall average revenues per carload increased 6.3%. The increase was attributable to an increase in
revenues per carload of 8.6% to $388 from existing operations, partially offset by $332 average revenues per
carload from new operations.
The following table sets forth freight revenues by new operations and existing operations for the years
ended December 31, 2005 and 2004 (dollars in thousands):
2005
2004
2005-2004 Variance Information
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Freight revenues
Pulp & Paper . . . . . . . . . . . . . . . . . . . . . . .
Coal, Coke & Ores . . . . . . . . . . . . . . . . . .
Lumber & Forest Products . . . . . . . . . . . .
Minerals and Stone . . . . . . . . . . . . . . . . . .
Metals . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Petroleum Products . . . . . . . . . . . . . . . . . .
Chemicals-Plastics . . . . . . . . . . . . . . . . . . .
Farm & Food Products . . . . . . . . . . . . . . .
Autos & Auto Parts . . . . . . . . . . . . . . . . . .
Intermodal . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 59,401
51,803
35,336
29,050
28,432
25,717
21,481
17,842
6,584
2,151
8,202
$11,971
2,524
5,347
3,178
2,588
913
3,218
3,702
40
—
3,799
$37,280
$ 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
Increase in
Total
Operations
Increase in
Existing
Operations
$18,915
6,677
10,041
6,756
4,968
1,252
5,211
1,639
222
(258)
4,311
46.7% $ 6,944
14.8% 4,153
39.7% 4,694
30.3% 3,578
21.2% 2,380
5.1%
339
32.0% 1,993
10.1% (2,063)
182
3.5%
(258)
-10.7%
512
110.8%
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 . . . . . . . . . . . . . . . .
$285,999
$248,719
$226,265
$59,734
26.4% $22,454
9.9%
The following information discusses the significant changes in freight revenue by commodity group from
existing operations. With the exception of farm and food products, which had a decrease in average revenue per
car load in 2005 compared with 2004, the increase in average revenue per carload for each commodity was
primarily driven by a combination of rate and fuel surcharge increases and secondarily impacted by a change in
mix of business.
Pulp and paper revenues increased by $6.9 million or 17.2%. The increase consisted of approximately $4.6
million due to an 11.4% increase in average revenue per carload and approximately $2.3 million due to a carload
increase of 4,858 or 5.1%.
Coal, coke and ores revenues increased by $4.2 million or 9.2%. The increase consisted of approximately
$3.5 million due to a 7.7% increase in average revenue per carload and approximately $0.7 million due to a
carload increase of 2,619 or 1.4%. Carloads of coal from existing operations were primarily destined for
electricity generating facilities.
Lumber and forest products revenues increased by $4.7 million or 18.6%. The increase consisted of
approximately $2.4 million due to a 9.3% increase in average revenue per carload and approximately $2.3
million due to a carload increase of 6,435 or 8.5%. The increase in carloads was primarily due to increased
product demand attributable to an increase in housing starts in 2005 compared to 2004.
Minerals and Stone revenues increased by $3.6 million or 16.0%. The increase consisted of approximately
$1.9 million due to an 8.4% increase in average revenue per carload and approximately $1.7 million due to a
carload increase of 4,170 or 7.0%.
Metals revenues increased by a net $2.4 million or 10.1%. The increase consisted of approximately $3.4
million due to a 14.4% increase in average revenue per carload, partially offset by approximately $1.0 million
due to a carload decrease of 2,730 or 3.7%.
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Job: 87365_022 Genesee & Wyoming Inc Page: 45 Color; Composite
Chemicals-Plastics revenues increased by $2.0 million or 12.2%. The increase consisted of approximately
$1.6 million due to a 9.9% increase in average revenue per car and approximately $0.4 million due to a carload
increase of 681 or 2.2%.
Farm and Food Products revenues decreased by $2.1 million or 12.7%. The decrease consisted of
approximately $0.2 million due to a 0.8% decrease in average revenue per car and approximately $1.9 million
due to a carload decrease of 4,860 or 12.0%. The decrease in average revenue per carload was due to the impact
of lower average revenue per carload from acquired railroads, and the decrease in carloads was primarily due to a
reduction in our Mexican region due to the closure of a portion of the Chiapas line.
All remaining commodities combined increased by a net $0.8 million or 2.1%.
Non-Freight Revenues
Non-freight revenues were $99.4 million in the year ended December 31, 2005, compared with $77.5
million in the year ended December 31, 2004, an increase of $21.9 million or 28.2%. The $21.9 million increase
in non-freight revenues consisted of $17.3 million in revenues from new operations and an increase of $4.6
million or 5.9% in revenues from existing operations.
The following table compares non-freight revenues for the years ended December 31, 2005 and 2004
(dollars in thousands):
Non-Freight Revenues Comparison
Years Ended December 31, 2005 and 2004
2005
% of Total
2004
% of Total
Railcar switching . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Car hire and rental income . . . . . . . . . . . . . . . . . . . . . .
Demurrage and storage . . . . . . . . . . . . . . . . . . . . . . . .
Car repair services . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating income . . . . . . . . . . . . . . . . . . . . . . . .
$49,683
16,328
11,624
5,112
16,643
50.0% $39,539
11,858
16.4%
7,533
11.7%
5,460
5.1%
13,129
16.8%
51.0%
15.3%
9.7%
7.0%
17.0%
Total non-freight revenues . . . . . . . . . . . . . . . . . . . . . .
$99,390
100.0% $77,519
100.0%
The following table sets forth non-freight revenues by new operations and existing operations for the years
ended December 31, 2005 and 2004 (dollars in thousands):
Non-freight revenues
Railcar switching . . . . . . . . . . . .
Car hire and rental income . . . .
Demurrage and storage . . . . . . .
Car repair services . . . . . . . . . . .
Other operating income . . . . . . .
Total non-freight revenues . . . .
2005
2004
2005-2004 Variance Information
Total
Operations
New
Operations
Existing
Operations
Total
Operations
Increase in
Total
Operations
Increase in
Existing
Operations
$49,683
16,328
11,624
5,112
16,643
$99,390
$ 7,451
4,871
2,004
409
2,532
$17,267
$42,232
11,457
9,620
4,703
14,111
$82,123
$39,539
11,858
7,533
5,460
13,129
$77,519
$10,144
4,470
4,091
(348)
3,514
25.7% $2,693
(401)
37.7%
54.3% 2,087
(757)
-6.4%
982
26.8%
6.8%
-3.4%
27.7%
-13.9%
7.5%
$21,871
28.2% $4,604
5.9%
The following information discusses the significant changes in non-freight revenues from existing
operations.
Railcar switching revenues increased $2.7 million or 6.8%, primarily due to new customers and volume and
rate increases at existing customers.
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Demurrage and storage revenues increased $2.1 million or 27.7%, primarily due to carload increases.
All other non-freight revenues, net, decreased by approximately $0.2 million or 0.6%.
Operating Expenses
Overview
Operating expenses were $314.5 million in the year ended December 31, 2005, compared with $253.7
million in the year ended December 31, 2004, an increase of $60.7 million or 23.9%. The increase was
attributable to $36.3 million from new operations and an increase of $24.4 million from existing operations. The
increase from existing operations was primarily due to increases of $9.4 million in diesel fuel expense, $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.
Operating Ratios
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.
The following table sets forth a comparison of our operating expenses in the years ended December 31,
2005 and 2004 (dollars in thousands):
Operating Expense Comparison
Years Ended December 31, 2005 and 2004
2005
2004
Percentage
of Operating
Revenues
$
Percentage
of Operating
Revenues
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$122,941
34,364
26,250
24,575
38,414
17,704
19,933
(3,207)
33,484
31.9% $105,079
27,692
8.9%
18,358
6.8%
19,243
6.4%
25,432
10.0%
15,710
4.6%
15,336
5.2%
-0.8%
(13)
26,908
8.6%
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$314,458
81.6% $253,745
34.6%
9.1%
6.0%
6.3%
8.4%
5.2%
5.0%
0.0%
8.9%
83.5%
Labor and benefits expense was $122.9 million in the year ended December 31, 2005, compared with
$105.1 million in the year ended December 31, 2004, an increase of $17.9 million or 17.0%. The increase was
attributable to $9.5 million in labor and benefits expense from new operations and an increase of $8.4 million
from existing operations. The increase from existing operations was primarily attributable to $3.4 million of
labor expense related to new hires and increased work hours for existing employees, $2.0 million from regular
wage increases for all employees, $1.6 million in benefits expense related to the new hires and a $1.4 million
increase in benefits expense for existing employees.
Equipment rents were $34.4 million in the year ended December 31, 2005, compared with $27.7 million in
the year ended December 31, 2004, an increase of $6.7 million or 24.1%. The increase was attributable to $5.5
million from new operations and an increase of $1.2 million from existing operations. The $1.2 million increase
from existing operations was primarily attributable to increased coal traffic and increased paper traffic.
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Purchased services were $26.2 million in the year ended December 31, 2005, compared to $18.3 million in
the year ended December 31, 2004, an increase of $7.9 million or 43.0%. The increase was attributable to $4.4
million from new operations and an increase of $3.5 million from existing operations. The $3.5 million increase
from existing operations was primarily attributable to an increase of $1.6 million from our Mexico Region due to
a full year of terminal services, $0.4 million from our Illinois Region due to a full year of transloading services,
$0.4 million from our New York/Pennsylvania Region for new dispatching services that began in 2005 and $1.1
million from all remaining Regions primarily for higher track and locomotive maintenance services.
Depreciation and amortization expense was $24.6 million in the year ended December 31, 2005, compared
with $19.2 million in the year ended December 31, 2004, an increase of $5.3 million or 27.7%. The increase was
attributable to $4.4 million from new operations and an increase of $0.9 million from existing operations.
Diesel fuel expense was $38.4 million in the year ended December 31, 2005, compared with $25.4 million
in the year ended December 31, 2004, an increase of $13.0 million or 51.0%. The increase was attributable to
$3.3 million from new operations and an increase of $9.7 million or 38.0% from existing operations primarily
due to a 36.4% increase in the average price per gallon.
Casualties and insurance expense was $17.7 million in the year ended December 31, 2005, compared with
$15.7 million in the year ended December 31, 2004, an increase of $2.0 million or 12.7%. The increase was
attributable to $1.8 million from new operations and an increase of $0.2 million from existing operations.
Materials expense was $19.9 million in the year ended December 31, 2005, compared with $15.3 million in
the year ended December 31, 2004, an increase of $4.6 million or 30.0%. The increase was attributable to $2.9
million from new operations and an increase of $1.7 million from existing operations primarily due to higher
spending on track, freight car and locomotive repairs.
Net gain on sale and impairment of assets was $3.2 million in the year ended December 31, 2005, primarily
due to a gain on sale of track property from our New York-Pennsylvania Region.
Other expenses were $33.5 million in the year ended December 31, 2005, compared to $26.9 million in the
year ended December 31, 2004, an increase of $6.6 million or 24.4%. The increase was attributable to $4.4
million from new operations and an increase of $2.2 million from existing operations primarily due to increases
in acquisition-related expenses of $0.9 million and consulting, legal and accounting expenses of $0.6 million.
Other Income (Expense) Items
Equity (Loss) Income of Unconsolidated International Affiliates
Equity (loss) income of unconsolidated international affiliates was income of $14.2 million in the year
ended December 31, 2005, compared with income of $21.0 million in the year ended December 31, 2004, a
decrease of $6.8 million or 32.4%. Equity income in the year ended December 31, 2005, consisted of $13.6
million from ARG and $0.6 million from South American affiliates. Equity income in the year ended
December 31, 2004, consisted of $20.3 million from ARG and $0.7 million from South American affiliates.
Interest Expense
Interest expense was $14.9 million in the year ended December 31, 2005, compared with $11.1 million in
the year ended December 31, 2004, an increase of $3.8 million or 34.2%, primarily due to higher outstanding
debt resulting from the June 1, 2005, acquisition of Rail Partners. In addition, 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 $0.3 million associated with the termination of interest rate swaps related to the
former debt.
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Other Income (Expense), Net
Other income (expense), net, was expense of $0.6 million in the year ended December 31, 2005, compared
with expense of $0.3 million in the year ended December 31, 2004, an increase of $0.3 million. Other income
(expense), net, increased primarily due to non-cash translation losses on intercompany balances, partially offset
by a decrease in minority interest expense.
Provision for Income Taxes
Income tax expense was $19.9 million in the year ended December 31, 2005, compared to $22.2 million in
the year ended December 31, 2004, with an effective income tax rate of 28.4% and 37.1%, respectively. The
8.7% decrease in the 2005 income 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 maintenance expenditures incurred during the three year period from January 1, 2005 through
December 31, 2007. The annual credit is equal to 50% of qualifying expenditures incurred during the year and is
limited to $3,500 multiplied by the number of miles of U.S. railroad track we own or lease as of the year end.
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 future levels of profitability. As a result, we increased our 2004
fourth quarter income tax accrual by $1.0 million, of which approximately $0.2 million related to 2004 and
approximately $0.8 million related to a revaluation of our pre-2004 net U.S. deferred income tax liabilities.
Net Income and Earnings Per Share
Net income was $50.1 million for the year ended December 31, 2005, compared with net income of $37.6
million in the year ended December 31, 2004, 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 international affiliates of $4.8 million.
Basic earnings per share increased by $0.33 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 to $1.20 in the year ended
December 31, 2005, from $0.90 in the year ended December 31, 2004. Weighted average shares for basic and
diluted were 36.9 million and 41.7 million, respectively, in the year ended December 31, 2005, compared with
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 and all previous stock splits.
Financial Results by Segment
As discussed in Note 3 to the Consolidated Financial Statements of Item 8 of this Report, because of the
changing economic circumstances of our Mexican operations as compared to our other operations, we have
presented our Mexican operations as a separate segment in accordance with SFAS No. 131, “Disclosures about
Segments of an Enterprise and Related Information” beginning with the quarter ended September 30, 2006.
Accordingly, we operate two reportable segments: Rail Operations Excluding Mexico and Mexico Operations.
Rail Operations Excluding Mexico segment primarily operates short line and regional railroads in the United
States, Canada and Australia. For the year ended December 31, 2006, these operations generated $450.7 million
in operating revenues, $81.8 million in operating income and $174.5 million in net income, with $103.6 million
in their provision for income taxes. During the year ended December 31, 2006, these operations invested $59.5
million in purchases of property and equipment and incurred $27.9 million in depreciation and amortization,
respectively.
Our Mexico Operations segment operates a regional railroad in southern Mexico. It has experienced
significant economic difficulty as more fully described in Note 3 to the Consolidated Financial Statements of
Item 8 of this Report. For the year ended December 31, 2006, these operations generated $28.2 million in
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operating revenues, $38.4 million in operating losses and $40.5 million of net loss, with $0.8 million in their
provision for income taxes as a result of recording valuation allowances. These results include charges of $34.1
million, after-tax, for the write-down of non-current assets and related effects. During the year ended
December 31, 2006, these operations invested $3.5 million in purchases of property and equipment and incurred
$1.9 million in depreciation and amortization.
Liquidity and Capital Resources
During 2006, 2005, and 2004, we generated $83.3 million, $68.1 million, and $55.4 million, respectively, of
cash from operations. The increase in 2006 over 2005 was primarily due to the following items: increased net
income of $83.9 million, increased depreciation and amortization of $5.3 million, an increase from non-cash
compensation expense related to stock options of $5.4 million, an increase in net loss on the sale and impairment
of assets of $36.3 million due mainly to a non-cash charge recorded to write-down our Mexican subsidiary, a
$5.9 million write-down of our investment in Bolivia due to an other-than-temporary decline in value, a decrease
of $17.6 million in non-cash equity earnings, and an increase in all other elements of working capital of $79.1
million, partially offset by a gain on the sale of our equity investment in ARG of $218.8 million. 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, partially offset by a net
decrease in all other elements of working capital of $8.5 million.
During 2006, our cash flows provided by investing activities were $233.0 million and during 2005 and 2004
our cash flow used in investing activities was $271.8 million and $25.2 million, respectively. For 2006, primary
drivers of the cash flows provided by investing activities were $306.7 million in proceeds from the ARG Sale and
$3.7 million in proceeds from the sale of assets, partially offset by the purchase of Wesfarmers’ 50% ownership
of the remaining ARG operations for $15.1 million, the purchase of the assets of the Chattahoochee Bay Railroad
for $6.1 million and capital expenditures of $63.0 million. For 2005, primary drivers of the investing activities
were the purchase of Rail Partners 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, which were partially offset by $4.3 million in proceeds from the sale of assets and $0.7 million of cash
received from unconsolidated international affiliates. 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 $0.5 million in valuation adjustments of split dollar
insurance assets, which were partially offset by $5.8 million in net cash received from unconsolidated
international affiliates and $0.5 million in proceeds from the sale of assets. Capital expenditures in 2004
consisted of $19.1 million for track improvements net of funds received from governmental grants and $9.0
million for equipment and rolling stock.
The increase in capital expenditures of $30.9 million from 2005 to 2006 primarily resulted from an increase
of $8.2 million from new operations and $7.1 million of capital spending that will be funded by third parties in
2007, as these projects included government grants for track rehabilitation and the replacement of a bridge
destroyed by fire that will be funded through insurance proceeds. We also increased capital expenditures in 2006
through the completion of $7.2 million of lease buyouts, with the remainder split between business development
and additional track and equipment improvements.
During 2006 and 2004, our cash flows used in financing activities were $92.6 million and $27.5 million,
respectively and during 2005, our cash flows provided by financing activities were $206.4 million. For 2006,
primary drivers of the financing activities were a net decrease in outstanding debt of $92.7 million and treasury
stock purchases of $11.3 million, partially offset by cash proceeds of $6.9 million from the exercise of stock
options by employees and directors and stock purchases by employees and $4.5 million from the excess income
tax benefit from share-based payment arrangements. For 2005, primary drivers of the financing activities were a
net increase in outstanding debt of $203.8 million, cash proceeds of $3.8 million from the exercise of stock
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options by employees and directors and stock purchases by employees and $0.8 million from the excess income
tax benefit from share-based payment arrangements, which were partially offset by debt issuance cost of $1.6
million and treasury stock purchases of $0.4 million. 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
previously outstanding convertible preferred stock of $0.4 million, which were partially offset by net proceeds of
$3.0 million from the exercise of stock options by employees and directors and stock purchases by employees.
At December 31, 2006, we had long-term debt, including current portion, totaling $245.7 million, which
comprised 32.1% of our total capitalization. At December 31, 2005, we had long-term debt, including current
portion, totaling $338.4 million, which comprised 46.0% of our total capitalization.
Senior U.S. and Canadian Credit Facilities
On May 25, 2005, in conjunction with the acquisition of Rail Partners, we 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 U.S. obligations to June 1, 2010, and consented to the
acquisition of Rail Partners. Following the consent and amendment, the amended and restated credit facilities
were composed of a $225.0 million revolving loan and a $32.0 million (C$38.5 million) Canadian term loan. The
revolving 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 the senior revolving credit facility at an initial borrowing
rate of LIBOR plus 1.375%. As of December 31, 2006, our $225.0 million revolving credit facility consisted of
no outstanding debt, subsidiary letter of credit guarantees of $0.2 million and $224.8 million of unused
borrowing capacity. Interest rates for borrowings are based on U.S. or Canadian LIBOR plus a margin, which
varies from 0.75% to 1.375% 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 12-month basis and reported quarterly, are as follows:
(a) Maximum leverage of 3.5 times (measured as Funded Debt (indebtedness plus guarantees including
Letters of Credit, plus the present value of operating leases) to EBITDAR (earnings before interest, taxes,
depreciation, amortization and rental payments on operating leases).
(b) Minimum interest coverage of 3.5 times measured as EBITDA (earnings before interest, taxes,
depreciation and amortization) divided by interest expense.
(c) Minimum consolidated tangible net worth measured as 80% of consolidated tangible net worth of
the borrowers as of March 31, 2006, plus on a cumulative basis, 50% of positive consolidated net income
(excluding the effect of foreign currency transaction gains or losses) for each fiscal quarter ending
subsequent to 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 waived compliance with the restrictions on the
dispositions of assets and adjusted the consolidated tangible net worth calculation to permit our entry into the
Australia Transactions. In addition, the Consent and Second Amendment permits us to make restricted payments,
consisting of stock repurchases or cash dividends, with the proceeds from the Australia Transactions for a period
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of 18 months following the closing of the Australia Transactions as long as certain financial covenants governing
distributions are met.
The credit facilities contain a number of covenants restricting our ability to incur additional indebtedness,
make certain investments, sell assets, issue subsidiary stock, restrict distributions from subsidiaries, create certain
liens, enter into certain consolidations or mergers, enter into certain transactions with affiliates and pay dividends
or make distributions. The credit facilities allow us to pay dividends and make distributions provided that Funded
Debt to EBITDAR, including any borrowings made to fund the dividend or distribution, is less than 3.0 to
1.0. As of December 31, 2006, we were in compliance with the provisions of these covenants in all material
respects.
Senior Notes
On July 26, 2005, we completed a private placement of $100.0 million of Series B senior notes and $25.0
million of Series C senior notes. The Series B senior notes bear interest at 5.36% and are due in 2015. The Series
C senior notes have a borrowing rate of LIBOR plus 0.70% and are due in 2012. As of December 31, 2006, the
Series C senior notes had an interest rate of 6.08%. We used the proceeds of the senior notes to repay $125.0
million of notes issued in connection with the Rail Partners transaction.
On November 12, 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 to repay $75.0 million of approximately $110.0 million of debt then outstanding at our U.S. and Canadian
subsidiaries.
The senior notes are unsecured but are guaranteed by substantially all of our U.S. and Canadian subsidiaries.
The senior notes contain a number of covenants limiting our ability to incur additional indebtedness, sell assets,
create certain liens, enter into certain consolidations or mergers and enter into certain transactions with affiliates.
Financial covenants, which must be satisfied 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). As of December 31,
2006, we were in compliance with the provisions of these covenants in all material respects.
Mexican Financings
On April 1, 2005, we and our Mexican subsidiaries, GW Servicios S.A. (Servicios) and FCCM amended
loan agreements 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 were reduced and
maturity dates were extended by three years. In addition, amounts held in escrow for the benefit of IFC and FMO
(approximately $0.6 million) were released to prepay a portion of the loans. As of December 31, 2006, the
aggregate amount outstanding on the notes totaled $13.3 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 have combined semi-annual
principal payments of $0.8 million that began March 15, 2005, and continue through the maturity date of
September 15, 2011. The third note has semi-annual principal payments of $0.5 million that began March 15,
2005 and continue through the maturity date of September 15, 2012.
The notes contain certain financial and other covenants applicable only to FCCM and Servicios, including
mandatory 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
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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 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, we were 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, we had advanced $2.5 million of our
$8.0 million obligation and the project was still in the investment phase. The amended agreements eliminate our
obligations to provide additional 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.
As previously disclosed, on September 15, 2006, Servicios was unable to fund its principal and interest
payment of $1.9 million due under its loan agreements. In November 2006, we made this payment on Servicios’
behalf under a corresponding guarantee arrangement, which in turn reduced our guarantee by the same amount.
In the event Servicios is unable to fund future payments, the lenders to the Mexican operations will have the right
to accelerate the outstanding debt and commence actions to (i) collect on the entire outstanding balance under the
loan agreements (approximately $13.3 million) or (ii) exercise their rights to the collateral pledged under the loan
agreements, including FCCM’s rolling stock and our shares in FCCM and Servicios. If the lenders accelerate the
outstanding debt, they may demand immediate payment of $7.0 million from us pursuant to a guarantee. Neither
payment defaults by Servicios, nor any action taken by the lenders to collect under the loan agreements, will
result in a default under our other outstanding debt obligations. We anticipate Servicios will not be able to meet
its debt service obligations in 2007. If the lenders demand from us the amount of the debt service due in 2007, or
any amount up to $7.0 million, we will be obligated to fund the amount demanded.
To the extent that FCCM’s annual capital expenditures exceed 60% of FCCM’s consolidated EBITDA, as
defined in the amended agreements as determined on an annual basis, we are obligated to provide additional
funds to FCCM equal to the amount of such excess. Pursuant to this funding requirement, based on FCCM’s
2006 EBITDA and capital expenditures, we will be obligated to advance $3.7 million, full payment of which is
due in the second quarter of 2007.
In conjunction with the original financing, IFC invested $1.9 million of equity in Servicios for a 12.7%
indirect interest in FCCM. Along with its equity investment, IFC received a put option exercisable in 2005 to sell
its equity stake back to 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. 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. The cash outflow that would result from
the closing of the exercise of the put option will ultimately be determined by negotiation underway with the IFC,
but in no case will the cash outflow exceed $1.7 million.
South America
We indirectly hold a 12.52% equity interest in Ferroviaria Oriental S.A. (Oriental) through an interest in
Genesee & Wyoming Chile S.A. (GWC). GWC is an obligor of non-recourse debt of $12.0 million, which debt is
secured by a lien on GWC’s 12.52% indirect equity interest in Oriental held through GWC’s subsidiary,
Inversiones Ferroviarias Bolivianas Ltda (IFB). This debt became due and payable on November 2, 2003. On
April 21, 2006, due to the heightened political and economic unrest and uncertainties in Bolivia, we advised the
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creditors of GWC that we were ceasing our efforts to restructure the $12.0 million debt obligation. Accordingly,
during the second quarter of 2006, we reduced the carrying value of our 12.52% equity interest to zero as part of
an overall assessment that our investments in Oriental had suffered an other than temporary decline in value. On
October 27, 2006, Banco de Crédito e Inversiones (one of GWC’s creditors) commenced court proceedings
before the 9th Civil Tribunal of Santiago to (i) collect on its share of the debt (approximately 24% of the $12.0
million) and (ii) exercise its pro-rata rights pursuant to the lien. Notice of this proceeding was given to GWC and
IFB on November 6, 2006. On October 26, 2006, Banco de Chile (another of GWC’s creditors that holds
approximately 15% of the $12.0 million debt) commenced separate court proceedings before the 4th
Civil Tribunal of Santiago with the same objectives. Notice of this proceeding was given to GWC and IFB on
November 20, 2006. We do not expect these proceedings to have a material effect on our financial statements.
We also hold a 10.37% equity interest in Oriental through other companies. We do not expect the
commencement of court proceedings to have any impact on this remaining 10.37% equity interest.
Please refer to Note 3 in the Consolidated Financial Statements in Item 8 of this report for additional
information regarding our investment in Oriental.
Equipment Leases
We are party to several cancelable leases that have automatic renewal provisions. If we choose not to renew
these leases, we would be obligated to return the underlying rolling stock and pay aggregate fees of up to
approximately $6.6 million. In addition, we have the option, at various dates, to terminate the leases by
purchasing the rolling stock. The maximum aggregate purchase price, at the next available buyout date for each
qualifying lease, is approximately $15.3 million. Management anticipates the future market value of the leased
rolling stock will equal or exceed the payments necessary to purchase the rolling stock.
In November 2004, TZPR entered into a 20-year lease agreement for the assets of the PPU. Future annual
lease payments, currently $3.1 million, are subject to adjustment based on certain economic indicators and
customer operations stipulated in the agreement.
Government Grants
Our railroads have received 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 improvements on the rail lines that have been rehabilitated or
constructed. We believe that the levels of service and improvements required under the grants are reasonable. We
received government grants totaling $10.8 million, $4.2 million and $5.6 million in 2006, 2005 and 2004,
respectively. 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. 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 from customers compared to the actual cost of
rehabilitation and construction as gains in the current period.
2007 Budgeted Capital Expenditures
We have budgeted $58.0 million, net of government grants, in capital expenditures in 2007, which consists
of track and equipment improvements of $42.0 million, business development projects of $7.0 million and
equipment buyouts of $9.0 million. We have historically relied primarily on cash generated from operations to
fund working capital and capital expenditures relating to ongoing operations, while relying on borrowed funds
and stock issuances to finance acquisitions and investments in unconsolidated affiliates. We believe that our cash
flow from operations and cash received from the ARG Sale together with amounts available under our credit
facilities will enable us to meet our liquidity and capital expenditure requirements relating to ongoing operations
for at least the duration of the credit facilities.
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Contractual Obligations and Commercial Commitments
As of December 31, 2006, 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 that would have a material adverse effect on our
consolidated results of operations, financial condition or liquidity.
The following table represents our obligations and commitments for future cash payments under various
agreements as of December 31, 2006 (dollars in thousands):
Payments Due By Period
Total
Less than 1
year
1-3 years
3-5 years
More than 5
years
Contractual Obligations
Long-Term Debt Obligations(1) . . . . . . . . . . . . . . . . .
Interest on Long-Term Debt(2) . . . . . . . . . . . . . . . . . .
Capital Lease Obligations . . . . . . . . . . . . . . . . . . . . . .
Operating Lease Obligations . . . . . . . . . . . . . . . . . . . .
Purchase Obligations(3) . . . . . . . . . . . . . . . . . . . . . . . .
Interest Rate Swaps(4) . . . . . . . . . . . . . . . . . . . . . . . . .
$245,286
80,510
399
111,302
20,942
724
$ 4,284
13,293
15
22,398
12,632
724
$33,854
25,566
33
32,334
5,940
—
$ 80,680
21,443
37
14,378
2,370
—
$126,468
20,208
314
42,192
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$459,163
$53,346
$97,727
$118,908
$189,182
(1) Excludes capital lease obligations of $0.4 million.
(2) Assumes no change in variable interest rates from December 31, 2006.
(3) Purchase obligations include a $5.7 million locomotive maintenance contract and a $15.3 million end of
term purchase price for locomotives and freight cars under operating leases.
(4) Represents future cash payments for the fixed portion of interest rate swaps.
Off-Balance Sheet Arrangements
An off-balance sheet arrangement includes any contractual obligation, agreement or transaction involving
an unconsolidated entity under which we 1) have made guarantees, 2) have a retained or contingent interest in
transferred assets, or a similar arrangement, that serves as credit, liquidity or market risk support to that entity for
such assets, 3) have an obligation under certain derivative instruments, or 4) have any obligation arising out of a
material variable interest in such an entity that provides financing, liquidity, market risk or credit risk support to
us, or that engages in leasing or hedging services with us.
Our off-balance sheet arrangements consist of operating lease obligations, which are included in the
contractual obligations table above. In addition, we are obligated under a guarantee arrangement of $7.0 million
in the event that our Mexican subsidiary, Servicios, is unable to fund future debt payments and the lenders
accelerate the outstanding debt and demand immediate payment under the guarantee as discussed above under
Mexican Financings. We also guaranteed an obligation of one of our Canadian rail lines under a lease agreement
entered into on July 28, 1997. The maximum amount of the obligation subject to this guarantee is $2.0 million.
We have no other off-balance sheet arrangements that we believe may have a material current or future adverse
effect on our consolidated financial statements.
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Impact of Foreign Currencies on Operating Revenues
As of December 31, 2006, foreign currency translation had a positive impact on consolidated revenues
primarily due to the strengthening of the Canadian dollar. The following table sets forth the impact of foreign
currency translation on reported operating revenues (dollars in thousands):
Operating Revenues
U.S. Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australian Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2006
Currency
Translation
Impact
$ —
4,004
1,227
12
Revenues
Excluding
Currency
Impact
$348,608
51,551
45,293
28,151
As Reported
$348,608
55,555
46,520
28,163
Total Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$478,846
$5,243
$473,603
Critical Accounting Policies and Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States 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. Management uses its
judgment in making significant estimates in the areas of recoverability and useful life of assets, as well as
liabilities for casualty claims and income taxes. Actual results could materially differ from those estimates.
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 such estimates in this Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Property and Equipment
We record property and equipment at historical cost and we record acquired railroad property at the
allocated cost. We capitalize major renewals or improvements, but routine maintenance and repairs are expensed
when incurred. We credit or charge to operating expense gains or losses on sales or other dispositions. We
depreciate our property and equipment on the straight-line method over the useful lives of the road property
(5-50 years) and equipment (3-30 years).
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
Equipment:
Computer Equipment
Locomotives & Freight Cars
Vehicles & Mobile Equipment
Signals & Crossing Equipment
Track Equipment
Other Equipment
Estimated useful life
30 years or life of lease
20 – 50 years
5 – 50 years
3 years
5 – 20 years
5 – 10 years
5 – 30 years
5 – 10 years
5 – 10 years
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We continually evaluate whether events and circumstances have occurred that indicate that our long-lived
tangible assets may not be recoverable. When factors indicate that an asset should be evaluated for possible
impairment, we use an estimate of the related undiscounted future cash flows over the remaining life 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. In accordance with Statement of Financial Accounting Standards
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144), we recorded a
$31.1 million write-down of our Mexican subsidiary’s property and equipment in the third quarter of 2006 as a
result of the uncertainty of the reconstruction of a hurricane-damaged rail line in Chiapas.
As a result of the impairment charges and expected further operating losses, absent a clear change from the
current expectations, future capital expenditures in Mexico, if any, will be expensed as incurred. The exception
would be capital expenditures for investments in rolling stock or other readily transferable assets.
Grants
Grants received from governmental agencies are recorded as long-term liabilities when received and are
amortized as a reduction to depreciation expense over the same period during which the underlying purchased
assets are depreciated. In addition to government grants, customers occasionally provide fixed funding of certain
track rehabilitation or construction projects to facilitate our service over that track. These improvements are not
recorded in our financial statements unless the fixed funding exceeds the actual cost of rehabilitation or
construction in which case we record a gain in the current period.
Goodwill and Indefinite-Lived Intangible Assets
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
allocation 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 fair value involves significant management judgment.
Impairments are expensed when incurred. Specifically, we test for impairments in accordance with SFAS
No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142). We perform our annual impairment test as of
November 30th of each year and in 2006 no impairment was recognized for the year ended December 31, 2006.
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. We first compare the fair value of the reporting unit
with its carrying amount, including goodwill. If the fair value of the reporting unit is less than the carrying
amount, goodwill would be considered impaired and we would then record the goodwill impairment as the
excess of recorded goodwill over its implied fair value.
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Amortizable Intangible Assets
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (SFAS No. 144)
requires us to perform an impairment test on amortizable intangible assets when specific impairment indicators,
as set-forth in SFAS No. 144, are present. We have amortizable intangible assets in the United States valued as
customer relationships or contracts and previously had one amortizable intangible asset in Mexico related to a
concession agreement with the Secretaria de Comunicaciones y Transporte. As a result of the uncertainty of the
reconstruction of the hurricane-damaged line in Chiapas, we wrote-down the amortizable intangible asset in
Mexico for $5.5 million in the third quarter of 2006. 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.
Derailment and Property Damages, Personal Injuries and Third Party Claims
We maintain insurance, with varying deductibles up to $0.5 million per incident for liability and up to $1.0
million per incident for property damage, for claims resulting from train derailments and other accidents related
to our railroad and industrial switching operations. Accruals for FELA claims by our railroad employees and
third-party personal injury or other claims, limited when appropriate to the applicable deductible, are recorded in
the period when such claims are determined to be probable and estimable. These estimates are updated in future
periods as information develops.
Pensions and Other Post-Retirement Benefits
We use third-party actuaries to assist us in properly measuring the liabilities and expenses associated with
providing pension and defined contribution medical and life insurance benefits (OPEB) for union and non-union
employees 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
postretirement 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 as of
December 31, 2006:
• Discount rate is based on a review of long-term bonds, including published indices. The discount rate
determined on that basis was 5.75%.
• Expected return on plan assets is based on an assumed long-term asset rate of return of 8.5%.
• Health care cost trend rate is based on historical rates of inflation and expected market conditions and
is assumed to be 9.0% in 2006 graded ratably to 5.0% over a seven year period.
On September 29, 2006, the FASB issued SFAS 158, “Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans, an amendment of SFAS 87, 88, 106 and 132(R).” The standard, among other
things, requires companies to:
• Recognize the funded status of defined benefit plans in the consolidated financial statements.
• Recognize as a component of other comprehensive income the previously unrecognized prior service
costs/credits, gains/losses and transition assets/obligations that arise during the year and are not
recognized as a component of net periodic benefit cost.
As of December 31, 2006, we adopted the standard, and the adjustment to our balance sheet increased the
liability for pension and postretirement benefits by approximately $0.4 million and decreased accumulated other
comprehensive income by approximately $0.3 million, net of tax, with the difference recorded as a deferred tax
asset.
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Stock-Based Compensation
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 recognized
compensation over the service period for awards expected to vest. Prior to adoption of SFAS 123(R), we
accounted for our stock-based compensation plans under Accounting Principles Board (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
assumptions 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.
During the fourth quarter of 2006, we voluntarily conducted and completed a comprehensive internal review
of our historical stock option practices for stock option grants made during the period from our initial public
offering on June 24, 1996 through the third quarter of 2006, under the direction of the independent members of
the Board of Directors. The review found no evidence of any intentional wrongdoing by our executive officers,
members of our Board of Directors or any other employees. However, the internal review identified certain
administrative procedural deficiencies that resulted in unintentional accounting errors. These errors, principally
related to situations where, as of the grant date approved by the Compensation Committee, an aggregate number
of stock options to be granted was approved and the exercise price for the stock options was established, but the
allocation of those stock options to certain individual employee recipients was not finalized until a later date. As
a result, we determined that later measurement dates for accounting purposes for those individuals’ grants should
have been used, and we determined that non-cash stock-based compensation expense was understated by a
cumulative amount of $1.2 million ($0.5 million after-tax), with $1.1 million related to grants to the general
population of employees, none of whom were executive officers. Under the direction of the Audit Committee of
the Board of Directors, the results of the internal review were evaluated by outside counsel, who concurred with
the findings.
For the year ended December 31, 2006, compensation cost of $7.2 million pre-tax, or $5.6 million after-tax,
from amortizing stock options reduced earnings by $0.13 per share. Of the $7.2 million compensation cost, $2.7
million was attributable to stock options awards that were part of the transaction bonuses related to the ARG Sale
in the quarter ended June 30, 2006, and $1.2 million was attributable to the unintentional accounting errors
associated with the use of incorrect measurement dates for certain grants, as discussed above. The total
compensation cost related to non-vested stock option awards not yet recognized of $5.0 million is expected to be
recognized over a weighted-average period of one year. The total income tax benefit recognized in the
consolidated income statement for share-based compensation related to stock options was $1.6 million for the
year ended December 31, 2006. Amortization expense for the restricted stock shares was $1.3 million, and the
total income tax benefit recognized in the consolidated statement of operations for restricted stock and restricted
stock unit awards was $0.5 million for the year ended December 31, 2006. Total unrecognized compensation cost
for non-vested restricted stock shares and restricted stock units of $2.6 million is expected to be recognized over
a weighted-average period of 1.2 years.
Income Taxes
We accounted for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes”
(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 book and
tax basis assets and liabilities, as well as available income tax credits and net operating loss carry-forwards. In
our consolidated balance sheets, these deferred obligations are classified as current or non-current based on the
classification of the related asset or liability for financial reporting. A deferred income tax obligation or benefit
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that is not related to an asset or liability for financial reporting, including deferred income 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.
No provision is made for the U.S. income taxes applicable to the undistributed earnings of controlled
foreign subsidiaries because it is the intention of management to fully utilize those earnings in the operations of
foreign subsidiaries. If the earnings were to be distributed in the future, those distributions may be subject to U.S.
income taxes (appropriately reduced by available foreign tax credits) and withholding taxes payable to various
foreign countries. The amount of undistributed earnings of our controlled foreign subsidiaries as of December 31,
2006 was $32.0 million.
We had net operating loss carry-forwards from our Mexican operations in 2006 and 2005 of $19.3 million
and $19.4 million, respectively. The Mexican losses, for income tax purposes, primarily relate to the immediate
deduction of a portion of the purchase price paid for the FCCM operations and interest expense incurred in the
holding company, Servicios. These loss carry-forwards will expire between 2009 and 2016.
In 2006, we recorded a full valuation allowance on the deferred tax assets of our Mexican subsidiaries. The
developments in negotiating the reconstruction plan discussed in Note 3 in Item 8 of this Report have resulted in
our belief that the Mexican subsidiaries will not generate enough taxable income to realize the benefit of their
deferred tax assets. Accordingly, a valuation allowance of $8.8 million was recorded in 2006. Our effective tax
rate for the year ended December 31, 2006, inclusive of valuation allowance was 43.8% compared with 28.4% in
the year ended December 31, 2005.
Management believes that full consideration has been given to all relevant circumstances to which we may
be currently subject, and the financial statements accurately reflect management’s best estimate of our results of
operations, financial condition and cash flows for the years presented.
Other Uncertainties
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 forecasted 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.
Recently Issued Accounting Standards
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (FIN 48), which
prescribes a recognition threshold and measurement attributes for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on
accounting in interim periods, disclosure and transition. This interpretation is effective for fiscal years beginning
after December 15, 2006. We are currently evaluating the provisions of FIN 48.
In June 2006, the Emerging Issues Task Force (EITF) issued EITF No. 06-3, “How Taxes Collected from
Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement” (i.e., Gross
versus Net Presentation), which relates to any tax assessed by a governmental authority that is directly imposed
on a revenue-producing transaction. The EITF states that the presentation of the taxes, either on a gross or net
basis, is an accounting policy decision that should be disclosed if those amounts are significant. This issue should
be applied to financial reports for interim and annual reporting periods beginning after December 15, 2006. This
pronouncement will not have a material impact on our consolidated financial statements.
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In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value
Measurements,” (SFAS 157), which is effective for fiscal years beginning after November 15, 2007 and for
interim periods within those years. This statement defines fair value, establishes a framework for measuring fair
value and expands the related disclosure requirements. We are currently evaluating the provisions of SFAS 157.
In September 2006, the FASB issued FASB Staff Position AUG AIR-1, “Accounting for Planned Major
Maintenance Activities” which is effective for fiscal years beginning after December 15, 2006. This position
statement eliminates the accrue-in-advance method of accounting for planned major maintenance activities. This
pronouncement will not have a material impact on our financial statements.
In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
No. 108 (SAB 108). Due to diversity in practice among registrants, SAB 108 expresses SEC staff views
regarding the process by which misstatements in financial statements are evaluated for purposes of determining
whether financial statement restatement is necessary. SAB 108 is effective for fiscal years ending after
November 15, 2006 and early application is encouraged. The adoption of SAB 108 did not have a material
impact on our results of operations or financial position.
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.
Interest Rate Risk
Our interest rate risk results from issuing variable rate debt obligations, since an increase in interest rates
would result in lower earnings and increased cash outflows. The table below provides amounts outstanding and
corresponding interest rates for our fixed and variable rate debt and our use of interest rate swaps to mitigate
increases in interest rates.
Principal Amount of Debt and Interest Rate Swaps
(dollars in thousands)
Fixed Rate Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted Average Fixed Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable Rate Debt Swapped to Fixed Rate Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted Average Fixed Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unswapped Variable Rate Debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted Average Variable Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Long-Term Debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted Average Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2006
$177,667
5.1%
$ 21,440
5.4%
$ 46,578
6.8%
$245,685
5.5%
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Table Assumptions
Variable Interest Rates: The table presents variable interest rates based on U.S. and Canadian LIBOR rates
(as of December 31, 2006). The borrowing margin is composed of a weighted average of 0.875% for debt under
our U.S. and Canadian credit facilities, 0.7% 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 interest rate swaps as of
December 31, 2006, 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
counterparties plus our borrowing margin.
Interest Rate Sensitivity
Based on the table above, assuming a one percentage point increase in market interest rates, annual interest
expense on our variable rate debt would increase by approximately $0.5 million.
Foreign Currency Risk
The functional currency of our Mexican operations is the Mexican peso, while the debt obligations are
denominated in U.S. dollars. As a result, we face exchange rate risk if the Mexican peso were to depreciate
relative to the U.S. dollar, thereby generating lower U.S. Dollar equivalent cash and earnings to pay the principal
and interest on the debt.
Debt related to our Canadian operations is denominated in Canadian dollars. Therefore, foreign currency
risk related to debt service payments generally does not exist at our Canadian operations. However, in the event
that this debt service is funded from our U.S. operations, we may face exchange rate risk if the Canadian dollar
were to appreciate relative to the U.S. dollar, thereby requiring higher U.S. dollar equivalent cash to settle the
outstanding debt, which is due in 2009.
U.S. Dollar Denominated Principal and Projected Interest Obligations
of Mexican Peso Denominated Operations
(dollars in thousands)
Principal Payments(1)
. . . . . . . . . . . . . . . . .
Interest Payments(2) . . . . . . . . . . . . . . . . . . .
$2,478
1,082
$2,478
858
$2,478
633
$2,478
409
$2,478
185
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,560
$3,336
$3,111
$2,887
$2,663
$911
37
$948
$13,301
3,204
$16,505
2007
2008
2009
2010
2011
Thereafter
Total
(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, 2006, plus a borrowing margin of 3.5% or 4.0%, as
appropriate for the period.
Foreign Currency Hedge
On February 13, 2006, we entered into two foreign currency forward contracts with a total notional amount
of $190.0 million to hedge a portion of our investment in 50% of the equity of ARG. The contracts, which
expired in May 2006, were extended to June 1, 2006, and protected a portion of our investment from exposure to
large fluctuations in the U.S./Australian Dollar exchange rate. At expiration, excluding the effects of fluctuations
in the exchange rate on our investment, we recorded a loss of $4.3 million from these contracts, which is
included in the net gain on sale of ARG.
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Sensitivity of Foreign Currency to Debt Service Payments
If the value of the Mexican peso were to weaken 10 percentage points relative to the U.S. dollar while
Mexican denominated earnings and cash flows remained constant, then it would be equivalent to the Mexican
operations being required to support an additional $0.4 million in debt service payments.
Sensitivity of Foreign Currency Translation
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 Servicios 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, 2006, the total amount due to FCCM from Servicios was $23.2 million. A
one-percentage point appreciation in the Mexican peso relative to the U.S. dollar from the December 31, 2006
exchange rate would result in a pre-tax loss for FCCM in the amount of $0.2 million.
Sensitivity to Diesel Fuel Prices
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, 2006, fuel costs for fuel used in operations
represented 10.4% of our total expenses. As of December 31, 2006, we had not entered into any hedging
transactions to manage this diesel fuel risk. As of December 31, 2006, each one percentage point increase in the
price of diesel fuel would result in a $0.5 million increase in our annual fuel expense to the extent not offset by
fuel surcharge.
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.
We maintain disclosure controls and procedures that are designed to ensure that information required to be
disclosed in our reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and
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, 2006. Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that the design and operation of our disclosure controls and procedures provided
reasonable assurance that the disclosure controls and procedures were effective as of December 31, 2006 to
accomplish their objectives.
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REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER 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 reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of America. Internal control over
financial reporting includes those written policies and procedures that:
•
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of Genesee & Wyoming;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted in the United States
of America;
provide reasonable assurance that our receipts and expenditures are being made only in accordance
with authorization of management and directors of Genesee & Wyoming Inc.; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. 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,
2006. 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, 2006, 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, 2006 as stated
in their report which appears herein.
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Item 9B. Other Information.
None
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
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 30,
2007, 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 30,
2007, 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.
EQUITY COMPENSATION PLAN INFORMATION AS OF DECEMBER 31, 2006
Plan Category
Number of Securities
to be Issued upon
Exercise of
Outstanding Options
Weighted-Average
Exercise Price of
Outstanding Options
Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation Plans
(Excluding Securities Reflected
in Column)
Equity Compensation Plans Approved
by Security Holders . . . . . . . . . . . . . .
2,102,699
Equity Compensation Plans not
Approved by Security Holders . . . . . .
—
Total . . . . . . . . . . . . . . . . . . . . . . . .
2,102,699
$19.11
—
$19.11
932,092
—
932,092
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 30, 2007, 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, and Director Independence.
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 30,
2007, under “Related Transactions,” which proxy statement will be filed within 120 days after the end of our
fiscal year.
Item 14. Principal Accountant 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 30,
2007, under “Principal Accounting Fees and Services,” which proxy statement will be filed within 120 days after
the end of our fiscal year.
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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, 2006 and 2005
Consolidated Statements of Operations for the Years ended December 31, 2006, 2005 and 2004
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Years Ended
December 31, 2006, 2005 and 2004
Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004
Notes to Consolidated Financial Statements
Separate Financial Statements of Subsidiaries Not Consolidated and 50% Owned:
Australian Railroad Group Pty Ltd and Subsidiaries Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of May 31, 2006 and December 31, 2005
Consolidated Statements of Operations for the Five Month Period ended May 31, 2006 and for the
Years Ended December 31, 2005 and 2004
Consolidated Statements of Stockholders’ Equity and Comprehensive (Loss) Income for the Five
Month Period Ended May 31, 2006 and for the Years Ended December 31, 2005 and 2004
Consolidated Statements of Cash Flows for the Five Month Period Ended May 31, 2006 and for the
Years Ended December 31, 2005 and 2004
Notes to Consolidated Financial Statements
(b) EXHIBITS—SEE INDEX TO EXHIBITS
(c) NONE
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INDEX TO FINANCIAL STATEMENTS
Genesee & Wyoming Inc. and Subsidiaries Financial Statements:
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2006 and 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the Years Ended December 31, 2006, 2005 and 2004 . . . .
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Years Ended
December 31, 2006, 2005, and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004 . . .
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:
Page
F-2
F-4
F-5
F-6
F-8
F-9
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-53
Consolidated Balance Sheets at May 31, 2006 and December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . F-54
Consolidated Statements of Operations Five Month Period Ended May 31, 2006 and Years Ended
December 31, 2005 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-55
Consolidated Statements of Stockholders’ Equity and Comprehensive (Loss) Income . . . . . . . . . . . . . F-56
Consolidated Statements of Cash Flows Five Month Period Ended May 31, 2006 and Years Ended
December 31, 2005 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-57
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-58
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Job: 87365_022 Genesee & Wyoming Inc Page: 67 Color; Composite
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Genesee & Wyoming Inc.:
We have completed integrated audits of Genesee & Wyoming Inc’s consolidated financial statements and of
its internal control over financial reporting as of December 31, 2006, in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Our opinions, based on our audits and the report
of other auditors, are presented below.
Consolidated financial statements
In our opinion, based on our audits and the report of other auditors, the consolidated financial statements of
Genesee & Wyoming Inc. listed in the accompanying index present fairly, in all material respects, the financial
position of Genesee & Wyoming Inc. and its subsidiaries at December 31, 2006 and 2005, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2006 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 the Australian Railway Group Pty
Ltd (ARG), an equity method investment through May 31, 2006 which statements reflect total assets of $709.7
million and $707.8 million as of May 31, 2006 and December 31, 2005, respectively, and net loss of $15.3
million for the period ended May 31, 2006, and net income of $18.9 million and $28.5 million for the years
ended December 31, 2005 and 2004, 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 the Company’s
consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit of financial statements
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.
As discussed in Note 2 to the financial statements, the Company changed the manner in which it accounts
for share-based compensation effective July 1, 2005. Also as discussed in Note 2, the Company changed the
manner in which it accounts for pension and other post-retirement benefits effective December 31, 2006.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in Report of Management on Internal Control
Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over
financial reporting as of December 31, 2006, 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, 2006,
based on criteria established in Internal Control—Integrated Framework issued by the COSO. The Company’s
management is responsible 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 conducted our audit of internal control over financial reporting in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether 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
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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.
A company’s internal control over financial 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 reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. 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 (signed)
New York, New York
February 28, 2007
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GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)
December 31,
2006
2005
Assets
Currents Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other
Deferred income tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 240,206
117,099
11,302
14,695
7,617
$ 18,669
91,134
6,765
8,298
4,230
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
390,919
129,096
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
573,292
4,644
37,788
120,669
2,697
11,055
535,994
136,443
31,233
135,444
—
12,388
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,141,064
$980,598
Liabilities and Stockholders’ Equity
Current Liabilities:
Current portion of long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax payable—Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities, net
$
4,372
98,186
38,364
91,925
291
$
4,726
87,496
28,270
—
—
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
233,138
120,492
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities, net
Deferred items—grants from governmental agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity:
Class A Common Stock, $0.01 par value, one vote per share; 90,000,000 shares
authorized; 43,422,957 and 42,516,903 shares issued and 37,635,235 and 37,195,044
shares outstanding (net of 5,787,722 and 5,321,859 shares in treasury) on
December 31, 2006 and 2005, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B Common Stock, $0.01 par value, ten votes per share; 15,000,000 shares authorized;
3,975,180 shares issued and outstanding on December 31, 2006 and 2005 . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost
241,313
72,876
56,588
16,962
—
333,625
59,891
48,242
20,528
—
434
425
40
187,460
352,192
4,411
(24,350)
40
168,007
218,189
24,175
(13,016)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
520,187
397,820
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,141,064
$980,598
The accompanying notes are an integral part of these consolidated financial statements.
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GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
Years Ended December 31,
2006
2005
2004
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$478,846
$385,389
$303,784
Operating expenses:
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maintenance of ways and structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maintenance of equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diesel fuel sold to third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss (gain) on sale and impairment of assets . . . . . . . . . . . . . . . . . . . .
Gain on insurance recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
162,301
42,789
70,341
12,493
86,498
33,102
(1,937)
29,846
133,001
34,360
57,321
—
68,408
(3,207)
—
24,575
102,424
29,347
47,602
—
55,142
(13)
—
19,243
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
435,433
314,458
253,745
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of equity investment in ARG . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment loss—Bolivia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity (loss) income of unconsolidated international affiliates . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends and cost accretion . . . . . . . . . . . . . . . . . . . . . . . . . . .
43,413
218,845
(5,878)
(10,752)
7,837
(17,476)
2,381
238,370
104,367
134,003
—
70,931
—
—
14,224
343
(14,900)
(561)
70,037
19,902
50,135
—
50,039
—
—
21,044
209
(11,142)
(340)
59,810
22,191
37,619
479
Net income available to common stockholders . . . . . . . . . . . . . . . . . . . . . . .
$134,003
$ 50,135
$ 37,140
Basic earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3.56
$
1.36
$
1.03
Weighted average shares—Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,609
36,907
36,207
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3.16
$
1.20
$
0.90
Weighted average shares—Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42,417
41,712
41,103
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Job: 87365_022 Genesee & Wyoming Inc Page: 71 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
(dollars in thousands)
Class A
Common
Stock
Class B
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Stockholders’
Equity
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
—
—
—
—
6
2
Common Stock . . . . . . . . . . . . . . . .
54
Tax benefit upon exercise of stock
options . . . . . . . . . . . . . . . . . . . . . . .
Accretion of fees on Redeemable
Convertible Preferred Stock . . . . . .
4% dividend paid on Redeemable
Convertible Preferred Stock . . . . . .
Amortization of restricted stock and
units . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock acquisitions, 4,226
shares . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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)
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 . . . . . . . . . . . . . . . . . . . . .
5
Tax benefit upon exercise of stock
options . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share based
compensation . . . . . . . . . . . . . . . . .
Compensation cost related to stock
options . . . . . . . . . . . . . . . . . . . . . . .
Amortization of restricted stock and
—
—
—
units . . . . . . . . . . . . . . . . . . . . . . . . .
1
Treasury stock acquisitions, 23,516
shares . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,800
364
758
1,816
662
—
50,135
—
—
—
—
—
—
—
—
—
—
(3,552)
2,363
136
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(368)
50,135
(3,552)
2,363
136
49,082
3,805
364
758
1,816
663
(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.
F-6
Job: 87365_022 Genesee & Wyoming Inc Page: 72 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME (continued)
(dollars in thousands)
Class A
Common
Stock
Class B
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Stockholders’
Equity
BALANCE, December 31, 2005 . . .
$425
$ 40
$168,007
$218,189
$ 24,175
$(13,016)
$397,820
Comprehensive income, net of tax:
Net income . . . . . . . . . . . . . . . . . . . . .
Currency translation adjustments . . . .
Sale of ARG investment (recognized
gain from foreign currency
translation adjustment) . . . . . . . . . .
Fair market value adjustments of cash
flow hedges . . . . . . . . . . . . . . . . . . .
Pension and OPEB liability
adjustment . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . .
Proceeds from employee stock
—
—
—
—
—
purchases . . . . . . . . . . . . . . . . . . . . .
9
Excess tax benefits upon share based
compensation . . . . . . . . . . . . . . . . .
Tax reductions from share-based
compensation . . . . . . . . . . . . . . . . .
Compensation cost related to stock
options . . . . . . . . . . . . . . . . . . . . . . .
Amortization of restricted stock and
units . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock acquisitions, 465,863
shares . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,848
4,544
(394)
7,190
1,265
—
134,003
—
—
1,503
—
—
—
—
—
—
—
—
—
(22,755)
1,776
(288)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
134,003
1,503
(22,755)
1,776
(288)
114,239
6,857
4,544
(394)
7,190
1,265
(11,334)
(11,334)
BALANCE, December 31, 2006 . . .
$434
$ 40
$187,460
$352,192
$ 4,411
$(24,350)
$520,187
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Job: 87365_022 Genesee & Wyoming Inc Page: 73 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Years Ended December 31,
2006
2005
2004
$ 134,003
$ 50,135
$ 37,619
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 and units . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation cost related to stock options . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from share-based compensation . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit upon exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on insurance recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of equity investment in ARG . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss (gain) on sale and impairment of assets . . . . . . . . . . . . . . . . . . . . . . .
Investment loss—Bolivia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write off of deferred finance fees from early extinguishment of debt
. . . . . .
Equity loss (income) of unconsolidated international affiliates, net of tax . . .
Changes in assets and liabilities which provided (used) cash, net of effect of
acquisitions:
Accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax payable—Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets and liabilities, net
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
29,846
1,265
7,190
(4,544)
14,591
—
(1,937)
(218,845)
33,102
5,878
—
7,500
(7,603)
(1,827)
(6,247)
10,046
86,358
(5,438)
83,338
24,575
663
1,816
(758)
8,428
364
—
—
(3,207)
—
—
(10,077)
(13,039)
(245)
149
9,184
—
109
68,097
Purchase of property and equipment, net of government grants . . . . . . . . . . .
Proceeds from ARG Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for acquisitions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation adjustment of split dollar life insurance . . . . . . . . . . . . . . . . . . . . .
Cash received from unconsolidated international affiliates . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Proceeds from disposition of property and equipment
(62,997)
306,746
(20,354)
39
378
3,667
(32,098)
—
(244,704)
47
677
4,317
19,243
189
—
—
7,856
1,545
—
—
(13)
—
1,611
(14,911)
(9,210)
9
(1,567)
12,846
—
229
55,446
(28,072)
—
(2,909)
(459)
5,757
448
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . .
227,479
(271,761)
(25,235)
Cash flows from financing activities:
Principal payments on long-term borrowings, including capital leases . . . . .
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net proceeds from employee stock purchases . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from share-based compensation . . . . . . . . . . . . . . . . . . . .
Dividends paid on Redeemable Convertible Preferred Stock . . . . . . . . . . . . .
(185,189)
92,500
—
6,857
(11,334)
4,544
—
(213,975)
417,800
(1,629)
3,805
(368)
758
—
(283,579)
254,800
(1,396)
3,114
(68)
—
(411)
Net cash (used in) provided by financing activities . . . . . . . . . . . . . . . . . . . . .
(92,622)
206,391
(27,540)
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . .
Increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,342
221,537
18,669
1,491
4,218
14,451
662
3,333
11,118
Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 240,206
$ 18,669
$ 14,451
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Job: 87365_022 Genesee & Wyoming Inc Page: 74 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Customers:
Genesee & Wyoming Inc., through its subsidiaries and unconsolidated affiliate, currently has interests in 48
railroads, of which 42 are located in the United States, three are located in Canada, one is located in Australia,
one is located in Mexico, and one is located in Bolivia. From January 1, 2004 to December 31, 2006, the
Company acquired nineteen railroads in the United States and Australia, sold one railroad in the United States,
and sold its 50% equity interest in Australian Railroad Group Pty Ltd (ARG). The Company, through its leasing
subsidiaries, 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
paper and forest products, electric utility, auto and auto parts, and cement industries. Freight revenue from the
Company’s ten largest freight revenue customers accounted for approximately 24%, 24%, and 27% of the
Company’s operating revenues in 2006, 2005, and 2004, respectively. The Company’s largest freight revenue
customer was a company in the paper and forest products industry, freight revenue from which accounted for
approximately 7%, 8%, and 8% of the Company’s operating revenues in 2006, 2005 and 2004, respectively.
2. Significant Accounting Policies:
Principles of Consolidation
The consolidated financial statements presented herein include the accounts of Genesee & Wyoming Inc.
and its subsidiaries. Historically, the Company’s investments in unconsolidated affiliates were accounted for
under the equity method. However, in June 2006, the Company sold its 50% interest in ARG and wrote down its
equity interest in South America and simultaneously discontinued equity method accounting. All significant
intercompany transactions and accounts have been eliminated in consolidation.
Revenue Recognition
Railroad revenues are estimated and recognized as shipments initially move onto the Company’s tracks,
which, due to the relatively short length of haul, is not materially different from the recognition of revenues as
shipments progress. Industrial switching and other service revenues are recognized as such services are provided.
Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three months or less when
purchased to be cash equivalents.
Materials and Supplies
Materials and supplies consist of purchased items for improvement and maintenance of road property and
equipment, and are stated at the lower of average cost or market. Materials and supplies are removed from
inventory using the average cost method.
Property and Equipment
Property and equipment are carried at historical cost. Acquired railroad property is recorded at the allocated
cost. Major renewals or improvements are capitalized, while routine maintenance and repairs are expensed when
incurred. Gains or losses on sales or other dispositions are credited or charged to operating expense. Depreciation
is provided on the straight-line method over the useful lives of the road property (5-50 years) and equipment
(3-30 years).
F-9
Job: 87365_022 Genesee & Wyoming Inc Page: 75 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table sets forth the estimated useful lives of the Company’s major classes of property and
equipment:
Property:
Estimated useful life
Buildings and Leasehold Improvements . . . . . . . . .
Bridges/Tunnels/Culverts . . . . . . . . . . . . . . . . . . . . .
Track Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30 years or life of lease
20 – 50 years
5 – 50 years
Equipment:
Computer Equipment . . . . . . . . . . . . . . . . . . . . . . . .
Locomotives & Freight Cars . . . . . . . . . . . . . . . . . .
Vehicles and Mobile Equipment
. . . . . . . . . . . . . . .
Signals and Crossing Equipment . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Track Equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Equipment
3 years
5 – 20 years
5 – 10 years
5 – 30 years
5 – 10 years
5 – 10 years
The Company reviews its long-lived tangible assets for impairment whenever events and circumstances
indicate that the carrying amounts of such assets may not be recoverable. When factors indicate that assets may
not be recoverable, the Company uses an estimate of the related undiscounted future cash flows over the
remaining lives of assets in measuring whether or not impairment has occurred. If impairment is identified, a loss
would be reported to the extent that the carrying value of the related assets exceeds the fair value of those assets
as determined by valuation techniques applicable in the circumstances.
The Company closely monitors its assets in foreign operations where fluctuating currencies and unsettled
economic conditions can create greater uncertainty. Refer to Note 3 for disclosure of the Company’s write-down
of a portion of its Mexican subsidiary’s property and equipment in accordance with Statement of Financial
Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS
No. 144).
Grants
Grants received from governmental agencies are recorded as long-term liabilities when received and are
amortized as a reduction to depreciation expense over the same period which the underlying purchased assets are
depreciated. In addition to government grants, customers occasionally provide fixed funding of certain track
rehabilitation or construction projects to facilitate the Company’s service over that track. These improvements
are not recorded in the Company’s financial statements unless the fixed funding exceeds the actual cost of
rehabilitation or construction in which case the Company records a gain in the then current period.
Goodwill and Indefinite-Lived Intangible Assets
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
F-10
Job: 87365_022 Genesee & Wyoming Inc Page: 76 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, “Goodwill and Other
Intangible Assets” (SFAS No. 142). The Company performs its annual impairment review as of November 30 of
each year and no impairment was recognized for the year ended December 31, 2006.
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 is 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, goodwill would be considered impaired. The second step measures the goodwill impairment as the
excess of recorded goodwill over the asset’s implied fair value.
Amortizable Intangible Assets
SFAS No. 144 requires a company to perform an impairment test on amortizable intangible assets when
specific impairment indicators are present. The Company has amortizable intangible assets in the United States
valued as customer relationships or contracts and previously had one amortizable intangible asset in Mexico
related to a concession agreement with the Secretaria de Comunicaciones y Transporte. Refer to Note 3 for
additional disclosure regarding the impairment of the amortizable intangible asset in Mexico. 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. See Note 6 for a more detailed
discussion of amortizable intangible assets.
Insurance
The Company maintains insurance, with varying deductibles up to $1.0 million per incident for property
damage and up to $0.5 million per incident for liability, for claims resulting from train derailments and other
accidents related to its railroad and industrial switching operations. Accruals for FELA claims by the Company’s
railroad employees and third party personal injury or other claims, limited when appropriate to the applicable
deductible, are recorded in the period when such claims are determined to be probable and estimable. These
estimates are updated in future periods as information develops.
Common Stock Splits
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 and per
share amounts presented herein have been restated to reflect the retroactive effect of these stock splits.
Earnings per Share
Common shares issuable under unexercised stock options and unvested restricted stock, calculated under the
treasury stock method, mandatorily redeemable convertible preferred stock converted in June 2004, and weighted
F-11
Job: 87365_022 Genesee & Wyoming Inc Page: 77 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
average Class B Common Shares outstanding are the only reconciling items between the Company’s 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 was 2,224,098, 2,430,297, and 2,583,296 for
2006, 2005 and 2004, respectively.
The following table sets forth the computation of basic and diluted earnings per share for the years ended
December 31, 2006, 2005 and 2004 (dollars in thousands, except per share amounts):
2006
2005
2004
Numerators:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends and accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$134,003
—
$50,135
—
$37,619
479
Net income available to Class A Common stockholders . . . . . . . . . . . . . . . . . . . .
$134,003
$50,135
$37,140
Denominators:
Weighted average Class A Common Shares outstanding—Basic . . . . . . . . . . . . .
Weighted average Class B Common Shares outstanding . . . . . . . . . . . . . . . . . . .
Dilutive effect of employee stock grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,609
3,975
833
36,907
3,975
830
36,207
4,011
885
Weighted average shares—Dilutive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42,417
41,712
41,103
Earnings per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
3.56
3.16
$
$
1.36
1.20
$
$
1.03
0.90
For 2006, 2005 and 2004, a total of 721,135, 10,548 and 16,471 shares, respectively, of common stock
issuable under the assumed exercises of stock options computed based on the treasury stock method, were not
included in the calculation of diluted earnings per common share, as the effect of including these shares would
have been anti-dilutive.
Income Taxes
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
provision is made for the U.S. income taxes applicable to the undistributed earnings of controlled foreign
subsidiaries as it is the intention of management to fully utilize those earnings in the operations of foreign
subsidiaries. The provision for, or benefit from, income taxes includes deferred taxes resulting from temporary
differences using the liability method. Such temporary differences result primarily from differences in the
carrying value of assets and liabilities for financial reporting and tax purposes. Future realization of deferred
income tax assets requires sufficient taxable income within the carryback, carryforward period available under
tax law. The Company evaluates, on a quarterly basis whether, based on all available evidence, it is probable that
the deferred income tax assets are realizable. Valuation allowances are established when it is estimated that it is
more likely than not that the tax benefit of the deferred tax asset will not be realized.
Pension and Other Postretirement Benefit Plans
The Company uses third-party actuaries to assist it in properly measuring the liabilities and expenses
associated with providing pension and medical and life insurance benefits (OPEB) for union and non-union
employees of two U.S. subsidiaries. In order to use actuarial methods to value the liabilities and expenses, the
Company is required to make several critical assumptions including the discount rate and expected rate of return
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on pension assets. For other postretirement benefits, the critical assumptions are the discount rate and healthcare
cost trend rate.
The Company evaluates the critical assumptions annually and its assumptions are based on the following
factors:
• Discount rate is based on a review of long-term bonds, including published indices. The 2006 discount
rate determined on that basis was 5.75%.
• Expected return on plan assets is based on an assumed long-term asset rate of return and was 8.5% for
2006.
• Health care cost trend rate is based on historical rates of inflation and expected market conditions. For
2006, it is assumed to be 9.0% graded ratably to 5.0% over a seven year period.
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106 and 132(R)” (SFAS No. 158). The standard, among other things, requires companies
to:
• Recognize the funded status of the Company’s defined benefit plans in its consolidated financial
statements.
• Recognize as a component of other comprehensive income the previously unrecognized prior service
costs/credits, gains/losses, and transition assets/obligations that arise during the year and are not
recognized as a component of net periodic benefit cost.
As of December 31, 2006, the Company adopted the standard and the adjustment to the Company’s balance
sheet increased the liability for pension and postretirement benefits by approximately $0.4 million and decreased
accumulated other comprehensive income by approximately $0.3 million, net of tax, with the difference recorded
as a deferred tax asset.
Stock-based Compensation Plans
The Compensation 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 the
Company’s employees through its 2004 Omnibus Incentive Plan (the Plan). The Plan permits the issuance of
stock options, restricted stock, and restricted stock units. Restricted stock units constitute a commitment to
deliver stock at some future date as defined by the terms of the awards. Under the terms of the awards, equity
grants for employees generally vest over three years and equity grants for directors vest over their respective
terms as directors.
In December 2004, the FASB issued Statement No. 123(R), “Share-Based Payments” (SFAS 123R), which
revised FASB Statement No. 123 “Accounting for Stock-Based Compensation” (SFAS No. 123), and superseded
Accounting Principles Board Opinion (APB) No. 25 “Accounting for Stock Issued to Employees” (APB No. 25).
This statement requires companies to 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 APB No. 25,
under which the Company had previously not recognized any compensation cost in its consolidated financial
statements except for compensation expense related to restricted stock.
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GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company elected to adopt SFAS 123R in the third quarter of 2005 using the Modified Prospective
Application. Prior to adoption of SFAS No. 123R, the Company 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 No. 123R, for the period beginning with the third quarter of 2005, the Company reports the excess tax
benefits from the exercise of stock options as an adjustment to net income in determining cash flows 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,
companies must choose among alternative valuation models and amortization assumptions. After assessing
alternative valuation models and amortization assumptions, the Company chose to 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 and that this estimate of forfeitures be adjusted over the requisite service period based on
the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Accordingly, the
Company estimated forfeiture percentages for the unvested portion of previously granted awards that remained
outstanding at the date of adoption. The Company previously disclosed forfeitures as they occurred in its expense
calculation for pro forma footnote disclosure.
In November 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP)
No. FAS 123R-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment
Awards. The FSP provides an alternative transition method for calculating the pool of excess tax benefits to
absorb tax deficiencies recognized subsequent to the adoption of FASB Statement No. 123R. An entity may take
up to one year from the initial adoption of Statement 123R or the effective date (November 10, 2005) of this FSP
to evaluate available transition methods. The Company elected the alternative transition method described in the
FSP to calculate the beginning balance of the pool of excess tax benefits.
Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial
instrument held by the Company:
• Current assets and current liabilities: The carrying value approximates fair value due to the short
maturity of these items.
• Long-term debt: The fair value of the Company’s long-term debt is based on secondary market
indicators. Since the Company’s debt is not quoted, estimates are based on each obligation’s
characteristics, including remaining maturities, interest rate, amortization schedule and liquidity. The
carrying amount of the Company’s fixed rate and variable rate debt approximates its fair value.
Foreign Currency
The financial statements of the Company’s foreign subsidiaries were prepared in the local currency of the
respective subsidiary and translated into U.S. dollars based on the exchange rate at the end of the period for
balance sheet items and, for the statement of operation items, at the average rate for the statement period.
Translation adjustments are reflected as currency translation adjustments in stockholders’ equity and are included
in accumulated other comprehensive income. Cumulative translation adjustments are recognized in the
consolidated statement of operations for substantial or complete liquidation of the underlying investment in the
foreign subsidiary. Revaluation of U.S. dollar denominated foreign loans into the appropriate local currency
resulted in a gain of $0.8 million in 2006, and losses of $0.7 million and $0.1 million in 2005 and 2004,
respectively.
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GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Management Estimates
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
management judgment are made 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.
Reclassifications
Certain prior year balances have been reclassified to conform to the 2006 presentation, including equity
income of unconsolidated international affiliates.
3. Changes In Operations:
Australia
Effective June 1, 2006, the Company and its 50% partner, Wesfarmers Limited (Wesfarmers), completed
the sale of the Western Australia operations and certain other assets of ARG to Queensland Rail and Babcock &
Brown Limited (ARG Sale). As a result of the sale, the Company recognized a $218.8 million net gain, including
a $22.8 million gain from the cumulative translation of the foreign currency investment and related equity
earnings in ARG into U.S. dollars since 2000. In connection with the ARG Sale, the Company also incurred $6.4
million of net transaction-related expenses, of which $5.8 million related to management bonuses and stock
option awards.
Simultaneous with the ARG Sale, the Company purchased Wesfarmers’ 50% ownership of the remaining
ARG operations, which are principally located in South Australia, for approximately $15.1 million (GWA
Purchase) (collectively, Australian Transactions). This business, which is based in Adelaide, South Australia,
was renamed Genesee & Wyoming Australia Pty Ltd (GWA), and is a 100% owned subsidiary. The GWA
Purchase was accounted for under the purchase method of accounting. However, because the Company
previously held a 50% share of these assets through its ownership interest in ARG, it applied a step-method to the
allocation of value among the assets and liabilities of GWA. Because the $15.1 million purchase price for
Wesfarmers’ 50% share was lower than 50% of the book value ARG had historically recorded on these assets,
the Company recorded a non-cash loss of $16.2 million ($11.3 million, net of tax), representing its 50% share of
the impairment loss recorded by ARG, which was included in equity income of international affiliates in the
consolidated statement of operations during the second quarter of 2006. GWA commenced operations on June 1,
2006. Accordingly, 100% of the value of GWA’s net assets ($30.1 million) was included in the Company’s
consolidated balance sheet since June 1, 2006.
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GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
While the Company expects to complete its allocation of the value of GWA among respective assets and
liabilities during the second quarter of 2007, the following table sets forth its preliminary allocation (dollars in
thousands):
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,441
12,902
24,886
3,799
43,028
10,888
2,036
12,924
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30,104
South America
On April 21, 2006, due to the heightened political and economic unrest and uncertainties in Bolivia, the
Company advised the creditors of Genesee & Wyoming Chile S.A. (GWC), that it was ceasing its efforts to
restructure the $12.0 million non-recourse debt obligation of GWC, through which it maintained a partial equity
interest in Ferroviaria Oriental S.A. (Oriental). As a result of the uncertainty surrounding the $12.0 million debt,
the Company discontinued equity accounting for its 12.52% equity interest in Oriental held through its interest in
GWC in the fourth quarter of 2004.
In May 2006, the Bolivian government issued a Presidential decree ordering the nationalization of Bolivia’s
oil and gas industry. In June 2006, the government announced that it intended to nationalize, take a partial
ownership stake in, or restructure the operations of other local companies, including Oriental. As a result of the
government’s stated intentions, the Company believed it was likely that Oriental’s results of operations, financial
condition, and liquidity would be adversely affected.
Accordingly, the Company determined during the second quarter of 2006 that its $8.9 million equity
investment, including the portion held though GWC, had suffered an other-than-temporary decline in value.
Based on the Company’s assessment of fair value, the investment was written down by $5.9 million with a
corresponding charge to earnings in the year ended December 31, 2006.
As of June 1, 2006, the Company discontinued equity accounting for the remaining $3.0 million investment
in Oriental. The Company will account for this investment under the cost method in future periods and will
record income to the extent that it receives cash dividends from Oriental. Historically, Oriental’s results of
operations have not had a material impact on the Company’s results of operations. The Company will continue to
monitor the political situation in Bolivia.
Mexico
In October 2005, the Company’s Mexican railroad operation, Ferrocarriles Chiapas-Mayab, S.A. de C.V.
(FCCM) was struck by Hurricane Stan with the most severe impact concentrated in the State of Chiapas between
the town of Tonalá and the Guatemalan border. Approximately seventy bridges were damaged or destroyed and
various segments of track were washed out. Thereafter, FCCM worked with the Secretaria de Comunicaciones y
Transporte (SCT) and other Mexican government agencies to develop a reconstruction plan for the damaged
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
portion of the railroad. In July 2006, FCCM received a letter from the SCT indicating that the SCT intended to
fund 75% of the $20.0 million expected cost to rebuild the damaged rail line subject to certain conditions.
Shortly thereafter, FCCM began negotiating a formal agreement with the SCT and undertook project design
work. However, actions taken by the Mexican National Water Commission (CNA) and other Mexican
government agencies in the storm-damaged area significantly increased the cost of the rail line reconstruction
project and made the timetable to completion uncertain. As of September 30, 2006, the government had not
committed adequate resources to fund the project and the Company did not intend to fund the additional costs.
Accordingly, the Company recorded a non-cash charge of $33.1 million pre-tax ($34.1 million after-tax) in the
third quarter of 2006, reflecting the write-down of non-current assets and related effects of FCCM. FCCM’s
remaining $19.6 million of assets as of December 31, 2006, consisted of approximately $6.7 million of
non-current assets, primarily locomotives and freight cars, and approximately $12.8 million of current assets,
primarily receivables and inventory.
On September 15, 2006, the Company’s Mexican subsidiary, GW Servicios S.A. (Servicios) was unable to
fund its principal and interest payment of $1.9 million due under its loan agreements. In November 2006, the
Company made this payment on Servicios’ behalf under a corresponding guarantee arrangement. In the event
Servicios is unable to fund future payments, the lenders to the Mexican operations will have the right to
accelerate the outstanding debt and commence actions to (i) collect on the entire outstanding balance under the
loan agreements (approximately $13.3 million), or (ii) exercise their rights to the collateral pledged under the
loan agreements, including FCCM’s rolling stock and the Company’s shares in FCCM and Servicios. If the
lenders accelerate the outstanding debt, they may demand immediate payment of $7.0 million from the Company
pursuant to a guarantee. Neither payment defaults by Servicios, nor any action taken by the lenders to collect
under the loan agreements, will result in a default under the Company’s other outstanding debt obligations.
The Company engaged in a number of actions seeking resolution of the situation in Mexico. However, the
Company expects to continue to incur operating losses from the Mexican business and may record additional
charges going forward. In addition, despite any previous agreements with the SCT and other government
agencies, the Company is uncertain as to whether sufficient funds will be available from the Mexican
government to fund the reconstruction of the damaged rail line. As a result of the changing economic
circumstances of the Company’s Mexican operations as compared to its other businesses, the Company has
presented its Mexican business as a separate segment in accordance with SFAS No. 131, “Disclosures about
Segments of an Enterprise and Related Information” beginning July 1, 2006. See Note 11 for additional
information regarding the Company’s segments.
United States
Chattahoochee Bay Railroad, Inc.: On August 25, 2006, the Company’s newly formed subsidiary, the
Chattahoochee Bay Railroad, Inc. (CHAT), acquired the assets of the Chattahoochee & Gulf Railroad Co., Inc.
and the H&S Railroad Company, Inc. for $6.1 million in cash. The preliminary purchase price was allocated
between property and equipment ($5.1 million) and intangible assets ($1.0 million). The rail assets acquired by
CHAT are contiguous and connect the Company’s Bay Line Railroad to its Chattahoochee Industrial Railroad.
Portsmouth Terminal: On August 25, 2006, the Company exercised an option to purchase 12.5 miles of
previously leased rail line from Norfolk Southern Corp. (NS) for $3.6 million. The 12.5 mile rail line runs
through Portsmouth, Chesapeake, and Suffolk, VA. The Company’s subsidiary, the Commonwealth Railway
(CWRY), will own and continue to operate the line upon receipt of customary regulatory approvals. The
Company has commenced a $14.0 million improvement project (including approximately $6.0 million in
government grants) to meet the projected capacity needs of a customer’s new container terminal in Portsmouth,
which is expected to be complete in July 2007.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Homer City Branch: In July 2005, the Company’s Homer City Branch, which is located in Homer City,
Pennsylvania, began operations to a coal-fired power plant upon completion of track rehabilitation, a portion of
which was funded through government grants. The Homer City Branch, which was acquired in January of 2004
from CSX, is contiguous to the Company’s existing railroad operations.
Rail Partners: On June 1, 2005, the Company acquired from Rail Management Corporation (RMC)
substantially all of its 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.
During the three months ended June 30, 2006, the Company completed its allocation of the purchase price from
this acquisition, including an adjustment of $6.6 million to reduce our preliminary estimate of the value of
acquired intangible assets with a corresponding increase in goodwill. In the final allocation, the purchase price
was allocated to current assets ($19.4 million, including $4.9 million in cash received), property and equipment
($186.0 million), intangible assets ($53.8 million), and goodwill ($6.6 million), less current liabilities ($21.3
million) and debt assumed ($1.4 million). The intangible assets excluding goodwill consist of customer contracts
and relationships with a weighted average amortization period of 27 years.
First Coast Railroad Inc: On April 8, 2005, the Company’s 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). FCRD commenced operations on April 9, 2005.
Results of Operations
When comparing the Company’s results of operations from one reporting period to another, you should
consider that it has historically experienced fluctuations in revenues and expenses due to one-time freight moves,
weather-related impacts such as hurricanes, flood, drought or snow, customer plant expansions and shut-downs,
sales of land and equipment, accidents, and derailments. In periods when these events occur, results of operations
are not easily comparable to other periods. Also, the Company has completed and entered into a number of recent
transactions which have changed and will change its 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 the
Company’s operating results in other reporting periods.
Certain of the Company’s railroads have commodity shipments which are sensitive to general economic
conditions in the countries in which it operates, including paper products in Canada, lumber and forest products
in the United States, and cement in Mexico. However, shipments of other commodities are less affected by
economic conditions and are more closely affected by other factors, such as inventory levels maintained at a
customer power plant (coal) and winter weather (salt).
Pro Forma Financial Results (unaudited)
The following table summarizes the Company’s unaudited pro forma operating results for the years ended
December 31, 2006, 2005 and 2004, as if Rail Partners had been acquired as of January 1, 2004 and if the
Australian Transactions had occurred as of January 1, 2005 (dollars in thousands, except per share amounts):
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$508,971
$ 15,523
0.41
$
0.37
$
$481,167
$ 46,718
1.27
$
1.12
$
$360,691
$ 41,850
1.16
$
1.01
$
2006
2005
2004
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The unaudited pro forma operating results include the Australian Transactions adjusted, net of tax, for
certain closing costs incurred from the ARG Sale, and interest expense savings from the pay down of the revolver
from proceeds received from the ARG Sale. In addition, the unaudited pro forma operating results include the
acquisition of Rail Partners adjusted, net of tax, for depreciation and amortization expense resulting from the
step-up of the Rail Partners property and intangible assets based on appraised values, capitalization of certain
track repairs that were historically expensed, and the inclusion of incremental 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 would
have continued as ongoing expenses but do not qualify for elimination under the treatment and presentation of
pro forma financials.
The pro forma financial information does not purport to be indicative of the results that actually would have
been obtained had the transaction 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.
4. Accounts Receivable and Allowance For Doubtful Accounts:
Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for
doubtful accounts is the Company’s best estimate of the amount of probable credit losses on existing accounts
receivable. Management determines the allowance based on historical write-off experience within each of the
Company’s regions. Management reviews material past due balances over 90 days on a monthly basis. Account
balances are charged off against the allowance when management determines it is probable that the receivable
will not be recovered. The Company does not have any off-balance sheet credit exposure related to customers.
Receivables consisted of the following at December 31, 2006, 2005, and 2004 (dollars in thousands):
Accounts Receivable—Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$120,006
$93,024
$65,988
2006
2005
2004
Activity in the Company’s allowance for doubtful accounts was as follows (dollars in thousands):
Balance, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,890
3,013
(1,996)
$ 1,451
2,053
(1,614)
$ 2,014
1,195
(1,758)
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,907
$ 1,890
$ 1,451
2006
2005
2004
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GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
5. Property and Equipment:
Major classifications of property and equipment were as follows (dollars in thousands):
2006
2005
Property:
Land and Land Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and Leasehold Improvements . . . . . . . . . . . . . . . . . . . . . . . .
Bridges/Tunnels/Culverts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Track Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 49,541
30,722
83,462
397,589
$ 45,143
25,966
75,226
400,329
Total Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
561,314
546,664
Equipment:
Computer Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Locomotives & Freight Cars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vehicles and Mobile Equipment
Signals and Crossing Equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Track Equipment
Other Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,415
90,717
18,730
8,620
4,423
8,310
3,687
70,942
16,071
7,594
4,189
8,556
Total Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
134,215
111,039
Construction-in-Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,461
3,357
Total Property and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
717,990
661,060
Less Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . .
(144,698)
(125,066)
Property and Equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 573,292
$ 535,994
Construction-in-process as of December 31, 2006 and 2005, totaled $22.5 million and $3.4 million,
respectively, consisted primarily of costs associated with track and equipment rehabilitation projects.
Depreciation expense for 2006, 2005, and 2004 totaled $26.3 million, $21.5 million, and $17.7 million,
respectively.
Refer to Note 3 for disclosure of the Company’s write-down of a portion of its Mexican subsidiaries
property and equipment in accordance with Statement of Financial Accounting Standards No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets.”
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Job: 87365_022 Genesee & Wyoming Inc Page: 86 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
6. Intangible and Other Assets, Net and Goodwill:
Intangible and other assets were as follows (dollars in thousands):
December 31, 2006
December 31, 2005
Gross
Carrying
Amount
Accumulated
Amortization Net Assets
Gross
Carrying
Amount
Accumulated
Amortization Net Assets
Intangible Assets:
Amortizable intangible assets:
Chiapas-Mayab Operating
License (Mexico) . . . . . . . . . .
$ —
$ —
$ — $
7,380
$1,537
$
5,843
Amended and Restated Service
Assurance Agreement
(Illinois & Midland
Railroad) . . . . . . . . . . . . . . . . .
Transportation Services
10,566
1,509
9,057
10,566
1,078
9,488
Agreement (GP Railroads) . . .
27,056
2,706
24,350
27,055
1,803
25,252
Customer Contracts and
Relationships (Rail Partners
and CHAT) . . . . . . . . . . . . . . .
Non-amortizable intangible assets:
Track Access Agreements (Utah
Railway) . . . . . . . . . . . . . . . . .
54,859
3,488
51,371
60,406
1,436
58,970
35,891
—
35,891
35,891
—
35,891
Total Intangible Assets . . . .
$128,372
$7,703
$120,669
$141,298
$5,854
$135,444
Other Assets:
Deferred financing costs . . . . . . .
Other assets . . . . . . . . . . . . . . . . .
5,933
7,374
2,137
115
3,796
7,259
5,933
7,832
1,289
88
4,644
7,744
Total Other Assets . . . . . . .
$ 13,307
$2,252
$ 11,055
$ 13,765
$1,377
$ 12,388
Total Intangible and Other
Assets . . . . . . . . . . . . . . .
$141,679
$9,955
$131,724
$155,063
$7,231
$147,832
In the third quarter of 2006, the Company tested the Chiapas-Mayab Operating License agreement that was
being amortized over 30 years, as the Company determined that at least one of the indicators of impairment, as
set-forth in Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal
of Long-Lived Assets,” (SFAS No. 144), was present. As a result of the test, the Company recorded an
impairment charge of $5.5 million to net loss (gain) from sale or impairment of assets within its income from
operations. The impairment charge was in relation to the Company’s Mexico Operations segment. In addition,
the Company recorded a full valuation allowance of $2.3 million against a Mexican asset tax credit carry forward
included in other assets (see Note 3 for additional information).
The estimated useful life over which the Company is amortizing the Illinois and Midland Railroad’s
Amended and Restated Service Assurance Agreement (ARSAA) asset is based on the Company’s estimate that
the useful life of the coal-fired electricity generation plant, to which the Company provides service, will be
through 2027.
The Transportation Services Agreement (the TSA) is a 20-year agreement to provide exclusive rail
transportation service to facilities of the Georgia Pacific Corporation. The Company believes, however, that these
F-21
Job: 87365_022 Genesee & Wyoming Inc Page: 87 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
facilities have a 30-year economic life commencing January 1, 2004 and that the Company will continue to be
the exclusive rail transportation service provider until the end of the plant’s useful life. Therefore, the TSA is
being amortized on a straight-line basis over a 30-year life which began on that date.
The Company allocated $53.8 million of the purchase price for the Rail Partners acquisition to intangible
assets during 2006. These intangible assets were valued as customer relationships or contracts and are amortized
on a straight line basis over the expected economic longevity of the customer relationship or the facility served or
the length of the customer contract, as applicable. These intangible assets are being amortized over a weighted
average life of 27 years which began on June 1, 2005. Company also allocated $6.6 million of the final purchase
price for the Rail Partners acquisition to goodwill. The $6.6 million of goodwill will be deductible for tax
purposes over a 15-year period.
In the preliminary purchase price allocation of Chattahoochee Bay Railroad, Inc. (CHAT), the Company
allocated $1.0 million to intangible assets as of December 31, 2006. These intangible assets were valued as
customer contracts and are amortized on a straight-line basis over the expected economic life of 30 years of the
customer contracts.
The Track Access Agreements are perpetual trackage agreements assumed in the Company’s acquisition of
Utah Railway Company. Under Statement of Financial Accounting Standards No. 142, “Goodwill and Other
Intangible Assets” (SFAS No. 142), these assets have been determined to have an indefinite useful life and,
therefore, are not subject to amortization. However, these assets are tested for impairment on an annual basis.
In 2006, 2005, and 2004, the aggregate amortization expense associated with intangible assets was
approximately $3.6 million, $3.0 million, and $1.6 million, respectively. The Company estimates the future
aggregate amortization expense related to intangible assets as of December 31, 2006, will be as follows for the
periods presented (dollars in thousands):
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,563
3,512
3,476
3,476
3,476
67,275
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$84,778
Deferred financing costs are amortized as an adjustment to interest expense over the 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. In 2006, 2005, and 2004, the Company amortized $0.8 million, $0.8 million, and $1.2
million, respectively, of deferred financing costs as an adjustment to interest expense.
Other assets consist primarily of executive split dollar life insurance, assets held for sale or future use, and a
minority equity investment in an agricultural facility located on one of the Company’s railroads. Executive split
dollar life insurance is the present value of life insurance benefits which the Company funds but which are owned
by executive officers. The Company retains a collateral interest in a portion of the policies’ cash values and death
benefits. Assets held for sale or future use primarily represent surplus track and locomotives.
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Job: 87365_022 Genesee & Wyoming Inc Page: 88 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In accordance SFAS No. 142, goodwill is not amortized. The changes in the carrying amount of goodwill
were as follows (dollars in thousands):
Year Ended
December 31
2006
2005
Goodwill:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$31,233
6,564
(9)
$24,682
6,500
51
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$37,788
$31,233
Under SFAS No. 142, goodwill and other indefinite-lived intangibles must be tested for impairment
annually (or in interim periods if events indicate possible impairment). Goodwill was entirely related to the
Company’s Railroad Operations Excluding Mexico operating segment as of December 31, 2006 and 2005.
7. Equity Investments:
Australian Railroad Group
As discussed in Note 3, the Company and its 50% partner, Wesfarmers, sold the Western Australia
operations and certain other assets of ARG on June 1, 2006. Simultaneously, the Company purchased
Wesfarmers’ 50% ownership of the remaining ARG operations, which are principally located in South Australia.
Accordingly, the following are U.S. GAAP condensed balance sheets of ARG as of May 31, 2006, immediately
prior to the sale and purchase transactions, and December 31, 2005, and the related condensed consolidated
statements of operations and cash flows for the five-month period ended May 31, 2006, and the years ended
December 31, 2005 and 2004 (in thousands of U.S. dollars). The periods presented represent those for which the
Company accounted for its investment in ARG under the equity method of accounting.
For the dates and periods indicated below, one Australian dollar could be exchanged into the following
amounts of U.S. dollars:
As of May 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average for the five months ended May 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average for the year ended December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average for the year ended December 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.753
$0.734
$0.783
$0.743
$0.762
$0.736
F-23
Job: 87365_022 Genesee & Wyoming Inc Page: 89 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As described in Note 3 regarding the GWA Purchase, because the $15.1 million purchase price for
Wesfarmers’ 50% share was lower than 50% of the book value ARG had historically recorded on these assets,
the Company recorded a non-cash loss of $16.2 million ($11.3 million, net of tax), representing the Company’s
previously held 50% share of the impairment loss recorded by ARG. Accordingly, the ARG financial statements
included below have been adjusted to reflect 100% of the non-cash loss or $32.3 million ($22.6 million, net of
tax), resulting from the write downs of an investment, property and equipment and other long-term assets, net.
Australian Railroad Group Pty Ltd
Condensed Consolidated Balance Sheets
(in thousands of U.S. dollars)
May 31,
2006
December 31,
2005
Assets
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 20,890
45,769
13,901
1,235
4,847
86,642
560,670
60,827
1,574
$ 12,515
54,257
11,226
2,323
—
80,321
551,849
67,834
7,799
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$709,713
$707,803
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 28,733
31,457
—
1,769
$ 25,473
32,890
10
—
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61,959
Long-term 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
376,300
13,549
13,237
2,447
405,533
16,251
225,970
58,373
359,415
24,599
11,121
4,735
399,870
15,838
233,722
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$709,713
$707,803
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Job: 87365_022 Genesee & Wyoming Inc Page: 90 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Australian Railroad Group Pty Ltd
Condensed Consolidated Statement of Operations
(in thousands of U.S. dollars)
Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from operations . . . . . . . . . . . . . . . . . . . . . . . . .
Investment loss—APTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income before income taxes . . . . . . . . . . . . . . . . . . . . . .
(Benefit from) provision for income taxes . . . . . . . . . . . . . . . . .
Five Months
Ended
May 31
2006
$147,044
151,715
(4,671)
(5,823)
(11,477)
218
(21,753)
(6,503)
Year Ended December 31,
2005
2004
$344,546
288,488
$333,647
265,702
56,058
—
(29,430)
600
27,228
8,292
67,945
—
(28,438)
1,227
40,734
12,264
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (15,250)
$ 18,936
$ 28,470
Australian Railroad Group Pty Ltd
Condensed Consolidated Statement of Cash Flows
(in thousands of U.S. dollars)
Cash flows from operating activities:
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Investment loss—APTC . . . . . . . . . . . . . . . . . . . . . . .
Net loss (gain) on sale and impairment of assets . . . .
Changes in assets and liabilities . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . .
Cash flows from investing activities:
Five Months
Ended
May 31
2006
Year Ended
December 31,
2005
2004
$(15,250)
$ 18,936
$ 28,470
14,584
(5,889)
5,823
25,732
10,391
35,391
32,127
9,726
—
(229)
9,675
70,235
27,346
11,847
—
(336)
4,829
72,156
Purchases of property and equipment . . . . . . . . . . . . . . . . .
Proceeds from disposition of property and equipment . . . .
Net cash used in investing activities . . . . . . . . . . . . . .
(35,430)
710
(34,720)
(80,038)
2,147
(69,519)
2,570
(77,891)
(66,949)
Cash flows from financing activities:
Payments on borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on subordinated notes to stockholders . . . . . . . .
Net cash provided by (used in) financing activities . .
Effect of exchange rate differences on cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . . . .
—
7,272
—
7,272
432
8,375
12,515
(7,424)
7,665
—
241
(1,287)
(8,702)
21,217
—
—
(10,710)
(10,710)
102
(5,401)
26,618
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . .
$ 20,890
$ 12,515
$ 21,217
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Job: 87365_022 Genesee & Wyoming Inc Page: 91 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
South America
The Company has a 22.89% indirect ownership interest in Oriental, which is located in eastern Bolivia. As
previously discussed in Note 3, the Company determined during the second quarter of 2006 that its $8.9 million
equity investment, including the portion held though GWC, had suffered an other than temporary decline in
value. The Company will continue to monitor the political situation in Bolivia and will account for its investment
under the cost method in future periods and will record income to the extent that it receives cash dividends from
Oriental. Historically, Oriental’s results of operations have not had a material impact on the Company’s results of
operations.
8. Leases:
The Company enters into operating leases for freight cars, locomotives, and other equipment. Related
operating lease expense for the years ended December 31, 2006, 2005 and 2004 was approximately $19.4
million, $15.8 million and $10.4 million, respectively. The Company leases certain real property, which resulted
in additional operating lease expense for the years ended December 31, 2006, 2005, and 2004 of approximately
$2.9 million, $2.3 million, and $2.0 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 $6.6 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 $15.3 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 recorded a pre-tax deferred gain from sale-leaseback transactions in Other Liabilities on the
accompanying 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 $2.4 million and $3.2 million at December 31, 2006 and 2005, respectively.
The Company is a party to several lease agreements with Class I carriers to operate over various rail lines in
North America. Certain of these lease agreements have annual 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, 2006, no payments were required under these lease arrangements.
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. 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.
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Job: 87365_022 Genesee & Wyoming Inc Page: 92 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 (dollars in thousands):
Year
Capital
Non-cancelable
Operating
Cancelable
Operating
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum payments . . . . . . . . . . . . . . . . . . .
$ 14
15
16
17
18
319
$399
$ 17,963
15,994
11,687
8,998
5,370
42,192
$102,204
$4,435
3,953
700
8
2
—
$9,098
Total
$ 22,412
19,962
12,403
9,023
5,390
42,511
$111,701
9. Long-Term Debt:
Long-term debt consisted of the following (dollars in thousands):
Senior Credit Facilities with variable interest rates (weighted average of 5.40% and
5.61% before impact of interest rate swaps at December 31, 2006 and 2005,
respectively) due 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 (6.08% at December 31, 2006) due
As of December 31,
2006
2005
$ 29,717
75,000
100,000
$119,400
75,000
100,000
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,000
25,000
Limited recourse U.S. dollar denominated promissory notes of Mexican subsidiary with
variable interest rates (8.93% and 7.51% before impact of interest rate swaps at
December 31, 2006 and 2005, respectively) due 2011 and 2012 . . . . . . . . . . . . . . . . . . .
Other debt and capital leases with interest rates up to 6.0% and maturing at various dates
13,301
15,779
up to 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,667
3,172
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt
Less—current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
245,685
4,372
338,351
4,726
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$241,313
$333,625
Senior U.S. and Canadian Credit Facilities
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 the Company’s senior revolving credit
facility from $150.0 million to $225.0 million. It also extended the maturity date of the U.S. 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 revolving 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 the senior
revolving credit facility at an initial borrowing rate of LIBOR plus 1.375%. As of December 31, 2006, our
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GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
$225.0 million revolving credit facility consisted of no outstanding debt, subsidiary letter of credit guarantees of
$0.2 million and $224.8 million of unused borrowing capacity. Interest rates for borrowings are based on U.S. or
Canadian LIBOR plus a margin, which varies from 0.75% to 1.375% 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 guaranteed by substantially all of the Company’s U.S. and Canadian subsidiaries.
Financial covenants, which are measured on a trailing twelve month basis and reported quarterly, are as
follows:
(a) Maximum leverage of 3.5 times (measured as Funded Debt (indebtedness plus guarantees including
Letters of Credit, plus the present value of operating leases) to EBITDAR (earnings before interest, taxes,
depreciation, amortization and rental payments on operating leases).
(b) Minimum interest coverage of 3.5 times measured as EBITDA (earnings before interest, taxes,
depreciation and amortization) divided by interest expense.
(c) Minimum consolidated tangible net worth measured as 80% of consolidated tangible net worth of
the borrowers as of March 31, 2005, plus on a cumulative basis, 50% of positive consolidated net income
(excluding the effect of foreign currency transaction gains or losses) for each fiscal quarter ending
subsequent to 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 the Company’s Australia Transactions, the Company 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 waived
compliance with the restrictions on the dispositions of assets and adjusted 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 18 months following the closing of
the Australia Transactions as long as certain financial covenants governing distributions are met.
The credit facilities contain a number of covenants restricting the Company’s ability to incur additional
indebtedness, make certain investments, sell assets, issue subsidiary stock, restrict distributions from subsidiaries,
create certain liens, enter into certain consolidations or mergers, enter into certain transactions with affiliates, and
pay dividends or make distributions. The credit facilities allow the Company to pay dividends and make
distributions provided that Funded Debt to EBITDAR, including any borrowings made to fund the dividend or
distribution, is less than 3.0 to 1.0.
The Company was in compliance with the provisions of these covenants as of December 31, 2006 in all
material respects.
Senior Notes
On July 26, 2005, the Company completed a private placement of $100.0 million of Series B senior notes
and $25.0 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,
2006, the Series C senior notes had an interest rate of 6.08%. The Company used the proceeds of the senior notes
to repay $125.0 million of notes issued in connection with the Rail Partners transaction.
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GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
On November 12, 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 Series A senior notes to repay $75.0 million of approximately $110.0 million of debt outstanding at its
U.S. and Canadian subsidiaries.
The senior notes are unsecured but are guaranteed by substantially all of the Company’s U.S. and Canadian
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 must be satisfied 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 Company was in compliance with the provisions of these covenants as of December 31, 2006 in all
material respects.
Limited Recourse Promissory Notes—Mexico
On April 1, 2005, the Company and its Mexican subsidiaries, Servicios and FCCM amended loan
agreements 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 the Company’s existing support obligations related to such loans, effective
March 15, 2005.
Under the amended terms, principal payments under Servicios’ promissory notes payable were reduced and
maturity dates were extended by three years. In addition, amounts held in escrow for the benefit of IFC and FMO
(approximately $0.6 million) were released to prepay a portion of the loans. As of December 31, 2006, the
aggregate amount outstanding on the notes totaled $13.3 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 have combined semi-annual
principal payments of $0.8 million which began March 15, 2005, and continue through the maturity date of
September 15, 2011. The third note has semi-annual principal payments of $0.5 million which began March 15,
2005, and continues through the maturity date of September 15, 2012.
The notes contain certain financial and other covenants applicable only to FCCM and Servicios, including
mandatory 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.
Under the original loan agreements for $27.5 million of debt, 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 its
$8.0 million obligation and the project was still in the investment phase. The amended agreements eliminate the
Company’s obligations to provide additional funding under those terms and instead obligates the Company to
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GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
On September 15, 2006, Servicios was unable to fund its principal and interest payment of $1.9 million due
under its loan agreements. In November 2006, the Company made this payment on Servicios’ behalf under a
corresponding guarantee arrangement which in turn reduced the Company’s guarantee by the same amount. In
the event Servicios is unable to fund future payments, the lenders to the Mexican operations will have the right to
accelerate the outstanding debt and commence actions to (i) collect on the entire outstanding balance under the
loan agreements (approximately $13.3 million) or (ii) exercise their rights to the collateral pledged under the loan
agreements, including FCCM’s rolling stock and the Company’s shares in FCCM and Servicios. If the lenders
accelerate the outstanding debt, they may demand immediate payment of $7.0 million from the Company
pursuant to a guarantee. Neither payment defaults by Servicios, nor any action taken by the lenders to collect
under the loan agreements, will result in a default under the Company’s other outstanding debt obligations. The
Company anticipates Servicios will not be able to meet its debt service obligations in 2007. If the lenders demand
from the Company the amount of the debt service due in 2007, or any amount up to $7.0 million, the Company
will be obligated to fund the amount demanded.
To the extent that FCCM’s annual capital expenditures exceed 60% of FCCM’s consolidated EBITDA, 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 2006 EBITDA and capital expenditures, the Company will be obligated to advance $3.7 million, full
payment of which is due in the second quarter of 2007.
In conjunction with the original financing, IFC invested $1.9 million of equity in Servicios for a 12.7%
indirect interest in FCCM. Along with its equity investment, IFC received a put option exercisable in 2005 to sell
its equity stake back to 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 in the agreements. 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 cash
outflow that would result from the closing of the exercise of the put option will ultimately be determined by
negotiation underway with the IFC, but in no case will the cash outflow exceed $1.7 million.
Schedule of Future Payments Including Capital Leases
The following is a summary of the maturities of long-term debt as of December 31, 2006 (dollars in
thousands):
Future minimum payments
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,414
4,400
29,169
2,758
77,742
127,202
$245,685
See Note 8 for a schedule of capital lease payments.
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GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
10. Derivative Financial Instruments:
The Company actively monitors its exposure to interest rate and foreign currency exchange rate risks and
use 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 the Company use derivative instruments where there are not underlying exposures. Complex
instruments involving leverage or multipliers are not used. The Company manages its hedging position and
monitors the credit ratings of counterparties and does not anticipate losses due to counterparty nonperformance.
Management believes that its use of derivative instruments to manage risk is in the Company’s best interest.
However, the Company’s use of derivative financial instruments may result in short-term gains or losses and
increased earnings volatility.
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 comprehensive income is reported in the consolidated statements of operations on the same
line as the hedged item. In addition, the portion of the changes in fair value of derivatives used as cash flow
hedges that is not offset by changes in the expected cash flows related to a recognized asset or liability (the
ineffective portion) is immediately recognized.
The Company formally documents its hedge relationships, including identifying the hedge instruments and
hedged items, as well as its risk management objectives and strategies for entering into the hedge transaction.
Derivatives are recorded in the consolidated balance sheets at fair value in 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.
Interest Rate Risk Management
The Company uses interest rate swap agreements to manage its exposure to changes in interest rates of the
Company’s floating rate debt. Interest rate swaps are accounted for as cash flow hedges. Gains or losses on the
swaps, representing interest rate differentials to be received or paid on the swaps, are recognized in the
consolidated statements of operations as a reduction or increase in interest expense, respectively.
During 2001 and 2004, the Company entered into various interest rate swaps and swapped its variable
LIBOR interest rates on long-term debt for a fixed interest rate. One of these swaps expired in September 2006.
The remaining swap expires in September 2007, with a notional amount of $21.4 million. At December 31, 2006,
the swap agreement represented a liability with a fair value of this less than $0.1 million. At December 31, 2005,
the notional amount under these agreements was $29.1 million, and represented a liability with a fair value of
$0.2 million.
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GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Foreign Currency Exchange Rate Risk
The Company purchases options to manage foreign currency exchange rate risk related to certain projected
cash flows related to foreign operations. Foreign currency exchange rate options are accounted for as cash flow
hedges.
Foreign Currency Hedge
On February 13, 2006, the Company entered into two foreign currency forward contracts with a total
notional amount of $190 million to hedge a portion of its investment in 50% of the equity of ARG. The contracts,
which expired in May 2006, were extended to June 1, 2006, and protected the hedged portion of the Company’s
net investment from exposure to large fluctuations in the U.S./Australian Dollar exchange rate. At expiration,
excluding the effects of fluctuations in the exchange rate on the Company’s net investment, the Company
recorded a loss of $4.3 million from these contracts, which is included in the net gain on the ARG Sale. During
2005, we purchased two foreign currency exchange rate options that established exchange rates for converting
Mexican Pesos to U.S. Dollars. Both of these options expired during 2006.
11. Common Stock:
The authorized capital stock of the Company consists of two classes of common stock designated as Class A
Common Stock and Class B Common Stock. The holders of Class A Common Stock and Class B Common Stock
are entitled to one vote and ten votes per share, respectively. Each share of Class B Common Stock is convertible
into one share of Class A Common Stock at any time at the option of the holder. In addition, pursuant to the
Class B Stockholders’ Agreement dated as of May 20, 1996 certain transfers of the Class B Common Stock,
including transfers to persons other than our executive officers, will result in automatic conversion of Class B
Common Stock into shares of Class A Common Stock. Holders of Class A Common Stock and Class B Common
Stock shall have identical rights in the event of liquidation.
Dividends declared by the Company’s Board of Directors are payable on the outstanding shares of Class A
Common Stock or both Class A Common Stock and Class B Common Stock, as determined by the Board of
Directors. If the Board of Directors declares to pay a dividend on both classes of stock, then the holder of each
share of Class A Common Stock is entitled to receive a dividend that is 10% more than the dividend declared on
each Class B Common Stock. Stock dividends declared can only be paid in shares of Class A Common Stock.
The Company currently intends to retain all earnings to support its operations and future growth and, therefore,
does not anticipate the declaration or payment of cash dividends on the Common Stock in the foreseeable future.
On November 2, 2004, the Company announced that its Board of Directors authorized the repurchase of up
to 1,000,000 shares of the Company’s Class A Common Stock. The Board granted management the authority to
make purchases 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. As of December 31, 2006, 538,500 shares are available for repurchase under the plan.
12. Pension and Other Postretirement Benefit Plans:
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 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).
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GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, 2006, twenty-four employees were
participating and forty 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 the 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
settlement gain of $0.1 million.
Incremental Effect of Applying FASB Statement No. 158
on Individual Line Items in the Statement of Financial Position
December 31, 2006
(In thousands)
Before
Application
of Statement 158
Adjustments
After
Application
of Statement 158
Liability for pension benefits and OPEB . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . .
$4,676
(213)
$4,463
(395)
$ (395)
$ 442
(154)
$ 288
(288)
$(288)
$5,118
(367)
$4,751
(683)
$ (683)
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GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following provides a reconciliation of benefit obligation, plan assets, and funded status of the plans
(dollars in thousands):
Change in benefit obligations:
Benefit obligation at beginning of year . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension
Other Retirement
Benefits
2006
2005
2006
2005
$3,704
108
198
(21)
(233)
—
—
(120)
$ 3,552
152
194
(106)
—
—
—
(88)
$ 4,336
137
252
(462)
—
—
—
(84)
$ 4,511
112
231
206
—
(76)
(560)
(88)
Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . .
$3,636
$ 3,704
$ 4,179
$ 4,336
Change in plan assets:
Fair value of plan assets at beginning of year . . . . . . . . . . .
Actual return (loss) on plan assets . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,935
206
636
(120)
$ 1,760
104
159
(88)
$ —
—
84
(84)
$ —
—
88
(88)
Fair value of assets at end of year . . . . . . . . . . . . . . . . . . . .
2,657
1,935
—
—
Funded status at end of year . . . . . . . . . . . . . . . . . . . . . . . .
$ (979)
$(1,769)
$(4,179)
$(4,336)
Amounts recognized in the balance sheet consist of:
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts recognized in accumulated other
comprehensive income consist of:
$ 979
$ 1,328
$ 4,179
$ 3,349
Unrecognized transition liability . . . . . . . . . . . . . . . . . . . . .
Prior service credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 218
(59)
404
(197)
Other comprehensive income at end of year, net of tax . . . .
$ 366
$ —
—
487
(170)
$
317
In 2005, the Company recognized a minimum pension liability in other comprehensive income of $0.2
million. The accumulated benefit obligation for all defined benefit pension plans was $3.6 million and $3.7
million at December 31, 2006, and 2005, respectively.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,636
$3,585
$2,657
$3,704
$3,265
$1,935
2006
2005
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GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Pension
Other Retirement
2006
2005
2004
2006
2005
2004
Components of net periodic benefit cost
and other amounts recognized in other
comprehensive income:
Net periodic benefit cost
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost
Interest cost
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . .
Amortization of transition liability . . . . . . . . .
Amortization of prior service cost . . . . . . . . . .
Amortization of loss (gain) . . . . . . . . . . . . . . .
$ 108
198
(186)
143
(16)
11
$ 152
194
(103)
112
—
(14)
$ 158
186
(152)
142
—
31
Net periodic benefit cost
. . . . . . . . . . . . .
$ 258
$ 341
$ 365
$ 137
252
—
—
—
44
$ 433
$ 112
223
—
—
—
39
$ 374
$ 110
275
—
—
—
83
$ 468
Other changes in plan assets and benefit
obligations recognized in other
comprehensive income
Net loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service cost . . . . . . . . . .
Amortization of transition liability . . . . . . . . .
Impact of curtailment on transition liability . .
Impact of curtailment on prior service cost . . .
Total recognized in other comprehensive
income . . . . . . . . . . . . . . . . . . . . . . . . .
Total recognized in net periodic benefit
$ 36
(16)
143
(419)
114
(142)
cost and other comprehensive
income . . . . . . . . . . . . . . . . . . . . . . . . .
$ 116
$(506)
—
—
—
—
(506)
$ (73)
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 . . . . . . . . . . . .
5.75% 5.75% 5.75% 5.75% 5.75% 5.75%
8.5% N/A
8.5%
3.5% N/A
3.5%
8.5%
3.5%
N/A
N/A
N/A
N/A
5.75% 5.75%
8.5%
3.5%
8.5% 8.50% N/A
3.5% 3.50% N/A
N/A
N/A
N/A
N/A
6.0% 5.75% 5.75% 5.75%
The estimated net loss, prior service cost and transition liability for the defined benefit pension plans that
will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next year
is $0.1 million. The estimated net loss for the other defined benefit postretirement plan that will be amortized
from accumulated other comprehensive income into net periodic benefit cost over the next year is less than $0.1
million.
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 2006 and thereafter. The Company uses December 31 as a
measurement date for the plans.
F-35
Job: 87365_022 Genesee & Wyoming Inc Page: 101 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006
2005
9.0% 11.0%
5.0% 5.0%
2013
2012
The health care cost trend rate assumption has an effect on the amounts reported. To illustrate, increasing
(decreasing) the assumed health care cost trend rates by one percentage point in each year would increase
(decrease) the aggregate of the service and interest cost components of the net periodic postretirement benefit
cost and the end of the year accumulated postretirement benefit obligation as follows (dollars in thousands):
Effect on total service and interest cost . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect on postretirement benefit obligation . . . . . . . . . . . . . . . . . . . . . . .
$ 46
$531
$ (39)
$(450)
1 Percentage
Point Increase
1 Percentage
Point Decrease
Plan Assets:
The Company’s pension plans’ weighted-average asset allocations at December 31, 2006, and 2005, by
asset category are as follows:
Asset Category
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan Assets at
December 31,
2006
2005
57.9%
36.5%
5.6%
54.8%
37.3%
7.9%
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0%
100.0%
Cash Flows:
Contributions
The Company expects to contribute $0.6 million to its pension plan in 2007.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be
paid (dollars in thousands):
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years 2012-2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-36
(In thousands)
Other
Retirement
Benefits
$ 83
89
95
98
101
593
Pension
$
89
120
142
154
170
1,151
Job: 87365_022 Genesee & Wyoming Inc Page: 102 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 2006, the Company assumed a long-term asset rate of return of 8.5%. The Company will utilize a 7.0%
long-term asset rate of return assumption in 2007. In developing the 8.5% expected long-term rate of return
assumption, the Company reviewed asset allocation, the asset class return expectations and long-term inflation
assumptions. The 8.5% long-term asset return assumption for 2006 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
approximate the targeted allocation. At December 31, 2006, the Company’s actual asset allocation was consistent
with its asset allocation assumption.
Employee Bonus Programs
The Company has performance-based bonus programs which include a majority of non-union employees.
Approximately $4.5 million, $6.3 million, and $3.7 million were awarded under the various performance-based
bonus plans in 2006, 2005, and 2004, respectively. In addition, the Company awarded $3.3 million of cash
bonuses in connection with the ARG Sale.
401(k) Plans and Profit Sharing
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 matched participants’ contributions up to 4% of the participants’ salary on a before-tax basis.
The Company’s contributions to all plans in 2006, 2005, and 2004 were approximately $0.9 million, $0.8
million, and $0.5 million, respectively.
The Company’s Canadian subsidiaries administer two different retirement benefit plans. Both plans qualify
under Section 146 of the federal and provincial income tax law and are Registered Retirement Savings Plans
(RRSP). Under each plan employees may elect to contribute a certain percentage of their salary on a pre-tax
basis. Under the first plan, the Company matches 5% of gross salary up to a maximum of $1,240 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 $0.3 million, $0.2 million, and $0.2 million for the years
2006, 2005 and 2004, respectively.
The Company’s Australian subsidiary administers a statutory retirement benefit plan. The Company is
required to contribute the equivalent of 9% of an employee’s base salary into a registered superannuation fund.
Employees may elect to make additional contributions either before or after tax. Company contributions were
approximately $0.6 million for the year ended December 31, 2006.
13. Income Taxes:
The components of income before income taxes are as follows (dollars in thousands):
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 50,139
188,231
$51,118
18,919
$31,945
27,865
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$238,370
$70,037
$59,810
2006
2005
2004
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Job: 87365_022 Genesee & Wyoming Inc Page: 103 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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
provision is made for the U.S. income taxes applicable to the undistributed earnings of controlled foreign
subsidiaries as it is the intention of management to fully utilize those earnings in the operations of foreign
subsidiaries. If the earnings were to be distributed in the future, those distributions may be subject to U.S. income
taxes (appropriately reduced by available foreign tax credits) and withholding taxes payable to various foreign
countries. The amount of undistributed earnings of the Company’s controlled foreign subsidiaries as of
December 31, 2006 was $32.0 million.
The components of the provision for income taxes are as follows (dollars in thousands):
2006
2005
2004
United States:
Current
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 10,333
1,146
$ 5,536
994
$ 4,678
914
Deferred
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,707
2,553
5,438
2,029
7,160
1,030
Foreign:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,739
13,997
13,782
88,222
(1,594)
86,628
1,667
4,238
5,905
1,457
6,952
8,409
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$104,367
$19,902
$22,191
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 ARG Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
2006
2005
2004
35.0% 35.0% 35.0%
0.0%
0.0%
5.2%
6.5%
0.0%
0.0%
0.1% (1.0)% (2.3)%
2.2%
2.4%
0.8%
1.3%
0.0%
0.0%
(4.8)% (9.0)% 0.0%
0.9%
1.0%
1.0%
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43.8% 28.4% 37.1%
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Job: 87365_022 Genesee & Wyoming Inc Page: 104 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Deferred income taxes reflect the 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 (dollars in thousands):
Deferred tax benefits:
Accruals and reserves not deducted for tax purposes until paid . . . . . . . .
Net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Track maintenance credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006
2005
$ 7,326
10,240
12
1,602
1,704
7,932
672
$ 5,832
5,927
39
1,156
340
6,713
243
29,488
20,250
Deferred tax obligations:
Property and investment basis difference . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(83,244)
(9,097)
(75,911)
—
Net deferred tax obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(62,853)
$(55,661)
In the accompanying consolidated balance sheets, these deferred benefits and deferred obligations are
classified as current or non-current based on the classification of the related asset or liability for financial
reporting. A deferred tax obligation or benefit that is not related to an asset or liability for financial reporting,
including deferred tax assets related to carry-forwards, are classified according to the expected reversal date of
the temporary difference as of the end of the year.
The Company generated $14.4 million of state net operating loss carry-forwards from its U.S. operations in
2006. 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 2011 and 2026.
The Company generated net operating loss carry-forwards from our Mexican operations in 2006 and 2005
of $19.3 million and $19.4 million, respectively. The Mexican losses, for income tax purposes, primarily relate to
the immediate deduction of a portion of the purchase price paid for the FCCM operations and interest expense
incurred in the subsidiary, Servicios. These loss carry-forwards will expire between 2009 and 2016.
In 2006, the Company recorded a full valuation allowance on the deferred tax assets of its Mexican
subsidiaries. The developments in negotiating the reconstruction plan discussed in Note 3 have resulted in the
Company’s belief that the Mexican subsidiaries will not generate enough taxable income to realize the benefit of
their deferred tax assets. Accordingly, a valuation allowance of $8.8 million was recorded in 2006. The
Company’s effective tax rate for the year ended December 31, 2006, inclusive of the valuation allowance, was
43.8% compared with 28.4% in the year ended December 31, 2005.
As of December 31, 2006 and 2005, the Company had track maintenance credit carryforwards of
$7.9 million and $6.7 million, respectively. These tax credit carryforwards will expire in 2026.
F-39
Job: 87365_022 Genesee & Wyoming Inc Page: 105 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
14. Grants From Government Agencies:
The Company periodically receives grants for rehabilitation or construction of track from federal, state and
local agencies in the U.S. and provinces in Canada in which the Company operates. These grants typically
reimburse the Company for 70% to 100% of the actual cost of specific projects. Under such grant programs, the
Company received commitments of $10.8 million, $4.2 million, and $5.6 million in 2006, 2005, and 2004,
respectively.
None of the Company’s grants represent a future liability of the Company unless the Company abandons the
rehabilitated or new track structure within a 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, 2006,
2005 and 2004, the Company recorded offsets to depreciation expense from grant amortization of $2.5 million,
$2.2 million, and $2.2 million, respectively.
15. Commitments and Contingencies:
Litigation
Rail Partners
On February 23, 2006, James Owens d/b/a International Trade and Transport, Ltd. (Owens) and the Board
of Trustees of the Port of Galveston (the Port) filed the second amended complaint in the County Court for
Galveston County (County Court) in Texas against Genesee & Wyoming Inc. (the Company), Galveston
Railroad, L.P. (Galveston Railroad), Rail Link Inc. (Rail Link), the general manager of the Galveston Railroad
and Rail Management Corporation (RMC), the former owner of the Galveston Railroad (collectively, the
Defendants). Owens’ claims arose in connection with a rail car switching agreement with the Galveston Railroad,
and the Port’s claims arose in connection with the Galveston Railroad’s lease of the Port’s facilities.
On August 11, 2006, the Defendants entered into a Settlement Agreement (the Settlement Agreement) with
the Port. Without admitting any liability, the Defendants agreed to settle the Port’s pending claims against the
Defendants in the County Court. In connection with the Agreement, the Company agreed to pay $0.8 million to
the Port, which is reflected as an expense in its statement of operations for the quarter ended September 30, 2006.
The Company’s subsidiary, Galveston Railroad, has also entered into a new lease with the Port, which lease has a
twenty (20) year term.
As previously disclosed, Owens is not a party to the Settlement Agreement and Owens’ claims against the
Defendants remain unchanged. Owens alleges that Galveston Railroad violated the confidentiality agreement
relating to the joint storage and switching of rail cars at the Port and thereby caused the failure of his business.
Owens seeks damages for breach of contract and commercial tort claims, plus an amount to be determined for
punitive and similar damages. On March 8, 2006, Owens filed a Motion for Partial Summary Judgment with
respect to claims that Galveston Railroad and RMC breached a contractual obligation of confidentiality in
November 2002. On April 20, 2006, the County Court held a hearing in connection with Owens’ Motion and on
April 27, 2006, the County Court issued an order granting Owens’ Motion, finding that there was a breach of the
contractual obligation of confidentiality by Galveston Railroad and RMC. Issues related to whether this breach
was the proximate cause of any damages and the amount of such damages, if any, remain the subject of further
litigation.
F-40
Job: 87365_022 Genesee & Wyoming Inc Page: 106 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company acquired the Galveston Railroad in June of 2005 as part of its acquisition of Rail Partners,
and all of the improper conduct alleged by Owens occurred prior to the Company’s acquisition of the Galveston
Railroad. Pursuant to the securities purchase agreement related to the Company’s purchase of the Galveston
Railroad, damages associated with Owens’ claims are subject to indemnification by RMC and the securities
purchase agreement requires RMC to maintain certain funds in escrow, which the Company believes will cover
its actual damages, if any. RMC has acknowledged that it is obligated to indemnify the Company in accordance
with and subject to the terms and limits as set forth in the securities purchase agreement.
Canada
On February 2002, Mr. Paquin, an individual living adjacent to the Outremont rail yard, filed a motion for
authorization 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 Canadian Pacific Railways (CP). Mr. Paquin alleged that the noise emanating
from the Outremont rail yard causes significant nuisance problems to the residents living 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 Montreal, which is adjacent to 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.
On May 18, 2006 the Supreme Court of Canada rendered its decision, rejected the application for leave and
remanded the matter back to the Quebec Superior Court, where the class action will be heard in accordance with
the ruling of the Quebec Court of Appeal. The plaintiff published notices of the class action in local newspapers
on June 7, 2006. On June 26, 2006, the plaintiff filed a Bill of Costs before the Quebec Court of Appeal and was
awarded immaterial costs. The plaintiff has not yet commenced proceedings on the merits of the underlying
claim and has requested a settlement conference be held prior to any proceedings being instituted. The settlement
conference is expected to take place in mid-2007. Management considers the impending class action to be
without merit and intends to defend the lawsuit vigorously.
Bolivia
The Company indirectly holds a 12.52% equity interest in Ferroviaria Oriental S.A. (Oriental) through an
interest in Genesee & Wyoming Chile S.A. (GWC). GWC is an obligor of non-recourse debt of $12.0 million,
which debt is secured by a lien on GWC’s 12.52% indirect equity interest in Oriental held through GWC’s
subsidiary, Inversiones Ferroviarias Bolivianas Ltda. (IFB). This debt became due and payable on November 2,
2003. On April 21, 2006, due to the heightened political and economic unrest and uncertainties in Bolivia, the
Company advised the creditors of GWC that it was ceasing its efforts to restructure the $12.0 million debt
F-41
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GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
obligation. On October 27, 2006, Banco de Crédito e Inversiones (one of GWC’s creditors) commenced court
proceedings before the 9th Civil Tribunal of Santiago to (i) collect on its share of the debt (approximately 24% of
the $12.0 million) and (ii) exercise their rights pursuant to the lien. Notice of this proceeding was given to GWC
and IFB on November 6, 2006. On October 26, 2006, Banco de Chile (another of GWC’s creditors that holds
approximately 15% of the $12.0 million debt) commenced separate court proceedings before the 4th Civil
Tribunal of Santiago with the same objectives. Notice of this proceeding was given to GWC and IFB on
November 20, 2006. The Company does not expect these proceedings to have a material effect on its financial
statements.
The Company also holds a 10.37% equity interest in Oriental through other companies. The Company does
not expect the commencement of court proceedings to have any impact on this remaining 10.37% equity interest.
Please refer to Note 3 for additional information regarding the Company’s investment in Oriental.
Other
In addition to the lawsuits set forth above, from time to time the Company is a defendant in certain lawsuits
resulting from its operations. Management believes that the Company has adequate provisions in the financial
statements for any expected liabilities that may result from disposition of pending lawsuits. Nevertheless,
litigation is subject to inherent uncertainties, and unfavorable rulings could occur. Were an unfavorable ruling to
occur, there exists the possibility of a material adverse impact to the Company’s results of operations, financial
position or liquidity as of and for the period in which the ruling occurs.
Guarantees
The Company is obligated under a guarantee arrangement of $7.0 million in the event that the Company’s
Mexican subsidiary, Servicios, is unable to fund future debt payments and the lenders accelerate the outstanding
debt and demand immediate payment under the guarantee.
The Company also guaranteed an obligation of one of its Canadian rail lines under a lease agreement
entered into on July 28, 1997. The maximum amount of the obligation subject to this guarantee is $2.0 million.
16. Stock-Based Compensation Plans:
The Compensation 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 the issuance of
up to an aggregate of 9.4 million shares of Class A common stock-based awards to its employees through its
2004 Omnibus Incentive Plan (the Plan). The Plan permits the issuance of stock options, restricted stock, and
restricted stock units and any other form of award established by the Compensation Committee which is
consistent with the Plan’s purpose. Restricted stock units constitute a commitment to deliver stock at some future
date as defined by the terms of the awards. Under the terms of the awards, equity grants for employees generally
vest based on three years of continuous service and equity grants for directors vest over their respective terms as
directors. Share awards generally have 5-year contractual terms. At December 31, 2006, there were 932,092
Class A shares available for future issuance under the Plan.
Stock-based compensation for the six months ended June 30, 2005 and for the year ended December 31,
2004, was determined using the intrinsic value method (note the pro forma expense for basic and diluted earnings
per share in 2005 was for the six months ended June 30, 2005). The following table provides supplemental
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GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
information for the periods indicated as if stock-based compensation had been compiled under SFAS No. 123
(dollars in thousands, except EPS):
Net Income Available to Common Stockholders—As reported . . . . . . . . . . . . . .
Deduct: Total stock-based employee compensation expense as determined
under SFAS 123 had compensation cost been recognized, net of related
tax effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the years ended
2005
2004
$50,135
$37,140
(1,385)
(2,079)
Pro Forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$48,750
$35,061
Basic EPS:
As Reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro Forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted EPS:
As Reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro Forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
1.36
1.32
1.20
1.17
$
$
$
$
1.03
0.97
0.90
0.85
A summary of option activity under the Plan as of December 31, 2006, and changes during the year then
ended is presented below:
Outstanding at beginning of year . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
2,339,673
764,114
(798,939)
(12,673)
(189,476)
Outstanding at end of year . . . . . . . . . . . .
2,102,699
Exercisable at end of year
. . . . . . . . . . . .
1,081,480
Weighted average fair value of options
granted . . . . . . . . . . . . . . . . . . . . . . . . .
Wtd. Avg.
Exercise
Price
Weighted-Average
Remaining
Contractual Term
Aggregate
Intrinsic
Value
(in thousands)
$11.89
29.79
8.69
30.37
16.35
19.11
17.27
$ 8.67
3.1 Years
2.7 Years
40,179
18,680
The weighted-average grant date fair value of options granted during the years 2006, 2005 and 2004 was
$8.67, $5.28 and $5.27, respectively. The total intrinsic value of options exercised during the years ended
December 31, 2006, 2005 and 2004, was $15.9 million, $6.4 million and $8.1 million, respectively.
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Job: 87365_022 Genesee & Wyoming Inc Page: 109 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes information about stock options outstanding at December 31, 2006:
Options Outstanding
Options Exercisable
Exercise Price
$0 - $3.43 . . . . . . . . . . . . . . . . . . . . . .
3.43 - 6.86 . . . . . . . . . . . . . . . . . . . . . .
6.86 - 10.29 . . . . . . . . . . . . . . . . . . . . .
10.29 - 13.72 . . . . . . . . . . . . . . . . . . . .
13.72 - 17.16 . . . . . . . . . . . . . . . . . . . .
17.16 - 20.59 . . . . . . . . . . . . . . . . . . . .
20.59 - 24.02 . . . . . . . . . . . . . . . . . . . .
24.02 - 27.45 . . . . . . . . . . . . . . . . . . . .
27.45 - 30.88 . . . . . . . . . . . . . . . . . . . .
30.88 - 34.31 . . . . . . . . . . . . . . . . . . . .
Weighted
Average
Remaining
Contractual
Life
2.8 Years
0.8 Years
1.3 Years
4.1 Years
2.9 Years
3.4 Years
3.9 Years
4.9 Years
4.4 Years
4.3 Years
Number of
Options
20,252
10,125
499,155
20,165
824,484
6,024
1,500
6,000
701,594
13,400
0 - 34.31 . . . . . . . . . . . . . . . . . . . . . . .
2,102,699
3.1 Years
Weighted
Average
Exercise
Price
$ 2.65
5.63
9.78
10.67
16.19
18.26
22.41
26.77
29.79
31.41
$19.11
Number of
Options
20,252
10,125
374,534
10,125
377,309
—
500
—
288,635
—
1,081,480
Weighted
Average
Exercise
Price
$ 2.65
5.63
9.72
10.39
16.02
—
22.41
—
30.37
—
$17.27
The Company determines the fair value of each option award on the date of grant using the Black-Scholes
option-pricing model. There are six input variables to the Black-Scholes model: stock price, strike price,
volatility, term, risk free interest rate, and dividend yield. Both the stock price and strike price inputs are the
closing stock price on the date of grant. The assumption for expected future volatility is based primarily on an
analysis of historical volatility of the Company’s Class A Common Stock. The expected term of options is
derived from the vesting period of the award, as well as historical exercise data, and represents the period of time
that options granted are expected to be outstanding. The expected risk-free rate is calculated using the U.S.
Treasury yield curve over the expected term of the option. The expected dividend yield is 0% for all periods
presented, based upon the Company’s historical practice of electing not to declare or pay cash dividends on its
common stock. The Company uses historical data, as well as management’s current expectations, to estimate
forfeitures.
The following weighted-average assumptions were used to estimate the grant date fair value of options
granted during the years ended December 31, 2006, 2005, and 2004 using the Black-Scholes option pricing
model:
Risk-Free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (in years)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006
2005
2004
4.95%
0.00%
3.00
34.0%
3.67%
0.00%
3.00
41.0%
3.15%
0.00%
3.00
45.0%
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Job: 87365_022 Genesee & Wyoming Inc Page: 110 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A summary of the status of the Company’s non-vested stock options as of December 31, 2006, and changes
during the year ended December 31, 2006, is presented below:
Non-vested Shares
Non-vested at January 1, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
1,339,950
764,114
(893,369)
(189,476)
Non-vested at December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,021,219
Weighted-
Average
Grant-Date
Fair value
$5.31
8.67
6.51
5.81
6.68
During the fourth quarter of 2006, the Company voluntarily initiated and completed a comprehensive
internal review of its historical stock option practices for stock option grants made during the period from its
initial public offering on June 24, 1996 through the third quarter of 2006. The review found no evidence of any
intentional wrongdoing by the Company’s executive officers, members of the Company’s Board of Directors or
any other employees. The internal review identified certain administrative and procedural deficiencies that
resulted in unintentional accounting errors. These errors principally related to situations where, as of the grant
date approved by the Compensation Committee, an aggregate number of stock options to be granted were
approved and the exercise price for the stock options was established, but the allocation of those stock options to
certain individual employee recipients was not finalized until a later date. As a result, the Company determined
that later measurement dates for accounting purposes for those individuals’ grants should have been used. As a
result, the Company recorded non-cash stock-based compensation expense of $1.2 million ($0.5 million after-
tax) in the fourth quarter of 2006, with $1.1 million related to grants to the general population of employees,
none of whom were executive officers. Under the direction of the Audit Committee of the Board of Directors, the
results of the internal review were evaluated by outside counsel, who concurred with the findings.
For the year ended December 31, 2006, compensation cost of $7.2 million pre-tax, or $5.6 million after-tax,
from amortizing stock options. Of the $7.2 million compensation cost, $2.7 million was attributable to stock
options awards that were part of the transaction bonuses related to the ARG Sale in the quarter ended June 30,
2006, and $1.2 million was attributable to the unintentional accounting errors associated with the use of incorrect
measurement dates for certain grants, as discussed above. The total compensation cost related to non-vested
awards not yet recognized is $5.0 million and is expected to be recognized over a weighted-average period of 1
year. The total income tax benefit recognized in the consolidated income statement for share-based compensation
related to stock options was $1.6 million for the year ended December 31, 2006.
For the year ended December 31, 2005, compensation cost was $1.8 million pre-tax, or $1.5 million after-
tax, from amortizing existing stock options in the year ended December 31, 2005.
The following table summarizes the Company’s restricted stock and restricted stock unit activity for the
years ended December 31, 2006 and 2005:
For the years ended
December 31,
2006
2005
Outstanding at beginning of year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
112,855
88,636
(50,541)
(17,018)
66,333
81,000
(27,615)
(6,863)
Outstanding at end of year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
133,932
112,855
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Job: 87365_022 Genesee & Wyoming Inc Page: 111 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In 2006, the Company awarded 1,644 shares of restricted stock valued at $27.32 per share; 1,000 shares of
restricted stock valued at $31.09 per share; 48,321 shares of restricted stock valued at $29.41; and 37,671 shares
of restricted stock valued at $30.37 per share. At December 31, 2006, there were 133,932 shares of restricted
stock and restricted stock units outstanding. In 2005, the Company awarded 19,464 restricted stock valued at
$0.3 million to its directors; and the Company awarded 48,529 restricted stock shares and 13,007 restricted stock
units valued at $0.8 million and $0.2 million, respectively, to employees. Compensation expense for the
restricted stock shares was $1.3 million and $0.7 million for the years ended December 31, 2006 and 2005,
respectively. The total income tax benefit recognized in the consolidated statement of operations for restricted
stock and restricted stock unit awards was $0.5 million and $0.3 million for the years ended December 31, 2006
and 2005, respectively. Total unrecognized compensation cost for non-vested restricted stock shares and
restricted stock units of $2.6 million is expected to be recognized over a weighted-average period of 1.2 years.
The Company has reserved 1,265,625 shares of Class A Common Stock that the Company may sell to its
full-time employees under its Employee Stock Purchase Plan (ESPP) at 90% of the stock’s market price at date
of purchase. At December 31, 2006, 95,515 shares had been purchased under this plan. In accordance with SFAS
123R, the Company recorded compensation expense for the 10% purchase discount of less than $0.1 million in
the year ended December 31, 2006.
17. Business Segment and Geographic Area Information:
As discussed in Note 3, because of the changing economic circumstances of the Company’s Mexican
operations as compared to its other businesses, the Company has presented its Mexican business as a separate
operating segment in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related
Information” beginning July 1, 2006. Accordingly, the Company operates two reportable segments: Rail
Operations Excluding Mexico and Mexico Operations. Accounting policies for the reportable segments are the
same as those described in Note 2. Performance of the segments is evaluated based on operating income (loss) of
the segment. Other than cash advances to the Company’s Mexico Operations segment, there were no material
inter-segment transactions in the periods presented. As of December 31, 2006, the Company’s Mexico
Operations segment had a $16.2 million intercompany liability due to the Railroad Operations Excluding Mexico
segment.
Summarized financial information for each business segment and for each geographic area for the years
ended December 31, 2006, 2005, and 2004, and long-lived assets for each geographic area as of December 31,
2006 and December 31, 2005 are as follows (dollars in thousands):
Business Segment Data
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment loss and related charges . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . . . . . . . . . . . . . . .
Equity loss of unconsolidated international affilitates . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . .
F-46
Year Ended December 31, 2006
Railroad
Operations
Excluding
Mexico
$450,683
—
27,907
(10,752)
81,842
7,837
(15,524)
103,570
174,515
59,545
Mexico
Operations
$ 28,163
34,156
1,939
—
(38,429)
—
(1,952)
797
(40,512)
3,452
Consolidated
$478,846
34,156
29,846
(10,752)
43,413
7,837
(17,476)
104,367
134,003
62,997
Job: 87365_022 Genesee & Wyoming Inc Page: 112 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity income of unconsolidated international affilitates . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . .
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity income of unconsolidated international affilitates . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . .
Asset Data
Year Ended December 31, 2005
Railroad
Operations
Excluding
Mexico
$350,400
22,372
69,544
14,224
246
(13,169)
20,269
50,772
27,144
Mexico
Operations
$34,989
2,203
1,387
—
97
(1,731)
(367)
(637)
4,954
Consolidated
$385,389
24,575
70,931
14,224
343
(14,900)
19,902
50,135
32,098
Year Ended December 31, 2004
Railroad
Operations
Excluding
Mexico
$270,529
17,020
46,166
21,044
163
(9,234)
21,353
36,620
24,211
Mexico
Operations
$33,255
2,223
3,873
—
46
(1,908)
838
999
3,861
Consolidated
$303,784
19,243
50,039
21,044
209
(11,142)
22,191
37,619
28,072
Total assets:
Railroad Operations Excluding Mexico . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,121,491
19,573
$922,916
57,682
Consolidated total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,141,064
$980,598
2006
2005
Geographic Data
For the Years Ended December 31,
2006
2005
2004
Operating revenues:
United States . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$348,608
55,555
46,520
28,163
72.8% $299,440
50,960
11.6%
—
9.7%
34,989
5.9%
77.7% $226,521
44,008
13.2%
—
0.0%
33,255
9.1%
74.6%
14.5%
0.0%
10.9%
Total operating revenues . . . . . . . . . . . . . . .
$478,846
100.0% $385,389
100.0% $303,784
100.0%
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Job: 87365_022 Genesee & Wyoming Inc Page: 113 Color; Composite
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31,
2006
2005
Long-lived assets located in:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$602,238
104,807
36,364
6,736
80.3% $734,636
71,726
14.0%
—
4.8%
45,140
0.9%
86.3%
8.4%
0.0%
5.3%
Total long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . .
$750,145
100.0% $851,502
100.0%
18. Quarterly Financial Data (Unaudited):
Quarterly Results
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(dollars in thousands, except per share data)
2006
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings (loss) per common share . . . . . . . . . . . . . . . . . . .
$112,982
22,060
14,014
0.33
$
$113,590
16,345
117,749
2.76
$
$128,304
(12,965)
(12,106)
$
(0.32) $
$123,970
17,973
14,346
0.34
2005
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . .
$ 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
$
The first quarter of 2006 included: (i) $1.0 million of after tax expense from transaction costs associated
with the ARG Sale, (ii) $0.8 million of after-tax expense from track washouts due to Cyclone Clare in Western
Australia and (iii) $0.7 million of after-tax expense for the cost of stock options due to the adoption of SFAS
No. 123R.
The second quarter of 2006 included: (i) $123.0 million of after-tax gain on the sale of its interest in ARG,
(ii) $3.4 million of after-tax expense for ARG transaction related costs, including management bonuses,
(iii) $11.3 million of after-tax impairment loss on its investment in ARG, which reflects the difference between
the Company’s previously held 50% share of the book value of the assets acquired from ARG in South Australia
and the price paid for the remaining 50% of those assets, (iv) $5.9 million of after-tax impairment on its
investment in Ferroviaria Oriental, (v) $1.0 million of deferred tax valuation allowance against the net operating
losses of its Mexican subsidiaries and (vi) $0.7 million of after-tax expense for the cost of stock options due to
the adoption of SFAS No. 123R.
The third quarter of 2006 included: (i) $34.1 million of after-tax non-cash write-down of its Mexican
non-current assets and related effects, and (ii) $6.8 million of after-tax gain in relation to the receipt of payment
for its share of the post closing adjustments from the ARG Sale.
The fourth quarter of 2006 included: (i) $1.9 million of after-tax gain on sale of assets, (ii) $0.5 million of
after-tax non-cash expense related to the reassessment of accounting measurement dates for certain stock options
granted in prior years, and (iii) $0.6 million of after-tax charge related to emergency bridge repair in Canada.
F-48
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GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The third quarter of 2005 included a $2.4 million after-tax gain from the sale of surplus track.
19. Comprehensive Income:
Comprehensive income is the total of net income and all other non-owner changes in equity. The following
table sets forth the Company’s comprehensive income, net of tax, for the years ended December 31, 2006, 2005
and 2004 (dollars in thousands):
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . .
Sale of ARG investment (recognized gain from currency
2006
2005
2004
$134,003
$50,135
$37,619
1,503
(3,552)
8,105
translation adjustment) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(22,755)
Net unrealized losses on qualifying cash flow hedges, net of tax
provision of $60, $231 and $424, respectively . . . . . . . . . . . . . .
Net unrealized losses on qualifying cash flow hedges of Australian
Railroad Group, net of tax provision (benefit) of $710, $758,
and ($99), respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and OPEB liability adjustment, net of (benefit) tax
—
595
—
661
120
1,656
1,768
(230)
provision of ($155), $53 and $36, respectively . . . . . . . . . . . . . .
(288)
136
93
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$114,239
$49,082
$46,248
The following table sets forth the components of accumulated other comprehensive income, net of tax,
included in the consolidated balance sheets as of December 31, 2006 and 2005 (dollars in thousands):
Net foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and OPEB liability adjustment, net of tax benefit of $367 and $289,
2006
2005
$5,137
$26,389
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(682)
(396)
Net unrealized losses on qualifying cash flow hedges, net of tax benefit of $21
and $607, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(44)
(1,818)
Accumulated other comprehensive loss, net of tax benefit of $388 and $896,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,411
$24,175
20. Supplemental Cash Flow Information:
Cash paid during the year for (dollars in thousands):
Interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$17,397
$ 6,012
$12,479
$ 7,127
$10,631
$ 5,790
2006
2005
2004
21. Recently Issued Accounting Standards:
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (FIN 48), which
prescribes a recognition threshold and measurement attributes for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on
accounting in interim periods, disclosure, and transition. This interpretation is effective for fiscal years beginning
after December 15, 2006. The Company is currently evaluating the provisions of FIN 48.
F-49
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GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In June 2006, the Emerging Issues Task Force (EITF) issued EITF No. 06-3, “How Taxes Collected from
Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement” (i.e., Gross
versus Net Presentation), which relates to any tax assessed by a governmental authority that is directly imposed
on a revenue-producing transaction. The EITF states that the presentation of the taxes, either on a gross or net
basis, is an accounting policy decision that should be disclosed if those amounts are significant. This issue should
be applied to financial reports for interim and annual reporting periods beginning after December 15, 2006. The
adoption of EITF No. 06-3 will not materially impact the Company’s consolidated financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value
Measurements”, (SFAS 157), which is effective for fiscal years beginning after November 15, 2007, and for
interim periods within those years. This statement defines fair value, establishes a framework for measuring fair
value and expands the related disclosure requirements. The Company is currently evaluating the provisions of
SFAS 157.
In September 2006, the FASB issued FASB Staff Position AUG AIR-1, “Accounting for Planned Major
Maintenance Activities” which is effective for fiscal years beginning after December 15, 2006. This position
statement eliminates the accrue-in-advance method of accounting for planned major maintenance activities. This
pronouncement will not have a material impact on the Company’s financial statements.
In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
No. 108 (SAB 108). Due to diversity in practice among registrants, SAB 108 expresses SEC staff views
regarding the process by which misstatements in financial statements are evaluated for purposes of determining
whether financial statement restatement is necessary. SAB 108 is effective for fiscal years ending after
November 15, 2006, and early application is encouraged. The Company does not expect SAB 108 to have a
material impact on its results of operations or financial position.
22. Subsequent Events:
The Company announced on February 13, 2007, that its Board of Directors authorized the repurchase of up
to an additional 2,000,000 shares of the Company’s Class A Common Stock. The repurchases may occur from
time to time in the open market or in privately negotiated transactions. The timing and amount of any repurchase
of shares will be determined by the Company’s management based on its evaluation of market conditions and
other factors.
F-50
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Australian Railroad Group Pty Ltd
(Incorporated in Australia)
ABN 68 080 579 308
Financial Report
for the five month period ended May 31, 2006 and the years ended
December 31, 2005, 2004
F-51
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Index to Financial Statements
Page
Australian Railroad Group Pty Ltd and Subsidiaries:
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-53
Consolidated Balance Sheets at May 31, 2006 and December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . F-54
Consolidated Statements of Operations for the Five Month Period Ended May 31, 2006 and for the
Years Ended December 31, 2005 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-55
Consolidated Statements of Stockholders’ Equity and Comprehensive (Loss) Income for the Five
Month Period Ended May 31, 2006 and for the Years Ended December 31, 2005 and 2004 . . . . . . F-56
Consolidated Statements of Cash Flows for the Five Month Period Ended May 31, 2006 and for the
Years Ended December 31, 2005 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-57
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-58
F-52
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Ernst &Young
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Australian Railroad Group Pty Ltd
We have audited the accompanying consolidated balance sheets of Australian Railroad Group Pty Ltd and
subsidiaries as of May 31, 2006, and December 31, 2005, and the related consolidated statements of operations,
stockholders’ equity and comprehensive (loss) income and cash flows for the five month period ended May 31,
2006, and the two years ended December 31, 2005, and 2004. 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 the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the 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 reporting 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. Accordingly, 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 May 31, 2006, and
December 31, 2005, and the consolidated results of their operations and their cash flows for the five month
period ended May 31, 2006, and the two years ended December 31, 2005, and 2004, in conformity with U.S.
generally accepted accounting principles.
Ernst & Young
Perth, Western Australia
25 January 2007
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AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT MAY 31, 2006 and DECEMBER 31, 2005
May 31,
2006
December 31,
2005
$000 USD
$000 USD
ASSETS
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 20,890
45,769
13,901
1,235
4,847
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86,642
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
560,670
60,827
1,574
$ 12,515
54,257
11,226
2,323
4,918
85,239
5,768
551,849
62,916
2,031
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$709,713
$707,803
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for employee entitlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 28,733
23,263
8,194
—
1,769
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61,959
Long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
376,300
13,237
13,549
2,447
—
Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
405,533
$ 25,473
25,651
7,239
10
2,523
60,896
359,415
11,121
22,076
4,735
—
397,347
Redeemable preferred stock of the stockholders, 11,704,462 shares authorized,
issued and outstanding at May 31, 2006 and December 31, 2005 . . . . . . . . . . . . . . . .
16,251
15,838
Stockholders’ equity
Common stock, no par value, 92,000,002 shares authorized, issued and
outstanding at May 31, 2006 and December 31, 2005 . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79,029
97,557
49,384
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
225,970
79,029
112,807
41,886
233,722
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$709,713
$707,803
The accompanying notes are an integral part of these financial statements.
F-54
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AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FIVE MONTH PERIOD ENDED MAY 31, 2006 and YEARS ENDED DECEMBER 31, 2005 and 2004
Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Expenses
May 31,
2006
December 31,
2005
December 31,
2004
$000 USD
$147,044
$000 USD
$344,546
$000 USD
$333,647
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maintenance of ways and structures . . . . . . . . . . . . . . . . . . . . . . . . . .
Maintenance of equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss (gain) on sale and impairment of assets . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56,914
17,691
11,700
25,094
25,732
14,584
136,002
41,230
29,312
50,046
(229)
32,127
125,279
39,097
32,849
41,467
(336)
27,346
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
151,715
288,488
265,702
(Loss) Income from Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment loss—APTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) Income before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit from (provision) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
(4,671)
(5,823)
218
(11,477)
(21,753)
6,503
56,058
—
600
(29,430)
27,228
(8,292)
67,945
—
1,227
(28,438)
40,734
(12,264)
Net (Loss) Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (15,250)
$ 18,936
$ 28,470
The accompanying notes are an integral part of these financial statements.
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AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE (LOSS) INCOME
$000 USD
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 . . . . . . . . . . . . . . . . . . . . .
Comprehensive income (loss), net of tax:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation adjustment . . . . . . . . . . . . . . . . . . .
Fair market value adjustments of cash flow hedges . . . .
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
$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
—
—
—
(15,250)
—
—
—
5,897
1,601
(15,250)
5,897
1,601
(7,752)
Balance, May 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . .
$79,029
$ 97,557
$ 49,384
$225,970
The accompanying notes are an integral part of these financial statements.
F-56
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AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIVE MONTH PERIOD ENDED MAY 31, 2006 and YEARS ENDED DECEMBER 31, 2005 and 2004
Cash Flows from Operating Activities
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
May 31,
2006
December 31,
2005
December 31,
2004
$000 USD
$000 USD
$000 USD
$(15,250)
$ 18,936
$ 28,470
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss (gain) on sale and impairment of assets . . . . . . . . . . . . . . . .
Investment loss—APTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . .
14,584
25,732
5,823
(5,889)
39
11,316
(2,340)
1,376
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . .
35,391
32,127
(229)
—
9,726
197
(8,004)
(386)
17,868
70,235
Cash Flows from Investing Activities
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . . . .
(35,430)
710
(80,038)
2,147
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(34,720)
(77,891)
Cash Flows from Financing Activities
Repayment of subordinated stockholders’ loans . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from debt
Repayments of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . .
Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . .
Cash and Cash Equivalents, beginning of year . . . . . . . . . . . . . . . . . . . .
—
7,272
—
7,272
7,943
432
12,515
—
7,665
(7,424)
241
(7,415)
(1,287)
21,217
27,346
(336)
—
11,847
451
(2,310)
(1,057)
7,745
72,156
(69,519)
2,570
(66,949)
(10,710)
—
—
(10,710)
(5,503)
102
26,618
Cash and Cash Equivalents, end of year
. . . . . . . . . . . . . . . . . . . . . . . . .
$ 20,890
$ 12,515
$ 21,217
Cash paid (received) during year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 11,260
$ 28,834
$ 29,512
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86
(2,315)
(4,275)
The accompanying notes are an integral part of these financial statements.
F-57
Job: 87365_022 Genesee & Wyoming Inc Page: 123 Color; Composite
AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 Principal activities
Australian Railroad Group Pty Ltd (the Company) was jointly owned by Genesee & Wyoming Inc. (GWI)
and Wesfarmers Ltd (Wesfarmers) with each partner holding a 50% interest. Effective June 1, 2006, GWI and
Wesfarmers completed the sale of the Western Australia operations and certain other assets of the Company to
Queensland Rail and Babcock & Brown Limited (Western ARG Sale). Simultaneous with the Western ARG
Sale, GWI purchased Wesfarmers’ 50-percent ownership of the remaining ARG operations, which are principally
located in South Australia. This business, which is based in Adelaide, South Australia, was renamed Genesee &
Wyoming Australia Pty Ltd (GWA), and is a 100-percent owned subsidiary of GWI.
The principal activity of the Company during the period 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 five
month period ended May 31, 2006 and the two years ended December 31, 2005 other than the sales transactions
discussed above.
2 Summary of significant accounting policies
Basis of Preparation
The consolidated financial statements of the Company have been prepared in accordance with U.S.
generally accepted accounting principles.
Principles of Consolidation
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.
Revenue Recognition
Due to the relatively short length of haul, revenues are estimated and recognized as shipments initially move
onto the tracks. Other service revenues are recognized as such services are provided.
Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less when purchased
to be cash equivalents.
Materials and Supplies
Materials and supplies consist of purchased items for improvement and maintenance of railroad property
and equipment, and are stated at the lower of cost or market value, computed on a first-in-first-out basis.
Investments
Investments comprise the Company’s interest in Asia Pacific Transport Consortium (APTC). The Company
has a 2% investment in this privately-held consortium that owns a concession to operate the Tarcoola to Darwin
rail line in South Australia and the Northern Territory. This investment totalled $5.8 million as of May 31, 2006.
In March 2006, Freightlink Pty Ltd (Freightlink), the operating company for the consortium, advised the
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AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Company that it did not have sufficient cash flows to meet its current operating needs and was pursuing
additional financing. On May 3, 2006, Freightlink announced it was seeking a strategic equity partner; however,
Freightlink was not successful in attaining the needed financing as of May 31, 2006. Accordingly, the Company
determined during the second quarter of 2006 that the $5.8 million investment had suffered an other than
temporary decline in value. Based on the Company’s assessment of the fair value of the investment as of May 31,
2006, the Company recorded a non-cash investment loss of $5.8 million ($4.1 million net of tax). See Note 11 for
additional information regarding this investment.
Property and Equipment
Property and equipment are carried at historical cost. Acquired railroad property is recorded at the
purchased cost. Major renewals or betterments are capitalized while routine maintenance and repairs are charged
to expenses when incurred. Gains or losses on sales or other dispositions are credited or charged to operating
expenses upon disposition. Depreciation is provided on the straight-line method over the useful lives of the
railroad property (20-40 years), equipment (3-20 years) and lease premium (49 years). The Company continually
evaluates whether events and circumstances have occurred that indicate that its long-lived assets may not be
recoverable. When factors indicate that assets should be evaluated for possible impairment, the Company uses an
estimate of the related undiscounted future cash flows over the remaining lives of assets in measuring whether or
not impairment has occurred.
As described in Note 1, simultaneous with the Western ARG Sale, GWI purchased Wesfarmers’ 50-percent
ownership of the remaining ARG operations, which are principally located in South Australia, for approximately
$15.1 million. The negotiated purchase price for Wesfarmers’ 50-percent share was lower than 50-percent of the
historical book value of these assets. As a result of these negotiations, the Company had an indication that these
assets were impaired. Therefore, the Company recorded a non-cash impairment loss of $25.6 million ($18.0
million net of tax) on these assets as of May 31, 2006.
Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial
instrument held by the Company:
Current assets and current liabilities: The carrying value approximates fair value due to the short maturity of
these items.
Long-term debt: The fair value of the Company’s long-term debt is based on secondary market indicators.
Since the Company’s debt is not quoted, estimates are based on each obligation’s characteristics, including
remaining maturities, interest rate, credit rating, collateral, amortization schedule and liquidity. The carrying
amount approximates fair value.
Interest rate swaps: The Company uses derivative financial instruments in the form of 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
counterparties.
Income Taxes
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.
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AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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
obligation 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.
Employee Benefits
The Company provides for benefits accruing to employees in respect of wages and salaries, annual leave
and long service leave when it is probable that payment will be required and the amounts can be reliably
estimated.
Contributions to the defined contribution employee benefit plans are expensed when incurred.
Derivative Instruments and Hedging Activities
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 consolidated statement of operations 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 accounting 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 activities and related accounting policies.
Management Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the
United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses during the reporting period. Significant estimates using
management judgement are made in the areas of recoverability and useful lives of assets, as well as liabilities for
casualty claims and income taxes. Actual results could differ from those estimates.
Foreign Currency Translation
The functional currency of the Company is the Australian dollar. Foreign currency transactions are
translated at the applicable rates of exchange prevailing at the transaction dates. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange
prevailing at that date. All exchange gains and losses are reflected in the consolidated statement of operations.
Cumulative translation gains or losses arising from translating the Australian dollar denominated financial
statements into US dollars are reported in other comprehensive income as a component of stockholders’ equity.
Leased Assets
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.
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AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
3 Property and Equipment
May 31,
2006
December 31,
2005
$000 USD
$000 USD
Major classifications of property and equipment are as follows:
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Track improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment and other
Lease premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 36,201
257,741
237,534
153,893
$ 30,996
237,771
246,800
149,983
Less: Accumulated depreciation and amortization . . . . . . . . . . . . . . .
685,369
(124,699)
665,550
(113,701)
$ 560,670
$ 551,849
The lease premium represents the cost paid to the Government of Western Australia as part of the purchase
price for Westrail Freight, for access to the track infrastructure network for a period of 49 years.
4 Other Assets
Major classifications of other assets are as follows:
Loan receivable from joint venture entity . . . . . . . . . . . . . . . . . . . . . . . .
Deferred finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 31,
2006
December 31,
2005
$000 USD
$000 USD
$ —
2,802
(1,228)
$ 1,574
$ 296
2,731
(996)
$2,031
Deferred financing costs are amortized over terms of the related debt using the straight-line method, which
approximates the effective interest method. In connection with the write-down of the investment in APTC (see
footnote 2), the loan of $463 thousand ($324 thousand net of tax) receivable from the joint venture was written
off.
5 Long-Term Debt
Current—interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current—interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 31,
2006
$000 USD
$ —
376,300
December 31,
2005
$000 USD
$ —
359,415
Total long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$376,300
$359,415
Credit facilities
Total facility commenced in December 2003 and comprises a 5 year tranche of $90.3 million, a 5 year
revolver tranche of $150.5 million, a 7 year tranche of $150.5 million and a $7.5 million working capital tranche.
Unused facilities at May 31, 2006 amount to $22.6 million. The loans are non amortizing but prepayable at the
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AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
discretion of Australian Railroad Group Pty Ltd. The minimum future repayments are set out in the schedule
below. Loan covenants require the company to adhere to minimum interest cover and debt ratios. All loan
covenants have been complied with.
The interest rate is derived from the bank bill bid rate. The weighted average interest rate on secured loans
during the five months ended May 31, 2006 and year ended December 31, 2005 was 6.61% and excludes any
interest hedging adjustments. Including the effect of the interest rate swaps the effective interest rate was 7.48%
for the five months ended May 31, 2006 and 7.82% for the year ended December 31, 2005.
Schedule of Future Minimum Payments
The following is a summary of the scheduled maturities of long-term debt:
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
$ —
225,780
—
150,520
—
—
$ —
212,715
—
146,700
—
—
$376,300
$359,415
6 Financial Risk Management
(a) Interest rate risk
The Company uses derivative financial instruments principally to manage the risk that changes in interest
rates will affect the amount of its future interest payments. Interest rate swap contracts are used to adjust the
proportion of total debt that is subject to variable interest rates. Under an interest rate swap contract, the
Company agrees to pay an amount equal to a specified fixed-rate of interest times a notional principal amount,
and to receive in return an amount equal to a specified variable-rate of interest times the same notional amount.
For interest rate swap contracts under which the Company agrees to pay fixed-rates of interest, these
contracts are considered to be a cash flow hedge against changes in the amount of future cash flows associated
with the Company’s interest payments of variable-rate debt obligations. Accordingly, the interest rate swap
contracts are reflected at fair value in the Company’s consolidated balance sheet and the related gains or losses
on these contracts are deferred in stockholders’ equity (as a component of comprehensive income). However, to
the extent that any of these contracts are not considered to be perfectly 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 consolidated statement of operations. 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 five month
period ended May 31, 2006 and the years ended December 31, 2005 and 2004.
The Company entered into interest rate swap agreements on its $225.8 million variable rate debt due
December 18, 2008 and its $150.5 million variable rate debt due December 18, 2010. These interest rate swap
contracts were entered for interest rate exposure management purposes and mature on December 18, 2007. At
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AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2006, the Company had interest rate swap contracts to pay a weighted average fixed rate of 6.61% and
receive a weighted average variable rate of interest of 5.66% on $280.3 million notional amount of indebtedness.
(b) Fair value
The carrying amounts of financial assets and financial liabilities at May 31, 2006, approximate the
aggregate fair value of the financial instruments.
(c) Credit risk exposures
The Company’s maximum exposures to credit risk at May 31, 2006, 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, which were none at May 31, 2006.
Concentration of credit risk
For the period ending May 31, 2006, 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
represents the location of the Company’s credit risk. Trade payables/receivables are normally payable/collectable
within 30 days.
Except for securities held to ensure the performance of contractor guarantees or warrantees, amounts due
from major receivables are not normally secured by collateral, however the creditworthiness of receivables is
regularly monitored. Securities held to ensure the performance of contractor guarantees or warrantees include
Bank Guarantees, Personal (Directors) Guarantees or cash. The value of securities held is dependent on the
nature, including the complexity and risk of the contract.
7 Income Taxes
May 31,
2006
December 31,
2005
December 31,
2004
$000 USD
$000 USD
$000 USD
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(6,526)
$8,168
$12,220
Tax effect of permanent differences:
Non-allowable items . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43
(20)
80
44
17
27
Total income tax (benefit) expense . . . . . . . . . . . .
$(6,503)
$8,292
$12,264
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AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company is governed by the taxation laws of the Commonwealth Government of Australia, which has a
statutory tax rate of 30%.
Total income tax expense includes:
Current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0
(6,503)
$
11
8,281
$
342
11,922
May 31,
2006
December 31,
2005
December 31,
2004
$000 USD
$000 USD
$000 USD
$(6,503)
$ 8,292
$ 12,264
May 31,
2006
December 31,
2005
$000 USD
$000 USD
The deferred income tax balance comprises:
Current deferred income tax assets
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee leave provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
632
4,215
—
$
108
313
1,718
2,779
$ 4,847
$ 4,918
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50,357
9,736
734
—
51,534
9,961
1,421
—
$ 60,827
$ 62,916
Current deferred income tax liabilities:
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (1,769)
$
—
—
(840)
(327)
(1,356)
$ (1,769)
$ (2,523)
Non-current deferred income tax liability:
Equity investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Tax vs. book values of property and equipment
1,259
(14,808)
(568)
(21,508)
$(13,549)
$(22,076)
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 2006 and 2005.
8 Preferred Stock
Redeemable preferred 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
shareholder is entitled to receive the paid up amount of the preferred shares. In the event of the winding up of the
Company, the holders of redeemable preferred shares are entitled in priority to the holders of any other classes of
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AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
shares to payment of the paid up amount of the shares and the amount of any declared but unpaid dividends at
that date, but shall not otherwise have any rights to participate in surplus assets. Preferred shares carry no voting
rights.
9 Accumulated Other Comprehensive Income
May 31,
2006
December 31,
2005
December 31,
2004
$000 USD
$000 USD
$000 USD
The components of other comprehensive income, net of
income tax, included in the consolidated balance sheet are
as follows:
Net foreign currency translation adjustments . . . . . . . .
Unrealised losses on interest rate swaps . . . . . . . . . . . .
Less Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$51,097
(2,447)
734
$45,201
(4,735)
1,420
Net unrealised losses on interest rate swaps . . . . . . . . . .
(1,713)
(3,315)
Accumulated Other Comprehensive Income . . . . . . . . .
$49,384
$41,886
$60,527
(9,788)
2,936
(6,852)
$53,675
10 Expenditure Commitments
(a) Future minimum lease payments under all non-cancellable operating
leases are as follows:
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Other capital expenditures:
Not later than one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Later than one year, but not later than five years . . . . . . . . . . . . . . . . . .
Later than five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 31,
2006
December 31,
2005
$000 USD
$000 USD
$ —
868
1,233
—
—
—
$ 2,101
$ 9,235
4,864
—
$14,099
$
$
885
—
—
—
—
—
885
$23,104
4,401
—
$27,505
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 was $0.6 million for the five months ended May 31, 2006, and $1.2 million for the years ended
December 31, 2005, and 2004.
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.
F-65
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AUSTRALIAN RAILROAD GROUP PTY LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
11 Contingent Liabilities
GWA Northern Pty Ltd, a wholly owned subsidiary of the Company, unconditionally and irrevocably
guarantees the due and punctual payment of the secured debt of the Asia Pacific Transport Joint Venture,
severally in accordance with its participating interest, which was 0.88% as of May 31, 2006 and December 31,
2005, amounting to $3.4 million and $3.5 million, respectively.
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, severally in accordance with its participating interest, which was 1.11% as of May 31, 2006 and
December 31, 2005 periods, amounting to $4.3 million and $4.4 million, respectively.
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, including the Company, being wound up.
12 Employee Benefit Plans
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
contributions are not legally enforceable other than those payable in terms of notified award and superannuation
guarantee levy obligations. The related expense for the year charged to the consolidated statement of operations
was $2.1 million for the five months ended May 31, 2006 and $4.9 million and $4.0 million for the years ended
December 31, 2005 and 2004, respectively.
13 Economic Dependency
Approximately 30.6%, 17.2%, and 24.5% of the Company’s revenue for the five month period ended
May 31, 2006 and the years ended December 31, 2005 and 2004, respectively, were generated from freight
services rendered to Australian Wheat Board Ltd, respectively.
14 Segment Information
Industry Segment
The group operates in only one industry, being rail transport.
15 Related Party Disclosures
Services to the group by Wesfarmers Ltd of $0.9 million and $1.4 million and Genesee & Wyoming Inc of
$0.1 million and $0.6 million for the five months ended May 31, 2006 and the year ended December 31, 2006,
F-66
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GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
respectively, are recovered at cost. At May 31, 2006 and December 31, 2005, the balance owing to Wesfarmers
Ltd was $0.1 million and $0.4 million and to Genesee and Wyoming Inc $32,000 and $0.1 million, respectively.
16 Subsequent Events
The joint shareholders of the Australian Railroad Group Pty Ltd, Genesee & Wyoming Inc ( a company
incorporated in the United States of America) and Wesfarmers Limited, have announced finalisation of an
agreement to sell their shareholding in the Australian Railroad Group to Queensland Rail and Babcock & Brown.
The sale is 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; and
3. Genesee & Wyoming Inc will acquire the Wesfarmers share in the South Australian business.
The sale process satisfied all conditions and took effect from midnight on 31 May 2006.
17 Recently Issued Accounting Standards
The Financial Accounting Standards Board’s (FASB) recently issued Statements of Financial Accounting
Standards (SFAS) were reviewed and none are applicable to Australian Railroad Group Pty Ltd.
F-67
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date
February 28, 2007
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
Chief Executive Officer and
Director (Principal Executive
Officer)
February 28, 2007
/S/
JOHN C. HELLMANN
John C. Hellmann
President and Director
February 28, 2007
/S/ TIMOTHY J. GALLAGHER
Timothy J. Gallagher
Chief Financial Officer (Principal
Financial Officer)
February 28, 2007
/S/ CHRISTOPHER F. LIUCCI
Christopher F. Liucci
Chief Accounting Officer
(Principal Accounting Officer)
February 28, 2007
/S/ DAVID C. HURLEY
David C. Hurley
Director
February 28, 2007
/S/ OIVIND LORENTZEN III
Director
February 28, 2007
Oivind Lorentzen III
/S/ ROBERT M. MELZER
Director
February 28, 2007
Robert M. Melzer
/S/ PHILIP J. RINGO
Philip J. Ringo
Director
February 28, 2007
/S/ PETER O. SCANNELL
Director
February 28, 2007
Peter O. Scannell
/S/ MARK A. SCUDDER
Director
February 28, 2007
Mark A. Scudder
/S/ M. DOUGLAS YOUNG
Director
February 28, 2007
M. Douglas Young
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(2)
(3)
3.1
(4)
4.1
4.2
4.3
4.4
4.5
4.6
(9)
(10)
10.1
10.2
10.3
10.4
INDEX TO EXHIBITS
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
Material Contracts
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).
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 November 7, 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)
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10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
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.
Genesee & Wyoming Australia Pty Ltd Executive Share Option Plan is incorporated herein by
reference to Exhibit 10.2 to the Registrant’s Report on Form 10-Q for the quarter ended September 30,
2000.
Agreement for Sale of Business dated December 16, 2000, among The Hon Murray Criddle MLC, The
Western Australian Government Railways Commission, The Hon Richard Fairfax Court MLA,
Westrail Freight Employment Pty Ltd, AWR Holdings WA Pty Ltd, Australian Western Railroad Pty
Ltd, WestNet StandardGauge Pty Ltd, WestNet NarrowGauge Pty Ltd, AWR Lease Co. Pty Ltd and
Australian Railroad Group Pty Ltd is incorporated herein by reference to Exhibit 2.1 to the
Registrant’s Report on Form 8-K dated December 16, 2000.
Westrail Freight Bidding and Share Subscription Agreement dated October 25, 2000, among
Wesfarmers Railroad Holdings Pty Ltd, Wesfarmers Limited, GWI Holdings Pty Ltd, 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.
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.
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10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
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.
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.
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10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
Tripartite Deed among the Minister for Transport and Urban Planning (Lessor), Australia Southern
Railroad Pty Limited (Lessee) and ANZ Capel Court Limited (Security Trustee) is incorporated herein
by reference to Registrant’s Report of Form 10-K for the year ended December 31, 2003.
Genesee & Wyoming Inc. 2004 Deferred Compensation Plan for highly compensated employees and
directors dated May 7, 2004 is incorporated herein by reference to Exhibit 10.1 to the Registrant’s
Report on Form 10-Q for the quarter end June 30, 2004.
Genesee & Wyoming Inc. 2004 Omnibus Incentive Plan, dated May 12, 2004, is incorporated herein
by reference to Appendix B of the Registrant’s Definitive Proxy Statement, filed with the Commission
on April 19, 2004.
Genesee & Wyoming Inc. Award Notice for Employees for Options is incorporated herein by
reference to Exhibit 10.1 to the Registrant’s Report on Form 10-Q for the quarter ended September 30,
2004.
Genesee & Wyoming Inc. Award Notice for Employees for Restricted Stock Units is incorporated
herein by reference to Exhibit 10.2 to the Registrant’s Report on Form 10-Q for the quarter ended
September 30, 2004.
Genesee & Wyoming Inc. Award Notice for Directors for Restricted Stock is incorporated herein by
reference to Exhibit 10.3 to the Registrant’s Report on Form 10-Q for the quarter ended September 30,
2004.
Genesee & Wyoming Inc. Award Notice for Directors for Restricted Stock Units is incorporated
herein by reference to Exhibit 10.4 to the Registrant’s Report on Form 10-Q for the quarter ended
September 30, 2004.
Amended and Restated Revolving Credit and Term Loan Agreement, dated as of November 12, 2004,
among Genesee & Wyoming Inc., Quebec-Gatineau Railway Inc., certain subsidiaries of Genesee &
Wyoming Inc. as Guarantors, the lenders party thereto, Bank of America, N.A., as Administrative
Agent and JPMorgan Chase Bank as Syndication Agent is incorporated herein by reference to
Exhibit 10.1 to the Registrant’s Report on Form 8-K as of November 18, 2004.
Note Purchase Agreement dated as of November 12, 2004 among Genesee & Wyoming Inc., certain
subsidiaries of Genesee & Wyoming Inc. as Guarantors and note purchasers party thereto is
incorporated herein by reference to Exhibit 10.2 to the Registrant’s Report on Form 8-K as of
November 18, 2004.
Summary of Increases in base pay for executive officers for 2006 is incorporated herein by reference
to the Registrant’s Report on Form 8-K as of February 7, 2006.
Amended and Restated Financial Support Agreement as of March 15, 2005 between GW Servicios,
S.A. de C.V. and Genesee & Wyoming, Inc. and Companía 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 Companía 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 Companía 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.
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10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
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.
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.
Consulting Agreement between Genesee & Wyoming Inc. and Charles N. Marshall dated as of May 1,
2006 is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Report on Form 8-K as of
April 28, 2006.
Restated Genesee & Wyoming Inc. Employee Stock Purchase Plan, as Amended through
September 27, 2006, is incorporated herein by reference to Exhibit 4.1(a) to the Registrant’s Report on
Form S-8 as of November 3, 2006.
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(11)
(12)
(14)
(13)
(16)
(18)
Not included as a separate exhibit as computation can be determined from Note 2 to the financial
statements included in this Report under Item 8
Statements re computation of ratios
Not applicable.
Code of Ethics included on the Registrant’s website, www.gwrr.com
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.
*(21.1)
Subsidiaries of the Registrant
(22)
Published report regarding matters submitted to vote of security holders
Not applicable.
*(23.1)
Consent of PricewaterhouseCoopers LLP
*(23.2)
Consent of Ernst & Young
(24)
Power of attorney
Not applicable.
*(31.1)
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
*(31.2)
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
*(32.1)
Section 1350 Certifications
(99)
Additional Exhibits
Not applicable.
* Exhibit filed with this Report.
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Exhibit 31.1
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
I, Mortimer B. Fuller, III, certify that:
1. I have reviewed this Annual Report on Form 10-K of Genesee & Wyoming Inc.;
2. Based on my knowledge, this 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 reporting to be designed under our supervision, 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;
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 recent fiscal quarter (the registrant’s fourth fiscal quarter 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
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 financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial 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: February 28, 2007
/s/ MORTIMER B. FULLER, III
Mortimer B. Fuller, III,
Chairman and Chief Executive Officer
Job: 87365_022 Genesee & Wyoming Inc Page: 142 Color; Composite
Exhibit 31.2
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
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 reporting to be designed under our supervision, 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;
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 recent fiscal quarter (the registrant’s fourth fiscal quarter 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
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 financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial 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: February 28, 2007
/s/ TIMOTHY J. GALLAGHER
Timothy J. Gallagher,
Chief Financial Officer
Job: 87365_022 Genesee & Wyoming Inc Page: 143 Color; Composite
Section 1350 Certification
Exhibit 32.1
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, 2006, 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.
/s/ MORTIMER B. FULLER, III
Mortimer B. Fuller, III
Chairman and Chief Executive Officer
Date: February 28, 2007
/s/ TIMOTHY J. GALLAGHER
Timothy J. Gallagher
Chief Financial Officer
Date: February 28, 2007
Job: 87365_022 Genesee & Wyoming Inc Page: 144 Color; Composite
CORPORATE HEADQUARTERS
STOCK REGISTRAR AND TRANSFER AGENT
LaSalle Bank, N.A.
Trust and Asset Management
135 South LaSalle Street, Suite 1960
Chicago, Illinois 60603
312-904-2450
www.lasallebank.com
AUDITORS
PricewaterhouseCoopers LLP
300 Madison Avenue
New York, New York 10019
646-471-4000
www.pwc.com
OTHER INFORMATION
The Company has included as Exhibits 31 and 32 to
its Annual Report on Form 10-K for the fiscal year
ending December 31, 2006, filed with the Securities and
Exchange Commission certificates of the Chief Executive
Officer and Chief Financial Officer of the Company
certifying the quality of the Company’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 as of June 30, 2006, he was
not aware of any violation by the Company of New York
Stock Exchange corporate governance 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 2006 and 2005.
YEAR ENDED DECEMBER 31, 2006: HIGH LOW
$22.32
4th Quarter
$21.00
3rd Quarter
$26.36
2nd Quarter
$24.17
1st Quarter
$29.00
$35.69
$36.75
$32.57
YEAR ENDED DECEMBER 31, 2005: HIGH LOW
$19.59
4th Quarter
$17.69
3rd Quarter
$15.35
2nd Quarter
$15.13
1st Quarter
$25.03
$21.37
$19.97
$18.79
As of February 23, 2007, there were 189 Class A Common
Stock record holders and eight 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 foreseeable future.
300.00
250.00
200.00
150.00
100.00
50.00
0.00
Years Ending
STOCK PRICE PERFORMANCE GRAPH
Comparison of Five-Year Cumulative Total Return
Assumes Initial Investment of $100
December 2006
2001 2002 2003 2004 2005 2006
Genesee & Wyoming Inc. Class A 100.00
100.00
Russell 2000 Index
100.00
S&P 1500 Railroad Index
2001
2002
93.49
79.52
97.51
2003
144.73
117.09
118.70
2004
193.88
138.56
148.35
2005
258.83
144.87
197.00
2006
271.27
171.48
226.59
Note: Corporate Performance Graph with peer group uses peer group only performance (excludes only Company).
Note: Peer group indices use beginning of period market capitalization weighting.
We can offer no assurance that our stock performance will continue in the future with the same or similar trends
depicted in the graph or table above.
Job: 87365_022 Genesee & Wyoming Inc Page: 145 Color; Composite
Mortimer B. Fuller III
John C. Hellmann
BOARD OF DIRECTORS
As of December 31, 2006
Mortimer B. Fuller III
Chairman and Chief Executive Officer
John C. Hellmann
President
David C. Hurley
Vice Chairman, PrivatAir Holdings, SA
Member of Compensation Committee
Øivind Lorentzen
President and Chief Executive Officer
Northern Navigation International, Ltd.
Member of Audit Committee
David C. Hurley
Øivind Lorentzen
Robert M. Melzer
Retired, former President and Chief Executive Officer
Property Capital Trust
Chairman of Audit Committee
Robert M. Melzer
Philip J. Ringo
Peter O. Scannell
Mark A. Scudder
Philip J. Ringo
Chairman and Chief Executive Officer
RubberNetwork.com, LLC
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
Hon. M. Douglas Young, P.C.
Job: 87365_022 Genesee & Wyoming Inc Page: 146 Color; Composite
CORPORATE OFFICERS
Mortimer B. Fuller III
Chairman of the Board of Directors
and Chief Executive Officer
John C. Hellmann
President
Timothy J. Gallagher
Chief Financial Officer
James W. Benz
Chief Operating Officer
Allison M. Fergus
General Counsel and Secretary
Christopher F. Liucci
Chief Accounting Officer
and Global Controller
SENIOR EXECUTIVES
Mark W. Hastings
Executive Vice President
Corporate Development
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
Rocky Mountain Region
Billy C. Eason
Senior Vice President
Southern Region
William A. Jasper
Senior Vice President
Rail Link Region
Spencer D. White
Senior Vice President
Illinois Region
Matthew C. Brush
Chief Human Resource Officer
Shayne L. Magdoff
Senior Vice President
Administration and Human Resources
Gerald T. Gates
Vice President, Safety and Compliance
Tony D. Long
Vice President
Customer Service and Car Management
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
Jerry E. Vest
Vice President
Government and Industry Affairs
Matthew O. Walsh
Vice President, Corporate Development and Treasurer
Job: 87365_022 Genesee & Wyoming Inc Page: 147 Color; Composite
Corporate Headquarters
Genesee & Wyoming Inc.
66 Field Point Road
Greenwich, Connecticut 06830
203-629-3722
Administrative Headquarters
Genesee & Wyoming Railroad
Services, Inc.
1200-C Scottsville Road, Suite 200
Rochester, New York 14624
585-328-8601
Genesee & Wyoming Inc. Operations
Oregon Region
Portland & Western Railroad, Inc.
Willamette & Pacific Railroad, Inc.
650 Hawthorne Avenue SE, Suite 220
Salem, Oregon 97301
503-365-7717
Rail Link Region
Rail Link, Inc.
4337 Pablo Oaks Court, Suite 200
Jacksonville, Florida 32224
904-223-1110
Commonwealth Railway, Inc.
1136 Progress Road
Suffolk, Virginia 23434
757-538-1200
First Coast Railroad Inc.
404 Gum Street
Fernandina, Florida 32034
904-261-0888
Georgia Central Railway, L.P.
186 Winge Road
Lyons, Georgia 30436
912-526-6165
Riceboro Southern Railway, L.L.C.
186 Winge Road
Lyons, Georgia 30436
912-884-2935
Y O RK
Y O RK
RA I LRA I L
York Railway Company
2790 West Market Street
York, Pennsylvania 17404
717-771-1742
Rocky Mountain Region
Utah Railway Company
4692 North 300 West, Suite 220
Provo, Utah 84604
801-221-7460
Southern Region
AN Railway, L.L.C.
190 Railroad Shop Road
Port St. Joe, Florida 32456
850-229-7411
Arkansas Louisiana & Mississippi
Railroad Company
Fordyce and Princeton R.R. Co.
P.O. Box 757
140 Plywood Mill Road
Crossett, Arkansas 71635
870-364-9000
Atlantic & Western Railway, L.P.
317 Chatham Street
Sanford, North Carolina 27330
919-776-7521
The Bay Line Railroad, L.L.C.
2037 Industrial Drive
Panama City, Florida 32405
850-785-4609
Australia Region
Genesee & Wyoming Australia Pty Ltd
320 Churchill Road
Kilburn, South Australia 5084
+61-8-8343 5455
Canada Region
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 Region
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
Tomahawk Railway, L.P.
301 Marinette Street
Tomahawk, Wisconsin 54487
715-453-2303
Mexico Region
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 Region
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 Company
1200-C Scottsville Road, Suite 200
Rochester, New York 14624
585-328-8601
T A HOOCH
T A HOOCH
E
E
E
E
T
T
C H A
C H A
B
B
A
A
Y
Y
RAI L R O
RAI L R O
A D
A D
Southern Region Continued
Chattahoochee Bay Railroad, Inc.
2037 Industrial Drive
Panama City, Florida 32405
334-792-0970
Chattahoochee Industrial Railroad
P.O. Box 253
Georgia Highway 370
Cedar Springs, Georgia 39832
229-793-4546
East Tennessee Railway, L.P.
132 Legion Street
Johnson City, Tennessee 37601
423-928-3721
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
KWT Railway, Inc.
908 Depot Street
Paris, Tennessee 38242
731-642-7942
E R I DIA
E R I DIA
N
N
M
M
BIG B E E
BIG B E E
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
Valdosta Railway, L.P.
200 Madison Highway
Clyattville, Georgia 31601
229-559-7984
Western Kentucky Railway, L.L.C.
4337 Pablo Oaks Court, Suite 200
Jacksonville, Florida 32224
904-223-1110
Bolivian Operations
Ferroviaria Oriental S.A.
Av. Montes final s/n
Casilla 3569
Santa Cruz de la Sierra
Bolivia
+591-3-338-7000
(The Bolivian operations are
an unconsolidated investment.)
NYSE: GWR
www.gwrr.com